English
Français 
Español 
It is important for small businesses to think about how to structure its accounting system. Accounting is not only about getting a technically correct financial statement; it is more about getting your business under control and steering your business in the right direction in the future through financially informed decisions.
Normally it’s hard to find the right accounting personnel in China. Meanwhile accounting in China is quite complex compliance is more sophisticated, and the business environment is more versatile. As a result, it is essential to get the right structure set up and to find the right people to handle your accounting system
1. The Accounting Complexity in China
In China, the accounting principle is accrual based while for Corporation Income Tax (CIT) it is cash based. If legal invoices are not received the accounting realized cost or expenses must be adjusted according to CIT regulation.
For CIT, there are many detailed regulations, so it is difficult for foreign investors to follow them. Local accountants also need to have good command of CIT regulation to operate and provide clear explanations. This is one of the difficulties entrepreneurs and foreign businesses are facing
Generally speaking, an accounting system consists of the following three parts:
- Daily transaction execution and recording
This part is made up of various aspects of business procedures which include but are not limited to issuing invoices, receiving bills, processing payment and payroll, handling expense claims, reconciling bank accounts and dealing with China VAT Invoice. All those tasks require personnel to pay attention to business details and ensure transaction records are always accurate.
- Compliance
The accountant is responsible for China compliance procedure and tax filing. Compliance and tax filing are quite complex in China as it involves different procedures, documentation and governmental departments. If you miss the deadline or mishandle taxes, you may face penalties, extra expenses or even revocation of business licenses.
- Management accounting
Here a higher level of accounting activities comes into play; management report generation, budget and cash flow management, and cost and performance analysis are among the main aspects. These activities are used to ensure that business owners can keep up with how the business is performing and understand their financial picture from a strategic perspective.
Small businesses, can grow healthy and steadily only if accounting and operation procedures are well managed. Business owners must be well informed about the financial situation of the company, making it easier for her/him to stay focused on what matters most.
2. Our Suggestions to Set Up the Accounting Structure for a small business
Considering the complex accounting and tax scenario in China, we believe the following setup could be a satisfactory solution at an affordable cost.
2.a. Hiring A Junior Admin
A small business can hire a new graduate or a person with one or two years working experience as the company admin to carry out transactions and enter all the data. This person doesn’t need to have that much experience in accounting, but he/she should have good English skills and be detail oriented. The Junior Admin can also handle other functions such as the front desk, basic HR or act as a secretary.
2.b. Hiring A Virtual CFO*
A Virtual CFO will supervise the Junior Admin to provide help and guidance as to how to carry out transactions and take care of financial controls. Employing a Virtual CFO combined with a Junior Admin could be a good financial operation. The business can utilize the knowledge of the Virtual CFO to make sure the business owner is able to get valuable suggestions and advise on financial operations on time and to make sure the company is running smoothly and being appropriately controlled and managed.
3. Cloud Accounting Software a Precondition
Cloud accounting software is a technical requirement needed to make the collaboration of the Junior Admin and Virtual CFO possible. With online support, the Junior Admin, the Virtual CFO and the owner of the company can access the same set of real-time data. This enables the owner to view business data and management reporting anytime, anywhere and will help the Virtual CFO to guide the Junior Admin in time.
It’s crucial to think about how you would like to organize your accounting structure when you set up your business. When you build up the right structure for your business, you can avoid problems and keep your financial goals clearly in sight.
By Dennis Shi, Orbis China Accountant.
*Virtual CFO stands for a virtual chief financial officer. A virtual CFO is an outsourced service provider offering high skill assistance in financial requirements of an organization, just like a chief financial officer does for large organizations. A virtual CFO may be a single person or an entity.