by Rick Smith, Eilis J. Quinlan & Co Accountants. 18th April 2011.
Most Irish businesses are facing hard economic times and a more stringent tax regime. Personal tax rates are increasing and Revenue are far less forgiving of non-compliance for both individuals and businesses. Non-compliance can result in penalties and interest on any tax liability that a business might have.
The name of the game these days is to be far more vigilant about identifying and obtaining any of the tax reliefs that still exist and being equally vigilant in making sure that your business is not vulnerable to penalties and interest by being non-compliant.
Analysing your business perfomance should have always been a key part of managing your business, but now it is even more important than ever. It is not only about tax efficiency and compliance, it is also about business efficiency and exploiting opportunities and avoiding business risks faced by your business.
1. Make sure the bookkeeping/accountancy software that you’re using is compatible with your accountant’s software. This will save time and money when you send records to them to prepare final accounts or to analyse and give advice.
2. Make sure you understand the reports your software can provide for you. Remember, your records are most valuable to you, so use them to check performance and plan. Most businesses don’t use the reports that are available to them and, therefore, don’t know exactly what’s going on in their business.
3. Use your Accountant to help produce relevant reports in an efficient manner. You don’t want to spend valuable time producing unuseful or irrelevant information. Most businesses can identify 3-4 key performance indicators e.g. turnover, Gross Profit margin, payroll costs, net profit. These can be identified and regular reports produced from your bookkeeping/accounting software about actual performance vs. a target.
4. Plan and try to anticipate what your performance will be. In this environment, when credit is restricted and cash is difficult to collect, you need to plan ahead to make sure that you have enough cash coming in to meet your regular costs.
5. Income tax rates are going up while Corporation Tax rates are likely to remain the same. Operate your business through a company and manage how you arrange for this to benefit you personally in the most tax efficient way. This is usually about longer term planning, which a lot of us forgot to do in the Celtic Tiger years. Plan for the longer term, because in the short term times are certainly going to be tough.
6. Pensions are very boring unless you’re a pensioner! One day we will all be pensioners (hopefully) and planning for that is a sensible and tax efficient thing to do, particularly if you operate your business through a company. Discuss the tax efficiencies with your Accountant and the security and performance of your pension with your pension provider. Again, this is about longer term planning which is vital.
7. Ask the question Why am I in business? The answer probably is – To achieve a particular lifestyle now and in the future. The next question then is – (How) Can that lifestyle be financially supported by my business. Unless you actively manage and monitor your business, you won’t know.
Finally, remember that we’ve been in difficult economic times before and it was worse, but we got through. We have better information now and better tools which we must make use of to get through these current difficult times.
This article is courtesy of Rick Smith, Eilis J. Quinlan & Co Accountants. Rick can be contacted on 086 1936561 or please see http://quinlanaccountants.ie/