Why start-ups should think about bookkeeping and HR from day one?
It is a legal requirement for start-ups to deal with topics, accounting, and HR. What working with a partner for bookkeeping and HR does is to enable start-ups to have an optimal administrative setup and access to expertise in line with their needs. For this, the outsourcing partner must be as agile as the start-up itself.
This article assumes that a start-up has already successfully completed the first phase; the founders have aligned their visions, developed their business idea into a business model, and found a corporate form for themselves; the necessary financing for the foundation of an LLC or an LTD has been found and the decision has been made to establish an LLC or an LTD. It is now, at the very latest, this question must be answered: “What should the administrative setup of the new company look like?”
Legal minimum requirements for accounting and HR
The first question is rightly “What do we really need? Firstly, a needs analysis is imperative. The law already defines the absolute minimum for the administrative setup: Legal entities (including LTD and limited liability companies) are obliged to keep accounts in accordance with the provisions of the Code of Obligations. Therefore, a balance sheet, an income statement, and notes must be prepared (ie. an annual report). The bookkeeping must be aligned with the type and size of the company. All documents must be kept in electronic or paper form for 10 years. As long as the number of full-time equivalents does not surpass 10 on average, the company may opt out of a financial statement audit.
A company is subject to tax (profit and capital tax). Therefore, a company needs to report its profit in the yearly tax declaration based on the annual report.
Companies that achieve a turnover of CHF 100,000 are subject to VAT. If this threshold is not reached, a company may voluntarily subject itself to VAT, which can be useful, especially in the case of substantial investments in assets.
In addition to accounting, an LTD or an LLC cannot avoid the topics, employment contracts, and social security. All operatively active persons of an LTD or an LLC are considered dependent employees. This applies even in the case of a legal entity with only one person. Every employer must join a so-called “Ausgleichskasse” for the settlement of AHV/ IV/ ALV and have accident insurance for employees. Joining a pension fund is (almost always) compulsory as well, and taking out daily income replacement insurance almost always makes sense. All social insurance contributions must be reported correctly and settled in a timely manner. Very often, start-ups cannot avoid the issue of tax at source right from the first wage payment. A minimum of payroll accounting is, therefore, necessary as soon as wages are paid out.
Although verbal employment agreements are valid, employment contracts that are compliant with labor laws protect against unpleasant surprises and provide clarity of the terms of employment for all parties involved.
Minimum requirements must also be met in the area of governance from day one. Depending on the legal form, a general meeting of shareholders must be held once a year, and board meetings are recommended. Minutes must be taken for the meetings, and decisions made by the board need to be documented.
Additional financial reporting requirements
In addition to the minimum legal requirements, various stakeholders have requirements for the administrative setup, which have a decisive influence on the design of the accounting system and the scope of HR. External investors are usually not satisfied with a presentation of the annual accounts five months after the end of the last financial year. They usually require interim reports with a comparison of current figures in addition to forecasted figures from the business plan. The management team itself may also have a thirst for information about key figures based on bookkeeping data. The management team should, therefore, have an understanding of which key figures they need to manage the start-up. These decisions have an influence on defining accounting and HR management.
From our point of view, the topic of liquidity management is essential. A systematic, realistic, and up-to-date cash flow planning and correct reporting of liquidity events are key. Cash is the oxygen of a company—we die within 10 minutes without oxygen!
Cost comparison between in-house and outsourcing of accounting and HR
Let’s assume that the founding team has a clear understanding of the requirements that the accounting and HR departments must meet. Now the start-up is facing the “make or buy” decision. Should the issues of accounting, payroll, and HR be outsourced to a trustee adjective (needs a noun) or handled in-house? Many companies opt for a hybrid between in-house services and outsourcing to a fiduciary …. and HR outsourcing partner.
The biggest concerns about outsourcing are often the costs. And of course, costs are a relevant decision-making criterion. All too often, when comparing external and internal costs, apples and oranges are compared (passive). If a typical industry hourly rate of CHF 120 is charged for simple processing, the immediate reaction is that in-house is much cheaper. “We hire someone for this job at an hourly rate of CHF 25,”. However, the actual costs per hour are much higher! If we add the social security contributions, then we are at around CHF 28.
Oh yes, we are also entitled to holidays. As a cool start-up, we are so attractive that we can afford the legal minimum of 4 weeks of holiday (weeks 5 and 6 are simply unpaid). Now we’re at around CHF 30.30. Added to this are costs that are more difficult to calculate, such as absence due to illness, recruitment, leading and coaching the employee (yes, this employee is going to attend all-hands meetings and may ask questions every day), onboarding, dependence on one person, fluctuation (empirically, fluctuation costs easily amount to two monthly salaries), etc. The actual costs per hour are, therefore, significantly higher! Conservatively calculated, we tend to end up at CHF 40 to CHF 45 per hour worked for the intended activity. So far, we have completely ignored the fact that qualified employees for accounting and HR earn more than CHF 25 per hour wages on the market. Accordingly, the cost advantage of in-house service provision melts away like ice in the middle of summer.
More importantly, however, this employee does not owe the success to the employer, but the outsourcing partner does to the client! What if the employee does not meet company expectations? That is the employer’s problem because employees owe the work but not the success. In contrast, the outsourcing partner owes the agreed result! You can argue with the trustee about the invoiced service if the quality is bad. And whoever is currently in quarantine, for example, is not the client’s problem.
Requirements for fiduciaries and HR partners
Costs are only one side of the coin because the services you get are on the flip side. A strong fiduciary partner in HR and accounting enables flexible access to expert knowledge and only consume services that are needed. In order to take advantage of this flexibility, the outsourcing partner must be as agile as a start-up itself. The outsourcing partner must be able to respond to the operational needs of a start-up at short notice and provide strategic support for the development of the company. Processes and the optimal distribution of roles between the start-up and the trustee change over time. Consequently, a start-up should make sure when choosing a partner that the trustee and HR advisor are looking for the optimal setup with the client and does not sell its standard procedure which is optimized to the needs of the supplier.
If the outsourcing partner has such a customer-centered approach, the start-up is able to find the optimal mix between the provision of its own services and the purchase of services, and continuously adapt the setup to the current development phase of the company. Ideally, from day one the start-up benefits from an individual and optimal setup in accounting and HR. This allows the founding team to focus on its core business.
As a bookkeeping and HR outsourcing partner with a focus on start-ups, we offer the prowess to adapt to the individual needs of a company. We call this “focus on your business”. We focus on the needs of your business so that you can focus on your business.
Learn more at www.trustwork.ch and see the offer at KAPSLY marketplace.
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