Accounting 101 for Setting up a Business in Malaysia

Accounting. It’s not an easy subject for most Malaysian business owners, but certainly an unavoidable one.

In the process of taking your business from a mere idea to a full-fledged company, you’ll no doubt stumble across areas which aren’t within your realm of expertise. Subject matters outside your comfort zone.

You might say: “I’m a business owner, not an accountant!”

But setting a good financial foundation for your business from the get-go ensures you don’t end up with a hot mess as the business grows, and guides you towards making better decisions.

This article features step-by-step fundamentals of what you need to know about business accounting for beginners in Malaysia.

1. Register your business

First, decide what business entity you want to form. In Malaysia, the most common ones are:

● Sole Proprietorship

● Partnership

● Limited Liability Partnership (LLP)

● Private Limited (Sdn Bhd)

The essential factors to consider when making your pick is the degree of liability, tax, maintenance & compliance costs involved. Ideally, your company should be an entirely separate legal entity from yourself (limited liability). These include LLP and Sdn Bhd.

By doing this, you’ll be protecting your personal name from getting into hot soup if the company makes a turn for the worst. But if you’re not familiar with the processes involved in registering a company in Malaysia, let us assist you! Fill in this company incorporation form and leave the registration procedure to us.

2. Set up the necessary bank accounts

Along with registering your business as a legal entity, you’ll also need to open a business bank account for your business’ banking needs. Thinking of using your own personal account instead? Think again. Boundaries between personal finances and that of the business should always be present, even if it’s just a one-man show!

But opening a single business account alone might not cut it if your Malaysian SME is much more than just a one-man show. Consider opening these 3 accounts to help you grasp a better view of your business.

● General operating account

● Payroll account

● Investment account

3. Choose your accounting software

You could go old-school and do it the Excel way, but why would you when there are a heap of easy-to-use cloud accounting software which do all the tedious tasks for you?

Factors to consider when making your decision include how user-friendly the interface is, how well it can integrate with other software you may currently be using, and real-time availability for ease of collaboration and reporting. Xero is a good cloud accounting software which ticks off all these boxes.

4. Keep track of everything - and that means everything!

From utility bills to office supplies, hang on to all the receipts and documents your business incurs! File your records neatly, or just upload them onto your accounting software.

In Malaysia, most major records such as your year-end financial statements and records are required by law to be kept for 7 years, so going the digital route definitely beats rummaging through a heap of dog-eared papers.

Record keeping isn’t just to keep things smooth and organized though. Companies which practice good record keeping will see its benefits play out in various areas of their accounting process. Among them:

● Preparation of financial statements (we mention this below )

● Providing proof in order to claim tax deductions (tax savings!)

● Verifying all incomes and expenses for tax audit purposes (or risk being penalized)

● Ease of year-end filing (you’ll be grateful you kept those statements once the financial year-end comes around!)

5. Establish your bookkeeping process

You’ve got your records neatly documented on your accounting software. What do you do with the data?

You use it in the preparation of your financial statements! These are the three financial statements which form the basis of bookkeeping - the practice of recording your business’s financial transactions.

● Profit and Loss Statement (P&L)

A document which details the revenues and expenses of the business in order to calculate profit or loss. This measures the performance and efficiency of your business.

● Balance Sheet

A document which details the assets and liabilities of the business. You should also be reviewing your ageing receivables & payables reports. These reports will show you who owes you money, and who you owe money to.

● Cash Flow Statement

A report which details cash coming in and going out of the business. Bookkeeping is vital. It gives you, your investors and the authorities a clear picture of everything finance-related revolving around the company. Good bookkeeping practice is undeniably a silent factor in a business’s success, helping to better evaluate the business, make the right decisions, manage cash flow and of course - file tax returns. Many SMEs overlook bookkeeping, but neglecting your company’s “books” will mean negatively affecting your business as well.

*More guides on bookkeeping will be posted soon, so subscribe to our newsletter to receive more updates!

6. Keep up with your taxes

You’ll need to register your company for taxation at LHDN (Inland Revenue Board of Malaysia), which can be done online here. The tax return for your business, and the deadline for the submission, will depend on your business entity, as discussed in (1) above.

Brace yourself, for this is when your company will have to submit its tax return. Underestimate your tax amount? Risk being fined. Overestimate? And you’ll have less cash on hand which could otherwise have gone back into the business.

You should also check if your business needs to register for the Sales & Service Tax (SST). This will involve regular submissions of your SST throughout the year. Another reason why proper and up to date bookkeeping is so crucial!

But tax compliance is like a game of chess. Just that this time, with your company on the line. This is why Malaysian SMEs rarely handle matters related to business accounting and tax compliance by themselves. The sheer amount of knowledge required in ensuring tax compliance makes outsourcing a much more sensible option.

7. Analyze and apply!

You’ve armed yourself with a little knowledge on the basics of accounting and setting up a business. But the real power of accounting lies in being able to interpret the data from your financial statements and other data, converting it into the language of business. It shows the financial health of the company, and makes up part of the framework which guides the company towards profitable growth.

This is where qualified accountants come in, helping you to manage your accounts while you focus on what you do best. It’s cheaper than hiring in-house staff too!

With all that said, if you are an SME business owner and you’re looking for a tech-savvy accounting firm you can efficiently outsource your accounting and tax matters to, get in touch with us here!