Kiwis love DIY – it’s in our DNA!
When it comes to home renovations, fixing cars or managing your own business and books, we love to do it ourselves.
This makes sense for a lot of small businesses when cash is tight and there are accounting software options readily available in the market which theoretically make the task of bookkeeping and accounting a breeze. But does it really save you money?
Trying to save money by doing your own accounts can often end up actually costing you more in the long run. Even a simple mistake can cost you time and money as you try to identify the mistake in the first place and then try to correct it. Often, as accountants, we spend a lot of time fixing these errors. Reconciling GST, wages/PAYE, FBT and income tax, and analysing revenue, capital expenditure, deductible and non-deductible expenses all takes a lot longer when there are errors in the bookkeeping and accounts.
DIY Accounting: Common Issues Faced by DIY Bookkeepers
Lack of Accounting and Taxation Knowledge
A thorough knowledge of accounting and taxation is required to minimise the potential risk of inaccuracies when coding and entering business transactions. While you may think that you are successfully saving money by doing it yourself, in the long run your insufficient knowledge of accounting and taxation principles may cost you. Inaccuracies in processing wages/PAYE, GST, FBT and PAYE can lead to penalties and interest from the tax authorities.
Lack of Knowledge About Accounting Software
One of the biggest obstacles for business owners who choose to tackle bookkeeping themselves is mastering the use of their accounting software. When you know how to effectively use an accounting software package, it can really speed up bookkeeping and make it a much easier task. However, if you don’t know your way around an accounting software package, bookkeeping can seem like a nightmare. From the outset, many business owners choose an accounting software package that doesn’t completely fit their needs, so not only are they challenged with mastering the software but they must also try to somehow adapt it to their needs.
Lack of Knowledge of Business and Employment Laws
Having a good understanding of the rights of employees and their entitlements is critical for business owners because one simple mistake can end up incurring substantial costs. Keeping thorough and accurate records of employee entitlements, holiday pay and tax deductions is essential. Getting it wrong not only can result in IRD charging additional penalties and interest on any tax shortfall, but you can be prosecuted through the courts for failing to comply with the law.
Missing Deadlines
Trying to complete all of the bookkeeping tasks for your business by yourself can put you at risk of missing important tax deadlines. When you are not exactly well-versed in bookkeeping duties, it is easy for things to get on top of you and result in missing important deadlines. Unfortunately missed tax or accounts deadlines can incur interest and penalties.
Mistakes can hurt, especially when you think you can handle everything and save money but instead end up paying more. The many hours you spend trying to get the accounts right is all time you could have spent on earning more income for your business.
When it comes to DIY accounting, you need to be prepared to accept a higher level of risk. Only you can determine whether it is a risk worth taking!
Our tips for getting the most out of your accountant:
- Look at your accountant as a partner in your business, not just someone whom you provide information to in order to get your return filed on time or to submit accounts to your bank.
- Get your accountant to visit your business regularly or call them to review your books and advise you on ways to improve. They can offer a fresh set of eyes and a different perspective, and use their financial expertise to provide appropriate advice.
- A good accountant can help you to read and interpret your financial data more effectively and can uncover ways to achieve better results.
Len Kumar is an Accountant and Manager at UHY Haines Norton.