Accounting

What is tax planning explain the importance of tax planning?

What is Tax Planning?

Tax planning is a way to find out how much money you are paying on tax and also a way to help minimise the tax liability (the amount owed to tax authorities) through the use of allowances, deductions, exclusions and exemptions. Tax planning can be used in a number of ways; for example for retirement, businesses, Wills, and properties.

How It Works

When you start tax planning, you can find many guides online and you can also speak to financial advisors and solicitors to help get you started and give you all the important information that you will need to know. For example, each person has an inheritance tax allowance up to £325,000 with anything over the threshold being charged at 40%. So, if an estate was valued at £400,000, only £75,000 of that would be taxed. Since the majority of people won’t leave an estate over this amount, most feel they don’t need to know about inheritance tax. However, actively considering it and your future can help you to avoid any nasty surprises later on.

Helpful for Businesses

There are different types of taxes which can be hard to keep up with especially if you own a business. Tax planning is important for both small and large businesses because it can help them to achieve their business goals. When you have a tax plan as the owner of a business, you can lower the amount of taxable income, gain more control of when taxes are paid and also reduce the rate of tax. Depending on the type of business you have, you can find many different benefits. For example, if you have a business that is international, you can manage the timing of tax bills and can avoid double taxation.

 

Understanding Tax Planning

Tax planning plays an important role in the financial growth story of every individual as tax payments are compulsory for all individuals who fall under the IT bracket. With tax planning, one will be able to streamline his/her tax payments such that he or she will receive considerable returns over a specific period of time involving minimum risk. Also, effective tax planning will help in reducing a person’s tax liability.

Tax planning can be classified into the following:

• Permissive tax planning: Tax planning which falls under the framework of the law.
• Purposive tax planning: Tax planning with a specific objective.
• Long-range/short-range tax planning: Planning executed at the beginning and towards the end of the fiscal year.

 

Why Is Tax Planning Important?

Tax planning is an integrated course that allows you to combine various activities to come up with tax-effective solutions. When using tax planning to minimise the stress of tax, a tax planner will work with you to ensure the process is as simple as possible. Here are some of the ways a professional tax planner will help you:

Tax planning objectives

The main objectives of tax planning are as follows:

• REDUCTION OF TAX LIABILITY

The government’s objective is to maximise the tax deposited by the citizens. Authorities often come up with legal ways to ensure that you pay the maximum tax possible. But there are ways to save yourself money while remaining ethical and within legal boundaries. To do so, you should try to find a break route between the probable transactions and the analysed tax applicable.

• PRODUCTIVITY

Tax planning can be used to ensure that funds from taxable sources are diverted to income-generating plans. The main aim is to use productive investment planning to come up with the most beneficial tax saving options.

• MINIMAL LITIGATION

You never want to face legal litigations in your attempt at reducing your tax burden. Tax planning comes in to ensure that precautions are taken to avoid any possibility of litigation afterwards.

• GROWTH WITH THE ECONOMY

A business can grow with the economy so long as the right measures to ensure finance growth are taken. Generally, the tax planner should make the effort of ensuring that one’s business money takes the right direction for circulation.

• ECONOMIC STABILITY

The economic stability of a nation benefits everyone, including the taxpayer. Tax planning ensures that all legally-due taxes are paid on time. This is how a productive economy is created.

 

The Importance of Year-Round Tax Planning

You did it! You successfully turned in your tax return by this year’s deadline. That means there’s no need to think about taxes for another year, right? In fact, the California Society of CPAs advises that there are many smart and easy steps you can take now that will potentially improve your financial situation today and at tax time next year.

Turn to the Return

Although you may be happy to be done with it, the tax return you just completed contains a wealth of clues about your financial situation and opportunities to make it better. Your CPA can help you make sense of what it has to say, but it’s a good idea to review it thoroughly before speaking with a CPA, so you’re well versed on the facts.

Providing for College Education

At the beginning of your return you are asked to list your dependents. If you have children and college education costs are an issue, there are a number of tax benefits you may be able to use, such as the American Opportunity Credit, which allows qualified taxpayers to reduce their taxes by as much as $2,500 a year.

If you’re saving for future tuition expenses, a Section 529 plan investment account allows your savings to grow tax-free and distributions from the account are tax-free—to the beneficiary—to the extent they are used to pay qualified college costs. If you’re not making the most of some of the many chances to minimize your family’s education expenses, it could be costing you money.

Reviewing Deductions

Your tax return’s Schedule A lists the deductions you took last year. Taxpayers who are subject to the alternative minimum tax (AMT) may lose the benefit of some of their deductions. If that’s the case, it may be a good idea to accelerate or delay some income or deductions wherever possible to avoid triggering the AMT. Your CPA can help you understand how to decide.

If you own a home and your return shows a large deduction for home mortgage interest, it may be advisable to consider refinancing to get a lower interest rate. While deductions are always welcome, it’s better to lower your financing costs and keep that interest money in your own pocket.

Regarding Retirement

If you haven’t been making contributions to a tax-advantaged retirement plan, then you’re missing a great opportunity to get ahead. With a 401(k), 403(b) or other employer-sponsored plan, you can contribute pre-tax earnings that can grow tax free over time. Those who don’t have access to such plans may be able to take a deduction for their contributions to individual retirement accounts (IRAs), simplified employee pensions (SEPs) or other similar plans.

In addition to the tax benefits, saving slowly for retirement over time is simply a smart way to ensure that there will be a nice nest egg waiting for you later. Even if you can’t make the maximum contribution, CPAs advise putting away as much as possible toward retirement because of the many benefits involved.

Estate Planning Options

There have been many changes in the laws governing estate taxes in recent years, which means it can be hard to predict who will be subject to them down the road. Proper estate planning can help lower estate taxes and accomplish a range of other goals. Your CPA can offer more details on the best ways to provide for your family’s future.

 

Characteristics of an Effective Tax System

1. Fairness, or equity, means that everybody should pay a fair share of taxes. There are two important concepts of equity: horizontal equity and vertical equity.

• Horizontal equity means that taxpayers in similar financial condition should pay similar amounts in taxes.
• Vertical equity is just as important, however. Vertical equity means that taxpayers who are better off should pay at least the same proportion of income in taxes as those who are less well off. Vertical equity involves classifying taxes as regressive, proportional, or progressive.

While no system of taxes is perfect, it is important to seek horizontal equity because taxpayers must believe they are treated equally. It is just as important to seek vertical equity so government does not become a burden to low-income residents.

2. Adequacy means that taxes must provide enough revenue to meet the basic needs of society. A tax system meets the test of adequacy if it provides enough revenue to meet the demand for public services, if revenue growth each year is enough to fund

A self-balancing accounting structure with revenues, expenditures, assets and liabilities used to track monies flowing…

the growth in cost of services, and if there is enough economic activity of the type being taxed so rates can be kept relatively low.

3. Simplicity means that taxpayers can avoid a maze of taxes, forms and filing requirements. A simpler tax system helps taxpayers better understand the system and reduces the costs of compliance.
4. Transparency means that taxpayers and leaders can easily find information about the tax system and how tax money is used. With a transparent tax system, we know who is being taxed, how much they are paying, and what is being done with the money. We also can find out who (in broad terms) pays the tax and who benefits from tax exemptions, deductions, and credits.
5. Administrative ease means that the tax system is not too complicated or costly for either taxpayers or tax collectors. Rules are well known and fairly simple; forms are not too complicated; the state can tell if taxes are paid on time and correctly, and the state can conduct audits in a fair and efficient manner. The cost of collecting a tax should be very small in relation to the amount collected.

Payroll

A company’s payroll is the list of employees of that company that are entitled to receive pay and the amounts that each should receive. Along with the amounts that each employee should receive for time worked or tasks performed, payroll can also refer to a company’s records of payments that were previously made to employees, including salaries and wages, bonuses, and withheld taxes, or the company’s department that calculates and pays out these amounts. One way that payroll can be handled is in-house. This means that a company handles all aspects of the payroll process on its own, including timesheets, calculating wages, producing pay checks, sending the ACH, or Automated Clearing House, for any direct deposits, and remitting any tax payments necessary. Payroll can also be outsourced to a full-service payroll processing company. When a company chooses to outsource their payroll, timesheets, wage calculations, creating pay checks, direct deposits, and tax payments can be handled all, or in part, by the payroll company

Payroll plays a major role in the internal operations of a business for several reasons. From the perspective of accounting, payroll and payroll taxes are subject to laws and regulations. Payroll in the U.S. is subject to federal, state, and local regulations including employee exemptions, record keeping, and tax requirements. Payroll also plays a large role from the human resources point of view. Payroll errors, such as late or incorrect paychecks, are a sensitive topic that can cause tension between employees and their employer. One requirement to maintaining high employee morale is that payroll must be paid accurately and in a timely manner because employees are very sensitive to any payroll errors

Companies typically process payroll at regular intervals. This interval varies from company to company and will often differ within the company for different employees for larger companies. The four most common pay frequencies according to research conducted in February 2019 by the U.S. Department of Labor and the Bureau of Labor Statistics are weekly at 33.8%, biweekly at 42.2%, semimonthly at 18.6%, and monthly at 5.4%. The other, much less common payroll frequencies, include daily, four-weekly, bimonthly, quarterly, semiannually, and annually.

Weekly payrolls have 52 40-hour pay periods per year and includes one 40 hour work week for overtime calculations. Biweekly payrolls consist of 26 80-hour pay periods per year and consist of two 40 hour work weeks for overtime calculations. Weekly and biweekly payrolls are the most common for nonexempt employees because they are the two that allow for the easiest and most transparent overtime calculations

Semimonthly payrolls have 24 pay periods per year with two pay dates per month. These pay dates are commonly paid on either the 1st and the 15th day of the month or the 15th and the last day of the month and consist of 86.67 hours per pay period. Monthly payrolls have 12 pay periods per year with a monthly pay date. Each monthly payroll consists of 173.33 hours. Both semimonthly and monthly payrolls are more common for exempt employees that are earning a set salary each payroll. This is because overtime can be confusing and difficult to follow as it may be earned in one week but then falls under a different pay period.

 

things to know before running payroll

Many small business owners think payroll processing is simple. Well, it’s only simple if everything is set up properly at the beginning. And that’s a big if. Some of the largest financial risks entrepreneurs suffer are penalties and interest fees for incorrect payroll tax reporting. It’s definitely worthwhile to understand what’s involved before getting started.

What counts as payroll?

The most common forms of payroll are wages and salaries paid to employees for services performed in a business. Wages also include: tips, bonuses, commissions, and fringe benefits such as employer provided cell phones or automobiles.

Who are employees?

Improper classification of workers can cause substantial financial consequences and is one of the most important parts of payroll to understand.

Does it matter where employees live?

Absolutely! An employee’s permanent residence is considered his or her tax “home” and determines what taxes he or she has to pay in that state. Employers withhold the same amount of federal taxes no matter where the employee lives or works.

State income taxes are usually determined by considering the state, which state the employee works (business operates) and where the employee lives. In most cases, employers have a withholding responsibility in the state where their employee actually works, which can either be their resident or nonresident state.

 

Employee Payroll Tips for Small Business Owners

Payroll can be a challenging task for any small business but with the right tools, it can become easy and routine. There are a number of best practices for payroll management you can follow to keep you and your employees happy. We asked experts to share employee payroll tips for a healthy, sustainable small business.

As your business continues to grow, so will your payroll expenses. It is essential to determine what your approximate budget will be. As a business owner, you are required to match both Medicare and Social Security that is withheld from your employee’s pay. Depending on where your business operates, you may also be required to pay other employment taxes. In addition to fixed costs, you must take into consideration variable costs such as commissions and benefits that might be associated with your payroll, along with time and attendance software. Take the time to sit down with your accountant to determine your budget and make an effort to keep your expenses as low as possible. The lower your payroll expenses are, the higher your profit margin.

Small business owners who employ an hourly workforce depend on accurate, timely payroll to ensure their staff are engaged and retained. Having a seamlessly integrated system that automatically pushes worked hours into a central accounting system will make payroll management faster, accurate, and more efficient. One of the best investments you can make in your small business operations is in an integrated scheduling and payroll system that ensures staff are paid in a timely fashion. This, in turn, inspires your staff to trust and rely on their schedules and to treat your business like it was their own.

Paying your staff a salary can make your payroll much easier to manage, as they always get paid the same amount. However, it might not make sense for your business model or for the type of work your staff are doing. Paying by the hour is more complex, as you’ll need to keep track of how many hours each staff member has worked and then calculate their pay each period. There are plenty of time sheet solutions out there that can make this easier for you to manage, allowing your staff to clock in and out themselves. Many time sheet solutions can also integrate with your payroll software so everything’s kept up to date.

Small businesses have a lot of options when it comes to how often they pay their employees, and there are a lot of factors business owners must consider when deciding how often to run payroll. Will it be weekly, bi-weekly, bi-monthly, or monthly? That typically depends on the overall size of the company. Smaller businesses that employ fewer workers may be able to get away with a more frequent payroll schedule. However, as your business grows, your needs may change.

 

Tax Tips and SBA Payroll Options

Covid-19 has put the entire nation on the edge of its seat, as we wait for developments, scale back business, and try to weather the storm. Lake Mary businesses are feeling the pinch right now

Luckily, the government has come to the table with several options for managing, deferring, and lowering business tax and other expenses for the betterment of both businesses and their employees.

Not sure where your payroll is going to come from during a national lockdown? Worried about paying extended sick leave to employees who contract the virus? Join us today as we break down three ways you can mitigate these costs and take care of your employees with these Covid-19 tax tips for relief during this difficult time.

SBA-Guaranteed Low-Interest Loans

To call Covid-19 a stressful time for business owners isn’t saying anything new. You may not have enough income coming in, right now, to cover your most important expenses. Payroll, among many other things, has become a source of stress for many businesses. It’s for these reasons that bank loans have become such a talking point. Specifically, Small Business Administration (SBA) loans, or Economic Injury Disaster Loans

In response to the outbreak, President Trump recently announced that the American government would provide millions in funding for these federal disaster loans. These loans apply to qualifying businesses,

 

PAYROLL SERVICE IS DESIGNED FOR BUSINESSES OF ALL SIZES

Processing your own payroll can be complicated, time-consuming and fraught with risks. Among other things, payroll functions can include anything from determining employee wages and withholding taxes, to updating vacation and sick pay and deducting employee-contributed payments for benefits. Business of all sizes, from the smallest to the largest

The cost of an employee’s wages, plus benefits, adds up quickly. If you own of a small to medium size company and  trying to process your own payroll in house, use, the cost of the time spent is even greater. If you outsource payroll, you don’t have to worry about your payroll processing company calling in sick, resigning, wanting to take a vacation, taking a day or for a kid’s field day or needing several months or maternity leave.

Mistakes lead to audits and penalties — situations no business wants or needs. Government rules and regulations are always changing and business owners can’t be expected to stay on top of these changes. Professional payroll providers, on the other hand, must stay current with rules, regulations and changes in tax rates. A good payroll-services provider is far less likely to make a serious error than your in-house staff.

Outsourced payroll providers calculate payroll taxes, manage filings and payments and will assume the cost of penalties due to incorrect calculations or late payments as long as you provide the necessary information and funds on time. Keeping abreast of state, federal, local and industry-specific regulation changes can be at best a real challenge. A reputable outsourced payroll provider has a staff dedicated to keeping up to date on all of the changes that could affect your payroll, ensuring that you stay in compliance.

Tension-free: When you own a business, you already have enough things on your mind and you catch every possibility to share the load. Giving the payroll responsibilities to a service provider can prove to be a great respite for you.

Branch Accounting – Understanding the Basics

Branch or Agency?

Depending on its objectives, the enterprise may adopt the form of either a branch or an agency. Both are part of a central organization and while they conduct operations away from their home office, they are not a separate legal entity from the latter.

The key difference between the two lies in their degree of autonomy or independence. For instance, a sales agency typically does not stock inventory, but only displays merchandise, takes orders and arranges for delivery of the merchandise. In other words, the agency merely acts on behalf of the home office (H.O.), with the latter handling the other aspects of operations such as purchase of merchandise, advertising, and granting of credit.

The branch, however, has a greater degree of autonomy and thus operates more independently of the home office than the agency, primarily in the following aspects:

• Provision of a wider range of services to customers or clientele
• Exercise of greater management decision-making
• Handling of more aspects of business operations, such as stocking of inventory, filling of customers’ orders, credit and collection
• Maintenance of a separate accounting system

 

Branch Accounting System

A business is often separated into a number of different branches each of which is treated as its own profit center. Branch accounting allows the business to prepare branch trading and profit and loss accounts in order that it can assess the profitability of each of these branches.

The advantages of branch accounting are that the business is able to identify the financial performance of each of its branches. By making comparisons it can identify inefficient branches and make informed managerial decisions about their future. In addition managers and staff can be given responsibility and motivated and rewarded on the basis of branch performance.

It should be noted that branches differ from departments in that they are operated from different locations; for example a retail business might have branches in different cities. In contrast departments are usually operated from the same location.

 

Types of Accounting / Branches of Accounting

As a result of economic, industrial, and technological developments, different specialized fields in accounting have emerged.

The famous branches or types of accounting include: financial accounting, managerial accounting, cost accounting, auditing, taxation, AIS, fiduciary, and forensic accounting.

1. Financial Accounting

Financial accounting involves recording and classifying business transactions, and preparing and presenting financial statements to be used by internal and external users.

In the preparation of financial statements, strict compliance with generally accepted accounting principles or GAAP is observed. Financial accounting is primarily concerned in processing historical data.

2. Managerial Accounting

Managerial or management accounting focuses on providing information for use by internal users, the management. This branch deals with the needs of the management rather than strict compliance with generally accepted accounting principles.

Managerial accounting involves financial analysis, budgeting and forecasting, cost analysis, evaluation of business decisions, and similar areas.

3. Cost Accounting

Often times considered as a subset of management accounting, cost accounting refers to the recording, presentation, and analysis of manufacturing costs. Cost accounting is very useful in manufacturing businesses since they have the most complicated costing process.

Cost accountants also analyze actual costs versus budgets or standards to help determine future courses of action regarding the company’s cost management.

4. Auditing

External auditing refers to the examination of financial statements by an independent party with the purpose of expressing an opinion as to fairness of presentation and compliance with GAAP. Internal auditing focuses on evaluating the adequacy of a company’s internal control structure by testing segregation of duties, policies and procedures, degrees of authorization, and other controls implemented by management.

5. Tax Accounting

Tax accounting helps clients follow rules set by tax authorities. It includes tax planning and preparation of tax returns. It also involves determination of income tax and other taxes, tax advisory services such as ways to minimize taxes legally, evaluation of the consequences of tax decisions, and other tax-related matters.

6. Accounting Information Systems

Accounting information systems (AIS) involves the development, installation, implementation, and monitoring of accounting procedures and systems used in the accounting process. It includes the employment of business forms, accounting personnel direction, and software management.

7. Fiduciary Accounting

Fiduciary accounting involves handling of accounts managed by a person entrusted with the custody and management of property of or for the benefit of another person. Examples of fiduciary accounting include trust accounting, receivership, and estate accounting.

8. Forensic Accounting

Forensic accounting involves court and litigation cases, fraud investigation, claims and dispute resolution, and other areas that involve legal matters. This is one of the popular trends in accounting today.

 

Types of Branches

Branches can be classified into two types.

1. Dependent Branches

The term dependent branch means a branch that does not maintain its own set of books. All records have to be maintained by the head office in case of a dependent branch.

Thus, The head office may keep accounts of the branch according to any of the following methods:

• Debtors System.
• Stock and Debtors system.
• Final Accounting System.
• Wholesale Branch system.

2. Independent Branch

An independent branch means a branch, which maintains its own set of books. Such a branch can either be a home branch or a foreign branch.

The method of according is the same in both the case except that in case of a foreign branch, The trial balance sent by the foreign branch is to be converted into the currency of the country of the Head Office.

(A). Home Branch

Such a branch keeps a complete set of its books. It may also purchase goods from outside parties besides receiving goods from the head office.

It prepares its own trial balance and final accounts and sends its copies to the head office for their incorporation in the head office books. Thus, It maintains a head office account in its books this is of the nature of a personal account.

(B). Foreign Branch

In the case of a foreign branch, the accounting procedure is the same as in the case of a Home Branch.

On receipt of the trial balance from the foreign branch, the head office will scrutinize it and pass necessary entries for goods in transit, for cash in transit and other adjustments as may be necessary.

 

5 Accounting Principles

Accounting principles are essential rules and concepts that govern the field of accounting, and guides the accounting process should record, analyze, verify and report the financial position of the business.

Accounting principles are the foundation of accounting according to GAAP.

These principles are used in every step of the accounting process for the proper representation of the financial position of the business.

5 principles of accounting are;

1. Revenue Recognition Principle,
2. Historical Cost Principle,
3. Matching Principle,
4. Full Disclosure Principle, and
5. Objectivity Principle.

THE PROS AND CONS OF DOING YOUR OWN BOOKKEEPING

Managing the accounts and doing the bookkeeping are good practices, especially if you have a good knowledge of the accounts. The decision of handling accounts on your own is good and favorable for the new business owners when the complications are not that high. However, varying out the responsibilities further can be a risk as to the engagements of the business owners’ increase quite significantly.

Should you handle your accounting?

Many small business owners, especially those with an aptitude for figures and a good understanding of basic accounting practices, start out doing their business accounts. When a company has just started up, money is tight, it can make sense to prepare your accounts.

Do have the necessary accounting tools? Do you understand the different aspects of business taxes? Corporation tax is far from simple, you may not be claiming certain types of expenses that could reduce your tax bill.

Convenience, time and knowledge are the primary things that should come to mind when thinking of doing your taxes and accounting. You should have sound knowledge of your books, have the time, and it must be convenient for you. Accounting and tax preparation are very long and tedious processes.

 

Things to Consider

Knowledge and Interest

The most important factor to consider is whether you are capable of properly keeping your books. Do you have experience with bookkeeping or accounting? Do you understand balance sheets and incomes statements? Perhaps you like to keep tight control of your finances. If you’re interested but don’t have the knowledge, consider taking an accounting class or two.

For some people, bookkeeping can be extremely boring. Boredom often leads to complacency, which leads to mistakes. Your finances are not the place to be making a mistake.

Time and Money

For most small business owners, time is their most valuable asset. Ask yourself, “Am I the best person to do this?”

Consider the other things you could be doing that would make a bigger impact on your business than keeping your own books. You may find that, considering the time you lose, it actually costs you more to do it yourself than it would to pay someone.

 

Pros of Handling Bookkeeping Yourself:

• The first and foremost advantage of doing your bookkeeping is that you save on the expenses for your company. If you are a small business, it makes sense to save here since bookkeeping not too complex to handle at this stage.
• While you do things yourself, you are aware of the latest condition of your company and its financial status. It keeps you ready to handle any situation that becomes mandatory for you to manage things well.
• Keeping the information in the viewpoint, you can plan well for a better outcome for your business. You can even cut down some unnecessary expenses to get a better hold on the finances. Your decisions and strategies can help you to get a better return on your business.
• While doing the bookkeeping yourself, you can create a secondary plan to meet a crisis. This can be an effective measure to overcome a situation that is likely to harm you in the long run.

Cons of Doing the Bookkeeping:

• Usually, it is a time-consuming process that may demand a significant time slot from your busy schedule. You may even find it difficult to look into other matters that you would need to attend more than anything else.
• You cannot take the risk if you are not confident about the technical aspects of the job. You and your business cannot afford mistakes here. As it serves as an important document for account assessment every year, a single mistake can invite penalty, even if you have not done it willingly.
• Initially, you may find the proceeding easy and interesting but doing a similar task every day can make you distracted. You cannot avoid this situation that often leads to mistakes.

 

What are the pros and cons of hiring a bookkeeper? 

A bookkeeper handles your finances more professionally than you. However, making other people handle your finances can expose it to different risks. Here are the advantages and disadvantages of hiring a bookkeeper for your business.

Pros of hiring a bookkeeper

• Bookkepers are more experienced in handling records. Though bookkeeping can be done by nonprofessionals and even the inexperienced, this duty is best handled by a trained individual. This also avoids more errors in your record that can cost you penalties on filing documents in the future.
• A new bookkeeper can offer a new perspective on running your business. Hiring a bookkeeper gives you an outside perspective on how you can manage your budget and run your business more efficiently. They can teach you different ways to cut costs, insights on spending, and other aspects.
• Ultimately, hiring a bookkeeper will help you save on costs. Hiring a virtual bookkeeper helps you save more on potential penalties and labor costs. This is compared to hiring an in-house bookkeeper for your business accounts.
• Hiring a bookkeeper gives you more time to focus on your business. You don’t have to worry about organizing your own books of accounts. Hiring a bookkeeper gives you more time to focus on the core activities of your business.

Cons of hiring a bookkeeper

• Hiring an outside bookkeeper means a higher risk of exposing your data. Your bookkeeper has access to sensitive bank data such as account numbers and online banking passcodes. If not properly monitored, this might cause data breach which can affect your business.
• A bookkeeper would mean you would lose sole control over your books. Since you hire a bookkeeper, you entrust the control of your books to them. This may also result in a loss of information when not monitored.
• Their mistakes become your company’s mistakes. Any errors your bookkeeper makes will still be accountable to your business. This goes the same with any missed payments and noncompliance that might occur in the future.
• There are hidden costs to hiring a bookkeeper. Aside from their hourly rate, your bookkeeper might charge additional costs for their services. However, you won’t be sure about the quality of service they will give you.

 

The pros and cons of outsourcing bookkeeping and payroll

Wouldn’t you like to be able to reduce your time spent on administrative tasks so you could focus on increasing profits and running your business efficiently? Now might be the right time to contract out bookkeeping and payroll.

The pros of outsourcing

As your business grows, it might be time to outsource these time-consuming, administrative tasks. There are a number of advantages when contracting out.

Save money

You might be spending more time than you want on processing and reporting your own accounting and payroll information, and not enough time doing what you should be – making money.

It’s less expensive to hire a bookkeeper or accountant than to employ a full-time staff member to complete these tasks. By hiring one, you’ll only pay for the actual time the contract worker spends on your accounts.

Aside from wages, don’t forget the typical expenses an employee can cost your business such as:

• Annual and sick leave.
• Benefits and work functions.
• Equipment and material costs.

You also won’t have to lock up cash in extra workspace or office furniture.

Get better reporting and expert advice

One of your main motivations for outsourcing should be to obtain better financial advice and reporting. The right advice at the right time could end up saving your business money over the long term.

A professional accountant or bookkeeper specializes in the work they offer. You should be able to trust them to handle your accounts correctly.

Free up time

Whether you’re logging your own hours doing the books or hiring a staff member to spend time doing them, you’ll be able to free up some time (or reduce your wages expense) by contracting out.

Having more time to allocate to business and relationship building activities could be vital. You might also find that your stress levels naturally decrease by getting a skilled bookkeeper on the job.

Improve your service and efficiency

If you decide to outsource to a bookkeeper, part of their job can be issuing invoices in a timely fashion and ensuring your bills are paid on time. They can help your business become more efficient by reducing late payments.

In addition, by taking these tasks off your hands, you might be able to focus on improving the service you offer your customers.

The cons of outsourcing

With the positives there are always a few negatives, and outsourcing is no different.

Loss of control

You may be unable to keep a close eye on your bookkeeping and payroll tasks if they’re contracted out. You’ll have less control over your financial information and the confidential data associated with it.

It’ll be important to be able to trust the accountant or bookkeeper taking over these roles.

Risk of choosing the wrong contractor

When contracting a job out from your business there’s always a chance of the process not quite going the way you want, and in the case of accounts, errors being made. Ask your advisors, mentors and fellow business owners for some recommendations on who best to approach.

Danger to confidentiality and security

Information can be the lifeblood of many businesses these days – without it, your business may not be able to operate.

There’s always a risk that certain confidential information could be compromised. Be sure to assess your contractor for security reasons so you have peace of mind that your financial data will be protected.

Ensure there’s a penalty clause in the contract if an incident occurs.

You’re still ultimately responsible

Should the worst-case scenario eventuate and your contracted worker fails to pay your taxes on time, or isn’t careful and accurate with your figures, your business will still be responsible for these mistakes.

Summary

After weighing up the advantages and disadvantages of outsourcing your bookkeeping and payroll jobs, you’ll be able to reach a decision based on what stage of the business life cycle your operation is at and whether you’ve found the right contractor to outsource to.