However, while this has made international transacting and commerce easier, it has had the unintended effect of facilitating criminal activities. Today, criminal organizations rely on the financial system to move large sums of money from illicit enterprises and make them seem legitimate – a practice known as money laundering.

Money laundering is a crime, along with many of the illicit activities through which the laundered money is realized. Yet, illicit financial flows continue to be a problem for countries around the world. How exactly does money laundering occur and why does it persist? Here’s all you should know about money laundering.

What is Money Laundering?

According to the Central Bank of Trinidad and Tobago (CBTT) Guideline on Money Laundering and Combatting of Terrorism Financing, “Money laundering is the process used by criminals to conceal the illegal origin and ownership of funds derived from criminal activities.” It includes all the schemes and tactics through which illegal money is moved, concealed, disguised and transformed in order to make it look like it was earned from legal sources.

Usually, this money comes from a variety of illegal activities such as human trafficking, tax evasion, drug trade and other illegal enterprises. In many other cases, the money is meant for financing terrorist activities and is being laundered in order to enable the money to reach the terrorists it is meant for.

Money can be laundered in various ways, including by putting it through the financial system, the use of pyramid schemes, investing it into real estate or even by purchasing stocks, bonds, and other securities. In some cases, criminal masterminds may play on the emotions of the unbanked and underbanked persons to launder money in schemes which appear legit at first glance. The overall goal of money laundering is to make illegal money appear legitimate so it can be enjoyed by criminal offenders or used to facilitate the laundering of other illegal sums of money.

The term ‘money laundering’ itself literally means washing or ‘cleaning’ money. The term is reported to have been coined by agents who were tasked with investigating notorious gangster, Al Capone. The investigation discovered Al Capone had been funneling the proceeds of his criminal empire through a chain of laundromats he owned at the time – a money laundering operation in every sense.

Although there is no concrete data on the exact amount of money laundered globally every year, estimates are that the figures run into trillions of dollars. According to the Financial Action Task Force on Money Laundering (FATF), the sum laundered around the world annually is roughly $1.5 trillion. The United Nations Office on Drugs and Crime similarly reports that between $800 million to $2 trillion is laundered every year – roughly between 2% and 5% of global GDP. For local context, the Financial Intelligence Unit for the period April to June 2020 reported a total of $2.7 billion (TTD) in suspicious transactions/ activity received via filing of Suspicious Transaction Reports and Suspicious Activity Reports from supervised entities.

Examples of Money Laundering

There are several ways through which money laundering is carried out. Often, criminal organizations and individuals prefer to adopt a mix of strategies that include property and business investments, as well as creative accounting.

Some of the most common examples of money laundering include casino schemes, smurfing and cash or front business schemes. Let’s look at some of these examples below:

• Casino schemes: Casinos are one of the largest repositories of money locally. Pre Covid-19 every day, thousands of people spend millions of dollars in casinos and many people are able to remove sums equal to this from the system. This makes casinos perfect for criminal organizations that want to launder large sums of money. The scheme works by injecting large sums into the casino by purchasing betting chips (usually in cash) and betting these chips only partially. The sums are then cashed out as legitimate casino winnings to be utilized as desired.
  
  
• Cash business: Money laundering schemes that use cash businesses as a front are one of the most common. The scheme starts by placing large sums of cash with a legitimate business. These cash sums will then be injected into the business’ accounting in the form of fake transactions, which are then mixed in with usual business conducted during the day. At the end of the process, the injected cash will be reported as part of the company’s profit, and can then be adapted to any purpose.
  
   
• Smurfing: Smurfing, also called structuring, is another popular practice designed to integrate illicit wealth into the financial system. The scheme works by placing small amounts of cash into multiple bank accounts over a period of time until all the illegal money has been placed. Usually, banks have obligations to report transactions that exceed a certain threshold. However, through smurfing, criminals can avoid triggering this reporting obligation by making multiple deposits that stay beneath the threshold. Many smurfing operations are very sophisticated and they include strategies to vary the deposit amounts in order to beat any automatic detection mechanisms.
  
  
• Foreign investment: This scheme can be very hard to discover and beat. Foreign investment schemes launder illegal money by disguising it as legitimate investment in a country by a foreign investor. Usually, the money is transferred to a third party that has no apparent connections to the illegal activity or individuals that made the money. The third party then ‘invests’ the money in a business of the criminals’ choosing. The money can later be taken out in the form of dividends, high executive salaries and other measures.
  
  
  

Why Do People Launder Money?

There are countless reasons why people may choose to launder money. Despite the fact that the act is an offense and often involves money from illegal enterprises, a lot of money still gets laundered.

A primary purpose for doing this is to be able to enjoy the illegal wealth criminal organizations and individuals have amassed. Ordinarily, it can be difficult to make and spend money from illegal conduct. Most criminal organizations prefer to make criminal transactions in cash, since it is generally untraceable. But this money accumulates, and soon, it becomes inconvenient to have it all in cash. So, money laundering is considered an option to protect the money and utilize it.

Certain other organizations and individuals launder money in order to finance illegal activity. For instance, countries and organizations that fund terrorist organizations typically do not want any ties between them and the terrorists they fund. In situations where a cash handover is not possible, it is beneficial to provide this funding through a complicated maze of financial transactions which usually involve the use of charities and non-profit organisations that does not lead back to them.

As a result, money laundering is almost exclusively a tool utilized by people who want to hide the source of their money or the ends they wish to put it to.

3 Stages of Money Laundering

As mentioned already, there are several different ways in which money laundering schemes are carried out. Apart from the examples listed above, there are thousands more ways in which criminal organizations move and protect their illicit wealth.

However, there are certain typical elements that underlie all money laundering schemes. These are commonly referred to as the “stages” of money laundering which must be achieved in order to clean the “dirty” money. They are as follows:

• Placement: This is the first stage of the money laundering process. At this stage, illegal money is first introduced into the financial system without arising great suspicion. For instance, the money may be deposited in a bank at this stage, introduced into a casino by purchasing betting chips or injected into a cash business.
  
  
• Layering: The second stage is where the illegal money is blended with legitimate money in order to confuse the money trail. Layering often involves complex financial, accounting or strategic tactics that are designed to thoroughly disguise the placed funds. The trail can become so confusing that even skilled accountants and forensic experts may lose sight of the funds. Examples of layering include transferring deposited funds across a complicated network of accounts, creation of fictitious loans, and payment on false invoices.
  
  
• Integration: Once the money is thoroughly cleaned during the layering process, it is then integrated into the financial system as legitimate money. At this stage, you may see the money being received as fair dividends on stocks, shares and bonds, or executive compensation from legitimate businesses. As a final step, the money may be fixed in short to long-term investments such as real estate, and several other investment vehicles.
  
  
  

Consequences of Money Laundering

While money laundering may seem like something that affects only the people involved in doing it, the reality is that it has far reaching effects. One of the immediate consequences of money laundering is that it helps to finance further organized crime in society.

It allows criminal organizations the facilities they require to use their illegal wealth, giving them the resources to expand their operations. In addition, it fosters the dangerous narrative that crime pays as it removes barriers to gaining and enjoying wealth from criminality.

For developing economies, money laundering can be especially devastating. It erodes local and international confidence in the financial system, and in the same manner, it can result in both de-risking and capital flight. De-risking in this context refers to foreign financial institutions terminating their business relationships with local banking institutions. This creates the loss of correspondent banking relationships which are critical for access to global payments and financial systems.

It is for these reasons above that the fight against money laundering is receiving attention from the authorities. Locally, the oversight of money laundering falls under the purview of several organisations mainly the Financial Intelligence Unit of Trinidad and Tobago, the Central Bank of Trinidad and Tobago, and the Trinidad and Tobago Securities Exchange Commission. These agencies are supported by Law Enforcement Agencies such as:

• Financial Investigations Bureau of the Trinidad and Tobago Police Service
• Criminal Tax Investigations Unit of the Inland Revenue Division
• Financial Investigations Unit of the Customs and Excise Division
  
  
  

How do we reduce Money Laundering?

Money laundering has the potential to pose a serious threat to the overall functioning of our local financial system. As such, various industries (such as banks, insurance companies, investment brokers and advisers, credit unions, casinos, real estate brokers and agents, attorneys, accountants, jewellers, and motor vehicle sales businesses) are regulated by the various supervisory authorities.  This regulation involves the adoption of anti-money laundering measures to identify the risks associated with money laundering and to implement measures to mitigate against these risks.

At FirstLink Business Solutions Limited, we provide a full-service anti-money laundering (AML) compliance solution which seeks to understand and manage supervised entities AML/CFT risks, develop comprehensive compliance programs in accordance with their risk appetite and better detect and report instances of money laundering and terrorist financing. If your business is regulated by any one of the Supervisory Authorities above, Schedule a Free Consultation with one of our Certified Anti-Money Laundering and Financial Crimes experts today.

Remarkably, CFOs, or Chief Financial Officers, are not a novel concept. Traditionally, they were the people who effectively held the purse strings for businesses and companies. They operated like fitters at the tailor’s, determining and managing – among many things – the company’s capacity for risk and investment, the resources needed for its growth, its sources of capital, as well as financial policies, systems and internal controls.

A Virtual CFO is essentially the next stage in the evolutionary cycle of the traditional CFO job role. It is exactly what it sounds like, someone who performs all of the services normally associated with a traditional CFO, but in a third-party role and with all the added benefits of technology.

You will find that all business owners or executives usually come to a point where they realize the need for high level financial expertise. The systems and technology that a business uses will invariably change as it grows. The faster the rate of growth, the quicker it will outgrow its existing technology stack. Systems such as a simple standalone point of sale and traditional desktop accounting software such as Sage 50 or QuickBooks Desktop, become outdated quickly.

Many companies are unable to maintain the financial systems and controls required to operate effectively and efficiently as it grows. What once worked great for a startup with 15 employees won’t provide the visibility into real-time reporting, effective cash flow management and strategic business analytics needed for a medium size enterprise of 100 employees. As a result, these businesses make decisions based on inaccurate, incomplete and/or outdated information rooted solely by gut feeling and emotion. This inadvertently leads to many companies growing themselves right out of business.

Understanding the Job description

What do CFOs do that they are uniquely qualified for? It is common knowledge, that finances can be perpetually intricate and worrisome when you are in business. Especially since a business must be able to manage, and hit its financial goals in stride if it will thrive in any way.

These goals reflect on issues like payroll, cash flow, inventory, foreign exchange sourcing and the cost of capital. Things which, clearly, are critical enough to be left only to a dedicated lead; who is very often a Chief Financial Officer (CFO). His or her job is to develop strategies to deploy towards securing the financial wellbeing of a given organization.

This ensures a versatile repertoire of duties for a typical CFO. Asides from providing financial expertise, leadership and insight; CFOs were also the go-to for control and compliance oversight.

CFOs are versatile enough to be able to cater for a wide range of financial management tasks and services including and not limited to:

• Financial planning and reporting
• Cost management
• Debt and risk reduction
• Advisory and Compliance
• Sales and profit forecasting
• Cash flow projection and management
• Budgets and payroll review
• Inventory management
  
  
  

A CFO is not a Bookkeeper or Accountant

Although it entails accounting and bookkeeping duties, the role of a CFO is fundamentally different from the roles of a Bookkeeper and an Accountant.

A bookkeeper’s roles only extend so far. One is to accurately process the basic transactional paperwork for a business. Depending on the size of the business, it could mean simply processing payroll, tracking income, expenses, accounts payables and receivables and reconciling bank and credit card accounts. In essence, a bookkeeper provides you with an accurate record keeping of source documents of your business’s activity.

The roles of an accountant differ in that they interpret the company’s financial statements and data, and ensure their accuracy. And it is this power of interpretation that differentiates an accountant from a bookkeeper. Additionally, accountants work to ensure appropriate closing adjustments are made to the financial accounts to ensure compliance with International Financial Reporting Standards (IFRS).

The Chief Financial Officer (CFO) is the final major component of a fully developed financial team. As the principal financial officer, he or she is the public face of the company’s finances. The CFO complements (with their financial expertise) the accounting, reporting and interpreting functions of the bookkeeper and accountant.

CFOs are in charge of the business’s investment, debt and capital outlook. Beyond mere monitoring, a CFO would be expected to be hands-on and drive strategy to ensure budget compliance, improve profitability etc.

CFO positions are too strategic to any startup or company to easily ignore. Even so, it doesn’t always make strategic or financial sense to keep one permanently and full-time. In fact, the financial security that CFOs work to ensure will often dictate that roles are outsourced to keep business operations lean, and less expensive.

Virtual CFOs: The Modern v. Traditional Approach

Times have changed. In the past, CFOs led traditional functions like cost reduction and managing record keeping, internal control, compliance, and reporting aspects of a business. A job as CFO meant spending long periods of time reporting and closing the books periodically.

Thankfully, technology has freed up CFOs and they can now offer support to the broader strategic vision of a company. Thanks to developments in technology and organizational approaches, CFOs can easily deliver insight regarding not just the past but the future. The work of a CFO can now be done faster, better and for a fraction of the cost.

Virtual CFOs epitomise the modern approach, and are today’s answer to efficiency, flexibility and security in business. Thanks to virtual CFOs; routine control, compliance, and reporting functions now enjoy automation and accurately generate faster results, giving finance a clear view of business performance in real-time.

Technology advances like cloud computing also allow virtual CFOs incredible potential to bring a range of benefits to finance, including significant cost savings, operational efficiencies, flexibility in integration and deployment, improved access for employees, and more robust disaster recovery. While some offer bespoke services and experiences, a virtual CFO typically works by;

• Handling the duties of a traditional CFO, but remotely and on a third-party basis;
• Offering insight and guidance on financial decisions and issues;
• Providing back-office functions such as managing accounts ledgers, depending on the client and their needs;
• Leveraging cloud technology to manage the financial health and well-being of the business.
  
  

Hiring a virtual CFO allows access to high-level financial expertise even when it is not financially favourable to do so. The virtual CFO will perform the services of a full-time CFO remotely, and typically at an affordable cost. Businesses can also expect a greater degree of versatility and experience with a virtual CFO that has had the opportunity to provide solutions for, and glean from, a diverse set of clients.

Leveraging efficiency through Cloud technology

Virtual CFOs integrate cloud-based technology to automate your business systems and processes to improve efficiency and streamline your day to day operations.

With cloud solutions, data is easily compiled and shared; effectively simplifying the processes required to synchronise and transfer data between different systems. Cloud accounting software also allows real-time reporting and analytics features. All of which help give a virtual CFO valid insight into a client’s financial condition, and into strategies to improve it.

With cloud accounting, business management solutions are accessible anytime, anywhere. This means Virtual CFO services are available to clients from any location, and financial compliance is made easier.

By leveraging some of the new analytical tools, CFOs can also foster greater insight and transparency into the organization. Knowledge which may then be leveraged and used to evaluate approaches, reconsider incentives, and improve productivity.

Where do we come in?

Start-Ups and SMBs require a finance professional who can provide insights that can influence the success of the business by bridging the gap between the numbers, operations, and strategy.

High-level virtual CFOs like FirstLink have the advantage to do this in real time, thanks to our advanced integration and automation of cloud-based technology and business analytics.

We believe that business finance is about more than just numbers. That’s why we love working with growing businesses to help them to understand the story behind the numbers.

With us, you can enjoy the ability to control costs by getting only the services you need, when you need them, without the need to roll benefits and other terms of employment into the equation. For a Free No Obligation Business Assessment, please Schedule a Free Consultation.

However, even for businesses that have made a firm commitment to move their accounting processes to the cloud, one key issue remains: how to make the best of your cloud accounting software.

In this regard, one of the primary issues that should concern you and your business is how to ensure that your cloud-hosted data is safe. Although cloud technology service providers often implement high-grade data protection measures, you should know that the responsibility for protecting your data goes both ways.

In this article, we will discuss what you should understand about data security and why it is important. We will also explain 7 tips that can help you maintain the integrity of your cloud accounting data and protect your business.

What is data security?

Data security, according to McAfee, “is the process of protecting data from unauthorized access and data corruption throughout its lifecycle.”

Data security simply means taking all measures to ensure the safety and integrity of your data. It covers approaches that protect your data itself (such as encryption) or measures that keep the data in a well-protected environment (like secure storage).

Yet, data security is one of the biggest challenges that data creators and hosts have in today’s world. To get some perspective on just how much of a concern data security really is, consider that some of the biggest names around (with arguably the strongest security protocols available) have been breached. Juggernauts like Microsoft, Apple, Google, Dropbox and Amazon have all fallen victim.

At home in July 2019, Brazilian hacker, VandatheGod breached the security protocols of 11 government websites in less than 12 hours.

Why is data security important?

It’s obvious really. Without taking adequate measures to protect your data, your financial information becomes fair game for anyone with a passing interest in it. Who would want to be interested in the financial data of a tiny mom and pop store in a little corner of Trinidad and Tobago you say? Pretty much everybody, and here’s why.

In the world we live in today, information has surpassed basically every other resource to become the most vital commodity on the market. Hackers generally don’t need your data for its intrinsic value. Rather, they are drawn to it because of the money they can make by selling that data.

Even if they cannot sell your data, there are a million ways in which they can use that data to hurt your business, and even you and your employees personally. They can open loan accounts in your business name, enter into fraudulent contracts with your own clients and basically make life very difficult for you. In fact, if given too much leeway, the loss of your data may lead to financial (and reputational) ruin for your business.

Now that you understand exactly what is at stake if your cloud accounting data is compromised, let us turn to what you can do to minimize this risk.

How to protect your cloud accounting data

The first thing you should understand about protecting your cloud-based financial data is the role you and your employees must play. Data security, while being primarily the responsibility of your cloud service provider (CSP), also falls squarely in your court.

To really be satisfied that your data has the best protection possible, you need to do your own part, just as your CSP does. That’s where these tips come in. Here’s what you can do.

#1: Create strong passwords 

Here’s a stat that will shock you. According to Info Security, 90% of passwords can be cracked within seconds. If that didn’t leave a cold tingle down the back of your neck, then congratulations. You must have passwords made of titanium. But if you don’t, the first step to data security is creating some high-grade strength passwords.

They say no battle plan survives first contact with the enemy, but this is a failing you cannot afford with your passwords. Make sure you use a combination of letters, numbers and special characters for a strong password. You’ll find other tips on creating strong passwords you can use here. It may also be advisable to consider implementing a business policy where all employees are required to change their passwords every 90 days.

#2: Don’t share your passwords  

This should go without saying, but it is something that far too many people find themselves guilty of. Just so you know, sharing here is not restricted to only whispering your password to someone else.

Storing your passwords in an Excel, Word or other documents and writing them down where they can be seen or stolen are both examples of bad practices you should avoid. Eventually, they pretty much amount to sharing your password with someone that may or may not spill them eventually. It will also be beneficial to create separate user accounts for each staff who requires access to your cloud data instead of sharing one general account name and password.

#3: Implement two-factor authentication

Two-factor authentication basically means an extra layer of security over your data in addition to your password. When two-factor authentication is enabled, your data can only be accessed after providing the password and another means of authentication such as fingerprint scan, face scan, pin number or security questions.

Although it is not always necessary (especially if you have stronger measures in place), it can be a great measure for ensuring the integrity of your data.

#4: Install virus /malware detection software

One of the weakest points through which your data can be compromised is through the end that you control: your computer. Threats such as viruses, malware, worms, rootkits, ransomware and phishing attacks are usually perpetrated locally.

If your local protection is not up to scratch, your data might end up being compromised through your end. Invest in strong antivirus software that guarantees protection both through your computer’s hard drive and on any network it operates on.

#5: Adopt user permissions

It’s a popular saying that “dead men tell no tales”. This most definitely does not mean you should go kill all employees with access codes to your data. However, by limiting knowledge about and access to sensitive information, you drastically reduce the probability that it will get leaked.

In addition, if there is a leak, it becomes much easier to trace the source since only so many people had access in the first place. How do you set this up? By utilizing user permissions on your CSP software. With user permissions, you can control exactly who has access to what and how much access they have.

#6: Ensure that your cloud service provider uses data encryption

When data is encrypted, it becomes entirely unreadable, except to someone that has the key. You could say encryption basically scrambles your data to make it look like gibberish to someone who doesn’t know what to look for.

Most of the best CSPs provide data encryption options as part of their security measures. By encrypting your data, you add an extra layer of security so even if the data is somehow stolen, it will be unreadable without possession of a key.

#7: Educate your employees/users

Although this is the last point, it is essentially the most important. There is no greater risk to data security than the humans who use the data themselves. No matter how strong your data protection measures are, a single error by one of your employees will expose your data faster than you can say “hack”.

Thoroughly invest in educating your employees and users about the importance of data security and standard measures to take. Make sure they learn how to recognize risks and act appropriately so that your other data protection measures will not be in vain.

Conclusion

In conclusion, while cloud accounting has all the tools to launch your business to the next level, you must do your part in protecting your data integrity. Implement these tips and you will be well on your way to ensuring that your data remains secure and uncompromised. Some of you may be wondering whether migrating to the cloud leads to greater possibilities of security breaches. The reality is that no data is ever completely secured. However, the security protocols adopted by your CSP will always be more extensive than what you will be able to implement on your local network servers.

Are you considering implementing cloud technology and worry about whether you’re able to successfully execute proper data protection strategies? Worry not. Schedule your free consultation today to speak to one of our cloud implementation consultants.

Why are business owners around the world so interested in cloud accounting? The fact that 77% of businesses worldwide say that cloud technology gives them a competitive advantage must have something to do with that.  The unfortunate reality, however, is that most small and medium businesses within Trinidad and Tobago and the wider Caribbean region are yet to implement cloud accounting technology and reap its benefits.

If you’re still trying to wrap your head around the concept of cloud accounting, we understand entirely. That’s why we took the trouble to comprehensively explain what cloud accounting is and how it works.

However, if you’re still not entirely sold on the idea of implementing a cloud accounting solution for your small business, you’re setting yourself up for a big loss. Here are 8 reasons why cloud accounting makes total sense for your small business.

#1: 24/7 Remote Access

The first real benefit you will quickly derive from cloud accounting is the virtually universal access you will immediately gain to your data and crucial accounting resources.

Since cloud accounting enables you to store all of your data on external servers, you can recall and work on them no matter where you are. And there will be no need for downloading either. All you’ll need to do is log in to your platform and you can have everything you need at your fingertips, anywhere and across all devices.

So, rather than be tied to a physical location or a few dozen terminals in your office, you and your employees can access crucial data, on-the-go. This is a huge advantage for work at home arrangements with employees. 

#2: Real Time Reporting

If you thought on-the-go data access was great, this one’s even better. Cloud accounting solutions such as Xero Accounting (which is our #1 choice here at FirstLink) give you a clear view of your financial position and performance, in real time.

Wondering how that works? Here’s how. With the integrative capacity of cloud-based applications such as Xero, you can set up third-party integrations to complementary software applications such as Point of Sale and inventory management software as well as crucial data sources that serve your business financial data.

As a result, when developments occur, you don’t have to call up Bob at the office to set them up in a spreadsheet and share with the team. Instead, updates are instantaneous and can be set to take place at whatever intervals you desire. This is one of the reasons why Verizon found that cloud technology gives 77% of businesses a competitive edge.

#3: Lower Capital Investment

One of the biggest concerns that business owners have about cloud-based accounting is its subscription cost model. Fully 20% of organizations raise this at some point in time, wondering if it makes sense to shell out $40 monthly on accounting solutions in the cloud.

But when you consider that the comparison between traditional accounting and cloud accounting is based solely on access costs, you’ll see that cloud-based solutions actually cost less in the long run.

Apart from access fees, traditional solutions often require a lot of value-added expenses. These include an investment in IT hardware and maintenance as well as server solutions to house both application software and the related data. You will need the help of an IT expert to help maintain both the server and the office network.

This translates to much more than $40 a month in the long run. But with cloud-based accounting solutions, you outsource all those functions and costs. You only pay for the exact capabilities that make sense for your business and not a dollar more.

#4: Enhanced Security

It’s also surprising that many businesses hesitate over cloud accounting due to security concerns. After all, since your sensitive data is being sent over the internet (which is notoriously prone to hackers and hijackers), as well as being housed off-premises, what’s to stop a security breach?

Well, plenty, actually. Apart from providing access to enable you to utilize their cloud solutions, the second thing that most vendors spend time on is refining strategies to keep your information safe. This is why most employ military-grade security and encryption measures to keep your data from being compromised.

In this way, it’s no overstatement when we say cloud-based solutions offer far more in the way of security than your business can provide. This is why, according to RapidScale, 94% of businesses witnessed an improvement in security after switching to the cloud.

#5: Greater Collaboration

One of the biggest problems that employers and their teams face is the annoying inability to collaborate on-the-go. Most often, with traditional systems, teams have to wait for a face-to-face at the office or employ inconvenient channels to share crucial data, and even this is on a limited basis.

But cloud technology makes collaboration a ridiculously simple process. With technology, all your team members can view and access information immediately after it becomes available.

Many include social spaces where you and your employees can connect, analyze and deliberate on information as it comes in, no matter where you are in the world. So you can even do much more with less, saving time on resources such as office space and making your business leaner and more agile.

#6: Go Paperless

Even if you’re not worried about the effects of paper use on the earth’s environment, it should bother you that you have to print crucial data in order to share it or jump through hoops to share electronically.

Through the collaborative capabilities in cloud-based accounting software, all the information you need to share can be at your fingertips and share-ready in seconds. Your business will end up saving money and resources because you no longer use as much paper in your operations.

And as a nice cherry on top, you and your business get to do your part towards saving the earth and its environment.

#7: Interoperability

With cloud accounting, you gain better control of crucial financial processes in your business. Every step of the process can be easily seen, extracted and analyzed in the same format and from anywhere, even in real-time.

This helps eliminate the possibility of omissions or errors as it drastically cuts down on the possibility of re-keying data. This also saves your business time and lets you and your employees spend your time doing more productive things.

It will also help you quickly meet business demands, as 65% of businesses agree, since your accounting and IT solutions will only take up a fraction of your time and resources. Good deal eh?

#8: Achieve better insights

It only makes sense that we end with the biggest long-term benefit your business will gain from cloud accounting. If knowledge is power, which it undoubtedly is, cloud-based accounting puts you in the league of Champions with the insights it delivers.

This is because it allows you to integrate more sources of information, access them quicker and from anywhere, and do far more than you could have thought possible with that information.

It gives you a bird’s eye view of crucial information about your finances and helps you predict or react with optimal speed and accuracy. The ultimate value of adopting a cloud accounting solution is the foundation it builds to provide real time information which can be used to make data driven business decisions.

Conclusion

These reasons and more are the impetus driving the increasing acceptability and praise for cloud-based accounting systems. Now that you know what your business stands to gain, you have a bit more insight into why you should be seriously considering an upgrade.

If you would like to discuss the specific benefits that cloud-based accounting will have for your business or if you’d like to know how we can help you implement a solution for your business, schedule a free consultation today. We’ll be delighted to help.

Well, you don’t need to imagine much longer, because software that can do exactly this and more is already available. With cloud accounting, businesses around the world, and in Trinidad and Tobago, are now able to simplify, automate and de-stress their accounting processes.

If you have heard about cloud accounting at one time or the other but are still having difficulty wrapping your head around what it does, much less the concept of an electronic “cloud”, this article is for you.

We will explain exactly what cloud accounting does, how it works and how it stacks up against the traditional accounting software you know. Cloud accounting is already changing the way businesses operate for the better. Your business deserves a chance at this too. Here’s what you should know.

What is cloud accounting?

To really get your head around the concept of cloud accounting, it makes sense to start from what we mean by the “cloud”.

The cloud gets its name from what is called cloud computing. It simply means the practice of storing and accessing applications and programs over the internet instead of your computer’s hard drive. Essentially, it outsources things like computer space and access to certain programs, files, or documents to a remote server, instead of hosting them locally on your hard drive.

The use of the word “cloud” itself came from an industry quirk that viewed the internet and its vast network of servers as a cloud. But in reality, your information and computer programs will be hosted remotely (in a physical location). This saves you the concern of always needing more memory or space on your computer and lets your computer function solely as a gateway.

Flowing from this, cloud accounting refers to accounting software that you access and utilize from a remote server rather than from your computer. It is essentially internet-based accounting.

Cloud accounting versus traditional accounting

Accounting is done by most businesses in Trinidad and Tobago by means of locally hosted software such as Sage 50 or QuickBooks Desktop. But this software will often have to be updated and if you have to operate them on more than one computer, you must do this across a network system. It gets more technical when this network consists of different physical locations requiring what is called a VPN to bring them all together.

Traditional accounting software create a lot of manual and time-consuming processes. They tend to limit what you can really do with the data on your hands. For instance, it will be more difficult to get broad insights and cross-reference data across several sources. For example, integrating your website sales with inventory management or point of sales with your accounting software.

Perhaps most importantly, it is much harder to automate tasks on locally hosted software. This means that you have to intervene physically more often than not, taking valuable time you could have spent elsewhere.

And you’ll be losing all the extra advantage of deeper insights that will seem almost like a whisper from God telling you exactly what steps to take in your business.

Accessing all your information from wherever you are in the world and on any device will be much easier. Essentially, with cloud accounting, you will be able to do more with less, freeing up more time to spend of income generating tasks and creating  better chances at growth.

How does cloud accounting work?

The most important cornerstone to cloud accounting is the Software as a Service (SaaS) functionality that certain vendors provide. SaaS simply means that cloud accounting software vendors such as Xero, sell you access to their cutting edge software as a service. So, instead of paying a one-time fee to buy this software, you pay periodically to access the software on the remote server usually on a monthly or annual basis.

When you subscribe to one of these services, you will have your own exclusive interface/portal through which you can conduct all your accounting. The software will work faster, smoother and will require no updates from your end since it is hosted remotely.

All you have to do is enter your data, which will be sent over the internet, and choose how you want to organize it. SaaS vendors usually provide data backup services as well. This way you know that your data is safe and accessible from wherever you are.

Most vendors also provide integrations with third party applications such as point of sale, inventory management, ecommerce, payment processing, and customer relationship management (CRM) software. This can provide one of the biggest advantages to your business. Essentially, you’ll be able to aggregate several data sources in one centralized location so you can more quickly determine the state of your business, and make decisions faster.

Is cloud accounting safe?

Since data is sent over the internet and hosted remotely, there may be concerns over whether your data is safe. But there are often various rigorous measures put in place to prevent your data from being compromised.

Most vendors use multi-factor authentication, encryption and several other measures to ensure the integrity of sensitive data. In fact, these measures far outstrip anything you can provide on your own while your accounting software is hosted on your local drives.

Nevertheless, it is important that businesses take necessary steps to protect their sensitive data from unauthorized access and use. We’ve compiled several tips for protecting your cloud data as a business owner. 

Does your business need cloud accounting software?

Cloud accounting has disrupted and transformed many small businesses by enabling them to operate more efficiently, cutting costs and reducing time spent on repetitive tasks. This is why, according to research from Intuit, 78% of businesses will rely on cloud accounting in 2020.

Although you may feel your locally hosted Sage 50 or QuickBooks Desktop accounting software is “just fine” as it’s doing the job for you, it is important to realize that the world of accounting is inevitably changing. More businesses are adopting leaner and faster technologies to maintain a competitive edge and stay ahead of the curve. This is even more important now than ever before in a world where copycat businesses and competitors are rising rapidly. Your business needs a chance to differentiator itself, and cloud accounting allows this from the automation of systems and processes perspective.

The question you must now ask is: can your business afford to get left behind? I am always weary to make blanket statements that recommend one option over the other without understanding context. Whether cloud accounting is right for your business will depend on several factors including its size, the nature of business, its existing systems, controls and culture. But you cannot make the decision based solely on a reluctance to change.

Conclusion

In conclusion, cloud accounting is a great opportunity for small businesses to reduce the costs and hassle of maintaining a physical, on-premise IT infrastructure. While there are disadvantages to adopting the cloud, the benefits far outweigh it. Small businesses are now recognizing the benefits of cloud accounting and how it can impact on achieving real time financial reporting, improving cash flow and driving data-driven decision making.

We recommend that all small businesses consider the adoption and integration of cloud accounting technology into their day to day financial operations to automate and streamline their business processes.  Financial recording and reporting are tedious tasks which can be easily automated with the right cloud accounting software.

If you have any questions about how to effectively adopt cloud accounting for your business or how to integrate it with complementary third-party software applications, schedule your free consultation today. We will be happy to answer any questions you have and support you for a painless and stress-free transition.

Imagine running a business without keeping tabs on what money flows into and out of the enterprise. Financial Statements represent a formal record of the financial activities of a person, business, or entity. These are written records of the financial situation of a business. A Financial statement is what you get from documenting masses of data obtained primarily from the accounting system of a business.

Being one of the essential components of business information, Financial Statements showcase the financial strength, performance and liquidity of a company. They are also the primary means of communicating financial information to external (outside) parties.

Components of financial statements

There are five main components of financial statements. Together, they operate to give an accurate picture of the overall health of your business. These components are as follows:

• Income statements
• Balance sheets
• Cash flow statements
• Statements of shareholders’ equity; and
• Notes to financial statements

To help you better understand what financial statements are and what they do, we will explain each of these components.

Income Statement

The income statement is the most commonly used instrument of a financial statement. Also known as the Profit and Loss Statement, it is a report that shows the financial results of a person or business over a specific period of time whether monthly, quarterly or annually.

The Income Statement highlights the financial performance of an entity in terms of net profit or loss over a period of time. It also comprises two elements:

• Income: This is the totality of revenue. It includes earnings over a period of time. These includes sales, revenue, rentals, royalties, dividend income etc.

• Expense: These are the costs incurred by a business. These often include selling, general and administrative expenses, wages and salaries, depreciation, rental charges, etc.  

Eventually, it is by deducting expenses from income that the overall net profit or loss is calculated and determined.

Balance Sheet

The Balance Sheet, also known as the Statement of Financial Position, indicates the financial position of an entity at a given date. It is typically of essence to lenders, investors, and creditors to estimate the liquidity of a business. This is because the Balance Sheet is a report that summarizes the assets, liabilities, and equity of an entity at any particular period. It is often stated at the end of the reporting period.

The specific type of business operated will determine what items should be included in the balance sheet. These items are often presented in their order of liquidity. Thus, the assets most easily convertible into cash are listed first. Likewise, the liabilities due for settlement soonest are also listed first. Typical line items included in the balance sheet (by general category) include:

• Assets: The list of ‘things’ owned by a person or entity. These include cash, inventory, marketable securities, prepaid expenses, accounts receivable, and fixed assets.
• Liabilities: The list of ‘things’ that is owed. Usually, these covers accounts payable, accrued liabilities, customer prepayments, taxes payable, and short-term and long-term debts.
• Equity: This basically covers the interests of the owners. The Equity in a business represents the amount of capital that remains after assets are used to settle outstanding liabilities. In essence, Equity represents the difference between the assets and liabilities.

For a balance sheet to be considered ‘balanced’, the total amount of assets listed must equal the total liabilities and equity listed on the balance sheet. Thus: Assets = Liabilities + Equity.

Statement of Cash Flow

As the name implies, the statement of cash flow is the financial statement that describes the flow of cash into and out of your business. The Cash Flow Statement showcases the movement in cash and bank balances over a period of time. Cash flows in a financial statement are typically classified under the following headings:

• Operating Activities: These represent the cash flow or revenue-generating activities of a business. Cash received or paid out for product sales, supplier and lender invoices, payroll, etc., are examples of operating activities.

• Investing Activities: These are cash flows from the procurement or sale of assets other than inventories. Investing Activities constitute payments made to acquire long-term assets. They also include cash received from the sale of assets.

• Financing Activities: Cash flow generated or spent on raising and repaying share capital and debt including, the payments of interest and dividends are regarded as Financing Activities. These generally cover activities that will alter the equity or borrowings of a business. Sale or repurchase of company shares and dividend payments are typical examples of financing activities.

A Statement of Cash Flow can be used to detect trends in business performance that are not readily visible. In fact, many investors feel that the statement of cash flows is the most transparent of the components of financial statements. This is because it can be used to determine the sources and uses of cash.

Statement of Changes in Equity

Equity is the value of an asset minus the value of all liabilities on that asset. The statement of changes in equity, also known as the Statement of Retained Earnings, is used to showcase key information about equity reserves.

Statement of Changes in Equity provides details on the movement in the Equity of the business owner over a period of time. The statement of changes in Equity is usually derived from the following components:

• Net profit or loss during the period reported in the income statement attributed to shareholders;
• Share capital issued or repaid during the period;
• Payment of dividend made to shareholders;
• Changes recorded in accounting policy; and
• Changes in accounting policy or correction of accounting errors.

Notes to Financial Statements

Notes to Financial Statements are a crucial component that most people just forget about. These notes however contain other details relevant to the financial statements.

It is important to note that Notes to Financial Statements is a requirement mandated by the International Financial Reporting Standards (IFRS). According to the IFRS, entities have to disclose all information that matters to financial statements. This will no doubt enhance better understanding.

For instance, detailed information on those fixed assets is not included in the balance sheet. The Notes to Financial Statements however contains further information on those fixed assets that may be relevant to the overall financial statement.

What is the purpose of Financial Statements?

Financial Statements have already been identified as the records that outline how a business functions. The 5 components discussed above have also been used to identify the importance of Financial Statements. However, here are some other reasons that highlight the necessity of financial statements:

• Financial statements show an accurate state of the economic assets and liabilities of a business.
• Financial Statements are often relied upon to make financial decisions and predict the capacity of a business to earn profits.
• Financial statements depict the effectiveness of its management. The records are used to determine the profitability of a business or company.
• Readers can discern the accounting policies of a business by going through its financial statements.
• Importantly, financial statements also explain the social impact of a business. This is because it shows how external factors have affected the functioning of the business.

Who are the users of Financial Statements?

It is already obvious that a business owner needs to have financial statements. Financial Statements are not however only required by a business owner. There are other entities to whom it may be required or useful. These are divided into Internal and External Users.

Internal Users refer to managers or employees of a business directly involved in making decisions related to the operations of the company.

External Users are not directly involved in the operations of the company. Nonetheless, they hold some financial interest in the business. External Users may be further classified into:

• Users with direct financial interest (owners, investors, creditors); and
• Users with indirect financial interest (Government, employees, customers and others).

Financial Statements are often required by several categories of people falling under these two groups, including:

• Lenders (banks and other financial institutions) interested in the ability of the company to pay liabilities. It is important to note the most banks require a minimum of three years financial statements for credit facilities applications. In addition, once ongoing credit facilities (whether commercial mortgage, term loan, overdraft, or credit card) are enjoyed by a business the bank will request annual financial statements for review.

• Trade creditors or Suppliers interested in the company’s liquidity and its ability to pay short-term obligations. There are certain suppliers who as apart of their process to grant credit accounts request a copy of the company’s financial statements for review.

• Government, especially the tax authorities, interested in the financial information of an entity or business for taxation and regulatory purposes. Both individuals and companies are required to disclose both their profit and loss statements and balance sheet with their tax returns.

• Customers interested in the ability of the company to continue its existence and maintain stability of operations.

• General Public (researchers, students, analysts and others) interested in the financial statements of a company for reasonable purposes.

Conclusion

There can’t ever be too much ado about Financial Statements. They are the summation of the financial performance and position of a business at a given time.

Financial Statements are in fact the primary source of financial information for business owners and decision makers. That is why financial accounting and reporting emphasizes the importance of accuracy, reliability, and relevance of the information provided in financial statements.

As a business owner, we hope by now you should be aware that there have been amendments to the Companies Act to include this issue of disclosing the beneficial owners of a Company. If you are not aware, however, it may be a great time to consider the reasons why your small business should have an accountant or legal professional as an advisor.
 

So, what do these amendments mean for Limited Liability Companies and should you be concerned? Simply put, there are now new reporting requirements and obligations for directors, officers and shareholders of companies incorporated locally in Trinidad as well as externally formed companies. It must also be stated that failure to meet these obligations can rack up some hefty fines and even jail time.

This article provides clarity on what a beneficial owner is as well as the obligations of directors, officers, and shareholders of a Limited Liability Company.

The Companies Amendment Act 2019

The obligation to disclose and report on beneficial ownership was created by the Companies Amendment Act (CAA) 2019 which was assented to by the Parliament on 4 April 2019 and proclaimed by the President on 30 May 2019. Essentially, the CAA requires companies to ascertain and obtain information on the true (beneficial) owners of a company and disclose the same to the Companies Registry using the prescribed forms.

What is a Beneficial Owner?

According to the Financial Action Task Force (FATF), a beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.


For the purposes of the Companies (Amendment) Act, the following guidelines apply to ownership and control when determining the beneficial owner of a Company. They are:

• The natural person who directly or indirectly through an intermediate holding company owns shares in the Company;
  
  

• In the event that a natural person cannot be identified as the owner whether directly or indirectly, the beneficial owner shall be deemed to be the natural person who exercises control over the Company;
  
  

Control is defined by the CAA as:

• The holding of shares or the possession of voting power in relation to that body corporate;
  
  

• Any other power conferred by the Articles of Incorporation or other documents regulating the body corporate, that the business affairs of the body corporate are conducted in accordance with the wishes of that person;
  
  

Where no ownership or control can be identified the beneficial owner shall be the natural person who holds the position of senior managing official.

Reporting Obligations of Beneficial Ownership

The reporting requirements under the CAA are applicable to all companies incorporated under the Companies Act inclusive of external companies except for publicly traded companies on the Trinidad and Tobago Stock Exchange.

Companies are now required to carry out the following obligations under the CAA:

• Issue a notice via Form 40 to all shareholders of a Company to declare the beneficial owners holding any interest in the said Company;
  
  

• Ascertain the names, addresses, occupation, nationality and nature of interest (whether direct or indirect) of each Beneficial Owner with an interest in the Company;
  
  

• Maintain a Register of Declarations submitted to the Company by shareholders and beneficial owners;
  
  

• Prepare and file to the Companies Registry a Return of Beneficial Interest in the Shares of a Company (Form 45) within 30 days from the receipt of a Declaration of Beneficial Ownership (Form 42) from a Beneficial Owner or receipt of Declaration of Non-Beneficial Ownership (Form 41) from a shareholder.
  
  

• Prepare and file to Companies Registry a Return of Issuance or Transfer of Shares (Form 46) within 30 days for the issuance or transfer of shares.
  
  

• Verify the recorded information at the Companies Registry via the filing of the new and updated Annual Return (Form 28).
  
  
  

Summary of Penalties for Non-Compliance

The penalties for non-compliance with the disclosure and reporting requirements of the CAA as it pertains to the issue of beneficial owners are as follows:

• A company that fails to take reasonable steps to ascertain its beneficial owners will be guilty of an offence and it, along with every director and officer, will be liable on summary conviction to a fine of $10,000 (and for every day for which the offence continues a further fine of $300) and to imprisonment for three years;
  
  

• A person who fails, without reasonable cause, to submit a declaration commits an offence and is liable on summary conviction to a fine of $10,000 (and for every day for which the offence continues a further fine of $300) and to imprisonment for three years.
  
  
  

Conclusion

It is common for company directors and officers to become so consumed in its day to day operations that they lose sight of statutory compliance with the Companies Act. This can lead to major consequences in the forms of tens of thousands of dollars in penalties and fines.

The filing of documents related to beneficial ownership with the Companies Registry is now part of the overall duties and responsibilities of your Company Secretary. At FirstLink Business Solutions Limited, we can assume the responsibilities of your Company Secretary ensuring that your obligations under the Companies Act are carried out. We urge all directors and officers to contact us today to Schedule A Free Consultation.

In a previous article, we looked at the process of registering a company at Registrar General in Trinidad and Tobago. Today, we look at 8 post registration legal requirements if left unattended can break your pocket or cause great headache. They are:

1- Appointment of Company Secretary

Section 61 of the Companies Act, Chapter 81:01 requires the appointment of a company secretary and the subsequent filing of the relevant document within 30 days of their appointment or where an individual ceases to act as the company secretary. The directors of a company will usually appoint a company secretary through a board resolution. In some situations, however, the byelaws of the company may make provisions on how a secretary is appointed. If there is a stipulation within the byelaws, then its provisions must be adhered to. The secretary of a company can be an individual, firm (partnership) or company.

A director or authorised officer of the company will be required to complete and submit a Notice of Secretary or Notice of Change of Secretary – Form 27 at the Companies Registry. There is a processing fee of $40. Failure to file the Notice of Secretary within the stipulated timeline will attract a penalty of $300 for every month or part thereof that the person or company fails to deliver or file the document to the Companies Registry.

2- Changes of Registered Address

Section 176(2) of the Companies Act, Chapter 81:01 requires that a company notify the Companies Registry via a Notice of Address or Notice of Change of Address of Registered Office – Form 4 of any change of its registered address within 15 days. All companies registered under the Companies Act must maintain a registered office within Trinidad and Tobago.


The directors, however, may change the address of the registered office at any time. Failure to file the Notice of Registered Address within the stipulated timeline will attract a penalty of $300 for every month that the person or company fails to deliver or file the document to the Registrar General.

3- Filing of Annual Returns

Section 194 of the Companies Act requires that an annual return must be filed no later than thirty (30) days after each anniversary date of the incorporation/ continuance of a company. An annual return provides an update of the company’s registered address, shareholding, directors, secretary, debt, and beneficial owners.

An authorised representative of the company is required to complete and submit an Annual Return (Profit) – Form 28 to Companies Registry.

It is important to note that a company must prepare and file this document to Companies Registry regardless of whether it has been trading or not. Furthermore, please be aware there are different forms for profit and non-profit companies. This document also incurs a penalty of $300 per month for the failure to file within the stipulated timeframe.

4- Return of Issuance or Transfer of Shares

Section 337D(1) of the Companies (Amendment) Act 2019,  requires that companies complete and submit a Return of Issuance or Transfer of Shares – Form 46 to the Companies Registry. This document must be filed within 30 days of the issuance or transfer of shares by a company.

The return details the class and number of shares, amount of capital, name of the shareholder (whether an individual or company), address or registered office, occupation or status, nationality or jurisdiction of incorporation, date of registration and beneficial owner of the shares.

Where a company fails to comply with the filing of the Form 46 within the stipulated timeframe, every director and officer is liable on summary conviction to a fine of ten thousand dollars and to imprisonment for three years and for every day in which the offence continues, a further fine of three hundred dollars.

5- Return of Beneficial Ownership

Section 337 of the Companies (Amendment) Act 2019 requires companies to ascertain and obtain information of the beneficial owners of locally incorporated and external companies with the exception of public traded companies on local stock exchange.

This information must to be disclose to the Companies Registry by the filing of  Return of Beneficial Interest in the Shares of a Company – Form 45 within 30 days of the receipt of the statutory declaration from a beneficial owner or shareholder.

There are significant penalties for non-compliance which upon summary conviction includes a fine of $10,000 and an additional fine of $300 for every day which the offences continues along with imprisonment for three years.

6- Application for BIR and PAYE Number

It is mandatory for all companies to obtain a Board of Inland Revenue (BIR) and Pay as you Earn (PAYE) number. A BIR number is used for payment of taxes while a PAYE number is used to remit taxes withheld from employees under the Income Tax Act.

To obtain a BIR and PAYE number, a company must complete an Application for Company File Number, PAYE Number and VAT Registration and submit it to one of the Board of Inland Revenue Division offices in Port of Spain, San Fernando or Tobago. There is no filing or processing fee for this service. The signed application form must be submitted with the following:

• Original and copy of certificate of incorporation;
• Original and copy of notice of directors;
• Original and copy of notice of address; and
• Copy of one form of photo identification for each director.
  
  
  

7- Application for VAT Number (if applicable)

Sections 20 and 21 of the Value Added Tax Act makes provisions for all registered businesses in Trinidad and Tobago with commercial supply of over $500,000 to become registered under the Act.

The form used in the registration of a VAT number is the same as the one used for BIR and PAYE numbers. The signed application form must be submitted along with the same documents required for the BIR number but with the following additional documents:

• Copies of bank statements showing deposits of more than $500,000 over a twelve-month period;

• Copies of sales invoices to be used as evidence of trading.
  
  

An unregistered person who makes a commercial supply of over $500,000 within a twelve-month period and fails to register for VAT commits an offence and is liable on summary conviction to a fine of fifteen thousand dollars and imprisonment for one year.

8- Application for National Insurance Number (if applicable)

From a legal perspective, a company is a separate entity from its shareholders (owners) and its directors. As a result, a company is seen as an employer and must apply for a National Insurance number once employees exist inclusive of the directors.

Section 29 of the National Insurance Act makes provisions for both employers and employees to become registered under the Act. Employers are required to fill out a NI 1 form and submit to it to any branch of the National Insurance Board (NIB).

Upon submission, the company will be contacted by a Compliance Officer at the NIB who conduct an audit on the company ensuring it meets the requirements for registration under the National Insurance Act as well as explain the employer’s obligations under the Act.

It is important to note that on the commencement of employment with a Company it is best practise to ensure that employees complete and submit NI4 form to National Insurance Board to ensure that during their time at the Company their National Insurance number is linked to it.

An employer who fails to register with National Insurance Board shall be liable on summary conviction to a fine of five thousand dollars.

In conclusion, starting a business can be very time consuming and overwhelming. However, regardless of where the wind carries you and your company, please do not neglect the above post registration legal requirements as they can lead to tens of thousands of dollars in fines and penalties. If you need any assistance filing any of the requirements contained in this article, schedule a free consultation today and speak to one of our competent advisors.

That’s because, second to actually having a business that is successful, nothing is more important than preparing financial statements for your small business. Think that’s a little over the top? Wait until you read through this article on 4 reasons why your small business needs financial statements. 

For a business, financial statements are a formal record of the business’ financial activities over a specific period. They essentially provide you an accurate snapshot of everything you need to know about your company financially, knowledge that should never be more than a fingertip away from you as a business owner. Here are 4 reasons why preparing financial statements are important for your small business: 

#1: To evaluate the business’ performance

Financial statements are invaluable because they give you an accurate overview of your business. In fact, what they do is similar to giving you a high-definition snapshot of your company’s financial position. 

They are basically the scorecard by which your business is measured. Since Venetian merchants first invented double entry bookkeeping in the 15^th century, financial statements have been the most important tool that businesses use to gauge their own performance. 

Imagine that you fail to keep track of accounts receivable, accounts payable, accruals and cash flow. How do you tell who is owing your business, how much they’re owing and where your business is falling short of money? All of this information can only be gained and understood by preparing an accurate financial statement. 

If you ever thought your business was ailing and you’re wondering where things have gone wrong, financial statements are the perfect tool to do a complete troubleshoot on your business’ financial health. 

#2:  To use as a decision making tool

How would you feel if you woke up in the middle of the night in your distant relative’s house and everywhere is pitch black? Without a source of light, what are your chances of accurately finding the bathroom? Not very impressive, we’d think. 

Trying to make financial decisions without relying on your business’ financial statement is a bit like that. Apart from giving you an accurate report of what your business’ finances are like, they help you illuminate what moves you need to take to keep your business as a going concern. 

Financial statements show crucial business trends, how much you’re selling, how much you’re earning and any cash flow problems underneath. They empower you to not only take rapid decisions about your business, but also help you make the right decisions. 

By preparing a balance sheet, you get an accurate understanding of your business assets, liabilities, equity and debt. This lets you know if your business is in trouble, how much trouble it’s in and where you need to focus on in looking for a solution. If you had an employee that could tell you all this with accuracy, you’d probably promote them to general manager. 

At FirstLink, our philosophy is to act as a wingman to you the business owner by creating a foundation whereby we can gain insights into your business and make data driven decisions.

#3: To obtain capital from a bank or investor

No investor will take two looks at your business if you’re not in the culture of preparing financial statements. Why’s this? Just as much as you need an accurate picture of your business’ financial health, investors need an even more accurate picture so they know what they’re investing in. 

Financial statements and the accountants that help you prepare them are described as being invaluable to carrying out the function of providing “the conditions of trust in a modern market economy”. If investors are to trust your business and do business with it, you must be able to provide accurate financial statements for at least a few years. 

The same thing applies to getting a bank loan. No bank will approve your business for a loan or any type of credit unless they have painfully accurate information about the financial health of your business. That information is crucial for them in determining how much of a risk your business is and the chances that you’ll be able to repay the loan. 

What’s more? Having accurate financial statements decreases the cost you have to pay for your business. Yes, it can save your business money in the long-run and help you attract investors of the caliber that will leave you whistling to the bank. Why’s this? 

Nobody knows more about your business than you do yourself. In order to encourage others to take a punt on your business, you need to not only share that knowledge with prospective investors, but must be seen to have shared all. If potential investors begin to happen upon holes caused by infrequent financial reporting, they will assume the worst and turn tail. 

By having all your books laid out with lines straight as a razor, your business assumes an unimpeachable light in their eyes, and this can influence them to invest more. At the end of the day, you’ll have only yourself to blame if investors are wary of putting their faith in your business simply because your books are not straight. 

And the kicker? You never know when an interested party will walk through the door. Contrary to what most think, it’s not all the time that you attract an investor with a colorful presentation. Sometimes, just seeing how your business operates may be enough to pique their interest. But you’ll never get them in the door if you’re not armed to the teeth with the requisite financial statements. 

#4: To ensure compliance with tax authorities

If the previous reasons were for the health of your business, this one is important, so you don’t end up in jail or losing your assets. Put simply, not having financial statements for your business means you risk getting into serious trouble with the tax authorities such as Inland Revenue Division. Here’s why. 

Every business is liable to file tax returns, no matter where you’re based. In Trinidad and Tobago, businesses are liable to file tax returns on worldwide income. It doesn’t matter whether you had no profits. Every single business must file returns and you can only file these returns based on your financial statements where trading is occurring.

Now here’s another twist. If you do end up being assessed to certain taxes, you will be required to prove to the tax authorities that you have paid exactly what you owe in taxes. If you claim you had no profits for the year in question, you must prove to the tax authorities that truly, you had no profits. How do you provide this proof: why, by giving them copies of your financial statements and accounting source documents, of course. 

If you are unable to provide proof that you have paid exactly what was due from your business in taxes, you risk enforcement action against your business. The tax authorities will be within their rights to come right down to your business and demand to see all of your books. When they start to see holes left because of incomplete or poorly prepared statements, they have a tendency to suspect tax evasion. 

And the penalties for tax evasion are often stiff. These range from substantial fines and penalties and even imprisonment. 

Conclusion 

The bottom line is: financial statements are extremely key for your business. If you have not been in the habit of preparing these statements or having them prepared, you cheat your business out of so much. Worse, not having them means you have a time bomb ticking beneath you. 

While there’s absolutely no reason why you cannot prepare your own financial statements as a business owner, the simple truth is most don’t know how to. And even for those who have an idea, it can be too easy to make mistakes. 

It is often best to allow a professional take charge of your books and help you prepare your financial statements. Besides, remember we said financial statements lay the condition of trust in a market economy? Fewer people will trust your financial statements if you do them by yourself. 

Rather than being suspected of having “cooked the books”, take advantage of the services of an accountant today. At First Link, we are a full-service business outsourcing and advisory firm which provides specialized Finance, Legal, Human Resource and Technology solutions designed for Startups and SMBs. We directly work with business owners to fulfil their bookkeeping, accounting and audit needs. If you would like to discuss your business’ financial health with us or explore our accounting solutions, please schedule your free consultation today. 

From the moment you start your small business, however, the odds are pretty much stacked against you because most small businesses fail within the first 5 years. However, the major reason most businesses fail is because they aren’t able to keep up with the financial obligations required of them.

Cash flow problems and poor financial management has been identified as one of the major and recurring reasons small businesses fail. Considering the cash flow problems that most small business owners face, should you as a small business owner really be doing your own accounting?

Should You Be Doing Your Own Accounting?

If the failure rate is this high, not hiring an Accountant sure plays an important role in the statistics. Indeed, almost half of all small business owners (45%) fail to hire an accountant.

Too many small business owners try to handle all matters on their own and neglect to hire an accountant. In truth, most business owners are only trying to cut what they perceive as unnecessary expense. But this later proves to be their greatest undoing.

When it comes to the problems and uncertainty of owning a business, consulting a professional accountant can often be the best solution. It is one that proves to save money in the long run.

This is no doubt why it is now trendy to have an accountant as one of the co-founder or partners of a business. For businesses not fortunate to have an accountant among their rank, hiring one is proving to be of high essence.

Whether you’re a start-up or an existing business, you should engage the services of an accountant. The decision to employ one may be the only thing that saves you from costly errors and keeps your business safe in the future. Hiring an accountant to look after your business is always a smart move. Here are 9 reasons why your business needs an accountant:

#1: To Select a Business Structure

When you’re just starting up, one of the biggest problems you’re going to face is deciding the right business structure for your venture. Deciding whether you should operate as a sole trader, partnership, limited liability company or some other form is a decision better reached with an Accountant. An Accountant can advise your business on which structure will be right for you base on its nature, size and complexity taking into consideration legal, tax and financial implications of one structure over the other ensuring you get off on the right foot.

#2: To Manage Your Cash Flow

Of course, you’re in business to make money. You’re however most likely not going to be making a whole lot if you don’t keep track of the money that comes in and out of your business.

You need someone to maintain the financial records or books for your small business. Among the dozens of things that this will do, it will importantly ensure that you keep an updated book. This is going to come in handy for reports, tax purposes, or future planning.

An accountant will also help you plan ahead to ensure you can continue paying suppliers, employees, and other bills even in periods when the cash flow is low.

#3: To Monitor/Reduce Your Tax Liabilities

Do you have some taxes you’re exempted from paying? How do you legally reduce your tax liabilities? Of course you already know that if a business fails to calculate and pay the correct amount of taxes owed to BIR, serious problems may arise.

Depending on your business and the structure you operate, there are a series of tax deadlines to beat every month of the year. Each deadline comes with corresponding fines and penalties for late filing or payment.

It is understandable that you have a business to run and that these deadlines might slip by you. This is one of the reasons you need an Accountant. Having your own accountant means you’ll file your taxes as and when they are due and avoid the last-minute rush.

What you definitely know is that Accountants can help make tax payments easier for you by keeping proper records for tax season. What you probably don’t know is that an Accountant may also help your business by finding loopholes to avoid paying heavy taxes.

#4: To Save Valuable Time

Running your business and doing the work of an accountant is extremely time consuming. If you think about how much time and effort you’ll spend trying to manage your finances yourself, perhaps you’ll have a rethink. Making use of an accountant will allow you to focus on the proper task of running your business and attaining your goals.

With someone else managing and balancing the books, you’ll have more time to do other core tasks like meeting customers, planning growth strategies for the business and formulating innovative ways to generate more sales.

#5: To Assist with Costing Products and Services

The price you charge your customers or clients will have a direct effect on the success of your business. One of the secrets to business success is pricing your products properly. But it is also a tricky thing to do.

Production costs cover direct labor, direct materials, consumable production supplies, and factory overhead. When you put the right price on your products or services, your profit margin will expand and you’ll create a solid foundation for your business.

If you get your pricing wrong or lower than your production cost, then you’re already on the path to failure. A large number of businesses fail because products and services are priced too low and the business owner (for lack of knowledge) has no idea about this.

But this shouldn’t be a problem for you if you have an accountant. With your accountant, you can be able to review your production cost and expenses. You can then use this to determine the best price to keep your business afloat.

An accountant will also help you review prices to reflect the dynamics of cost, market demand, response to the competition, or any other profit objectives.

#6: To Create Internal Procedures and Controls

For your business to run smoothly and successfully, you need these 6 (six) internal control procedures:

• Separation of duties
• Access controls
• Physical audits
• Standardized documentation
• Periodic reconciliations; and
• Approval authority.

Establishing effective accounting control procedures early in your small business helps to create a culture of ethical financial management. A skilled accountant knows these internal controls and procedures and will be helping you out in putting them to practice.

#7: To Acquire Credit Facilities with Your Bankers

When you wish to expand your business and take out a loan, you would need to show your credit worthiness. By all means, the banks would be interested in ascertaining that you are not a liability, and that loaning you the money would be a smart venture.

An accountant is what you need to get your papers in order. With your accounts in order, your accountant will be able to demonstrate the growth rate of your company, estimate future projections, validate assumptions and convince the financiers that you can easily pay them back their money, plus interest. Usually this involves your accountant preparing a three-way projection incorporating projected profit and loss, balance sheet and cash flow forecasts.

#8: To Help Innovate Your Business Model

A business plan requires specific projections of revenues and costs. A business model on the other hand does not. A business model requires that you become ingenious about the way you create, deliver and capture value for your business.

To do this, you would however have a need to constantly re-evaluate how you do things and run your business. Analysing the past accounting performance and history of your business is a great way to go about this. A breath of fresh ideas from your accountant may be all you need to keep your business afloat.

#9: To Help Grow Your Business

It is safe to assume that every business owner wants their business to grow and not end up as one of the statistics of failed ventures.

Your Accountant is going to make use of your financial data to provide a roadmap for the business and plan for the future. Among other benefits, this will help you determine the best time to purchase inventory and budget for big-ticket investments so that you can stay competitive and viable.

You’ll also be needing periodic advice, guidance and counsel on how to achieve your objectives and keep your business in business.

Conclusion

Considering these benefits, it’s little wonder why many business owners now partner with an Accountant for their startups. For businesses not fortunate enough to have an accountant as a founder or co-founder, it has become quite necessary to keep one on the payroll.

While you’re busy with the day-to-day operations of your business, you would greatly benefit from having an accountant that can put your account in order, keep an eye on your blind spots, and make sure that you remain afloat and able to achieve your business goals. Need an accountant to gain real-time financial insights into your business operation? Schedule your free consultation today and speak to one of our advisors.