Is your New Customer Planning to Pay you ?

You've just got a new customer - great news and well done !

But what steps have you taken to ensure that they will ultimately pay for your service or product?

Here are some of the best practices you should consider implementing before you accept any new orders :

1. Do a background check on your customer.  What is their current financial position?  Do they regularly pay on time? Companies such as Dun & Bradstreet provide excellent reports on company information and will even provide you with a credit rating for your prospective customers.  If this credit check is negative I would strongly suggest that you open a cash only account until their situation improves.

2. If this will be a regular customer discuss with them their planned monthly orders.  

Base your credit limit on one month's orders.  Thereby limiting your exposure until they have built up a positive credit history with you.

3. For large projects request a deposit up front and agree stage payments until the project is complete.  If they won't pay you some money up front now why assume they will pay the full amount later?

4. How do they plan to use your product?  Will it be incorporated into their manufacturing process and sold on?  If so how long will it take them to get paid?  A common statement is that you will get paid when they are paid.  Can you wait that long for payment?  This will be especially important if your order is of high value.

5. When selling services and perishable products always aim to set your customers up on direct debit.  You can still offer credit terms however you control the request of their payment directly from their bank / credit card on an agreed date.  Software such as Autopay (Mercury Software) is affordable and will help simplify this process.

Remember if you are in doubt always request payment upfront.  You may even find yourself rejecting the order but you will probably also have just avoided a bad debt.

We are all guilty of being eager for that next sale but an order only becomes a sale when the money is in the bank!

Business will always be about taking risks but great businesses take calculated risks.

Could your business benefit from the implementation of strong accounting procedures?  

If so call us today in confidence on 01 6877190 or visit www.sgk.ie for more information.

5 Simple Ways to Improve Cashflow in your Business

10 Ways to Improve Profitability

5 Ways Creative Agencies are Leaking Cash

A large portion of creative agencies and digital agencies work based on projects from their clients.  

As these projects can take many months to complete smart thinking is required to manage cashflows during these periods.

Below are 5 areas where agencies can regularly leak cash :

1. Do your account managers have monthly sales targets?

Be smart about the timing of sales invoices.  Monthly sales targets may be met but at the expense of cashflow.  Premature invoicing will result in cash outflows when the VAT on the invoice is paid to Revenue.  Apply to return your VAT returns on a cash receipts basis if your annual turnover is less than €1,000,000 (this will increase to €1,250,000 from May 2013).  Otherwise try keep invoicing as close as possible to the agreed payment date to minimise the time between your vat return and when the invoice is paid. 

2. Are you waiting until the project is complete to receive payment?

Regularly it can be the client who causes the delays in completing projects.  Content and changes to website designs can take time to be agreed. 

Establish clear project milestones with your client from the outset.  Invoice at each milestone and ideally wait for this to be paid before you continue to the next milestone.

3. Are you paying suppliers too early?

Invoices from the media, venues, freelancers, etc.. may offer little or no credit terms.  If you must pay client outlays upfront arrange for your client to pay this in advance also.  Try to match client and supplier credit terms as much as possible to improve cashflow.

4. Do you have a budget for each project?

Prepare a detailed expenditure plan for every marketing budget.  Regularly review this against the actual costs.  

Have procedures in place to act when these costs are exceeding the budget.  Can the excess costs be invoiced to your client?   

When you incur an outlay are you prompted to invoice your client for example google adwords expenditure?

Do you have procedures in place to identify any outstanding costs that are yet to be received?

5. Do you know how much your pitches really cost?

Creative pitches can be costly.  Record these costs separately and don’t forget to include stationery, employee expenses, props and employee hours.  Assess all potential pitches to ensure that pitch costs aren’t higher than the potential revenue if successful.

These are only a few of the areas where we have encountered drains on cashflow. 

Have you any more to add to the list?  We’d love to hear how you’ve improved the cashflow in your agency.

When is the right time to outsource your accounts?

Do you find yourself working late nights and weekends to complete your VAT return?  Do you dread the P35 deadline or find yourself struggling each month with payroll calculations? Do you struggle to know who owes you money and who you are due to pay?  Do you continuously worry about whether your business is profitable and where all that money is being spent each month?

Now imagine a world where you are presented with timely and accurate monthly accounts.  You now know how much you are spending each month.  You can now react if your business is losing money.  Each month you receive a list of who owes you money and a list of who you are due to pay.  Hours spent on payroll and vat returns are now a thing of the past.  

What could you do with all of that extra time?

•     More time to follow up on potential new customers and sales leads
•      Attend more networking events
•      Develop new products and services
•      Meet with existing customers and review their current needs
•      Monitor and improve the quality of your product / service
•      Spend more time with your family or even take a day off work

Imagine the value that could be brought to your business…………..

Most accountants use secure online accounting solutions so you can still access your accounts 24/7. 

More and more businesses are facing the dilema of needing accurate and timely financial information but not having the resources to employ full-time accounting staff.  Outsourcing eliminates employer prsi costs and holiday pay.  It is an affordable way of having access to an accountant for advice in other areas of your business.

You can be confident that you are making key decisions based on accurate financial information.

Most importantly you can now concentrate on the success of your business.

Find more information at www.sgk.ie

10 Ways to Improve Profitability

Regardless of your level of turnover, profitability is key to funding the growth and expansion of your business.

These are 10 of the best ways that I've found to work when working to increase profitability :

1.  Know your Break Even Point.  In other words know how many units you need to sell to cover your monthly overheads.  This should be your minimum monthly sales target to avoid a loss and of course any sales above this point will contribute directly to your bottom line.

2.  Produce Accurate Monthly Accounts and financial analysis.  You can't react to a loss unless you know about it as it occurs! Determine what has created the loss and rethink your strategy.  Invest in a bookkeeper / accountant to produce your accounts if necessary - it is a critical part of your business.

3.  Set an annual Budget for sales, gross margin and overheads.  Break this budget down monthly so that you can compare it to your actual monthly financial figures.  That way you'll be able to act swiftly on variances before they get out of control.

4.  Ensure that you have a Strong Credit System in place for customers on credit.  This will involve credit checks for all new customers, timely invoicing, monthly statements and cash collection procedures.  Consider the possibility of setting your customers up on direct debits.  Bad Debts can have a huge impact on your bottom line.

5.  Where possible Ship your product Directly from your supplier to your customer.  I've experienced companies achieving huge savings in storage costs, rent and insurance after switching to direct deliveries.

6.  Review all of your Insurance Costs and requirements and then shop around.  I recently did this and achieved a 25% saving in all of my business insurance costs.  For a lot of businesses this can be a substantial cost.

7.  Again review all of your Current Utility providers ie Electric, Gas, Mobile, Broadband , Landline etc...  Contact competitors for cost savings or review price comparison websites.  All savings here will directly increase your profit.

8.  Arrange a meeting at your bank to discuss ways of decreasing your Bank Fees and interest.  If you make foreign currency transactions when paying creditors etc..  the associated bank fees can be quite high.  Discuss with your bank less expensive ways of conducting these transactions.

9.  Use Technology such as Gotomeeting.com, Skype and Netviewer when conducting meetings instead of actually travelling to minimise costs.  Travel costs and lost time can add up quickly.

10. Review your Selling Price.  If possible don't get trapped in being the lowest priced.  Attach other strengths to your brand such as quality, reliability, expert etc..  Build brand loyalty and review other competitors to determine what selling price your market will accept.  Being known only for your low prices could be detrimental to your business if a lower priced competitor enters your market.

Do you have a tip that wasn't included above?  Let us know the ways in which you improved the  profitability of your business.

Tax Refund Claims for Private Medical Insurance

Does your employer pay for all or part of you (or your family’s) medical insurance?  If so you could be entitled to a tax refund.

Tax relief for medical insurance paid is granted at source through the Tax Relief at Source (TRS) system. Meaning subscribers pay a reduced premium equal to 80% of the gross amount of the insurance premium.   This reduction is the same as giving tax relief at the standard rate of tax (20%). No further claim is required to be made to Revenue.

However an employee whose medical premiums have been paid by their employer will not have been entitled to TRS and will be entitled to claim this back in their annual tax return.

The following examples will illustrate the relief due:

Example 1 – Employer Pays the Full Insurance Premium

Gross Premium            €2,000

TRS @ 20%                   €400

Net Premium                €1,600

As the employee would not have benefited from the TRS given on this insurance premium they would be entitled to reclaim back €400.

The gross premium would have been treated as a Benefit in Kind to the employee and would be subject to PAYE, PRSI and USC.

Example 2 – Employer Pays part of the Insurance Premium

Gross Premium €2,000

Employer Pays €1,000 and Employee Pays €1,000

TRS @ 20% €400

When the Employee paid the €1,000 they would have received TRS of €200 resulting in only a net payment to be made of €800.

However they would have received no TRS on the Employer Contribution and would therefore be entitled to a refund of €200.

How to Claim

This tax relief can be claimed in your annual tax return or by completing the following form and returning it to your local tax office.

 

http://www.revenue.ie/en/tax/it/forms/medical-insurance-relief.pdf

If you have not previously claimed this tax before you can put in a claim for the past four years if applicable.

 VAT Reclaims on Business Vehicles

Limited Company -V- Sole Trader

Audit Exemption - What it means for your Business

5 Simple Ways to Improve Cashflow in your Business

SGK Accountancy Services

VAT Reclaims on Business Vehicles

Thinking of buying or leasing a new company vehicle? Then you may be entitled to reclaim some of the VAT charged.  

Vehicles within VRT Categories B & C, such as vans, lorries, pick-ups and crew-cabs are generally deductible for VAT, and these are often referred to as commercial vehicles for VAT purposes.

However since 1 January 2009 VAT registered businesses are now entitled to claim back some of the VAT charged on the purchase or hire of vehicles coming within VRT category A, subject to certain conditions , including:

• Only applies to vehicles registered from 1 January 2009;
• A maximum of 20% of the VAT incurred can be reclaimed;
• VAT can only be reclaimed for vehicles that have a level of CO2 emissions of less than 156g/km ( ie CO2 emission bands A, B and C);
• At least 60% of the vehicle's use must be for business purposes;
• If the business is exempt from VAT (e.g. taxi, limousine and other passenger transport) then no VAT can be reclaimed.  Partly exempt businesses can reclaim some, but not all, of the 20%;
• If VAT is reclaimed on a vehicle purchased under this provision, some or all of the VAT must be repaid to Revenue if the vehicle is disposed of (by sale or otherwise) within two years;
• There is no need to charge VAT on the disposal of the vehicle, even though VAT was reclaimed under this provision;

Was VAT charged on the vehicle?

VAT is generally charged, and therefore can be reclaimed, on all sales of business vehicles by motor dealers to VAT-registered traders.  A VAT invoice must be issued by the dealer and retained by the trader.  If the vehicle was purchased from a private individual, or from a trader who is not registered for VAT, then it will not be possible for them to issue a VAT invoice, and no VAT may be reclaimed.  If the vehicle was second-hand, and was purchased from a motor dealer operating the special scheme for second-hand vehicles, there will be no entitlement to reclaim VAT, even though an invoice will be issued for the sale.  Such invoices will include an endorsement to the effect that no VAT may be recovered. 

Full details of how the recovery of this VAT can be achieved, including examples, are available in the information leaflet Deduction of VAT for Certain Business Cars.

Vehicles that come within VRT Category D, and other vehicles not in Categories A, B, or C may be deductible, depending on whether the purchasers are registered for VAT and the uses to which the vehicles are put.

Limited Company -v- Sole Trader

Audit Exemption - What it Means for Your Business

5 Simple Ways to Improve Cashflow

Limited Company -v- Sole Trader

So you’ve decided to set up your own business?  If so one of the first decisions you’ll be faced with is whether to operate as a sole trade or incorporate into a limited company.

Personally I prefer operating as a limited company for a number of reasons:

1.  Better treatment of taxes, pensions and allowable expenses
2.  “Limited Liability” which basically safeguards the owners’ personal assets (however this doesn’t include personal guarantees required by banks)
3. A more suitable structure to faciliate investment, business mergers etc..

However I must stress that  a limited company isn’t appropriate for every business and for very small businesses operating as a sole trader probably makes more sense.  Also some professions are restricted from incorporating for example solicitors.  Don’t forget you can always incorporate your business at any stage as it grows.

The headings below should help give you more guidance on which structure is more suited for your business.

Allowable Expenses

Directors of limited companies can claim unvouched expenses for mileage and subsistence tax free (in accordance with civil service rates).

Sole traders can only claim vouched expenses eg diesel receipts but they can claim for the cost of their own car used in the business.

Entertainment expenses are disallowed for tax purposes for both structures however limited company directors have the advantage of using the company’s cash for these expenses.

Set-Up Costs

The costs of incorporating are higher and usually start from about €200.  Annual accountants fees will also be higher as financial statements will be required each year in accordance with Companies Law.  There is also the additional paperwork of filing an Annual Return Form (B1) each year in the Companies Office.  Accounts must also be filed with this return each year and these are publicly available (although the information made public is limited for small companies).

VAT & PAYE

There is no difference in the treatment of VAT for limited companies and sole traders.

PAYE, PRSI & USC rates and allowances are also the same for owner directors and sole traders.

Corporation Tax

12.5% Corporation Tax is applied to the profits of most limited companies (although this can be higher for some professional service companies).  Some companies can apply for exemption to Corporation Tax  for their first 3 years of trading.

Whereas all of a sole trader’s profits are liable to income tax at their personal marginal tax rate.

Preliminary Tax

Sole traders must file an income tax return on the 31st of October in the year following the end of their accounts period.  This first tax return must cover payment for their income tax bill for their trading year (subject to income tax commencement rules) and also preliminary tax for the following year.  For example a sole trader with accounts ending 31 December 2011 will be due for filing and payment on 31 October 2012.  Preliminary tax for accounts year ending 31 December 2012 will also be payable on 31 October 2012.  For following years the balance of income tax for the year and preliminary tax for the following year is payable.

Directors in a limited company pay their taxes monthly through the company’s payroll and paye operation.  Once all salary is declared this way no preliminary tax will be due to be paid.  Although preliminary tax will be due to be paid on any corporation tax liability.

Pensions

Directors of limited companies can contribute more tax free funds to their pension funds.  There is also the additional tax efficiency gained by establishing a company pension scheme.

Winding up the Business

Closing down a company is more difficult and more costly than a sole trader especially if you have debts and a liquidator is required.

Should the company fail and the directors can prove that they acted honestly and responsibly they can be protected by the limited liability status and there should be no adverse financial consequences for them.
However sole traders have no protection from their creditors and if their business fails with substantial debts they could be forced into a precarious financial situation.

The above list isn’t comprehensive but as you can see there is a lot to consider when deciding the best structure for your business. 

Perhaps you can think of some more advantages / disadvantages that I’ve omitted from the above?