You’ve established your business in Hong Kong and are now prepared to commence operations. However, do you know how to properly locate high-quality bookkeeping services for your business?  Bookkeeping and accounting are critical components of business planning, administration, and tax filing with the Hong Kong government.

The Hong Kong Startup Community has been growing at an exponential rate over the past 20 years and as a result, there have been many dynamic startups that have emerged, contributing to the bright entrepreneurial future of Hong Kong.

As one of the world’s leading international financial centers, it’s no surprise that Hong Kong was voted “The World’s Top Business Cities” by Global Cities Index as of January 2022. Located mostly on Hong Kong Island or spread throughout the Kowloon side of HK, Hong Kong startups and entrepreneurs are flourishing, despite political challenges and a pandemic. We offer this short guide to aid HK entrepreneurs to improve their bookkeeping functions and grow their business.

Many entrepreneurs learn the hard way. A common mistake is trying to do everything yourself. 

They often think they can handle all the responsibilities of running a business—product development, customer service and sales – but this often leads to them becoming overworked and stressed out early on in the process. This can lead to burnout and eventually force them out of business altogether.

Who knows if you can afford to make such a mistake without compromising your startup business? So it’s extremely important to get this right from the beginning. It’s never too early to start thinking about accounting for your startup.

Being organized from day one will help you save time and money in the long-run, as well as support good decision making so your company can get off on the right foot and (hopefully) stay there.

Many new founders are focused on their vision and the excitement of building something of their own, many make the mistake of not paying enough attention to their accounting, leading to a host of conflicts down the road.

To help avoid making the same mistake, we’ve put together 6 key tips for founders who want to get started with proper bookkeeping and accounting practices straight away:

 

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1 – Know the Law and Policies in Hong Kong

The law is extremely important when it comes to Hong Kong startup bookkeeping functions and you should know it well. When it comes to legal matters, one cannot simply say “I didn’t know”. Ignorance is not a valid excuse, and appropriate research and understand is necessary before undertaking various aspects of business life in HK.

The Hong Kong Companies Ordinance requires all businesses to maintain account records in order to comply with legal requirements. A certified public accountant is required to audit the annual financial statements of a Hong Kong-incorporated firm.

Here are some things that you should take note of and comply in accordance with Hong Kong’s policies:

  • Unless the business is dormant and has no relevant accounting transactions during the financial year, a private limited company is required to have a registered auditor under the Companies Ordinance.
  • If your registered office statutory books are relocated, be sure to notify the government within 15 days.
  • Notification should be made if there has been a new share allotment within one month of the assignment.
  • AGMs require directors to present the company’s financial statements in accordance with the Financial Reporting Standards.

Moreover, according to Hong Kong company legislation, all businesses are required to file a Profits Tax Return and audited financial statements with the IRD on a yearly basis.

 

2 – Set a Budget

Sure, it’s a pain. But if you want to know how much cash you’re going to have available in the future, you need to do it. 

An important part of any accounting function is to create a budget for each month and quarter. This should be based on your projected income, as well as all expenses such as rent (or mortgage payments), utilities, insurance, employee payroll, marketing costs, etc. 

By planning ahead with a budget you will be able to determine where you need to cut back if there are any concerns about not meeting your financial goals for the year. 

You will also be able to identify when it’s time to grow so that you can invest in more staff or equipment without putting yourself into debt.

And it doesn’t have to be a big deal. Keep it simple and realistic. Don’t try to create something with too many columns or pages of calculations that no one will ever use or understand. The best budgets are ones that are easy for everyone in the company to read and understand.

 

3 – Keep Accurate Business Records

So, you’ve just started up a new business and are ready to start making money. Great! 

But did you know that in order to run your business successfully, you need to be on top of your bookkeeping?

In Hong Kong, all registered businesses must have accurate and up-to-date accounting records. This means keeping track of all your income and expenses, as well as any assets or liabilities. Besides being a legal requirement, a good accounting system will help you monitor the financial health of your business by ensuring you keep track of all the money coming in and going out of your business.

Startups need to keep track of expenses and income, regardless of whether they are incorporated or operating as a sole proprietorship. 

This can be as simple as keeping track of the income/expense records for a given tax year, or it can be more complex. Either way, it’s important to build bookkeeping into the foundation of your business because it will save you time in the long run.

Hong Kong-based businesses are required to maintain records of the following documents in line with the Inland Revenue Ordinance:

  • Books of accounts recording receipts and payments/income and expenditure
  • Vouchers, bank statements, invoices, receipts
  • Records of assets and liabilities of the person in relation to that trade, profession or business
  • Records of all entries from day to day of all sums of money received and expended in relation to that trade, profession or business
  • Where that trade, profession or business involves dealing in goods
  • a record of all goods purchased, and all goods sold in the carrying on of that trade, profession or business showing the goods, and the sellers and buyers in sufficient detail to enable the Commissioner to readily verify the quantities and values of the goods and the identities of the sellers and buyers, and all invoices relating thereto 
  • statements of trading stock held by the person at the end of the accounting period and all records of stocktakings from which any such statement of trading stock has been prepared
  • where that trade, profession or business involves the provision of services, records of the services provided in sufficient detail to enable the Commissioner to readily verify the entries

*Source: Inland Revenue Department

4 – Get Cloud-Hosted Accounting Software

These days, managing your business’ finances doesn’t need to be complicated or time consuming thanks to the rise of cloud-hosted accounting software.

There’s a wide range of cloud-based systems available these days, including QuickBooks Online and Xero. At Pinetree we specialise in using Xero and strongly recommend it. The beauty of these cloud-based systems is that they’re so easy to use and understand. It will also allow you to work across multiple devices.

 

5 – Review Your Records on a Weekly Basis

You should review your records on a weekly basis. By doing so, you will be able to pick up any mistakes or errors quickly. With regular reviews, you can easily detect any incorrectly entered or omitted transactions. In addition, reviewing your financial records on a weekly basis will also help you identify potential fraud or theft early on before they become serious problems.

 

6 – Maintain Awareness of Your Tax Dates and Obligations.

I know that you don’t want to get caught by the Inland Revenue Department in Hong Kong. So, if you want to maintain a profitable business in Hong Kong, then it is advisable to highlight the tax dates and expenditures to prepare ahead regarding submitting for taxes. To avoid the hassle of settling legal conflicts, make sure to prepare the documents, records and other requirements for the taxation period and submit on-time! You can simply set a reminder on your calendar and take notes of all the requirements that you need to comply.

 

7 – Keep an Eye on Your Business’s Receivables

Do you know that late-paying consumers can have a significant impact on your business’s cash flow? You have to keep an eye on the due dates for your receivables. Keep in touch with your late-paying clients to discuss the status of your payment and when they can expect to receive it.

 

8 – Conduct a Quarterly Assessment

In addition to providing information about your business’s financial performance, a quarterly assessment also allows you to check the accuracy of your bookkeeping. Bookkeeping services in Hong Kong should be able to provide you with a clear picture of your finances, including cash flow and profitability. Additionally, you’d be able to see trends such as dropping or increasing sales, an increase in late payments, or year-over-year increased revenue.

 

9 – Hire a Professional

It is highly recommended that you hire a bookkeeper instead of doing it yourself. This may seem like an unnecessary expense, but a good bookkeeper will help you save costs down the line.

A bookkeeper will be able to advise on areas where you can save on taxes and expenses, as well as ensure that all your accounting documents are up to date and in order. This minimizes your risk for hefty fines or worse, bankruptcy!

That’s where we come in. Contact Pinetree today for a free consultation and to arrange for us to take care of your books.

If you need to know more, you may contact me at vinod@pinetree.hk, call us on +852 3529 2328 or visit our website www.pinetree.hk

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