The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s tax reforms over the past decade have prevented Bahamian businesses from “running amok” with their financial reporting and enabled small enterprises to expand to medium-sized ones, a corporate consultant argued yesterday.

Mark A Turnquest, founder of the 242 Small Business Association and Resource Centre, and a well-known advisor to the sector, told Tribune Business he backed assertions by Simon Wilson, the Ministry of Finance’s financial secretary, that the enhanced financial reporting demanded by VAT and recent Business Licence reforms has forced many in the private sector to become “more accountable and disciplined” with their record-keeping.

He added that this began with VAT’s implementation on New Year’s Day 2015, which demanded that all businesses with an annual turnover higher than $100,000 collect and remit the tax to the Government on an least a quarterly basis. This forced many to improve and upgrade accounting systems and record-keeping to ensure they could submit accurate returns to the Department of Inland Revenue.

Mr Turnquest then acknowledged to this newspaper that this change accelerated with the more recent Business Licence reforms, which require companies with an annual turnover exceeding $5m to submit audited financial statements to the Government, while those with top-line revenues between $250,000 and $5m must supply figures that have been verified by an appropriately-qualified accountant.

“The number one reason why 90 percent of my clients continue to operate successfully is because they were required to give accounts in reference to VAT,” he said. “Before VAT they were running amok and doing no accounting. When VAT came in they had to be more disciplined and accountable.

“They were now producing income statements, balance sheets and cash flow, and doing a lot of budgeting on revenues because they were required to do this. Although a lot of people at the time were not ready for that, in the long run it was beneficial. If that didn’t happen, many small businesses would have remained small or gone out of business.

“Above the $100,000 threshold they had to submit accurate returns. People started to budget better, especially their cash flow. They were spending money like anything, but they realised that all income coming in had to be budgeted properly. They realised that all sales are not profit because they had to account for costs and expenditure,” Mr Turnquest added.

“What Mr Wilson is doing is bringing accountability because, over the years, a lot of organisations were not running an efficient and effective business because of the lack of financial statements, foundation and estimates of cash flow. That was a major problem.”

With VAT’s arrival, and now the recent Business Licence reforms, Mr Turnquest said Bahamian businesses with annual turnovers ranging from $250,000 to $5m and then upwards “have to be disciplined” because they are required to submit financial information that must be accurate and, in the case of larger companies, audited.

“The most important thing about running a sustainable business over time is being disciplined,” he added. “You cannot spend what you don’t have, and have a budget in place. That’s what’s caused a lot of businesses, who would otherwise not have stayed in business over time, to now be more accountable and responsible when it comes to financial reporting. If you don’t have sound financial statements and reporting mechanisms you will fail.

“You have to comply with regulations because you have to be accountable and responsible for every cent that comes into your business. What I like about what the Government did over time is that they were strict over people collecting their VAT money. A lot of people were collecting it but not remitting it to the Government. You have got to be a legitimate business, comply with regulations and the number one measure is compliance.

“I tell my small business clients that in order for them to go big, to move from a small to medium-sized to large, you have to comply with regulations, be disciplined and be in business not just for one day,” Mr Turnquest added. “Once staff see that you have to account for the money being taken out of the business, there’ll be less chance of them stealing and less chance of them being unproductive.

‘It’s [the Government’s accounting demands] been beneficial from day one in 2015, when it started bringing VAT in and modern forms of accounting.. People want to see reports based on fact, not fiction.”

Mr Wilson last week likened the mandatory Business Licence audited financials to “reverse psychology” that has paved the way for more Bahamian businesses to access financing by eliminating “chaotic” record-keeping. He told a Bahamas Business Outlook conference panel discussion that the reforms imposed by the Government had forced local companies - especially small and medium-sized enterprises (SMEs) - to clean up their act to such an extent that they no longer have to “massage the numbers” when approaching banks, investors and other formal lenders for capital.

Mr Wilson asserted that previously “borderline” firms were increasingly saying that “the pain in the first year [of reforms] was worth it” after the Davis administration imposed a legal mandate requiring all businesses with annual turnover exceeding $5m to provide financial statements to obtain their Business Licence.

“When talking about the SME sector it’s about reverse psychology,” Mr Wilson said. “Bahamians are very innovative. They start businesses, they have great ideas, they have great products and they have great marketing. But the one thing we noticed with Bahamian business persons is there are poor record-keepers.

“When you look at a business, on the top-line it’s very successful. When you go one step beneath, it’s chaotic. Three years ago we got a lot of push back, a lot of angst from accountants and the business community when we said we needed financial statements for tax purposes. Businesses over $5m needed audited financial statements.

“The first year was complete hell,” Mr Wilson admitted.”Everybody was complaining and we got called all kinds of bad names and so forth. But what we realised; this is year three. What we are seeing now is businesses that are borderline are saying the pain in the first year was worth it when they had to get audited financial statements. I now know what I make and don’t make.”