Turnover?

[Griff88]

Hi All

I am looking for some help with regards to turnover.

My partner owns small company and she is currently a sole trader with 9 employees working around 16 hours per week each.

Business has been running since January this year and she asked me to take a look at her profit and loss and something doesn't look right to me.

The software she uses is showing the below.
Turnover £75,000
Wages Paid Out £65,000

Now she charges £16.50 per hour and pays her employees £9.50 per hour.

From my calculations if her wages paid out are £65,000 her turnover should be just under £113,000

She did initially want to stay under the 85k VAT bracket but if my calculations are correct she has gone over already.
She has spoken to her accountant after I raised my concern and her accountant is saying its fine and the figures on the accountancy software is correct.

My question is how can it be correct?
Have I done my calculations wrong or do we need to get a new accountant?

Only other thing to add is she has around £1000 in Expenses every month but this should make a difference to turnover right?

Any help much appreciated.

 

[Newchodge]

She may charge fewer hours than she pays.

However this is the worng way to look at the figures. Has all income been properly entered, have all outgoings been properly entered?

 

[Griff88]

Possibly a stupid question but why would she charge for fewer hours than she pays?

From my understanding if she pays £9.50 an hour and charges £16.50 an hour her turnover would be 73.7% higher than her wages paid out regardless of her other outgoings?

Sounds like I'm doing something wrong, am I missing something here ?

---

 

[Newchodge]

Possibly a stupid question but why would she charge for fewer hours than she pays?

From my understanding if she pays £9.50 an hour and charges £16.50 an hour her turnover would be 73.7% higher than her wages paid out regardless of her other outgoings?

Sounds like I'm doing something wrong, am I missing something here ?

---

Because she pays staff for hours that she cannot, or does not, charge for.

 

[Newchodge]

9*16*9.5*52 is more than £71,000.

You need to check the figures entered.

 

[Griff88]

Because she pays staff for hours that she cannot, or does not, charge for.

That's definitely not the case she only pays staff for hours worked and charged for.

 

[Griff88]

9*16*9.5*52 is more than £71,000.

You need to check the figures entered.

They roughly work 16 hours per week some weeks they work less, £65,000 is the figure from January to November.

 

[Newchodge]

They roughly work 16 hours per week some weeks they work less, £65,000 is the figure from January to November.

Then, as I said before, you need to check the data.

 

[Griff88]

Then, as I said before, you need to check the data.

So far arguments sake let's say the data for Wages are correct at £65,000 paid out.

What should the Turnover be?

Does anything else effect the turnover figure (ie expenses)?

 

[japancool]

What about her own wages?

 

[japancool]

It's very easy. Find out how many hours she has invoiced for, and how many hours she has paid wages for.

 

[Griff88]

It's very easy. Find out how many hours she has invoiced for, and how many hours she has paid wages for.

That's the problem if she has inputed the invoiced data wrong the only way of really finding out is go through everything again which we really don't want to do just yet.

 

[Griff88]

What about her own wages?

She doesn't take a wage at the moment.

 

[japancool]

If she's been doing the bookeeping correctly, the amounts will reconcile against the bank statements.

If not... then there's a problem.

 

[Griff88]

Thanks for the replys, we are going to have a sit down tomorrow to go through all the bank statements.

 

[MBE2017]

Your partner should visit her accountant ASAP to ensure she is not in for some awkward surprises. Clearly based on what you have stated there is something wrong. Hard to say more on such limited information.

£65k divided by £9.50 = 6842 hrs charged.
6842 x £16.50 = £12893 turnover.

She needs to find out the problem.

 

[NicoJ]

The more pertinent question for me is why you don't trust the accountant your wife has appointed.

The accountant should be able to explain the "discrepancy" quickly and comprehensively. The contributors on this forum are making blind guesses.

If your accountant can't explain then you need a new one who can explain the figures to you.

 

[NicoJ]

That's definitely not the case she only pays staff for hours worked and charged for.

Are you sure? What about holiday pay, employers costs? If she is paying an agency what is their margin?

 

[WaveJumper]

Seems like a complete mess to me, defiantly need to sit down with the accountant, the numbers make no sense and as alluded to above there could well be a lot of info missing here. Bottom line sounds like a lot of work for very little or no return.

 

[Frank the Insurance guy]

Are there unpaid or outstanding invoices? These would not be shown as income received (yet) on the bank statements/data!

 

[Mark T Jones]

Thanks for the replys, we are going to have a sit down tomorrow to go through all the bank statements.

This is the answer

 

[NicoJ]

This is the answer

With the greatest of respect no it isn't. Going through the bank won't give you an accurate turnover figure nor will it give you a GP.

The answer is to consult the professional that you are paying and ask them to explain.

 

[pentel]

Wages paid will include holiday pay, NI, pension company pension contributions, sick pay. These can add substantially to the wages paid figure. Is she paying for travelling time? This is not usually chargeable to the customer.

 

[MyAccountantOnline]

Hi All

I am looking for some help with regards to turnover.

My partner owns small company and she is currently a sole trader with 9 employees working around 16 hours per week each.

Business has been running since January this year and she asked me to take a look at her profit and loss and something doesn't look right to me.

The software she uses is showing the below.
Turnover £75,000
Wages Paid Out £65,000

Now she charges £16.50 per hour and pays her employees £9.50 per hour.

From my calculations if her wages paid out are £65,000 her turnover should be just under £113,000

She did initially want to stay under the 85k VAT bracket but if my calculations are correct she has gone over already.
She has spoken to her accountant after I raised my concern and her accountant is saying its fine and the figures on the accountancy software is correct.

My question is how can it be correct?
Have I done my calculations wrong or do we need to get a new accountant?

Only other thing to add is she has around £1000 in Expenses every month but this should make a difference to turnover right?

Any help much appreciated.

What system are you using to record income and expenditure, and are you doing it on a cash or invoice basis?

Are the accounting records being kept accurate and up to date?

Some questions to consider - does your turnover figure of £75,000 include work in progress and debtors (monies owed)?

If you are adamant that all hours worked are charged out turnover should be more than £65,000. However it is extremely unusual to see 100% of all employees time charged out, you will have some time which isn't (or can't be) charged eg sick pay, holiday pay, staff training etc.

Do also make sure your invoicing system is up to date and that clients are being invoiced on time for all work done - it's not unusual to see small business owners get behind with invoicing, or forget to invoice all work.

With regards to VAT do make sure you are keeping accurate accounting records which are up to date so that you can see when you need to register for VAT. Have a read here

To answer your question -

Only other thing to add is she has around £1000 in Expenses every month but this should make a difference to turnover right?

If it's overhead costs - no as turnover is sales not expenses

If it's disbursements or costs recharged to clients/customers - yes

 

[macScot]

If the wages paid out refer to the net payment to employees, then in addition to that expense, you will have employers' national insurance contributions (though employment allowance could reduce that) and employer pension contributions, as well as holiday pay and sick pay i.e. where she would still need to pay the staff wages but they actually are not at work and hence you cannot relate that to billable hours to clients.

Also check that you have accounted for other expenses and costs to the business, any taxes, insurance, uniforms, cost of sales, telephone, etc.

Reconcile the bank account on your software vs the actual bank statements to make sure all transactions have been entered correctly, usually, this may highlight missing or duplicate, or even incorrect transactions.

 

[JEREMY HAWKE]

Possibly a stupid question but why would she charge for fewer hours than she pays?

From my understanding if she pays £9.50 an hour and charges £16.50 an hour her turnover would be 73.7% higher than her wages paid out regardless of her other outgoings?

Sounds like I'm doing something wrong, am I missing something here ?

---

It is very easily done
To me if the figures are wrong then its a right mess!

I would take some time to go though every transaction week by week one week at a time looking at every invoice you have issued and bills going out
I would guess that after looking at 6 to 8 weeks you would start to see a clear pattern helping you to clearly understand what is going on

 

[Paul Kelly ICHYB]

Some great advice already.

She did initially want to stay under the 85k VAT

Why? This is a very short sighted approach that restricts anyone who takes it from not building a real business and making good money!

I would also guess that they do not really understand how VAT works, which is also common among new business owners.

 

[Griff88]

Thanks all for taking the time to reply.
Some great advice.

We will definitely be going through the figures again and also speaking with the accountant.

I do want to discuss the 85k VAT registration with someone in depth as when I was first told about it I was shocked that anyone would want to stay under 85k personally.

My partners reason for it is if she adds the vat to the charge rate it will price her out of other small businesses who don't charge VAT rates and she will lose customers......

 

[japancool]

Thanks all for taking the time to reply.
Some great advice.

We will definitely be going through the figures again and also speaking with the accountant.

I do want to discuss the 85k VAT registration with someone in depth as when I was first told about it I was shocked that anyone would want to stay under 85k personally.

My partners reason for it is if she adds the vat to the charge rate it will price her out of other small businesses who don't charge VAT rates and she will lose customers......

Are her customers business or domestic?

 

[Paul Kelly ICHYB]

My partners reason for it is if she adds the vat to the charge rate it will price her out of other small businesses who don't charge VAT rates and she will lose customers......

I would also guess that they do not really understand how VAT works, which is also common among new business owners.

Point made exactly!

 

[Griff88]

Are her customers business or domestic?

Domestic.

 

[Griff88]

Point made exactly!

I agree my partner or myself doesn't understand the VAT system.
To be honest we are complete beginners.

 

[IanSuth]

That's definitely not the case she only pays staff for hours worked and charged for.

Unlikely as she has to pay holiday pay and that is for hours not worked

 

[japancool]

Domestic.

Then yes, adding VAT would increase her prices by 20% (if she chose to pass the full cost on). I may be wrong, but I believe some cleaning businesses get around this by having the customer paying the cleaners directly as self-employed people, and taking a commission.

 

[macScot]

Flat Rate VAT scheme on a cash basis is likely to suit the business if the expenditure is usually low e.g. based on your £1000 a month estimate.

The rate to be used will depend on the type of business.
www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

Yes if VAT is added to the rate then she could lose business if her customers are not companies or businesses who can claim the VAT back if the increase in rate means being much higher than competitors. Due to the current financial situation, most people are cutting costs and would easily be swayed to switch suppliers if they can get similar service levels.

However, if the price is kept competitively low, the growth in the business can cancel out the cost of the VAT that may have to be paid to HMRC.

Once you know the actual rate you would have to pay to HMRC you could work out how much you need to increase your turnover to cancel or break even the VAT amount you would have to pay forward to HMRC if you were to keep your prices as they are.

If the business is unable to grow beyond that point, then the VAT can definitely be considered an unnecessary expense to the business so worth considering maintaining a smaller business if the existing profits are sufficient for your wife's needs. The business can always downsize in the future and deregister from VAT.

 

[lesvatadvice]

9 employees x 16 hours x £16.50 per hour = £123k p.a. therefore way over the VAT registration threshold.

Speak to an Accountant or other specialist ASAP. Otherwise you are racking up substantial VAT arrears plus penalties.

 

[Financial-Modeller]

Everyone is trying to help with the limited info available, but a couple of thoughts:

• Ignoring 'rampaing-up' whilst initially growing the business, OPs partner exceeded the VAT threshold at the 6th employee.
• Wages at GBP65k sounds correct for the 11-month period based on OPs info but excludes Employers NI, Pension etc - just the net payable to the employees - again, ignoring early growth, which may account for the on-costs.
• GBP1k pcm expenses for cleaning materials, mileage etc is the difference between turnover and wages (and maybe ENIC, Pension?)
• Turnover is the problem. Even if it excludes unpaid invoices (for work done during November but not yet paid for) it still doesn't align with hours paid for.

OPs partner definitely needs to get a grip on this. Collecting all the info, going through the accounts alone, and then with accountant would be wise.

Re VAT, it doesn't sound like the business is viable below the threshold, but absorbing the VAT entirely at the threshold would require - at simplistic level - 20% more business to recover the VAT cost, which with 9 staff employed for 16 hours pw, has already been achieved, so given that there will some VAT recovery on supplies etc, OPs partner should register for VAT and get on with growing the business.

 

[Newchodge]

Wages at GBP65k sounds correct for the 11-month period based on OPs info but excludes Employers NI, Pension etc - just the net payable to the employees - again, ignoring early growth, which may account for the on-costs.

16 hrs per week @ £9.50 = £152/week and approx £7,900/year. So no NI, pension or SSP.

 

[Financial-Modeller]

16 hrs per week @ £9.50 = £152/week and approx £7,900/year. So no NI, pension or SSP.

Excellent point; thanks.

 

[pentel]

16 hrs per week @ £9.50 = £152/week

So no NI, pension or SSP

SSP becomes payable at £123 per week

Statutory Sick Pay (SSP): employer guide

Employer guide to Statutory Sick Pay - SSP rates, form SSP1, eligibility, fit notes (formerly sick notes), recover statutory pay.

www.gov.uk

There is also holiday pay to consider.