The importance of payroll

Jul 13, 2022

Often maligned and misunderstood, Payroll can be one of the most complex but crucial components to the success of your business.

It's easy to underestimate the importance of a well functioning Payroll system, especially when caught up in day-to-day operations, or the cut and thrust of sales and delivery.

But woe betide the business owner who neglects Payroll. Employees depend on the timely and correct processing of their wages, not only to feel valued and appreciated, but in order to live (it's not called 'earning a living' for nothing!)

What exactly is Payroll?

Payroll is the process of calculating how much money you owe to each employee or contractor based on their hours worked. This includes taxes, benefits, holiday pay, sick days, etc. A well-managed Payroll system helps companies keep track of finances, reduce errors, and provide accurate information about employee compensation.

There are typically two main components of a Payroll process: human resources and accounting. Human Resources handles employee relations such as hiring, firing, training, scheduling, compensation, benefits, etc. The accountancy element of Payroll ensures every financial transaction relating to your workforce — including wages, deductions, withholding tax — is accounted for within your books.

The importance of a well-oiled Payroll system

Not only does a well functioning Payroll system keep your employees from becoming disgruntled or unhappy, it also helps reduce admin tasks for you and your staff. There are many online Payroll systems available to help manage employee payments and benefits, ranging from the cheap and simple to full dedicated software suites. Accountancy firms such as Fenwick CA can be engaged to deliver hands-on assistance with Payroll systems, or simply to help establish them and train employees in how to get the most from a Payroll system.

Benefits of managed Payroll systems

The main reasons why a business might consider outsourcing to dedicated professionals who can manage your monthly obligations through a comprehensive modern Payroll software include:

1. Compliance

Organisations must comply with tax regulations, including PAYE, KiwiSaver, etc. This entails making sure that you pay your employees correctly and accurately whilst recording any deductions, such as ACC contributions. If you don’t have a suitable system in place, you could face fines or in worst-case scenarios even prosecution. A managed Payroll service from a good provider will help ensure that you're compliant by explaining any new laws and making sure you avoid any penalties.

2. Time saving

Payroll systems allow you to spend less time managing your employees' wages and more time focusing on growing your business. If you run multiple businesses, managing each one separately can take up a lot of time. Having a single system that handles all Payroll processes saves you time every month.

3. Data security

Your data is stored securely within a secure cloud environment, meaning that it cannot be accessed by hackers. Your information is protected against loss, damage or theft.

4. Risk mitigation

If you're like most small businesses, you don't want to take on too much risk. When you trust a dedicated professional to take on important tasks such as processing Payroll, you reduce the chance of making costly mistakes. You'll know exactly how much your employees make, and you won't have to worry about paying out incorrect amounts.

5. Increased Accuracy

When you process Payroll yourself, you must manually calculate every single paycheck. If you miss one detail, you could end up overpaying or underpaying your employees. By outsourcing your Payroll, you eliminate the possibility of human error. Your employees receive accurate paychecks, and you avoid having to correct errors later.

How to make Payroll easier

The IRD requires employers to report all labour cost outgoings from your business to individuals and businesses. This includes wages paid to independent contractors and self-employed people as well as salaried staff. It's important to keep track of how much money each person earns, what deductions are owed, and what taxes need to be withheld.

Payroll software takes a lot of the pain out of this process. You can easily enter data about employees, including their names, addresses and tax information, and quickly generate reports showing how much money each worker has earned, how much income tax needs to be withheld, and how much total Payroll expenses will be.

Payroll software can also typically calculate holiday pay, produce wage-slips and generate reports by individual or department.

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Top eight things to outsource in your business

By Ian Fenwick • 16 Sep, 2022

If you’re looking to scale your business, you’ll need to spend more time working on it than in it. Finding ways to leverage your time is critical, and outsourcing your least favourite tasks is a great way to do this. Things you should consider outsourcing in your business: 1. Digital marketing. From your content strategy to your social media accounts, if this is not a strength of yours, outsource it! There are many freelancers who have multiple clients at this level, who’ll likely be more knowledgeable regarding SEO and much more effective and efficient in general. 2. Graphic design. Your brand is a key reflection of your product offering. If you don’t have the skill, software, and time to do this well, you’ll potentially damage your brand. 3. Scheduling and administrative tasks. A ‘Virtual Assistant’ can help you manage anything from your appointments to flights, emails, and beyond (virtually anything admin). At a lower level, consider adopting software that’ll automate or minimise processes, such as self-booking appointment apps where your clients can schedule a meeting with you, e.g., Calendly. 4. Customer feedback. Many businesses miss this valuable opportunity to connect with customers and improve their experience. A ‘Virtual Assistant’ can help, but there are also apps (such as Ask Nicely) that automate the process of asking for feedback; directing positive responses to leave you Google reviews and negative responses back to you to quickly resolve! 5. Inventory management. Too much stock can cause cashflow issues and affect sales price (due to resulting discounting), but not enough equals lost sales. Outsourcing inventory management can help you minimise stock-carrying costs and allow you to focus on more important things. 6. Payroll. This task is best left to the professionals. Outsourcing payroll will minimise the risk of inadvertently getting it wrong, while saving you time and, most likely, reducing the cost of this task. Utilising a payroll product is another great option. 7. Bookkeeping. Do bookkeeping tasks often infiltrate your evenings or weekends? Does the stress of these tasks piling up occupy your mind? Outsourcing these tasks (and the stress) to someone else can be liberating and cost-effective. 8. Virtual CFO. If you find budgeting and forecasting a struggle, a ‘Virtual CFO’ can wear this important hat for you. They’ll monitor the financial health of your business and provide a fresh perspective which will help you make better strategic decisions and improve your results. Tempted to start outsourcing some of your tasks to free up your time? We can help by taking the last three roles off your hands! We work with a number of our clients in this way, allowing them to focus on what they do best. While outsourcing takes a little bit of setting up, it’s worth the short-lived pain for massive gain. We don’t have to be jacks of all trades. In fact, this thinking often leads to begrudgingly doing many things poorly rather than doing a few things really well – and enjoying doing them. Work to your strengths, outsource the rest! Need help? Get in touch.

Five accounting tips to give you more time to focus on your business

By Ian Fenwick • 15 Sep, 2022

Very few people love the accounting aspects of their business. Here are a few ideas to keep your clients and suppliers happy while streamlining processes for yourself. 1. Create realistic estimates. This will help you keep clients happy and expectations in check. Have a look at past projects, add up the costs, and compare to current requirements to get an accurate picture of how much to charge. 2. Simplify time recording. When timekeeping is a chore, it’s hard to keep up with it. There’s now very useful software that makes it simple to enter time and switch between jobs. 3. Get reimbursed for expenses. If there are likely to be expenses on a job, let the client know at the start. Then, when you make sure you’re reimbursed for them, clients won’t mind. 4. Stay on top of cash flow - and get access to credit. Keeping a close eye on your cash flow means you can plan for the future - even when the whims of clients can make that uncertain - and you’re much more likely to have access to lending if the bank and other creditors can see there’s money around the corner. 5. Minimise payroll work for your ever-changing staff and freelance roster. Keeping payroll simple and integrated with your accounts means happier staff and better cashflow forecasting. Freelancers need consistency more than anyone, so pay them promptly to be sure you always have access to top talent. With the right technology in place, many of these tasks can be automated so you can get on with your job. We can help you build a system to manage all of the above.

Is your cost of sales affecting your gross profit?

By Ian Fenwick • 14 Sep, 2022

Do you know how much it costs you to produce each product or service in your range? The better you understand this cost of sales – or cost of goods sold (COGS), as it’s more commonly known – the more ability you have to control your company’s profitability. When you know your COGS, you can set the right price point, control your profit margins and ensure that you’re maximising your gross profit. But to do this, you need to understand COGS and how it impacts on your financial management. Understanding your COGS To take one of your company’s products or services from inception to delivery, you will incur a number of costs. For example, if you’re a manufacturing business, these costs might include buying in raw materials, direct labour costs, the overheads for running the machinery in your factory, the costs of delivering the products, and the sales and marketing expenses needed to sell the product to your target customers. For you to manufacture a finished product and to generate a sale, all these costs are a necessary part of the process. They’re the direct costs of producing your goods for sale. You calculate your COGS number for the period by looking at the value of your opening stock (or inventory), adding the cost you’ve incurred to produce the goods, and then, subtracting the value of the closing stock balance. The COGS formula looks like this: Opening Stock + Purchases - Closing Stock = COGS So, if you started with an inventory of $10,000, this is how you’d calculate your COGS: Opening Stock: $10,000 Purchases: $25,000 Closing Stock: $8,000 COGS: $27,000 Reducing your COGS to boost gross profits The more sales you make at a given price, the higher your revenue (income) will be. Deducting your COGS number from your revenue figure gives you your gross profit – and gross profit is a key metric for tracking the health and profitability of your business. A high COGS number reduces the size of your profit margin, and, in turn, a small margin will start to have a negative impact on your gross profit. Being able to control and manage your COGS, and its impact on your gross profit, is a vital skill for any product-based business. Here are some ideas for improving the profit impact of your COGS: Reduce your supplier costs – If you can reduce the size of the purchases made to produce your goods, that means less expenditure and less impact on your profit margins. Try shopping around for cheaper suppliers, or negotiating better prices with your existing suppliers to bring down costs. Streamline your production process – the more complex your production process is, the more overheads and production expenses there will be. Taking a lean approach helps you to continually evolve your processes and remove the extraneous elements – cutting costs while still delivering a quality product. Increase your prices to boost your margins – if your COGS number is eating into your profit margin, one way to resolve this is to increase your price point. This will help to increase income and boost your margin but does require caution. If prices get too high, this can damage existing customer relationships and make you uncompetitive in the market – so think carefully about any price increases before taking action. Talk to us about improving your gross profit If you want to boost your gross profit and get COGS under control, come and have a chat with us. We’ll look over your expenses and overheads, and will look for the opportunities to reduce your goods-related purchases and push for a better profit margin on your products.