A good business is a law-abiding business. As a business owner, it's your responsibility to do everything within your means to limit risk and to keep the business running smoothly. However, when running your own business, you end up juggling a lot of different roles. Certain financial tasks, which are required by law, can end up inadvertently falling by the wayside. This isn’t good.
Accounting mistakes can not only impede the growth of your business, but also put it on shaky ground. Unfortunately, mistakes are all too common, especially for new or young businesses. The expertise and knowledge of an accountant is invaluable. Their overseeing of certain financial matters will not only ensure you avoid fines or legal action, but will also give you peace of mind, in knowing that you won’t end up in hot water.
We’ve put together 5 situations where having a good accountant can help your business avoid trouble.
Taxman troubles: don’t land yourself on his hit-list
The last thing a business owner wants is to be involved in a SARS-related living nightmare – being accused of tax evasion or even fraud. Few people can say they’re genuinely on top of taxation rules and regulations, but that’s just what an accountant is there for. An accountant will go through your business with a fine-tooth comb and check to see that you’re making full use of any tax allowances and reliefs you can claim. More importantly they will make sure tax deductions haven’t been exaggerated, and ensure there hasn’t been a failure to report all earned income.
It is one thing to make an innocent mistake on your taxes, but to intentionally disregard tax law, or neglect known legal duties, specifically your tax filing and payment responsibilities, can land you in serious hot water. So it’s not a good idea to even think about neglecting your tax filing duties or fudging the entries a little, or a lot.
BE(E) compliant, not defiant: worse still, don’t stick your head in the proverbial sand
Ever wondered what the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Practice mean to your business? Don’t wonder, hire an expert.
As of the 1st of May 2015, new Codes came into effect, and are evidently much stricter in their scoring and implications for business owners than the older Codes. So, who needs to comply with BEE Codes? All organs of state, public entities and any private enterprise that undertakes business with a public entity must implement the Codes. That is not the limit of those who must comply however; any business providing goods or services to another business that is subject to BEE compliance, may also be required to provide evidence of its own BEE compliance. The size of a business is particularly relevant in determining the necessary levels of BEE compliance too.
In order for a South African business to properly thrive, adhering to the B-BBEE Act and Codes is vital. But it all gets quite complicated, so a DIY approach is probably not the best one. Compliance is complicated; this is where an accountant, specialising in the above, can be an immense help. Although an extreme circumstance, one of the biggest changes that has come into effect is that ‘fronting’ is now officially being recognised as a criminal act. This refers to when a business pretends to be compliant, but is actually circumventing the BEE Act and Codes. If found guilty, the consequence for fronting schemes is either a fine of up to 10% of the company’s turnover, or up to 10 years imprisonment. Don’t go to jail, do it right.
Definition of an auditor: an accountant with an opinion
Firstly, a definition or two. Accounting is defined as the primary tool for recording, reporting and analysing financial information. An audit is an accounting term that refers to examining the financial practices of a business to ensure that it follows generally accepted accounting principles, and to spot real or potential problems.
Business owners can use external audits to review their accounting processes and financial information. External audits offer several benefits for business owners: an audit can provide validity, discover errors, detect fraud, limit legal and tax issues, and can help to educate business owners on the importance of accurate accounting practices.
Legal issues arise when business owners provide inaccurate or fraudulent accounting information to lenders, investors and the general public. This may often be the result of innocent mistakes. Business owners are usually liable for not reporting their company’s financial information accurately. Innocent until proven guilty? Let’s not let it get to that.
Vexing Arduous Troublesome (VAT): the indirect tax
It is mandatory for any business to register for VAT if the income earned in a twelve month period exceeds, or is likely to exceed, R1 million. VAT is an indirect system of taxation (which means it's not directly deducted from your income), and it is arguably the most important. VAT is currently levied at 14% on the value of all goods and services supplied by vendors.
Where it gets interesting (maybe not in the truest sense of the word), is that VAT is largely a self-assessment system of tax collection, policed by regular audits by SARS. This system, along with a business’s ability to obtain VAT refunds, contributes to fairly significant levels of fraud and abuses. This, in turn, means SARS have made VAT compliance a high priority. Now, the law behind VAT is often being amended, and the legal goalposts regularly shifted, so the chances are that you might need the help of an expert to stay well out of the way of a SARS crusade.
While many small businesses assume that VAT does not apply to them as it would for larger businesses, this would be a mistake. Every business in South Africa that provides goods or services is in fact required to register for VAT. Failure to comply could cause serious problems – something that very few small businesses are able to recover from in the event of fines, or consequences far worse.
Fiduciary Duty: preach it, don’t breach it
The odds are good, you probably already have a fiduciary duty to someone. Broker to client, lawyer to client, officer of a private company to shareholders, owner of a start-up to investors - you’ve all got it. The odds are even better, that you may not fully understand the scope and the risks inherent in having such a fiduciary duty.
What is it, first of all? Fiduciary duty is an obligation of loyalty and good faith to someone, or some entity, that is the highest duty known to the law. In short, anytime a businessperson is acting as a fiduciary (taking money from people in trust), said businessperson must be very careful how it’s spent, and must always act in the best interests of the beneficiary at all times.
It is extremely important that you avoid breaching your fiduciary duties, even if unknowingly, as you could be held personally liable. This is where the help of an expert comes in; they will help you understand the basics of fiduciary duty, what’s expected of you, and what actions might be in breach of your duty. Understanding and avoiding prohibited transactions (like those that would benefit you personally, or adversely affect the company) will also help you avoid breaching your duties, and getting in some serious trouble.
So there you have it - accountants do so much more than business arithmetic. They help you sleep well at night too. Plus, if things end up going truly pear-shaped, you’ll want to have a good accountant on your side.
Colenbrander offer a wide range of financial services and provide worthwhile and essential business advice, every step of the way. To find out how we can help you, visit www.colenbrander.co.za