Accounting and bookkeeping processes are vital to the excellent financial management of any business. Together, these processes produce the financial information that a business needs to understand financial performance, and remain compliant with the Australian Tax Office (ATO) & ASIC (the government regulator of corporates and businesses). There are numerous ways to manage bookkeeping and accounting for your business, from outsourced solutions, to in-house staff members, to leveraging accounting software and doing it yourself. In this article, we’ll aim to address some key questions, so you can be confident that you’re nurturing these processes and setting your business up for success.
What’s the difference between a bookkeeper and an accountant?
Bookkeeping refers to the process of maintaining a business’ financial records (often referred to as the “books”).
A bookkeeper’s usual tasks will include recording and documenting business transactions, invoicing, managing payments and payroll.
Accounting is a much broader process, usually focusing on interpreting and presenting a business’ financial records, so as to support a business in understanding their financial performance, and to provide input into key business decisions like whether to expand, or when costs need to be reduced.
An accountant’s tasks can include creating financial statements and reports, budgeting, cash flow management, auditing, policy creation, managing accounting systems and advising on complex accounting transactions. In Australia, if your accountant is also a Tax Agent, then they’ll be in a position to provide tax compliance and advisory services.
A practicing accountant will also maintain additional qualifications, normally identified through their admission to a professional accounting body. The main professional bodies in Australia are Chartered Accountants Australia and New Zealand (CAANZ), CPA Australia, and the Institute of Public Accountants (IPA).
Why is an accountant or a bookkeeper vital for my Australian business?
There are two main reasons why bookkeeping and accounting are vitally important to every business, no matter how big or small it is:
- Performance management
Compliance: The ATO has strict reporting and record-keeping requirements that apply to every business. The taxes you pay, such as GST, income tax and company tax, are based on the revenue, costs and expenses reported for your business in a specified period. Your accountant will help you create the financial reports that are used as the basis for your tax calculations, but they need up to date financial records to do so. When it comes to tax time, it saves a huge headache and last-minute scramble if your financial records have been kept up to date, along with the associated documentation, such as invoices, receipts & bills. This is where having a consistent bookkeeping process in place is hugely valuable.
If your business is a Company that meets the requirements to lodge financial reports, you’ll also need an accountant to help you ensure you meet ASIC’s compliance requirements.
Performance management: While compliance is very important, so is keeping track of business performance and the health of your business. This includes understanding profitability (is your business making money?) and being keenly aware of your business’ financial position (what are your cash and debt balances?). Without a consistent bookkeeping process to maintain records in a timely manner, it is virtually impossible to know if your business is healthy or on the brink of collapse. Having accurate, up to date records also makes it easier to forecast future performance, giving your business an edge when it comes to anticipating and planning for challenges such as cashflow shortages. Your accountant will typically produce a Statement of Profit & Loss, Balance Sheet & Statement of Cashflows for your business. A good accountant will help you to interpret your financial information and can also help with managing cash flows and forecasting.
Will accounting software be enough for my business?
Leveraging accounting software is a huge step forward in helping yourself manage the compliance and performance management of your business, but whether it is “enough” depends on a few key factors.
- Time – if you have the time to learn and manage using accounting software to record business transactions yourself, then accounting software may go some way in helping you keep track of performance and compliance. However, if you’d prefer to spend that time on supporting and growing your business, then seeking out a package that combines an accounting software subscription and bookkeeping services is optimal.
- Expertise – unless you have an in-house accounting function, most businesses don’t have the accounting or tax expertise to correctly record business transactions, build and interpret financial reports, or understand how to maximize available tax deductions to reduce your business’ tax bill. Because of this, it’s highly recommended that your business finds a trusted accountant who can partner with you to ensure all your reporting and compliance needs are met.
Should I hire an in-house accountant or outsource it?
Whether you bring your accounting process in-house or outsource is a question of affordability, time, convenience and experience.
- Affordability: Obviously if your business is just starting out, you aren’t going to be able to afford the salary of a full-time bookkeeper or accountant to manage your compliance and reporting needs, and there simply wouldn’t be a full-time workload to justify it. Using a professional bookkeeping and accounting service allows you to pay for only what you need, and scale up services as your business grows.
- Time: Managing an entire business along with the bookkeeping and accounting can be exhausting. If you are a business founder wearing multiple hats, and time spent on bookkeeping and accounting is distracting you from spending time on activities that will grow and operate the business, then outsourcing is a good idea.
- Convenience: Even if your business is big enough to afford one or two full-time staff members to manage bookkeeping and accounting processes, it may still be a more convenient option to outsource. Outsourcing removes the hiring and training processes, and the time associated with employee retention, for example.
- Experience: Outsourced accountants and bookkeepers are experts who work across a multitude of industries and business types, and are typically organized and good at clearly communicating with their clients. Finding the same level of expertise in an in-house employee can be very difficult, without paying a significant price tag. However, an in-house employee will have more in-depth knowledge of the business and its strategy, which is a key benefit.
As you can see, accountants and bookkeepers are worth their weight in gold when it comes to ensuring your business is truly set up for success. Ignoring the importance of these vital processes or not dedicating enough time to them, not only limits your ability to really understand how your business is performing, but it puts you at risk of missing key compliance requirements. It’s important to step back and take the time to reflect on whether outsourcing could be a cost-effective way to give you back time and provide convenient access to highly trained personnel, who will support you in your journey to create a sustainable, healthy business.