If you are running your own business, it will involve thinking about how you can invest in the tools and resources that will make your life as a business owner easier, and put your company in a position to achieve success.
Part of that investment is figuring out which aspects of regular business operations and maintenance you can do yourself, as opposed to hiring expensive contractors to do the work for you. That said, there is a fine line when it comes to what falls under the ‘DIY’ umbrella. You would not want to be your own lawyer, for example.
When it comes to accounting, does it really require a professional? Is it viable to try and do it yourself? What accounting tools do you need? Here are four things to consider as you implement day to day accounting processes to support your company’s specific growth goals.
Time Spent and Saved from DIY Accounting and Using Accounting Software
If short-term business success is dependent on temporarily saving bottom-line costs from hiring a full-time professional accountant, and you can afford about two hours a week to do it yourself — a significantly smaller financial investment in cloud-based accounting software is a viable option.
Doing your own business accounting is not only possible for business owners, it is now easier than it has ever been in modern business history. Before the advent of computers, an owner of a small business with one to 20 employees would probably take two to three hours a day.
With cloud-based accounting software now commonplace, the owner of that same company size would probably spend less than two hours a week – as opposed to 15 or 20 hours – managing the books.
While you may have started off using a simple Microsoft Excel spreadsheet, that quickly becomes complicated to manage as your employee payroll, customer base and business expenses grow.
Accounting or bookkeeping 101 would usually include:
- Opening a business checking account, and then any savings accounts that would help you organise funds
- Getting a corporate credit card to start building business credit
- Establishing a system for organising receipts and other important records, including expenses like meals and entertainment, overseas business travel, local business commute, gifts to prospects and clients, etc.
- Setting up a payroll system
- Understanding import tax if you are purchasing and importing goods from other countries to sell locally
- Establishing sales tax procedures
- Determining your corporate tax obligations
- Calculating your gross margins
The efficiencies from turning to accounting software include being able to easily connect it to your bank accounts and credit cards to automatically capture all your business-related transactions.
Most accounting software would also allow you to send invoices to your customers and track them via a mobile app, which in turn lets you capture receipts, manage finances, and view reports on the go. Your customers might even be able to directly reimburse you by clicking a payment link on their invoice.
Lastly, today’s cloud-based accounting software for small businesses are designed to make accounting easier for non-accountants. They come with simplified and intuitive user interfaces and generate easy-to-consume visualisations that give you a quick overview of your finances, as well as detailed reports of all your expenses, earnings and invoices.
DIY Accounting: Business Revenue as a Potential Trade-Off
Most business owners need to ask themselves if doing accounting is really where they can best spend their time and contribute the most to their business, or would the business be better off if they devoted that time to building more revenue.
In my line of consultation, I have met owners who monitor cashflow to ensure there is enough to foot the bills, but only do proper accounting once a year. That is potentially dangerous. If a lack of regular accounting means you do not make it a point to follow-up on your receivables (i.e. applying payments to invoices on a monthly basis), it could mean hours wasted trying to consolidate and update the receivables listing later on, overpaying on your taxes, or even a high amount of bad debt.
Again, while accounting software will automate your receivables process, help you get paid faster and therefore, sleep easy at night, there is a degree of time you need to spend to set this up initially and to review the numbers later on.
Unless you commit time, accounting can easily be relegated to the last thing on your weekly priorities list. Sales, marketing, production, product development and operations often take precedence and lead to revenue generation. Accounting, unfortunately, does not. The biggest challenge for many small business owners in DIY accounting, is procrastination.
If you are honest with yourself and you decide that your time is truly better spent focusing on other essential tasks, it might be prudent and still quite cost effective to hire a non-accountant who can be easily trained to grasp small business accounting software, and to have him or her do accounting on your behalf.
A Common Struggle: Your Ability to Keep Up with the Law
One area that business owners struggle with is tax implications. While basic accounting may not be that complicated, tax laws are typically complicated and a lot of the financial accounting of a small business really revolves around the tax obligations of the business and its owner.
For several of my small business clients, I frankly think that they would be perfectly happy to not do any accounting, if it were not for tax reporting requirements. Again, this is a dangerous mindset.
In Singapore, for example, a company is deemed to have committed an offence if it fails to file its income tax return, certified accounts and/or tax computation by the Inland Revenue Authority of Singapore (IRAS)’s due date. IRAS could then take prosecution action or allow the company to settle the offence through the payment of a composition amount.
The composition amount ranges from SG$200 to SG$1,000 and is dependent on the company’s filing and payment records for the past two years.
Furthermore, in cases where an error/omission/discrepancy in the tax return was made without any intention to evade taxes, the taxpayer may, under the Income Tax Act face a penalty ranging from 0 percent to 200 percent of the amount of tax undercharged, be fined up to $5,000; and/or imprisonment for up to three years. The consequences are obviously far more severe if the inaccurate tax return was made with intention to evade taxes.
The good news is that software like SAP Business One’s accounting module comes with support for complex accounting items like tax calculations and multi-currency transactions. It would, however, still be a necessary expense to engage a qualified tax accountant once a year to review your business’ tax calculations and ensure it is compliant with local laws.
Setting the Stage for Your Future Growth Trajectory
As we’ve established so far, whether DIY or with professional help, cloud-based accounting software can save you lots of time and manage your financial tasks more efficiently. A view of your future business needs, however, is key when selecting the right tool.
For a company in high growth mode (and you would have progressed to having an in-house accounting and finance team at this stage), understanding the profitability and productivity of operations by location, product line, profit centre and business activity is key to successful strategic planning.
These numbers are the intelligence necessary for business owners to analyse factors like operations, revenue, expenses, overheads allocation, profit and loss, and income tax projections. This information enables business owners to make comparisons and plan strategy around actual performance data each month, quarter or year.
Right from the get-go, even as a business with less than 20 employees, it is important to implement a scalable accounting system that factors in the creation of new business units, overseas expansion, and an accumulation of third-party suppliers or partners etc., and can both satisfy today and tomorrow’s reporting on-demand requirements. This will also keep you from having to painstakingly find and assemble historical financial information further down the line.
You might even wish to adopt not just accounting software, but an enterprise resource planning (ERP) software with an accounting module. Cloud-based ERP software for small businesses can help you oversee everything from accounting and customer relationship management, to supply chain management and purchasing.
To our earlier point about focusing on time and financial investments that are essential for growing revenue, you might even find an ERP to be a better fit as you can automate most of your back-office processes in one fell swoop
Back to accounting, as your business expands into new countries or starts to encompass new subsidiaries, there is a high cost from maintaining and managing non-integrated accounting processes.
A feature like SAP ERP Central Component (ECC) can help you easily and quickly integrate all subsidiaries within the business for all-up financial reporting. Such software will provide the corporate standardisation and control needed to get overseas offices launched and running smoothly, while ensuring consistent global operations.
To DIY or Not to DIY? But Accounting Software is Not the Question
Whether you are a freelancer keeping track of your clients or a start-up business trying to make the most of your time and money, managing your own accounting is a helpful soft skill to have.
Beyond the monetary savings, DIY accounting provides you with a hands-on understanding of your finances. You would therefore know where your business stands with profit and loss at any given moment and can make quick decisions based on that information.
As the company grows and evolves, it is then essential to seek the help of accounting professionals and leverage ERP to streamline your entire back-office and cross-country operations.
For owners who are overseeing a business in its early stages, it is all about balancing expenses and pursuing revenue growth opportunities. Whether or not you end up doing DIY accounting, hiring a non-accountant, and / or engaging a tax consultant, it is undeniable that investing in accounting software is a necessary step.
With the considerations above, take some time to determine your specific short-term and long-term business goals, familiarise yourself with different software options, and then determine which platform works best for your needs. It might even be helpful to enrol in some inexpensive online accounting classes and tutorials to become proficient in bookkeeping 101.