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Small business accounting: 5 common mistakes small businesses make
When starting out, many small businesses choose to take care of their own books. However, this can be the first of many mistakes, particularly if you have no experience in accounting. Here are some of the most common mistakes that you could fall victim to:
Mistake #1: Mathematical miscalculations
Armed with a calculator, you might think that nothing can go wrong when working out your earnings and outgoings. But it's all too easy to slip up and make mistakes, which can be difficult to spot if you're not used to working with numbers. Errors like this could cost your company in the long term, as you might not have the money to run certain operations, or tax time could hit you in a particularly bad way. It's always best to check figures several times or, even better, ask a professional to handle them for you.
Mistake #2: No backups
Too many small businesses forget to back up their financial records. Whether you're using professional software or not, it's important to have at least two copies of your books. This could be a paper and digital copy or linking your accounts to secure cloud storage. If you don't have any backups, you could quickly find yourself in hot water when your computer's hard drive fails and you have no information to give the taxman.
Mistake #3: Not setting a budget
It's essential to stick to a budget, not just so you know how much you can spend, but also to give you an idea of how your business is growing. Budgeting and forecasting can help you to plan your finances better and highlight areas where you need to cut costs or have room to spend a little extra.
Mistake #4: No separate business and personal accounts
When you use the same account for your personal finances as well as your business, things quickly become confusing. By keeping your finances separate, you'll always know what transactions were commercial and available to claim tax on, and which transactions were your own and unrelated to your business' budget.
Mistake #5: Trying to DIY on your bookkeeping
All of these common mistakes can be avoided by opting to choose a professional bookkeeping service. At Ascent Accountants we’ve been helping small businesses in Perth for many years now to stay organised and on top of their business’ tax, books and overall financials.
With our experience and technical knowledge we can help you better manage your business and free up your time so you can do what you do best and focus more on what you love doing.
And we’re guessing that’s not doing your own bookkeeping!
Need help with your accounting?
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You’ve likely heard the adage: "The only certainties in life are death and taxes." While death and probate taxes were abolished in Australia by the early 1980s, a potential "inheritance tax by disguise" could still be lurking in your superannuation or pension fund… The good news? With the right planning, this tax burden is avoidable . At Ascent Accountants, we’re here to empower you with the knowledge and strategies to optimise your financial legacy. Here's what you need to know about managing taxes on your super and leaving more for your loved ones. Why your super might be taxed after you’re gone. Superannuation funds enjoy generous tax concessions while you’re alive: Accumulation phase: Earnings are taxed at just 15%, with a reduced 10% tax on capital gains. Pension phase: Balances up to $1.9 million are completely tax-free. However, a tax trap arises when super funds are passed to non-dependent beneficiaries (e.g., independent adult children). In such cases, a lump sum death benefit can attract a tax of 15% or 30%, plus a 2% Medicare levy. On the other hand, funds transferred between tax-dependent beneficiaries, such as between spouses, are not taxed. Understanding this distinction is key to effective estate planning. Strategies to minimise or eliminate super taxes. 1. Understand the taxable component. Only the taxable portion of your super balance is subject to this tax. By assessing the taxable versus tax-free components of your fund, you can calculate the potential tax liability for your beneficiaries. For young, healthy retirees with a long retirement horizon, the tax savings from super's concessional tax environment may outweigh the risks of tax on their death. However, older retirees or those with health concerns might find the potential tax liability for beneficiaries outweighs the benefits. 2. Withdraw funds from super. If you decide the risk of tax to your beneficiaries is too high, consider withdrawing funds from the super environment. These funds can then be invested in your name or another structure. Just remember that this is a complex decision requiring tailored advice to ensure your financial security while managing tax implications. 3. Implement a re-contribution strategy. A re-contribution strategy aims to increase the tax-free component of your super balance. You simply withdraw funds with a high taxable component, then re-contribute them as non-concessional contributions. While this approach can significantly reduce the tax liability , it must be executed carefully due to restrictions like contribution caps , work test requirements (for those over 74), and total super balance limits. In some cases, contributing to a spouse’s super fund can offer additional benefits, such as improving Centrelink eligibility. 4. Nominate your estate. Funds paid directly to non-dependent beneficiaries from super are subject to the Medicare levy. By nominating your estate as the beneficiary and having funds distributed via your will, this 2% levy can be avoided. However, directing benefits via your estate has its drawbacks. It’s vital to weigh this option against alternative strategies, especially if direct beneficiary payments better align with your financial goals. 5. Appoint a power of attorney. While your will is essential, an enduring power of attorney is equally important. This person can make financial decisions on your behalf if you become incapacitated, ensuring the best outcomes for your beneficiaries. Take the next step towards financial certainty. Want to ensure your beneficiaries receive the maximum benefit from your hard-earned wealth? We specialise in helping individuals and families navigate these complexities . From re-contribution strategies to estate nominations, we provide personalised guidance to protect your financial legacy. Reach out to Ascent Accountants . Together, we can develop a strategy to minimise taxes and maximise your legacy for the people who matter most .
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