xero

Bookkeeping tips for tradies

Tradies tools drill spanner

Receipts

Keeping receipts can be annoying and it’s easy for them to get damaged or lost, but when you think about each one as another tax deduction they take on a whole new meaning.  My top tip is to take a photo of each one so you can save it electronically.  The Australian Taxation Office accepts digitally saved copies of receipts that can be clearly read. Keep a plastic or material folder in your ute or van, write “Receipts” on it and put each receipt in here for safekeeping until the end of the week or month when you have a chance to enter it in your books. Once recorded, file it away in a labelled folder in date order. I keep electronic copies of all receipts, save a copy within my Xero accounting software and also have back-up copies on my laptop and a USB.

Don’t mix personal with business

One of the first things you should do is to open a separate bank account, solely for business purposes.  Use this account for business spending only and ensure all customer payments go into this account. Mixing business and personal spending can turn into a headache very quickly and can be easily avoided.

Vehicle expenses

As a tradie your business vehicle is probably your daily transport, storeroom, office, lunch room etc etc. You are going to cover a lot of kilometres in a year and so it’s important to get the right amount of tax deductions.  There are a few different methods of claiming your vehicle expenses – the ATO website explains them pretty clearly.

Equipment

You will no doubt have invested in good tools and safety equipment that are used in the running of your business.  Keep the details of all this equipment.  This can be done in a basic spreadsheet or Word document.  Include price, brand, serial numbers and where you bought them.  This will help with end of year depreciation (something your accountant can do for you) and is also helpful for insurance purposes.

Get a record-keeping system in place ASAP

This can be an Excel spreadsheet or accounting software – the important thing is to get a system early on.  Your priority in the beginning may be knowing you have consistent work and enough cash in the bank to cover your immediate expenses, but down the track being able to get easy access to your financial information (most profitable services, which clients are slow payers etc) can be the difference between having a struggling business and a growing, successful one. If you have the funds I would recommend using accounting software from the beginning. A good bookkeeper or accountant can help you choose.  My tip is to get a free trial, make sure it does everything you need it to and that your bookkeeper/accountant can work with it. I previously made a short video called 3 Simple Steps to Getting Your Bookkeeping Sorted.  You might also like Do I Need to Use Accounting Software?

Keep an eye on your bank account

If you get into the habit of checking your bank account regularly you will get a feel for what time of the month loan payments come out, when funds are running low, if there is any suspicious activity etc.  My software is linked to my bank account and every day I can see any bank activity from the day before.

Get customer contact details

Preferably more than 1 type in case you need to follow up unpaid invoices. If you are extending credit to some customers by allowing them to pay at a later date, it’s only a matter of time before you find some customers that won’t pay you on time or will try to avoid paying altogether.  By having several ways to contact them (email, phone, letter) you can follow up unpaid invoices easily. My top tip – keep a written record every time you contact a late paying customer and include dates, what was agreed and who you spoke to. For more help on this topic read Top 6 Tips – Keeping on Top of Customer Payments.

Plan for tax

Open a separate bank account and transfer a percentage of your income aside each month or quarter. Tax time can be stressful when you are running a business so avoid having that extra worry of trying to come up with a large amount of money for tax in one hit.

GST registration

At the time of writing this post the GST threshold is $75,000.  Keep your eye on your GST turnover throughout the year to see if it’s edging towards the threshold – at which point you’ll need to register.  For more of my tips on GST read Common GST Mistakes and BAS Tips for Aussie Small Business Owners.

Insurance

Make sure you have the right insurances.  As a Registered BAS Agent I have to have certain insurances in place in order to keep my licence and this is also the case with many other professional bodies.

Thank you to all my readers of the Savvy Bookkeeping Blog.  You may have noticed I love writing about small business and not-for-profit bookkeeping. I share more useful and fun bookkeeping information and videos over on my business Facebook page – Festival Bookkeeping.  Why not come over and follow me there? Love to hear from you.

 

Happy bookkeeping…

 

 

 

Xero – One of the features that saves me time

working-with-xero-on-laptop

There are a lot of features Xero has that save me time whilst I’m wading through merrily singing my way through my bookkeeping.

One of my favourites, though, is one of the most simple and basic features that Xero offers. The feature I’m talking about is copying transactions.

To give you an example, I do very similar work for a client each month, with a few changes here and there.  Because I like to be transparent in how I charge I include extra detail so that clients can see exactly what I’m charging them for – therefore my Invoices can sometimes be lengthy.  I wrote about this in my previous post 3 Simple Tips to Improve Cashflow.   I don’t invoice at the same time of the month every time, so automatically repeating Invoices isn’t the best option in this case.

When I’m ready to charge those clients I simply search for that client’s name in Xero, click on the last Invoice and copy that Invoice.  I copy by selecting Options then Copy in the top right hand corner.  I can then tweak it with any adjustments needed, but the bulk of the information is already there and my wording is consistent from one Invoice to the next.

Copying also works for transactions like Spend Money and Receive Money as well.

I try to remember to work smarter and not harder and this is one of those simple things that makes a difference when it comes to the sometimes very time consuming task of small business bookkeeping.

What is one way you work smarter and not harder?

Other tips on working smarter, not harder:

 

 Happy bookkeeping…

 

Small business owners – Wages or Drawings?

working-at-table-with-laptop

The issue of paying yourself money from your business can be confusing.

Technically, a Sole Trader cannot employ themselves. Money a sole trader takes out of the business for personal use is classified as “drawings” and is not considered wages for tax purposes. Drawings are not allowable deductions for the business.

Transactions that you record using the account Drawings are not reported in Activity Statements that are lodged with the Australian Taxation Office.

This is also the case for someone who has their business set up as a Partnership. At law, you cannot be an employee.

If your business is set up as a Company, you can be an employee of the company.  You can pay yourself wages and would therefore withhold PAYG withholding tax if your wages are above the tax free threshold.  Unlike drawings, wages are allowable deductions for the business.

Transactions that you record using your “Wages” accounts are also not reported in the “Goods & Services Tax” section of your Activity Statements – only the “PAYG tax withheld” section.

Because Drawings and Wages are both outside of the GST system the tax codes to use in your accounting software are as follows:

Xero = BAS Excluded

MYOB = N-T

Reckon Accounts = leave the tax code blank

 

You might also like:

 

Happy bookkeeping…

 

3 simple steps to getting your bookkeeping sorted

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If you have just started a business you may be stressing about whether you are on the right track with your accounts.  If you have been in business a little while you may be wondering if there is an easier way to keep on top of your accounts.

Once you start looking into the various accounting software options out there, unless you are in the business of bookkeeping or accounting, it’s not uncommon to become overwhelmed or confused.

I like to keep things simple, so I’ve come up with 3 simple steps to help you out and get you started.  These are 3 steps I’ve used to get clients up and running with accounting software.

3 simple steps to getting your bookkeeping sorted (Video)

Importantly, don’t forget to try your software out for free first.  Get a feel for it and make sure you can easily get answers to any questions you may have via their help centres, forums, videos, email support etc.

Happy bookkeeping…

If you enjoyed this you may like:

5 reasons using Excel may be holding your business back

Laptop Xero

Excel is a great tool for business.  I like to use it to manually check payroll calculations, particularly when setting up new accounting software for a client.  However, it’s not always the best choice for business bookkeeping.

Here are 5 reasons that it might be time to move on from Excel:

1.  Doubling-up of transactions

In Excel you don’t get a warning if you try to enter the same bill number or invoice number twice, whereas you would if you used accounting software. Doubling up on accounting transactions can get you into a real mess.

2.  Time consuming

It is time consuming to set up a detailed, useful spreadsheet.  You need to have the end result in mind before you even start and then work out a design that will get you that end result.  A lot of time is wasted if you are part way through setting up a spreadsheet only to realise that it can only do half the job you need it to do.  For example, you might be able to set up a spreadsheet that tracks all of your income and expenses, but it is tricky and time consuming to set it up to track tax codes for your Business Activity Statement as well.

3.  No audit trail

If more than one person is entering information into a spreadsheet it is difficult to tell who has entered or changed information.  This leaves the door wide open for fraud to occur.

4.  Costly errors

Excel spreadsheets can be linked to other Excel spreadsheets, which can save you time.  However it is easy to link a cell incorrectly which results in errors that can be hard to detect.  You could be using the same spreadsheet for months without realising it is picking up incorrect figures from another spreadsheet.  Just like in Reason # 1, Excel doesn’t warn you of potential errors.  A quick internet search for “spreadsheet mistakes” shows just how costly some of these errors can be.

5.  You still need to invest time into learning how to use Excel properly

You can teach yourself how to use Excel and set up spreadsheets, however with such easy to use accounting software on the market now, isn’t your time better spent learning software that will do most of the hard work for you?  For example, using software with automatic bank feeds, such as Xero, can reduce time spent on manual data entry once set up correctly.

3 Simple Tips to Improve Cashflow

3 tips for improving cashflow

I think I’ve read almost every small business finance book in the Tea Tree Gully library here in Adelaide – some of them twice.

I’ve found 3 great tips that I’ll be incorporating into my business.  They are not only an easy way to help increase cashflow but will also help tweak your mindset if you find your confidence flagging.

This is from Accounting for the Numberphobic by Dawn Fotopulos.

Dawn writes:

“Invoices become a running record of the value the business delivered for every client – a testimony of what’s been accomplished.  Listing the benefits the client received is the key to differentiating your product or service from others.  It will remind the client of what makes the business you manage different and more professional than that of your peers”.

She goes on to write “Invoices help to build the reputation of the business”.

Have you ever considered the effect your invoice has on your client when they receive it? Is it possible they look at your invoice and think “How did he get to that price? What exactly did they do in that 8 hours they have charged me for?”

If you’ve poured your heart and soul into providing a great product or service for a client – don’t risk your invoice getting put on the backburner whilst your client pays everyone else before you.  Remind your client of the value you have provided so that paying you is that much easier and they have a great reason to use your business again in the future.

So these are my 3 tips for improving cashflow & boosting business confidence:

  1. Include a detailed description on your Invoice of the service or product you’ve provided and remind them of the value you’ve added for them. Be confident in your invoicing!
  2. If some of the work was complimentary and isn’t being on-charged to the client – include that on the invoice so the client is aware.
  3. If 2 or 3 people have performed the work for the client – include their names to give more meaning to the work.

I’ll definitely be incorporating this into my own Xero invoicing for Festival Bookkeeping – it will only take an extra 5 minutes.  Such simple concepts and easily implemented. Love it.

 Looking for more small business tips? Here are some others that readers have liked:

 

Happy bookkeeping…

4 Easy Ways to go Paperless

Watercolour splash final

I think the first hurdle to going paperless is probably a psychological one – you like knowing that you can physically hold those important pieces of paper and it is hard to change systems that you’ve been using successfully for years.

I’ve recently gone through the process of getting accounting records to an auditor who was interstate. It involved a lot of scanning of supporting paperwork, which was very time consuming. Now that I’ve gone through that process I’ve changed the way I work throughout the year for that organisation so that I will be better prepared for next year’s audit. The added bonus is that more of the organisation’s documents will be saved in soft copy that can be easily backed up with the rest of the accounting information.

Here are 4 easy ways you can go paperless:

1.  Online banking

This is probably the easiest and most readers have probably already embraced this one. Pretty much everything can be paid by electronic funds transfer, credit card or PayPal. If other people are responsible for making payments in your business, don’t forget to protect your hard-earned cash by having 2 separate people responsible for authorising online payments.

2.  Emailing customer invoices and statements

No need to print them out and post them – email them from your accounting software instead.

3.  Cloud accounting software

If you don’t have reliable internet, then cloud accounting software may not suit your business. However cloud accounting software providers are introducing more and more features to help you move towards having a paperless office. For example, you can have bank transaction info fed into your accounting program direct from the bank. Another example is saving copies of documents that have been sent to you straight into your software without having to print them off first. Whilst entering transactions in Xero I can use my laptop’s webcam to take a photo of supporting documents and attach them right then and there. Very cool!

Australian businesses have the option of keeping electronic copies of source documents instead of hard copies, as long as these copies meet the requirements outlined by the Australian Taxation Office. Be sure to check the record keeping requirements applicable to your country.

4.  Paperless Reporting

For those of us Down Under, the Australian Taxation Office is very much moving towards paper-less reporting. I’m sure the tax authority in your own respective country is either offering options for paperless reporting, or will be in the near future. For example, Business Activity Statements can be lodged electronically using the Business Portal. You can get a nice little reminder email when the next one is available to complete and lodge, as well as direct confirmation that your BAS have been received (no more posting it in the mail and hoping they receive it on the other end).

These tools are just the tip of the

I’m not suggesting everyone jump in the deep end and eliminate every piece of paper in the office – one step at a time is great and will give you a chance to get used to new ways of working without being overwhelmed. On the other hand, you might be an all-or-nothing person that wants to jump right in and embrace the concept fully.

I wish you well in your quest to go paperless!

What tools do you love that have helped you go paperless? Don’t be shy – I would love to hear your ideas in the comments section below!