Managing accurate and up-to-date business accounts is extremely important for businesses in Ireland. Your accounting books help you understand how the business is doing financially and take better decisions to enhance profitability. The accounts are also necessary to file tax returns on time which is necessary to keep the business compliant.
Many entrepreneurs who run small and medium-sized businesses try to do their own accounts in order to save costs. This tactic can help you cut down on expenses and a good approach initially when your business is short on funds. However, doing this long term can be detrimental to the business and reduce profitability.
We look at some of the main reasons why doing your own books of accounts is a flawed approach and incur a cost on the business.
How self-bookkeeping became popular
Bookkeeping and financial reporting have always been a technical area that requires accounting expertise. Most business owners running small-scale ventures do not have the specialised knowledge and skills to complete books of accounts on their own.
The idea of self-bookkeeping was popularised recently with the development of online accounting software. These programs are designed to make accounting easier. They claim to allow people without accounting skills and education to do their own accounts.
The truth is that even the most simple of these accounting tools require a moderate understanding of accounting principles to operate. Most of them require proper certification.
Accounting software and applications have become a requisite knowledge skill for professional accountants. They are either too complex to understand for business owners or so simple that they don’t achieve any meaningful results.
Most of these accounting tools are also not free and have upfront and annual subscription costs. It’s also important to understand that even though you use online accounting software, you still need accounting knowledge to prepare profit and loss statements and balance sheets.
Accountant Online offers a free subscription to Xero Premium Package for all our accountancy clients. If you have questions about online accounting software or starting a business in Ireland, join our Startup Webinar with Chartered Accountant Jennifer Harrison.
The cost of doing your own accounts
When you are trying to set up or run a small business, you have limited resources. You must strike a balance between time, labour, and money to find the most suitable fit for your business.
Some of the tasks will be above and beyond your ability, and it is ideal for getting outside help for them. For example, if your business needs a sophisticated IT setup or legal documentation, and you lack the expertise for these tasks, you would be better off hiring an IT company or a legal firm.
The same is true for accounting. If you don’t have skills in bookkeeping and try to do your own books, you will inevitably make mistakes or waste time that could be better spent elsewhere.
Doing your own accounts can have noticeable, hidden costs on your business, some of which include the following:
Using a single firm for accounting and tax returns will save costs
One of the main purposes of bookkeeping is to calculate your annual business income and find out your tax liability. Every business that generates an income is liable to pay taxes in Ireland.
Most professional accounting firms also offer tax return filing services to make the process easier. Since they are handling your accounts, tax assessment and returns filing is a quick and simple process for them.
If you do your business’s accounts, you will have to hire a tax consultancy that will cost almost the same as hiring an accounting firm. Filing tax returns in Ireland requires its own separate set of expertise. Trust us when we say that this is not something you want to do on your own.
Especially when there can be financial consequences if you file your taxes wrong.
Mistakes could lead to fines and penalties
If you make a mistake with your accounts, one of two things will happen. Either you will show inaccurate total revenues or incorrect expenses. These will affect your final calculated taxable income and liability, which will be wrong.
This will cause your business to end up paying more in taxes than you owe or less than you are required to pay. If you pay less than your tax liability, the Revenue Office can impose penalties and fines on your business. They may also call for a complete audit of your accounts if they suspect that the mistakes or omissions were carried out deliberately to deceive.
If your business continues to submit incorrect tax returns, your accounts can be seized, and your operating licence can be revoked on account of tax evasion.
You can end up paying too much tax
If you make a mistake with your tax submission and err on the side of caution, you may end up paying more tax than you actually owe. This is a direct cost to your business and can be avoided if you hire a professional accountancy firm.
While there are procedures to get a tax rebate, you still have to discover the mistake and notify the tax authorities. There are plenty of cases where businesses paid more tax than they were due for years. They did not discover that they were overpaying taxes until they hired a professional accountant that helped fix their mistake.
If you’re not sure how to choose a good accountant, get in touch with our Client Services Team who are always happy to talk you through the services you need.
Hiring an accountant to fix your mistakes could be more expensive
Your business can save costs by hiring a professional firm to do your books of accounts from the beginning. If you have been doing your own accounts for some time, you could have many missing entries or incorrect figures in the books.
Fixing accounting errors is more difficult and time-consuming than creating accurate records from the get-go. Whether you are starting a new business or looking to upgrade your business operations, make sure to hire a competent accountant as quickly as you can. They will go through your books and find ways to make your accounts both legally compliant and practically useful for the business.
You miss out on tax credits or tax reliefs
Government tax and business regulations change all the time – the Governments’ budget changes every year. As a business owner, you may not have the time or knowledge to be aware of all the tax reliefs and tax credits available to your business. This is where a professional accountant can significantly add value and reduce costs for your business.
Many SME businesses get surprised to find out about all the tax benefits that they can avail as a business when they hire a professional accounting service for the first time. These options are available through adjustments of business operations, legal structure, and accounting standards.
It is understandable why business owners don’t keep track of these changes. They are not professionals in the tax and accounting domain. Your time as a business manager is better spent on doing something that you are good at, like designing new products or marketing campaigns, rather than learning technical aspects of bookkeeping and taxation.
Spend more time doing what you are good at
Most SME businesses are started by budding entrepreneurs who have a passion for something they like. You could be a great chef or love to create wonderful artwork and music. Perhaps you are a social butterfly and want to work as a marketer or broker who helps other businesses and customers come together for mutual profit?
Your business is best served when you play to your strengths and do what you are really good at. If you have to do your own accounts, it can make the business inefficient. It will lower productivity, and you will lose interest in the business as well because you won’t be doing what you actually want.
It is possible to manage accounts occasionally or in the business’s initial days when your operations and sales are limited. However, doing your own accounts after the business picks up will only bring you grief. Trying to do everything will cause you to burnout sooner or later.
Many of our clients have gone through the same experience as you so we know first hand how important it is for Startups to get their finances right from the beginning. Check out these Startup Stories from our clients.
You can’t focus on growing your business
Once your business has been established firmly, the next step is to grow it by adding more products or expanding the area of operations. This requires a lot of planning, organising, and testing of new ideas.
If you take on the responsibility of doing your own accounts, you won’t be able to focus on growing your business operations very effectively. If you focus too much on maintaining accurate records, it will take your attention away from the business and inevitably hurt your firm’s growth.
If you try to do everything on your own, it will lead to stress and eventual burn out.
If you have accounting or financial compliance questions you would like answered, register for our upcoming free, live Startup Webinar with Chartered Accountant Jennifer Harrison. During this webinar, you will be invited to participate by using the chat box and you can learn more about accounting and bookkeeping in Ireland, setting up a Limited Company, the differences between Sole Trader and Limited Company and more.
Need help with accounting?
The ideal solution is to focus on growth and let a professional firm deal with accounting matters. Learn more by registering for Accountant Online’s webinar. We offer a competent, professional accounting service for startups that can help entrepreneurs take care of their business’s complete bookkeeping needs. With our help, you’ll be able to focus on doing what you love and growing your business with ease.
If you rather talk to one of our Client Services team, feel free to contact us on +353 1 9059364 or email email@example.com.