EXERCISE FOUR -The WASP BARCODE Study

The survey was conducted by WASP BARCODE in 2015. The company sells inventory management solutions to a variety of companies. They have obviously identified the existence of relatively sophisticated accounting functions as a key attribute in their marketing efforts.

While the companies surveyed may be a little larger than the small businesses this guide is aimed at, this exercise will help focus entrepreneurs on what accounting, tax and financial management functions are actually being outsourced.

 

 

Small business is generally misunderstood as a small, relatively unimportant part of the economy. STATISTICS CANADA refers somewhat disparagingly to “micro businesses” as those with 4 or fewer employees. Government bureaucrats too often pander to their counterparts from larger businesses and public sector unions compare themselves to larger businesses in order to justify the generally higher wages paid to employees of larger businesses (BC STATS identifies a gap of about 22% between employees of large business and their small business counterparts).

In our view BC STATS has done a great job of defining the small business sector. To begin with they use a cutoff of 50 employees as the demarcation between small and large business. They also categorize businesses effectively by size:

  • 0 to 4 Employees
  • 5 to 9 Employees
  • 10 to 19 Employees
  • 20 to 49 Employees
  • Large Business

This categorization aligns with our understanding of the way small businesses behave in relation to their financial reporting and tax preparation and compliance needs. Obviously this is important to our partners since those are precisely the services that we provide to our clients.

The WASP BARCODE study was conducted because it aligned with their particular market. Effectively WASP BARCODE restricts themselves to about 10% of small businesses. They recognized that the existence of professional staff within a company was a necessary pre-condition of selling their solutions to small businesses. First because a professional was necessary to understand the need and, second the fact that larger businesses have more resources and can afford more sophisticated solutions.

QUESTION ONE: Why do you think that smaller companies are less likely to have full-time, professional CFOs or controllers on staff?

 

 

 

 

 

 

 

 

 

 

QUESTION TWO: Why would 71% of these companies outsource the tax preparation function?

ANSWER: In fact we believe that the number is much higher. Managerial accounting is a specialization of professional accountants in industry. CPAs in  public practice are the acknowledged experts in tax and assurance (i.e. audit). Typically individual CPAs in practice specialize in tax or assurance.

Part-time controllers in smaller businesses tend to be former public practitioners with reasonable skills in tax. In fact they may actually be participating in an unregulated form of public practice by servicing 5 or 6 (sometimes more (“clients”) simultaneously. In effect then, those part-time controllers are effectively providing outsourced tax preparation.

QUESTION THREE: Why would only 48% of these companies outsource the audit function?

ANSWER: The majority of companies do not require an audit. The shareholders of many private corporations unanimously consent to the waiver of the corporation’s requirement for an audit under the appropriate CORPORATIONS ACT. Some will require REVIEWS (a lesser – and less expensive form of assurance) in order to satisfy requirements of lenders and/or investors.

Note that only CPAs in public practice may perform audits or reviews.

QUESTION FOUR: Why do you think that half of these companies outsource their payroll function?

ANSWER: There are a number of specialized payroll services that provide excellent quality of service at a reasonable cost. Often larger companies outsource payroll – but larger companies will often have a separate HR (human resources) that is independent of the payroll function.

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