Why You Should Outsource Your Accounting & Tax Operations
There’s no doubt that owners of start-ups and small businesses need to keep a tight rein on capital. One of the methods some employers may use is to ask your in-house team to manage the business finance accounts. However, while this may seem like a cost-effective solution, you’re embarking on a slippery slope that could see tax returns not being filed with SARS, creditors as well as staff members not being paid. It’s going to cause a vicious cycle that will harm your current business operations and long-term goal aspirations, particularly during the pandemic.
It’s completely understandable that you want to be frugal but starting and running a business is a massive undertaking; there are so many other business decisions that must be made. A lot of juggling and informed decisions need to be made, from CIPC registration to marketing and implementing HR processes and procedures. Instead, leave your financial wellbeing in the capable hands of tax and accounting professionals and focus on strategies to grow your business.
The benefits of subcontracting your business accounts
Eliminate the tax burden
Did you know that according to South African law, if you have an SA-resident company that has employees, you are liable to pay the following taxes to SARS:
- Pay-as-you-earn (PAYE)
- Unemployment Insurance Fund (UIF)
- Skills Development Levy (SDL)
- Workmen’s Compensation (WCA)
Failure to pay tax can lead to severe financial penalties, legal issues and even imprisonment. Furthermore, it impacts the employees’ tax status as well, of which they may be unaware.
Accountants have extensive knowledge of the country’s tax laws. They can recognise opportunities where clients can benefit from changes in these laws, helping you make more money, which you can reinvest back into the business.
Compliance with South African Revenue Services legislation
It’s simple: you must adhere to compliance with South African Revenue Services (SARS) legislation. Mistakes such as late or incorrect submission of employee taxes can result in capital-draining penalties, further influenced by increases in interest. You are eliminating the risk of tax fines and non-compliance by outsourcing your accounting services.
Lower employee costs
The monthly salaries/wages a business owner pays their employees are usually their most considerable expense. Ideally, as a start-up or SME, you’d want to keep these costs to a minimum. You need to reach certain revenue goals before you can feasibly expand.
Outsourcing your accounting needs will cost much less than having to pay another salary. The less it costs you to run your accounting operation, the more money you can reinvest into the business.
Reduce the risk of fraud
The unfortunate reality is that there is a greater risk of financial mismanagement when business accounts are handled in-house. Professional accountants have the knowledge and expertise to pick up any errors, flag any inconsistencies and have the internal resources to attend to the issue(s) quickly and effectively. As the business owner, you have to take full responsibility for any fraudulent business practices which can have significant financial and legal repercussions. You also risk gaining a negative brand reputation which can lead to
- Client loss
- Investor disinvestment
- A negative online reputation
Make sure you source a respectable tax and accounting service provider with knowledge of your particular industry and tailor their approach to best suit your overall business strategy.
Access to state-of-the-art software
Top of the line accounting software can be costly. It makes logical sense to spend your capital on growth innovation, marketing strategies and ensuring you have all the necessary policies and procedures in place than on an accounting system.
The most advanced systems are cloud-based, allowing for quick and accurate number crunching and reporting. They are also secure and flexible; they can be accessed from anywhere in the world.
Therefore, it’s best to find an accounting firm to deal with your finances so you can gain the most out of this technology. It will increase productivity immensely.
Your employees are your most valuable asset and need to be treated as such. Suppose you’re unable to pay them their salary/wages. In that case, it causes a slew of problems such as a drop in morale, belief, and ultimately your company’s productivity. Citing cash flow issues will make employees wonder if their job longevity is in jeopardy – you can’t afford (literally) to let this happen.
The complexity of payroll processing is greatly undervalued; it’s so much more than EFTing salaries and emailing them a payslip. There are legal and compliance hurdles expected of every company, and an oversight from an inexperienced individual handling your business accounts could cost you large sums of money. Payroll experts will ensure your payroll admin is accurate and adheres to South Africa’s legal and compliance regulations.
Any Investors in your business will want to be notified regularly about its financial performance to ensure they’re receiving a positive ROI to warrant investment in your company. All the answers can be found in the financial statements: the balance sheet, income statement, and cash flow statement will show them exactly how the business performs. So, you need to make sure that these statements are up to date and accurate.
Third-party accountants will have these statements and reports readily available to send on request to investors. It’s also a vital structure to have in place before you pitch to prospective investors.
Up to date advice on the latest corporate income tax rates
Are you aware of the new CIT rates for small business corporations (i.e. companies with only natural persons as members/owners and a gross income of not more than ZAR20 million? It’s vital that you always have the latest information about company taxes.
- 0% on the first R 87,300 of taxable income
- 7% on taxable income above R 87,300 but not exceeding R 365,000
- 21% on taxable income above R 365,000 but not exceeding R 550,000
- 28% on taxable income exceeding R 550,000
The income tax rate for private companies has been 28% on the company’s profit for quite a few years, but has been reduced to 27% in this year’s budget speech.
Based on all the information mentioned above, can you honestly afford not to outsource your accounting?