No one can run their business forever. Eventually, either through gift, inheritance, or sale, your business or farm will need to be transferred to someone else. Today in part 2 of this two part series, we look at things from the owner's point of view. When a person disposes of a business, they are liable to Capital Gains Tax (CGT) on the 'profit' they make on the sale at 33%. Moreover, even if you give your business away they often take it as though you've sold it at market value for the purposes of CGT, so you could end up paying 33% of money you never even received. Today, we are going to take a look at some of the strategies that you can start putting in place now to avoid a hefty tax bill down the line. 

Capital Gains Tax (CGT)
This is a capital tax which applies to profits on the disposal of assets, for example property, businesses, or investments. For example, if you purchased shares in a Company at €100, and sold them for €200, there would be CGT of €33 payable on the 'profit' which you earned. CGT is also charged in the case of a gift to a connected person, such as a relative. How it operates is the transfer is treated as though you sold the asset and received proceeds of whatever the market value of the asset was at the date of transfer. So, in the case of our share example, if the shares were transferred for free to a child for example, and their market value was €200 at that time, our CGT liability would still be €33. Furthermore, if the child paid €100, the transfer would still be deemed to have taken place 'at market value' because the child is a 'connected person', which means the CGT charge is the same, because your proceeds are deemed to be whatever the market value was. While it sounds harsh, the same is true if the child paid €250 for the shares, our CGT charge is still based on the market value of €200. That can be an interesting planning point for many people that's often not considered. 

Retirement Relief
This is not what it sounds, there is no requirement for a person to retire in order to claim this relief, you must simple be over the age of 55. The relief applies the same to both businesses and farms. How it operates varies greatly depending on certain factors, which is why forward planning now is of such importance if you plan on selling or transferring your business/farm while you're still alive in the future.

If transferring to a child, there is no upper limit on the amount that can be claimed in this relief, however, if transferring to a non-child there is a cap of €750,000 on the relief. For CGT purposes, Revenue will allow the following to be categorised as a 'child' of the business owner; a son or daughter, a step child or child of a civil partner, a legally adopted child, a niece or nephew who has worked in the business/farm for the previous 5 years, a foster child who was maintained for more than 5 years by the business owner before the child's 18th birthday, and the child of a deceased child. While the above definitions sound very straightforward, they could present a planning point, especially in the case of a niece/nephew.  Furthermore, you can only claim the full amount of this relief if you are aged between 55 and 65. This is probably the most important planning point that gets overlooked, because if you wait until after 65 to transfer or sell a business, your Retirement Relief is capped at €3 million for disposal to a child, and €500,000 for a non-child. It's also important to remember what we mentioned earlier, that transfers to connected persons are taxed at their market value. The key point with Retirement Relief therefore is timing, especially when dealing with transfers to children. 

Revised Entrepreneurs Relief (RER)
This relief is not based on age. It operates by reducing the CGT rate charged on disposal of 'qualifying business assets' from 33% to 10%. This can sometimes be more beneficial than Retirement Relief, however, it has a lifetime limit of €1 million.

Firstly, let's examine what Revenue deem to be 'qualifying business assets'; these are shares in a trading company, or assets owned by a sole trader and used in their trade. Interestingly, this definition means the following assets are not eligible for RER; investment assets (for example shares held in a company you don't run), development land, assets owned personally outside of a Company (even where the Company uses the assets eg. rents a premises from the owner), or shares in a Company where the person remains connected with the Company following the disposal (eg. selling 10% of the shares in your Company). 

In order for you to qualify for the relief as a person, you must have owned the business assets for at least three consecutive years, and those three years must be within the last five. In the case where your trading Company is owned by a holding company, you can still qualify for this relief if you held more than 5% of the shares in the holding company for more than three years consecutively, and the holding company owns more than 51% of the trading Company. This rule, however, means that you can't claim relief where a group has a dormant or non-trading company in it. 

CGT Planning Points
In addition to planning for ensuring you are eligible for the above reliefs, there are other things to consider that could help with limiting a CGT liability in the future.

Personally, I feel that a holding company structure is often the best way to avoid a CGT liability in the future. The sale of shares in an Irish company by another Irish company is fully exempt from CGT. This is ideal if you plan to reinvest the proceeds of a company sale, as you will have 100% of the proceeds available for reinvestment. 

Another good planning point are tax-free lump sums to directors through both pensions and bonuses. I will go into detail on the operation of this, however, for the purposes of CGT if you take your full tax-free allowance from both of these, it reduces the value of the Company for CGT purposes by that amount. 

Another relief known as the 'Farm Reorganisation Relief', can be applied where you sell farmland but purchase other farmland with the proceeds. It's designed for farmers who wish to purchase more fertile land by selling other land, however, it can be beneficially used where a farmer receives a high value offer for a parcel of land, and then purchases a much cheaper parcel of land to replace it. The profits are not taxable as technically it was a farm reorganisation, they have the same acreage at the end.  

As always, I'd like to thank you for taking the time to read, and I hope it has been of value. If you'd like to get in touch with any questions, or to learn more about Capital Gains Tax, please do not hesitate to leave a comment below, or reach out to us at [email protected] .

Be advised that the information provided in this blog post is for general informational purposes only and does not constitute legal or tax advice. While we strive to ensure the accuracy and completeness of the content, it should not be relied upon as a substitute for advice tailored to your specific situation. We are happy to provide this should you require assistance on any of the matters outlined above.

 No one can run their business forever. Eventually, either through gift, inheritance, or sale, your business or farm will need to be transferred to someone else. In this part 1 of this two part series, we look at things from the receiver's point of view. If a person receives a gift or inheritance, they will be liable to Capital Acquisitions Tax (CAT) at 33% on the value of what's received. This can be a very severe tax. In this weeks post, we will examine this tax in detail, look at some of the reliefs available to you,  and explain what you can start doing now to best plan for this tax in the future. 

Capital Acquisitions Tax (CAT)
More commonly referred to as 'gift tax' or 'inheritance tax', CAT is levied on a person who receives anything as a gift, inheritance, or as a disposal from a trust. Essentially, anything you get for nothing falls within the scope of this tax. There are thresholds below which you don't have to pay the tax from certain relatives. Put simply, group A relatives are parents, and the CAT threshold on a gift from them is €335,000. Group B are siblings, nieces/nephews, grandparents, or your child if the gift is coming from child to parent. The group B threshold is €32,500. Group C is essentially anyone else, and that threshold is €16,250. The value is deemed to be the market value of the gift/inheritance. Therefore, even with the group thresholds, significant liabilities can arise on the transfer of a business or farm. For example, if you receive a farm from your father with a market value of €1,000,000 , yes you get your €335,000 threshold tax free, but you are still liable to €219,450 CAT on the balance. Furthermore, as I mentioned earlier this tax is levied on the 'market value' of the gift/inheritance, which when you're dealing with a business can be surprisingly high as it includes a figure for goodwill, which can be difficult to estimate for a small business. There are methods to reduce the exposure to this tax for businesses and farm, I will now explain this for each. 

Business Relief from CAT
Sections 90 to 101 of the Tax Consolidation Act 2003 provide for a relief from CAT on the receipt of a family business. How the relief operates is it reduces the market value of the business by 90%. For example, if you inherit a business valued at €1,000,000 , the value for CAT purposes can be reduced to €100,000. This is therefore a very lucrative relief. There are several conditions which must be satisfied however, and these are things which you should start working on now to ensure that they are met by the time the transfer takes place. Below we work through the key conditions, along with guidance on applying them to your situation. 

The first and most important condition is that all of the gift/inheritance must be made up of 'Relevant Business Assets'. These are defined as follows. In the case of a sole trade, it means property or any assets used in the business, e.g. goodwill, debtors, trading stocks, etc. This is important to note as if you are transferring the business premises alone, and not as part of transferring a business, then the relief will not be available. If planning to transfer a business premises in the future, it could be beneficial now to ensure that a business that can be transferred is being operated from it, so as the recipient can avail of the relief.

Another heading which a business premises could fall under that would allow relief to be claimed is assets which 'were used wholly or mainly for the purpose of a business', provided that this business is also being transferred to the recipient. Basically, this means that if transferring a Company and also it's premises which it rented but did not own, the premises is brought into the scope of business relief for CAT purposes. Shares of trading companies are treated as qualifying business assets. If the Company is an investment vehicle or rental Company, then the relief will not apply.

The person making the gift (the disponer) must have owned the business assets for 5 years. This can be reduced to 2 years in the case of an inheritance. If the disponer himself inherited the business from his spouse previously, the amount of time that she owned it can be used here it making up the 5 years. 

Finally, there is a clawback period of 6 years after the relief is claimed. What this means is that if the relevant business property no longer meets the criteria during the 6 years after the gift/inheritance, the relief originally granted is withdrawn. The same applies if the recipient sells the property within the 6 year period. 

Agricultural Relief
Similar to business relief, this relief acts by reducing the value of agricultural property by 90%. It was introduced in 2003 in order to reduce the burden of CAT when the family farm is passed on to the next generation. As I mentioned, the mathematics of the relief operate exactly the same as business relief above. A key factor, however, is that agricultural relief cannot be applied to Company shares, regardless whether or not the Company operates a farm. This is vital information for planning around a farming Company. The Company shares may qualify for business relief, but there is one significant benefit to agricultural relief for a farm of land; the farmhouse can be included. For business relief, private dwellings can never qualify for relief. Therefore, if a farmhouse exists, it's far more beneficial to claim agricultural relief as opposed to business relief. This can be a key planning factor in terms of transferring farmland into a Company, for CAT purposes this is almost never a good idea. Furthermore, it could even be beneficial to remove a farming trade from a Company altogether before a transfer, as there are no minimum periods of ownership for the disponer with agricultural relief. I will now explain some of the criteria for agricultural relief. While similar to business relief, there are some significant differences. 

As you would expect, the assets being transferred must be 'Agricultural Property'. Revenue define this as; agricultural land, crops & trees growing on that land, farm buildings, farm machinery and any payment entitlements from the department of agriculture or EU single farm payment scheme. Land held in a Company is not deemed agricultural land for this relief, therefore as I mentioned above, it will only attract business relief. 

The recipient must also pass something which Revenue call 'The Farmer Test'. In order to qualify here, at least 80% of their assets (at market value) must be made up of Agricultural Property as defined above. There are four key points to note here:
1. The test is applied after the gift/inheritance. Therefore, the value of the property being received is included as Agricultural Assets for this test. 
2. The legislation states that the test is applied at 'the valuation date', not the date of the legal transfer. As in most cases the valuation date can be planned for, this allows scope for the recipient to re-arrange their assets in such a way as to pass the 80% test on that date. 
3. The legislation also provides that the gross value of assets can be reduced by a loan secured on an off-farm dwelling. This loan must be used for the purchase, improvement or repair of that house. As mentioned in point three, this could be a key action point between the transfer date and the valuation date. 
4. Finally, the farmer test is not applied to gifts/inheritances of standing timber. In simple terms, any person regardless of their mix of assets is entitled to agricultural relief on standing trees. This does not apply however, to the land on which the trees are growing. 

The other test which Revenue have devised for this relief is what's known as the 'Active Farmer Test'. This test requires that the recipient must actually farm the agricultural property for at least 6 years after the gift/inheritance, or lease it to an active farmer who will farm it for the same period. Additionally, the recipient (or person who leases the land) must hold an agricultural qualification or farm the property for not less than 50% of their 'normal working time'. 

Finally, agricultural relief may apply to a gift/inheritance where it was stipulated as part of the transfer that it be invested in agricultural property. If this is the case, it's then treated as agricultural property for CAT purposes.  Similar to business relief, there is a 6 year clawback period. 

An interesting planning point where inheritances comprise a mix of agricultural and non-agricultural property would be arranging the will in such a way as to establish a discretionary trust for all of the assets. This would allow the trustees to essentially give out the agricultural assets first, ensuring that the 'Farmer Test' is passed on the valuation date, and then giving out the rest of the assets afterwards. 

As always, I'd like to thank you for taking the time to read, and I hope it has been of value. Be sure to watch out for next weeks post, where we take a look at Capital Gains Tax implications for business transfers.  If you'd like to get in touch with any questions, or to learn more about Capital Acquisitions Tax, please do not hesitate to leave a comment below, or reach out to us at [email protected] .

Be advised that the information provided in this blog post is for general informational purposes only and does not constitute legal or tax advice. While we strive to ensure the accuracy and completeness of the content, it should not be relied upon as a substitute for advice tailored to your specific situation. We are happy to provide this should you require assistance on any of the matters outlined above.

No matter your industry, your business has overheads. In the past, the cost of 'keeping the lights on' could be simply overlooked by most small businesses. If you had a decent gross margin, your overheads took care of themselves. Today however, with costs higher than ever and margins being squeezed tighter every day, properly handling your overhead costs can be the difference between success and failure. The best method I have found to do exactly that is what's known in accounting as the 'Overhead Absorption Rate' costing method, or 'OAR', because we all know how much accountants love three letter acronyms. During this post, I will simply explain how this method can work for you. While it sounds complex, it's actually unbelievably simple to understand.

Absorption Costing
​Absorption costing allows us to capture all costs associated with manufacturing a product or providing a service. It's very simple to get your gross profit margin, for example, if you produce a chair and sell it for €100, you spent €30 on materials and €20 paying a man to make it, then you have a gross profit of €50 on that chair. That's fine if you made just one chair, but what if you are running a factory  producing hundreds of these chairs every week? You aren't making €50 per chair, because you have to pay for renting the factory, for electricity to run the machinery, for admin staff to actually sell the product. Even with a gross margin of €50 per chair, for all you know you could still end up making a loss. That's where absorption costing comes in. Instead of just guessing like most of us do, it allows us to accurately break down all these overheads into an individual cost per unit. So for our example, we can say that all of our overhead costs are actually working out at €40 per chair. This means for every chair we make, we have a net profit of at least €10. And what makes this method so special is that the €10 is actual net profit, there's nothing left to pay out of that. 

Calculating Your Overhead Absorption Rate 
Arriving at an overheads per unit figure is actually quite simple. First, we establish our total overhead costs. This should include every single cost of doing business, down to what can seem like the most insignificant of details. We can also include depreciation here if your business is capital intensive, because your fixed assets need to be paid for as well. You may think that it's then just a matter of dividing that figure by the number of units produced, which is technically correct, however; that would only work if you produced just one type of product. Returning to our example above, we might be producing ten different types of chair, all using different amounts of materials, taking up different amounts of time in the factory, but all using the same overheads. In order to accurately absorb our overheads into each product then, we must decide on a suitable metric to break down our overheads into, for example labour hours. We could take the total number of labour hours in our period, and divide our total overheads by this. That provides a figure for overheads per labour hour, which is called the Overhead Absorption Rate (OAR). Lets take a look at our chairs again. Say our overheads are €8,000 in a week and each week has 400 labour hours. Our overheads per labour hour, or OAR, would be €8,000/400hrs = €20 per hour. We then know that if chair A in our range takes up 2 labour hours in the factory, we apportion €40 of overheads to it (2x€20).  There are numerous other metrics which could be used, such as materials in the product of machine hours, but regardless of that the calculation works in the same basic way. 

Why OAR
There are countless benefits to using this costing method in your business, but one of my favorites is gaining a clear figure on precisely how much could be saved by scaling up your operations. As most of you know, overheads shouldn't change much relative to production, meaning that doubling production shouldn't have much effect on your overheads. Bearing that in mind, we can then simply work out the effects of increasing production on our margins. In our chairs example above we had total overheads of €8,000 per week, and 400 production hours. For the sake of explaining, say we doubled our production to 800 hours per week, and kept our overheads constant. This would mean that instead of having a €20 OAR, we would have €10. As above, this would mean chair A taking 2 hours to produce now has €20 overheads allocated to it as opposed to €40 previously. The absorption costing method is by far the best way to look at economies of scale, and lets us see how it can apply to our organisation, regardless of our size. 

In addition to the above, it can also help us outline areas where we need to improve. If a certain product seems to be taking up an enormous chunk of the overheads because it spends much longer than any other in production, then perhaps this is something we need to look at. It's worth mentioning here that there is a further layer to absorption costing which can be applied; Activity Based Costing or ABC. This is where instead of taking the total overheads as we did above, we instead group the overheads into different areas, such as factory, admin, procurement, delivery, etc. We can then prepare separate OARs for each category of overheads, and allocate them one by one to the products. This allows us to look even deeper into not only which products use most overheads, but where. If we have a product that say takes a long time to produce, but doesn't have to be delivered, or have much admin or procurement work done on it, then the overheads from those other areas should not be apportioned to it, just the factory overheads. This further allows us to look at which areas of our overheads are hurting us most. 

Finally, the main real-world benefit of applying this method is that it simply allows us to know exactly what our products cost us to make. This small piece of information can be more useful as a decision making tool than any other metric that could be measured in your business. How can you agree a sales price if you don't know your exact cost? How can you try improve efficiency to cut costs if you don't even know what those costs are? In my own opinion, having an accurate total cost per product is an essential first step in any decision making or improvement process in your business, and the OAR method is the best way to get there. 

As always, I'd like to thank you for taking the time to read, and I hope it has been of value.  If you'd like to get in touch with any questions, or to learn more about Overheads and Absorption Costing, please do not hesitate to leave a comment below, or reach out to us at [email protected] .

Be advised that the information provided in this blog post is for general informational purposes only and does not constitute legal or tax advice. While we strive to ensure the accuracy and completeness of the content, it should not be relied upon as a substitute for advice tailored to your specific situation. We are happy to provide this should you require assistance on any of the matters outlined above.

Welcome to 'The Bottom Line'. If you're incorporated as a Limited Liability entity, then considering the most efficient structure is essential. Today, we will cut through the jargon around Limited Companies and Partnerships. I'll explore the various types of Company and go through the advantages of a Holding Company structure. If you're not sure whether incorporating is the decision for you, check out part one of this two part series where we examined that question in detail. 

The Companies Act 2014 brought into existence a whole new range of Company types. Those most relevant to you are Private Companies Limited by Shares (LTD), Dedicated Activity Companies (DAC), Public Limited Companies (PLC), and Companies Limited by Guarantee (CLG). In addition, we have what's called a Limited Liability Partnership. While this is not technically a Company, I will include it here as it does provide limited liability. 

Private Company Limited By Shares (LTD) - Holding Company Structures
In the first part of this post last week (https://jesinnott.ie/the-bottom-line/structuring-your-business-part-1) I explained in detail the intricacies of an LTD. Please take a look at this before reading here, as our focus today is on the benefits of utilising a holding company/group structure for your LTD. 

A holding Company is a Company which owns shares in another. Basically, the shareholder of a Company can be another Company. The most simple method I've found to understand holding companies and groups is to treat them as a family. At the top is the Parent company, which can own the shares of one or more companies. These I look at as children of the parent, we call them Subsidiaries. There can be one or more, and they all together form a 'family', which we call a Group.

There are numerous advantages to a holding company. Firstly, the assets of the holding company are protected. Seeing as it's a shareholder in the subsidiary, it has limited liability. Should the subsidiary be wound up, the parent company and it's assets are protected. It can therefore be of great benefit to hold land and property in a Holding company, and rent it to the subsidiary Company which takes on the commercial risks of trading. The land is protected regardless of what happens the subsidiary. 

There are also several interesting tax advantages to this structure. A group can transfer assets between Companies without triggering a CGT charge. They can transfer losses and offset them against income of other Companies. If a VAT group is formed, they can even trade between themselves VAT free and need only file one VAT return on behalf of the group, not one for each individual Company.

One of the most significant tax benefits however, is when an Irish Company disposes of shares in a trading Company. There is no charge to CGT. Normally, when shares are sold, ie. when you sell your Company, you will get charged Capital Gains Tax at 33%. This is a significant amount. However, if your Holding Company sells the same shares, it is exempt from CGT under what's known as the Participation Exemption. This can be especially beneficial if after the Company is sold, you intend to reinvest the proceeds in another venture. For example, using the holding company structure, with proceeds of €1,000,000 you could reinvest the entire amount. If you personally owned the shares, you would loose €333,333 in tax before you could invest anything. A group structure is almost always worth considering, but I'd urge you to please consult with someone who fully understands your business before making any decisions as there are countless rules and exceptions which could make things a nightmare depending on your business type. 

Limited Liability Partnership (LLP)
An LLP is an interesting arrangement which can be extremely beneficial. It's similar to a normal partnership, however, it allows for up to 20 partners to have limited liability. There must be at least one general partner who must have unlimited liability, along with any other partner involved in the management of the firm. Don't let that put you off though, the general partner can in fact be a Company with Limited Liability for it's shareholders. An LLP has no requirement to be audited, publish accounts, register with the RBO or set out a designated activity. They are also tax transparent, meaning that each partner is taxable on their own income in their own jurisdiction. This structure is becoming very popular with firms of solicitors, due to the appealing protection of limited liability without the cumbersome constraints of a private Company. Furthermore, they can form an excellent piece of a multi-layered Corporate structure, with Companies entering into partnerships with each other to break chains of ownership for tax purposes and protect assets in holding companies. 

Dedicated Activity Company (DAC)
A DAC does exactly what it says on the tin; a dedicated activity. In fact, it can't do anything else. Essentially, this is the main difference between a DAC and an LTD. On incorporation, a DAC must outline it's purpose, or 'Objects Clause' as it's referred to in the legislation. For example; to provide insurance, to invest in property, to operate a branch of McDonalds, etc. The DAC can only then act within the scope of the objects clause, and cannot do anything other than this. Certain companies operating in specified markets are restricted by law to incorporate as DACs. This makes sense, as most people wouldn't want a Company insuring their car to also operate a chain of casinos for example. DACs can also be utilised for a joint venture, or a specific activity, where none of the shareholders whish for the Company to do anything outside what was originally agreed. For example, three parties coming together to build a gas pipeline may incorporate a DAC for this. They can each take comfort that the other two shareholders cannot decide to instead have the Company invest it's capital in building a Cinema. 

Public Limited Company (PLC)
A PLC is a Company which lists it's shares on a stock exchange. Any Company shares which you can buy easily on the stock market, for example Ryanair, Kerry Group, and Tesla, are all shares in a PLC. The main advantage of a PLC is that no limit is placed on the amount of shareholders. The other private company types may only have a maximum of 149 shareholders. A PLC requires a minimum of €25,000 capital, and also cannot qualify for audit exemptions like the other Company types, it must prepare audited accounts every year and publish detailed reports on an ongoing basis. Not many Companies begin as PLCs. Usually, they will trade as a private Company, and then once they are looking to issue shares on the stock exchange they will become a PLC. This process is known as 'floating' a Company.  

Company Limited by Guarantee (CLG)
A CLG is a Company with no share capital. These are usually used for charities, clubs, or non-profit organisations which require that coveted limited liability for it's members. Instead of issuing shares in exchange for a payment, a CLG issues them on the basis that each shareholder guarantees to contribute €1 to the Company if it were to be wound up. This is beneficial as it ensures no incentive for the shareholders to have the Company actually make any money, which is why it's great for charities and clubs. An example in a more corporate setting however would be for a buyers group. If a group of companies in an industry, say the hotel sector, could come together and form a Company to purchase bed linen for all of them in order to get bulk-buying discounts. If incorporated as a CLG, this would ensure that none of the shareholders could try to have the Company make any money off this scheme, as it would not benefit them. 

As always, I'd like to thank you for taking the time to read, and I hope it has been of value.  If you'd like to get in touch with any questions, or to learn more about structuring your business, please do not hesitate to leave a comment below, or reach out to us at [email protected] .

Be advised that the information provided in this blog post is for general informational purposes only and does not constitute legal or tax advice. While we strive to ensure the accuracy and completeness of the content, it should not be relied upon as a substitute for advice tailored to your specific situation. We are happy to provide this should you require assistance on any of the matters outlined above.

Welcome to 'The Bottom Line'. If you're in business, or just starting out, then you've certainly at least considered how your business should be structured. There is a lot of noise out there around what the best structure is; Limited Company, Sole Trader, Partnership, Group Structures, and so many others. Between this week and next, we will cut through the jargon to help you decide which structure is best for you and why. ​The most common question small business owners ask ...

Welcome to 'The Bottom Line". In this week's post, we delve into what is fast becoming a key topic for Irish small and medium enterprises; Outsourcing the Finance Function. Almost every business in Ireland has an accountant, who at the end of the year prepares the accounts and tax returns. As a business grows, so too grows their financial requirements. For example, once the turnover of a business reaches a certain threshold, they must register for VAT and prepare regular VAT returns. Once staff are hired, payroll must be processed for them. Debtors and Creditors become increasingly difficult to manage, and eventually there comes a point where monthly reports and budgets are required to assist the business in reaching its strategic objectives. 

In large companies, the above is overseen by a finance team led by the company's Chief Financial Officer (CFO). This is not the case for smaller businesses. As most of you will know, employing people in 2024 is becoming increasingly complex and difficult. In addition to employers taxes, engaging staff places a host of obligations on employers such as holiday pay, sick pay, annual leave entitlements, redundancy, etc. And that's if you can find someone willing to work for you in the first place! Therefore, building a finance team is often the last thing on the mind of an entrepreneur who is focused on growing their business. They don't want the hassle of dealing with the finances, or indeed with unnecessary staffing issues when they most likely have enough already. 

Luckily, there is now another option. There are some forward thinking accounting firms, like ours, who are offering an outsourcing service for all these financial requirements. This is a clean solution for growing companies to retain their focus on the key activities of their business, while maintaining a high level of financial peace of mind. 

This concept of outsourcing the financial function could be broken into two distinct areas; Outsourced Bookkeeper and Outsourced CFO. Bookkeeping is the foundation of financial clarity in any business. It is the bedrock of financial order, and involves the recording of day to day transactions. In most cases, this would involve recording invoices, reconciling bank accounts, preparing VAT returns and processing payroll on an ongoing basis.

There are numerous benefits of outsourcing your business' bookkeeping. Your financial records and tax returns will be completed to a much higher standard than by an in-house bookkeeper as the work will be prepared and reviewed by highly skilled accountants. The costs associated with this are normally a fraction of employing a full time staff member, especially when all the obligations of employing a person are considered. It also streamlines your financial process. When you appoint an outsourced bookkeeping firm, they will come in with a tailored process for your business, and assist in it's implementation.

Outsourcing the CFO function is a much higher level engagement, and oftentimes is carried on alongside outsourced bookkeeping. An outsourced CFO role takes financial management to the next level. It's not just about recording transactions; it's about strategic financial leadership. You gain a seasoned financial expert in your corner, offering insights beyond the day-to-day operations. Many SME's don't have this function internally, due to the prohibitive cost of hiring a full-time accountant to act as the internal CFO. 

Engaging an outsourced CFO can often be the difference between growth and stagnation for many businesses. It's common during growth to reach glass ceilings, or struggle to progress beyond a certain level. The insight of a financial expert can provide the correct guidance to navigate the issues holding you back, issues you might not even know about. In addition to the cost advantages of outsourcing the CFO, you also gain an advisor who's expertise and experience span a broad array of businesses and industries. They can apply knowledge from their work with other companies who have been in your position, and tailor the financial strategies to suit your needs and aspirations. Click here to learn more about the benefits of appointing an outsourced CFO in your business http://jesinnott.ie/outsourced-cfo-appointments.html . 

We believe that small and medium enterprises are the backbone of our community, in fact, according to recent CSO figures 7 out of 10 jobs nationwide are provided by SMEs. Therefore, it's only fair that our small businesses can obtain the same level of financial expertise as the large companies, and outsourcing is the solution. This is more than just a service, it's a partnership in your journey to success. 

We thank you for taking the time to read this post, and hope it has been of value. If you'd like to get in touch with any questions, or to learn more about outsourcing options, please do not hesitate to leave a comment below, or reach out to us at [email protected] .

Welcome to our new blog, 'The Bottom Line'. During the course of this series of weekly blog posts we aim to address some of the key accounting & finance issues facing Irish small and medium enterprises today, however, in line with our firm's core value of understanding, will do so in a way which is accessible to all. We will strive to explain some of the most complex concepts in the area of accountancy in a clear and concise manner. Please feel free to comment below or reach out to us with any accounting or finance related questions, queries or concerns you may have about your business that you would like explained in a simple, comprehensible way. 'Simplicity is the ultimate sophistication' (Leonardo da Vinci), and as such we aim to increase your understanding using simple articles, grounded in integrity and trust. 

During this post, we will delve into each of the three main pillars of accounting and finance that our firm focuses on, and provide a high level understanding of each. In the coming weeks, we will expand further into each pillar individually, and then move to address some key areas of relevance in each category.

Financial Accounting
When someone thinks of an accountant, this is usually what comes to mind. Financial Accounting is the process of preparing end of year financial statements, usually in a statutory format. This set of financial statements or 'accounts' is made up of two essential elements, the Income Statement (also known as the Profit & Loss Account) and the Statement of Financial Position ( also known as the Balance Sheet). The income statement is a sum total of all the transactions and activities of the business during the year, for example sales, purchases, wages etc. It sums all of this income and expenditure, and arrives at a profit or loss figure. The Statement of Financial Position on the other hand acts as a picture of the business on a given date, ie. the year end date. It outlines all of the assets and liabilities of the business, as at that given day, for example buildings, motor vehicles, stock on hand, cash, etc. along with loans, hire purchase agreements, creditors, etc. In simple terms, the statement of financial position is a sum total of everything which a business owns, and everything which it owes. The difference being reflected as an amount that owed to or from it's owners, the Capital Account. Financial Accounting is the process of preparing this set of financial statements. All of the activities of the business during the year are analysed, summed, and the results are a set of accounts which reflect a true and fair view of the company for the year in question. 

Tax
Tax is an expansive area of accounting, and permeates all areas of everyone's life. Whether we are working, buying groceries, selling a house, or even giving something away for free, every single transaction will be impacted in some form by a tax. As accountants, it is our duty to assist with the interpretation of the Irish tax legislation, and applying it to the individual case of the client in question. Contrary to popular belief, the computation of taxes is actually a different discipline to the activities of financial accounting described above. For example, in the case of Corporation Tax ( a tax on Company profits) or Income Tax on a sole trader ( the income tax applied to the profits of a self employed person) require a set of accounts as above to be prepared. The results of that are then used in a completely separate computation in order to calculate the taxes owed. There is a plethora of different taxes however which touch every area of both our business and personal lives. VAT for example is an indirect tax levied on almost all goods and services sold. While you may think that this tax is collected by Revenue ( the state department responsible for taxation in Ireland), it is actually gathered by the businesses which supply the goods and services, then remitted to Revenue by them. Similarly, the taxes on your employment are calculated and deducted by your employer, then paid over to Revenue by them. The Irish tax system places a high level of responsibility on our businesses to collect most taxes on behalf of the Revenue, and if they do not comply or make errors in calculating these taxes, serious fines and penalties can be imposed. We hope to explore the vast area of tax for both businesses and individuals over the course of this series, and make sense of some more convoluted and complex issues. 

Financial Management
Similar to tax, this is another exceptionally broad area of accounting and in my opinion one that is under-utilised by most Irish accountants. The two areas discussed above are probably the main pillars for most accounting firms in Ireland, along with statutory auditing (a further area within Financial Accounting which will be discussed in depth in a later post). Financial Management however, is a vast area that is becoming increasingly important in today's business landscape. It involves the ongoing  monitoring, controlling, forecasting and reporting on various financial metrics within a business. It allows management to better plan and implement strategies, both long and short term, based on solid financial information. In essence, Financial Management is simply the activity of looking after a business from a finance perspective, and moving towards more informed decision making by attaching the numbers to the physical activities of the business. Furthermore, it could extend to bookkeeping, which is the more basic level of recording source documents, ie. invoices, payments etc. in order to form the base information for the all of the activities above. Mostly, the more advanced financial management function is carried out by the Chief Financial Officer in large businesses, and often times not at all in smaller ones due to the prohibitive cost and commitment of hiring an internal accountant. There are some firms however, like us, who provide an outsourced CFO function to businesses which are not large enough to employ a full time financial officer, but have reached a stage where they are too large to keep operating without expert financial guidance. You can learn more about this here: https://jesinnott.ie/outsourced-cfo-appointments.html . The topic of Financial Management is  expansive, and over the course of this series we aim to delve deeper into the various issues within this field which are most relevant to you. 

 We hope that you enjoyed this brief introduction to our new blog, and look forward to hearing your questions and queries, which we will address in our upcoming posts. If you'd like to get in touch, you can simply comment on this post, or drop us an email at [email protected] .
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