Would you like to know what the main reasons are most new clients put forth for trying to find a cost effective accountant or accountancy firm to dig them out of a tax hole? I did some digging and ended up asking a few questions to a new client, an auditor I met a few months ago as well as some other tax and accounting professionals that move in my circles.
The questions can be summed up as follows:
- Of all the new clients that came knocking on your door…what was their motivation for doing so?
- On average, how far behind were those clients with their financial obligations to SARS?
- Based on personal experience – what was the level of record keeping in their businesses before they looked for help?
- What was the trigger / catalyst that forced them to seek urgent help?
- How many clients in their base have approached you looking for urgent help?
The answers did not surprise me. But it is definitely worth mentioning here as it will assure you, the reader, that you and most other people are not alone. After sifting through all the answers, emails, notes made during phone conversations and meetings it pretty much comes down to this:
The most (im)famous explanation business owners give for them seeking help is…wait for it… SARS called. They want all outstanding returns submitted ASAP!
It sure can come as a surprise to Joe Soap, yes. Especially if Joe flew under the SARS radar for so long. But what Joe did not know was that SARS have been actively working on sharpening up their collection systems since the early 2000’s and it has gotten to the point where a phone call from them was all but imminent…and not a shock to system to any accountant or tax professional worth his salt.
What used to be safe(-ish)…like hiding money, trading without registering for tax, etc has become a ticking time-bomb for the individual!
I saw a case, personally, a few years ago when I dealt with a client that ran his own construction and maintenance business. The invoices he issued (for payment) carried no VAT…but it turned out that it didn’t need to to draw SARS’ attention! The clients he issued invoices to ended up being audited by SARS. The auditors subsequently took every invoice paid to people where no company registration number was present (sole traders) and searched their own database for those names and cross referenced it with possible ID numbers, tax certificates issued by banks for interest earned on positive balances, etc. My client did not feature on their income tax database at all as he resigned from his full time job 3 years prior to that incident. So SARS asked the question: IF HIS LAST LISTED INCOME WAS THAT OF A SALARY 3 YEARS AGO, HOW CAN HE POSSIBLY SUSTAIN HIMSELF?
And of course they had a copy of one of his invoices so it was fair to assume he had his own business. They requested bank statements and the next few months became hell – not just for him, but for me as well!
It took countless sleepless nights to pull together information that would satisfy SARS. After all was said and done he received notices from SARS demanding payment of close to R150 000 in backdated taxes, penalties and interest. And the whole exercise also cost him a small fortune in professional fees as the amount of work to catch up was phenomenal!
He could not pay SARS the entire amount all at once and is currently STILL paying off his outstanding taxes. If he came to me earlier there would have been enough time to sort his finances out, pull together ALL possible expenses and explore routes to minimize his tax liability. He could probably have ended up saving more than R100 000 if he only acted sooner!
GET YOUR RECORD KEEPING UP TO DATE!
On average the sole proprietor and the one man close corporation are 2 years behind on financial statements. I am only referring to those statements that is needed to accompany tax returns – thus not counting a set that would have become due very soon after the last year-end.
That is a long time! How can any business owner have any idea of what his business is worth, how well (or poorly) it is performing and what his liabilities are if he or she does not have up to date records and financial statements?
What would you rather have? A financially sound business that owes SARS virtually nothing and where you can focus your attention on growing the business, or would you rather settle for a business that barely scrapes by due to the owner not knowing what he owes (or is owed), what his liabilities are and why he or she constantly find themselves in need of putting out fires? How can any business owner settle for the latter?
A business requires a sound administrative base that feeds into adequate record keeping for accounting and tax purposes. If you look after an apple tree constantly it will bear the most amazing apples! But if you spend your time swatting fruit flies and barely keeping the tree alive due to years of neglect it will bare little fruit and of poor quality! The same goes for ANY business!
UPDATE YOUR SYSTEMS
A shoebox. A lever arch file. A carrier bag. The most common tools used to store financial information. As funny as it sounds it is sadly very true! This is not sufficient.
Most business owners own a pc. Some basic bookkeeping can be done on it and you DON’T HAVE to own an expensive accounting package to do this! There are other options available to you at a fraction of the cost that will make it easier for any accountant worth his salt to compile a set of financial statements for you.
Think about this:
For every R100 you can account for you are saving yourself a minimum of R18 in tax. If you save 20 slips for this amount on a monthly basis in a systematic way you would have accounted (possibly) for R24000 in additional expenses in your business! This equates to a possible saving of R4320 in taxes!
You worked for your money! So why throw it away?
ARE YOU PART OF THE 70% LOOKING FOR HELP TOO LATE?
It turns out that 7 out of ten business owners only turn to a professional accountant or bookkeeper once the proverbial paw-paw has hit the fan.
There are many perceptions out there regarding accountants and bookkeepers.
- They are expensive
- I need to tell them as little as possible so I don’t end up paying tax
- They only think they know what is best for my business
- They are looking after the interests of SARS – not mine!
Here’s the facts!
- You do get expensive accountants and auditors out there. And most of them have the right to be expensive. They have studied and trained for longer than most doctors do in order to supply the general public with the best possible advice to help them grow their businesses. In most cases though their fees serve as a deterrent to smaller clients in order for them to focus on the bigger clients they have worked very hard to gain.
- All information you withhold from your accountant will come back to haunt you and can end up crippling your business and your accountant’s practice. The opposite is true – the MORE he knows, the MORE he can do for you and the BETTER the advice will be.
- You own your business. You have started it, sweat blood for it and toiled long hours over it. But in the bigger scheme of things nothing beats the trained eye of an accounts professional. Do what you do best – make money! Trust your accounts professional to help you save as much of it as he possibly can for you!
- We, as a collective, are in no way in “cahoots” with SARS. Our first priority is our clients. SARS is an important body in our country and as a business owner it will stand you in great stead to realize this, embrace the fact and trade in accordance with our country’s laws. BUT! We, as accountants, will always explore ways in which to minimize your tax liability using every tool available to us. If we can save you a cent WE WILL do it!
When all is said and done the power to maximize your business’ potential lies in only your hands. You can either cower in a corner, fearful of the most important step you can take for your business this year, or you can give AGBS the green light to get you back on track!
Make the right choice
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