If you’re a creative sole trader who finds balancing the books tricky at the best of times, then COVID may have created an even bigger quandary. Luckily there are a few financial lessons we can learn from the coronavirus.
Caption: COVID-19 has taught us some valuable lessons on the importance of regularly balancing our accounts to get our finances in order. Image: Shutterstock
The recent pandemic has forced many people to think about their lives and their financial affairs; this is particularly true for creatives, many of whom run their own business. Accountant Electra Frost, whose business Electra Frost Advisory helps creative sole traders, said the pandemic has been a challenging time.
‘Because of the flaws in the eligibility of JobKeeper, many of those who missed out included arts businesses and artists running micro- businesses around short-term employment contracts,’ Frost told ArtsHub. ‘As arts industry accountants, we scream in agreement from the rooftops that this legislation should have been better constructed to make the government stimulus payments more easily accessible to arts businesses.'
She added: ‘From our perspective, during the COVID-19 stimulus package roll-out, the government made it brutally clear that they will not support self-employed taxpayers who mismanage their accounting and tax affairs. It was a hard pill to swallow.’
Along with her team, Frost tried to help as many clients as they could, with some being turned away because their books weren’t up to date. She uses the following analogy to describe the difficulty her team and clients encountered during COVID-19.
‘Think of accountants being like financial doctors – in this crisis all of their patients got sick at the same time. It has been much easier for us to treat the businesses whose books were up to date in Xero cloud accounting software and it continues to be that way with monthly JobKeeper reporting,’ Frost said. ‘Trying to do this work manually is prohibitively time consuming and potentially inaccurate.’
Why consistency is key in account keeping
If there’s one thing Frost has taken away from the pandemic, it’s the importance of teaching people the value of keeping their accounts organised all year round, not just when it comes to tax time.
One of the ways sole traders can do this is to use cloud accounting software on a monthly basis to balance books instead of doing this on a quarterly or worse still, a yearly basis.
Frost says many people spend their profit so they can pay $0 tax, which isn’t a viable long-term strategy. Instead traders should focus on what their post-tax net income is, and what it should be. This requires monthly, not yearly, attention to all the figures.
‘If you’ve only been doing your accounts yearly or quarterly, now is the time to make a monthly commitment,’ she said. ‘If the nightmare of accessing JobKeeper has taught us anything, it’s that monthly reporting and forecasting is no longer optional. This way, you learn to know how much tax you’ll owe as you go along so the annual tax panic becomes a thing of the past.'
To help clients become more organised so they don’t find themselves in a last minute rush at tax time, Frost has developed the Lone Ranger Club. This is a monthly DIY support package that enables clients to confidently keep their own books up to date and lodge their BAS on the MYGov website. The big drawcard of the service is a monthly check in that takes the form of an interactive webinar.
‘We think clients would gain so much more from specialist accountants’ regular advice and insights than they would from paying an accountant who only plugs in their numbers and lodges their BAS,’ Frost said.
‘By having that support-line and setting a MONEY DAY every month, we think that every sole-trading creative can keep on top of their finances.’
Visit Electra Frost Advisory to find out more about the Lone Ranger Club.