It’s that time of year again when we all start to get our records together for tax return preparation (yawn!). For some small business owners, this can be a pretty costly time of year: forget the tax bill – what about the accountants’ fee!?!
Two things to understand:
1. Despite what you may have been led to believe, accounting (generally) is not rocket science! It is however, a little anal: there are certain checks and processes to follow to ensure your financial accounts are presented correctly; and
2. Accountants charge predominantly on an hourly basis: therefore the longer it takes to tidy up your “electronic shoebox” or “paper shoebox” (gasp!), the higher the corresponding fee will be.
It’s pretty obvious then that if most of these checks and processes are done BEFORE you hand over your records; your accounting fee as a result will be fundamentally less. So what are these checks and processes? Well, here are some top tips:
1. Balance Sheet: For these purposes, without going into the why, getting your Balance Sheet right is arguably the most important part. Every Balance Sheet item can be supported with some form of supporting documentation to prove the balance, therefore, review every Balance Sheet item for correctness, reconcile it and have a corresponding piece of supporting documentation. If your accountant can see this has been done, it saves them from being required to do it.
Take your bank account as an example: your bank account reconciliation should be reviewed and possibly adjusted for any old outstanding transactions, the ending reconciliation balance agreed to the bank statement and the bank statement at balance date attached to the reconciliation. Done! The same theory goes for all other Balance Sheet accounts.
2. Assets! Yes they form part of your Balance Sheet but they’re so often allocated incorrectly and can be so time consuming to find and treat correctly that I’ve kept them separate. Make sure assets to be depreciated are in fact allocated to your correct asset account and not scattered around in office supplies, repairs and maintenance, tool expenses and all the other likely culprits. Ensure each asset transaction includes a clear description of what it is, so your accountant can easily add it to your depreciation schedule without engaging in back and forth with you.
3. Payroll Expenses: your related payroll accounts (wages, super, payroll tax etc) can all be reconciled to supporting payroll reports and lodged documentation. If for example you have different wage categories in your chart of accounts, include a reconciliation of them all agreeing to the supporting payroll reports and PAYG Payment Summaries (group certificates). Reconcile super and payroll tax paid with the corresponding reports and investigate any variances. Provide the supporting documentation.
4. Finance contracts – understand the difference between a Hire Purchase, Chattel Mortgage and Lease contract and treat them correctly in your accounts! This is a common mistake, which has multiple knock on effects (read: expensive to correct) on assets, GST, tax treatment etc.
Do yourself a favour and follow these types of review processes on at least a quarterly basis, ideally monthly. That way “mistakes” are corrected at the time and year-end pressures are alleviated. By doing this, you’ll also have the added benefit of producing reliable, timely reports that you can then start to review and use to add value to your business through performance management. If you’d like help in getting these processes right for your business and to get ready for year end, please let me know.