I first met Sally at a networking event. She had recently opened a gym offering…
Accounting Software Is Not 100% Automatic
In recent months the marketing campaigns that online accounting software companies are producing seems to give business owners a false perception of its automation processes.
Many of my colleges both accountants and bookkeepers are excited that Small Business owners are embracing online technology, but are surprised at the mess that clients create within their accounts. Small Business owners have a belief that all they need to do is upload a phone app, connect the bank accounts and click buttons to have an accurate Business Activity Statement (BAS).
In the past month alone, I have spoken with a dozen new enquirers who have told me that they are up to date with their data entry and have completed a bank reconciliation. However, upon looking at their accounts, all I could see was that they had connected their bank account for bank feeds and accepted the transactions. No wonder they were all confused when they attempted a BAS report, and it didn’t look right!
What’s the issue?
Small Business owners are producing BAS statements that are not accurate, nor a true reflection of their income/expenses due to ignorance.
Online accounting programs can only produce financial data to the level of accuracy and quality input by the user. A bookkeeper needs to have completed a diploma and up to 1,500 hours of experience to qualify as a BAS Agent with the Tax Practitioners Board.
Yet, it would appear on face value that accounting software marketing suggests that a Small Business owner can produce an accurate financial report with little to no experience.
Online accounting basics.
To help explain how involved the setup of an online accounting process is, I will use the example of Bob the Landscaper.
Bob is a sole trader and wants to start his bookkeeping online from the 1st July. Before sitting down and watching the ‘How to set up your bookkeeping’ video, Bob will need to have the following documentation available:
- Bank statements to the 30th June of the last financial year.
- A list of all his suppliers and customers with their Australian Business Number (ABN), email, phone and address details.
- A list of all the different fertiliser and mulch items he sells.
After viewing the video, Bob goes into the chart of accounts to add his two bank accounts, the business credit card and a Bunnings Powerpass card.
Bob will now click into the settings to set the conversion date as 1 July (YEAR) and will type in all his conversion balances as of the 30th June (YEAR).
The financial details updated, Bob will now add his supplier and customer details and go to inventory to add in his fertiliser and mulch items.
Bob feels pretty proud of himself and now expects the software to do all the tax coding, GST reporting and bank reconciling itself, after all, isn’t it automatic?
What about Bob’s GST registration? Is it cash or accrual? What about his reporting schedule, is it monthly, quarterly or on an annual basis? All of this will need to be adjusted in Bob’s accounting software to produce the right information at BAS time.
Bob needs to have a basic understanding of what expenses are subject to GST and which items are GST free. These may need to be adjusted within the Chart of Accounts to produce an accurate report.
If you are getting the picture that the setup is more involved than most might assume, you would be correct.
The reality of online accounting is its convenience and flexibility. A Small Business owner can invoice their customers, add expenses and bank reconcile on the road or while waiting for a doctor’s appointment.
Active participation on a regular basis is required to do the invoicing, input an expense, match the income/expenses to the bank feeds. Then, when the bank statement shows up in the email inbox or in the post, a Small Business owner will need to manually ensure that the bank reconciliation in the accounting software matches the physical bank statement closing balance to the cent.
This is the current reality of online accounting software, where approximately 15 minutes of physical participation from the business owner is required at a minimum each and every week.
AI is coming.
In the future, artificial intelligence (AI) may be able to help a Small Business do much of the above, but some involvement of the human eye will always be required to ensure accuracy.
As a business owner, it is a legal requirement by the Australian Taxation Office to ensure you keep accurate business records.
Part of this process, should you decide to use online accounting, means you either physically enter the data, or pay a qualified professional to do it for you.
Online accounting is a convenience all business owners should take advantage of and educate themselves on how to use effectively to grow their business and achieve their financial goals.
If you would like to know more about online accounting, please feel welcome to comment below or contact me on social media.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
SHARE THIS ARTICLE WITH LIKE MINDED SMALL BUSINESS PEOPLE