It is important for small businesses to think about how to structure and staff their China accounting functions ever since the company starts to operate. Accounting is not only about getting a technically correct financial statement, it is more about getting your business under control and steering your business into the right direction in the future through financially informed decisions.
Normally it’s hard to find the right accounting personnel within a reasonable budget to address all these issues. Moreover, the accounting in China is quite complex, as compliance here is more sophisticated and business environment here more versatile. As a result, it is essential to get the right structure set up and find the right people to handle the business’s China accounting function.
The China Accounting Complexity Situation
Generally speaking, the accounting function consists of the following three parts:
1. Daily transaction execution and recording
This part is made up of different aspects of business procedures which include but not limited to issuing invoices, receiving bills, processing payment and payroll, handling expense claims, reconciling bank accounts and dealing with China VAT Fapiao. All those tasks require the personnel to pay attention to business details and ensure the transaction records are always accurate.
The accountant is responsible for China compliance procedure and tax filing. Compliance and tax filing are quite complex in China as it involves different procedures, documentation and governmental departments. If you miss the deadline or mishandle the taxes it might result in penalties, extra expenses or even revocation of business licenses.
3. Management accounting
Normally a small business starts to see complexity when the revenue grows to above 3-6 million RMB. In that situation, they start to have multiple product/service lines and they are trying to pick out the most profitable one. That’s where they start to run into the cash-flow issues. It’s also the time to project break-even points and begin to think about fundraising.
Here the higher level of accounting activities comes into play. Management reports generation, budget and cash flow management, and cost and performance analysis are among the main aspects. This level is used to ensure that business owner can keep up with how the business is performing and understand their financial picture from a strategic perspective.
In China, it’s hard to find accountants who are fluent in English, have an in-depth understanding of China business compliance and tax systems and have experience in management accounting. Normally small businesses have limited amount of transaction so they don’t need full-time accounting personnel to take care of the management accounting function. Likewise, it’s not reasonable to have the management accountant to manage basic data entry either.
For small businesses, only if the accounting and operation procedures are well managed can the business grow healthily and steadily. Business owners will be well informed about the financial situation of the company, making it easier for her/him to stay focused on what matters most.
Our Suggestions To Set Up The Accounting Structure Of Your Business
Considering the complex accounting and tax scenario in China, we have the following suggestions for small businesses.
1. Hiring A Junior Admin
It’s suitable for small business to hire a newly graduate or a person with one or two years of working experience as the company admin to carry out transactions and entry all the data. This person doesn’t need to have that much experience in accounting related field but he/she has good English skills and is detail oriented. The junior admin can also work for other functions such as the front desk, basic HR or the secretary.
2. Hiring A Virtual CFO
The virtual CFO is able to double check the data entry and China compliance, making sure all information is accurate and up to date. At the same time, after viewing all the business data, the virtual CFO will help interpret and explain data and provide business advisory services.
The virtual CFO will supervise the junior admin to provide help and guidance as how to carry out transactions and take care of financial controls. With the structure of an internal junior admin and a virtual CFO, the cost of running the operation will be cut down as it is not expensive to hire the admin and it only costs a fraction of a full time CFO to hire a virtual CFO. The business is able to utilize the knowledge from the virtual CFO to make sure the business owner is able to get the valuable suggestion and advisory on financial operation on time and to make sure the company is running smoothly and being appropriately controlled and managed.
Acheva & Associates provide virtual CFO’s services. View our service page to find out if this is right for you.
Cloud Accounting Software – the Precondition
Cloud accounting software is the technical condition for making the collaboration of the internal junior admin and virtual CFO happen. With the online support, the internal junior admin, the virtual CFO and the owner of the company can access the same set of real-time data, enabling the owner to view the business data and management reporting anytime, anywhere and helping the virtual CFO provide guidance for the admin in time.
It’s crucial to think about how you would like to organize the accounting structure when you set up your business. When you build up the right structure for your business you are able to avoid problems and keep your financial goals clearly in sight.
Next, we recommend you check out Internal control for business in China to learn more about how to better structure your internal functions for business in China.