Good Accounting is Good Practice

Is tax time a dreaded chore? Mark Muller and Peter Bembrick look at how you can minimise the dread and maximise the time and effort spent on preparing accounts by turning this into a valuable activity for improving your business.

While not all businesses need to have a full annual audit, all need to prepare some sort of annual accounts, even if only for tax reasons.

Businesses are currently in one of three positions on their account preparation for the financial year ending June 30, 2007. Many are in the throes of getting all the required material together so the accounts can be completed. Others are postponing, leaving it in the too-hard basket because they know it’s not going to be an enjoyable experience, and will put it off until the last minute.

A smaller number have already finished their 2007 year-end accounts (whether or not they have lodged their tax return) and are probably feeling very satisfied with themselves.

Few business people really enjoy the process of preparing accounts, but businesses that have put in place ways of getting it done easily and efficiently find they have useful information available. In doing so they put themselves in a position to make better business decisions. The data they have available is not only more likely to be accurate but will also be available at a time when it can be used most effectively.

Businesses that have their end of financial year accounts finished already have useful management information to plan activities and set budgets for the next year.

So accounts preparation should not be seen as just a compliance, pre-audit or tax return requirement. Businesses that stay on top of their accounting gain many benefits. Not the least of these is that if the accounts are being done correctly and completed promptly, it is one less area to worry about. Clerical employees are also likely to be more efficient and productive.

An obvious tip in doing this, but one we find is often ignored, is simply to take advantage of the work that must be done every quarter in preparing the compulsory BAS returns. The calculations that have to be done for these returns mean that a significant proportion of the work required to complete a full set of accounts for a business is already underway. It doesn’t make sense to complete the BAS and then put all the calculations to one side so that details are forgotten when final accounts for the year are prepared, or an audit undertaken.

Businesses that don’t keep records up-to-date will inevitably waste time unnecessarily looking for information or trying to work out what it was all about.

Financial Discipline

Having accounts that are ready for audit indicates an organisation that is organised and has a good financial discipline. This discipline will also be reflected in the way costs are controlled and finances are managed, and this is likely to improve the profitability of a business.

For example, timely reports allow a business to manage its finances better, reducing the cost of funding by improving internal funding in areas such as inventory and debtor management.

Good financial discipline also reduces the chances of fraud. If accounts are being processed correctly, any discrepancies or inconsistencies are more likely to be spotted. Fraud prevention techniques are also easier to implement as they simply become part of the system.