Gust Post: Accounting Tips Many New Entrepreneurs Forget

This week’s guest post is from John Liston:

As an entrepreneur, playing the role of an accountant is probably quite low on your list of priorities. But you need to stay on top of your numbers if you want to achieve sustainable growth. The good news is, you don’t have to spend countless hours managing the books to maintain a healthy cash flow and comply with tax laws.

Here’s a few simple accounting tips to keep in mind during the early stages of your business.

Prepare for Growth

In the first few years of business you should expect to see a lot of growth in different areas. Whether you plan to hire more staff, create new departments, or release new products and services, you need to have a robust accounting system that can quickly adapt to the growing needs of your business, and help you meet customer demand.

Today there are lots of cloud-based accounting software that gives you a clear visual indicator of your finances in real time. From one easy platform you can monitor your profit and loss forecasts, cash flow statements, add new staff to the payroll, pay and receive invoices, and much more. Best of all, you can automate a lot of these processes, which will save you time and hassle.

Also, if you plan on hiring an accountant or bookkeeper, you can give them access to your account and collaborate in real-time.

Monitor Your Cash Flow

One of the main reasons why small businesses fail is because they don’t properly manage their cash flow. This occurs when the company – even if it’s earning a profit – fails to regularly keep track of money going in-and-out of the business. Most often this results in profit loss and cash flow shortages.

Obviously, you need sales to keep the business afloat, but there are other factors at play here. For starters, you should to monitor your daily, weekly and monthly spending habits on a regular basis. With cloud-based accounting software it’s easy to get a clear visual of your spending habits and spot the early signs of cash shortages.

Do you have clients who pay on credit? Make sure they have a clear understanding of the credit terms and conditions so they know exactly when payment is due. If you want to give these customers an incentive to pay sooner, you can send them gentle reminders or even offer a small discount if they pay before the due date.

Of course, don’t forget to take care of any debts you owe to suppliers or other providers. If manual processing is too slow, you can pay off your debts more accurately and efficiently by automating it.

Stay Tax Compliant All Year Round

Tax compliance is more than just filling out your tax return once a year. You need to have a clear understanding of your tax obligations and how they relate to the specific needs of your business.

Will you need to register for GST? If you plan on hiring staff, will you collect income tax from your employees with PAYG withholding? How much company tax will you expect to pay? Take the time to research online to find out the answers to these questions. Or consult an accountant who can advise you on the most cost-effective ways to comply with government and tax regulations as they apply to you.

To avoid the last-minute dash of tax time, have systems in place now which allow you to stay on top of your tax obligations all year round. This means keeping accurate and timely records for all of your business transactions. This can be physical documents or electronic files stored safely on the cloud. Some examples of documents include records of expenses, invoices sent to clients, asset lists, contract details, credit card statements, and deposit books.

By having all of your documents stored in an easy to access place, you will have all the files you need ready to go.

Keep Your Company Details Up to Date

In the early stages of business you may end up somewhere very different to where you first started. Changes to the business may come as a result of a shift in the market, undergoing new management, and introducing new products or services. Whenever this does happen, you need to keep your customers and the government informed on those changes as they occur.

The most common types of changes a business will make is:

  • Company address
  • Business structure
  • Share structure
  • Appointing or ceasing members
  • Adding and removing company holders
  • Company name
  • Company type
  • Officeholder details

These days you can update most of your company details online. Depending on where you live, you may only have a limited amount of time to report the changes before you have to pay a late fee. Keep in mind, the governing body you report to may need 1-2 business days to confirm the changes in your company, so report early.

Minimise Your Tax Liability

Everybody wants to pay less tax. But year after year a lot of small business owners miss out on tax deductions they are eligible to claim. The kind of deductions you are entitled to will depend on the unique circumstances of your business. However, the general rule of thumb is – if its money you put into the business, you can most likely claim it on tax.

Below are some of the most common ways to keep more income in your pocket:

  • Employee Benefits: Many of the employee perks and benefits you provide – i.e. health insurance, dental care, holidays and educational assistance – you can claim as a deduction.
  • Home Office Expenses – Small business owners who work from home are often able to claim a partial amount of the expenses they pay which are required to keep their business running. Depending on your circumstances, you may be able to claim the likes of internet, phone, computer, utility bills, and other running expenses. Be careful of making outrageous claims that don’t reflect your home office situation. If caught, you will pay a fine.
  • General Office Expenses – The same applies to the running costs of your commercial property too. From internet and utility bills to heating, cooling and general maintenance – you can often claim 100 percent on all of these.
  • Travel – Any kind of travel expense you pay related to business is typically deductible. Aside from transport fares you can also claim other expenses like Wi-Fi, accommodation, food (only 50 percent though) and cab fares. Make sure you keep a receipt of all your transactions during the trip.
  • Bad Debts – That unpaid debt you had to write off earlier this year? You may be able to claim it back. However, the debt must be related to your trade or business and be included in your business’s gross income for the year. You must also prove you made every effort to recover the debt and there is no possibility of you being paid.

These are just some of the general tax deductions you can make. For more personalised advice relating to your business expenses, speak to a financial advisor who can help you find opportunities to lower your tax liability.

Please note that tax laws vary by jurisdiction and the information in this guest post targets readers with businesses based in Australia. 

John Liston is the Director at Liston Newton Advisory. John works across the business and financial advisory areas of the company, helping individuals achieve their business and personal financial goals. John is a qualified finance professional with experience working at some of the most renowned companies in the industry, including Barclays Bank and Ernst & Young.

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