When the downside of cloud accounting becomes apparent
IF YOU FOLLOW XERO in the news, then you might already be aware that since the cloud accounting giant’s migrated over to Amazon Web Services (AWS), the technology arm of the e-commerce company, Xero’s servers have gone offline a number of times — twice this March alone.
Two weeks later, Xero had server issues again. This time an upgrade to its database server to improve performance resulted in issues that prevented some Xero users from logging into their account or to experience issues using the service once they did log in.
No options for offline access
Unlike some MYOB products, most cloud accounting programs, like Xero and QuickBooks, don’t allow for users to access their accounts in an offline mode or to download a copy of their own data to store locally on their computer or tablet.
MYOB, for example, allows users to access and work on a local desktop version of their accounts, which they can then sync with the cloud when they’re finished. This means, that even if the MYOB server is down, MYOB users can still work on and access their accounts, and sync later when the server is back online. (Or, conversely, when the user is back online, which handy in case of internet access issues.)
Xero, QuickBooks MYOB and AWS
Amazon Web Services provides either partial or complete cloud hosting to all three of the top cloud accounting programs — Xero, QuickBooks and MYOB — yet only Xero appears to have been significantly impacted by the AWS outage this past March.
While QuickBooks is mostly hosted by parent company, Intuit’s, own servers; some features and functions of the QuickBooks service have been developed on AWS as well, though it’s not totally reliant on the Amazon service and may have been spared from the Amazon outage.
But two key cloud-based MYOB products — MYOB Essentials and MYOB Advanced — have operated on AWS since 2011. Because users can access their MYOB products offline, however, any interruption to their service appears to have been minimal.
For what it’s worth, Amazon Web Services is the largest cloud hosting company in the world. It’s used by Netflix, Spotify and Apple Music, none of which went offline during the AWS outage.
Xero to learn from AWS issues
A Xero spokesman promised a “post-mortem” to learn what happened to cause their service to go offline on March 1, admitting that the company didn’t realise “it was entirely reliant on a United States storage facility operated by AWS until it crashed.”
Although AWS is the largest and, probably, most reliable cloud hosting service in the world, it’s not immune to problems. The challenge, then, for companies, such as Xero, is to learn from and about the potential issues that can arise, and implement measure to mitigate the impact to their customers.
In Xero’s case, a simple offline mode could have prevented much of the ire its outage caused bookkeepers, accountants and small business owners trying to access their service on a time limit.
EzyLearn’s course content has always focussed on real world scenarios, whether that’s in our case studies or in the exercises students are asked to complete. That’s because we want our students to get a thorough grasp of the kind of work they’ll be expected to do during the course of their job.
That’s especially true for students of our MYOB, Xero and QuickBooks training courses, who either are, or will work, as bookkeepers for a number of different clients from different industries. So instead of including generalised case studies and exercises in our course work, we include ones that relate to specific types of businesses and transactions you’ll encounter working as a bookkeeper.
Software companies and their developers do a great job at creating accounting software to manage a business’s accounting needs. But they don’t always know which different accounting scenarios will apply and when. Bookkeepers who understand Australian tax do, however.
EzyLearn doesn’t teach Australian tax law or procedures, but because our courses are developed by accounting practitioners, they’ll show you where different tax procedures apply.
A lot software training organisations are partners with a provider, like Xero or MYOB, and the train students according to how MYOB or Xero recommend them to. There’s nothing wrong with this kind of training, particularly if you’re only in need of a quick refresh or a general software skills.
Software partners vs. bookkeeping practitioners
Most software partners are companies that understand software and cloud computing first, bookkeeping and accounting second. But training companies that offer courses developed by practitioners have set the new benchmark in software training.
Over the six years that EzyLearn was an ICB-accredited training organisation, we found that it wasn’t our industry association accreditation that brought students to our courses, it was the content, grounded in real-world scenarios, that did.
Fast forward a decade, and Xero is now the preferred accounting software in Australia and New Zealand, with 692,000 subscribers compared with MYOB’s 585,000 paid users. (Overall, Xero claims 1.2 million subscribers worldwide.) In the 2016/17 financial year, Xero’s revenue increased 43 percent year-on-year to $295.4 million NZD ($271.7 million AUD); during the same period, MYOB’s revenue increased 13 percent to $370.4 million AUD.
If you’ve been paying attention, you’ll notice Xero has more paid subscribers than MYOB, but its revenue is about $100 million AUD behind. That’s largely due to differences in the price of both products.
So you can’t tell which one of Xero or MYOB is the true market leader — yet.
How Xero is growing their subscriber base
Basically, they’ve reached an impasse. There’s not much opportunity left in Australia and New Zealand (there are other players, like Intuit’s QuickBooks and Zoho competing the same space, too) to grow your subscriber base — unless you’ve a carrot to dangle under their noses that’ll lure them away from your competitor.
[Xero has lured people away from competitors via their] suite of apps, plug-ins and integrations [they’ve] added to their offering through acquisitions and partnerships — anything that would make Xero a one-stop-shop for small businesses…
Meanwhile, MYOB’s strategy for market share
To its credit, MYOB has pursued a similar strategy, acquiring payment firm PayCorp last year, which followed the launch of the company’s PayDirect Mobile and PayDirect Online payments service in 2014 and 2016 respectively, as part of MYOB’s push into payment processing technology.
MYOB also acquired Reckon’s accounting practice software last November for $180 million AUD. The company said the acquisition was part of MYOB’s strategy to see accountants become business advisors, rather than tax and compliance experts.
MYOB chief executive Tim Reed sees automation as being critical to the company’s ongoing success, as it pursues a “connected practice strategy,” which brings transaction processing, compliance and business advisory together and sees accountants become more like business coaches.
“They will be like personal trainers in the gym, but for business,” he said. “This is starting today. Accountants are already working down this process and what I’m seeing is the pace of change start to increase.”
And unlike Xero, which is simultaneously pursuing overseas markets (the U.K., North America, Southeast Asia), MYOB is content to stay focussed on its home market — Australia and New Zealand. (It’s also pushing deeper into big businesses with its enterprise software Greentree, acquired in 2016.)
Accountants and the cloud accounting ecosystem
With Xero pursuing code-free accounting, MYOB pushing into “connected practices,” and Intuit beefing up its own ecosystem of apps and integrations to simplify the bookkeeping and accounting process for small businesses, where does that leave accountants and bookkeepers?
Better off, actually.
Bookkeeping is a necessary step in the overall accounting process. But it’s the most time intensive one. There’s reconciling bank accounts, entering receipts, coding transactions, invoices, and so on. Small business owners don’t — or won’t — do it, so they outsource it to a bookkeeper or accountant, who has a preferred or in-house bookkeeper.
Despite being a time intensive task, it’s lower skilled work — like untangling a jumble of coat hangers; almost anyone can do it. And so it commands a lower rate of pay than other tasks, like financial forecasting, business planning and filing activity statements.
Automating elements of the accounting process, in particular the coding of transactions, eliminates inefficiencies and time wastage. Bookkeepers and accountants can charge their clients the same hourly rates, but they’ll spend much less time doing it.
More apps, more services
And with access to more apps — like a payroll plug-in — they can begin offering more services.
Just as QuickBooks, MYOB and Xero have become more valuable to their customers, by positioning themselves as a one-stop-shop for small business, accountants and bookkeepers can do the same.
Why would a business need to engage a data entry bookkeeper, a tax or BAS agent, and a payroll company when they can hire just one individual to manage all of these tasks efficiently in one cloud accounting program?
Food for thought: Why would a business need to engage a data entry bookkeeper, a tax or BAS agent, and a payroll company when they can hire just one individual to manage all of these tasks efficiently in one cloud accounting program?
And just as MYOB boss Tim Reed stated: Accountants and bookkeepers have already cottoned onto this.
But it means bookkeepers and accountants need to become more skilled at what they do; they need to possess a greater understanding of a wider array of softwares and systems in order to remain competitive.
And even though Intuit, MYOB and Xero have all acquired or partnered with companies that offer payroll platforms, there are still plenty of third parties businesses can choose to connect to their accounting system — that’s democratised accounting for you — so you need to watch the market, and keep your skills up-to-date.
Where to from here?
The cloud accounting space is certainly in flux. There’ll be more acquisitions, more technologies, and definitely more automation. There’ll also be more global companies, as more businesses export their goods and services overseas — and more fintech companies pursuing growth outside Australia.
KeyPay is one such company. It’s based in Wollongong in NSW, and last December announced it would expand its services to the U.K. — a pre-release was slated for January this year, with a full launch due in April.
According to CRN, the company grew 53 percent last year (though it didn’t specify what or how that “growth” was calculated; as a private company, it doesn’t disclose financials or its share of customers). And KeyPay’s co-founder Richard McLean said the company decided to enter the U.K. market because 60 percent of businesses there outsource their payroll to a third party company.
The company intends to rollout its automated payroll system in the U.K. first, with an Australian launch due later in year, and also plans to expand to New Zealand and Southeast Asia.
MYOB Essentials seems to tick the boxes for most small businesses
Our MYOB Essentials course seems to cater to small business for the following reasons:
It enables businesses to keep track of quotes and convert them to sales invoices
It includes bank feeds for faster, more accurate and less stressful end of month/quarter reporting
You can work out the allocation of GST paid and received for quicker BAS reports
Included is Payroll to manage the sometimes complex compliance requirements faced by small businesses
And here’s an excerpt from the MYOB Essentials website:
MYOB Essentials has a well-placed price
MYOB also seem to have the pricing at just the right level to not hurt the wallet of small business owners. Xero is now powering ahead with constant features updates (and that puts regular pressure on us to continually create Xero Course updates — which we LOVE doing!) to justify a higher price as they hurtle along on their journey of being a quasi-ERP system using integrated apps in their marketplace.
QuickBooks Online, on the other hand, use an ongoing cheap price special offer to attract new users and use an Australian-based payroll services provided to provide very sophisticated advanced payroll features while keeping the total price low.
Current MYOB training course students receive MYOB Essentials Courses FREE
When I first took EzyLearn online in 2006 it was a huge change in my life and I’ve always been grateful to every student who has chosen EzyLearn to do online training. I’m always looking for ways to help them learn more, do more and achieve better results in their career, business and life goals.
My commitment to continuing to keep MYOB Essentials courses and MYOB Accountright Course updated has never wavered.
Take, for example, a tradesperson I met recently. This tradesman is a painter and he’d been in business for a while before he realised his prices were set too low, and despite all the business he was getting as a result, it was actually costing him money. (We cover more detailed, real-life case studies like this in our micro courses.)
Small jobs are important because they keep the home fires burning, so to speak. But you need a good balance of small jobs and bigger projects, with the small jobs being completed around or in the middle of the larger ones.
If you’re only getting lots of small, one-off jobs that you spend more time to travelling to than it takes to complete the work, this is a good indication that your prices are too low. For jobs like these, either charge for travel time or a call-out fee.
For small jobs … charge for travel time or a call-out fee.
You’re too busy to plan ahead
If you find that, in order to make ends meat, you need to keep yourself so busy that you don’t have time to plan your working week, then your prices are too low. You should be able to plan out your weeks so customers know when to expect you, and so you can be as productive and efficient as possible — if you have two jobs in the same area, for instance, planning ahead will allow you to go to those jobs on the same day.
Use a tool like Google Calendar from G Suite to organise your days, and keep in touch with customers along the way so they know to expect you.
You can’t afford to pay for help
Setting your prices lower than your competitors may be one way to win jobs, but the downside is that you’re constrained to completing the work entirely yourself. The tradesman, a painter, whom I was speaking with, told me about a time he couldn’t afford to find another painter to help prepare walls or pitch in with the painting because his prices were too low.
If you’re not able to pass jobs onto other businesses in your industry — subcontracting — and still clip the ticket, or you’re not able to afford to use a portion of the money you’d earn to hire someone to complete part of the job, you’re charging too little.
You’re too busy to invoice promptly
Just as it’s important to plan your work weeks in advance, it’s equally important that you invoice customers for the work you’ve completed in a timely manner. If you find that you often don’t have the time to invoice customers until a week or a month has passed, there’s a deficiency in your business processes. Use accounting software like Xero so you can invoice on the go.
We cover setting prices the market — and your business — will bear in our EzyStartup Course. Visit our website for more information and to enrol.
Check out our Spring Specials!
We have a host of online training course specials for the spring season — take a look!
A lot of the time, however, people enrol in an Excel online training course or Xero online training course because they need to refresh a specific set of skills for their job, which means they don’t have the time to focus on other areas that don’t have an immediate relevance for their work.
You’re an employee of a registered BAS agent, who pays you wages to help them with BAS services
You’re an employee of a business doing its BAS
You do the books for your own business – you prepare the activity statements for your own virtual assistant business
You don’t receive a fee or reward for the BAS services you provide – you’re helping a relative or in-law prepare their activity statements.
You may still need to register, however, even if the client lodges their own activity statements, simply because they relied on your advice or work relating to their BAS.
Who needs to register, then?
In a nutshell, if you provide BAS services that you are paid for – that is, you receive a fee or reward – then you need to register with the TPB.
Even if you’re being paid for your BAS work as part of other types of work (like a freelance office manager whose duties include providing BAS services, along with other duties, like customer service and general administrative tasks), you still need to register.
You’ll also need to register if you’re a contractor, providing BAS services to another registered agent. This applies even if you work at the registered agent’s office or premises and you’re not considered an employee of that agent (for further info, see the ATO’s guide to determining when someone is a contractor and not an employee).
Why register to be a BAS agent?
As we’ve said, there’s the legal requirement to register to be a BAS agent if you’re deriving an income, or some other form of remuneration, for providing BAS services to another business. But there are other reasons why a person with the knowledge and know-how of BAS should register as an agent.
Say you’re someone who doesn’t need to register, but you’d like to pick up extra work as a contract or freelance bookkeeper, being a registered BAS agent makes you more valuable to businesses; not just because you can complete and lodge their activity statements, but because you can also advise them on their BAS.
As noted above, even if you don’t lodge the activity statement because your client does, you may still need to register if they relied on any part of your work or advice. For your services to be clearly delineated from your client’s BAS, you’re only able to provide very basic data entry services.
If you don’t register, it means you can’t:
Work out the codes for GST or FBT collection
Provide reconciliation, because it involves deciding on the tax codes to apply
Manage your client’s payroll
You wouldn’t even be able to set up a client’s accounting software for their business.
When people hire a freelancer or a contractor, they tend to hire someone who can fit one of two criteria; either they’re:
Highly skilled in their particular field; or
If they want someone highly skilled, it’s usually because the project they’ll be working on is very important to them; if they hire someone inexpensive, it’s because the project isn’t particularly important, but does need to be done nevertheless.
You can probably see where we’re heading here. We happen to think bookkeeping is extremely important, because it indisputably has many far and wide ranging implications for all of our businesses.
How and with whom you need to register
First you need to have completed, as a minimum, a Certificate IV in Bookkeeping at a TAFE or another registered training organisation. Then you need to register with the TPB, which requires registrants to meet a certain criterion before they can be accredited as BAS agents.
Although it’s not a requirement, you’ll also need to know how to use some of the most popular accounting packages. At the moment, the three most popular accounting packages with both accountants and most business owners, are QuickBooks, MYOB and Xero, of which we offer online training courses in. All of these packages have pros and cons.
We say it’s not a requirement to know each of the above, because a Cert IV in Bookkeeping trains you in the intricacies of Australian tax law, but doesn’t teach you how to apply that in any accounting software; that’s something you have to learn yourself if you’re going to put your education into practice.
When it comes to getting a quote you can compare a bookkeeper to a builder. Just as you would get a quote from at least a couple of builders before hiring one of them to work for you, it’s a good idea to get a couple of different quotes from different bookkeepers. This helps you compare apples with apples.
But more than this: a bookkeeping quote should detail precisely what tasks the bookkeeper will carry out, the frequency at which they’ll be done, and any other hidden costs you may be up for, such as the cost to migrate your data from one accounting application to another.
Your professional services agreement
Getting a quote will also help form your professional services agreement. Simply obtain the required number of quotes and decide which bookkeeper you’ll hire for your business; then make sure that quote is turned into a professional services agreement (PSA).
A PSA is the written contract between you and your bookkeeper, outlining the tasks they’ll carry out and when, any other fees and charges, when you’ll pay them and how, plus any additional obligations on their part and yours. A professional services agreement is a safeguard for both you and the bookkeeper. It’s also another way to help ensure the bookkeeper will be the right fit for your business.
So what are some of the benefits? One; they get their accounting software for free, two; they receive a discount or commission for each new business they sign up to use that particular software.
Does this make certified consultants and advisors biased?
For a business owner, the upside to hiring a bookkeeper endorsed by a software company is that they will be able to work with that software application quickly and efficiently. The potential downside, however, is that the software application may not be especially suited to the business, but has been recommended anyway because the bookkeeper earns a commission for doing so.
A way around this is to do some research first. Compare a few different accounting applications before making contact with a certified consultant or advisor. Once you’ve decided on a particular software, you shouldn’t find yourself in any strife.
Independent bookkeepers bring software skills and more
Most independent bookkeepers are usually proficient in a few of the major accounting applications, like Xero, MYOB and Quickbooks, rather than just one, so they’ll be able to recommend the software that suits you and your business needs the best.
They’re also able to set up your accounting software for you and provide training if necessary, just as a certified consultant or advisor can — only you’ll be in control of your subscription instead of your bookkeeper.
ONLINE RATINGS AND REVIEWS ARE a great way to determine whether a business is trustworthy or whether they products and services they provide will suit your needs. TripAdvisor and Yelp have transformed the hospitality and accommodation industry, for example. And Airbnb is doing similar with short-term rentals.
While recently working on a home renovation in Newcastle, I came across a carpenter who had seven employees working for him. Jimmy the Chippy in Belmont has been in business nine years, has no website or online presence — but his business is booming.
How does he do it?
The old fashioned way! He does exceptional work for his customers and clients, who hire him again and again and refer him to friends, relatives, colleagues and so on. He also made a point of networking with local builders and plumbers in the area, who contact him when they have work to do, and refer him to other builders and plumbers as well.
Use word of mouth
If you’re looking locally, and the online ratings and reviews of the businesses you’re trying to decide between aren’t helping, asking a friend, relative or work colleague if they know any of the businesses.
If no one in your social network knows the business, you can also google an online forum like Whirlpool, where members frequently provide fair and balanced opinions of businesses they’ve dealt with — and if they don’t, they’re usually called out for it.
Testimonials are helpful, too
Real estate agents, accountants and many other businesses — EzyLearn included — use testimonials rather than ratings or reviews (except on Facebook), so you shouldn’t discount these just because they’ve been vetted before going online.
At EzyLearn we provide testimonials from our students, which include their full name and location, and why they chose EzyLearn to study in the first place. We ask each student whether it is ok to publish these beforehand. We also offer a money-back guarantee and free samples of our course content, so students know they can trust they’re making the right choice.
Lots of businesses avoid buying premises for their businesses, because you’ll need to have a large capital injection right off the bat, and you may also incur land tax obligations, building insurance, and also be liable for maintenance and repairs.
Renting gives businesses, especially new ones, flexibility, as you’re only locked into a short term lease — not a multi decade mortgage. And if you decide to move or find new premises before your lease term is up, you can often minimise the costs by subletting the premises.
You’re also afforded greater freedoms and stability when you own your business’s premises — in particular, protections from rising rents — than you would have if you rented your premises. If you outgrow the space, you can always access the equity and may be able to buy adjacent premises, or rent out your existing ones while you upgrade, providing another valuable income stream.
Industrial units are a good pathway into ownership for your business. If you don’t need to be right in the heart of the city or major town centre, you can often purchase an industrial unit for under $100,000.
In Newcastle in the Hunter region of New South Wales, you can purchase an industrial unit called a Cubbyhole, which can be used as a workshop, storage unit or office space for tradespeople, small and online businesses. These come with amenities such as toilets and showers, car parking (including visitors’ and disabled) and CCTV security, among other things and are worth checking out if you want to buy and only need a smaller business space.
Now that virtual bookkeepers have become more common, lots of business owners have started selecting bookkeepers based on their affiliation with an accounting application. Such bookkeepers are often called a Certified Advisor (Xero), Pro Advisor (QuickBooks) or Certified Consultant (MYOB). But are they really the best bookkeeper for your business?
What are Certified Advisors, Consultants and Pro Advisors?
In a nutshell, a certified advisor, consultant or pro advisor is just an individual who has been endorsed by a software company because they’ve demonstrated a high level of knowledge and skill with a particular accounting product.
Hiring a bookkeeper who’s been endorsed by MYOB, say, means you shouldn’t have to worry about whether your bookkeeper has set up your accounting package correctly, or whether they’re using the correct codes. What it doesn’t guarantee, however, is that each consultant or advisor is a highly experienced BAS or tax agent, as the certification relates to their software knowledge only.
Find a highly qualified BAS or tax agent instead
Sure, a bookkeeper who’s experienced in your accounting package is important. It’ll help keep your bookkeeping bill down because they’re able to perform certain functions quickly, while your accountant shouldn’t need to fix any errors, either. But that’s only providing that they’re as knowledgeable in Australian tax as they are MYOB or Xero or QuickBooks.
Unfortunately, however, the two aren’t mutually exclusive. So instead of focussing on a bookkeeper’s software experience, it’s more beneficial to ensure they’re qualified BAS and tax agents, with either a Certificate IV in Bookkeeping or higher.
If you don’t get a bad reference from their current and former clients, then there’s a pretty good chance they’re proficient in the major accounting packages, and if they’re not, most bookkeepers will tell you upfront.
Get the accounting package that’s best for your business, not your bookkeeper
There are lots of reasons a bookkeeper would choose to become certified with a software company, the biggest being that they get their accounting software for free and receive a commission for each new client they sign up to use the accounting package they’ve been certified with.
However, when you hire an independent bookkeeper who’s well-versed in a few different accounting packages, you’re more likely to get better advice about which accounting package is best suited to you and your business’s needs, rather than the accounting package that will generate income for your bookkeeper.
We feature our own online directory of local bookkeepers looking to add to their customers. Visit National Bookkeeping to find a suitable and experienced person available to work in your area, or able to work anywhere in the cloud. Alternatively, if you are a bookkeeper looking to expand your client list or find contract work, you can register and become part of our network for free.
Take a photo of bills and invoices from suppliers and upload them to Expensify, which will input all of the data and then send it through to Xero.
Create expense reports
Online and offline retailers don’t have to worry about this too much unless they also produce their own products, but for cafes and restaurants that host functions or cater for events, separating the expenses directly related to those functions and events is an important way to track their profitability.
Automatic approvals cut bookkeeping time
By turning on the automatic approvals feature and setting expense rules, you can cut your bookkeeping time by having recurring or trivial expenses automatically approved and sent to Xero, so you can spend more time on the complicated ones that require closer inspection.
By keeping an eagle eye on your expenses using Xero and Expensify you’ll be able to see precisely where your business is most profitable and where it’s not so you can modify it accordingly.
Our Xero training courses will show you have to track expenses in Xero and how to connect third party apps to your Xero account. We offer ALL SKILLS LEVELS for ONE LOW PRICE. Find out more.
Are you in business as a bookkeeper, tradesperson, retailer, trainer or real estate agent and want to stand out from the crowd? We can teach you the online marketing techniques to help you do just this! Check out what’s included in our comprehensive Social Media and Digital Marketing online training courses.
WE’VE TALKED IN THE past about what a life saver daily reconciliations can be, and why some businesses could benefit from reconciling their account daily, twice weekly, or at least, on a more regular basis than once a month.
The expenses your business incurs form deductions that reduce your taxable income, so making sure you’re recording them accurately — and then storing them securely too — is an important part of your business remaining compliant.
IF YOUR BUSINESS RECORDS a loss for a quarter, you may be entitled to a BAS refund from the ATO. In a new workbook in our Xero training courses, we look at what happens when a business changes strategy and when this change results in a loss.
Businesses that record a loss sometimes receive a BAS refund from the ATO. You may have the full amount returned to you, or part of the amount.
Are you receiving a full BAS refund?
When you lodge your BAS paperwork, you either owe money (a tax debt) or the ATO owes you money (a refund). Sometimes you mightn’t receive a refund or the refund may be less than you thought.
This could happen if the refund is offset against a tax debt you already owe, or perhaps the refund is being retained by the ATO until you provide further information — which could be as simple as providing the correct bank account details. The ATO provides information about both of these scenarios on their website. Regardless of whether the whole amount, or part of the amount is returned, you’ll need to account for this in Xero.
Create a ‘receive money transaction’
If you do receive a BAS refund, you’ll need to record this money (that isn’t due to a sale) by creating a ‘receive money transaction’ in Xero. Our Xero training courses show you how to do this.
Our online Xero training courses show you how changing your business strategy could result in your business making a loss — and how you can account for this. Our Xero courses also walk you through how to lodge and record BAS refunds. For more information, visit our website or go direct to the courses.
WHEN YOU’RE SELF EMPLOYED you are responsible for managing your taxes and your superannuation — the latter of which many business owners let go by the wayside. It’s almost always because they don’t have the cash reserves to contribute to their super fund regularly enough.
Just as you would create a budget to make a business investment or asset purchase, you can use Xero and Excel to determine how much super you should contribute on your behalf, and then make the payments.
Run a cashflow report
You’ll learn how to run a cashflow report in our Xero training courses. This report will show you the periods when cashflow is liquid and when it isn’t. Run a cashflow report for a couple of different periods, and export them into Excel. This will give you a better idea of trends and cycles in your business.
At time of writing, the superannuation guarantee is 9.5 percent of your gross revenue, before taxes, expenses, etc. If you set your prices correctly, you should have already factored this 9.5 percent into your prices or hourly rate. If you haven’t, you ought to consider revising what you charge customers and clients.
If you were an employee of a business, your employer would be required to make super contributions on your behalf, at least each quarter. Because you’re self-employed and self-managing your super contributions, you can make them as frequently or infrequently as you like, so long as you’re contributing the correct amounts. (Speak to your accountant or financial advisor, however, if you’re salary sacrificing above the minimum amount — this may affect your tax.)
Make super contributions
Once you’ve determined how much you should contribute to your super fund each quarter, refer back to your cashflow report and to the periods where your cashflow is especially liquid. Are you able to make your contributions each quarter easily, and without compromising your business’s liquidity? Would it be easier to make smaller, more regular contributions?
The decision is yours.
Use Xero to make your super contributions. Xero is connected to a superannuation clearing house, and if you’ve been using to Xero to pay yourself a wage, it’s the easiest way to do so. If you’re not using your accounting software to pay yourself a wage, you can make the payment directly out of your bank account, however, you’ll need to track this in Xero for taxation purposes.