VALLARTA ACCOUNTANT

CASE STUDIES

These are some of the Accounting Case Studies where our team has sprung to action, producing results in a very short amount of time, and solving business crisis problems quickly. The clients were extremely happy with the results. Read some sample accounting success stories below:

Peace of Mind for a Foreign Company

A Canadian listed company set up its South american Sales and Marketing branch office in Mexico with 2 headcount – the Regional Sales Director and one salesperson, both of whom want to focus just on sales and marketing. They do not want to be bothered with something they do not know - cash flow management as well as accounting or statutory reporting issues.

The head office wants the peace of mind to ensure the far-away branch is financially healthy, and that reporting is promptly & professionally attended to. Given their local setup and needs, they decided that outsourcing is a more viable option than setting up their own accounting department.

They appointed Ortiz & Consultores to serve as its accounting and finance department in Mexico. a Ortiz & Consultores assisted in the setup of the branch and conversion later to a private limited company. Ortiz & Consultores has been and is still taking care of the routine accounting and administration functions:

Initial Setup

Assistance in registering the Mexico branch and subsequent incorporation process
Documentation and liaison with Head office in setting up bank account with the provision of independent (managerial level) authorised bank signatories
Design of documents, e.g. sales invoices, payment vouchers, etc
Set up of payroll system, including registration with the Central Provident Fund ("CPF")
Set up of reporting format after understanding the reporting requirements of the Head Office
Documentation of standard operating procedures (SOP) for various transactions (e.g. disbursement of funds, issuance of invoices, collection of debts, routine reporting)

Routine duties

Raise purchase orders and corresponding sales invoices
Liaise with suppliers on the delivery of goods
Manage cash flow
Handle remittances & process disbursements
Produce monthly statement of accounts and follow up on outstanding debts
Submit regular reporting to Head office
Process monthly payroll and ensure compliance with CPF regulations
Attend to Goods and Services Tax compliance and filing
Attend to statutory audit, corporate tax compliance and statutory filing

An Accountant Walks Out

Co A acquired Co B, and in the acquisition process, key personnel from the accountant to the directors of Company B resigned.

Ortiz & Consultores was appointed by Co A to manage the interim crisis whilst seeking a new accountant.

We spent 6 weeks with the client, where we:

assisted in the recruitment of a new accountant
obtained the full co-operation of the resigning accountant to the extent that all her outstanding work was adequately documented and conveyed to Ortiz & Consultores
ensured the smooth handover of duties and responsibilities to the new accountant
provided support to ensure that the day-to-day functions of the accounting department were in good order
managed the debt collection affairs of the company
co-ordinated and acted for the client in its liaison with lawyers, auditors, tax and secretarial agents to resolve various outstanding issues pertaining to the acquisition

Corporate Restructure and an Accounting Mess

The subsidiary of a listed company restructured its operations, with some of its staff redeployed to other subsidiaries. The low morale environment resulted in a high turnover of its accounting personnel, which in turn led to an accounting mess. Accounts Receivable & Payable, inventory and reported GST did not tally with the control accounts; monthly bank reconciliation was not done properly, with lots of unreconciled items.

Adding to the mess was a backlog of accounts and an urgent need to meet the audit deadline.

Ortiz & Consultores Engaged to Clear Accounting Mess

Ortiz & Consultores performed the following:

Tracing of all differences & reconciliation of all items.
Review and rectification of accounting & GST errors with preparation of the necessary supporting documents
Reconciliation of all bank and major suppliers' accounts
Review of inventory costing
Review of system flow and recommendation on improvements

The company was able to start afresh with an updated and neater set of accounts.

Potential Business Threat from Suspected Fraud

The foreign sleeping partner and shareholder of a sizable travel agency suspected his local director of embezzlement of company's funds.

The company's volume of transactions was heavy, with about 1000 sales invoices per month, the bulk of which were on cash basis. Clerks employed by the local director handled the accounts, which were not updated and messy with many unclear entries, especially on sales receipts.

Due to the backlog of accounts, the company could not get the audited financial statements in time for it to renew its licence. The company was at risk of losing the licence to continue operations.

Ortiz & Consultores Engaged To Create New Set of Books

Ortiz & Consultores was engaged to revamp the whole set of accounts. Due to the urgency of the case, the SWAT team was deployed and managed to complete the backlog of 18 months' accounts in 3 weeks, producing a proper set of accounts which facilitated:

The audit process, enabling the company to meet its filing deadline and hence obtained a renewal on its licence in time.
A detailed analysis of sales and collection, enabling the shareholder to establish the collection status and claim for the funds embezzled.

How to set up a business in Mexico?

To set up a business in Mexico, you will probably need to hire an attorney and/or an accountant, who will be able to guide you through the process and help you determine the best corporate, accounting and tax structure for your company.

You should negotiate with your attorney or accountant what steps are included in their fee and determine who will be responsible for out-of-pocket expenses such as notarial and registration fees. If you use the services of both and attorney and an accountant make sure that they coordinate to avoid duplicity or oversight.

Ownership of Equity

Under the Foreign Investment Law of 1993 and the North American Free Trade Agreement (NAFTA), most economic activities in Mexico, whether in manufacturing or services, are open to 100 percent participation by U.S. and Canadian investors.

Only a few areas are completely restricted or limited to minority participation. Some areas which previously had been reserved to the government, especially in the infrastructure sectors, are now being opened to private investment, and certain areas such as financial services which had been reserved to Mexican investors are now available to foreign investors as well.

Common Types of Companies

Limited Liability Stock Corporation (Sociedad Anónima, S.A.)

A sociedad anónima must have at least two (up to an unlimited number) of share holders whose shares are transferable by endorsement. The minimum fixed capital needed to establish a sociedad anónima is ,000.00 pesos. For the option of variable capital, an S.A. de C.V. (capital variable) can be established with both fixed and variable portions of capital as long as the total never falls below ,000.00 pesos.

Limited Liability Company (Sociedad de Responsabilidad Limitada, S.R.L.)

A sociedad de responsabilidad limitada is similar to a closed corporation in the United States. The minimum capital is only ,000.00 pesos, but the company can only have up to 50 partners.

Civil Enterprise (Sociedad Civil, S.C.)

Service providers, such as lawyers and accountants, use this company structure, which has no minimum capital requirements. There are no limits on the number of partners in a sociedad civil, but each is jointly personally liable for obligations and debts.

Branch (Sucursal)

A U.S. company can open a branch in Mexico with the approval of the National Commission of Foreign Investment (Comisión Nacional de Inversiones Extranjeras, CNIE) and the Secretariat of Foreign Affairs (Secretaría de Relaciones Exteriores, SRE). The branch must also be registered with the Public Registry of Commerce (Registro Público de Comercio).

Subsidiary (Subsidiario)

Unlike a branch, a subsidiario is actually a separate legal entity from the parent company. Establishing a Mexican subsidiary shields the parent company from liability.

Company Formation

Once the company type and ownership issues have been resolved, you will need to follow these steps:

Corporate Name

You will need to select a corporate name and register it with SRE. Before SRE grants a permit for the name, it will check that no identical name or one that might lend to confusion is already registered.

Proforma Agreement

Under Mexican Law, your company will have to enter a proforma agreement, whereby any non-Mexican shareholder shall be deemed to agree to be bound by Mexican laws and not invoke the diplomatic protection of his government.

Charter and By-laws

An attorney can help you prepare these documents that spell out corporate governance, corporate purpose, duration of existence, domicile, capital stock provisions, management powers and special provisions for liquidation.

In addition, you will need to decide how capital will be subscribed, how the Board of Directors and officers will be appointed and what powers will be specifically granted to individuals. Also, it is regular practice in Mexico to grant powers of attorney.

The charter and by-laws must be taken along with the permit from SRE to a notary public (notario publico) to formalize the incorporation. There are far fewer notary publics in Mexico that in the United States, so this step may take from 10 days to a month, depending on the notario’s work load and his relationship with your attorney.

If the incorporating shareholders are non-Mexican individuals, they may legally sign the charter if they hold an FM-N, FM-2 or FM-3 visa ( see Immigration section). If some of the shareholders are corporate entities, an individual with power of attorney for these entities must sign the document.

Tax Registration

Immediately after incorporation, you must register the company with the Federal Taxpayer’s Registry (Registro Federal de Contribuyentes, RFC) at the Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, Hacienda). Your company’s RFC number is necessary for all tax and accounting records, and it must be printed on all company invoices.

Registry of Commerce

After the notary public issues a notarial transcript, he usually handles registration with the Public Registry of Commerce (Registro Público de Comercio). If your company is not registered, it may create personal liability for shareholders and managers.

Importer’s Registry

If your company will be doing any foreign trade, such as importing raw materials, components or finished products, you will need to register with the Importer’s Registry (Padrón de Importadores) at Hacienda. This step will take approximately 10 to 15 days, and the whole procedure is handled through the mail.

Import/Export Programs

Permits for maquila programs, programs for temporary import for subsequent export (programas de Importación Temporal Para la Exportación, PITEX) or other similar import/export programs can be obtained from the Secretariat of Commerce and Industrial Promotion (Secretaría de Comercio y Fomento Industrial, SECOFI).

Foreign Investment Registry

Registration with the Foreign Investment Registry (Registro Nacional de Inversiones Extranjeras) is normally handled by your attorney, who will need information about your shareholders, domicile and company directors.

Additional Required Registrations

• The corresponding Chamber of Commerce or Industry for your business. (Under Mexican law, every company must belong to one of these chambers.)

• Mexican Institute of Social Security (Instituto Mexicano del Seguro Social, IMSS)

• Employee Housing Institute (Instituto Nacional del Fondo de la Vivienda para los Trabajadores INFONAVIT)

• Retirement Insurance Fund (Sistema de Ahorro para el Retiro, SAR)

• National Institute of Statistics, Geography and Information (Instituto Nacional de Estadística, Geografía e Infomática, INEGI)

Starting Operations

Once your company has been formed in Mexico, you may start operations. Keep in mind these requirements.

Zoning

In most urban areas you will need to obtain a zoning permit from municipal authorities which identifies land use. In the metropolitan area of Mexico City, many industrial activities are restricted, and business operations in residential areas are strictly controlled.

Environmental Regulations

To carry out manufacturing activities, you must first submit an environmental impact statement with the Secretary of the Environment, Natural Resources and Fisheries (Secretaría de Medio Ambiente, Recursos Naturales y Pesca, SMARNP). Your company may also need special permits for air or noise emissions, water discharge or solid waste.

Health or Sanitary Licenses

Any activities that involve food preparation or the manufacture of medicines or health products require licenses from the Secretariat of Health (Secretaría de Salud) ad local health authorities.

Employment Issues

Once you select your personnel, have labor contracts prepared. If no contract is executed, Mexican law would deem that a relationship exists and supplementary rules would apply.

Immigration

Any non Mexican must secure a business visa to work legally in Mexico. Fm-3 (non-resident) and FM-2 (resident) visas may be obtained through the Secretariat of the Interior (Secretaría de Gobernación) or through Mexican consulates abroad, and the process usually takes 20 to 40 business days. Both of these visas allow you to receive income in Mexico.

Citizens of the United States and Canada can also enter Mexico with an FM-N (NAFTA) visa, which they can get immediately at the point of entry. This visa allows you to work in Mexico for up 90 days on behalf of a U.S. or Canadian employer as long as you are only receiving compensation outside of Mexico.

A tourist visa (FM-T) is never legitimate for conducting business in Mexico.

Article presented with the kind permission of the American Chamber of Commerce in Mexico.

Five Reasons Why Companies Outsource Their Payroll

Managing accounting, human resources, payroll, tax, and other financial responsibilities at the same time is a complex & time consuming affair. Many businesses still do all of these activities in-house, not realizing that such routine administrative work is getting intricate by the day, and is a big drain on their time.

Accounting, payroll & human resources are some of the most commonly outsourced company functions. Here are the top 5 reasons why you should outsource your payroll.

Complex rules and calculations

With so many rules, by-laws, provident fund percentages for different age groups, employee benefit programs, employees joining & leaving and taxes to consider, it is becoming extremely challenging to process the exact salary and reimbursements of each employee. You must also be able to answer your employee’s queries about their payroll confidently and clearly.

Even if you can do all this by yourself, how can you be sure that everything has been taken care of? How will you verify the accuracy of your calculations? Do you have a safe and secure mechanism to do a proper audit of your payroll processing?

Better reporting

Payroll processing companies provide a wide array of reports that address the most common reporting requirements. Such comprehensive reports may not be possible with your in-house payroll software or may take a long time for your IT staff to figure out or develop. You can quickly get the outsourcing company to deliver specific & ad-hoc reports for your custom analysis.

Direct access to experts

Outsourcing companies are staffed with payroll experts who can answer your employee’s queries on the phone, and act as a single point of contact for your employees.

They can also conduct standard or specialized training sessions for your staff whenever there are changes to the CPF rules, taxation and your employee benefit programs. Most payroll outsourcing companies can even come down to your office to conduct in-house training sessions or have a hands-on consulting session with the management & staff.

Cost savings

Outsourcing the monthly payroll processing often saves you a full headcount. This resource can then help you in sales, customer services, or you can simply enjoy cost savings. In fact, cost saving is a by product of payroll outsourcing. Most companies outsource their payroll because of the hassle it proves to be, not realizing that by outsourcing, they are actually going to save costs in the long term.

Professional payroll processing services

Payroll outsourcing companies provide basic to complex payroll administration for businesses. They maintain individual payroll files for each employee and compute all the salary and reimbursements on time. Printed or electronic pay advices via the internet are delivered to each employee, and annual bonus, increments etc. are processed with ease.

On top of this, the annual income statements required for tax purpose is generated for each employee professionally, timely and with full confidentiality. Such enhanced services ensure that HR professionals can focus on real HR work like staff training & development or compensation planning.

Conclusion

Payroll outsourcing can save you from all the challenges of changing rules, doing individual payroll calculations and having to answer your employee’s every day questions about their payroll. You get comprehensive reports, direct access to payroll experts, and save time and money in the process.

It also results in having a greater peace of mind, and more time to focus on the business.

Such wide array of benefits has convinced thousands of companies to switch to an outsourced payroll solution.

So what are you waiting for? Look for a good payroll outsourcing firm, and get started today!

Contact Us for a payroll outsourcing expert to call on you.

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