Several years ago, I started working for a computer store near my home. My boss was a gentle giant of a man, smart, kind to a fault, hard working, uncomplaining and put in long hours to make his business work. He’d started the business in his early twenties, had loyal customers, made a decent living and had won some local small business awards.
He had a cloud hanging over his head though – a significant tax debt. He’d done his own books for years to save money, but small errors in accounting procedures and calculations had added up to a big mess. Eventually the tax office caught up with him – and it wasn’t fun. It cost him more than the original value of the taxes, and took him years to pay back. Years spent carrying the mental and emotional stress of that unnecessary debt.
To me, not being an expert accountant myself, it highlighted one thing I needed to do if I ever started my own business – hire a skilled accountant, and potentially a bookkeeper too, to set up and run effective accounting systems. Too expensive you say? Here are a few reasons you should do it anyway:
1. Stay on top of your taxes
There is an old cliché: nothing is certain except death and taxes. You will inevitably have to deal with taxes when your new business starts making money. Having a good accountant in your corner can make your life considerably easier by:
- Keeping excellent financial records for tax purposes
- Having the ability to sign off on business activity statements submitted to the tax office
- Preparing and lodging statements on time
- Having comprehensive knowledge of taxation laws to minimise tax liabilities or maximise tax returns
- Set aside money to pay taxes on time and in full
Failing to correctly calculate and pay your taxes is a recipe for trouble. You might not be noticed for a few years, but eventually you will be – as my boss found out the hard way. If the weight of accumulated debt isn’t painful enough, the fines and penalties applied by the tax office will definitely ruin your day.
2. Build strong foundations
Do yourself and favour and implement effective accounting reporting and recording practices from day dot. You might be a small business today, but one day you could be huge, with enormous amounts of financial data to manage.
I once had the pleasure of assisting a client in transitioning an archaic paper based inventory system into a digital system. The store hadn’t been operating that long but hadn’t invested in computerised inventory and accounting systems from the start. There were over 100,000 physical items that needed to be entered into the database, which had to be done while the store was still operating. It was a challenging task that took weeks to complete, and it cost the client a small fortune.
Having good recording systems in place from the start will make your life easier. You’ll have everything you need, at your fingertips, no matter what situation occurs – financial records when applying for loans or venture capital, good inventory records
Transitioning between accounting services, and bringing in your own team in-house, will also be a much smother experience. Build strong foundations today and save yourself hassles in the long term.
3. Maximize your revenue and pay your debts
You’ve made the sale, provided your product or service and then… no payment. But you don’t know that, because you don’t have an effective invoicing system in place.
This is a serious problem for many businesses – it costs you money to provide the goods and services, on paper you’ve made money, but if you don’t get cash flowing in, you can be worse off than if you never made the sale in the first place.
Bookkeepers or accountants can set up effective systems and help you manage that process. That means you have the tools to translate sales into real cash revenues for your business.
Conversely, paying your creditors in full and on time is a good way to build trust between your businesses, and you can take advantage of discounts or incentives for early payment of debts.
4. Save yourself time
My former boss at the computer store spent hours every Friday balancing the books at the end of the week. Not being an expert accountant, he hated the chore but slowly struggled through it regardless. In the end, all his efforts cost him a small fortune in tax penalties and repayments.
Having a professional accountant managing the books saves you time better spent elsewhere – planning, getting leads, serving customers or being with your family and friends. Work out your opportunity cost for NOT having an accountant – what will those ‘savings’ cost you?
5. Use accounting for planning and control
Anyone who has made a decision knows it’s easier to make the right choice when you have access to useful, accurate information. The same is true for businesses. Having good financial information available gives you the tools you need to plan and strategise for the short, medium and long term.
An accountant can not only record financial information, they can use it to generate reports, calculate useful ratios that reveal the true state of your business and develop projections on how the business will fare in the future.
The net result
In my former boss’s case, employing an accountant ended up being a huge relief. His lack of expertise in accounting had cost him dearly in fines and repayments to the tax office. Suddenly, the fee charged by his accountant seemed like a minor expense, compared to the certainty that his taxes would be accurately calculated and reported. It released him from the onerous task of balancing the books each week; a chore he had never enjoyed doing in the first place. Best of all? It meant he got to go home on a Friday night and be with his family.
William Cowie is part of the team at Inspire Education, a leading Australian provider of bookkeeping courses and accounting courses. William works in marketing and loves to fish, read and tinker with computers in his spare time.
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Category: Startup Advice