HOW ACCOUNTING CAN SAVE YOU CASH

With the first month of the year drawing to a close, businesses everywhere, as we know from our clients, are still looking at ways of cutting costs. Thankfully the numbers of redundancies has slowed down when compared to a last year and the year before as business owners seek new ways of trimming the monthly bill.

 

This, of course, includes fees for accountancy work carried out on a company’s behalf by its preferred firm. Depending on the size of the company and the amount of people it employees, fees can seem to vary wildly when one business owner talks to another. At the same time, though, the amount of work that goes into managing a particular company’s books can be drastically different than another.

 

However, there is one common component that all businesses should share – they should seek advice from an experienced accountant on how to set up their accounts. This applies to start-ups and established companies who are finding it hard to keep track of sales and purchasing invoices using their current system. After all, the more work you ask your accountant to do, the more it’s going to cost you. By being organised, by operating a proper filing system and by being aware of how that system interacts with the accounting system that you have in place, you’re much more likely to save in the long run.

 

In recent years it’s become more noticeable to us that many companies do not have a dedicated in-house accounts person whose responsibility is ensure that all paperwork relating to the company’s sales and purchases is administered correctly. Add to that the work involved in preparing wage slips, ensuring VAT and other taxes are kept up to date, and it’s easy to see why some business owners can’t find the time to manage to piece together a proper paper trail every month.

 

Some accountancy firms, as part of an ongoing agreement with their client, will assign an expert to manage all relevant paperwork for that business on a weekly basis. It’s a practice that we’ve become accustomed to at DCA for two reasons – firstly, it makes our job of preparing monthly accounts much less onerous and, secondly, it ends up costing the client less as information is much easier to come by and decipher.

 

For business owners, the first and foremost priority must be driving sales – their prime responsibility is developing and maintaining activity on a daily basis. Building an efficient and cost effective team around that activity comes next. At the core of that team should be a voice in accounts who can look dispassionately at whether or not a project makes financial sense for the firm in the long run. Also, by managing the company accounts more wisely from the outset, businesses can save money all year long.

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

NETWORKING’S A NUMBERS GAME

Many business owners dread this time of year – it’s the time of year that despite best laid plans, the year ahead can seem uncertain, especially if there’s less work to do than there was in the lead up to Christmas. However, while it may be a quiet time for day-to-day operations, this month provides the perfect opportunity to get out and sell your business.

 

Of course, it’s not an easy thing to do and it’s often difficult to know where to start, but with a little research, finding a good networking event can be a major boon for your business. If you’ve done your homework and are well prepared in advance, you’ll find that you can generate high-quality leads and find new opportunities that you may not have considered to date. Even if you don’t manage to develop any new or meaningful business relationships, talking to like-minded people can often give you a different perspective on the direction of your company. On the other hand, if you feel like you’ve wasted time going along to a pointless event, it’s unlikely that you’ll give over more time when the next meeting comes around. It’s also likely that you haven’t done your homework properly or followed the very simple and straightforward rules of networking in the first place.

 

It might seem obvious, but don’t turn up to a networking event in a crumpled suit, or worse, casual wear. Make sure you have more business cards than you’re likely to need too. More importantly though, it’s crucial that you have a clear plan of what it is you want to achieve with every conversation that you have, so if you’re looking to get your foot in the door, keep in mind that you’ll need a clear and concise outline of what your company does – you may only get a limited amount of time to get your elevator pitch across. If you can’t give an outline of your business and what you do in 30 seconds, you’re not explaining it correctly and your unique selling point (whatever that may be) won’t be clear.

 

Be mindful that you need to leave time to answer any questions and to listen to your conversation partner’s pitch. If you constantly talk about your business without giving the other person a chance, you won’t come across well and any possible relationship will be a non-starter. Remember that they are attending the event to build links and find possible opportunities too. Even if you don’t think you could do business together, either of you may have developed other connections that could help the other.

 

Networking events will give you the opportunity to meet with potential clients, possible business partners or even future investors, but it is a numbers game. That’s why it’s vital that you spread yourself out and don’t spend the entire evening talking to just one or two people – the more conversations you have, the more you’re building up your own network and spreading the word about your company. Speed networking, where you have five or ten minutes per conversation, is becoming increasingly popular. However, if you find yourself in a less structured environment, don’t hesitate to end a conversation politely when it’s appropriate.

 

After the event, make sure to get in touch with everyone that has given you a business card, even if you haven’t identified some of them as a potential business opportunity. It’s nice to be polite after all, and they could well advocate your product or services further down the line. But prioritise – if you’ve been given the opportunity to pitch as a direct result of the event, make sure you do so while the memory of the meeting is still fresh.

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

DEALING WITH INSOLVENCY

You may have noticed the National Competitiveness Council’s Annual Report was released earlier this week. In it, the Council said that the cost base has not fallen nearly enough in Ireland to return the country to a position of competitiveness. It offered suggestions and recommendations to help the Government boost competitiveness – however, most of the suggestions revolve around cutting costs and public sector reform, which we’ve all heard before. In fairness to the Council, in their report, they did highlight issues such as the non-implementation of the Local Authority Efficiency Review Group’s report, which could save €500m every year. However, as costs continue to remain high, the truth is that Ireland cannot maintain or indeed create any position of advantage in the international market.

 

Translate this on a smaller scale to your business and you’ll get a real understanding of the situation. Last year, according to The Insolvency Journal, 1,638 businesses found themselves to be insolvent – up over 100 from the year before. As more and more companies here feel the pinch, whether it’s through declining sales and, by association, decreased revenue, it’s becoming clear that more companies are getting into trouble and going to the wall when perhaps, in a lot of cases, there is no need to.

To know whether or not your company is insolvent or likely to head that way, ask yourself the following questions: Am I getting more calls from irate creditors than I used to? Has my sales stream declined since the last quarter? Are we making as much money as we used to? How has the decline in the economy affected my business and can we stay afloat if it falls further? If you don’t like the answers that you’re giving yourself, your company is most likely headed for trouble.

 

In such a situation, it’s very easy to panic – after all, most business owners worry about paying salaries at the end of every month and bury their heads with that particular problem without dealing with the wider issues. By ignoring calls from creditors, for example, you could be putting your supply chain at risk which will, in turn, hinder any chance that you have of recovery. If you have no suppliers or can’t get credit because you’ve developed a reputation rating within the industry, you can’t operate your business. Instead, talk to your creditors, and explain the situation to them – in most cases, we have found, they’ll be happy to work with you as long as they know what’s going on.

 

Probably the most important piece of advice we can give you is that it’s senseless trying to deal with an insolvency issue yourself or with business partners who don’t have the necessary expertise to help you get out of trouble. Get professional advice as soon as you can – you may think that it’ll cost you more when the debts are already piling up but a good insolvency expert should be able to tell you within half a day where your business stands as long as they have all of the relevant information available to them. What’s more, they can help you put a plan in place to get your business in a solvent position again or prevent a disaster before it happens.

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

BUYER BEWARE

We’ve dealt with enough entrepreneurs over the years to know that going it alone is fraught with dangers. Setting up on your own, especially when business and consumer sentiment is so volatile, is very often a difficult choice to make.

 

However, there are ways to give yourself the best start possible. One such avenue is to buy an existing business. Buying an existing business can add significant value to a portfolio or give an entrepreneur a head start. However, without proper analysis, costly or even ruinous mistakes can easily be made.

 

As we’ve all seen, the tide of emigration continues unabated. Perhaps what isn’t so evident is the effect it has on the local economy here. As people continue to leave the country, they leave behind businesses that were presumably, at one time or another, profitable entities. Of course, it doesn’t make sense to up sticks and leave behind a company that more than pays for itself, but with some digging, there are businesses out there that could well compliment an existing portfolio with a little cash and a lot of hard work.

 

For anyone buying a business, or thinking of taking the plunge, the first thing to identify is the opportunity. Ask yourself if it stands alongside an existing business or if it is in a new area where you’ll need additional expertise to make the acquisition successful.

 

If you have established that a certain business holds opportunity, it’s time to look at the nitty gritty. Insist on an information pack from the seller – this should provide soft details like when the company was formed, its background and current profile, identifying key personnel and senior management. It should also mention whether those people are willing to stay on or not during and immediately after any possible buy-out to make the transition as smooth as possible.

 

From there, one can expect detailed financial analysis of the company and its performance over the past three years at least. If this is not forthcoming, insist on it. This should contain details on sales by product and/or sales by geographic area, for example. It should also demonstrate, in detail, the company’s history with its top clients and customers, and outline any contractual details that are in place for the coming months and years. It is vital that this information is timely and correct – having major clients pull the plug at the beginning of a new era for any company can stop any progress cold.

 

Of course, having the financial clout to buy the business in the first instance is a must, but how payment is transferred varies from case to case. In my experience, unless the business is a local shop, for instance, handing over the full agreed amount in the beginning should be avoided. An earn-out period is the best option – by incorporating this into any contract gives the new owners some breathing room when it comes to cash flow and will also allow sufficient time for any anomalies to show up in the accounts history.

 

Buying a business, just like setting up a company, can be a tricky path to negotiate but some careful planning, sound advice, along with knowing what to look for at the full disclosure of accounts stage, will help smooth the ride.

 

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

OPPORTUNITIES FOR BUSINESS FROM BUDGET 2012

This week’s budget wasn’t pretty, but then, unless you’ve been living under a rock for the last few years, you wouldn’t have predicted otherwise. While more austere measures were delivered, it wasn’t all bad, especially for the business community.

 

Retaining the corporate tax rate was crucial – when Minister Noonan announced it would be held at 12.5%, a collective sigh of relief would have emanated from businesses here. However, events in Europe this week and the strong possibility of tax harmonisation in any new treaty may take the choice of setting the rate in future out of the Government’s hands. But that’s for another blog.

Many have criticised the budget, especially the cuts to social welfare and disability allowance – some said it did nothing to breathe new life into the economy. The Government’s hands are tied somewhat but closer scrutiny of the plans shows that businesses here didn’t do too badly at all.

 

First off it seems that Minister Noonan understands that the R&D regime in Ireland had to be adapted to support a new wave of Irish companies, especially as such a large bet is being placed on sectors like IT kick-starting a recovery here. The announcement that the first €100,000 of R&D expenditure will be allowed on a volume basis for the purpose of calculating tax credits is a positive step in that regard. Also, the enhancement of the Special Assignment Relief Programme is welcomed. It should go some way to attracting specific talent to Ireland as well as creating more jobs and allowing for the expansion of businesses here.

 

However, for SMEs, probably the most important aspect of Budget 2012 was the extension of the corporation tax and capital gains tax exemption for start-ups. This will apply to all new ventures starting in business over the next three years.

 

It wasn’t all good news though. The abolishment of all employer PRSI relief on employee contributions to pension schemes starting from January 1 is estimated to cost businesses around €90m next year. Also, amendments to the Redundancy and Insolvency Scheme will see rebates for redundancy payments drastically reduced to 15% from 60%.

 

Some concessions had to be made, of course. Despite a resounding negative reaction, it’s important to remember that, insofar as they could, the Government seems to have eased the burden a little for many who had been suffering for some time now.

 

If you have any specific questions or would like to know more abouthow these changes affect you and your company, contact us for a free consultation. We’ll be happy to talk through how the changes can benefit your business and how you can make the most out of a budget that could well have been a lot worse.

 

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

BUDGET 2012 – GET CREATIVE TO HELP SMES

If you watched Enda Kenny’s state of the nation address on RTE last night, you’ll have guessed that the omens for tomorrow’s budget aren’t good.

 

That’s not good news for SMEs in Ireland who are struggling as it is. There’s a lot of trepidation among SMEs come Budget Day because they can never quite see how a budget is going to be of benefit to them. Quite the opposite in fact – most businesses are preparing themselves for higher taxes and higher costs of running their business.

 

However, it is crucial to the wider economy that the SME market is protected as much as possible. That is not to say of course that small business owners shouldn’t pay their way – but in previous budgets, the focus has been on ensuring larger corporations and multinationals are continually persuaded to do business here, while the export market and high potential start-ups have been akin to the firstborn come budget time. While both are certainly important, the playing field has been anything but level when it comes to promoting SMEs and the local indigenous market. Indeed, after the public sector, the SME community is the largest employer in Ireland but yet suffers disproportionately at this time of year.

 

To help, Minister Noonan must tackle the problem of job creation and the willingness of people to take up positions when they become available. As it stands, an employer must offer a high base salary to attract the right individuals to their company because with social welfare rates as they are, potential employees will compare their after-tax income with their welfare entitlements. If there is little or no difference, then there is hardly an incentive for an individual to work.

 

Previous budgets have provided some incentives for employers to recruit new staff – the reduced PRSI rate for employees on a low salary is one that comes to mind. However, rarely do these measures carry any weight as stand-alone motivations – there needs to be a more coordinated and joined up approach. We need to work harder to develop a more creative strategy that will allow employers to take more people on. Simply cutting spending and raising taxes won’t work any longer – in fact, there is nothing more that can be achieved in creating employment in the SME sector by increasing taxes any further.

 

SME should be allowed to put themselves in a position whereby they can earn as much profit as possible – contrarily, what is happening with the new tax system, the Government is making it less attractive to go beyond a certain level of earnings for self-employed people. It is almost impossible to incentivise a business owner to invest in and expand their business if the profits that arise from that expansion are taxed at 50%. It is very difficult for an SME to justify moving to that level. While I understand the challenges facing the Government in terms of cutting costs, they have gone as far as they can go when it comes to increasing taxes for individuals – after all, any further hikes will damage their overall objective, which they say, is job creation.

 

Tomorrow will tell us a lot about how this Government really views the SME sector here and whether or not job creation is at the heart of a revival plan for Ireland.

 

 

Declan Dolan.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter. We’ll also be tweeting live updates of tomorrow’s Budget announcement for our followers.

WHEN THE AUDITORS COME CALLING

Some business owners think that once a tax return is filed with the Revenue Commissioners their worries with tax are over for another year. In most cases that’s true, but if your business has been selected for a revenue audit, it’s critical that you’re prepared for a very thorough search of your accounts that could go back a few years and then some.

 

The main problem that companies face is they approach an audit with a ‘them against us’ attitude – in most cases any company selected feels hard done by because they feel they are being singled out unfairly. However, the selection policy of the Revenue Commissioners is not so cut and dry – companies might be picked for audit because they operate in a certain industry and because Revenue has planned special projects in that sector in a certain year, for example. In other cases, some businesses only have themselves to blame – consistently filing late tax returns generally acts as a beacon to auditors. Also, irregularities in an annual statement compared to monthly submissions can act as a trigger.

 

Regardless of the circumstances of why a company is selected for audit, it is critical that they comply. In general, a company will receive 6-8 week’s notice of an audit taking place – the period that will be inspected will also be highlighted in an early correspondence. The onus then falls back to the company to have their house in order ahead of the review. On the day, the auditors will give business owners the opportunity to make a voluntary disclosure, which is a chance to outline any anomalies and declare any outstanding taxation that was overlooked for whatever reason in the past. This must be in the form of a written statement ahead of an audit taking place.

 

The essential element, however, is transparency and full disclosure – the penalties, if there are any, can be drastic if anything discrepancies are found during the review. This is why it is critical that a company, especially small and medium sized business, have their accounts in order every year. We have covered how to organise and manage your accounts before in this blog but it’s worth highlighting the importance of it again and again. A confusing system can spell disaster for any firm and if a business finds itself in an audit situation, a disorganised accounts system certainly won’t help – in fact, it will most likely make things much worse and penalties more severe as even the smallest details are scrutinised.

 

We realise that many businesses are of the mind that survival above all else is the priority right now but neglecting to comply with Revenue if selected for audit should always be a concern. By ignoring responsibilities in firstly having a proper accounting system in place and secondly filing returns on time, business owners run the risk of putting their company in the spotlight when it could so easily have been avoided.

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

THE ART OF NEGOTIATION

Lots of companies that we’ve come across are having trouble with cash flow – it’s understandable given that many SMEs have difficulty sourcing and accessing credit in what is becoming an increasingly challenging business environment. However, sticking your head in the sand and ignoring the endless calls from aggravated suppliers who are looking for payment tends to worsen the problem in our experience.

 

Of course there’s no silver bullet solution, especially for some companies who have overstretched in the past and are now having difficulty just keeping their heads above water. But being open, honest and transparent with suppliers about a company’s cash flow situation won’t just give a struggling business some breathing room, it can also help to salvage relationships that would have otherwise turned sour.

 

You might be pleasantly surprised at how a formerly cold suppliers will react when a client explains the situation and, crucially, works with them to pay up. People don’t like putting each other out of business – they much prefer to get a workable payment plan in place that keeps them ticking over and keeps a client on board.

 

Having dealt with situations like this on numerous occasions in the past, my advice to business owners is to carry out an honest assessment of cash flow projections for the months and possibly year ahead. Only when that picture is clear should you begin to negotiate with suppliers and debtors about putting in place a payment plan – don’t ever promise to pay a monthly figure in an effort to reduce your debt if you know you can’t afford it. The last thing anyone needs in a situation like this is a retraction on an agreement that suited both parties. Projected cash flows allow business owners to make informed decisions about their ability to repay – plucking a figure from your head will only make things worse because, once you’ve renegotiated your terms, it is crucial that you stick to them.

 

The other obvious issue that this throws up is a business owner’s reputation, as well as the reputation of his/her company. If you cannot afford to meet an agreed repayment plan, it’s likely that other suppliers in your sector will become aware of the company’s financial predicament either through industry gossip or if your company is dragged through the courts by suppliers desperately trying to salvage some sort of payment. If that happens, securing the services of another supplier will be highly unlikely. If you get into this kind of spiral, simply running the company – let alone paying people what they’re owed – becomes extremely hard.

 

At DCA Accountant and Business Advisors, having negotiated on behalf of some of our clients, we have a good idea of what a supplier is looking for. At the same time, because we work with a large variety of businesses, we understand the pressures and stresses involved in running your own business. Because of that insight, we know how to address issues of payment and negotiation so that everyone involved can get on with the day-to-day running of their companies, as well as repairing working relationships to the benefit of both parties in the future.

 

Declan Dolan,

 

Partner,

 

DCA Accountants & Business Advisors.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie

FIND FUNDING FOR YOUR BUSINESS IN 2012

Funding a business idea or sourcing finance for a business expansion can be a tricky path to negotiate. A squeeze on credit from financial institutions means that many businesses have been refused loans or overdraft extensions. If that road is closed off, finding an investor for your business is another alternative, but you need to be aware that you are allowing an external individual, often a stranger, access to a portion of your company. Of course, with proper background checks and the right framework in place, it can be a great way to fund a new product or service idea or give your business the boost it needs to grow to the next stage.

 

There are other ways to find the investment you need – these are usually in the form of grants or short-term loans from agencies like the City and County Enterprise Boards or Enterprise Ireland.

 

Whichever route you feel suits your company best next year, be aware that there is a lot of red tape and paperwork involved. Also, finding funding can be a long and often frustrating process. However, if you have your paperwork prepared, a viable business plan and an interesting idea that will grab attention, you’ll find that there is money out there that you can gain access to.

 

We’ve broken down some of the avenues for you to explore.

 

Enterprise Boards

 

City and County Enterprise Boards have been set up to support ‘micro businesses’ with 10 employees or less. They make ‘priming grants’ available to establish suitable sole traders, partnerships or limited companies when the principal is a female returning to the workforce or unemployed. The board will match a principal’s investment or offer a maximum of €150,000 (whichever is lower), but grants of over €80,000 are only given in exceptional circumstances. As a general rule, they’ll offer €15,000 per full-time job created. Business expansion grants – giving the same levels of funding – are available for businesses seeking to grow, and feasibility grants offer up to €20,000 or 50% of an investment, whichever is lower. This rises to 60% for the border, midland and western regions. As a general rule, all the businesses that get Enterprise Board support need to be domestically traded but have the potential to trade internationally.

 

Investors

 

Getting an investor to fund your business can be a long process and can go badly wrong if you choose the wrong partner. That’s why many businesspeople choose to tap into their direct and indirect professional network when they’re looking for a potential investor. When you are talking to would-be investors, it’s important to be direct and up-front about every aspect of the business: financial projections need to be detailed and realistic, you need to have a sense of the potential pitfalls the business can face, and you need a clear idea of the funding requirements before the business starts turning a profit. They’ll naturally want to know exactly what the money will be used for, and will be wary of vagueness or wild promises. An independently-drafted legal agreement between yourself and the external investor, which includes dates for receiving thetranches of funding, as well as their share in the venture, is also essential. Investor money comes with fewer overheads than other forms of credit, but there are far more strings attached.

 

Bank Credit

 

When you talk to a bank, you will quickly pick up whether your business will be considered a viable candidate for credit. It’s best to approach the bank with, once again, a clear picture of what the money you need will be used for, and realistic projections about what the business’ financials will be like in years one, two and three. The more visible research that goes into this, the better. If you’re looking simply for a small ‘fighting fund’ to cover day-to-day issues that may arise and ensure you can pay suppliers, an overdraft is probably the simplest solution, though it is easy to become too dependent on it if you’re not careful. For larger working capital, most lenders will be more comfortable giving a business loan, so you need to ensure the repayment plan can realistically be covered with cash-flow.

 

Enterprise Ireland

 

Enterprise Ireland have funding available for start-ups, High Potential Start-Ups, established SMEs with less than 10 employees, and for larger companies with up to 250 staff. Obviously the category you fall into will depend on the size of your business and the stage that it’s at in its life cycle. In most cases the decision for funding will be based on the need for financial support, the sales and job creation potential of the company, its location and if any funding has been made previously available. Once you become a client of Enterprise Ireland, you’ll be assigned a development adviser who will be a dedicated point of contact when engaging with the organisation and will help out with applications for funding and other development supports.

 

Business Angel Networks

 

Angel networks are groups of individuals with the means to invest in businesses. They’re brought together and vetted, usually by an organisation such as the Halo Business Angel Partnership, which is run by the Dublin Business Innovation Centre. The advantage of having an Angel Investor on board is two-fold: generally they’ll have invested in businesses before and the organisation that they are a part of will match a specific investor who has proven experience in a certain sector with a company seeking investment in that industry. However, the amount of equity that a company has to give up as part of the deal varies depending on the level of input the investor has. Many of the business angel networks host seminars and events that anyone can attend to get a better understanding of what’s on offer and how to get involved. See our list below for some of the Angel Networks operating in Ireland today.

 

The Irish Investment Network

Halo Business Angel Partnership

Halo Business Angel Network

WestBic Business Angel Partnership

Halo Northern Ireland

 

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

LETTING GO

Making cuts to the payroll is a difficult process for any business. What’s more, failing to approach redundancies in a structured, organised way can result in costly cases that put a company under even more pressure, defeating the purpose of the exercise. None of us like firing people, and that’s perhaps why many businesspeople put their heads in the sand, only moving to cut staff in a disorganised way when the situation becomes critical. This can be disastrous, both for morale and for the businesses’ bottom line.

 

For starters, you need to determine how much you will have to save on your staffing costs for the business to remain viable. This requires a keen eye on cash flow which, as we’ve noted in previous posts, is essential. If you employ more than 20 people, a ‘collective redundancy’ situation may exist – this comes with heavier legal obligations that I’ll cover in a future article. For now, I’ll just say that you should get professional advice for managing these larger scale redundancies.

 

For any redundancy, though, you need to follow certain procedures. Firstly, you need to select employees for redundancy using criteria that you can credibly show is fair and reasonable – this will be crucial if a claim for unfair dismissal arises. You have some freedom in this, of course. Many employers choose ‘last in – first out’ because it’s ostensibly objective, and less damaging to morale of established staff. You are allowed to select certain employees over others based on their skill-sets, though it would be a good idea to have some kind of evaluation made in writing in case you’re challenged on it. It should go without saying that discriminating based on gender, marital status, beliefs, sexual orientation or other factors is not allowed.

 

Aside from this, you have a responsibility to act reasonably in making redundancies – this is an extremely vague term, and leads to many cases of perfectly compliant employers reaching the Rights Commissioners. Anecdotally, we know that employers who let staff make an alternative suggestion to save their jobs – either collectively or singly – tend to fare far better in these proceedings. The more you can consult, and prove that you did, the better.

 

Staff are entitled to a set notice period of at least two weeks when they’re being let go – people with five years of service are entitled to double that, those with ten years get six weeks and people working at the same company for 15 years or more are entitled to eight weeks. Rather than having a potentially angry employee around the office for a month or even more, many employers prefer to let them go straight away. This is allowed, but you’ll have to pay a person’s wages and holiday entitlements right up to the end of the notice period.

 

Moreover, you’re also obliged to make a redundancy payment for staff with two or more years of service – the Department of Social Protection has produced a useful calculator for working this out here. You can claim 60% of this back by filling in the RP50 form and submitting it to the Department of Social Protection. Employers who simply can’t pay have a heavier burden: they have to tell the Department that they’re unable to make a redundancy lump sum payment, and submit evidence to support their claim, while accepting liability for 40% of the sum in writing.

 

As you can see, there’s quite a lot of paperwork and planning involved in making redundancies without opening yourself up to large liabilities. At DCA, we’d work with clients making this genuinely painful decision, helping them work out how much the payroll needs to be cut by, devising criteria that are fair and allow business to continue, and working out a company’s total liability. We can also handle the substantial amount of paperwork involved. When redundancies are needed, it’s hard for any business owner to assess a situation coolly, and all too easy to make a mistake that ends up costing serious money. Consider getting in professional advice for this process – it will prove a worthwhile investment.

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.