In 2015 there were 2,121,235 businesses actively trading in Australia. Of those, 61% were sole traders – businesses that had no employees (Australian Bureau of Statistics).
What puts many people off branching out on their own is the thought of all that accounting. Yet in truth, managing your small business accounts need be no more difficult than managing the family’s monthly budget. Have a look at these five tips for easy small business accounting.
Check out Sole Trading accounts packages:
Two things you will need. A separate bank account for your business, online if possible, and a good basic sole trader accounts package. If you don’t have a desk-top or laptop computer, there are plenty of printed accounts books still available for the self-employed.
Basic is the key word. Your accounts package should cover your assets, vehicles, tools, stock and other equipment you’ve invested in to start your business. But that's not everything. You'll also need to have a clear view of the cash flow, day to day accounting, profit and loss sheets, as well as Goods and Services Tax (GST) liabilities, or other styles of tax liability such as sales tax or VAT.
Before all else build a Cash Flow Projection:
With the excitement and adrenalin rush of becoming your own boss, comes the fear and worry of whether you can make it succeed. If you have had to take on regular expenditure such as rent for premises, monthly vehicle payments, or a business loan; before you reach break-even point you will likely be living off your personal savings. It’s paramount to have an idea of how long it will take to get your business into profit, where you can begin to draw a wage from the business.
Most good accounts packages will include cash-flow pages. If yours doesn’t, then use your computer’s spreadsheet programme to build a cash-flow forecast sheet. It is the ideal way to not only project break-even point, but allows you to tweak profit margins or service charges to get your business in profit before your back-up money runs out. After the first month’s trading you begin replacing the projected figures with the true figures, and so on. If your break-even month begins slipping farther away, it gives you time to rethink your business strategy and act accordingly, before the proverbial hits the fan.
Begin as You Mean to Go On:
With your accounts software loaded, from day one ensure your working day includes an hour in the evening to enter your earnings and expenditure. This includes cash payments you have made and cash you have received for work completed. Using online banking allows easy checking of electronic credits and debits that may go in or out of your account on a day to day basis. Receipts and invoices should be dated, staple each day’s together, and keep them in a box file or similar.
By training yourself to update accounts on a daily basis you minimise the risk of mistakes, and the chances of invoices and receipts being lost or misplaced.
Monthly Profit and Loss Sheets:
It’s always worth chatting to your accountant as to how he would prefer you to manage your accounts. After all, his main job is to ensure you pay all the tax you’re due (to ensure you don’t fall foul of the law), while making sure you don’t pay tax on anything you don’t need to. The more work he has to do; the higher will be your accounting bill.
Having completed your daily income/expenditure sheets for the month, it’s a good idea to print off a monthly profit and loss sheet. Some accounts packages will automatically update the profit and loss sheet as you enter your daily trading figures, with others, it’s time to get the calculator out. With each week’s receipts and invoices neatly stapled together in your box file, the profit and loss sheet can be laid in the file, with the following week’s receipts on top. At the end of the year, your accountant can check everything on a month to month basis, making his job easier, and keeping your bill to a minimum.
Check your Tax Liabilities:
Talk to your accountant as to what your tax liabilities are likely to be. If you work totally on your own providing a service, and your turnover is $75,000 or less, you can pay your personal income tax annually.
However, over that amount and you might be liable for Goods and Services Tax, which has to be paid on a quarterly basis. Make sure to check the existing regulations for your country – you might need to deal with sales tax or VAT instead of the GST.
Keeping your accounts up to date, with an eye on your cash flow, makes sure it can be met, and you don’t need to start worrying about paying additional interest on late payments.
Cindy Parker is the professional writer and Content Specialist. She loves to write about small businesses, education and languages. Currently, she works for Learn to trade - a currency trading education company based in Australia.