Re: Fwd: Article on Accounting

[beamends <..hidden..>]

On Tue, 2008-06-03 at 17:47 -0400, Luke wrote:
> 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.
> 

It's a very different world over here then. There are some, like me, who
do everything themselves, including tax etc, but most self-employed
(i.e. those who work for themselves) still just put all the paperwork in
a box and take it periodically to their accountant/book keeper. That's
largely *because* computers get it the way rather than help, the
software is unfriendly.  

> > 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.

Taxes - VAT (if registered), Corporation Tax (if a Ltd Co.), PAYE
(Income Tax, both personal and company sides), payable quarterly,
anually, weekly respectively and by different agencies. Fortunately we
don't have local taxes as such, we have Business Rates which are at
least a known, crippling, monthly fixed overhead. Much simpler it seems.

> 
> > 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.

It's obviously very different over here - very few businesses with say
under 20 employees have anything more than a book-keeper on the payroll.
Manufacturing and and retail will often have computers for stock control
etc, but for accounts even those with Sage just use them as a glorified
spread sheet - these invoices go in there, those in there and then the
accountant gets to sort it all out later, notes being take for next
year.

> 
>  > 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.

Limited Co's were pushed here by the chancellor a few years back
(offering a Â10,000 tax threshold for personal and Corporation Tax
bribe), and many swapped over - to their cost (he scrapped it after a
year, another of his little cons). The regulatory requirements are a
major burden to the small business. Luckily we don't have the same
culture of litigation here, so insurance is sufficient in most cases.
Being a Ltd has advantages with suppliers, the banks, etc and when large
stocks are required, but for the likes of a jobbing plumber there is
little point.

>  
> 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.

Not over here - until this year I did everything myself, so I am well
aware of what has to be done. Happily our turnover is looking to double
this year, but that means less and less time to spend on accounts. The
only problem with my old system, which works just they way I'm trying to
describe, is that it is not networkable, single user and getting very
slow (it has a flat-file dbase). I did post a reply about how it works,
but it was over-size (a couple of screen shots were needed for
explanation), but it's not be allowed through.
 
> 
> > 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 US system seems to be either completely different, or uses different
terminology. We have the self-employed who just work for themselves
(they can have employees), their tax being calculated purely on the
money they make. They have full liability for any debts. Then there's
Sole Traders, as above really but registered as a business with the tax
people - they still have full liability. There's a few variations,
Partnerships etc which are still pretty much as above and have full
liability. The we have Limited (by Warrant) Companies. These have one or
more shareholders and a Company Secretary. They have articles of
assocaition (usually generic) and the Director(s) have legal obligations
regarding paperwork, disclosures etc. They have Limited Liability, in
the that the Directors are not responsible personally for the Company's
debts unless they are show to have acted recklessly. Accounts are
publicly available through Companies House. Shares are usually
restricted to the Directors themselves, or sometimes family/friends.
Shares are not usually sold. Above them are the PLC's, (Public Limited
Company) these are as Limited Co's, but shares are available for public
subscription. The format of the company is much the same as a Limited
Co., but shareholders have the last say in decisions.

That's a bit of precis, but gives the essence of the system. 

> > 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.

Planning for one's business, or how to go about it, depends entirely on
the type of business. Someone selling a guided missile is not expecting
a return for many years and needs a plan to cover it, a motor parts
retailer needs to exploit opportunities on a very short term basis to
maintain cash flow - the two are entirely unrelated - except in the
theoretical text books. The ones I've read mostly being written by those
who have either never done it for real or who worked in a huge
organisation and have lost sight of the reality of "working behind the
counter" or "on the shop floor". The BBC did a series of programmes
called "Back To The Shop Floor" which got company Chairmen to actually
do the jobs that their company offered - all but one had absolutely no
idea how their companies *actually* worked. Those, like the motor parts
retailer, who deal directly with the customers are far more beholden to
this weeks fad than the missile maker, and any planning is entirely
dependent on the available bank balance, whatever their aspirations.
    
> 
> > 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.

It would seem that comparing US and UK practice is not really viable.
Neither is UK and French practice it seems, something I've been looking
into. Having now, with a dose of good old fashioned hindsight, looked
around again at applications, it would seem that this much more of a
barrier than I'd presumed - UK, Austrailian/NZ, Indian or South African
based systems (I'm mentioning no names) appear to have an approach much
more suited to my needs. I had rather assumed that accounting needs
and/or practices were pretty much global in nature, but this is clearly
not the case.  

> 
> Luke

Cheers
Richard

> 
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