Category: Uncategorized

Running a successful small business means managing your cash flow – in simple terms, making sure that more money comes into the business than is paid out. Business overheads can comprise a number of items – stock, staff, business premises, supplies and IT costs. Such overheads account for a large part of the money that has to be paid out in any business. While many of these overheads are necessary for the day-to-day running of the business, if they can be reduced or minimised, then the pressure on cash flow can be eased, and the financial stability of the business underpinned.

There are a number of ways to cut business overheads.

• Staff

For many businesses, staff costs are the biggest single expense, and, in some cases, due to legal and financial requirements and the financial cost of termination, the hardest to reduce when times are tough. Staff costs do not only include salaries; depending on circumstances, there may also be associated social security and tax, pension and health insurance expenses, annual bonuses, holiday and sick pay. There may also be costs associated with their recruitment and training and development, as well as the administrative burden of monthly payroll, and state/government reporting. That is over and above the “hidden” costs of having to manage staff every day.

Where possible, avoid taking on staff, and consider instead outsourcing functions or hiring consultants instead. Not only do you gain almost immediate access to the expertise and knowledge of these third parties (something you may have to invest training time in with employees to get them to the same level of skill), but you also gain flexibility at the same time. If the business is struggling and cash flow is tight, you can save money by just discontinuing the engagement with the consultant or pulling the plug on the outsourcing arrangement. Compare that with the legal and financial cost of terminating an employee which, depending on country and seniority, can be very expensive, time-consuming and administratively difficult.

• Premises

The cost of premises can be a big overhead for many small businesses. It is easy to decide that you want “state of the art” offices or a shop in a prime location, but is it really necessary? Do you need the foot traffic or could you relocate to another part of town or elsewhere without it significantly affecting your business? Whilst renting premises in the “right” location could be important for your business, many could as well operate from a less fashionable area where rents, and associated costs like business rates, are lower.

Also, there is no need to outfit your offices with expensive furniture and accouterments. Instead go to IKEA or similar outlets and buy office desks and chairs that are both durable and relatively cheap. The same for other office furnishings and equipment,

Another option is to work from home. Whilst not an option for all businesses, such an alternative could work for many companies who are not selling physical products, or are providing online or consultancy services. Allowing staff to work from home, especially those who are in support functions or are not customer-facing, may reduce the stress of commuting for them and increase business productivity as well; studies have shown that those who work from home work longer hours and achieve more than those who travel to an office every day.

• Shop around for the best deal.

Try to make sure that you are getting the best deal possible from all your suppliers – including utilities like electricity, telephone and internet fees. If your business uses stock, try to negotiate with suppliers on price, and explore what credit options are available. You may find that if bulk-buying or “preferred” supplier status is on offer, then suppliers can be receptive to a deal being done.

• Rent rather than buy.

Business savings can be achieved sometimes by choosing to rent rather than buy. For example, capital equipment – plant, machinery, cars and vans etc. – can be expensive to buy, and costly then to repair and maintain. Renting reduces capital investment, lets you upgrade to new equipment easily, and saves on repair and maintenance costs.

Switch your computing to cloud services and get a range of up-to-date business software and applications without having to buy them. There is no need for expensive data storage and email servers, and because web-based software does not require complex installation or maintenance, IT support can be reduced as well.

• Hire an accountant.

Whilst it may seem paradoxical, hiring the services of a qualified skilled accountant can help you save money and reduce overheads in the long-run. This does not mean taking on a full-time employee; rather, engaging the services of an outsourced consultant for a few hours’ support a week can be a valuable investment generating far more in savings than their cost.

A suitable accountant can look at your business expenses and find ways of saving money across the board. Perhaps they might suggest cutting travel costs by encouraging the use of teleconferencing, reducing premises costs by renting out spare office space, switching online payment providers to a cheaper alternative, or putting office supply costs out to competitive tender. A good accountant can generate a whole host of money saving ideas for your business, paying for themselves many times over.

The key to long-term business success, especially if you are just starting out or your business is growing, is cash flow management – making sure that the money which comes into the business is more than the money which is being paid out. A key way of controlling the money that is spent is to keep a tight control on overheads, reducing them, where possible, to the minimum. To this end we suggest outsourcing as an alternative to hiring staff, relocating to cheaper premises or working from home, shopping around for the best deal and renting rather than buying. We also recommend engaging the services of an accountant – in exchange for a few hours’ support a week, they can generate a wide range of ideas which can help both save you money and underpin the long-term success of your business.

It is a sad paradox that many profitable businesses fail every day or struggle to stay afloat, despite having successful products or providing state of the art services. The reason behind the paradox lies with the fact that, although a business may be profitable on paper – sales are greater than expenses – its cash flow is negative. All that paper profit means nothing if you cannot convert it into cash.

The biggest cause of negative cash flow is usually accounts’ receivable, or debtors – the amount that you are owed by clients who you have invoiced or billed for products sold or services provided to them. Whilst there are some businesses who sell on a cash only basis, or insist on payment in advance, many other companies operate in circumstances where some form of credit is given to clients, and they have 14 days, a month, or longer, from invoice date to make payment.

That is when problems begin to mount. Late payment to vendors has become an endemic problem in many countries – from the UK to the US, from Australia to Southern Europe – with, surprisingly perhaps, large companies the biggest culprit when it comes to paying their suppliers. For SMEs, late payment can have a huge impact on their business and their cash flow, and push many of them close to, or over, the wall. And given that SMEs make up the overwhelming majority of businesses in most countries, this represents a global economic problem.

Of course, aside from the problems caused by late payment of invoices, some businesses make it harder for themselves by failing to invoice customers on time – or at all! Raising sales invoices can be time-consuming and complex, especially if there is VAT involved, but it is a hugely necessary task. if you are struggling with customer invoicing, consider hiring an accountant to help with this and/or consider buying an appropriate invoicing software package. Don’t delay issuing invoices to clients – it is vital for the survival of your business.

While offering customers credit must be a commercial decision, it should not be a given. Many small businesses give credit to customers without trying to get cash upfront or considering whether doing so increases sales. They also offer credit because they are so desperate to get a customer’s trade, they will offer anything to make a sale. By doing so, they give all the economic power to the customer, encouraging clients to take advantage by extending payment terms. Companies may want to experiment by not offering credit upfront and asking for cash payment instead; alternatively they could ask for payment in advance, either in full or in part. And, if this does not succeed, offer credit for as short a period as possible – two weeks, say, rather than a month, 30 days rather than 60 etc.

If you have to sell on credit, it is very important that the timetable to get paid is shorter than the time that you, in turn, have to meet your financial obligations – accounts payable. These include suppliers, staff payroll costs, and payments to the government like VAT, taxes and social insurance contributions. Put simply, if you are having to meet your financial liabilities faster than you are collecting money from your clients, then your business is in trouble.

One way to alleviate pressure on your cash flow is to try and negotiate favourable terms with your suppliers in turn (although this, in itself, exacerbates the broader issue of overdue debtors in the economy!) It may be that there are some of your suppliers who will offer extended payment terms in exchange for your business. However, this cannot be done for all types of expenditure. Staff normally expect to be paid on time, utility bills have a deadline after which services will be discontinued, and payments to government and fiscal authorities cannot be deferred.

There are ways to encourage clients to settle on time. For example, by offering a discount for early payment (although you obviously need to calculate the available profit on any sale before deciding on the type and level of discount you can offer). Alternatively you can impose interest and penalties for late payment. Many companies include such penalties in their terms and conditions, although implementation can sometimes be difficult to enforce. Sometimes the threat itself can be sufficient to induce a debtor to pay.

If you are providing an ongoing service to a client, one way of ensuring that they take you seriously is just to withdraw the service or stop supplying them until they pay. This can be successful and will certainly limit any ongoing financial liability that they may have towards you, but could also damage your long-term relationship with your client or customer.

Depending on the size of your business and your accounts’ receivable “book”, you might consider employing the services on an invoice factoring service (these are usually either standalone companies or divisions of the major banks). Invoice factoring is a financial transaction where a company sells off its accounts’ receivables to a specialist company in exchange for cash. The factoring company then assumes ownership of all the debts and thus responsibility for collecting them. The advantage for the company selling the receivables is that they get immediate cash for the invoices, and they are relieved of the burden of chasing overdue debtors. The disadvantage is that the factor will pay a heavily discounted fee for the invoices (often as little as 80% of their face value), which, in turn, can cause its own cash flow pressure. Also some clients prefer to deal directly with the end vendor when it comes to accounts’ receivable, not with a third party factor.

Invoice factoring is also not always available to smaller businesses because a factor company may require a business to have a minimum credit score or have been trading for a certain length of time. There may also be additional costs which the factor will charge for their service, over and above their net fee (as represented by the discount they pay for their invoices), and these need to be understood in advance.

Many otherwise successful businesses have failed because they ran out of money, with cash going out of the business faster than it was received. This most often happens when there is an imbalance between accounts receivable and accounts payable; credit is advanced to clients on terms so favourable to them that payment of their invoices is delayed to the point that you cannot meet your financial obligations. With late payment of invoices an endemic problem in so many countries, do you really want to add to it? Try insisting on cash, payment in advance, or shorter deadlines for payment. And, if you must offer credit, try to make sure that you negotiate the same, or better, terms with your major suppliers. Consider discounts for early payment, imposing penalties for late settlement, and, if it is suitable for you and your industry, invoice factoring.

The management of accounts’ receivable is a vital part of any business; how successfully it is managed can mean the difference between long-term survival or bankruptcy. It should not be left to chance. Instead appropriate strategies and procedures should be put in place to make sure your clients pay what is due as soon as possible – if not sooner!

According to a recent study, 40% of small business owners said that bookkeeping and taxes are the worst part of running a business. This is completely understandable. Not only is bookkeeping and accounting outside the comfort zone of many a successful entrepreneur, but the reporting requirements and need to interact with government agencies and external advisers can be overwhelming.

When you start a business, your focus will initially be on the product or service that you are providing, not on the record-keeping requirements that go with it. Sadly, whilst it would be nice to just ignore them, not only are they essential to make sure that you business operates successfully, but also you can get into serious trouble with government and financial authorities if you ignore your legal responsibilities in this area.

Keeping good records not only enables you to keep track, at a glance, of the financial health of your business, but provides you with the data you will need to supply to the government in terms of annual returns and, if you are registered, VAT returns. There may also be a requirement for your business to be audited annually by an external firm. Having good records will not only make the audit process less painful, it could also save you money in audit fees.

Whilst teaching yourself bookkeeping and accounting can be a very good way of making sure that you are always in close contact with the health of your business, it can also take up a lot of valuable time and increase your stress and workload.

Consider instead outsourcing the accounting and bookkeeping to a professional accountant. Not only will this free up your time so you can concentrate on running the business, but it will relieve your stress knowing that you have delegated this important function to somebody that understands the rules and requirements associated with it. For example, there are rules about when you can recognise revenue or account for expenses, differences between balance sheet and profit and loss items and how they should be treated, and other accounting conventions which a novice may find hard to grasp.

There is also the reporting side. Depending on which country you are in, the legal structure you have chosen, whether you employ staff or not, or are required to register for VAT, there may be a host of local statutory reporting requirements, returns, declarations and payments to be made. You may be required to register with the local tax, VAT, Social Security and municipal government departments, who may require monthly, quarterly or annual returns from you. Do you feel comfortable handling these, and are you confident that you can produce easily the information required? Better perhaps to delegate this to somebody with more familiarity as to what is required than you.

Remember that local government and/or state employees do not care if you are unfamiliar with the rules, have accounted for something incorrectly or are so overburdened by work that you miss their deadlines. They expect returns to be made on time and in full, and any payments due to be paid promptly. Missing a deadline, paying late, or failing to complete a declaration correctly may result in fines or other penalties, including criminal sanctions in some jurisdictions.

Outsourcing your accounting to a suitable professional can also help you get a better grip on your expenses, and accounts receivable which is one area where many small businesses have problems. The preparation and issue of invoices can be a time-consuming problem, but is hugely important if the business is to generate the cash it needs to survive. But that is only half the battle. It is a sad fact that many businesses struggle, or fail altogether, because clients are either late paying their invoices or simply do not pay at all. If you are a large enough business, you can probably absorb a few days’ late payment or the occasional bad debt. Not so for a small business where every cent may be vital, and where late payments could mean that payroll and supplier obligations cannot be met. An experienced accountant can not only help with the issue of invoices but will use credit control procedures and  other ways of ensuring that those invoices are paid, and on time.

In addition to the need to keep accurate and up to date records for monitoring the state of your business and meeting statutory reporting requirements, you may also want, at some stage, to try and grow your business by applying for a bank loan or overdraft, or by seeking investment from a venture capitalist or business angel. In such circumstances, you will need, without fail, to create a business plan – nobody is going to advance you any money without one.

A successful business plan needs to be a professionally produced document, which contains enough business and financial information to convince a potential lender or investor that you are a safe enough bet to lend money to, and that your business is viable. It would be very hard for you to produce such a document without the help of an accountant, especially when it should be borne in mind that banks and investors are far more demanding than they used to be, and more risk averse when it comes to lending money. There may also be a due diligence process whilst the loan or investment is being considered, during which the bank’s or investor’s accountants or loan officers may ask a series of technical questions about the business and its finances, or need additional information before they will proceed with the application. Not only can an accountant handle such matters for you but also help give comfort to the bank or investor that their financial investment will be in good hands if the funding is provided.

Delegating the accounting and bookkeeping to an accountant does not mean you have to hire a full-time employee, with all the financial and legal obligations that imposes. Hiring a consultant for a few hours support a week or month can be a much cheaper alternative, giving you immediate access to their knowledge and skills, whilst retaining the flexibility of only paying for the time they spend and work they do for you.

Accounting, bookkeeping and the statutory and financial reporting that goes along with it can undoubtedly be a strain for many small business owners. Yet maintaining accurate records is an important component of any successful business, enabling owners/managers to make the right decisions based on the right information.

Hiring an accountant, even for a few hours’ support a week or month allows small business owners to delegate a time-consuming and complex part of the business to an expert who can maintain the accounting records accurately, handle the internal and external reporting, and assist with key tasks such as invoicing clients, collecting receivables and Business Plan preparation. Whilst there is an argument to be made for small business owners learning accounting and bookkeeping for themselves, for many it is better they delegate this, leaving them free to concentrate on what they are good at – running the business.

 

Many people will ask for free advice from their accountant, lawyer, tax adviser, pension consultant, IT contractor or whatever. And many of these same people will then take offence if that consultant refuses to give for free something for which others pay. This is not the fault of the consultant or a reflection of their greed. It is more the fault of the person asking the question, or the client, who indicates a lack of appreciation of the skills or expertise possessed by the consultant and which may have taken them many years of study, hard work and advancement in their field to acquire.

If you are looking to engage the services of a consultant, then it is usually because they have a set of skills or expertise that you lack. Are you going to hire somebody unqualified who has little or no experience in their field, has no appropriate qualifications, or do not know your sector or industry? Almost certainly not. You will instead opt for somebody who can convince you that they have the necessary qualifications and experience, has a proven track record and relevant industry or sector experience. Or are you going to hire the cheapest option available, somebody who stands out because their rates so much lower than anybody else’s? If so, good luck with that! There is almost certainly a very good reason why they are so much cheaper than the alternative. Most likely it is a reflection of a consultant who cannot compete in terms of knowledge or expertise, so chooses price instead. Remember the old adage – buy cheap, buy twice.

Free advice and solutions are widely available in books, and on the internet, through online articles, blogs, vlogs etc. However, much of that advice is general and not tailored to your particular circumstances or business challenges. Also the providers of that advice are supplying it to everybody; there is no duty of care to individuals when they publish it. That means that whilst their advice can have general application, there may be specific factors which may apply to you which may either be ignored or given insufficient weight in their arguments.

Providers of free advice may be untrustworthy. Just as we have become used to the phenomenon of “fake” news, there is a lot of false and misleading information online. The authors of much of the free advice have no need to establish their credibility – after all, how can you be held to account when you provide something for free?

Furthermore, there is advice available on line covering almost everything – from beauty tips to recipes, from resolving computer bugs to researching your family tree. But, when it comes to complex plumbing or electrical problems, or trying to get your car to start, all the free advice in the world is not going to help most of us get the issue fixed. Unless we have the utmost faith in our own abilities, or are very misguided, we are still likely to turn to an expert plumber, electrician, or mechanic to fix the problem. The same should be true of a consultant.

There are some consultants who will give free advice as a “taster”, in order to entice you to work with them. That should not be regarded as the norm. Even in these circumstances, the advice that they are giving may still need to be tailored before it meets your needs.

A consultant’s expertise will have been amassed over many years, dealing with clients from different industries, sectors, countries, sizes and situations. Not only do they have knowledge; they know how to apply it, and tailor it to the needs of a particular client. That is knowledge for which you should expect to pay. After all, you don’t go to a doctor and expect them to examine you for free, or take your pet to the vet and expect them to treat it for nothing. A consultant is just the same. And, as with the doctor who specialises in one field or another, the more unusual or particular skills required, the more you should expect to pay for their services. For example, general advice as to how to incorporate a company or establish a business in a particular country will be provided for less money than more detailed and specialist knowledge as to how to operate there in a tax efficient manner or benefit from local government funding or investment grants. Similarly general marketing advice will be charged less than more niche specialisations such as digital, social media, content and email marketing, or web and data analytics.

As to what to expect to pay a consultant, our advice is to compare market rates and then decide which offers both the best value for money and the best fit for your business. Apart from avoiding those consultants whose fees are so low as to arouse suspicion, however, we also suggest you avoid the lure of big name firms unless you have deep pockets. For example, whilst having a “Big 4” accountancy firm audit your books may seem prestigious, they will likely charge two or three times as much as a local firm who will do just as good a job or better. After all, that Big 4 firm will charge more for an inexperienced accountant than the local firm for a manager or partner. Equally whilst there are some very well-known management consultancy firms out there, unless you can afford them or want the cachet of working with McKinsey, Bain or Accenture, we suggest choosing a local firm who will do the same work for considerably less money. In fact, arguably they will do a better job for you as they are likely to want your business more. That means they will be hungrier, more flexible in their approach and methodology, and can better tailor their work to your needs and circumstances.

Providing advice and applying knowledge is what the consulting profession is all about. That advice and knowledge is something for which you should expect to pay, as with any specialised expertise. After all, if you pay for somebody to fix your washing machine or cut your grass, why shouldn’t you expect to pay for somebody who is hired to help improve your business, or minimise your personal tax exposure.

There is a lot of free advice available – books, articles, blogs etc. – and by all means avail yourselves of as much of this as you want. However, remember that there is no means of knowing if this advice is valid or credible. And even if the advice is true, do you have the skills and confidence to apply it, without reference to an expert in the field? A paid consultant, by contrast, not only has a professional reputation to protect; they might also be subject to legal and other sanctions if they provide false information or bad advice.

So by all means collar your friend the accountant at the next dinner party and ask him for some tax advice, or email your brother-in-law lawyer about a tricky legal problem you face. Just don’t be surprised if they give you the brush-off or reply in general terms only. You may have asked them to give you for free what it has taken them years of study and work experience to master. Value them and their skills, and offer to pay for their time and knowledge.

There are many good reasons for hiring an accountant, whatever the size or type of your company. That doesn’t mean employing an accountant on a full-time basis, but having them for a few hours support each week or month can be a very valuable investment. Not only can they provide financial knowledge and skills which you might lack, but they can also help free up your time so you can concentrate on what you do best – running the business.

An accountant can help:

• With the finances. An accountant can help with the bookkeeping, VAT, tax and other government returns, provide payroll services and assist with a host of other daily financial tasks. They can also help analyse your financial situation and identify key trends which will help you understand your business better, as well as keeping an eye on cash flow, a key metric for most businesses.

• With your company’s legal structure. An experienced accountant will understand what legal business structures are available, and what might be the most appropriate for your business. They can also outline for you the legal and tax implications of such structures, and assist with the set-up and registration of companies. Furthermore, they are likely to know appropriate lawyers who can assist with the process as well, saving you the difficulty of finding your own.

• Write a business plan. Anybody looking for funding via a bank loan or overdraft, or trying to attract private investment from a venture capitalist or business angel will need to write a business plan. The chances of getting any money from these sources without one are practically nil. An accountant will be able to bring their financial knowledge and advice directly to bear in drafting a business plan. Not only will they be able to produce and present the appropriate historical accounting data and future financial projections that are required in any plan in the right format and in line with recognised international standards. They will also have an appreciation of what other analysis is required as well – a business and economic environment overview, market and competitor analysis, a SWOT (Strengths, Weaknesses, Opportunities, Threats) assessment etc. Without input from a qualified accountant, it can be difficult to create a plan that is realistic, professional and detailed enough to convince.

Furthermore, having an accountant on board can increase your chances of getting that loan or financing. The bank or investor may draw comfort from the fact that there is a professional helping managing the finances of the business, whilst the accountant can answer any questions that they may have about revenue projections and expenses.

 

• If you are audited. Whilst unlikely to happen to you, there is a small risk that your business could be subject to a government audit, most likely in the form of a VAT inspection. Rare as such events are, however, anybody who has ever been through such an inspection can attest to how stressful and time-consuming they are, and how inspectors will not only penalise you for discrepancies found but also target your business for regular, future, follow-up visits. An accountant can not only help you manage the inspection process and ensure appropriate action is taken to address any weaknesses found, but can also minimise the damage associated with such visits by introducing suitable controls and procedures before any inspection occurs.

• You delegate. Many small business owners enjoy the feeling of being in control and managing all aspects of their business. However, as their business grows, the ability to manage everything becomes more and more difficult, increasing workload and stress, and reducing the amount of time that can be spent on core tasks such as new business and product development, or launching into new markets. Delegating your company’s financial affairs to an accountant helps free up valuable time and allows you to concentrate on other things, knowing that an expert is there looking after them for you.

• With buying or selling a business. If you have decided to buy an existing business rather than start from scratch, you should always consult an accountant before deciding to commit to it. They will be able to look at the company’s financials in detail, and see if anything looks wrong. They can check, for example, if the company’s assets are fully owned, leased or partly-financed, whether the company has any debt, or has appropriate insurance or government licences in place. They can also look at some key financial rations to help assess whether you are buying a valuable business – or a dud.

• Equally you will need a good accountant if you decide to sell your business. They can produce the accounts and financial statements you will need to show prospective buyers, and can also discuss accounting and other financial matters with the buyers’ advisers during the due diligence process. An accountant can also help structure your financial affairs so that you maximise your returns from selling the business, and advise you as to the most tax-efficient exit strategy.

An accountant can help you at every stage of a company’s development, from initial set-up and business acquisition, through establishing appropriate controls, securing outside investment, growth and eventual sale. That does not necessarily mean hiring an accountant full-time, but having one to support you for a few hours each week or month could make all the difference, allowing you to concentrate on growing the business knowing an expert is on hand to manage the finances. Having the right financial support will also give you peace of mind, allowing you to delegate the one part of your business which may lie outside your comfort zone. A good accountant pays for themselves many times over.

 

Small business owners often want to hire external help and advice in order to grow their business or fill an identified skills’ gap. Engaging a suitably qualified and experienced consultant can frequently result in both short-term process, and, longer-term, financial benefits to a business. yet many SMEs may be hesitant about hiring consultants because of concerns about whether they provide value for money, and questions as to how that value can be recognised.

There are numerous reasons why a small business may want to hire a consultant. These include:

• To impart specialist knowledge or expertise;
• To implement new procedures and practices, or improve existing processes;
• Facilitating organisational change;
• To lead a specific project;
• Introducing new, or tightening existing, controls; and
• To provide a fresh voice and an objective view of the business, or a part of it.

Chosen wisely, a suitable consultant can provide an immediate benefit to your business, as well as offering a very cost effective alternative to a full-time hire. In addition, hiring a consultant gives you flexibility, as they will normally be on short-term contracts. This means it is easy, when you have no longer need of their services, to terminate their contract. Contrast this with the financial and legal challenges encountered in hiring, or terminating, a full-time employee.

However, there is a perception in some quarters that consultants are “over priced” guns for hire, and that they frequently fail to deliver the anticipated value. Undoubtedly, there are examples of consultants who deliberately seek to cheat their clients, or who lack the skills that they claim. These are the exception, not the rule, however. The main reasons why consultancy engagements fail lie elsewhere – with poorly defined project scopes, a misalignment of objectives, unrealistic expectations and inadequate communication. And, whilst the consultant no doubt has their part to pay in ensuring the engagement operates within the right framework, the business owner/contractor must also take responsibility in this area.

How do you know the consultant has the expertise they claim? There is no need to take this on trust. Ask about their background, qualifications and experience. Do they belong to a professional body or associations? If so, which ones? Look at their CV and/or Linked-In Profile. Request references from other clients – and if these can’t be provided for confidentiality reasons, from fellow professionals. It should be easy enough to gather enough evidence as to whether they do, in fact, have the skills, expertise and experience that they claim (and if the consultant is not prepared to share at least some of this evidence with you, we suggest finding somebody else).

Having satisfied yourself that the proposed consultant has the necessary skills and expertise, how do you judge the fairness of their cost? Most consultants will charge at an hourly rate (although some might charge by the day, month, project etc). Again, how do you form a judgement as to what is reasonable? Clearly, you will start with a budgeted cost in mind. However, the best way is to make a market comparison, so you can compare the costs of a number of consultants offering similar services before making your decision.

However, there are some important provisos to bear in mind. Remember you are looking to hire skills and expertise that you do not have, and that you should be expecting to pay market value for that service. This is not like buying baked beans in the supermarket. Going for the cheapest will, almost certainly, not mean the best in this case.

Equally, do not be beguiled by “big names”. For example, if you are looking for an accountant or auditor, hiring a Big Four firm, or one of their mid-tier competitors, may sound impressive but does not necessarily give you value for money. Their charge-out rates will be higher than a smaller firm – how do you think they pay for all those fancy glass offices? – and you may well find yourself paying more for one of their junior staff members than an experienced partner in a smaller firm.

Try and find somebody with both skills and experience who offer their services at a reasonable rate, really want to work with you, and can add value to the engagement.

Having satisfied yourself that the proposed consultant has the right skills and experience, and is reasonably priced, now it is time to define the objectives and scope of the engagement.

One of the primary reasons a consultant can appear to fail to deliver value is because of a failure, in advance, to clearly define what is expected of them. By failing to set initial objectives and defining the scope of an engagement, there is a substantive risk that the project will not succeed, and/or overrun in terms of both cost and time.

Failure to agree the scope of a project can have a number of consequences, all of which can be serious, both from the viewpoint of the contracting party and the consultant. These include:

1. Scope creep. The consultant becomes involved with areas that are outside the specific remit of their engagement. This not only means that the project objectives are not met but also that the consultant becomes an operational resource of the business – like a standard employee.
2. Failing to plan for knowledge transfer to existing staff. This means that once the consultant leaves, their knowledge goes with them, so the organisation gets no long-term benefit from the engagement.
3. Blurred or indistinct objectives. The consultant provides solutions where there was either no issue or pressing business need, whilst problem areas remain “unfixed”.

Therefore, it is vital, from the outset, that the terms and the scope of the engagement are clearly defined and agreed with the consultant. This ensures that both the objectives, and the expectations, of the engagement are mutually aligned, and that any ambiguity is eliminated. A well scoped engagement also provides a measure of value. If the defined objectives are achieved, then value has been added (of course, this does not preclude objectives and expectations being adjusted once the project has started, provided that these updates are mutually agreed with the consultant).

The other major reason why a consultancy engagement can be seen as failing to add value is due to poor or inadequate communication. This can take a number of forms. For example, the objectives of the engagement may be well defined but if there is no agreed mechanism for communication of progress or end results, then the project will be doomed to fail. Or a business owner or manager may engage a consultant for a specific project, yet fail to adequately brief those staff who may be affected by their work or who need to cooperate with the consultant to ensure the project’s success. As a result, those staff either may not be able, or be willing, to devote the time and resource necessary to collaborate with the consultant.

Therefore, it is very important that the means and form of communication – verbal or written, email, report, formal meeting etc. – with the consultant are defined in advance, as well as their frequency. In addition, all those who may be impacted by the hire of a consultant should be briefed, at least in broad terms as to the objectives of the engagement and how they are expected to facilitate it. Team buy-in is critical to ensure the consultant delivers the value expected.

A suitably qualified and experienced consultant, if chosen well, can add considerable value to your business, through their knowledge, expertise and skills. By all means check that they have the skills and experience that they claim, and that their fees are competitive and reasonable.  However, choosing the right consultant is only part of the challenge. To ensure that they really deliver what you want, it is critical at the outset that the terms and objectives of their engagement are properly defined, and mutual expectations aligned. It is also vital to ensure that the right communication strategy is in place, both with the consultant and with all those who will be impacted by their work. This will help ensure that the value provided by the consultant is maximised.

 

 

 

One of the primary reasons a consultant can appear to fail to deliver value is because of a failure in advance to clearly define what is expected of them. By failing to set initial objectives and defining the scope of an engagement, there is a substantive risk that the project will not succeed, and/or overrun in terms of both cost and time. Much better to work with the consultant to scope the work in advance, so that both sides can agree what is to be done, how, and by what date.

A small or medium business owner will often look to engage the services of a consultant or contractor in some shape or form, either to provide particular expertise or knowledge, or to help fill a skills gap. The consultant may, perhaps, be brought in to:

• Implement new practices and procedures;
• Deliver specific expertise or knowledge;
• Facilitate organisational change;
• Run a specific project;
• Introduce new controls or “tighten-up” existing processes.

These are all good, valid reasons to engage a suitably qualified, professional consultant. And, if the path to success was only paved with good intentions, just determining the project need would be enough! Sadly, for the engagement to be successful, the scope of the project needs to be clearly defined as well. What resources does the consultant need, who will they work with and report to, how involved will senior management be with the project? This is over and above some of the big questions such as:

• How long will the engagement last?
• What are the desired outcomes? and
• Are those outcomes achievable given the time and resource constraints, or wildly optimistic?

Failure to agree the scope of a project can have a number of consequences, all of which can be serious, both from the viewpoint of the contracting party and the consultant. These include:

1. The consultant becomes involved with areas that are outside the specific remit of the scope. This not only means that the project objectives are not met but also that the consultant becomes an operational resource – like a standard employee.
2. No plans are put in place to ensure knowledge transfer to existing staff. This means that once the consultant leaves, their knowledge goes with them, so the organisation gets no long-term benefit from the engagement.
3. The consultant provides solutions where there was either no issue or pressing business need, whilst problem areas remain “unfixed”.

It is important, also, if a consultancy engagement is to succeed, that the organisation is ready. Existing staff need to be briefed as to the broad objectives of the project, and their role in helping achieve them. If a consultant begins work and finds out that company staff do not know why they have been brought in, or are not prepared, or able, to devote the time to work with them, then the project will likely veer off track almost from the start.

The outcomes of failing to define the scope of an engagement are:

• The initial engagement does not deliver what is expected of it;
• The budget for the project is exceeded and cost overruns incurred;
• The reputation of the consultant is tarnished. More broadly, faith in the ability of outside professionals to deliver meaningful solutions to internal problems is undermined, perhaps for good. This could isolate and exclude a company from important external advice and teachings going forward.
• The consultant becomes “embedded” in the company, who become reluctant to lose their knowledge and expertise.

To avoid these types of outcome, the scope of the engagement needs to be clearly defined in advance, with a written agreement signed off by both parties. This could include a Statement of Work which lays out all the activities and work involved, key milestones, and resources,including the internal team who will work with their consultant, and their roles and responsibilities within the project. At the very least, however, the scope should include a clarification as to overall objectives, timelines, and reporting relationships.

Having a defined scope does not mean that the project needs to be set in stone from the outset. It may well be, that once the consultant has begun their work, they identify that the outcomes cannot be achieved within the agreed time or budget, or with the existing resources. Or they may identify other objectives outside the current remit but within their area of expertise which it might be desirable to achieve. In that case, however, the scope of work can be revisited by both parties and new objectives, timelines, resources etc, agreed.

Consultants can be a very effective way of obtaining key knowledge and expertise which can benefit your company with almost immediate effect. They can also provide an objective “voice” which can be of enormous benefits for those in a start-up phase, or for companies looking to improve internal processes, policies and procedures. However, too often, consulting engagements fail to deliver, with missed objectives, budget over-runs, and frustrations on both the client and the consultant side.

The best way to avoid these outcomes is to clearly define the scope of the consultant’s engagement from the outset. By defining the objectives, timelines, resources (and budget) in advance, both parties can be clear as to what is to be done, when, and how. This does not mean that all projects need to be rigidly defined. Priorities change, and projects may need to be amended, and objectives updated, as business needs evolve.

However, by redefining the scope of the engagement in such cases, overall control of the process can be maintained by both the company and the contractor, helping to achieve long-term success and the fulfillment of objectives.

So you have a vacancy on your team or have identified a skill or knowledge gap that needs to be filled in your company. Time to draft the recruitment ad or call the headhunters? Not necessarily. Consider, before going any further, whether you want to recruit a full-time employee or if it is worth taking an alternative course of action by hiring a consultant instead. You may well find that the consultant route offers you numerous benefits in terms of reduced cost, greater flexibility, a significantly lower commitment from you in terms of time, and immediate access to the knowledge and expertise you are seeking.

Here are some of the key benefits from hiring a consultant as opposed to a full-time employee.

• Lower Cost.

Hiring full-time employees means assuming the cost of not only their salary. You have to add to this social insurance and payroll taxes, holiday pay and, depending on the employer and the type of contract, potentially health insurance as well. There might also be a requirement to pay into a pension scheme or provident fund as well.

All this means that a full-time employee can cost significantly greater than a contractor who will normally charge by the hour at a pre-agreed rate with no hidden additional costs.

Not only, however, are you required to pay for all the employee’s costs;  you are required to administer them as well. Changing regulations add complexity and cost to a business. And whilst the cost of employment administration rises, so does the seriousness of the consequences if you fail to meet those regulations.There are payments and reports to be made to government departments, employment legislation to be understood and complied with, additional reporting requirements, and other administrative burdens. Contrast this to the hire of a consultant where the burden of such issues falls on them.

Another saving with the hiring of consultants comes from the avoidance of recruitment costs. Whilst at the lower-end of the scale recruitment expenses may just be limited to placing an online ad on a job board, recruitment at middle management level may well require the services of a dedicated recruitment firm. In return for sourcing, vetting and short-listing candidates, such recruitment consultants will expect a fixed fee when an appointment is made, usually equivalent to several months’ salary of the successful applicant. At the most extreme levels, senior appointments may be filled by employing a specialist headhunter who can charge up to six months’ salary for a successful hire. There are no recruitment costs when you hire a consultant.

• Increased flexibility

Consultants can normally be hired, and fired, with minimal notice. This is in contrast with full-time employees where there can be significant legal obstacles associated with recruiting, and more especially, terminating them. The issues may begin with the initial employment.

You have drafted the ad, engaged the recruitment consultancy, interviewed the short-listed candidate, and made an offer to the successful applicant which they have accepted. Great, except if they are currently working for an existing employee, in which case they may legally be obliged to serve their notice period. This can be a matter of a few weeks, or a few months. Meanwhile, you might have need of their skills and knowledge now. Why wait? Hire a consultant and they can begin working for you almost immediately.

Making somebody redundant, or terminating their contract, can be even more difficult. There may be internal procedures to navigate, including disciplinary procedures and notice periods, or local legal and government regulations that prevent firms making employees redundant easily, or without significant financial and administrative cost. In some countries this may extend to restrictions on subsequent hiring, forcing employers either to do without or to realign roles and responsibilities to get around the legislation. Compare and contrast with the consultant where the engagement can be terminated easily and with no lasting repercussions.

• Reduced commitment of time.

Hiring an experienced consultant usually entails significantly less of your time than is required with a full-time employee. Not only are you spared the considerable time that the recruitment process normally entails. Provided the consultant has the requisite skills and knowledge, they should need considerably less management time than a new employee, where you will be required to manage them, not only on a day-to-day basis – especially in the beginning, when they are new – but also in terms of an ongoing commitment to their training and development.

There is also a less emotional commitment from your side with an external consultant. Because they normally do not work for you, or your company, on a long-term basis, there is less shared identification, and focus on mutual objectives. Your relationship can remain strictly professional. This is opposed to the full-time employee where personal relationships, and often friendships, are formed. This means that when painful decisions have to be made that affect the employee – for example, turning down a promotion or terminating the position – there can be personal as well as corporate consequences. Having to make somebody redundant, for instance, whom you have known and worked with for years can be emotionally very stressful.

• Immediate access to knowledge and expertise

When you hire a consultant, you are engaging them for their existing skills and expertise, knowledge which they can bring to your business immediately. Provided you have done your homework, made sure that the consultant has the necessary expertise and qualifications to do the job, and that you defined the terms and scope of the engagement properly, there should be minimal training required in order for them to make an immediate contribution. This may be in contrast to a full-time employee where it might take months, or even years, to train them to a level where they can properly fulfill a role, or where you might be waiting for them to serve a notice period with their present employer before their knowledge and skills are available to you (and even then few are so qualified that they can hit the ground running with no initial training required first).

 

Broadly speaking, employing people is expensive and administratively burdensome. As employment regulations change, the complexity and cost for businesses increase. whilst the consequences of failing to comply with regulations becomes more severe. Fortunately, a viable alternative to the full-time employee is at hand.

Engaging an experienced, skilled consultant rather than hiring a full-time employee can be less expensive, offer greater flexibility, require less valuable management time, and give you immediate access to their knowledge and expertise.

If you have a vacancy now, or expect to have one in the future, think before placing that advert or ringing those recruitment consultants. A much better alternative could be close at hand.

 

 

 

 

 

 

 

 

VAT registration is mandatory for any company that provides goods or services in Cyprus above a certain limit. It is also imposed on the importation of goods into Cyprus, and on the acquisition of goods from the European Union (EU).

The standard rate is currently 19%, with reduced rates of 9% for various goods and services that affect the tourist industry, and restaurant and catering services, and 5% for some basic foodstuffs, pharmaceutical products, books and newspapers, as well as a list of other sundry items. There are also certain goods and services which are zero-rated, and others which are exempt from VAT altogether.

Businesses which make exempt supplies, such as immovable property, hospital and medical services, and insurance, financial and educational services, are not eligible to register for VAT. This means the VAT they incur on their purchases, expenses and imports cannot be recovered.

Taxable persons charge VAT on their taxable supplies (output tax), and they are charged with the VAT on the goods or services that they receive (input tax). If the output tax in a VAT period exceeds the input tax, then a payment has to be made to the state. If the input tax exceeds the output tax, either the balance can be carried forward and used as a credit against future VAT obligations, or a refund can be obtained. It should be noted, however, that our experience is that the Cyprus authorities are not known for making refunds on a timely basis, so best not to include rebates in any cash flow forecast!

A Cyprus company is obliged to register for VAT if:

• At the end of any month, the valuable of taxable supplies for the preceding year (12 months) exceeded €15,600;
• If there are grounds to expect that the value of taxable supplies in the next 30 days will exceed the €15,600 threshold; and
• If the acquisition of goods from suppliers in other EU Member States exceeds €10,250.

Even businesses with turnover below the €15,600 limit can voluntarily register for VAT provided they are trading in taxable supplies.

Registration is achieved by completing the appropriate application forms and submitting them to your local VAT office. These forms can be obtained from your local VAT office or downloading them from the relevant government website (www.mof.gov.cy/mof/vat). Unfortunately, the forms are currently only in Greek, and can be something of a challenge to complete for the uninitiated. A VAT number is normally issued within 2 weeks of the application being submitted.

VAT returns must be submitted quarterly, with the payment of any VAT due made within 40 days of the end of each quarter.

From May 2017, all VAT declarations should be submitted electronically through the Taxisnet system. Again application for Taxisnet registration can be made either online or through your local VAT office.

If you are selling to another EU business that is registered for VAT then, under the so-called reverse charge mechanism, there is no need to add VAT when invoicing them. However, this will need to be reflected in the VAT return and eligible businesses are required to register and report such transactions online through the VIES (VAT Information Exchange System).

VAT is an unfortunate fact of life for many businesses, but, in most cases, one that cannot be avoided. The rules can be complicated, especially when dealing with transactions with companies in other EU member states, and when making a distinction between so-called B2B (Business to Business) and B2C (Business to Consumer) transactions, and between the supply, and acquisition, of goods as opposed to services.

If the idea of registering and then reporting VAT seems daunting, however, there is help at hand. AJD Consultants have registered many Cyprus companies for VAT, have Taxisnet and VIES registration fro them, and prepared and submitted numerous returns. We can advise on some of the complexities you may face in preparing your returns, and, more specifically, with the interpretation of the rules and their application.

Please contact us for further information and advice.

 

 

In 2011, Cyprus introduced a law whereby all companies incorporated in the Republic were required to pay an annual levy to the Registrar of Companies of €350. What was intended, however, to be a temporary measure to help depleted state finances remains in place today, with no signs of the Cypriot government having any plans soon to repeal it. This is very short-sighted of them, and discourages inward investment in a country, whose economic credibility was so damaged by the 2013 bank bail-out and the resultant 10% haircut on investor deposits. Given, therefore, that the deadline for this year’s payment is fast approaching, it is surely time to revisit this issue and question the net benefit for the country of the continuation of the levy.

Per the current legislation – reflected in Article 391 of Cyprus Company Law (as amended Law No. 6 (I) 2013) – it is obligatory for all companies registered in Cyprus, whether active or dormant, and including non-profit companies, to pay an annual levy of €350 to the Registrar of Companies. All payments need to be made by 30th of June for the relevant years, with late payment attracting penalties escalating from 10% to 30%, depending on how overdue is the payment. In the worst case, the Registrar can decide to strike a company off the register in the event of non-payment.

While this levy has become an important and regular source of income, however, it should be argued that it has outlived its use – if it ever had one. When it was originally introduced, it was presented as a temporary measure, not something intended to be a regular part of the corporate tax landscape.

Businesses do not like it. It can be administratively difficult to collect and, for small businesses at least, a drain on cash flow. For those who own a number of companies, the sums involved can mount up as well. It also discourages the formation and registration of companies. Potential investors will hold off if they do not expect to begin trading immediately, as the levy applies to all companies, irrespective of status.

What the government fails to realise is the negative impact this tax has on business, and the business community. It harms Cyprus and its competitiveness compared to other tax regimes which do not impose such annual penalties on companies. This is especially unhelpful for a country desperately trying to regain it financial credibility and attractiveness after the unprecedented damage done by the 2013 bail-out. Foreign investors need reassurance after the hair-cut on bank deposits imposed 4 years ago, not an annual levy that is effectively a tax imposed on all Cyprus companies.

Perhaps it should not come as a surprise that the Cypriot authorities are too short-sighted to see the error of their ways. After all, this is the same government that imposed an additional income tax burden on private sector employees and self-employed individuals (the so-called special contribution) until it was abolished from January 1st this year. In other words, they chose to penalise and discourage the wealth creators in society by taxing them more so as to help fund a bloated public sector.

Arguably, the maintenance of the annual company levy is a continuance of the same policy, whereby the private sector and the self-employed bear a disproportionate share of the Cypriot economic and tax burden.

Abolishing the levy would go some way to show that Cyprus is open for business again, and restore some faith among a very disillusioned international investor community. The government would lose the annual €350 from each company, that is for sure. However, the increase in individuals and companies investing in Cyprus, would surely more than offset this in the form of increased revenue from corporation tax and VAT. It would also encourage more business to open offices and businesses in the country, creating more jobs, and, again more revenue from income tax (and, at the same time, lowering unemployment costs).

If the annual company levy ever had a use, it has now surely outlived it. The wisest course of action would be for the government to announce the abolition of the tax by the end of this year, signalling that Cyprus is a serious destination for external investment again. Unfortunately, it is likely that the current short-sighted and blighted policies will remain in place for some time to come yet.