I have been bookkeeping for 25 years, had my bookkeeping business for 16 years and it still amazes me how business owners believe that they don’t need to have a good bookkeeping system in place. It is a total lack of respect on their behalf to themselves and their business.
A good bookkeeping system can give you so much. From making finance applications easy, to being able to lodge and pay tax easily. Under Tax Law, you are required to keep records relating to income tax, GST, payments to employees, superannuation, fringe benefits tax, fuel tax credits and business payments.
I totally get that people believe they can’t ‘afford’ a bookkeeper or they see it as a waste of money because they can do it themselves. But if you have these beliefs then you need to be prepared to back them up with action. And by that I mean, you need to be prepared to do the bookkeeping yourself. You need to be prepared to do what it takes to maintain a good paper flow system and bookkeeping system. To regularly look at the figures, understand them and make the changes you need to make.
12 months ago I had a meeting with a prospective new client. We went through everything that she would require us to do and estimated how much it would cost her. She decided not to go ahead as she really couldn’t afford it, I understood this and respect the decision. But what she done next was the most stupidest thing she could have done. She did nothing, that’s right, nothing. Her bookkeeping didn’t get done, BAS’s didn’t get lodged and she had no idea what the Profit and Loss looked like.
She then turned around and got a ‘friend’ to do the bookkeeping, paid them $20.00 an hour to do everything that needed to be done. Her friend then went on a holiday for 3 months, so she got another friend to help, then that friend went away for 6 months and that’s when she contacted us. Could we please help her.
Once again we had a meeting talked about what was required and then this time she decided to use us. She gave us a copy of the file and the bookwork for the last quarter that needed to be done. We soon discovered that the file she gave us didn’t have the last six months of work entered in it. She gave us another file and that one had the last three months but not the six months before. It was all over the place.
We spoke to her to try and get it sorted out, explained to her that because of the information that was missing she wouldn’t be able to get an accurate Profit and Loss or she wouldn’t be able to give it to her accountant for him to do her tax return. Her response was – just enter the current quarter and don’t worry about the previous stuff. Now this is all good for her current BAS lodgment, but what about her tax return? And how is she tracking her turnover and expenses? And does she know her Cost of Goods Sold figure? And Net Profit and Gross Profit?
You may ask, why does she need to know all this information? The answer to that is because the only way she is going to grow her business or earn income from her business is by tracking all of the above. You need to know what your turnover is, you need to know what your COGS are and Net Profit and Gross Profit. You need to know your Break-even point so that you can run a successful business.
Most people go into business because they want to earn more money than they were when they worked for someone. The only way they are going to do this successfully is by tracking their Profit and Loss and Balance Sheet and making small changes in their business so that their Net Profit Increases.
If you can’t afford to pay a bookkeeper, then pay someone to come in to set up your systems, train you how to do the bookkeeping and to read the reports and then be disciplined and make sure you keep everything up to date. Because this is the only way you are going to have a long term successful business.
The more you stay on top of your bookkeeping, the less daunting all these processes will become to you. Once you are up and running with great systems installed then you will be looking back wondering how you survived before with out them.
Question: Are you up to date with your bookkeeping? Do you know what your break even point is?