Just this week, I had to complete my first ever Business Activity Statement (BAS). Depending on whether your business is registered to pay or receive GST (goods and services tax) will determine whether you know of or are required to complete, the BAS. What it reminded me of was two very important things:
- Know your numbers
- Accountants are an essential investment for your business
Registering for GST is only mandatory in an Australian business when your turnover (not including any GST turnover) is equal to, or greater than $75,000. In my business, as most of my income is directly proportional to hours worked, I registered for GST in preparation for when I achieve my first major business milestone of having three full-time employees (a.k.a. full-time work for myself and my two business partners). Because of this, I am required to complete a Business Activity Statement for each financial quarter. In part of completing this form, I utilized many of the ‘report’ functions within QuickBooks Online (QBO – the online bookkeeping software I utilize in my business). It wasn’t until I created these reports, in the hopes of completing my BAS via the online business services portal, that I realized the mess my books were in.
I had purchases labeled ‘GST free’ because I didn’t understand there was a difference between ‘GST free’ and ‘GST out-of-scope’. I had managed to duplicate every single employee’s wage within my books so that my PAYG (Pay-as-you-go tax withholding) amount owed was twice what I actually owed. And, on top of all that, I’d labeled all my employee wages as ‘GST free’.
If that all sounds confusing – that’s because it can be, very easily. But, let me break it down for you.
GST Free: Products or services which are allocated as GST Free, so there is no GST to be paid on them.
Out-of-scope: Monetary payments that aren’t related to products or services (e.g., employee wages, superannuation, or tax).
My saving grace in this entire situation, as the self-appointed business bookkeeper, was that I reviewed every transaction and I carried out the task of completing wage payments myself, and I have a pretty good memory… So, as soon as I saw the values that the reports gave me, I knew that something wasn’t quite right.
Fortunately, my mum has been the bookkeeper in my parents’ business for over a decade and knows a thing-or-two more than me. So, having someone knowledgeable in my corner helped me to recognize my mistakes and correct my GST records. Still, it took me utilizing QBO’s live chat function for them to point out the mistakes I’d made in duplicating my employee wages by listing them as the wrong transaction type.
Despite the reports being significantly inaccurate until I’d identified and rectified my mistakes in my financial records, I was still able to reconcile my books within the software to verify that I had recorded all my expenses and income and that it aligned with the dollar value in my bank account. It wasn’t until I had to go beyond those surface numbers and into the business reports that the simple mistakes I had made in my books became apparent. All it would have taken was a lack of questioning from me, and I would have depleted all my business revenue by overpaying on my BAS.
The reminder is that in our own businesses, we can’t be expected to know everything. The craft of accounting is beyond just recording the money that goes in and out, there’s an entire system of subcategories that can completely change the financial situation of a business. I’m fortunate to know someone who is prepared to help me understand the fundamentals, to get through the BAS reporting process with the right GST labels. But, when it comes to the end of the financial year, I won’t be finalizing my own books because it’s often the things we don’t know that sting us. So, acting on the things I do know, a trusted accountant can mitigate all the risk of overpaying, underpaying or misunderstanding my business’s financial situation. The expenses of their services are less of an expense, and much more of an investment, and is something I would highly recommend you consider for your own business.
I’m sharing this rather specific and dense experience because I know that I’m not the first person to start a business and misunderstand or feel challenged by the financial reporting requirements. I promised to be transparent in my journey, and this could have been a thousand-of-dollars mistake within my own business. Now, in your business, hopefully, you’ve been saved from making the same mistakes I did.
Make sure to let me know what you think in the comments – whether you found this article helpful and want more specific articles like it, or whether you’re in the need for some inspiration after this dense read!
Thanks for reading! Make sure to leave a comment and let me know what point stood out to you the most.
I look forward to seeing you here again!
Disclaimer: I am not a business advisor and have not provided specific business advice as business is a diverse field full of unique contexts and situations. I will show you where I sourced information and how I made my decision, but it is up to you to determine whether you need professional advice for your business situation.