Tax experts say SMEs spend too much time on tax

Over 40% of small business owners spend their nights fulfilling financial reporting obligations, a new study reveals, with a majority losing 60 hours per year of their personal time to tax issues.

A survey of 515 business owners has found a majority spend one Sunday per month devoted to looking over their tax.

But experts warn small businesses need to embrace technology as part of their tax compliance so they can reduce the amount of time they spend preparing their quarterly and end-of-year tax statements.

The study, commissioned by American Express and conducted by Galaxy Research, also reveals more than one-third of SME owners undertake tax reporting duties on the weekends, with the majority losing 60 hours per year while reviewing their company’s books.

Over 50% of business owners would devote more time to personal and recreational activities if they could save time on tax, while 43% would spend more time with family. A further 36% said they would use that time to improve their businesses.

It also found 60% of small business owners are primarily responsible for the preparation of their tax statements, while 21% use external accountants, 12% use family members and 9% use a bookkeeper or finance manager employed by the business.

The average small business spends over $1,000 preparing quarterly BAS statements and reporting end-of-year tax.

Tax expert Adrian Raftery says the results are disappointing, and that businesses could improve their sales if owners spent more time developing comprehensive business and marketing plans.

“It’s surprising just how much time smaller businesses are spending on their tax. It’s understandable that the number is high, given the complications with the GFC, but they’re really working in the business rather than on the business and that’s taking away from their personal time.”

“The biggest issue is, while they may spend 60 hours a year working on their tax they’re spending double that time actually stressing out about it. So they’re thinking, developing ideas, and that should be time better spent elsewhere.”

Raftery says this problem can be solved by the use of technology. Using anecdotal evidence, he suggests many businesses still use hand-written ledgers and keep their receipts in shoeboxes, and says more advanced technology can help businesses reduce time spent on tax.

“Businesses need to learn they can use different accounting features on MYOB or whatever to download their ledgers, and there are so many different features that can be used to cut time in half.”

“There’s also the possibility of using different charge cards to download purchases into a ledger, so you have it all nice and ready to go at the end of the year. Simple things, but they add up and really help you reduce a lot of time spent.”

Raftery says while many businesses would opt to use an accountant instead of performing tax duties themselves, this is often too expensive to prove a benefit.

“You might spend $8,000 on an accountant per year, and you’re already spending $1,000 on compliance issues. Small businesses can’t afford that type of money, so it’s all about being smart and technology-savvy”

Raftery points to data in the survey which shows most small businesses use credit cards to pay for expenses. American Express head of small business services Australia, Jason Fryer, says simple technology like accounting software and even credit cards are tools often overlooked.

“The report clearly shows a lot of small owners are drowning in a sea of receipts and paperwork when it comes to end-of-year reporting. One Sunday a month is a huge amount of time, and the amount of stress it causes really does need to be reduced. They could be spending time improving their business.”