2022 is the year that we begin to restructure and gather our bearings after the chaos of the last 2 years. We know from the last 2 years that a lot of things are not foreseeable, but we all want to prepare now more than ever. Today we look at how bookkeeping can make your business resilient to future events. It can assist you with
- Short- and long-term decision making,
- Identifying investment opportunities and
- Retirement planning
- Value creation
Let’s take Mary Crowley and her construction business as an example. Mary asks her accountant to provide monthly bookkeeping services along with year-end accounts. We will look at the following.
- Mary’s background
- Her initial issues
Mary Crowley is a sole trader trading as Project Builds. Her accountant Bill prepares her year-end accounts for December 2021 by the 10th of March 2022. Bill also prepares management accounts and analysis for January and February 2022.
They arrange a meeting to go through the main findings:
- In 2022 Mary had purchased machinery for her construction business. She took out HP contracts for 3 years.
- In 2021 Mary acquired a massive 15-year maintenance contract with a local authority. It was due to bring in upwards of €300,000 per year.
- In 2021 Mary’s sales invoicing doubled and Revenue grew. But Mary’s debtors listing also grew quite large and cash was beginning to be an issue
In 2022 Mary turns 51.
Mary realised she had made the right decision in passing on her books. Here’s why.
Mary was too busy to focus on the administration part of her business. Mary’s passion is project management in the construction sector not balancing books. Mary was successful for a reason. She knew she had to concentrate her time working in the business and not on areas like bookkeeping. Some of the findings were
- Mary had no control over cash and income receivable
- She had no control over expenditure
- She had no retirement plan in place
- Her latest projects are eating into her margins due to inflationary price increases
- She had no business support when making business decisions
- She spent 40% of her time on admin
Before, Mary’s only relationship with Bill was for compliance only. Mary had no real idea how the business was performing other than she had some money in the bank. But this disappeared in November every year at tax deadline time.
Bill advises Mary to incorporate her company to avail of a lower tax rate. For 2021 and prior years she is paying 52% tax on profits over €35,000. Taxing her profits at 12.5% in a company will lead to significant savings which will help her to grow the business. This will be very beneficial with the new contract coming on board.
Bill gives Mary a schedule of debtors and noted the customers who owed her the most. This is so Mary can get more control over cash during a period when it was becoming an issue. Up to this point, Mary had little control over debtors and clients to watch out for.
With Bill on board, Mary could track her debtors monthly. She can also get an analysis of income vs costs which will be helpful to analyse her business. Especially now inflation is reducing margins in the construction sector. This will also help Mary understand which upcoming projects are worth taking on.
Marys had many recurring subscriptions that she didn’t need. Due to time issues, these got lost in a sea of transactions. Mary could now control her spending and save money on unnecessary outgoings.
Bill and Mary discussed an exit plan. For the next 10 years, Mary hopes to continue to grow the business, take on staff and become more profitable. They discussed tax reliefs like Entrepreneurs Relief and Retirement Relief. They would review this going forward to ensure Mary was on track to get these on exit.
Bill also guided Mary towards pensions and the benefits of getting one in place. How the company could fund this and that she didn’t have to contribute anything from her take-home pay.
A fear of Mary’s was making those big business decisions without any business support. They discussed the machinery upgrade in January. If he knew he would have advised a more tax-efficient scenario as follows.
As Mary decided on HP the tax relief for the machinery was over 8 years by way of capital allowances. If Mary leased the machinery the tax relief would have been over a shorter period of 3 years. This would have saved her thousands of euros. Find out more about leasing. Unfortunately, Mary didn’t consult with Bill on that decision. It is an example of the investment you are making when you have an accountant on board for business support.
- Pension advice and a future plan in place
- Tax saving through incorporating her business and securing future funds for investment
- Business support on hand for decision making
- Control over cashflow and spend
- Current financial information is available to better understand her business. This will help her decide on projects to take on and grow her business
- More time to invest in the business as she is no longer doing the dreaded bookkeeping
Mary has a great business model. But she needed guidance and support to ensure her business is heading in the right direction. With the right guidance, Mary’s business has the potential for further success. Mary now has real-time information at hand. For her, the benefits far outweigh the costs of outsourcing her bookkeeping.
A lot of the time when the cogs of the business are turning all seems well. But without a clear view of the income and spending how do you know “how things are”. This can be a genuine fear for most, but with the correct support, it doesn’t have to be.
Contact us at Comerford foley to see how we can support you and your business!