“Small business owners face numerous everyday challenges, and they usually conquer them with their entrepreneurial strength. Unfortunately, keeping the books on their growing business is not a skill someone can simply persevere through and get it right.

And the potential consequences of messing up on the accounting functions can have serious consequences when it comes to the success or failure of a business. The founders of the cloud accounting system Freshbooks have come up with the top five accounting mistakes that small business owners face, and how to avoid them

Not staying on top of receivables

Getting paid is fun. Managing who owes you money is usually not. But staying on top of your receivables is critical to ensuring your cash flow is healthy and that you know where you stand financially each month. It also ensures that at tax time, you’re not scrambling to piece together which payments belong to which invoice.

Fortunately, there are more software options than ever before for freelancers to painlessly manage this part of their business. Freelancers should consider taking advantage of cloud accounting tools that allow you to send invoices and update payments from anywhere. Software can allow you to even automate most of the billing process, including sending out late payment reminders and enabling your clients to pay you online.

Not keeping expense receipts

How many times have you scanned your bank account statement trying to figure out what a charge was for? Not only is this frustrating, but not having copies of your receipts can land you in trouble at Revenue Audit time. If you’re unable to accurately report your expenses, you might find yourself getting nailed with costly penalties.

Best practices for keeping organized include:

• Using only your business credit or debit card to cover business related expenses
• Keeping copies of your receipts in one place and reviewing these at least weekly or monthly while they’re fresh in your memory

Can you snap a photo of your receipt while you’re on the go so you’ll always have a digital copy when you need it. You can also sync your business bank account or credit card so expenses are automatically imported.

Mixing personal/business finances

When starting your own business, a first step should be to open a separate bank account where you deposit your income and pay your business expenses from. A second step should be getting a credit card that you will only use for this business. These are important signals that you’re running a business and not a hobby.

Not hiring a professional to handle taxes

In an effort to save money, freelancers might be tempted to do their taxes themselves, but hiring a professional you can trust will pay off in two ways. First, your accountant can apply the most up-to-date tax laws to ensure you’re benefiting from all the deductions you qualify for..

Secondly, working with a professional on your taxes means they can help resolve any discrepancies or confusions resulting from guesswork that might have otherwise lead to an audit, saving you potentially thousands of € in penalties.

Not getting on the same wavelength as your accountant

Your Chartered Accountant can be an ally to you and your business, since they have the skills and training to help guide important business decisions you might face. Is it time to hire your first employee? When’s the right time to make a big purchase for your business, like upgrading your software or buying a new computer? All too often however, creative professionals are uncomfortable with accounting jargon and might be embarrassed or intimidated when trying to communicate with their accountant, resulting in them not asking the questions they have.

It’s important that when you don’t understand, that you ask your accountant to explain things in plain language. Or if you continue to find this tricky, consider finding an accountant who is more on your wavelength and communicates in the style that works best for you”

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If you’re overseas and thinking of forming a company in Ireland, what do you need to know?

Getting a registered office address

You can go through the legal process of setting up a company in Ireland from anywhere in the world provided that you can supply a registered office address in Ireland.

The registered office address is the legal address for the company. Many company formation specialists can provide a temporary registered office address to allow you to get started. So this is an easy hurdle to overcome.

And a business address

But to actually start trading with the company you will need to also have a business address. The business address is the address where you actually carry out your business.

A registered office address doesn’t have to be located where the company is, but a business address must be a location where the company’s business is physically being carried out in some way.

Why is a business address so important?

Because the Irish tax authorities won’t register the company without a business address in Ireland.

This means you won’t be able to register for VAT or Corporation Tax.

I am regularly contacted by individuals who have set companies up in Ireland using an online company formation business and now want to register with Revenue. And I’m left to tell them that this will only happen if they plan to set up premises here.

So this is a cautionary note. It’s easy to form a company in Ireland, but unless you have plans to establish a business premises here you’ll find it difficult to take advantage of our low corporate taxes. Something for you to bear in mind when you’re planning.

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In no particular order they are:

1. Don’t be over optimistic

I generally find that businesses overestimate their income and underestimate their expenses which effects their profitability and cash flow which allied to overestimating the speed of cash inflows can create cash   flow problems. The advice here is to be realistic as possible and also do planning for various assumptions/scenarios.

2. Don’t ignore your continuing education

It is essential that you continue to invest in your knowledge base by reading relevant and recommended business books, attending courses together with keeping up to date on the latest trends and technology in your industry. You can only be a continuing expert in your industry by creating a strong educational environment for yourself.

3. Don’t ignore advisors

Surround yourself with professional advisors, mentors, friends and peers who can advise and guide you. Their experiences and assistance can be invaluable. This can be a reciprocal arrangement as they can also learn from you. Remember you don’t know everything and can’t put a wise head on young shoulders.

4. Don’t under capitalise your business

Many business startups underestimate the capital that is required to run a business successfully. It is vitally important that you start with the proper capital base, if you can, as it should lessen financial firefighting.

5. Don’t under invest in staff

In the first instance you should, when you can, hire the best people available. They are the people who probably keep your business going and may be more of a public face in your business then you are.   Make sure they are will trained and also undertake a continuing education programme. This is probably the best investment you can make.

Have you any suggestions which we can put in our next newsletter?

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1.Set daily marketing actions.
2.Get testimonials and use them.
3.Ask for referrals immediately after a great performance.
4.Always carry business cards.
5.Treat mistakes as opportunities.
6.WOW existing customers.
7.Network always everywhere.
8.Contact ex customers.
9.Market a new product/service to existing customers.
10.Analyse what is working and do more of it.
11.Surprise your best customers.
12.Sell an additional product/service when a sale is made.
13.Link up with non-competing businesses with similar clients.
14.Send regular emails to clients and prospects.
15.Set specific exclusive offers (e.g. Solicitors, Farmers, Restaurants).

The post 15 Marketing Tips for Business appeared first on Parfrey Murphy.

1. Am I really committed to doing this?
2. Is this better than the competition?
3. What will make customers buy?
4. What is the target market?
5. Why will customers want it?
6. Can a trial run be done easily and cheaply?
7. How will I market it?
8. What are the resources that are required?
9. What am I trying to achieve?
10. How can I appeal to customers emotions?
11. What are my measurable metrics/KPI’s?
12. Where are the failure possibilities?

The post 12 Great Startup Questions appeared first on Parfrey Murphy.

One of the biggest mistakes small business owners make is not talking enough with their accountants, according to a new survey in the U.S.

The survey, by the accounting software developer Xero, polled a group of accountants, some of whom use the software and some who don’t. When asked what is the most common mistake small business owners make when it comes to their finances, 32 percent said it was only talking to their accountant during tax time (up from 25 percent last year and 18 percent in 2012), 20 percent said it was a lack of understanding when it comes to their tax obligations (up from 18 percent in 2013 and 13 percent in 2012), and 20 percent said it was not having real-time insight into their finances (up from 13 percent in 2013 and down from 26 percent in 2012).

Another 12 percent said the biggest mistake of small business owners was neglecting to set up a cash flow forecast (down from 13 percent in 2013 and 17 percent in 2012), 8 percent said it was not linking their financials to business goals (down from 11 percent in 2013 and 15 percent in 2012), and 4 percent said it was having little knowledge of their customer payments and debt (down from 8 percent last year and 5 percent in 2012).

When asked whether having a real-time view into their client’s finances would enable them to provide better financial advice for their customers, 75 percent of the accountants surveyed said yes, up from 72 percent in 2013 and 71 percent in 2012.

Asked about what is the most common mistake that businesses make that could trigger an audit by the IRS, 36 percent cited excessive deductions to income, 14 percent said it was misidentifying their workforce (as in employee vs. independent contractor), 9 percent said it was with home office deductions, and 35 percent it was mixing business and personal expenses in deductions. Similar issues in Ireland!

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Accurate information 

For businesses with well organised and up to date systems, the process of preparing a business plan is made much easier.

Concise presentation

Organised presentation of key factual information assists a bank to better understand the commercial proposition and potential risks attached to the business.

Realistic assumptions

Assumptions are the fundamental building blocks of any business plan. For example in the hotel and catering industry, there is a substantial amount of benchmarking available on key performance indicators (KPIs). The KPIs relating to hotels will focus on room occupancy,  average room rate and revenue per room available.

Factual emphasis

A good business plan will concentrate on reporting factual statements and assumptions that can be easily verified and lead into structured arguments to support that outcome.

In conclusion, the process of preparing a focused, detailed business plan can be an excellent way to go “back to basics” and understand how to strengthen the performance of any business. The goal of a well-presented business plan is to assure future support from a funder and ultimately business survival.

Relevant Article:   Get The Clients You Want

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Can I register as a sole trade and continue to work in my current job?

Yes. You can register as a sole trade using Form TR1 and continue to work in your current employment. Once registered as a sole trader you are required to submit a tax return by the end of October each year which will include all your income, from both your normal employment and your sole trade business.

Do I need to register for VAT? / Do I need to charge VAT on my products or services?

Generally a business whose turnover in any 12 month period exceeds €75,000 for the supply of goods and €37,500 for the supply of services are required to register for VAT. Once registered for VAT you are required to apply the relative rate to the cost price and submit VAT 3 returns to the Revenue Commissions, usually on a bi monthly basis.

I intend to set up a new business, when should I register as a sole trader?

You are required to register with the Revenue Commissioners, as a sole trader, once you commence to trade in your new business.  You will use Form TR1 to register as a sole trade which will also register you for Income Tax. At this time you can also register for VAT and as an employer, if you so wish.

Once registered you are then required to submit an Income Tax return to the Revenue Commissioners each year. For the tax year 2012 you will be required to submit your Income Tax return on or before the 31October 2013.

I have set up a new business and will have a large number of expenses in setting up – can these be claimed against taxes?

Any expenses incurred wholly and exclusively for the purpose of the business can be used in calculating the profit or loss the business makes in that tax year. Any expenses incurred prior to commencing to trade can be used in the first year of trading. It is important to note that some of these expenses might be of a capital nature (i.e. a new car, computer equipment, etc.), which cannot be used in calculating your profit, but an allowance of 12.5% each year can be claimed on your tax return.

Any profit that the business makes will then be taxable at the appropriate tax rate and any losses incurred can either be used against other income in the year or carried forward to offset against profit in the future periods.

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A limited company is a legal entity in its own right.

You are not personally liable for the company’s debts as long as you have not traded fraudulently or you have not given personal guarantees for bank borrowings or to suppliers.

Click here for information on forming a limited company.

What are the benefits of a limited liability company?

The key benefits of a limited liability company are:

• A shareholder cannot be held personally liable for the debts of a company

• Creditors can only look for payment from the company. This can only be settled out of the assets of the company. Generally, the personal assets of the shareholders and the directors are protected

• A limited company is a separate legal entity. This means that both the directors and the company have separate rights and responsibilities

• Operating as a limited company often gives customers and suppliers a greater sense of confidence in a business

• Once your company name is registered as a limited company, the name is legally protected and it cannot be used by anyone else

• Often, larger organisations will not deal with non-limited businesses

• The liability of the shareholder of a limited company is limited to the amount unpaid on any shares issued to them

Disadvantages of a limited liability company include:

• The filing of sometimes sensitive commercial financial information with the Companies Registration Office which is openly available

• Business losses may not be set against personal income

• Possibility of further taxation on capital gains if appreciating assets are withdrawn from the business at a later date.

• The need for accounts to comply with Companies Acts together with auditing and accounting standards

If you are interested in forming a limited company click here, please contact mariaf@parfreymurphy.ie to discuss further.

The post Advantages and Disadvantages of a Limited Company appeared first on Parfrey Murphy.

Registering as an Employer

The first step in registering employees is to register the business as an employer. This is usually done when first registering for tax by submitting either Form TR1 (sole-traders and partnerships) or Form TR2 (companies) to the local tax district. Tax registrations are now mostly completed online using the Revenue Online Service – ROS at www.revenue.ie .

Registering an Employee

When employees start work, they should provide you with one of the following:

• Completed Form 12A  if taking up employment for the first time (in Ireland)
• Form P45 from their previous employment

As the employer, you will then need to forward either Form P45 or Form 12A to your local tax office who will send you details of each employee’s tax credits and standard rate cut-off point.

If an employee has worked previously (in Ireland) but doesn’t provide you with a Form P45, you should notify the tax office immediately, providing details of the new employee’ name, PPS number, etc or complete a Form P46 (on paper or on ROS).

Until the Notice of Tax Credits and Cut-Off is received from the Revenue Commissioners, employees should be taxed using the tax credits and cut off point on the P45 (on a week 1 basis) or on the emergency basis if no P45 has been received.

Tax credits and cut-off figures depend on the employee’s personal circumstances and may differ significantly from one employee to the next. Cut-off refers to the point where earnings become taxable at the higher rate of tax. Tax credits are deducted at the end of the tax calculations and reduce the tax payable accordingly.

Warning: you should always agree a gross pay with your employees rather than a net pay.

PAYE, PRSI and Universal Social Charge are calculated on an employee’s gross pay, i.e. pay before any deductions are made, while net pay is what the employee receives after PAYE, PRSI, Universal Social Charge and other deductions, i.e. take home pay.

If an employer agrees a net pay with an employee then in effect the employer is agreeing to pay the employee’s PAYE/PRSI for them. This also means that if the income tax rates rise or an employee’s tax credits or standard rate cut-off point change the employer will have to pay any additional tax arising.

Calculating tax and net pay

For each payroll period (whether weekly, fortnightly or monthly), you will need to calculate three types of taxes – PAYE income tax, PRSI, Universal Social Charge – each with their own method of calculation.

If you have many employees with varying rates and hours worked you should give serious consideration to using payroll software which will calculate employees net pay, produce payslips and give you the information for Revenue returns. This will save time and potentially reduce errors. However, the outputs from payroll software are only as good as the information entered into it, so it is still a good idea to know how the PAYE system works in general terms.

If you are not using payroll software you can use a spreadsheet or calculate the figures manually. Remember that you need to give your employees payslips no matter which system you use.

The methods of calculating income tax, PRSI, Universal Social Charge and net pay are too complex to fit into one blogpost. However, Revenue have a comprehensive guide which can be found on their website www.revenue.ie (see update below).

Benefits in kind

Benefits in kind, such as private use of a company car, free or subsidised accommodation and preferential loans, received from an employer to an employee whose total remuneration (including benefits in kind) is €1,905 or more in a tax year, are taxable through the payroll.

When an employee leaves

When an employee leaves during the tax year, the employer must provide him/her with a Form P45. This form confirms the employee’s gross pay, tax, universal social charge deducted and PRSI contributions from the start of the tax year until the date of leaving.

Monthly Revenue Returns

A monthly Return (Form P30) must be submitted to the Revenue Commissioners setting out details of the total PAYE/PRSI arising for that month. The P30 must be submitted and paid before the 14th day of the following month, e.g. the P30 for January must be submitted by 14th February and so on.

All companies, partnerships and some individuals are now required to pay and file their tax returns electronically using ROS. In this instance extended deadlines to the 23^rd of the month are in place.

Employers with low PAYE/PRSI liabilities may be eligible for filing P30s quarterly.

If paying via direct debit, a standard payment is made each month directly from the employer’s bank account. It should be noted that interest and penalties can arise if the amount paid under this system is not sufficient and therefore it may be necessary to increase the monthly payments to ensure the correct PAYE/PRSI is paid. The advantage of paying by this method is that there is no need to submit monthly P30 Returns but the annual P35 must be submitted in the normal manner (see below).

End of Year Returns

A Form P35 – Annual PAYE/PRSI Return must be submitted at the end of each calendar year detailing the PAYE/PRSI arising for each employee. The deadline for submission of the P35 is usually around 15 February. The completed P35 must be filed together with payment in settlement of the balance of PAYE/PRSI due, if any. Again, extended deadlines can be availed of by using ROS.

A Form P60 must be given to every employee who is employed on 31 December (except those who received a P45 on 31 December).  Among other things, this form contains details of the employee’s gross pay, tax, universal social charge and PRSI contributions for that year.

If you have read the Revenue’s payroll guide linked to above, you will know that the operation of payroll has become quite complicated, particularly with the introduction of the universal social charge and additional PRSI subclasses. There has been some talk about simplifying the tax system in future budgets but in the meantime, if you are anyway unsure about payroll you should consider engaging a bookkeeper or accountant or attending a payroll course yourself. Errors in payroll can prove very costly.

PRSA

If your employer does not operate an occupational pension scheme or where there are certain restrictions applying to the occupational pension scheme, your employer is required by law to ensure they provide access to at least one standard PRSA. This rule applies to all employers irrespective of the number of employees and the status of those employees i.e. full time or part time.

Local Property Tax

Property owners can opt to phase the payment of their Local Property Tax (LPT) for 2014. One of the phased payment options available is deduction at source from salary or occupational pension.

To opt for this method you are required to provide your employers name and tax registration number. If you select this option payment will be spread evenly over the year.

Employers who have been issued with an instruction to deduct LPT on employer tax credit certificates (P2C) should declare the relevant LPT on their P30 and P35 returns.

Update March 2014

A summary of the main PRSI and USC rates are as follows:

PRSI CLASS A (most employees)

PRSI Class S (Self-employed)

A full listing of all PRSI classes and rates can be found on www.welfare.ie.

Universal Social Charge

For those earning over €10,036 per annum the USC is calculated on weekly salaries as follows:

First €193 per week at 2%

Next €115 at 4%

Balance at 7%

As an example, if you earn €500 per week, USC is calculated as follows:

€193 at 2% = €3.86

€115 at 4% = €4.60

€192 at 7% = €13.44

Total USC = €21.90

A list of the most common credits and cut-off points can be found here.

If you have any queries, please email me on blog@parfreymurphy.ie or leave a comment.

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