Author: Nicola Wong

Bookkeeping: add value with your chart of accounts

Nicola Wong Leave a comment

Are your chart of accounts giving you the information you need to grow your business?

Setting up a chart of accounts for your business is one of the first tasks you will be required to do when subscribing to an accounting system whether you do your accounts manually (eg: excel), programmed packages (Xero, MYOB, Quickbooks) or custom made accounting packages.  It is essentially the core of your online filing cabinet for your business finances.

What is the chart of accounts?

The chart of accounts are the foundation level that every transaction in your accounting system is coded to. It is the backbone of your accounting system and believe it or not, it organises your business finances by giving all transactions a category. Transactions are separated into expenditure, revenue, assets and liabilities in order to give parties such as business owners, shareholders, accountants, committees and boards a better understanding of the financial health of the entity.

One of the first things I check in any business is the chart of accounts.  It gives me a good overview for how the business operates before I start reconciling transactions.

A business needs to know where the money is coming from and where it is going.

For example, how many revenue centres has your business got? A landscape gardener who does garden maintenance may want different accounts so he can gauge what he earns from landscape projects and general garden maintenance.

If you are just starting out, grab a pen and paper and jot down how you want your business to make revenue and what expenses you think you will have and then categorize them into small groups. Your bookkeeper or accountant can then tailor your chart of accounts especially for your business.

How the chart of accounts helps your business

A well designed chart of accounts will allow you to extract meaningful reports that will allow you to put your own business under the microscope. You can review which divisions are doing well, which sections have higher percentage of COGS compared to others and where you can streamline operating costs.

This information will give your business an edge, make you competitive and give you the information you need to improve, make changes and grow your business. At the end of the day, figures do not lie.

Can the chart of accounts be changed?

Yes of course! Whether you have an existing data file or are just starting out, accounting packages such as Xero, MYOB and Quickbooks all offer standard chart of accounts to work with depending on your industry and all can be tailored to your business.

We all know every business is unique.

This month one of my clients set up a new Chart of Accounts in hospitality and we needed to add items such as Restaurant Consumables and DJ Contractors. These are accounts you would not see in a landscaping business but you would find Tool Consumables and Protective Clothing.  But you wouldn’t find either of those in my bookkeeping business!

How can you review your chart of accounts?

Speak to your bookkeeper to check you have the chart of accounts working for your business properly. Write down what you want your Profit and Loss to tell you when you look at it.  Design your chart of accounts on what you need not what was programmed! 

The chart of accounts is also the default for the coding of GST on your transactions. To make sure you are compliant for tax purposes, ask your bookkeeper or accountant to check the GST code allocated to the account codes.

Do you want to be a bookkeeper?

Nicola Wong Leave a comment

I received a query last week from someone in our network looking for advice on how to start a bookkeeping business. The answer isn’t short but it did get me thinking about how I ended up on this journey and I would like to share it {short version – I am known to ramble}.  I am a working mum. One of the greatest pleasures in my life is having the flexibility to be able to take my kids to school, drive them to their multitude of activities and be around in the school holidays.  That’s not to say I always do it, my husband is a pretty good taxi service!

The bookkeeping industry is flourishing at the moment. Many accountants are building alliances with trusted bookkeepers so they can focus on more structure and advisory tasks for their clients.  This is an excellent field for parents who would like to stay at home with their kids. Bookkeeping is my favourite business task because I can work around my kids and adapt as they grow.  It has been my sanity by giving me something to focus on during those mushy toddler years.  Now we are well and truly out of the toddler age, I’m thankful for the little steps I took to build the business even if I couldn’t see it at the time!  And with cloud accounting now in the picture, it’s even better!

How long it takes you is all up to YOU!  I come from a financial background so the transition was logical, however as you know, parenthood has its moments and the thoughts of building a business get jumbled up with the daily grind of bringing up a young family.  It doesn’t matter how long it takes you, one step at a time is all you need and it will be worth it in the end!  If I add:

  • 1 year to think about bookkeeping as a business;
  • 1 year to complete my Cert IV in Financial Services Bookkeeping;
  • 3 years of building a client base through word of mouth and get my BAS registration;
  • 6 months to think about getting my Xero Certification;
  • 6 months thinking I really should get a website; and
  • 6 months to actually launch the site into the public domain

Wow that’s 6 ½ years! Could I have done it faster?  Of course.  But it hasn’t been hard or cumbersome.  Each step has been as my children take extra steps.  My business is like an extra child, growing as my children grow.  Growing as I grow.  There is no fast or slow, it’s all about you and when you’re ready.

If you would like to know how to become a bookkeeper here is a snapshot of the steps to take:

Step 1: Do you really want to be a bookkeeper?

First determine whether you actually like bookkeeping! Don’t do it for the sake of it.  If you really hate numbers, it just might not be a good fit!  Speak to some fellow bookkeepers, read about what is required, look at job advertisements and see if you picture yourself in that field of work.  We offer online assessments that can let you know what industries you’re suited for.  Contact me to find out more.

Step 2: Get qualified

Dabble in a MYOB or Xero short bookkeeping course to give you a feel for what it will be like. You will learn something even if you don’t continue so it won’t be a waste of time.  If it’s still a dream or you already have basic bookkeeping experience; get qualified with the either of the following courses.  These can be done online which is super helpful for parents with young families.

  • Certificate IV in Bookkeeping; or
  • Certificate IV in Financial Services (Accounting).

There is a very fine line between a bookkeeper and BAS Agent. You are required by law to be a BAS Agent when offering BAS services.  These two accredited courses contain the minimum qualification components for registered BAS Agents (as per the Tax Practitioners Board).  You can provide bookkeeping without being a BAS Agent but it is limiting.  Therefore my advice is to have it as a goal to become a BAS Agent when you start your journey.

Step 3: What accounting system to use?

The more systems you know the better, however become an expert in one to start with. I have experience in Xero, MYOB and Quickbooks Online but I learnt one at a time purely based on what my client’s needs were.  My focus is now on cloud bookkeeping to allow me to reduce travel time, work flexible hours and attract clients not based on location, they can be on the other side of the city and it doesn’t matter!

Step 4: Work Experience & BAS Agent

Anyone who is thinking about starting their own bookkeeping business in Australia needs to be aware of the rules regarding BAS Agents, who are eligible to provide Business Activity Statement services for a fee. Any bookkeeper wanting to provide BAS services must be registered as a BAS Agent. To become a registered BAS Agent, a bookkeeper must have 1400 hours of experience and a minimum qualification of a Certificate IV in Bookkeeping or Accounting.

http://www.tpb.gov.au

Step 5: Get certified with your accounting package of choice

Once you are a BAS agent, the accounting software companies like Xero, MYOB and Quickbooks do provide bookkeeping memberships that give you additional training and support. You can become aligned to either of these companies and get certified as a partner or advisor.  This is not absolutely necessary to launch your business but it does add credibility to your portfolio and shows you have the gumption to get through the extra training and tests!

So if you have done all these things. There is absolutely no reason why you cannot launch your own bookkeeping business!

Is Xero the new hero?

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I am a working mum.  Hardly surprising the ingenuity of my business name.  I talk on the phone and work on my laptop A LOT.   Most of it from home.  The way I do business now is very different to what it was many years ago.   When I first started bookkeeping I would drive to client’s business to tinker away next to the business owner.  It also included a lot of travel time, cups of coffee and chit chatting.  It’s hardly surprising that I found myself being selective with my clients based on whether they were within a 20km radius of my home!

When I set out to be a bookkeeper I held no allegiance with any accounting software although MYOB was the predominant software of choice.  Currently I have business clients on 4 different accounting software providers and they are all unique and offer competing products.  However I began noticing my client base started leaning towards Xero that I had to consider the possibility of changing the way I did business.  If I’m honest, I still love MYOB for it’s reporting ability but I can’t deny Xero has changed the way I do business.

Here are 10 reasons why I believe Xero has played hero to my business and many of my clients.

1. Location 

The same Xero account can be accessed by more than one person at the same time from any device with internet connection.   The introduction of Xero has given me greater flexibility and a wider range of clients not determined by location.  Although I have to admit some of the best fun is still to be had at client sites learning and slotting into the culture of a team.

2. Automated bank feeds

No more printing bank statements or downloading and exporting! The automated Bank Feeds save time on data entry.   Hero factor for everyone!

3. No more installations or updates

 The amount of times I come across accounting software that has never been updated. Xero works on any device with an internet connection!

4. No more rollovers and crashing data files

When data files get too big or your computer can’t hack the processing, they have been known to crash, computer shuts down, data files get corrupted and panic sets in when you realise you never backed up (like hardly ever). The data on Xero is held in the “cloud” we don’t have to worry about backing up after every session.  I know I have a few clients who will be able to reminisce about the time their data file crashed!

5. Everything is awesome

As a bookkeeper, client satisfaction is paramount.   A happy client wrote to me one day with this and it made me grin! 

“you’re just like Lego, everything is awesome”
6. “Discuss”

One of my favourite functionalities in Xero.  Leaving questions and comments with businesses in the little “Discuss” box, it makes me feel like I’m inside their business and it is all real time. Xero have figured out a way for bookkeepers to maintain and engaging client relationship without having to physically be there.

7. Real time accounting

Businesses don’t have to wait for me to come see them.  They don’t even have to find the right lingo to speak to describe the problem because I can log on and see the same transaction they are looking at.  No more lock down, no master file and no more emailing zip files!

8. Electronic filing

Another pet favourite from Xero.  I’m an advocate for electronic filing.  Xero allows you to upload and attach your supplier invoices to your payables.  My clients can just open the bill and voila, the supporting document is right there.  Xero will keep all your data per ATO requirements.

9. Flexible working hours

Xero can be accessed on any device with an internet connection, day or night. Need I say more?

10. Accountability

Many different people can go online and view the reports or status of the business. Everyone is accountable including me to make sure the most accurate and up to date finances are maintained.

Keep count of who owes you money

Nicola Wong Leave a comment

When I review any business, one of my priorities is how much money people owe you.  I’ve seen Ageing Receivable lists spanning pages!  All small businesses need cash and here are some simple cash flow tools to help you pull that money in.

1. Deposits Upfront

Reserve the right to charge a deposit upfront prior to commencing work.  This may be to cover the value of materials used or simply good business practise.  If you quote, chose for example to ask for a percentage of the quote upfront to secure the job and to ensure you are not left out of pocket.  This is useful for customers you know are late in paying or new clients you don’t know very well.

2. Terms of Trade & Payment Terms

Your terms of trade are how long a customer has to pay you.  Commonly used are 7-days, 14-days or 30 days.  For SME’s I recommend 7-days and 14-days.  Your payment terms should be included on your quotes and your tax invoices.  As soon as the payment term is up, you can follow up on non-payment.

The longer the payment terms, the more likely the customer will put your invoice at the bottom of the “to pay” pile and forget about it.  This means you will have to send a reminder but you will have to wait until those 30 days are up.  By the time you have sent your Statement, it may be 6 weeks before you are paid if not longer.

3. Tailor your Statements in your Accounting Software

You can tailor your Statements and Invoices in your accounting software.  Take the time, 10 minutes spent here will ease the effort of sending Statements to customers at the end of every month.  Even if the terms of trade haven’t expired, it is commonly accepted in business to send Statements to remind customers of their outstanding balance.  Anyone using Xero the Statements are simple to tailor and will only take you 5 minutes.

4. Discounts & Charging Interest

Discounts are not ideal for optimum cash flow.  However they do serve a purposes and you may wish to consider offering a small discount if customers pay by a certain date.  Similarly charging interest to recalcitrant customers is not good for small business relationships (note, do not charge interest unless it is already specified in your trading terms in writing).

5. Client Engagement Letter

Set yourself up right.  Include your expectations and your terms of trade in a Client Engagement Letter or Quote.  Have it signed before you commence work.

calculator-office

Need help to extinguish fires?

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This week I met with a small business owner who was literally pulling his hair out.  Having recently taken over a business from his partnership, the thought of cleaning up the books quite frankly scared the living daylights out of him.  It just wasn’t his thing and what makes him a great entrepreneur is he took his hat off and got to work with surrounding himself with the right people so he can do what he does best, sell.

No matter how big or small your business is, whether you are a one man show or 100 plus employees, every business has roles that need filling.  For SME businesses those “roles” can get a wee bit blurry.  Becoming an entrepreneur means not only living out a dream – it means expanding your repertoire to become the talented, diverse and multi-hat wearing person in each and every one of these segments of your business.   Well done you!  But do you find you have very little time to do any of them well?  Do you wish there was more support?  You are definitely not alone!  How many hats are you wearing right now?  Are you wearing them all well?

Will being so hands on help your business grow?  Not as fast as you would like.  Entrepreneurs are under immense pressure to succeed and be everything.   My question is, do you really need to be everything?

Being an entrepreneur does not mean overnight you have become an accountant or computer guru nor have you developed a love for admin and being organised!  An entrepreneur is someone who acknowledges he or she cannot be everyone.  Surround yourself with the right people to help you succeed.  You need a reliable business team.   That’s right – the myth around entrepreneurs being individuals who don’t like teams has just been shattered.  Your business team will be people, networks and alliances you trust and who will look out for you and your business.  Be positive, encouraging and supportive.  For example, your accountant is not just your accountant.  They should be someone you trust and who will look out for you and your business.  They are part of your team.

Your business team is an essential component of your business success.  Your business team is your biggest TOOL!  They are the mechanics that help you run your business efficiently so you can focus on what you do best.  Make more money!

Now might just be a good time to step outside your business and look inside.  What should you be doing today that would benefit your business in the future.

Can the fires you are fighting be extinguished by someone better qualified? 

Think about what is YOUR time worth.  Consider what your business needs YOU to be doing to grow.

Do you have the right business team surrounding you?

Cash Flow Headaches

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Are your bank accounts giving you a cash flow headache?

Structuring your bank accounts will make it easier for you, your bookkeeper and accountant.  Here are 4 simple banking tools you can implement this week to help improve how your business operates.

1. Separate your business from your personal

Are your bank statements containing transactions you have no idea what they are for? You can’t decipher personal expenses from business?  Often the descriptions are not clear or the business you purchased your goods from has a different company name to their business name.  Where are the receipts?  We often find them in the bottom of handbags, in the consoles of cars or in a pile on the desk!  We’ve all been there and it’s not as uncommon as you would think!

There is no legal requirement for a sole trader or partnership to have separate business bank accounts although the Australian Tax Office recommends it.  Any other structure like a company or a trust must have separate business bank accounts.  Regardless of your business structure, the experienced bookkeeper in me says it’s better to separate the business transactions from your personal.  Why?

  • Spending from your business accounts means you often don’t track what you are spending on personal expenses and it comes as a surprise when the owner drawings are so high!
  • It takes away the confusion of personal purchases that shouldn’t be there
  • If you don’t use an accounting package, it makes it difficult to do your GST and Tax Return from a paper bank statement (and guess who has extra work to do using the highlighter to separate business from personal – YOU!)
  • Cloud based accounting packages (Xero, Saasu, MYOB, Reckon).  Bank feeds appear daily and every transaction arrives into your data file to reconcile. Do you really want your bookkeeper sifting through all your personal expenses and how do they distinguish between business and personal.
  • It may cost you a small amount in bank fees per month for a business account. However think about the time saved in phone calls from your bookkeeper trying to figure out your purchases.

2. Set up a separate ‘GST & PAYG Cash Management Account

Struggling to find the cash each quarter to pay the ATO BAS?  Set up a separate bank account specifically for this.  Most of the major banks off a low cost GST Payment Account.  Look for no account servicing fees and unlimited free electronic deposits.

You can transfer funds into this account every payroll and either fortnightly or monthly depending on your sales revenue.  Do not to dip into this account!  Doing so only adds to the cash flow stress each quarter.  The ATO may compound the pain by charging late payment fees and interest.

3. Reconcile your bank accounts daily or weekly

It’s GST quarter end and you haven’t reconciled your bank accounts for 3 months?  If you have your own business your brain is running a mile a minute every single day and night.  You shouldn’t have to remember what you spent $39.95 on 60 days ago!

If you are using a cloud accounting package with daily bank feeds, reconcile daily or weekly while you can still remember what the expense is for.  Many of my clients need to be online daily, make it a habit to log onto your accounting package and reconcile at the same time.  It is a high priority task that will save you a headache later!

4. Pay your Credit Card Minimum Fee

Running your business with a sizeable credit card limit?  Hello small business!  Time and again the thought of that BIG balance owing, means the minimum payment is ignored.  There are types of fees that may be added to your credit card:

  • Interest on the closing balance each month; and
  • Late Payment Fee for not paying the minimum amount due

The minimum amount is usually a fraction of the balance owing.  For example a credit card with a balance due of $4000 may only have a minimum payment due of $120.  PAY IT!  Making the minimum payment each month means you avoid the late fee and ensures you can keep using your credit card (check the T&Cs with your bank).  However, it doesn’t prevent interest being charged on the rest of the balance due.  If you can’t do anything about the balance you need to take the interest charges on the chin.