VAT Moss and E-Commerce Business

Disclaimer: Policies discussed are as of the January 8 2016 changes to the HM Revenue and Customs VAT MOSS guidelines for E-Commerce businesses in the United Kingdom. All UK VAT and VAT MOSS guidelines can be found here.

In 2015, as an answer to large companies driving sales through countries with low VAT rates, the European Commission issued changes to VAT laws forcing E-Commerce businesses to apply VAT rates to their digital services based on the consumer’s location in the European Union, as opposed to the business’.

In essence, the same £100 service would now be £120 if sold to a customer in the UK (20% VAT rate), £121 if sold to a customer in Spain (21% VAT rate), and £124 if sold to a customer in Finland (24% VAT rate). This proposed an immediate problem for every E-Commerce business across the EU- there were 28 different countries with 81 different VAT rates, the prospect of accomplishing the admin work alone seemed insurmountable. As opposed to registering for VAT in every country your business sold a product in, the EC offered the highly attractive option of registering instead for a VAT Mini One Stop Shop (VAT MOSS) to E-Commerce businesses. While VAT MOSS did solve a huge problem for e-commerce businesses across the EU, much confusion arose and remains about its exact operation and regulations.

What to Know & When to Register

The main goal of VAT MOSS is to simplify things for the business, and it only applies to business to consumer sales of digital services. If you aren’t sure if your product qualifies as a digital service, HMRC defines them in extensive detail here.

VAT MOSS was introduced as a platform to distribute quarterly VAT returns directly to each country digital services are sold in, as opposed to you submitting VAT reports individually to each country. VAT MOSS requires you to submit one return quarterly that identifies your business’ total VAT accumulation in each country digital services were sold.

In order to register, your business must already be VAT registered in each country you have a fixed establishment. There are no thresholds for the new VAT laws, so even if your business falls under the £82,000 UK VAT threshold, you must still pay VAT on digital services sold in other countries. This means if you own a micro e-commerce business under the threshold, then you must voluntarily register for VAT (don’t worry, you won’t have to pay VAT on services sold in the UK) in order to use VAT MOSS.

Remember, you only need to register for business to consumer sales of digital services. A consumer is any person or business that is not VAT registered, so if you are selling services to a business that is not VAT registered, you must treat it as a business to consumer sale. There are also exemptions if your sales fall under non-business activities, which are explained here.

VAT MOSS Returns

HMRC requests when using the VAT MOSS scheme that your business keeps records of each sale for up to 10 years. These records must include the member state of sale or the member state of consumption, the date, the taxable amount and currency, the VAT rate applied, the VAT due and currency, the payments received, the invoice issued, and the information used to determine the customer’s location. The list seems extensive, but most of the information is required on your service invoice. Apart from the data on your invoice, documentation of the customer’s location is the primary record that must be kept. Most businesses must keep two sources of information, but businesses under the UK VAT threshold only need to keep one. This may be information provided by the payment service provider, an IP address, billing information, etc. Almost any documentation that confirms your customer’s location will suffice.

When filing your VAT MOSS return each quarter, you will require, for each member state services were sold in, the VAT rate type (standard or reduced), the VAT rate percentage, and the total of all taxable digital services sold. You must also submit a separate VAT return for services sold in the UK (micro-businesses who had to voluntarily register for VAT may submit nil returns). If you are leery about filing your first return, the HMRC provides a detailed walkthrough for first-timers using the VAT MOSS scheme.

While VAT MOSS remains imperfect, as evidenced by continual EC gatherings and amendments to the laws, learning to use it has become essential to reporting and paying VAT returns across the EU. It is our hope that some of the trepidation regarding VAT MOSS has been alleviated, and that you now possess an understanding of the benefits VAT MOSS can have for your e-commerce business.

Top 3 Ways to Optimise Your Recruitment Business Profit

Are you looking for tips to augment your income and increase your recruitment business profit? Do you feel your business’ income is high enough yet stagnant and unprogressive? Well, it could be because you have followed every conventional method in the book but not yet tried any novel ideas to make your business grow. Having your own website, a regularly updated blog, marketing your services to target businesses are certainly important to acquire new clients. However, it’s the inventive ideas that could add value to your business operations and bring in more money.

There are some people that hopped on the recruitment bandwagon with a hope to grow their venture into a successful recruitment firm. Some of them made it, some of them didn’t. It’s the way they set their priorities that separated them. Today in this article, we are going to give you some great pointers on how to increase the profitability of your recruitment business and have it aiming for the stars.

Get Someone to Guide You

Recruitment agencies involve a lot of people on all sides. In order to sustain and grow in an industry that deals primarily with so many people, it is necessary that you have both solid knowledge and experience in the industry and also that you consider taking on the services of a non-executive director.

An ideal non-executive director is someone who is able to advise on both operational and strategic aspects of your recruitment business. Since the methods of job hunting are ever evolving, a tech-savvy person, possibly with some financial acumen would be a well-suited runner for the position. It goes without saying that having a non-executive director onboard would be another fee you have to pay. However, it is the returns they can bring your business that matter in the end.

Before you get started, make sure your non-executive director signs a confidentiality agreement. It will prevent them from associating themselves with your competitors while they are working with you.

Niche vs. Diversification

Up until now, owning a niche recruitment business has made sense. It’s simply not feasible to help your clients find potential employees to fill the positions that are out of your specialty. As a manager, you had to say ‘no’. Imagine you are a specialist marketing recruitment agency and your client asked you to find them a finance manager! It would be tough to decline their request, but you have to say no because you do not have a track record in finance. If at all you do oblige, you would have to commit your time and resources, engage in networking, go through a new set of applicants and get them interested in the opportunity etc for filling just one position. Once the position is filled, all your painstaking efforts wouldn’t reap any long term benefits whatsoever.

The current scenario has been changing and it’s only wise for a recruiting business to diversify. We know that diversification could mean a lot of work. It has become incredibly easy to operate across multiple specialties and be a jack of all trades with the advent of the dedicated professional services businesses. For example, you could entertain all kinds of clients and help them fill positions right from housekeeping and cafeteria to sales & marketing, finance and administration. You can simply associate with professional services businesses that specialize in housekeeping, accounting & bookkeeping, engineering, finance, etc. You could broker it out by recommending any of these professional services businesses to your clients depending on the kind of vacancy they want to fill. This strategy would not only help you diversify efficiently and cost-effectively but also earn you twice as much. Your clients will still pay you a recruitment fee and the professional services businesses pay you a referral fee depending on what you agree. a win-win situation for everyone. This concept is fairly new but we are sure it will catch on soon. We have a referral programme set up that can work excellently with recruitment agencies. If you want to know more about how our referral agreement could increase your income, please get in touch by emailing us at Info@sanaybpo.com. You could also call us on +44 1624 616620.

Identify and Eliminate Non-Profitable Clients

In the recruitment industry, the quality of clients matters way more than the number. As a manager of your business, there will be times when you have to deny service to certain clients, i.e., the businesses with a bleak prospect. The probability of filling all the available positions is usually very low. Your consultants would give their best to fill up 15-20 vacancies simultaneously. However, only 2-3 vacancies get filled in the end. You need to concentrate on quality rather than just the number of vacancies. Committing your staff to work on all the proposals would prove futile, that is why you need to sift through all the available live vacancies and pick those having the best change of actually being filled. It’s difficult to turn down customers, but with time, you would know how important it is to have a base of genuine with robust businesses.

Apart from all the other activities such as marketing your services to potential and existing clients, attracting the best talent and consistently training on your own staff to keep up with the changes, the above three ideas would certainly do a lot of good to your recruitment business. It will not only wider your market, but also reduce cost and enhance revenue and profitability to a considerable extent. We hope you found this article helpful. If you need to contact us with any queries please get in touch, we’d love to hear from you.

Pricing Your Restaurant Menu

Opening a new restaurant is definitely not child’s play. There is so much that needs to be done; developing a business plan, arranging the finance, acquiring a suitable location, setting up the kitchen, furnishing the premises, obtaining licenses, hiring and training the staff and so on. When all the founding steps have been taken, here comes the fun part of putting together the menu.

Compiling a menu is not just about what items your restaurant offers to the customers but at what price. Your pricing strategy has a long-term impact on your restaurant’s brand image as well as the sales revenue. A price is more than just a number. The same goes for existing restaurants as well. No matter how many years your restaurant has been in business, you need to evaluate the product pricing and the factors associated with it from time to time.
In this article, we aim to tell you about the factors that you should consider while you price your products.

Calculating the Food Cost

It is obvious that before you price any item on the menu, you need to know how much money went into preparing it. In general, it is widely acceptable for the restaurants to charge three or four times the food cost. Let’s take an example of the steak dinner.

A steak dinner typically comprises of a steak, a sauce, some bread, vegetables on the side like sautéed mushrooms, peas, and French beans or a side of fries and some salad.

The steak costs you £6 and the other items that come along with it account for £2, then the total meal costs you £8. The food cost should preferably be within the limit of 35% of the menu price. So, divide the food cost by 35% to arrive at the menu price of the steak meal.

Food cost * 100 = Menu Price
35
£8 * 100 = £22.86
35

You can price the steak meal at the minimum £22.86. As we mentioned earlier, the menu price is a little under three times the cost, which is acceptable. Furthermore, you could employ a psychological pricing tactic. Instead of pricing the steak meal at £23, you could go for £22.50 or £22.99. The customers perceive £22.50 and £22.99 as £22 and not £23, making it look like a good deal. You end up making almost a pound more on each steak meal without making the customer unhappy.

£22.99 for a steak meal sounds like a lot to you because you know it actually cost you only £8. But we are yet to consider the cost of labour involved, such as the chef, the servers, the bus boy and the cleaning staff. You need to pay these folks as well and it all needs to be covered through the menu price. You also need to take into account the overheads like gas, electricity, water etc. Besides, £22.99 for a steak dinner is just the minimum that you should charge. The pricing will vary with the following factors.

  • What model do you follow; table service or self-service?
  • How is the ambiance of the restaurant and if it is a casual dining or fine dining establishment?
  • Are your food offerings market-driven or demand-driven?
  • What is the location of your restaurant, downtown or uptown?
  • Who are your target customers? Are they residents, office goers, students, travelers, shoppers etc?
  • Do you have a medium of entertainment such as a live band?

These are some of the major factors to consider before assigning a price to the menu item. Also, involve the staff responsible for purchasing and inventory management in the process of determining the food cost.

Exercise Portion Control Measures

For your food cost to be the same for every order, you need to implement strict portion control. If you calculated the cost at £6 for a 6 oz. steak, all the other steaks that you prepare should weigh the same. Similarly, the quantity of accompaniments like sauce, salad, vegetables and bread should be the same as well. Instruct your chefs to measure each ingredient they use with the help of the measuring cups and scales.

Lastly, involve them in the exercise of portion control. They know the best because they are the ones who actually prepare the food and know precisely how much of what ingredient goes into making a particular dish.

Have an Extensive Menu

Along with the pricey items like steak and seafood, you could offer other less costly items like chicken preparations and pizzas. This will help balance your overall menu in case the cost of ingredients for the expensive dishes rises for a while. The sale of the less expensive items would offset the burden of the increased cost.

We hope this write-up gave you an insight into how important it is to put more thought into pricing the menu items. The price should not only cover the costs but also justify the quality of the food and the entire dining experience of the customers. We will be back with some more, interesting articles about restaurant operations. Stay tuned!

Restaurant Variance Analysis

Do you find your restaurant’s operating results unsatisfactory? Do the profits turn out to be diminished compared to what you had anticipated? It’s time you took a closer look at the operations scenario and figure out what’s making those numbers shrink. Variance analysis is one of the most powerful and practical tools at your disposal to investigate the deviations between the budgeted and actual results.

It goes without saying that restaurant owners prepare budgets from time to time for both the fixed costs and variable costs. The budgeted cost is then topped with a percentage markup to arrive at the selling price of the items on the menu. It is when the actual costs deviate from the budgeted that there is a variation between the budgeted and the actual profits. The variation could be either positive or negative. Let’s take a look at the following example.

Let us consider that your restaurant had expected to serve 1400 meals this week with an average bill of £30. That makes your budgeted sales £42,000. However, you ended up serving 1450 meals with an average bill of £32. Hence, you made an actual sale of £46,400. The difference between the actual sales and budgeted sales is called the variance. In this case, there is a positive revenue variance of £4,400 because the actual sales exceed the budgeted, which is a good sign.

The sales variance of £4,400 can be split into two parts; £1500 and £2,900 based on the idea of volume variance and price variance. The positive sales variance of £1500 is the result of the rise in volume by 50 meals at the rate of £30. On the other hand, the £2 increment in the anticipated average bill of £30 for all the 1450 meals resulted in the positive sales variance of £2900.

Similarly, if the actual sales fall short, there would be a negative sales variance, which could be a cause for concern if there is a major and consistent decline or stagnancy over a longer period. This is when you would need to analyze the variance. By that we mean, finding out what went wrong and why?

There could be several reasons the actual outcomes diverge from the anticipated ones. Particularly in the restaurant industry, one or more of the following factors are commonly responsible for the sales variance.
– Unforeseen fluctuations in the occupancy rate
– Varying bill sizes
– Deviation in the actual cost of labour from the budgeted affects both the cost variance and profit variance.
– Deviation in the actual procurement cost of ingredients from that budgeted affects both the cost variance and profit variance etc.

Whenever there is a negative sales variance, any increased costs can take up a major proportion of the sales revenue, thereby eating into the profits.

When do you analyze the variances?

The one very intriguing characteristic of variances is that not all of them are subject to examination. It depends on how significant or abnormal a variance is. For example, you accounted for cost of a specific quantity of the ingredients for the week to be £12,000. However, there was a rise in the prices of certain ingredients and you had to pay £13,000. The additions £1,000 spent on ingredients might not be as significant and hence, you might give it a pass.

However, if you continue to pay increased prices over the long run, you might need to analyze the variance in the cost of procurement. Renegotiating the prices of the commodities in question with your supplier would be the most sensible thing to do. If that doesn’t work out well, you could try looking for another supplier. However, make sure you do not compromise the quality of the ingredients. Some restaurateurs would also consider raising the prices of the specific items on the menu using the dearer ingredients.

Let’s not ignore the fact that the variance in the occupancy rate and cost of labour can occur alongside. The percentage aggregate variance could have a major impact on the profits. Therefore, it could be detrimental to your business to disregard a variance for analysis if you think its percentage is negligible.

So let’s face it, guesswork is risky. Conducting variance analysis on a regular basis is the practical and feasible method to prevent yourself from losing track of all the costs and deviations. We hope this write up helped you understand how vital the tool of variance analysis is when you want to establish the cause of discrepancies and implement corrective measures.

Previously we had shared an insightful write-up about efficient inventory management practices. In the upcoming article, we would discuss the winning strategies for pricing the items on your restaurant’s menu. Stay tuned!

Restaurant Inventory Management

In the current era of entrepreneurship, the food and beverage industry is making a lot of heads turn. Every so often we get to see a shiny, new restaurant opening its doors to the foodies in town. However, we all know that running a restaurant is not all unicorns and rainbows. It requires a strong business sense and consistent meticulousness to survive and grow.

Needless to say, the labour cost constitutes the major portion of the operating cost of a restaurant. The inventory cost sums up to be the second largest segment. The labour cost is a fixed cost. The cost of inventory is something that you can control to avoid wastages. Through this write-up, we aim to explain to you how crucial it is to have stringent inventory management policies in place, and how the implementation of these measures or the lack thereof can make or break your restaurant business.

Let’s take a look at some of the best restaurant inventory management practices that your business could embrace to minimize wastage and maximize profitability.

1. Prepare a Timetable

It is very important that you prepare a timetable for taking inventory and follow it consistently. For example, if you count your inventory on Mondays, stick to it. Fix a time for doing inventory to avoid any variations, like in the morning or at night. You cannot accomplish the task with precision if there is work in progress. Taking inventory before the restaurant opens or after it closes, are the best times to account for inventory. In addition, avoid doing the inventory when new stock is being delivered.

2. Set the Frequency

The frequency of doing inventory shall vary from one item to another, depending on their nature and frequency of ordering. The one thing that we can say with the utmost surety is that taking inventory only on a monthly basis is not good practice. In the restaurant industry, you often place orders on a weekly basis. Therefore, take weekly inventory of such items to keep a tab on their availability and rate of usage. Similarly, account for the items you order every day on a daily basis.

3. Follow the FIFO Method

FIFO stands for First In, First Out. It means using up the old stock before moving on to the new one. Most items in the restaurant storeroom are perishable. To avoid wastage, they must be used before they go bad. It also depends how well you forecast the demand of the items before you decide on the ordering quantity.

4. Systematic Arrangement

We cannot emphasize enough how crucial it is, the way you arrange items in your restaurant’s storeroom. The staff responsible for taking the inventory should be trained to follow the routine arrangement of the stock on the shelves to efficiently implement the FIFO technique. The older stock should occupy the front row on the shelves for being readily accessible. Once these items are used up, the next batch of inventory should be moved to the front, as we go. Do not forget to declutter your storeroom by taking the expired items off the shelves.

5. Make it a Two-Person Job

Assigning the responsibility of keeping track of the inventory to two employees is a great idea. The two in-charges could do the inventory separately and compare their results to see if there is any discrepancy. Having said that, it reduces the odds of you missing the inconsistencies, both current and probable.

6. Use Technology to Your Benefit

The market is flooded with a wide range of inventory management software. You could try them and find out which one fits your needs the best. Why we emphasize so much on accuracy is the fact that your inventory records have an impact on the Profit and Loss statement. Any incorrect details would skew the final picture of the profitability of your business, thereby jeopardizing it in the long run. The inventory count sheets you prepare using the program would not only help you track your stock levels but also reveal consumption trends of the various items across the timeline. The trend proves useful in forecasting the demand of such items to arrive at a precise ordering quantity.

7. Standardization is the Key

As highlighted earlier, the solution to a sound restaurant inventory management system is consistency, which comes from standardization. Standardize the units used for quantifying each item in stock, be it measure of weight or number of items. To reduce errors and increase the swiftness of the process, it is necessary that the same employees do the inventory every time.

We are sure that once you put these ideas into practice, a significant wave of positive change would come your way. You would notice reduced incidences of wastage, pilferage, and spoilage, which ultimately culminate into enhanced profitability. We hope you found this information practical and realistic. In our upcoming post about restaurant operations we would talk about variance analysis and product costing, stay tuned.

Cash Flow

Many business owners I talk to don’t have a problem growing their business, they have a problem managing that growth.

Often when a business grows rapidly without being prepared it can lead to strains on the owner’s time, stretched resources, unhappy and disengaged employees and pressure on the finances of the business.

Put simply, sometimes high growth businesses are too successful for their own good, or should I say that’s how they appear, when in all reality this can be managed before getting into cash flow difficulties.  Sometimes the peculiar situation arises whereby a successful business appears to really be struggling financially when they don’t need to be.

What follows is some practical guidance for businesses of all sizes and in all industries for managing their cash flow.

Cash Flow Fundamentals

First and foremost it’s crucially important to understand how the cash flow of a business works.  This is not the same as the profit a business makes.  It is absolutely possible for a profitable business to go bust if they don’t manage their cash properly.

At the most basic level, cash flow is the difference between cash coming in to the business and cash going out of the business. It’s that simple right?  Well, not exactly, some attention is required to maximise cash inflow and minimise cash outflow.

To ensure that cash flow is optimised we can concentrate on 3 key areas for maximum effect.  These being Inventory, Accounts Payable (or Creditors) and Accounts Receivable (or Debtors).  Let’s have a look at each in turn.

  1.    Inventory

The purchasing of stock which will be re-sold at some time in the future, possibly as it is or possibly after some adaptation, has the potential for tying up your cash.  If a business has its money invested in stock sitting in a warehouse then this can’t be spent on other things which may be of more immediate benefit to the business.  Not to mention that the longer that stock is held increases the risk of waste, theft or obsolescence.

Only enough inventory should, therefore, be kept to fulfil firm orders unless the item is something which can be used in many product lines as this could increase response time to customer orders.  The management of stock will require an effective supply chain but only that which is required imminently should be kept on hand.  Keeping large amounts of inventory can mean increased costs associated with storing, managing and securing that inventory.

  1.    Accounts Payable

As a general rule of thumb, paying suppliers as late as reasonably possible will positively impact cash flow.  Businesses large and small can take advantage of maintaining an effective and lean accounts payable function.

Where suppliers invoice on credit try to pay as close to the due date as possible, if you have a good reputation for paying on time you may also be able to negotiate extended credit terms meaning that your money stays with you for longer. Occasionally suppliers offer discount incentives for early payment, you should weigh up the benefit of the reduced cost against the benefit of extended payment terms at a higher amount.  It very much depends on each individual situation and would need to be balanced against how much cash you have and whether your cash receives any interest invested anywhere else.  If you’re short on cash you would probably be better not paying earlier than necessary.

A cautionary note, however, would be that not paying suppliers on time regularly can lead to reputation damage, supply chain interruption and withdrawal of credit facilities.  This is not a position you want to find yourself in if you already have cash flow worries and will certainly make managing growth harder than it should be.

  1.    Accounts Receivable

If selling to a customer on credit the first step before anything would be to determine the risk of selling to them by checking their credit history, whilst no guarantee it should reduce the risk of default on invoice payments.  If a prospective customer has a history of non-payment then you need to determine whether you want the sale more than you want the money in the bank…the two are not the same thing.

Quite the opposite of accounts payable, the aim in accounts receivable is getting paid as quickly as possible.  One way of doing this would be to reduce payment terms for as long as your customers will accept this.  Another very effective way of getting paid on time is making it as easy as possible for customers to do so. There are a variety of ways that this can be done from electronic invoicing to accepting other payment methods or offering incentives.

In addition to all of the above, consideration should also be given to the selling price of products based on how complex they may be to create and deliver, so that you charge commensurate with the complexity involved.

One of the larger costs that businesses often incur is staffing, it’s always important to review workload and determine up to date and realistic staffing requirements- perhaps hiring staff to work in support functions is not the best option, that’s where specialist professional services companies come in.

On a final note it’s important to realise that often the business owner’s time is not best spent managing the day-to-day cash flow, that’s where accounting and bookkeeping businesses such as Sanay can help.

Having good financial management is a must for any business. In addition to preparing and understanding your budget, it is also essential that you monitor your cash flow.  If you don’t manage it well, you can run out of cash to pay the bills.  Pan Am Airlines, for instance, was once a high-flying brand.  But it is now gone and whilst the underlying reasons are complex these led to cash flow problems and the company ultimately ran out of cash.

What Could Go Wrong and the Things You Can Do to Manage Cash Flow Better

1. Not Following GAAP

GAAP or the Generally Accepted Accounting Principles is an accounting methodology that, amongst other things, helps keep track of the “money in and money out.”  If you don’t follow this system, your company will be running blind.

What you can do: Implement these standards to ensure your company has reliable accounting information that you can use to base your financial decisions on.

2. Counting Profit Before Collecting Payments

You may have sent the invoice.  But did you receive the payment?  Sometimes, customers tend to stretch pay periods.  As a result, you may see the top line figure, without knowing if they’ve actually paid you and then find out you don’t have the cash you thought you had.

What you can do: Have a system in place that lets you collect payments on time as agreed. In this way, your receivables are in balance with your payments.

3. Disregarding Cash Obligations

One of the most common mistakes by business owners is that they don’t prioritise bills and other liabilities.  These can easily accumulate and become hard to manage, which may ruin your cash flow.

What you can do: Pay bills regularly, take advantage of agreed credit periods and make sure that you are monitoring the money that goes out and tracking the money coming in.  Use the accounts payable module of an accounting system to help track payables and schedule payments.

4. Having Unnecessary Expenses

Many businesses spend money on unnecessary things, such as certain staffing costs.  They often miscalculate their true personnel costs, how many people they need and how much they should pay them.

What you can do: Before you go through hiring an employee for a certain job, look into outsourcing.  For instance, instead of hiring a bookkeeper, why not outsource it to a dedicated provider of these services.  This can significantly reduce your overall expenses.

5. Undercharging for your Products and Services

It’s easy to think that you can charge less to beat your competitors to the sale. But it’s not necessarily realistic, unless you are guaranteed to receive a significantly higher volume of sales.

What you can do: Perform competitive analysis to explore how much you can charge your customer for a particular service/product while still being competitive.

6. Ignoring Where your Money is Going

It’s easy to be blind as to where your money is going if you don’t have a budget or an investment plan.  If you don’t have a clear plan it’s easy to lose sight of what your income is being spent on.

What you can do: Create a solid plan to help you spend more wisely. In this way, you will be better prepared for unexpected expenses and big future purchases.

There are other things that can go wrong that may leave you with no operating cash.  You can enhance your cash flow in a number of ways, like improving debt collections, managing inventory, controlling interest and bank charges etc.  It is critical to ask for help from a business adviser or your accountant as early as possible.  Remember that issues with cash flow can indicate operational problems that require your attention.

Do you want to learn more about how Sanay can help you manage your cash flow to facilitate growth in your business? Schedule a free consultation today!

One challenging aspect of business is keeping the books up to date and getting it right.  A simple accounting mistake can seriously damage your business.

Many business owners rely on their accountants in helping their business comply with taxes, payroll, bookkeeping and other accounting issues.

Listed below are some of the accounting mistakes that you must avoid, if you do the accounts yourself, to prevent significant damage to your business.

1.       Not prioritising receivables

Undoubtedly, cash flow is the lifeblood of any business.  If you are not enough money coming in, you will find yourself going backwards or worse going under.

When an invoice is issued, a receivable is recorded, when the customer pays, the payment is applied and the invoice marked as paid.

Not monitoring who has paid will leave you in a situation where you’re unsure who truly owes you money.  After all, making the sale means nothing if you’re not being paid for it.

You need to regularly and systematically monitor who has debts and how old they are.  You also then need to regularly request payment when payment is late.

As a result of not properly managing receivables, you may ultimately suffer from high bad debts.

To help avoid this, you may consider investing in a cloud accounting and online payment system. They can automate processing receivables to help you get paid faster.

2.       Not keeping track of expenses

Expenses are a necessary part of any business, be it small, medium or large.  Unfortunately, many business owners find themselves overwhelmed when it comes to tracking down receipts and other accounting documents.

If you don’t keep supporting expense receipts properly, it can result in cash flow problems, accounting and tax issues.

But saving a receipt for every expense can be cumbersome.  This is one of the reasons many business owners today are using cloud accounting and remote bookkeeping organisations to help them in organising business expenses and recording them properly.

3.       Not keeping personal and business finances separate

Combining the two can put your business at extraordinary risk.  It’s a common mistake that can be easily avoided but there are many small business owners who are still using one account for both their personal and business finances.

This problem can easily get out of hand.  Plus, this issue can cause problems with the tax authorities.  To avoid it, you should unquestionably have separate bank accounts for your business and personal needs.  Keeping things separate ensures that you don’t confuse what belongs to the business and what belongs to you.

4.       Not seeking help from a professional

At first, it’s tempting to handle all accounting tasks on your own to try to save money.  But, when your business starts growing, not hiring a professional can be a very bad idea.

You may think that you’re saving money by doing your taxes on your own, but, the truth is that this mistake can cost you a lot, further down the road. You might be overpaying tax, which is as good as throwing money away or underpaying your tax bill, which can lead to penalties.

Having a qualified professional taking care of your accounts can save time and money. You can concentrate on your core business and it will take the stress out of accounting.

Small Business Bookkeeping UK

No doubt that as a small business owner you will want to know the headline figures but you may also have to do the bulk of the bookkeeping to keep costs down.

“How hard can bookkeeping be? I’ll just do it myself.”

This isn’t an unusual thought for some small business owners but the reality can be quite different.  Bookkeeping is not something you can simply pick up and do without any knowledge or planning but it can be made easier.

While doing it yourself may draw your attention away from core business, in the beginning it may be necessary so let’s look at 5 steps to make your bookkeeping easier.

1.   Educate yourself

Learning the basics of bookkeeping, knowing your balance sheet from your P&L, understanding the differences between profit and cash or knowing how to account for assets, taxes and other costs could help you avoid some potentially expensive and reputation damaging pitfalls.

Investing some time in thorough research or attending a basic course could save you money in the long run.

If you want to do it yourself it will take time to learn but it needs to be done right.

2.   Select the right system

Once you’ve grasped enough to feel comfortable you should choose the right system to help organise your accounting and produce some useful reporting that you can use to help run the rest of the business.

One basic option is a spreadsheet, the main benefit of this is that it’s likely to be free but will probably take more time to maintain, opens the possibility of formula errors, often provides less useful reports from which to make decisions.

Dedicated accounting systems are typically the way to go.  There are many to choose from and the benefits of each should be weighed against one another.

The main decision is whether to buy an out of the box software that will be installed on your computer/server or to utilise one of the number of growing cloud-based solutions.  The latter is usually available on a subscription and can be accessible at any time and from anywhere.

Each cloud accounting system has different features; however, continuing developments have meant that they can save you time, make mistakes less likely, provide valuable reports and help to manage your creditors and debtors.  The use of cloud software is on an upward trend and adoption is forecast to continue in future years.

Bookkeeping Processes are a key part of a simpler remote bookkeeping system

3.   Put a process in place

Once you have the knowledge and you have chosen a system you need to put a standard process in place and stick to it.  It will minimise the chance of errors if you ensure that transactions are processed consistently.

Within the process include standard reports that you would find useful to run the business, determine standard formats for sales invoices as well as customer communication plans when working to recover overdue debts.

It goes without saying (although I will say it) that business and personal expenses should be kept completely separately. Ensure that you keep all accounting documentation, receipts, invoices etc. so that they can be input into the system.  Some cloud accounting systems will allow you to attach a digital image to each transaction making later review easier.

4.   Keep up to date

Running your own books requires a reasonable time commitment.  You will need to keep up to date with the processing of all accounting documents but you will also need to keep up to date with changes in certain regulations.

You should aim to process transactions regularly but how often should this be? This really depends on what you want to achieve and on how many transactions you have but it should be regular enough that you are always aware at any given time how much money is in the bank, how much is due to come in and how much you need to pay out.  Sometimes this will mean processing throughout the day, every day or sometimes less frequently.  It should never be less than once a week for any business.

5.   Ask for support

If you do all of the bookkeeping yourself there’s no easy solution, it will require some hard work, time and effort.

If you want to spend your time concentrating on your business or you find that you’re growing and simply can’t dedicate enough time to maintaining your accounts or that your focus is being taken away from your core business then you should look to a professional provider for assistance.

At Sanay we can support your business by taking part or all of the process of your accounting and bookkeeping leaving you more time to concentrate on growing your business.  Asking a dedicated provider for assistance is a positive step in managing your accounts; you can grow your business without experiencing the growth in number of accounting transactions.  You can simply provide the documents and the specialist provider will take care of the rest, they can manage the whole process, provide informative reports and ensure all deadlines are met without you having to worry about it.  You accounts will be updated in real time and available to view 24 hours a day, 7 days a week, 365 days a year in the cloud.

Do you want to learn more about outsourcing your finance function to facilitate growth in your business? Schedule a free consultation today!

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Finance Function Outsourcing UK

Many businesses these days are looking to outsourcing as part of a successful long-term competitive strategy – one that cuts administrative costs and increases administrative efficiencies.  With the increase of cloud-based services and the increase in business-over-web communications, pretty much any business function can be outsourced.  In fact, the worldwide outsourced market was estimated to be $309 billion in 2013 and is growing at a rate of 25% per year[i]!

The reason for this is because the outsourcing model is one that has been tried and tested for many years.  To be successful in any outsourcing venture, it’s important to first pick the right function that will be migrated to a vendor company.  Finance is the perfect function to outsource because in most cases, this is an administrative function – one that does not provide income for a business.  Because it’s not a primary income generator, there are very real benefits that include decreased cost, increased expertise, flexibility and focus.

DECREASED COSTS

There are many companies that benchmark their administrative costs against similar industries to make sure that they are working as efficiently as possible.  The reality is that costs tend to run much higher for companies with internal administrative departments in comparison with those who outsource these types of functions.  Outsourcing, when done correctly, almost always decreases costs.  The reasons include:

  1. There are no benefits to pay. When outsourcing finance functions, such as bookkeeping and payroll, you pay for the outcome based upon the work being done.  You don’t have to pay for sick days, holiday pay, medical insurance, or retirement benefits.  Simply reducing these types of benefit payments can contribute to an immediate bottom-line impact.
  2. You only pay for what you need. When structuring your agreement with the outsourcing vendor, you define the types of services you will need.  Whether these services require 20 hours per week or 50 hours per week, your payment terms will be based upon your specific and unique needs.
  3. You reduce overhead costs. When you use an outsourcing firm, the vendor is now responsible for turning on telephones, paying the energy bills, setting up the cubicle space, purchasing office equipment, and paying rent.  While it’s true that these costs are passed on to the client, they are also shared amongst all the vendor’s clients so your portion remains much lower than it would providing those items in your own place.

 

EXPERTISE

When it comes to running a finance company, the name of the game is risk mitigation. Everyone has to pay taxes, everyone has to report company earnings and everybody has to make payroll.  However, one mistake or miscalculation could lead to years of litigation and severe penalties. Using an outsourced company for finance functions makes sense because:

  1. You have access to the experts you need. A finance company providing outsourcing specialises on one thing:  FINANCE! Whether you’re facing a thorny accounting issue or have specialised bookkeeping requirements, you can find whatever expertise you need to help meet your specific requirements.
  2. Best practices are put to work for you. A financial company must stay up to date on the latest financial trends, business practices and governmental requirements.  Vendors understand exactly what types of practices work best in order to better serve their clients. This takes the onus off the client to have to figure it out.
  3. The best technology and software is available to you. A finance company invests in the best technology and software available in order to be the most competitive in the marketplace.  This type of investment makes sense for the finance company because finance is the core business.  For companies where finance is not the primary function, making this type of infrastructure investment simply doesn’t make sense.

FLEXIBILITY

Businesses are not static.  The demand ebbs and flows.  In order to be successful, your business functions need to meet the demand as it changes.  By using an outsourced finance company, you can rely on the vendor to ramp up or dial down availability to meet your need.

  1. Their entire team is at your service. By using a vendor company, you don’t just have one or two employees – you have a team working to meet your needs.  If someone goes on holiday, your personalised service doesn’t have to stop for the week until she returns.  Instead, you will have people available to you when you need them.
  2. You have scalability. Suppose you’ve got some temporary projects coming up that will require a short-term increase in staff.  You simply let your vendor know your requirements ahead of time and the vendor can make sure you have the number of people you need to meet this temporary demand.  In addition, as your company grows, there’s no need for you to have to take the time and effort to go through the hiring process.  You let your outsourced vendor know that your needs have changed and let them quickly and easily adjust to fit your new workload.
  3. You have flexible availability. Not all business is conducted from 8 am to 5 pm.  Sometimes your business requires someone available on a second or third shift.  Instead of worrying hiring extra staff and worrying about hiring extra supervisors to manage the staff, your outsourced vendor will make sure you have staff at the hours that you need them.

FOCUS

Let’s face it; you are in business to perform your business function.  Unfortunately, as an owner, executive or high-level manager, you probably spend a good bit of your time on all the other things that have to get done.  Payroll needs approved, audits need reviewed, expenditures need initialled and issues need addressed.  Administrative functions often are huge time and resource consumers.  So, the final, but most important benefit to your business is that you can:

  1. Spend your time on your core business! Outsourcing means that you negotiate your financial requirements, figure out a plan to manage the day-to-day tasks and then step back and let your trusted vendor take care of the administrative section of your business.  This means that you get to allocate your time and energy on building your business, selling your product and planning for your future!

Although outsourcing has proven to be beneficial for many companies, there have been a few published stories that describe how outsourcing can sometimes go bad.  Good outsourcing vendors study up on these stories in order to better understand what type of relationship works best for both the client and the vendor.  Several themes seem to come up and it’s important to address these potential pitfalls, especially if you are a business owner and are considering some type of outsourcing partnership. Understanding what to avoid can help you better build the right relationship!

Managerial control is not well defined.  In most client-outsourced relationships, the single point of failure often comes about because the transfer of managerial control is not well defined.  The vendor may believe they should make managerial decisions while the client believes these decisions should remain with them.   Unfortunately, without a good discussion prior to creating the contract that delineates a clear description of duties and responsibilities, the relationship could devolve into arguing over who is supposed to do what!

Combat this by selecting an experienced outsourcing partner, understanding the terms of the agreement, defining your service level requirements and fully defining the relationship terms prior to signing the contract. 

Lack of customer focus.  Unfortunately, there are some outsourcing vendors that enter the market only to get as much money as possible without providing a quality product.  Luckily, these companies don’t stay in business long, but for the clients they sign up, they can leave a lasting negative impression.

Combat this issue by doing your research on possible vendors, asking lots of questions about their practices and policies so you fully understand the specifics of what the vendor company provides.  Vendor companies that overstate their results are easy to spot as their practices won’t match their sales pitch. 

Risk of data loss.  This is certainly a biggie!  With the increase of hacking activity and the need to keep personal data as safe as possible, outsourcing vendors have a responsibility to their clients to make sure that the client’s data is kept safe and secure. Some vendor relationships break apart simply because there has been a data breach or confidential information is not kept confidential.

Combat this issue by asking questions about how data is kept secure and how the client’s need for confidentiality is handled. Although the vendor must keep certain details a secret, the vendor should be able to describe their overall security strategy and offer reassurances as to how they address the issue.

Hidden costs. There seems to be a misconception that outsourcing companies hook you in with initial low prices and then spring hidden costs on you later.  While it’s true that a few un-reputable companies may do this, most vendor companies will clearly outline the costs for their services and will publish their prices for your review.  This helps you to better find the company that suits your needs.

Combat this issue by asking to see a list of costs associated with the services.  Hidden fees are also hidden in the contract details, so read through those details carefully.  Great outsourcing vendors will always be up front with you about costs and will be willing to negotiate in order to build a long-term mutually beneficial relationship

If you are a company that is seriously considering outsourcing some of your business functions, we hope that this list helps you get more information related to why outsourcing can be a great idea for your company.  We also hope that you have a better idea of what to ask of potential vendor partners and what questions you should ask.

[i] Lacity, M. C., & Willcocks, L. P. (2013). Outsourcing business processes for innovation. MIT Sloan Management Review, 54(3), 63-69

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