Ignoring your pile of paperwork until tax time can be a costly mistake.
You might love running your own business, but chances are you don’t love all the admin and paperwork that comes with it. That’s understandable, but dealing with your finances is one of the growing pains of a successful business.
Eventually you need to clean out that shoebox overflowing with receipts and abandon your convoluted collection of spreadsheets, upgrading to something more efficient. When your ad hoc accounting system is actually hurting the business, then you know it’s time to take the plunge and invest in a decent online accounting system.
When do you find the time to tackle your books? In the evenings? On the weekends?
Maybe you put aside one day a month, or perhaps you procrastinate and then burn through a few days at the end of the year as you scramble to get your finances in order before you visit your accountant. Could that time be better spent?
Running your own business requires dividing your time between working in your business, working on your business and recharging your batteries. It’s important to get the balance right.
The time you spend working in the business is basically those billable hours where you generate your income. The time you spend working on the business should also help boost the bottom line where possible, such as chasing new customers, exploring new opportunities or expanding your skill set.
You don’t want to eat into either of these — or your precious downtime — by spending too much time creating invoices, manually reconciling transactions and chasing outstanding payments. When the business starts to suffer because of the time demands of your manual accounting system, then it’s time to upgrade.
If you’re working harder than ever but have little to show for it, then perhaps your shoebox accounting system is holding you back.
The sooner you hand over your invoice the sooner the customer can pay it. This sounds like common sense, but many businesses drag their feet when it comes to generating invoices, which leaves them without cash in the bank. A decent accounting package can issue invoices on the spot rather than waiting until you next tackle your paperwork. Your accounting package can also automatically reconcile incoming payments, letting you spot overdue invoices sooner.
Staying on top of your finances also makes life much easier when it comes to completing your Business Activity Statement (BAS). Rather than relying on the tax office’s estimates, you can confidently calculate the amount you owe — which can make a big difference if you’ve had a slow quarter. If you’re relying on the tax man’s guestimate then you might be handing over too much money.
Time spent struggling with your shoebox accounting system is time you could spend making money, but it can also hurt your business in other ways.
If your accounting practices are hampering your cash flow, then you’re paying the penalty in terms of higher interest payments on your debts. If upgrading your accounting system means that outstanding invoices are pursued sooner, then the extra cash in your pocket can go towards paying off loans, credit cards or other business debts which are accruing interest.
Small business owners who put aside money from each invoice to pay their tax bill might keep that money in their home loan or offset account to reduce interest payments, redrawing the money when a tax bill is due. Overdue invoices are money that could have helped pay off your home loan sooner. If you’re occasionally forced to dip into an overdraft to pay the tax man or other bills — and pay further interest — then your shoebox account system might be an even bigger pain in your hip pocket.