SIMPLER BUSINESS ACCOUNTING

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1 A STEP-BY-STEP GUIDE TO SIMPLER BUSINESS ACCOUNTING Copyright Reckon Limited 2016 R logos, Reckon, Reckon logos and Reckon Accounts are trademarks of Reckon Limited 1

2 Being a small business owner comes with a lot of responsibilities. This is regardless of whether you offer a service, a product or both. You have to stay on top of the latest trends within your industry, keep an eye on your competitors, define where you rank in the market place and ensure you re bringing in new customers as well as keeping your existing customers happy. You also have to manage your cash flow, your employees, streamline compliance obligations and generally find an efficient way to manage your finances and accounting responsibilities. That s quite an exhausting workload. 2

3 You re not alone. There are small business owners all over Australia the world even, that are facing the same struggles. The Australian Government Treasury s latest report (released December 2012), Australian Small Business - Key Statistics and Analysis states that as at June 2011, there were over 2 million actively trading businesses in Australia of which 95.9% accounted for non-employing businesses, employing micro businesses and small businesses. 1 An Australian Bureau of Statistics report (released March 2014) revealed that by June 2013, business numbers had dropped quite substantially over the last two years. 2 While reasons for this vary, key problems leading to businesses failing are poor financial control and cash flow planning. And a study conducted by Bloomberg in 2013 reveals that, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months

4 8/10 entrepreneurs who start businesses fail within the first 18 months 4

5 So surely you say, if there are business owners facing the same daily struggles as me, then there must be some cost-effective solution available that can help make my life easier? And you are right; there are a variety of approaches you can take. This ebook will focus on helping you define where your weaknesses might be in regards to efficiently managing your business finances and inform you of what you can do to improve your situation. 5

6 PROBLEM ONE: I JUST CAN T KEEP ON TOP OF MY CASH FLOW Cash flow management or lack thereof, can really make or break you. In a recent article, Dynamic Business states poor cash flow planning as one of the main reasons behind small business breakdowns. The article states that 68% of 2,200 small businesses studied ended up insolvent because of bad cash flow analysis. 4 Now that s scary. You know that to run a successful business, you as the business owner need to control your ins and outs. But what does that actually mean? Well, let s break this down: The ins are your income The issue: Predicting and forecasting cash flow and keeping a constant stream coming in. The outs are your expenses The issue: Managing your cash wisely so you always have enough in the bank to run your business on a day-to-day basis

7 Many businesses struggle to identify early on, whether they have an impending cash flow problem. The aim is to be on top of your cash flow so you can easily identify potential problems before they become a threat! Why is this a problem that needs fixing? The Government of Western Australia Small Business Development Corporation states that the lack of planning and control of cash resources is the reason often given for the failure of many small businesses in Australia. 5 Business owners often spend more time concentrating on the core function of their business, rather than keeping an eye on their cash flow. Now, it s hardly a bad thing to concentrate on growing your business but if you don t have complete transparency across all of your ins and outs, problems can and will, occur. Unfortunately, a lot of the time these issues aren t acknowledged until they ve become such a threat, that the business owner needs to seek financial assistance to save the business

8 At this point, businesses are often forced to consider expensive options. Invoice financing for example, is supposed to help businesses that can t pay their trade invoices. A third party such as a bank, will loan the business the money they need. A great idea in theory but think about it, if you re struggling to pay your bills now, how are you going to pay the accumulated debt plus interest back later? The bottom line is, when you have to rely on a third party to keep you going, things can spiral out of control quickly. 8

9 Fear not, all this can be avoided if you can find a way to stay on top of your cash flow. Here s how: Set a budget and stick to it Invoice quickly Keep an eye on key reports such as your profit and loss, cash flow forecast and balance sheet Chase up on payments owed to you If you are still handing out paper invoices, you run the risk of you or the customer, losing them or forgetting about them. You can simplify and speed up your payment processes by issuing tax invoices electronically via . This way, you and your customer will have a record, and should they accidentally delete your , you can simply re-send it. Manage your expenses Some expenses are mandatory and have to be paid on time such as payroll, super and taxes, however, other expenses such as bills from suppliers are more discretionary items and can be paid over a period of time. So make sure you figure out the best timing for your cash flow needs. You want to be sure to always have enough funds in the account to keep the business operating smoothly each and every day. These are all measures you can take in order to gain control of your cash flow, minimise stress and avoid going broke. 9

10 What tools can help you control your cash flow and what are the benefits? Using online accounting software in your business can bring some great advantages. In an article published on theguardian.com, the newspaper states the benefit of a proper accounting software package is that you ll have a snapshot of your company s financial situation at a glance. With instant visibility of who owes you what and when it s due, you ll be ready to jump on late payments before you run out of cash. 3 By using online accounting software, you can keep a handle on your cash flow so you won t need to worry about any financial problems sneaking up on you. The aim is to identify any issues early on so you can tend to them before they become a major problem. For example you ll be able to:

11 Keep control of your debtors This is key to effective cash flow management. As a business owner who can generate tax invoices within your accounting software, you have all of your customers data on hand. This allows you to run debtor reports to identify who is overdue on payments and who needs to be chased up. As they say, a picture is worth a thousand words Create simple graphs of your cash flow position based on your ins and outs. This allows you to see through the sea of numbers and analyse your financial positioning without confusion. Predict when money is coming in to the business So you can schedule outgoings at a time that s best for the business. Budget and forecast Basing your future projections on factual data stored in your accounting system will result in the most accurate budgets. You can even produce best, worst and most likely scenarios. This will allow you to understand the cash investments required to grow the business. Analyse your customer data This can help you identify potential problems with certain clients or jobs and help avoid a future cash crunch. Be sure to focus on the retention of existing customers just as much (or even more) as the acquisition of new ones. Use the latest mobile technology to take payments from the customers as soon as the job is complete This saves time but more importantly, ensures you have the funds in your account immediately a big win for your cash flow. 11

12 Bottom line, the key to successful cash flow management is identifying issues before they happen. Efficient accounting software can assist you in controlling many aspects of your business cash flow. If you re interested in understanding how accounting software can help relieve your business pain points, please refer to page 19 of this ebook. 12

13 PROBLEM 2: I AM UNSURE HOW TO PROPERLY STREAMLINE MY COMPLIANCE OBLIGATIONS If you use an accountant to support you with compliance obligations, this problem might not be one of your core concerns. However, there are many businesses out there that are sole traders that don t use an accountant or even a bookkeeper, and this is where they really need some assistance. It s often hard to run your own business and deal with everything that comes along with that plus keep up to date on your business compliance obligations ie, tax, super and BAS statements. This can be a major problem for businesses that do not have an accountant or bookkeeper to turn to for assistance and advice. 13

14 Why is this a problem that needs fixing? The manual management of compliance obligations can take up a lot of time and energy. The Tasmanian Small Business Council found that businesses with computerised recording and reporting systems tend to manage their compliance costs better. 7 Accuracy can be an issue, as well as ensuring you re claiming for the right items and getting the right amount refunded to you. If you are not on top of your compliance obligations, you and your business can suffer some serious consequences. It is your responsibility to be across your compliance obligations it s as simple as that

15 Compliance obligations can include: Submitting your BAS statements Whether you submit these monthly or quarterly, it is up to you to ensure they are done correctly and on time. Registering for a Tax File Number (TFN) and an Australian Business Number (ABN) Having a TFN will help you avoid paying tax at the highest rate. An ABN is the number you use when dealing with other businesses in most cases, government organisations and the ATO. If you don t quote your ABN on your invoices, most of these organisations or businesses will deduct tax at the highest rate from any payments they make to you. Keeping receipts for seven years a requirement of the ATO, for all businesses You can certainly keep your paper receipts in a box or filing cabinet but you must also be conscious of the fact that those receipts are prone to: Getting damaged by flood or fire Getting stolen Being misplaced and never found again 15

16 What you need to do: Ensure your business is registered for the right taxes as you shouldn t be paying taxes that aren t applicable to you For example, if your earnings are under $70k per year, you don t need to register for GST. The types of taxes you need to register for depend on the type of business you operate, how it is structured and whether you have staff. To learn about your tax compliance obligations visit the ato.gov.au Comply with Fair Work laws For example, the minimum amount of sick days you should allow your staff is 10 days and the minimum amount of superannuation payments you should be giving your staff is 9.25% of their income (as at September 2014). 16

17 What can you do to streamline your compliance obligations and what are the benefits? By using accounting software or better yet, accounting software that s in the cloud, you can immediately examine your business financial position to ensure you are always up-to-date on your compliance obligations anywhere, anytime. Other benefits include: You no longer have to pay for a bookkeeper to come to you. This can save you time and money. No longer will you have to pay for your bookkeeper s travel expenses. Nor do you have to travel to see your accountant. They can access all of your information in the cloud which allows them to do what they need to do, faster. They can login as a user, look at your compliance and adjust where necessary. You can utilise automated Standard Business Reporting (SBR), a feature some accounting software packages offer. This can help save you time by making it easy to lodge electronically and get instant validation. You can have access to your accounting software s customer support department. The team can help you understand what the software can do to help streamline your compliance obligations. By streamlining your compliance obligations, you get more time to spend on things that matter to you. You can work on growing your business, enjoy quality time with your family or pick up a new hobby or two! 17

18 PROBLEM 3: HOW DO I DECIDE ON THE RIGHT ACCOUNTING SOFTWARE TO USE FOR MY BUSINESS? Take one step back and ask yourself the following key questions: Am I looking to introduce accounting software into my business? OR If I already use accounting software, am I happy with my product or should I be looking for software that suits my business needs better? Then ask yourself, where is my business now? and where do I want it to be? This will also determine what features you need in the accounting software you use. 18

19 If you don t use any accounting software and are still using a paper system, you probably spend a lot of your precious time: Writing up tax invoices Writing up receipts Mailing out tax invoices and receipts Going through paper bank statements to manually match up payments in your ledger Driving to and from your accountant s office (if you have one) Tracking your debtors manually Researching compliance obligation/tax changes and worrying if you are meeting all of your compliance obligations Filing invoices, payments and other business records Pay for your bookkeeper s travel expenses (if you have one) so they can come out to your business to work on your books. 19

20 Regardless of what you re currently doing, accounting software can change the way you operate for the better. The Australian Bureau of Statistics latest issue of Business Use of Information Technology, (released August 2013), reveals that overall, more than half of the businesses surveyed reported that they are already using IT to a high extent in accounting (61%) and invoicing (56%). 8 So what are you waiting for?

21 If you are already using accounting software but for whatever reason are in a situation where you need to find new software, you may have discovered that: Your current software s capability and functionality are not enough for your business needs. Your software is too complicated. Perhaps the only person in the company that knew how to use it properly has left and you now want a refresh, so more people (including yourself) can use it to run reports etc. You need better support such as local phone support, an online community or software experts you can call on. You want training to be available. Your software is outdated and doesn t run smoothly nor integrate seamlessly with other platforms you use in your business. The program you are using isn t tax compliant if you re unsure of this you can check here). Whatever the reason you re looking for, just remember that the most important thing to do is find the right software that matches your business and helps you improve and optimise your current processes. 21

22 WHAT IS THE RIGHT SOFTWARE AND WHAT ARE THE BENEFITS? By finding the right accounting software, you will save yourself a lot of time and gain more freedom to do what you need to do for your business and yourself. 22

23 The right type of software should be agile and grow with you, as your business grows. There are a multitude of benefits you will experience by automating your processes. For example, The Queensland Government lists the following benefits to using accounting software: 9 It helps you record business transactions, including income and expenses, payments to workers, and stock and asset details. It is an efficient way to keep financial records and requires much less storage space. It provides the option of recording a sale when you raise an invoice, not when you receive a cash payment from a client. It makes generating orders, invoices, debtor reports and financial statements easy. It automatically tallies amounts and provides reporting functions. It keeps up with the latest tax rates, tax laws and rulings. It allows you to back up records and keep them in a safe place in case of fire, flood or theft. Many accounting programs have facilities to invoices to clients, and orders to suppliers

24 But how do you decide on the right software? First and foremost: if you have an accountant or a bookkeeper, it certainly helps to ask them their advice on different products. Of course, the decision is up to you and depends on how much research you do yourself as well. What functionality will your business need? Online accounting software is often the best solution for those working outdoors or often working on the go. If that s you, you might want mobile functionality so you re not tied to a desk. You might also be looking for software that allows you to produce tax invoices and take payments from your customers on the go from your mobile phone. 24

25 How accounting software will help your business: Analyse how your business is doing a powerful dashboard is the key here Easily keep track of your cash flow Assist you to budget Meet your compliance obligations easier Store data for the mandatory seven years (ATO requirement) Track and chase up up your debtors What features do you require that are relevant to your business and industry? For example, do you travel a lot for work and need the ability to send invoices on the go? Look for software that is scalable and agile so as you grow, it grows with you. The last thing you want to do is invest in another solution because the one you bought three years ago can t handle your present needs now that your business has increased in size. Look for accounting software from a trusted provider who will ensure high data security and supply you with extensive customer support as well as an online community with whom you can communicate with as well as share tips and tricks with. To see whether the software of your choice meets the requirements of the Australian Taxation Office, click here. 25

26 WHAT S NEXT? 26

27 Whatever you are looking for in accounting software, the most important thing to ensure is that it s suitable to your current business needs, and is scalable for your future requirements. 27

28 If you can identify with any of the above problems, Reckon One could be the accounting software for you. We d love to hear your feedback on whether you think Reckon One works well for your business requirements or not. Part of our strategic vision for engaged connections is working closely with our users to help inform the future development of products. 28

29 For more useful articles and ebooks, visit the Reckon Blog blog.reckon.com 30