I thought I should present some counter-arguments to my last post: Why is bookkeeping important?
You don’t need tax records if you’re not earning enough to pay tax
The tax accountant in me has a few things to say on this point.
In Australia, the tax-free threshold around $18,200 of taxable income. If you’re not earning this much, you may not need to lodge a tax return, so why keep bookkeeping records?
Counter-counter-argument: If your business is running at a loss, keep the records and lodge the tax return, because you can claim the loss in later years. Also, if you are earning any other income, that may take you above the tax-free threshold.
Auditors use the term ‘materiality’ to describe whether a detail is too small to worry about. The threshold of materiality is calculated based on the size of the business. For example, if there is a $10 entry in your bookkeeping that is incorrect, the auditor probably won’t make a note of it if your business has annual sales over $10 million.
The principle of materiality is relevant to bookkeeping, too. Some details are unnecessary, depending on the size of the business, and so you can save time and money by not recording those details. A really small business might use a spreadsheet to summarise income and expenses without preparing a balance sheet, while a really large business may spend millions of dollars on a custom software integration.
This isn’t really an argument against bookkeeping, just a caution against too much bookkeeping.
Time spent adding up receipts, or avoiding adding up receipts, is time that you are not working on growing your business, serving your customers and developing your staff.
Much earlier in my entrepreneurial career, I would put together very unrealistic budgets and spreadsheets showing my path to millions in three months with a new business idea. Did I actually approach potential customers? No.
I have seen other people do the same thing with calculators: “If I can get ten new customers per month, I’ll have $2 million in revenue by the end of the year. Subtract 30% for costs and I’ll be rich!”
Again, this isn’t really an argument against bookkeeping, just a warning not to let it distract you from the more important aspects of your entrepreneurial role. I’ll put up a few posts in the future that discuss hands-off bookkeeping techniques. Until then, you could outsource your bookkeeping.
If no one looks at the bookkeeping reports, they have no purpose. Bookkeeping and financial reports are a practical tool for running and growing a business, not an abstract piece of art, so they deliver no value by gathering dust on a shelf.
I’m not sure that this point is a legitimate counter-argument, or a mini-rant against business owners who effectively drive without looking at the instruments on their car dashboard.
That’s a few reasons why bookkeeping is not important. I believe in the value of bookkeeping for entrepreneurs, so it’s no surprise that my arguments against bookkeeping are not very convincing.