Cash vs. accrual accounting: What’s best for your business?

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There are two primary accounting methods: cash and accrual accounting. The accounting method you choose will affect many aspects of your business, including how you report on business income and expenses. 

Small organisations can choose between accrual and cash basis accounting. However, publicly traded companies must use accrual. 

Additionally, once your business revenue reaches $10 million, you’ll need to use accrual accounting and calculate your goods and services tax (GST). Small businesses with large inventories may also benefit from it.

Let’s talk more about cash vs. accrual accounting and how to get help if you don’t know how to make the change. 

Table of contents

  • What is accrual basis accounting?
  • How does accrual accounting work?
  • What is cash basis accounting?
  • How cash basis accounting works
  • What are the main differences between accrual and cash basis accounting?
  • Accrual accounting or cash: Which one is best for my business?

What is accrual accounting?

With accrual accounting, you track your income and expenses when they take place, regardless of when you pay bills or receive payments. For example, you’d record an invoice when you send it, even if your client hasn’t paid yet. 

Accrual accounting uses a double-entry system, meaning that you track twice, once for debits and another for credits. Double-entry can help prevent fraud and give you a more realistic view of your cash flow. 

Organisations of any size can use it. It provides a more complete financial picture, even when you don’t get paid right away for your products or services.

Here are the key pros and cons of the accrual accounting method:

Pros  Cons
It’s helpful when tracking a variety of accounts and large amounts of revenue and expenses.  It’s more complicated because you have to track actual cash on hand plus outstanding income and costs. 
Making financial projects and planning for the future is easier. Financial reports may need adjustments for as-yet-unpaid amounts when discussing current balances.
By logging cash flow with double entries, it’s simpler to catch mistakes or fraud. Bookkeeping and accounting may be more time-consuming.
It meets acceptable accounting practices and is the standard for public companies.  You could end up paying taxes on income that clients and customers haven’t paid you yet.

How does accrual accounting work? 

Accrual-based accounting is an accounting method that tracks all outstanding credits and debts as if they have already happened. 

If you complete a service, you report it as though you’ve already been paid in your books. Then you debit any invoice totals even if you have not cut a cheque yet. You can see all of your transactions—including long-term, future ones—in one place.

What is cash basis accounting?

Businesses that have an aggregate turnover of less than $10 million may use cash basis accounting to calculate goods and services tax (GST). 

Your internal finance team will only include transactions in tax reporting when money changes hands. In other words, when you make a sale, you don’t have to record revenue until you actually get paid. 

Regardless of annual GST, approved government schools, charitable institutions, and gift-deductible entities can use cash basis.

Here are some pros and cons to consider: 

Pros Cons
It works best for small companies that don’t have long payment cycles. Cash basis accounting can’t show you the debts that are outstanding, and accounts receivable payments that you haven’t settled. 
Cash accounting helps you track cash flow and determine what is in your bank accounts. You may not be prepared for incoming invoices from vendors or suppliers.
It’s simple because you only record transactions at the time they occur. Not all businesses can use cash accounting. 

How cash basis accounting works

With cash basis, you only track transactions when they happen. Each time your company makes a profit, you add to your total revenue. 

When you receive an invoice, you subtract. What it can’t show you is upcoming debts. These may include monthly accounts receivable cheques or recurring bills. 

What are the main differences between cash and accrual basis accounting?

Cash vs. accrual accounting differs primarily in the way you keep records and detail your cash flow. 

It’s easier to track with cash accounting because you only track funds when they come in and go out. However, it doesn’t show the full picture of your financial health. Your cash flow may look favourable, but you could have thousands in unpaid costs that are not readily visible. 

Accrual is more complex but also gives you a more accurate picture of your finances. You’re not tracking only actual funds, but also expected income and costs. If you have a floor installation business, for instance, you would report the project when it’s done — even if the final invoice is outstanding.

Cash or accrual accounting: Which is best for your business?

Either method works for small businesses, but large businesses should stick with accrual. Your internal finance team may need an online bookkeeping service to help with accrual accounting. 

When to use cash basis accounting When to use accrual accounting
You have a simple revenue stream with little time between invoices and payments You have complex revenue and cash flow
You value short-term cash flow over long-term projections You need to know your cash flow total including future projections
You generate less than $10 million a year You generate more than $10 million a year

Small businesses can choose between the two accounting methods. Larger companies must use accrual basis accounting in Australia by law. But even if you don’t meet the mandatory threshold, you might want to switch to accrual to get a better picture of your business finances.

Connect with Visory today, and our team of internal finance experts will get to know your business and which accounting method is right for you. You’ll partner with a team dedicated to your accounting needs and be able to access your books in real-time.

 

CFO Services: When Your Business Needs a Finance Expert (and How Visory Can Help)

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As your business graduates from a small operation to an organisation with a full back office, you’ll need to hire new financial experts. Growing your business requires careful planning and forecasting. But, what if you’re not quite ready to pay the salary of a Chief Financial Officer (CFO)? That’s where virtual CFO services come in handy.  

A part-time, remote CFO leads your team onward and upward without eating up your back office budget. You can even use a virtual CFO to attract a potential buyer if you want to position your company to be acquired. Let Visory help you determine when you need a CFO and how to leverage CFO services to expand your business. 

What is a CFO and what do they do?

A CFO plays a vital role in any growing company. In fact, enterprise businesses absolutely need this position to scale and succeed. This is because a CFO goes above and beyond daily accounting duties. While your accountant is running payroll and keeping the general ledger in line, your CFO is taking a bird’s eye view of your organisation. 

Your CFO may handle business strategy, budget modelling, and reports for stakeholders. A Chief Financial Officer also takes on the tasks of advising executive boards, managing cash flow, and forecasting the revenue of the product pipeline. In other words, a CFO is responsible for big picture financial decisions and projections. The best CFOs can spot a financial windfall possibility and also catch an upcoming revenue fall before it happens. 

How CFO services can help your business

CFO services can do what a day-to-day bookkeeper or accountant may not have the time or experience to do — tackle the overall financial health of your organisation and help strategise for the future. 

It’s also worth noting that company directors in Australia, including CFOs, have a duty of care and diligence under both general law and the Corporations Act 2001. You want to have an experienced leader in this role. 

Here are some ways adding a virtual CFO service to your business can help push your business to the next level. 

  • Expert reporting. Your directors may be called upon to file reports to the Australian Securities and Investments Commission (ASIC). Having a CFO on hand makes this process easier. The CFO will have enough knowledge of your company’s finances to declare that your company can pay its debts, has a culture of accurate financial reporting, and is in compliance with any government standards. 
  • Internal management. Other financial team members, including accountants, often fall under the leadership of the CFO. Having this position filled means other executive members can free up their time instead of tracking the moves of the finance department. 
  • Strategic advice. An experienced CFO knows how to grow the financial health of a company. You have an in-house financial advisor at all times. Your CFO will make sense of financial information and use your books to define business goals, opportunities, growth rate. 
  • Capital management. When you need to raise capital, just having a CFO helps you look more stable. Even a team of outsourced CFO services is an advantage. Your CFO will present a compelling financial picture to lure in potential investors and lenders. 

Advantages of outsourcing a CFO

When you want to scale your business fast, virtual CFO services are a cost-effective solution. You won’t have to budget for a competitive full-time CFO salary (or benefits) to access the expert strategy a CFO can offer. 

Visory services are an extension of your business. Bringing a virtual CFO into the squad isn’t like having a vendor — your finance expert will understand your industry inside and out and become a trusted team member. Outsourcing your CFO to a virtual service also means you save the time and expense of interviewing candidates. As a result, you can drive your business and remain competitive without taking a month or more to hire the perfect full-time CFO. 

Financial growth is challenging in the best of conditions. A CFO can help you resolve any bumps in the road and offer their experience. An outsourced CFO becomes a member of your financial team without the cost of a full-time salary, which can be music to the ears of small-to-medium size businesses. For those businesses which are on the road to becoming an enterprise-level company, a virtual CFO is often a secret to success. Contact Visory today to learn more about how a virtual team can help businesses of almost any size reach the next level. 

Outsource Bookkeeping: Your Guide For Finding the Best Bookkeeping Service

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Man in blue Oxford shirt inputs numbers into a calculator for his outsource accounting client.

As your business grows, the numbers you crunch keep getting bigger. Soon you’re burning the midnight oil just to balance the books. You could use some help. When a business goes from small to medium, it often makes sense to start outsourcing your bookkeeping and accounting. 

An outsource bookkeeping service frees up lots of time and energy and allows you to put off hiring a full-time employee. Plus, there’s no need to sort out a new accounting software that won’t always catch all of your mistakes. 

The average salary for a bookkeeper in Australia is almost $70,000 per year, while you may be able to get outsourced bookkeeping for as little as $2,500 per month. If you only need someone part-time, buying services per hour or per project is often the financially savvy choice. Read on to learn more. 

Benefits of outsourcing your bookkeeping

An outsourced bookkeeper can become a part of your team, even though they’re not in-house. And in some cases you have access to a whole team of supportive experts instead of just one employee. The key benefits of outsourcing your bookkeeping as a medium-sized business include:

  • Lowering your overhead — You get the benefit of balance books without paying for office equipment or salary for an employee. 
  • Gaining access to your books at any time — You don’t want to wake your employee at 11pm to access a report, but a virtual bookkeeping service gives you 24/7 visibility into your report. 
  • Having an expert on your side — Companies like Visory can pair you with an expert in your industry, so there is no need to hunt one down on your own. 

What task can a virtual bookkeeper do for your business?

An experienced virtual bookkeeper will show up on Day 1 ready to get to work. In fact, one of the main benefits of hiring an outsourced bookkeeping service is that you don’t need to train a bookkeeper or find someone who understands confidentiality.  

Your virtual bookkeeper will be vetted for their professionalism and expertise. An outsourced bookkeeper can complete the following services (and often more!) based on your needs:

  • Get your books up to date if you’ve been without accounting services in the past and need a clean up. 
  • Maintain balance sheets, payroll, and other books going forward. 
  • Tracking bills and handling accounts payable and accounts receivable. 
  • Managing your payroll process and tracking expenses. 
  • Helping you prepare your taxes. 
  • Preparing reports for potential investors and analysing the health of your company’s finances. 
  • Keeping track of your cash flow. 

How does outsource bookkeeping work?

You might like the idea of more affordable bookkeeping, but where do you start? With a company like Visory, it couldn’t be more seamless. The onboarding process is fast and we get right to work straightening out your books. In addition to bookkeeping services, you’ll have access to an entire financial team if you want your financial reports on the weekend or require additional services as your business grows. Plus, with a whole team at your disposal, you don’t have to fear losing your bookkeeper and scrambling to balance the books until you find a replacement. 

Outsource bookkeeping from Visory pairs you with a specialist who is trained for your industry segment and allows you to scale up as your needs grow. You don’t have to fire and hire a new bookkeeper as you add on more payroll needs or decide to do monthly reporting instead of quarterly. A good virtual bookkeeper is focused on outcomes and strategy — not just doing the bare minimum. They can even offer insights about how to drive your business. 

How much does outsource bookkeeping cost?

As we mentioned above, an outsourced accounting service can offer rates competitive to a full-time staffer — with more services than you’d get from one employee. If you have unique needs, you can even get pricing based on a specific proposal or project. 

At the same time, Visory offers a fixed rate unless you add on additional services. So you can count on a consistent cost as opposed to experiencing fluctuating invoices each month from a contractor or potential overtime. No surprises here. 

Is outsource bookkeeping right for my business?

If you’re worried about your books, don’t have time to balance them yourself, and want to avoid hiring a full-time employee—outsource booking might be the solution you seek. It can also work if you have an accounting team but know you need more help to scale. 

Sign up with Visory today to learn more about our custom bookkeeping plans and pricing for businesses of all sizes.