Bookkeeping and Payroll are much like going to the dentist—no one really wants to do it but dodging the problem can lead to severe consequences. On the whole, this is why business owners just want to hire someone to do it and not have to think about it themselves. Even if they possess the necessary skills it is usually going to be an unwelcome distraction from the main business in hand.
If you have just set a company up or are working as self-employed you have a lot of things to worry about, not least just starting to sell your products or services to put food on the table and keep a roof over your head. If you are starting off in a country that you don’t well and have no idea of the local laws and regulations there is a minefield out there. What may be comfortably familiar at home appears exotic and strange when you start up in Malta. This is especially relevant when you do not have a good command of English. Running a business requires bookkeeping work, including accounts payable and accounts receivable, recording receipts and expenditures, and tracking profits and losses. You probably will have to pay VAT and if you make a profit you will have to pay income tax. These obligations usually start from day one.
So apart from finding customers and growing the business you have a range of other matters to take into consideration. Take the question of VAT for example. You will faced with a range of questions about what type of VAT registration you need, do you need to operate the reverse charge mechanism and make periodic recap statements to the VAT Department (if you even know what these mean!) and work out how to fill in the VAT return. Do you know about the penalties of late submission of returns? These apply irrespective of whether you are self-employed or run a company. Do you have the time or expertise to handle these issues?
Instead of having an in-house bookkeeper or doing it yourself, many businesses are finding the many advantages of outsourcing bookkeeping. It is easy to understand the reluctance for an entrepreneur to consider paying out money for an external bookkeeper preferring to do everything themselves, but in fact as discussed below this may be one of the best decisions you can make, especially in the start-up phase of a business.
The first big plus is that you will have more time available to run the business. Outsourcing your business’s bookkeeping operations frees up valuable time that can be put into developing the company. Backend office functions can be a heavy distraction from the day-to-day running of things and having your bookkeeping in-house can lead to a conflict of interests.
The second major advantage is that outsourcing can actually save you money. The bottom line is that by outsourcing your bookkeeping operations, you save money on paying full-time or part-time wages and benefits to an employee. Even if you pay an in-house bookkeeper minimum wage it is going to cost you around €10,000 a year or more factoring in social security costs. For a small company outsourcing may cost as little as €150 a month. The maths is simple.
Not only that, employing staff involves multiple legal obligations. You may decide it is best to avoid these until you reach a certain level of activity:
- You have to pay social security contributions (10% on top of salary costs in Malta considerably more in other countries). Is this a cost you can bear on top of other obligations?
- No worker’s compensation insurance.
- No medical insurance or other benefits to pay.
- No retirement plans.
- No vacation or sick days to consider.
- No placing classified ads, screening interviews, testing and training.
Do you have the human resources capabilities and knowledge to employ staff? If not, better not to open that can of worms until it is absolutely necessary.
Furthermore, you also save on lost productivity costs that come along with hiring employees onto the payroll. By outsourcing your bookkeeping, you only pay for what you need—nothing more, nothing less. Also you will know your Vat or tax return is done correctly and so will reduce the risk of penalties from non-compliance.
Thirdly, outsourcing gives you a great way to have full-time knowledge on your team without having to pay for it around the clock. By putting your books into the hands of a highly skilled staff who understand the best practices and how to properly staff for certain tasks, your job becomes a whole lot easier—and effective.
By eliminating the distractions of the office from their jobs, places that take bookkeeping jobs are able to provide clients with more focused work. It’s hard for a bookkeeper to do their jobs around the hustle and bustle of a business—removing them from the site by outsourcing not only helps you focus on your business, it helps them focus on your business as well.
When you outsource your bookkeeping, you’re placing your financial records in the hands of a staff that thrives on teamwork. Unfortunately, one bookkeeper is often not enough to find every subtle nuance that can benefit your company. But when you outsource, you have a team of workers and managers checking and double checking each other’s work, helping to ensure that you receive the best services possible. This also helps keep a segregation of duties.
Outsourcing your bookkeeping operations gives you more access to the top tools in the industry. Most businesses can’t afford to pay for the extremely expensive bookkeeping or payroll programs nor can they afford to spend the time keeping up with changing laws and regulations. By outsourcing, you’re essentially purchasing those tools.
You are not tied down to location. If you are based in London for example, why not find an outsourced bookkeeper in Manchester as it is likely to cost less. Or be adventurous look further afield. In Malta the accounting principles and VAT rules are similar to the UK and a Maltese outsourced option will costs you a fraction of what you pay in the UK. With multiple cloud computing options sharing data has never been simpler.
Finally, outsourcing your bookkeeping allows you to expand or cutback in the blink of an eye. Whether you’re looking to grow your business or cut down on spending, having a reliable team at your command, providing you with different plans and options will help you achieve your goals. Outsourcing provides flexibility that in-house bookkeepers just can’t provide.
How this works in practice will depend on circumstances. Usually it is just a question of dropping off the month’s invoices, receipts and bank statements and leaving it for the bookkeepers to work their magic. However in the age of cloud computing it is as easy to open a share file with the bookkeeper and do everything electronically.
In summary, unless you have the time and expertise to keep your own books and account for VAT, income tax and submit returns (and you may or may have a willing friend or relative who does and will work for you for nothing) the tedious but vital administrative functions are likely to get put off while invoices and receipts are consigned to a desk draw or a shoe box which you will have to make sense of when the first VAT return is due. We all put off unpleasant tasks, but this one is a legal obligation to boot. Maybe it is better to make this decision sooner rather than later and concentrate on growing your business and let someone else take the strain of the tedious day to day administration.
Outsourcing your bookkeeping? Can you afford not to?