Re: Fwd: Article on Accounting

[Luke <..hidden..>]

On Mon, 2 Jun 2008, beamends wrote:

> The after asking round a bit, it seems the vast majority of small
> businesses (>3 employees) have no computer system at all, pay a
> book-keeper to enter things (they don't know, or care, what into),

This is very much not my experience in the U.S..

For almost any business here, three employees or more, the idea of not 
having a computer of some kind involved, is almost unheard of, at least in 
my experience.

For most of those that I know in 1 to 3 person businesses, being able to 
afford a bookkeeper to enter data, go through receipts, and otherwise deal 
with such things, is out of the question.  It becomes a do it yourself 
kind of thing, and that is very hard to do without at least some kind of 
computer--whether to run Quicken, MS Money, or just a basic spreadsheet, 
or a more basic word document.

> and see their accountant about twice a year (end-of-year and when the
> but a "new" van or such). They have no interest in accounting whatsoever
> (after all, they pay their accountant to do that, just like they pay the
> garage to service the van - they neither know nor care how the van works
> as long as it does). 

Sales taxes, employment taxes, Quarterly estimated taxes, state taxes, 
local taxes, federal taxes, and other kinds of periodic taxes, all apply 
here to businesses of various kinds, and to varying degrees; and are often 
collected by different agencies.  Once or twice a year is possible, but 
four or more seems more reasonable.

> Businesses in the 3 to 10 employee seem to operate pretty much as above,
> but typically do have a computer or two, running something like Sage,
> but only use it as a glorified spreadsheet.

Again, only in my experience: any business of that size, particularly if 
in the manufacturing or service field, has more than one computer, often 
running something like Quickbooks.

Less so the case with the food service and "mom & pop" corner store type 
industry, wherein your model probably holds.

 > I think there is a huge barrier between those of the accountancy
> persuasion and those who are just running their business. By that I mean
> those in skills based industries where producing a quote may well be a
> long time and be work in itself, and there may not be many of them, or
> who are interested in accounts, operate in a totally different way to
> those who retail. Small UK retailers buy stuff in, and the hopefully
> sell it, and the owner is directly involved. There's no room for looking
> for fancy tax breaks - everything is well understood and established.

I suspect also, that corporations--talking about small closely held 
ones--are less common there than in other parts of the world.  The tax 
laws of running a soul proprietorship in the US can be slightly narly, and 
many of us elect to go the simple and well established route of setting up 
a corporation, or more these days than before, a limited liability company 
(which is a sort of combination of a corporation and a limited partnership 
with no general partner).
Those things are easy, cheap, and there are books out the wazoo about how 
to do it.  Plus, for many individuals, the tax rates end up being better.

Additionally, in a law suit happy world, doing business without limited 
liability is absurdly stupid, and small business owners here are finally 
realizing that.
 
In any case, all of these things make the tax and accounting picture a 
much murkier one, and one which reaches closer to home than you are 
indicating.

> Things such as depreciation rates are available from UK government web
> sites, and for most things, vans and plant, rates are fixed.  You don't
> actually need an accountant, even when a Ltd Co. until you reach the
> threshold where independent auditing becomes mandatory.

What exactly is a limited company anyway?  You keep talking about them, 
but I am not familiar with non corporate or non trust structures in the 
UK.

> The owner knows what's going on because he's there going it. Reports are
> fine, but more often than not they will only back up what the owner
> already knows. There is no need to try an operate a small business as
> though it were Megacorp. We've just had a very quiet week. It happens

Here, to operate "as a megacorp" is much the same as operating as a 
"minicorp", and is, imho, considerably easier and cleaner than operating 
as a soul proprietorship.
As with anything useful, it takes a bit more planning up front, but if you 
aren't going to plan some of your business, then you probably should be 
working for somebody who did anyway.

> In short, for a lot of small businesses, there is no need to understand
> accounts, except in the most general sense, but there is a need for
> software that allows simple day-to-day operations with access behind the
> scenes when required. There has been very little attempt to cater for
> this market, hence why so many small businesses still operate manual or
> spreadsheet based accounts.

Like I said, at least from my observations in the sectors of small 
manufacturing, vehicle repair, woodwork/carpentry, information technology, 
and a few others, it hits much closer to home than it does for you, and so 
the awareness level seems like it must be higher.

Luke