I'm not referring to religion, although I can definitely see a correlation between gluttony and dishonesty or between sloth and not keeping any bookkeeping records. Like the biblical sins, doing the wrong thing in your bookkeeping could have you having a devil of a time facing the ATO at your time of reckoning when you have a tax audit. Here are the 7 sins to avoid:
Sin # 1 - Dishonesty. Dishonesty does not pay off - it's not a matter of if you will get caught, but when. You cannot code your home renovations as business purchases. Don't mislead or lie to your bookkeeper or Accountant. Cash income is declarable; living off cash from your "till" will show as the ATO also look into how you live. If you have a certain lifestyle and can't show how you live that lifestyle, they will investigate. Even switching dates or periods can be dangerous. One particular bookkeeper redated a genuine business expense to bring it forward so that the client had a smaller BAS now. The client was audited and fined 50% of the transaction, so this ended up costing the client $43K! Whilst the bookkeeper admitted to the redating activity (which the ATO saw as fraudulent) the business owner is responsible. Be sure that your bookkeeper knows you do not want them doing you any favours. Be clear of what your policy is and that you want everything to be above board.
Sin # 2 - Accuracy. Get your bookkeeping right. I've seen chunks of personal money coded as income and classified as being a GST transaction. If you are depositing capital into your business, keep it round figures (such as $10K, $100K etc) and be sure to advise your bookkeeper that it's capital injection. The last thing you want is $100K capital investment being coded as income. If you were a company, this would cost you $30K income tax and $9K in GST .... a giveaway payment of $39K. Another example of errors is where the bookkeeper had not coded the commercial rental income for 2 years as a GST-able transaction. We found $40K in GST to be claimed back. These are large expenses, but frequently we see motor vehicle registration either over or under claimed in GST (it's not exactly 1/11th), or insurance or electricity. Check your paperwork and ensure that the GST on the paperwork is the amount you are claiming. Having a consultant (a bit of plug here for us) check your file regularly is always a good idea, especially before BAS time.
Sin # 3 - Backups. I cannot count the times I've heard of businesses who've lost months/years of data due to a computer problem; everything from the computer dying or it (literally) drowning in flooding. There are great computer techs out there who can advise you on the best options available (everything from remote backup services to a simple external hard drive). So after a big day of data entry, please, backup. If rekeying 4 hours of work sounds painful, then backup every 4 hours.
Sin # 4 - Changing Figures are your BAS. Once you have lodged your BAS, then don't change the figures. Many programs, such as MYOB or Cashflow Manager, have the ability to lock reconciliations or periods, so be sure to use these features. You wouldn't change your figures after lodging your tax return, so don't do so after your BAS.
Sin # 5 - Having No Figures. Not sure if wrong figures is worse than no figures at all? If you don't have your bookkeeping done, then chances are you also are not collecting your debts promptly, not paying your bills on time and losing money left, right and centre. You also probably haven't lodged your BASes and will start being fined. And of course, how can you possibly know how your business is performing if you have no figures?
Sin # 6 - Keeping No Records. It may be that you never collect invoices or receipts when you pay for things, or you simply don't keep them. There's a legal obligation to keep paperwork for 5 years from the point when you lodge your tax return. Paperwork for 2013 would normally be kept till 2018. However, say you don't lodge 2013 until 2016. Then you need to keep everything till 2021. Be diligent when you make purchases or pay suppliers and get an invoice there and then.
Sin # 7 - Being Ignorant. You've heard the phrase "ignorance is no excuse" and as a business owner you have a responsibility to yourself and the business to understand your figures regardless of your education standard. If you don't know, the best way to learn is to ask questions. Ask a Mentor, your accountant, your bookkeeper, a business savvy friend. No question is a dumb question if you need to ask it. And remember, look at your figures and regularly check your financial reports - it's your job as a business owner to know what the figures are telling you.
Donna Stone is the founder of the multi award winning Stone Consulting and an experienced Business Coach with 30 years' experience helping businesses succeed. She is a three times published author, speaker and advocate of business in the Redlands. Learn more at www.donna-stone.com.au.
© Donna Stone, 2015