What Your Accountant Wishes You’d Stop Doing
Written by Daniel Dubois
Running a business - whether it is a small operation or a more established organisation - is busy. We understand that bookkeeping, tax and paperwork rarely sit at the top of the priority list when there are customers to look after, teams to manage and work to deliver.
But there are a few habits that can make financial management and accounting harder than they need to be. Here are some of the things your accountant would, very politely, love you to stop doing.
1. Making big financial decisions without getting in touch first
Some decisions are much easier to structure properly before you commit. Property and investment purchases, for example, can involve important decisions about ownership, funding and tax structure, and changing those arrangements afterwards can have significant financial consequences.
Before you:
Buy or sell a business
Purchase or sell property or investments
Bring in a new shareholder or business partner
Restructure a business
Borrow significant amounts
Pay large dividends or distributions
Transfer assets between entities
have the tax and structuring discussion first.
The best advice is received before a transaction occurs. A conversation before signing can help ensure the structure supports the objectives of the business and its owners. Once the transaction is complete, the available options may be limited and changing the structure can be costly or trigger unintended tax and other financial consequences.
2. Mixing business and personal spending
An equipment purchase, a weekend away and the monthly software subscription probably shouldn’t all be coming out of the same bank account.
When personal and business transactions are mixed together, someone eventually needs to work out which is which. More importantly, paying something from the business doesn’t automatically make it deductible.
The Australian Taxation Office says a business deduction needs to relate to the business, and where an expense has both business and private use, only the business portion can generally be claimed.
The better approach:
Keep dedicated business bank accounts and cards.
Use personal accounts for private expenditure.
If you accidentally use the wrong card, record the transaction correctly rather than trying to make it look like a business expense.
Clean accounts make bookkeeping easier and give management and owners a much clearer picture of how the business is actually performing.
3. Assuming your accountant already knows
We know a lot about your financial affairs.
Unless you tell us, or it is detailed in your accounting system, we do not automatically know that:
You bought another vehicle.
A director paid a business expense personally.
You opened a new bank account.
A customer debt was written off.
You refinanced a property.
Your business started using a new payment platform (e.g. Airwallex).
You sold an asset that disappeared from the premises six months ago.
If something financially significant happens, tell us.
4. Ignoring ATO correspondence that needs your attention
As your tax agent, Salt receives much of the ATO correspondence relating to your tax affairs and will generally contact you where something requires your attention. However, the ATO may still send some correspondence directly to you.
If you receive something directly from the ATO:
Check whether Salt has already contacted you about it.
If you are unsure what it relates to, send it through to us.
Check for any due dates or action required.
Don’t assume that we have received the same correspondence.
Often there is nothing to worry about, and we may already be dealing with it. But if the ATO has contacted you directly, letting us know promptly gives us time to confirm what is required and deal with any action before a deadline passes.
5. Thinking the bank statement tells us everything
It often tells us who was paid and how much. It doesn’t necessarily tell us why.
A payment marked “Supplier name $486” could be materials, tools, office equipment or something unrelated to the business. We may not necessarily know who the supplier is, or what the payment was for. Those details matter.
The ATO requires businesses to keep records supporting their deductions. It also makes clear that an expense with a private component needs to be apportioned and that records are required to substantiate business deductions.
For individuals, the ATO similarly notes that a bank or credit card statement on its own may not provide sufficient written evidence because it may not identify the nature of what was purchased.
Keep invoices, receipts and enough information to support your transactions. Hint: Saving invoices and receipts directly against the relevant transactions in Xero or your other accounting system is a simple way to make record keeping easier and ensure the supporting information is readily available when needed.
6. Using “miscellaneous” as an accounting strategy
Miscellaneous should be for minor expenses or a temporary holding place, not one of the largest expenses in the profit and loss statement.
The same applies to:
Ask My Accountant
Suspense
Other expenses
Uncategorized
That transaction you promised yourself you would remember six months later
If you aren’t sure how something should be treated, leave a note or ask while the transaction is still fresh.
7. Waiting until tax time to discover whether the business made money
Your annual financial statements should confirm what management and owners already broadly understand about the business, not deliver a surprise ending. It’s also difficult to undertake tax planning once the end of financial year has passed.
Timely financial information can help businesses monitor:
Profitability
Cash flow
Debtors
Costs and margins
Tax obligations
Whether drawings and distributions are sustainable
Accounts are much more valuable when they are used to make decisions throughout the year, rather than simply produced to satisfy a compliance requirement.
8. Assuming everything bought through the business is tax deductible
Putting the business name on an invoice doesn’t change the character of the expense.
The ATO's position is straightforward: private or domestic expenditure is generally not deductible, and expenditure with both business and private use needs to be apportioned.
Ask a simple question: what was the business purpose of this expense? If the answer requires an unusually creative explanation, discuss it with us before claiming it.
9. Keeping perfect records for eleven months and then giving up
Consistency beats perfection.
A reliable bookkeeping process followed throughout the year will ordinarily produce better information than a heroic clean-up immediately before the BAS or tax return is due.
Set aside regular time to:
Reconcile accounts.
Upload invoices and receipts.
Review debtors and creditors.
Explain unusual transactions.
Check that payroll and superannuation information is complete.
Raise questions while the details are still fresh.
We’re not actually asking for perfection
No accountant seriously expects every client's records to arrive immaculate and every transaction to have a beautifully written explanation.
What makes the biggest difference is having straightforward systems appropriate to the size and complexity of the business, keeping business and personal finances separate, retaining supporting records and asking questions before significant transactions occur.
At Salt Financial Group, our role extends beyond preparing accounts and tax returns. We work with businesses and their owners to improve the financial information behind their decisions, identify issues earlier and help them plan before an opportunity or problem becomes a completed transaction.
And yes, we would still really like you to stop putting everything into “miscellaneous”.
Have a question before making your next financial move?
Talk to the team at Salt Financial Group. Getting advice early can help you make informed decisions and avoid unnecessary complications down the track.