Common Bookkeeping Myths

Many people I talk to have assumptions about bookkeeping: 

They assume that bookkeeping can be done by anyone without any financial experience

They assume that using a software package like Xero or Myob makes bookkeeping easy. 

And they also assume that bookkeeping is not important.

Well, call me crazy, but as a Professional Bookkeeper, I can say with certainty that none of the above is true.

What if I told you that when someone with little or no financial experience takes on the bookkeeping the ease with which they can navigate the software also makes it so much easier for them to make significant bookkeeping errors? These errors can be hugely costly to your business because you may be basing your financial decisions on questionable data.

For example when you are applying for a business loan you often rely on past data to base your application on. If this is incorrect you could end up with a shortfall. Or if you make errors in your GST return you could pay too much and impact your cashflow or pay to little and find yourself with an unexpected GST bill as well as  penalties.

 Another error that I see business owners making is that they don’t budget for capital expenses because they don’t appear in the profit and loss reports and so are easy to forget. Expenses, such as wages, are often assigned incorrectly to liability codes, such as wages payable, which also results in them not being seen and the bottom line looking a lot better than it is. 

Having an inexperienced staff member working on your accounts can also mean that they spend quite a lot of time on them. Although they might be on a relatively low hourly rate those hours soon mount up and it ends up costing quite a bit. That staff member is then not available for other tasks that are also important to your business.

Many small business owners feel that their business is simple and it will follow that their finances will be simple to manage by simply taking a look at the bank balance. Unfortunately, this can cause a lot of problems for them when they suddenly have to pay a big bill or taxes before the payment for that big contract comes in.

One thing I often see when I start working with businesses is that apparently essential expenses quickly expand, especially if they employ staff who are quite happy to spend money that isn't theirs. At the 20th of the month when it comes to paying bills they often don't have a system for tracking which bills need to be paid. This results in missed payments and annoyed suppliers who may cut off delivery resulting in a headache for their own delivery. If they are not tracking and budgeting for expenses they can get a big shock on the 20th and may not have the cash available to pay their bills.

Creating a budget for you business can help to keep you out of trouble but it can do a lot more. It gives a detailed picture of what you expect to spend your money on and can help to ensure that you don't waste your hard earned cash on unessential items or by overpaying because you haven't researched your options. A budget helps you plan for future growth and expansion. I'm sure that you will want your business to do more than just survive - you will want it to thrive.

Using accounting software can make comparing your actual finances with your budget as easy as pushing a button. 

It also incredibly valuable to forecast your cashflow so that you know when cash will be coming in and when it will going out so that you can ensure that you can always pay for the items on the budget. 

I’d love to bust some other myths you may have around bookkeeping or financial management in your organisation - click here to book a Free Discovery Call with me: