As a small business owner in Hong Kong, have you considered outsourcing accounting functions?
If you are doing business in Hong Kong or plan to do so, it is essential to understand the importance of accounting and auditing standards. This avoids the risks of incorrect accounting treatments and also tax filings.
Proper accounting is complicated, time-consuming and requires (up-to-date) knowledge. Therefore, many SMEs and start-ups choose to outsource their company’s accounting functions.
In this article, we will list 7 benefits of outsourcing accounting services. First, let’s take a look at the official Hong Kong requirements of accounting.
Official Hong Kong requirements of accounting
As an incorporated company in Hong Kong, you need to comply with the Hong Kong Financial Reporting Standards (HKFRS) when preparing financial statements to record your transactions. Not only is this important for keeping accurate and updated accounting records, but also for proper profits tax filing to the Inland Revenue Department (IRD).
Your company’s annual financial statements must be audited by a Hong Kong-licensed Certified Public Accountant (CPA) and submitted to the IRD, together with the Profits Tax Returns.
Every Hong Kong incorporated company in general needs to file an annual Profit Tax Return and tax computation for each respective year of doing business. The tax calculation will show the amount of tax your company has to pay after deducting all applicable expenses and applying exemptions, depreciation allowances and incentives.
7 Benefits of outsourcing accounting services
1. Provide a better understanding of your company’s financial performance
With the right data, you can make informed and thus better business decisions, which is especially important when it comes to your business’ finances and profitability.
You can improve your business’s profitability with quality financial information and by analysing the results. An accountant can assess your company’s financial health, help you understand what aspects of the business are the most profitable, but also identify any red flags.
This helps when making strategic plans such as expansion or hiring and prevent delaying business growth.
2. Save time to focus on other key business activities
One of the main benefits of outsourcing any kind of administrative task, is that you can spend your time and focus on core business activities and growing your business.
As an SME or start-up owner, you are often better off not handling all aspects of the company by yourself. Especially if you’re not skilled in a specific and important task, such as accounting. Reviewing financial details will take a long time and there is a high chance for errors.
When a professional takes care of your bookkeeping and accounting, you can be assured that your business’ finances are organised, correct and compliant. In the meantime, you can spend your time and energy on doing what you’re good at.
3. Save money and access increased resources
It is often more expensive to hire accounting staff to work in-house than to outsource it to a professional firm.
Having experienced full-time accountants in-house means you are bound to a fixed, high salary, you have to provide equipment and you are responsible for induction and training programmes. Additionally, there is a resource-intensive hiring process and your accountant(s) may leave the company at some point.
When you choose to outsource to a professional accounting firm, these concerns above are eliminated. Besides, these firms often have a larger pool of resources and knowledge than an in-house team could typically provide.
4. Improve cash flow management
Cash flow management is essential to any business owner. When an accounting firm is taking care of your day-to-day bookkeeping and accounting, it is easy to review the correct cash flow situation of the company at any point in time.
You can effortlessly identify a shortfall of working cash flow and take precautions – or see how well it’s going in terms of cash flow.
Furthermore, the cash flow reports provide help to recognise when receivables and payables are due so you can structure your cash flow accordingly.
5. Seamless audit coordination
All Hong Kong incorporated companies are required to prepare their financial reports annually. The financial statements must be audited by a Hong Kong-licensed CPA.
When you outsource the management and preparation of your financial statements to an accounting firm, it will relieve a burden from business owners because:
- It ensures greater compliance with taxation laws and accounting standards
- The accounting firm can be your point of contact with the auditors and address complicated accounting questions
- You will not miss any (tight) reporting deadlines
Being late, non-compliant and/or not in line with accounting standards may lead to hefty fines.
6. Preparing a business plan
Even before your business is up and running, an accountant can help you by assisting in writing a solid business plan. Their financial knowledge and advice can save you money and time from the start.
An accountant can create financial projections, including cash flow forecasts, and other reports, making your business plan more professional, realistic and more likely to succeed.
7. To be tax compliant
Tax filing for companies, whether small or large, can be a complicated and time-consuming process. Every Hong Kong company is required to keep proper financial records in line with the IRD’s requirements and updates.
An accountant can take care of the paperwork and give you peace of mind that they will follow the right procedures, stick to deadlines and are tax compliant.
A single inaccuracy in matters such as payroll, tax filing or Profit and Loss statements could result in non-compliance and financial penalties.
Things to consider for finding a right accounting service provider
What core services are required?
- Basic compliance such as bookkeeping, audit and tax filing.
- Strategic advisory, for example, financial forecasting, cash flow management, budgeting and so on.
- Special needs such as payroll, industry-specific expertise support (e.g., e-commerce, construction, investing/trading crypto-currencies)
It’s wise to review your internal capacity. You may consider outsourcing the entire accounting service or hire external provider to fill in the manpower insufficiency.
Know the types of providers
There are different types of providers who offer different level of services.
- Bookkeeper type: good for day-to-day transaction recording, managing, and maintaining accounting records
- Accountant type: preparing financial statements, tax planning, and offering financial advice
- Certified Public Accountant type: handling complex tax situations, conducting audit procedures, and offering strategic financial advice
- An Accounting Firm type: providing a team to offering everything from bookkeeping to high level financial advisory services; ideal for businesses that need a range of support
Evaluate their services
When you start to source and build your shortlist of providers, you may use the following checklist to evaluate the service providers.
Expertise & Credentials
- Any prior experience in serving similar clients
- Are they licensed service provider?
- What is their team’s structure?
Technology & Updated Practices
- What software are used? Cloud-based and/or server-based?
- Is instant access for viewing the financial status available at anytime?
- How are data and financial information secured and communicated?
Communication and Service Style
- Do they give quick response?
- Are they proactive or reactive?
- Are they able to communicate clearly and explain complex concepts in clear and simple terms
Fee Structure and Transparency
- Do they offer a concise fee scheme with clear work scope
Be sure to schedule a meeting (either virtual or in-person or via telephone) with the shortlisted providers for deeper discussion on their offer.
How HKWJ Tax Law can help
At HKWJ Tax Law we can assist you with all your accounting matters, from bookkeeping to auditing. We offer different packages in traditional bookkeeping as well as cloud accounting.
In traditional bookkeeping, we currently use the MYOB system for most cases as this is commonly used in Hong Kong by clients’ companies as well as auditors.
We also offer reliable online bookkeeping and accounting services through Quickbooks and XERO, both cloud-based accounting solutions. We can assist your company in setting up or transitioning to a smart accounting system model.
Feel free to contact us for an accounting solution. We would be happy to understand your business model and accounting needs and recommend you the best tailor-made accounting and audit solution for your current business.
The HKWJ Group is a one-stop holistic service provider and advisor to help your business grow. Within the Group, HKWJ Tax Law assists with financial administration, such as payroll, bookkeeping and accounting, as well as tax and legal matters. At Triple Eight Ltd, we provide a wide range of professional and corporate services, such as company secretarial services and company incorporation.
