Common Mistakes of Business Owners01 June 2020
Running a successful business can be tough – regardless of its size or industry. At the end of the day, almost all business owners make mistakes. Oftentimes, these are easily rectified. However, there are some mistakes that could end up costing you dearly; especially those where government departments are involved.
Making mistakes in business is all part of the learning process. With that said, the fewer you make the more success you can expect to see. Here are some things to keep in mind to help you avoid the most common mistakes made by many business owners.
Keeping in regular contact with your Bookkeeper and Accountant
Proper bookkeeping and accounting are vital in helping you maintain accurate and correct financial records. Yet, as important as these are, many businesses still fail to implement these integral processes. Bookkeeping is not only a legal requirement, but it also helps you understand where you are making profits and where you are making losses.
It should come as no surprise that poor accounting practices are one of the main contributing reasons for business failure. Basically, foregoing proper accounting or bookkeeping is like driving a car – blindfolded.
Savvy business owners will already know that accounting and bookkeeping are best handled by professionals. But keeping in regular contact with them is equally as important. Everything from filing your tax returns to your employees superannuation should be accounted for.
Well-performed accounting and bookkeeping will help you with:
- Having a better understanding of your budget;
- Planning and preparing for tax obligations;
- Organising your finances;
- Performing detailed business performance analysis;
- Assist with making better business decisions;
- Enables improved future business planning;
- Makes it easy to report to investors;
- Helps businesses track profit and growth;
- Improves company cash flow;
- Provides a snapshot of your business performance
Everyone from the ATO to customs departments and everyone in between will want accurate financial reporting from you. Failure to keep accounts up to date and in order can not only cause you to stress later down the road – but could also land you in some pretty serious legal trouble. Therefore, it is important that you communicate with your accountant and bookkeeper on a regular basis to ensure everything is running smoothly.
Keeping up to date with Law Changes
As every business owner knows, laws and regulations can change almost overnight. While the majority of business laws are put in place for the safety of both entrepreneurs and consumers, they can throw your business into a state of chaos when you least expect it.
Something as simple as a payment deadline change could cost you money in fines. More complex legal changes could see you taken to court or have your business license revoked.
While the Australian government is legally required to make any changes of the law publicly available, finding this information can be hard – especially if you’re not actively looking for it. For this very reason, it’s a good idea to have a business advisor take care of this for you.
Ultimately, it is your responsibility as a business to ensure that you understand and abide by all legalities put in place – and the onus is on you to be aware of any and all changes that occur.
Ensuring Employee Superannuation is paid on time
As an employer, one of your main responsibilities to your employees is to ensure that their superannuation is paid on time. if you fail to pay your employees superannuation on time, don’t pay the minimum amount or send it to an incorrect fund, you’ll be slapped with an SGC (superannuation guarantee charge) along with filing an accompanying statement.
The charge comprises of:
- Any amounts the SG falls short on.
- 10% interest on the outstanding amount.
- A $20 admin fee per employee, per quarter.
While these amounts might not seem like much, multiply them across every employee and you could be set to potentially lose thousands of dollars. While harsh to say, many business owners are more concerned with profitability and the daily operations of managing their business.
With that said, this is no reason to fall behind with employee superannuation payments. If you are finding it difficult to keep on top of everything, hiring a dedicated accountant can help avoid any potential hiccups along the way. While you can get away with many things in the complex world of business, bypassing government agencies is not one of them.
Keeping a good file structure for all Eligible Deductions
For a business to be able to claim any eligible deductions, providing evidence of your right to do so is important. This means that your record-keeping will need to have a good file structure. As an example, some of the types of chords that died that you will need to keep include:
- Tenancy and rental records
- Invoices or receipts for repairs and expense claims
- Invoices or receipts for sales, asset purchases or equipment
- Managed investment fund summaries.
- Dividend statements
- Bank statement showing interest earned
- Payment summaries or income statements
- Travel and car expenses
Eligible deductions will typically cover:
- Work-related expenses
- Dividend and interest deduction
- Donations and gift deduction
- Business expenses and business income
- Costs associated with managing tax affairs
It’s important to remember that record-keeping is designed to simplify things. However, they won’t make it possible to claim automatic deductions. While it’s not always a requirement to provide receipts, showing how the money was spent and the claim was calculated is.
The more streamlined your record keeping a file structure is, the easier it will be to make eligible deductions when the time comes. Understanding what to file and what to ignore can be confusing at the best of times. Hiring a dedicated professional can help ensure that you meet all of your financial and tax-related obligations while having systems in place that simplify the process.
Yearly Tax Planning before the end of the financial year
The end of the financial year is one of the most important times for all types of businesses. One of the biggest mistakes that business owners often make is to underestimate just how much work is involved with tax planning. From bookkeeping and tax returns to planning for the upcoming financial year, it can become a complex and highly stressful task to complete.
As a business owner, some of the annual tasks you’ll need to take care of include:
- Putting together a profit and loss statement
- Conducting a detailed stocktake
- Provide summaries of your record of creditors and debtors
- Collating asset purchase records
- Completing your income tax return
- Lodging your income tax return
- Lodging annual returns or reports for PAYG withholding, FBT and GST
- Fulfilling superannuation requirements
- Backing up all of your records and making digital copies
For the most part, you are able to claim deductions for the majority of business expenses – as long as they are directly related to your income earnings. As an example, you could be eligible to claim deductions if your business:
- Uses tools, machinery or computers
- Has travel-related expenses
- Operates from home
- Uses diesel fuel
- Has vehicle-related expenses
- Has set up a website
Small businesses are also often able to take advantage of a variety of tax concessions. The correct and proper end of financial year planning can potentially save your business thousands of dollars. Of course, unless you are familiar with all of the aspects and legalities, you could end up losing more than you initially thought.
Being aware of the Fringe Benefits Tax (FBT)
Rewarding employees for their contribution to your business with a variety of benefits can be a great way to improve staff loyalty and performance. Therefore, it’s important to remember that some benefits will be subject to FBT (Fringe Benefits Tax).
FBT is paid by employers on a variety of employee benefits, including but not limited to:
- The payment of private expenses
- The private use of a company car
- Low-interest loans used for private use
- Employee meals – when not travelling overnight
- Benefits whose cost goes above the set threshold
When the pre-gross taxable value of employee fringe benefits exceeds $2,000 in the fringe benefits tax financial year, the gross taxable value needs to be included on the EPS (Employee Payment Summary) for the payroll financial year it corresponds to. However, not all fringe benefits have to be reported on payment summaries.
FBT is extremely complex and is always best taken care of by a professional and competent advisor. It requires detailed and complete bookkeeping and accounting practices, a myriad of procedures to be followed and an understanding of any recent changes to the regulations. Trying to go it alone is one of the biggest downfalls most business owners make. Especially when they have little to no knowledge of what’s actually involved.
How to minimise business-related mistakes
Our dedicated professionals at Magnolia Advisory are experienced in dealing with the complex accounting and taxation procedures required by the Australian tax authorities. With a detailed understanding of the legal requirements, along with utilising the best practices – they can help business owners avoid confusing, and oftentimes, costly mistakes.
Find out how Magnolia Advisory can help your business, today.