Today I visited a new client to check that his MYOB accounting software was set up correctly and train him in how to use it. For the sake of this article let's call him Justin.
Unfortunately what I found was Justin had made three common mistakes when he started his business that would bring him a lot of future problems. Justin’s problems were:
- He was not properly registered for Goods and Services tax (GST);
- Mixed personal and business spending on his business bank account;
- Poorly set up accounting software.
Let’s take a look at each of those mistakes in greater detail
Don't issue tax invoices if you are not registered for GST
Justin was issuing tax invoices and claiming GST off his clients. However while he thought he was registered for GST and had advised his accountant that his business should be registered for GST, somewhere along the way this had not occurred. During our meeting he expressed his concern about the businesses GST registration. He had never received a Business Activity Statement (BAS) statement from the Australian Taxation Office (ATO) to complete, causing alarm bells to go off. I checked and discovered that his GST registration was not complete.
If you need to check if your business is registered for GST visit the Australian Business Register. On the right hand side of the home page enter the Australian Business Number (ABN) of the business you wish to check and click search. You’ll soon see current details of the business including the GST registration status. I advised Justin to contact his accountant or the ATO to see if he could arrange to get the GST registration back dated. If this could not be arranged, he would have to repay the GST to the clients whom he had incorrectly claimed it off.
Don't mix up business and personal spending
After he started his business, work was very hectic and Justin neglected to open a dedicated business bank and credit card account. Frankly at this stage I whisper to all my clients, I don't even care if it is in the 'businesses' name. It simply needs to be a standalone business account, so it can be assumed with some certainty all transactions on the statements are business related.
Business-only bank and credit card accounts make reconciliations and preparing financial accounts much simpler.
Don't get so busy you ignore your finances
Justin, like many small business owners started his business full of good intentions. He got advice on what accounting software he should use, he went off to Officeworks and bought MYOB Business Basics off the shelf, installed it, started using it, got confused, got busy, and the books were left gathering dust. Bookkeeping is like exercise; consistent small regular bursts are more productive, than a once a year marathon. Justin would have benefitted from investing in the services of a MYOB Certified Consultant and some MYOB consulting and training at the beginning of his business journey.
If a self-employed business owner comes to me for advice at the start of their journey, about what accounting systems they should set up for their business I would strongly advise they look at a cloud accounting solution like XERO or MYOB Live Accounts, which are simple to use and once set up will save the business owner data processing time.
What mistakes did you make when you started your business and how could they have been avoided?
Heather Smith is the owner of ANISE Consulting, who works closely with small business owner's senior management and boards of directors, assisting them in developing management reports that they can use and understand.