Top 5 Bookkeeping Strategies That Will Save You Thousands!! BY HITESH MOHANLAL The Experts in Tax Minimisation Tel 1300 440 316 info@crystalclearbookkeeping.com.au www.crystalclearbookkeeping.com.au
Introduction Hitesh Mohanlal has been a Chartered Accountant in the UK and Australia for the last 22 years, and a Business Advisor for 15 years. Hitesh is known as Australia s Number 1 Business Growth Strategist and has been recognised on Fox, NBC, CBS ABC and CNN. He has worked with over 3,500 businesses in Australia, America, UK, Japan, Europe and even Estonia with a body guard!! He has helped to improve their profits by up to a whopping 2000%, whilst cutting the owners working hours in half. Hitesh is also the Director of WOW! Advisors & Business Accountants, Crystal Clear Bookkeeping, runs a further 2 businesses with his wife, and has a company in the UK. In addition he is a presently a non-executive director on the board of 4 Australian companies. Hitesh also has diverse property and investment portfolios, and runs all of these businesses and investments whilst working 3 and a half days a week. Without knowing many businesses do not realise that the way they do their bookkeeping can have a dramatic effect on the amount of money their business makes. With over 70 years combined experience in accounting and bookkeeping we know when a business s bookkeeping is set up in a way that will actually make the business money. Yes that is absolutely correct choose the wrong option and you could be literally throwing money out of the window. Is that you? Well to find out continue reading. This e-book has been written for you, the business owner, so that you can use the information to save you thousands. Below I outlined 5 strategies, which when implemented will ensure you have a great bookkeeping set up and instead of costing you thousands in fees will make your thousands. 2
Strategy 1 Understand Your Figures! This is essential if you want to make money. Your bookkeeper should every month give you a monthly balance sheet and profit and loss account. They should then spend some time going through the figures with you so that you understand them to your satisfaction. As a general rule: the business owner that looks at their figures once a year will make LESS money than the business owner that looks at their figures once a quarter. The business owner that looks at their figures once a quarter will make LESS money than the business owner that looks at their figures every month. If you were one of these business owners, which one would you be? Many business owners have no understating of figures and most simply do not look at their figures except for the half an hour they spend with their accountant at the end of the year. I regularly watch a TV programme called Dragons Den. If you have not watched this programme before then watch it. It is about new entrepreneurs pitching to obtain money from 5 wealthy investors, known as the Dragons. It is rare for a Dragon to invest in a business where the business owner does not understand their own numbers. Basically the Dragons are saying Understand the numbers, work with your numbers otherwise your business will not make any money. So on a scale of 1 to 10, where 10 would be absolute understanding on a regular basis of what your figures show, what would you rate yourself at? So if you score less than 5 I am almost certain that you are leaving $100 notes on the table. It is quite simply costing you thousands of dollars in lost income. So what should you really be doing to get more cash? Make sure your figures are correct. Your bookkeeper should be giving you figures at least quarterly. This should be showing you what is happening in your business. If you are not getting figures your bookkeeper is not doing their job properly. Many business owners come to me say they don t understand the figures so I will spend as much time as necessary to ensure they understand what it all means in plain English. Many say they are not interested which is fine as long as they have someone in the business who understands what is going on and can advise them. That can be a good external bookkeeper. The days of the Once a Year review are really over. If you don t understand your figures go to your advisor and get them to teach you. It will be money well spent. So what do you need to understand? 3
You need to know What a Profit and Loss is What a Balance sheet is What figures go in the Profit and Loss and Balance Sheet The difference between cash and profit Bad Bookkeeping will Cost You Money We have all heard the old saying garbage in, garbage out. This is totally true for bookkeeping and so if your bookkeeper is not processing correctly the figures in your profit and loss and balance sheet then you could be making the wrong decisions if you then rely on those figures. If for example, costs that should be in your P&L are misclassified into the balance sheet it would look as if you made more money then you actually did. It is also not unusual for the ATO to pick up bad bookkeeping when they review BAS and before you know it you have an ATO audit which could be very costly. At CrystalClear we will give you regular Profit and Loss reports which will give you a crystal clear picture of where you are and will show: Exactly how much money you have made. This will allow you to make accurate decisions about what you can and cannot do in your business. Tell you exactly if you can afford to spend money on your projects. Often business owners think they are doing better than they actually are and spend the money before they have earnt it. What you need to do if you are not doing as well as you would like. We will also give you a balance sheet so you are crystal clear about how you are set up for the future. Remember Cash is King There is a massive difference between cash and profit. I have seen businesses go under because although they are profitable they simply ran out of cash. This usually happens because a business has too much stock, or other businesses owe them money (debtors) but are not paying. It also means the business might be spending more than it is earning. This can kill a business and that is why looking at these figures will ensure you keep them under control. If this is not kept under control then it could be costing you thousands of dollars in lost income. 4
Strategy 2 Bookkeepers Can t Give Tax Advice That s Crap for You! For some reason historically, bookkeepers wrote up a business s books during the year and did not really provide much advise. Many months after the end of the year the accountant prepares a tax return and tries to provide some tax advice. Unfortunately, this never really works. Trying to give tax advice after the end of the year is a bit like asking a blacksmith to re-shoe a horse when the horse has already bolted it is impossible. It might help the following year but most businesses needed that advice many months back Since the inception of the Tax Practitioners Board the lines of responsibility are clearly marked and the rules are very clear. A bookkeeper can only advise on matters relating to a business s Business Activity Statement. That basically means GST and employee tax. They cannot give advice on tax minimisation strategies, Superannuation or answer any questions outside the realm of GST and employee tax. So how do you know if you or your bookkeeper is minimising your tax? 1. They should be Asking Lots of Questions Generally your bookkeeper should be asking lots of questions and be in regular contact with your tax agent. If they are not they are just processing your data and not thinking about your business or how they can minimise tax for you. If you are doing your own bookkeeping or you have a contact bookkeeper doing your bookkeeping this is probably costing you thousands of dollars right now! I always find that when a business owner does their own bookkeeping they lose a lot of money because they have not claimed their GST or taxes in full.. Your tax agent will not have the time to check each and every figure so many errors simply go unnoticed. Payroll is very complicated in Australia. So complicated in fact that we, as experts, have to on some occasions, look at the legislation to get the answer. There is no way a business owner can be expected to get this right as each business payroll is unique. Get it wrong and the tax office will be sympathetic and state that ignorance of the law is not a defence. And then promptly charge you interest and penalties for getting it wrong. 2. Are They A Registered Tax Agent? Very few bookkeepers are but if you can find one, they could save you thousands in unnecessary tax. They will have the experience and the knowledge to know where tax 5
savings can be made and they can give you advice during the year not after the end of the year when it is not valuable. They also have to ensure they undertake regular training to ensure they are up to date with the latest tax rules. Strategy 3 - What Would Happen If Your Bookkeeper Died? Not a nice thought really. But if it has got you thinking then that s a good start. It does not have to result in death either. I am sure you have heard stories about bookkeepers who can no longer work because of family commitments, because they have become ill, are just too busy with workload, or simply just disappeared overnight. Sometimes it is as simple as your bookkeeper going away on holiday. If you have a bookkeeper that has no backup it is quite a dangerous position to be in. These are times when your business can seriously suffer and again cost you thousands of dollars. Many business owners simply do not realise the damage this can cause financially and psychologically. In many cases a bookkeeper may do everything and you may not even have access to your bookkeeping system. All your data is in their hands. If they suddenly become unavailable you could be totally stranded with years of accounting information simply not available. The effects can be significant. You might find that you can no longer lodge your BAS and are late filing them. You cannot run payroll for your staff or calculate and pay superannuation. You might not know who owes you money or who you need to pay. We find that when bookkeeping systems breakdown the financial cost can run into thousands of dollars. The fines and interest charged by the ATO for none payment or lodgement of BAS can be significant in itself. In these circumstances you might find you no longer have access to your system. You do not know how up to date your bookkeeping is and it is almost impossible for someone new to take over because even if you could access your system your bookkeeper had a particular way they worked and they may also have all your source documentation. I heard recently of a business in this position. Their bookkeeper simply disappeared with all records. The business owner had not checked if the bookkeeper was a BAS agent (they were not) so they could not be traced and no complaint could be made. As they could not lodge further BASs, or pay superannuation the ATO undertook an audit. Because no records could be produced the ATO decided to use their own benchmarks ratios and claimed the business made more profit and underpaid GST. This resulted in significant penalties and tax being due. In fact the business was unable to survive and the business owner was made bankrupt. Not nice at all. So how do you avoid being in such a position. Here are a few tips: 6
1. It is best to use a bookkeeping practice where a number of staff are employed you are not relying on just one bookkeeper who has no backup. This way if your regular bookkeeper is not available at least there is someone who can continue and provide the reports you need. All the above issues could be solved by doing this. 2. A bookkeeping practice with a number of staff cannot simply disappear and are more likely to be registered with the Tax Practitioners Board and be more professional. 3. Check with the Tax Practitioners Board that your bookkeeper is registered 4. If you use a self employed bookkeeper make sure you have access to your data at all times including details of all logins and passwords and source documentation. That way if something goes wrong at least you can restart again 5. Use a good bookkeeping programme like Xero where the data is always available and can never be lost. In summary don t not leave it to chance. Keep control of your bookkeeping records. 7
Strategy 4 Pay Me Even If I Am Inefficient! For some reason most accounting and bookkeeping practices love charging their customers by the hour. This has never made sense to me and I have yet to work out how that works for you the customer. When we see clients who have their own bookkeepers and we ask the cost of their bookkeeping they just shrug and say well it depends. Some months I get charged $x and some months its $y. Not sure why though. 8
Thing is, if you charge by the hour or have to pay a minimum amount the bookkeeper has no incentive to become efficient or use efficient practices. How is that good for you? You see the longer they take to do your work the more money they make and that works very well for them but not so well for you. It is not in their interests to become efficient. It also explains why when Xero first came to Australia they had a hard time getting bookkeepers on board. You see Xero is very efficient which meant that if bookkeeper took the programme on, they would spend less time on bookkeeping and this meant they had to charge less. That is why Xero then approached accountants who were not using the product but could see its efficiencies. It is also a silly system really. It is a bit like me getting totally different invoices from my gardener for mowing my lawn. My gardener knows the work and realises that sometimes there might be a bit more work and sometimes he might finish quicker but the amount I pay him is always the same why is it different for our bookkeepers and how do you break this cycle? Well find a bookkeeping practice that is willing to give you a fixed fee quote. It is very simple. You approach a bookkeeping firm and tell them about your business and what work is required. They come back to you and charge you a fixed monthly fee for the work for the next 12 months. This works well for you because you know exactly how much your bookkeeping is going to cost you for the next 12 months. Strategy 5 There is More to A Business Than Just the Figures A business owner usually operates with a lot of hats. Sometimes they are the sales team, the strategy team, the HR team and the marketing team just to name a few. It is impossible to be the master of all these trades and the business owner will need help at some stage of the business life cycle. We have found that a successful business owner is one who is happy to take advice from experts. 9
Problem is there are not many who can advise small and medium sized businesses in a way that can have a profound effect on the business s fortunes. However, a well connected and sharp bookkeeper should be able to see areas where the business needs help and advise a business owner on how to get help. When a bookkeeper simply ignores the problem the business will lose thousands of dollars each and every year I see the business owner get so frustrated that they are willing to stop trading just to get their lives back. So get yourself a well connected bookkeeper. It could be the difference between running a business for a few years or owning an outstanding sustainable business. When you employ a bookkeeper ask them if they have any experience in growing a business or if they know anyone who they can recommend who can do growth strategies and also help on matters such as HR and marketing. As a business owner your bookkeeper is going to be integral to growing your business. They see your figures more often than anyone else. They have a better idea of how your business is progressing and they should know when the business needs help and should have the confidence not only to tell you but to explain to you why it is necessary. Conclusion You may not realise but choosing the right bookkeeper can really be the difference between having a decent business to having a cracking, growing and sustainable business. Yet most business owners do not realise this and spend very little time finding and researching a good bookkeeper 10
Over the years I have seen how some awesome bookkeepers have helped their customers become great business. I have also seen a fair share of poor bookkeepers that have literally closed their customers down. I always give two tips to businesses. They are 1. Find a great accountant who is willing to talk beyond tax and then; 2. Find a great bookkeeper who has the ability to not just process the numbers but has the ability to assist you when you need it most. If you don t have the above two your business will not necessary fail but I almost guarantee it will not reach its full potential. So if you are happy with being normal or not getting the most out of your business please ignore all the above. If however, you want to meet full potential and own a great cracking awesome business put the above in place and I almost guarantee you will make more money than if you don t. There is always more to a business than tax, bookkeeping and GST. Always remember that things will go wrong in your business. Learn from it, laugh about when you come though the other side. Most importantly enjoy your journey. Finally, I wish you every success in your business. Hitesh Mohanlal 11
12