Overcoming the fear of accounting and finance in 2015 (Part 2)
Yaneek Page, Contributor
Don't put yourself out there today - in the newspapers, on TV, or on radio - unless you are prepared to welcome the tax authorities into your business tomorrow.
It's advice I give in every entrepreneurship training session because most new business owners are eager for any publicity they can get for their business or want to share their experiences and ideas with the public without realising they'll attract much more than customers.
The first time I ever appeared on television it was on a current affairs programme with a government minister and another business owner.
Within a week of the interview, I received a notice from the tax authorities that I was being audited, going back six years. My husband received a notice as well.
To make a long story short, after several meetings, inspections, and rigorous interviews, officers within the Tax Fraud Division of the tax department concluded that my husband had no liability to the Government but that I owed approximately $35,000.
According to them, I had received a housing allowance in a former job as a university teaching assistant and the allowance should have been taxed.
They insisted that although I was an employee, I was responsible for the university's supposed error. When they added interest and penalties, the 'amount owed' nearly doubled. It was a stressful waste of time and energy for my family and a terrible waste of resources for the tax authorities.
Small businesses' fear of the tax authorities is real and justifiable.
In my last column, I outlined five solutions to help entrepreneurs overcome the fear of finance and taxation in the New Year.
This week, I'll delve deeper into hiring a competent accountant and developing a checklist for managing the relationship with your accountant.
Even if your business is unable to afford an accountant on an ongoing basis now, at the very least, it is important to get accounting advice and set up basic accounting systems.
Entrepreneurs tend to underestimate and undervalue professional services like legal, accounting, and business consultancy with disastrous consequences.
At the same time, some of those professionals also set their rates without due consideration for market demands and compete fiercely for "more established' clients rather than target start-ups and micro or small businesses.
Before you hire an accountant, write down the financial goals and accounting needs of your business and budget for this expense.
Know what the accountant will need from you. You need to be aware of the accounting cycle, which is a step-by-step process of recording, classifying, and summarising of economic transactions of a business to then generate helpful financial statements and reports.
According to Gregory Pearce, partner in the accounting firm Pearce, Jarrett and Company: "The first step of the cycle, and to me the most important, is data collection. The data you collect ultimately determines the information shown in your financial statements. If you do not collect all the data, then your financials will reflect an incomplete picture of your operations. This can lead to other negatives such as an adverse opinion in your audit report."
There are generally eight other steps in the cycle, which you can learn more about at: accountingverse.com/accounting-basics/accounting-cycle.html
Know the key financial statements your accountant should deliver. According to Pearce, these are the Statement of Financial Position (SOFP) or balance sheet; the Statement of Comprehensive Income (SOCI), or profit and loss report.
"The SOFP is essential because it shows the assets, liabilities, and equity of the business as at a specific date. This is very important because many business owners do not know the extent of their assets and liabilities," says Pearce.
"The SOCI shows the income, expenses, and profit or loss of the business for a specific period. It basically answers the question that every entrepreneur wants to know: How much money did the business make?" he says.
When hiring an accountant, search for prospects. According to Dennis Chung, president of the Institute of Chartered Accountants in Jamaica (ICAJ), the umbrella body for the accounting profession, there are about 4,500 to 5,000 accountants in Jamaica, but only 1,200 are registered with his association, 200 of whom are qualified to sign off on financial statements.
Therefore, while the ICAJ website is a good starting point for small business owners looking for an accounting expert, it is not a complete source. There are, however, numerous advantages to using licensed accountants: Their qualifications can be easily verified; they do continuous training; they now must have professional indemnity insurance, and more.
Get referrals and meet with several potential accountants. They typically do not charge for an initial meeting because they want your business. Use this as an opportunity to learn more about them and whether they fully understand and can meet your needs.
The public relations assistant at the ICAJ, Dania-Kaye Waugh, says you can request the résumé of any of their members at no cost.
When hiring the accountant, agree the cost and terms of service. The ICAJ does not provide a scale, range, or survey of fees charged by members for any accounting services, which is unfortunate since this would be very useful for small businesses as a source of reference.
Entrepreneurs must ensure they sign off on the fees, deliverables, due dates, service standards, and even the process of termination of services should that become necessary in the future.
Yaneek Page is an entrepreneur and trainer in entrepreneurship and workforce innovation. Email: email@example.com Twitter: @yaneekpage Website: yaneekpage.com