In Accounting

Cloud - based accounting software: the 411When it comes to Cloud-based accounting software, yes, you can do it yourself. Question is, should you?

Over the last few years, a lot of people have been migrating to cloud-based accounting software to run their businesses. Rewind 10 years and most small to medium businesses would have been running a MYOB Accountright desktop platform and they would have employed a bookkeeper to run it all. Since then there has been many changes and the likes of Xero have made it simpler for business owners to ditch the bookkeeper and do it all themselves. Great, right?

With the rise of cloud accounting platforms like Xero, MYOB Online and Quickbooks Online, we’ve seen a corresponding rise of business owners opting to do it themselves, hiring a friend or family member, or engaging an existing admin person to take on their bookkeeping. So this means that the bookkeeping can be completed at a far lower cost, or in some cases ‘for free’. And why not, business owners want to keep costs down, so doesn’t it make sense to cut costs in bookkeeping?

Unqualified bookkeepers cost businesses thousands

As cloud accounting software continues to rise in popularity, we’ve also seen a rise in people who aren’t qualified bookkeepers offering ‘bookkeeping services’.

The misconception is that cloud software is so good these days, that it literally does everything for you. All you have to do is click a few buttons when they turn green. Right? Nope, so wrong!

The claim that it is ‘beautiful’, ‘easy’ and ‘effortless’ is a marketing hype. When we do rescue jobs, it is not beautiful, easy or effortless and it can end up costing a fair bit to fix. When new businesses approach us for a quote, we start by completing a health check on their accounting file and discuss the issues.

Bookkeeping mistakes in almost all new client files

We use the term ‘rescue job ‘ to describe messy bookkeeping. A data file can contain numerous transactional errors which are caused by incorrect set-up or human-error in data entry. These are compound over time and can be difficult to unravel if you are not experienced in this type of work.

Often the business owner is completely unaware of the lack of accuracy of the data. As they aren’t trained to identify issues they don’t know where to look, and even if they did, it’s unlikely they’ll know what the errors look like.

However, sometimes business owners come to us sensing that ‘something isn’t adding up’. For example, they see invoices on their payables report which they are certain have been paid. This is a really common issue particularly with the rise of document management applications that automatically process invoices to your ledger. This is all great, but you need somebody experienced double checking what is going on.

Diagnose ledger mistakes with a health check

When we complete a ‘ledger health check’ we’re diagnosing the data file. And we do this by checking the file thoroughly, starting with the ‘usual suspects’: areas where mistakes are commonly found. And we document everything as we go, providing a detailed report on what’s happening in the file for the client.

From there, we then work with the client to prioritise the order in which the errors should be corrected, and discuss the costs involved.

Bookkeeping mistakes should not be ignored

Prevention is always better than cure. The cost of fixing bookkeeping and tax errors can be up to five times more expensive than doing it right the first time.

Often business owners will ask us ‘can we just leave the errors and start a clean slate going forward?’.

And the reason they ask this is because ‘rescue jobs’ cost a lot!

In fact, our fee for rescue work is double regular bookkeeping fees because it requires a far higher level of expertise and experience. Going back in time trying to figure things out is more difficult, and is harder to retrieve information.

So is it really worth spending the money and fixing it up?

Accurate bookkeeping is the best kept business secret

Everyone who owns a business has heard of; ‘garbage in, garbage out’. And what that means is that if the small details going into the accounting file are wrong, the big picture reports will be wrong and you may be making incorrect decisions about your business.

If your bookkeeping is a mess then a simple analogy would be to compare your ledger to a tangled garden hose. In the same way that the garden hose will still work whether it’s tangled or not, it will not be effective. Apart from being able to invoice your customers and pay your suppliers, the main purpose of accounting software is to evaluate the business’s financial position and performance so that you can predict and plan for the future, and to ensure your business is compliant with business legislation such as Taxation, GST, Fair Work and Corporations laws. If it can’t be accurately or effectively used for that core purpose, then you have got a problem that needs to be fixed.

In addition, the tangled garden hose is annoying because it’s hard to use. There’s nothing more frustrating than logging into your Xero file to find out how much your customers owe you, only to discover that it doesn’t look right and you won’t be able to rely on that information.

If your garden hose is kinked and split you will have poor water flow and possible leakage. In the same way, your inaccurate bookkeeping can result in cashflow issues, over or underpaid wages, taxes and other compliance. And this can result in fines, audits, and legal issues.

Key indicators that your cloud accounting software lacks integrity

  1. Okay straight-up, the bank account does not balance or there are loads of unreconciled items.
  2. Payroll clearing accounts including wages and superannuation, tax withheld do not look right and do not reconcile with your BAS.
  3. GST owing is different than you expect and does not reconcile with your BAS.
  4. Various Assets and Liabilities are incorrect.
  5. Directors Loans don’t look right.
  6. You are showing a profit that does not make sense.
  7. The amount people owe you looks incorrect.
  8. The amount that you owe people looks incorrect.

What next?

Once you have checked these areas, note down what you see. And then engage an experienced Registered Tax Agent to correct the errors, or to supervise the process. When the data file is error free, you should seriously consider hiring a competent bookkeeper to ensure the data is accurately and efficiently recorded going forward. Or at the very least get some training for yourself or whoever is doing your bookkeeping. And have the data file reviewed by a Tax Agent at least once per quarter (at BAS time). That way you’ll be sure to find any errors before it’s too late and snowballs into a much bigger problem.

Need help?

If you think you need help working out the health of your ledger, or assistance fixing your bookkeeping mistakes, please get in touch. We are very experienced in unravelling the most tangled garden hoses and best of all we offer a free consultation to discuss your issue and look over your file.

Blue Dragon Business and Tax Services

Blue Dragon Business Services are experienced Tax Agents and Accountants based in Cooroy in the Sunshine Coast hinterland servicing small and medium business including tradies, hospitality, and service organisations. We also offer services in the following areas:

– Tax Accountant – Business Advisor – CFO – Virtual CFO – Financial Modelling – Business Transformations

Take a load off your mind and call us for your obligation free consultation.

Let’s chat about your business today. 

E: michael@bluedragongroup.com.au

P: 07 5412 7111