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Help with your Payroll Financial Management - Part 2

This week my PARiM Workforce Management Software blog looks again at the Financial Management part of the SIA’s ACS Self Assessment Workbook Guide.

If you’ve missed the first four blogs then these can be found on the blog page. As I have mentioned before in this blog series, I am attempting, in some small way, to simplify/ demystify and suggest ways to help your company meet the requirements as set out in the Self Assessment Workbook Guide.

Ok, so the 4th Criteria of the SIA workbook is all about Financial Management and in the first part, last week, covered financial strength, accounts, budgets, forecasts and structure.

This second part will cover payroll, financial procedures and the details of which ledgers to keep. The third and final part will cover insurance and market benchmarking.

4.2 Payroll – this section covers Payroll and your control and management of it

4.2.1 Demonstrate clear and effective management of the payroll

There are many ways you can run your payroll.
  • You can purchase a licence to a payroll package such as Sage Payroll, Quickbooks.
  • You can hire an accountant to run your payroll for you
  • You could also use an agency and just supply them gross wage figures monthly or weekly.

I have run all three systems detailed above and in my opinion the least hassle, was using a payroll bureau to run the salaries, post out the payslips and keep up with all relevant legislation and taxation laws. If you want to purchase and run payroll yourself or using an accountant there is a good guide here.

In terms of weekly or monthly payroll, I have always felt it is better to have people on monthly rather than weekly wage contracts. Then whatever hours they do, the trauma of preparing the payroll only happens once a month and the time you take on your payroll admin, whilst a little longer is NOT four times longer which would be the case if you run a weekly payroll! You can get round this by slowly weaning staff from weekly to monthly pay using a series of advances in between as incentives and to help them.

In terms of control and visibility, your accountant should immediately be able to account for all payments made and all the postings through the salary control account (which balances gross payments, PAYE, N.I and Net payments). This account MUST be reconciled at the least monthly together with the tax control account which balances what is due to HMRC for PAYE and N.I to what has been actually paid.

For basic compliance as defined in the workbook you need to ensure that:

  • Payroll is managed to legislative standards
  • Tax codes are applied and tax/ N.I regularly paid over
  • Employees are paid through a PAYE compliant scheme
  • Tax codes checked and reviewed regularly

For the next level if compliance you need to demonstrate:

  • The link between hours worked and wages paid (this criteria also applies where staff are paid by others (benefit of auto timesheets and clocking in/ out)
  • That wages payments are made on time
  • That staff queries are handled effectively
  • That clear information is available for staff on payroll re payments deductions etc contract, wage slip etc

For the level above the extra requirements are that you use:

  • Automated payroll system,
  • There is clear information relating to pay deductions on wages slips

And for the highest level you need:

  • A structured salary scheme that gives fair and consistent pay to security operatives and avoids differences arising from specific customer contract negotiations
  • For the organisation to make effort to ensure that any differences in salaries are evidenced by assessment of roles, responsibilities and performance

Most of the above are fairly basic and routine. Anyone operating a payroll system properly should have a grasp of all of this and be doing it. As a business owner wages and payroll is one of the key risk areas in terms of shrinkage, errors, misunderstandings and aggravation both for you and your staff. You need to be on top of this area all of the time.

4.2.2 This section is all about making sure that any financial procedures you have in place, are properly defined, clearly understood and implemented

Draw them out in diagram form using a template package have the diagram as part of the financial controllers and accounts managers job descriptions so there can be no confusion!

Financial resources and liabilities are managed and controlled through audited or certified annual accounts and provide some back up or reassurance that there are the financial resources to support the plan for the business. It’s very easy to file accounts later than you need to, I know! Get into the habit of preparing monthly management accounts so that you can immediately review them following the year end, agree and process and adjustments or reconciling items and the file them. Unless there is a good reason not to (competitor’s viewing, bank overdraft) file them within two months of the year end then you can forget about them until you have to pay the Corporation Tax!

Level 2

At the very least you need to keep the following ledgers:-

  • Sales Ledger – records all of your sales invoices and the monies paid against them, by client. In other words it is a list of debts owed to you by your customers or debtors
  • Purchase Ledger- records all of the invoices you receive from suppliers whether they are for cost of sales services/ products or expenses. Summarised, this lists out all of your creditors and people you owe money to for services and goods (that aren’t staff)
  • Cashflow and expenses – you need to watch and monitor your cashflow all of the time. Many profitable businesses have failed because they ran out of cash. Plan for worst case scenarios and ensure you always have sufficient funds to cover them. Banks are far less likely to “bail” you out of help a business than 10 years ago. Read this.

Level 3

Financial resources and liabilities are also managed and controlled

That there is clear evidence of Financial Risk Management Assessment including contingencies such as advanced or staged payments or factoring or invoice discounting. Factoring and invoice discounting can really benefit a growing and rapidly expanding business. However avoid getting reliant on them because if your turnover falls due to loss of business or seasonal fluctuations you can get caught paying for higher cost of sales and wages from the previous month with much lower factor or invoice discounted generated cash availability. Asset management – as a business you should have an asset register. If you picked PARiM to manage you workforce you can take advantage of the feature that tracks and records company assets given out to staff.

Level 4

Financial plans are reviewed regularly to ensure relevance and viability including areas for cost savings.

My advice would be that as a business owner you need to review and check all of your expenses monthly. Sign off on the invoices. Have a grid check that is initialed by several people in the accounts department or management structure of your business to say they have checked the invoice for hours, rate, price, calculation and that they are in line with any agreement you have with the supplier and that you continue to make the margin you require. There’s nothing worse than finding a supplier has increased his prices, you didn’t spot it and the margin you have been making for the last few months is much less than you thought.

Key Performance Indicators (KPI's) are in place and regularly reviewed. For most security or event companies KPIs’ will be relatively standard. Staff churn or turnover would be a KPI as would be staff gross margin. Constantly monitoring this and subject to your fixed overheads being static, would allow you to predict or forecast your net profit early on most months. Make sure you have parameters in place for anyone quoting for business in terms of this margin. Pick a workforce program that monitors your gross margin by staff member, site, client and by the day! Like PARiM

Level 5

Your organisation makes regular use of available financial benchmarking data to analyse financial performance! Most businesses use some form of software or program to “watch” and measure the performance of their competitors or peers whether that’s simple Google Alerts, credit check alerts or Social Media. Check these companies’ filed accounts and benchmark your gross margin and net profit to ensure your expenses are in line or lower than industry standard.

4.2.3 You need to ensure that a clear “fit and proper” management structure with defined and understood authority levels is in place. And that all directors or partners of a sole trader must

  • Hold the appropriate SIA licence
  • Not be an undischarged bankrupt
  • Not be a person to whom a moratorium period under a debt relief order relates
  • Not be a person subject to a bankruptcy restriction order or debt restriction order
  • Not be subject to disqualification under the Company Directors Disqualification Act
  • Not be a sole trader, director or partner of any business or firm providing security industry services that was placed in liquidation, administration or receivership within the previous 12 months unless they have taken adequate steps to satisfy SIA that they are fit and proper to the circumstance of their case

Level 2

Accountability of each director or partner has been defined and is understood. Work this out in general and then use simply-docs to provide template job specifications. Separate shareholding from the day to day management of the business. Even if you are a shareholder you still need to be accountable and properly responsible for your part of the business.

Limited companies meet statutory requirements and file necessary changes to Companies House within specified time period. Do this online as it’s straightforward and easy to do.

There is clearly defined and communicated management structure including any links to the parent organisation, subsidiaries, groups and franchises. Have your management structure on paper, on notice boards and within your employee binders so that everyone can see it and it can sink in. If you use a workforce management system like PARiM you can load your employee binder to the self service staff portal within a few minutes thus ensuring visibility.

Level 3

Authority levels have been defined and are understood as required to enable smooth running of day to day business capital expenditure etc

There is no hiding from it, if you want ACS Accreditation and want to fulfill the Financial Management part of the requirements there is a lot of work involved. Almost all of it will benefit your business but is mundane.

It’s important therefore to reduce the amount of mundane work you and your organisation has to do:

  • In order to free up key time for face to face interaction with staff and clients
  • To allow more clients to be won and business generated
  • For overheads to be scrutinized and reduced where possible
  • To better engage your staff
  • To improve communication, visibility and transparency within your business
  • To make it more profitable
We designed PARiM to help you achieve all of these things and more. Soar as a business and see the future of security management software- simplifying workforce management!

Read the first part here!

You may also find useful the following blogs:

ACS Accreditation criteria #1 Strategy

ACS Accreditation criteria #2 Processes

ACS Accreditation criteria #3 Commercial Management

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