“Help, my business is growing!”: Setting up your bookkeeping for the next phase

Most small businesses start as one person – it’s just you and the big, wide business world! But that’s OK because you can still manage everything yourself at this point. You can keep your books, send out orders and even report to the tax office. (There’s a lot of automation to help you.)

But if you want to grow, you can’t do it all yourself. You need to get somebody on board to help you, like an employee, or an external bookkeeper or social media manager.

And, that means getting the right bookkeeping system set up correctly to help you. In this article, we’ll break down all the options for you so you know exactly what to do.

Taking on an employee

When you decide it’s time to get an extra pair of hands to handle your business demands, you also need to think about your bookkeeping structure.

Paying and managing employees was once a simple process of negotiating wages, keeping time records, calculating pays at the end of pay period, deducting tax using the tax table and paying your staff.

Unfortunately, this simple time has passed. Of course, you can still do manual payroll – but everything after that gets much more complicated if you do. You need to align wages with the regulatory award, add loadings correctly, and keep many holiday and sick leave records. And then you have to report it all to the ATO every time you run a payroll.

This has become an impossible task without a great bookkeeping system that can do the heavy lifting for you, including reporting your payroll data to the ATO in the way they need it (once everything is set up correctly).

So let’s discuss how to set up your bookkeeping system in your growing business.

Finding the right bookkeeping system

Deciding which bookkeeping system is right for you is a choice to make wisely. It’s like a marriage – you’ll probably spend the rest of your business life together and it’s often messy if it goes wrong.

If you have a dedicated bookkeeper, ask them what system they use if you don’t know, as the decision about what to use may already be made.

But if you’re in a position to choose the right bookkeeping system for your growing business, here are some options to consider.

Xero

In Australia, lots of bookkeepers and accountants recommend Xero. This system has taken over from MYOB in the last 10 years as the most used accounting system. There are plenty of reasons for this:

• It was the first to offer cloud-based accounting, which has made it much easier for accountants and businesses to collaborate.
• It turned common accounting principles on their head by providing a user-friendly solution that didn’t require knowledge of the debit/credit principle.
• It was the first system that enabled people to do basic bookkeeping without any bookkeeping knowledge.
• It automated lots of processes for accountants and bookkeepers, so they could do tasks in half the time (or less).
• It gave accountants and bookkeepers big incentives to convince their clients to change.

As you can see, Xero offered many positives for the accounting profession, which is why you see so many Xero-only bookkeepers and accountants around today.

Other options

If you don’t want to jump onto the biggest and loudest horse, several other bookkeeping systems have caught up in user friendliness over the last few years.

QuickBooks is the largest accounting system in the world. It was never really big in Australia, but it’s caught up rapidly since QuickBooks Online was released with huge improvements in user friendliness.

Two other big contenders are MYOB and Reckon, which are both online now and good products. There are also smaller and more specialised solutions to consider, like Zoho.

In the end, it’s a process of elimination to determine the best system for your business both now and into the future.

What’s involved in bookkeeping?

OK, you’ve made up your mind about your bookkeeping system and you’re ready to hire your first employee. What do you do now?

The bookkeeping process can be as simple as tracking income and expenses through bank account allocations (often falsely called bank reconciliations). You can probably do this yourself if you’re either not registered for GST or you are registered and understand all the GST rules.

But if you need to do any of the following processes, your bookkeeping will get trickier and you should seriously consider professional help – unless you’re happy to watch all your system’s online webinars to learn what to do. It really depends on how you work best.

Invoice management

If you need to issue and track invoices through your system, invoice management or accounts receivable are involved. At this point, you’re not just dealing with money inflow = income; you’re adding another layer of unpaid invoices as well.

Unpaid invoices can be reported as income or not, depending on the reporting structure you’ve set up for your business. This requires a professional to make sure it’s set up the way you want it and the way the ATO needs it (which can be two different things).

With invoice management, you’re also adding a layer of invoice tracking:

• Are invoices being paid on time?
• Do you need to send reminders?
• Do you need to issue credit notes?
• What happens if customers don’t pay in full?

Everything needs to be managed correctly to prevent double taxing.

Purchase management

On the other side, you might want to track your orders and purchases, and pay them once a month in bulk. You’ll find lots of pitfalls here if you use a bookkeeping system and don’t understand the process.

Just because you can put an invoice into the system with your receipt-capturing functionality (or even e-invoicing) doesn’t mean it will be processed as an expense or matched with the payment.

If you have very simple purchasing procedures, you’re better off leaving unpaid bills out of the system until you pay them, and then capture them  when clearing out your bank feed.

If you want to handle ordering and purchase management through your system (because it’s one reason you got it in the first place), make sure the process is set up correctly.

Firstly, understand that e-invoicing is the future. Invoices will move directly from system to system with no need for paper invoices or email receipts. Systems will exchange information with each other directly. So make sure your chosen bookkeeping system can cope with this.

Additionally, you should decide if you want to keep inventory. If you run an e-commerce business, you may already have an inventory list set up for selling. But do you also want to track purchase inventory? This is a big decision that you should consider at the start because changing halfway through could be costly. We recommending talking to an expert.

Let’s say you want to keep it simple – track only expense categories, not items, but also track unpaid bills and pay in bulk. To do this, you need a system that processes your submitted bills and matches them with your payments. You can do this yourself, but you need a professional to set it up first and have someone monitor it regularly.

Payroll

This is a big task and, as mentioned previously, you need an accounting system that fulfils your reporting tasks for the ATO.

There are many components to consider when setting up payroll:

• How do you onboard employees?
• What award do employees fall under?
• What employment basis do you use, e.g. full time, part time or casual?
• Do you need to add any loadings to the wages?
• If you’re paying an annual salary, does the salary cover all duties?
• How do you track working times, if applicable?
• How do you import timesheets into payroll?
• How do you pay employees’ superannuation?
• Where do you keep employees’ withheld tax?

A bookkeeping system is a tool and only as good as its setup. Don’t try to do it on your own. Once the system is set up correctly and you know the rules around employment, then you can do it yourself – preferably under the watchful eye of a professional.

Tax and super management

When you do BAS reporting throughout the year, you’re not actually reporting your tax – you’re reporting other people’s tax that you’ve been entrusted to manage while running your business. This is very important for you to understand.

If your business is registered for GST, you must collect Goods and Service Tax (a consumer tax) for the ATO. Additionally, when you pay your employees, you must withhold their tax and pay it to the ATO later. A good bookkeeping system will manage these two main components of BAS reporting if it’s set up correctly by a professional.

If you’re thinking about lodging your own BAS, read this article first.

Getting professional help

As you can see, there’s bookkeeping and then there’s bookkeeping. Lots of components are automated, but you still need professional knowledge when you set up your processes.

You should certainly take advantage of all the do-it-yourself options, but you should look for a management accountant to take advantage of all the great help your bookkeeping system can provide. The more your business grows, the more essential this will become.

Another important consideration when your business is growing is whether you have the right business structure. Read this article about choosing the right business structure.