Starting or Buying a Business
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THE FOUNDATIONS OF A SUCCESSFUL START-UP BUSINESS
Starting a business is a bit like building a house. You need solid foundations including the right business structure, suitable accounting software and adequate and appropriate insurances. You also need a marketing plan, website and social media channels.
When it comes to selecting the most appropriate tax structure for your business we always recommend you ‘start with the end in mind’. Australian tax laws are complex and changing your business structure at some point in the future can trigger a capital gains tax event that could prove costly. Whenever we provide advice on business structures we always consider:
Minimisation of Income Tax
- Maximization of Asset Protection
- Allow for the Potential Admission of New Business Partners or Investors
- Legal Requirements in your Industry
- Future Entitlement to Discount Capital Gains Tax Concessions
Your choice of business structure is very important and there are a several different options including sole trader, partnership, company and trust. When evaluating business structures you need to consider the likely profitability of the business, the current tax position of all stakeholders and the risk profile of the industry. As a consequence, your business structure might be a compromise based on the relative importance of these issues.
Accounting software is another part of your business foundations and the wrong choice can prove catastrophic. Poor records are one of the biggest causes of business failure in this country and up to date, accurate financial records let you make informed business decisions. The key is to match your business needs (payroll, invoicing, point of sale etc.) with your level of accounting skill. A lot of small business owners use the wrong software and create what we describe as 'computerised shoebox' records. This leads to frustration and extra costs which conflicts with our mission of helping you reduce the cost of bookkeeping and tax compliance.
As you know, to build a house you also need the right tools. When 'constructing' your business we use a number of tools including our start-up expense checklist to identify a ll your potential establishment costs. This checklist breaks your potential costs into categories like tools, equipment, IT costs, marketing, leasehold costs, professional fees and vehicles. It's comprehensive and designed to make sure you don't miss a thing. These figures then filter through to our cash flow budget template and allow us to produce a projected profit and loss statement for your first year of trading. These reports can also tuck neatly into our business plan template that will help you secure funding from external sources like a bank to help you get your business off the ground.
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For many business owners, your car is arguably your most important business tool and you can download our Motor Vehicle Tax Guide from the resources section of our website. It addresses the alternative methods of claiming your vehicle expenses and the distinction between a business and private trip for tax purposes. In addition, through our affiliate partners we can also assist with vehicle finance (chattel mortgage, CHP or lease) and get you fleet pricing on your new car that could save you thousands of dollars.
We can also help you put together your business, marketing and financial plans using our in-house templates but that’s really just the beginning because as accountants we can do some financial modelling and prepare some ‘what if’ scenarios to identify your best and worst case profit scenarios.
MARKETING YOUR BUSINESS
In the digital and social age your marketing could be the difference between boom and doom. While most business owners still rely on their reputation and referrals to grow their business, consumer behaviour has changed and you need to focus on your online presence. Increasingly, local searches (e.g. Plumber Blacktown) are driving traffic to your website and it is often the first touch point with a potential new customer. As you know, in business, you only get one chance to make a good first impression.
One of our biggest points of difference compared to other accounting firms is our marketing expertise.
Over the years we have assisted dozens of clients to create a modern brand that resonates with their target market. In addition, we can help
you create an affordable, quality lead generation website. If you need advice and direction with your website design, functionality or
content including videos, we can help you. If your website lacks calls to action or lead magnets we'll help you build them plus we'll
introduce you to strategies like re-marketing and search engine optimization to drive more traffic to your website.
Our mission is to fast track your business start-up and give you a serious competitive edge in your industry. In fact, if you aren’t using some of these marketing tactics your business probably won't reach its full profit potential.
According to 2016 Doing Business report by the World Bank, Australia is the 7th easiest place in the world to start a business with entrepreneurs needing only two days to get a business registered and operational. However, statistics from the Australian Securities and Investments Commission (ASIC) indicate that nearly 10,000 companies entered external administration in the 2016 financial year. Clearly, the old saying, ‘people don’t plan to fail, they just fail to plan’ still applies and and it remains both valuable advice and a warning for people intending to start a business.
If you are starting or buying a business the evaluation and establishment phases can be periods of great anxiety due to a combination of excitement, uncertainty and financial risk. Clearly the risks are real and the Australian Bureau of Statistics suggest that 42% of new businesses won’t be around in 3 years time.
Franchising contributes more than $144 billion to Australia’s economy through its 1,600 franchisors and more than 79,000 franchise outlets that employ 460,000 people. If you think buying a franchise reduces the risks consider the results of a franchise study in 2008 that revealed:
- Only 81% of franchisees are profitable
- 58% of franchisees generate a profit of less than $50,000 per annum
- 3% of franchisees generate a loss of more than $50,000
While the small business journey can be challenging, it can also be very rewarding. Our role is to support and guide you through the process and it starts with the right opening moves. Unfortunately many people starting or buying a business fail because they don't seek or receive the right professional advice. Having assisted so many people in your situation you can benefit from our experience. We also believe business owners want a lot more than just basic accounting and tax compliance services from their accountant. Our client brief includes helping you grow your revenue and profits and in time, build your personal wealth.
Michael Gerber pointed out in his best selling book ‘The E Myth’ that, “Most people work IN their business. The secret is NOT to work IN it, it’s to work ON it so that you don’t have to work IN it.” While you’ve probably heard it all before, the fact is, most business owners struggle to find the time to work on their business because they’re caught up in the day to day operations. They have simply created a job rather than a business that works independent of them.
Our business coaching services are both broad and deep and if you need a business plan, succession plan or financial blueprint for the future we can help you. We can also assist you with your marketing including your branding, marketing plan, website and corporate brochure. We have the knowledge, tools, resources and experience to turn your ideas into profits. We aim to make your financials more meaningful and when you work with us you have a true business advisor committed to your results.
Unfortunately many people starting or buying a business fail because they don't seek or receive the right professional advice. Having assisted so many people in your situation you can benefit from our experience.
We are passionate about your business success and to help our clients we have published a comprehensive e-book guide titled 'The New Business Starter Kit'. It provides valuable information on a number of key issues that confront a new business owner including:
- Alternative Business Structures and the Taxation and Legal Aspects associated with each option
- Essential Tax and Business Registrations when Starting or Buying a Business
- Employer Obligations including Superannuation, PAYG and WorkCover
- Record Keeping Requirements and Accounting Software Options
- Legal Issues including Wills, Contracts and Leases
- Permits & Registrations - Council & Government
- Buying a Business or Franchise
- Preparing a Business Plan
- Key Business Insurances
- Preparing a Cash Flow Budget
- Vehicle & Equipment Finance Options
- Alternative Methods of Claiming your Motor Vehicle Expenses
This free e-booklet is available from any of our website pages in
the right-hand panel (desktop view).
Additionally, we provide a recording of a Free Webinar we recently conducted on Starting a Business:-
Accounting Software For Small Business
Statistics suggest the average business owner spends 109 hours a year on their tax obligations so your choice of accounting software is critical. One of the biggest mistakes small business owners make is that they purchase accounting software beyond their business needs and level of accounting skill. This can lead to considerable frustration and business records that amount to nothing more than a computerised shoebox.
The wrong software can also add to your accounting and bookkeeping costs while our mission is to help you reduce the cost of compliance. With so many accounting software programs available it's easy to become confused because they range in functionality and sophistication with a price tag to match. To assist you we provide the following basic software guidelines:
- If you don’t understand double entry accounting (i.e. debits, credits and journal entries) then avoid sophisticated accounting software programs. If you need to use these types of programs because your business requires functionality like stock control, point of sale or a full blown general ledger then consider undergoing some formal training.
- Don’t buy software beyond your business needs.
- Your software should be compatible with our general ledger system to allow easy transfer of electronic data. This can save time, money and assist with meeting the various taxation lodgement deadlines including your tax return and BAS's.
MYOB and QuickBooks are very popular accounting software programs in Australia but they don't suit a lot of business owners who lack formal accounting training. While we certainly support those programs (plus others) we find many people need to engage an external bookkeeper because they don't know how to use these programs. This involves unnecessary costs and experience tells us that most business owners simply need a bookkeeping program to track receipts, payments and GST. You might also require an invoicing and payroll module in your business. Subject to your business needs and level of accounting skill we strongly recommend Cashflow Manager because of its relative simplicity. It looks and operates like a manual cashbook complete with a spreadsheet or column layout and it requires no understanding of accounting principles including debits, credits or the distinction between assets, liabilities or equity.
The program provides business templates that automatically establish columns for certain business types and it represents excellent value for money. More importantly, it could slash your compliance costs. Reconciling your data to your bank account is also very simple and if you use internet banking you can download your bank statements and import the data into Cashflow Manager to save even more time. You can have multiple bank accounts in a single business file and the comprehensive reports explain your business results and make preparation of your BAS very easy. The program includes the debtors function so you can generate tax invoices, track your debtors and produce regular customer statements. If you have staff you can add ‘Wages Manager’ to process pays, print payslips, Annual PAYG Payment Summaries and track staff entitlements.
There is no need to undergo lengthy or expensive software training courses and our staff can teach you the basics is less than 30 minutes.
Business Plan & Cash Flow Budget
While the main reason most people prepare a business plan is to raise finance, your business plan should also prove the viability of your business venture. Included in the business plan is a cash flow budget and a positive cash flow is an absolute necessity if your business is to succeed. Positive cash flow just doesn’t happen, it needs to be planned and that’s why we strongly recommend the preparation of a 12 month cash flow budget before you start the business. In fact, any business that fails to accurately forecast its cash flow in the first 12 months is on a collision course because without realistic cash flow projections, management is unable to identify future cash shortages.
The cash flow budget is based on a number of assumptions regarding the expected future performance of the business. The assumptions must be realistic and supported by research, available data plus known facts such as rentals or forward contracts. The information in your cash flow budget is designed to:
- forecast your likely cash position at the end of each month
- identify any fluctuations that may lead to potential cash shortages
- plan for your taxation payments
- plan for any major capital expenditure, and
- provide prospective lenders with key financial information
Of course, positive cash flow alone is not enough. The business must be returning a profit and the long term trend for both must be positive.
Under common law principles, you and your employees have certain obligations to each other. You also have obligations under Federal and State Territory laws, industrial awards and agreements, tribunal decisions and employment contracts.
If you have employees you must register for PAYG Withholding and withhold amounts including:
- Income Tax for employees (including working Directors of a Company)
- Withhold 46.5% from payments to suppliers who cannot quote an ABN
Before you withhold any payments, you need to register for PAYG Withholding. This can be completed at the same time as your your GST registration and means that you will have either quarterly or monthly reporting requirements. If you operate as a sole trader or partnership, the Tax Office do not regard you as your own employee and you ‘draw’ funds from the business to live on but this is not technically seen as ‘salary and wages’. As such, there is no need to register for PAYG Withholding and withhold amounts from your drawings unless the above examples apply.
Superannuation for Employees
The Superannuation Guarantee Scheme, administered by the Taxation Office, requires all employers to provide a prescribed minimum level of superannuation support for each employee (and some contractors), subject to limited exemptions including :
- You paid a salary or wage of less than $450 in a month, or
- The employee is Under 18 years of age and worked less than 30 hours a week, or
- The employee is Aged 70 years or over
Employers must make the superannuation contributions on at least a quarterly basis. Payments must be made within 28 days of the end of each quarter.
- 1 Jul – 30 Sep due by 28 Oct
- 1 Oct – 31 Dec due by 28 Jan
- 1 Jan – 31 Mar due by 28 Apr
- 1 Apr – 30 June due by 28 Jul
If you fail to pay the minimum level of support (9.5% for the year ended 30th June 2018) by the prescribed deadline you are liable for the Superannuation Guarantee Charge which is equivalent to the amount of the shortfall plus an interest component and an administrative charge.
Insuring Your Business
Insuring your business premises and your assets is a critical part of establishing a business. For new business owners insurance can seem like a costly addition to an already long list of expenses, however, if your business is uninsured you may never financially recover from a natural disaster, burglary, act of vandalism, fire or storm.
Asset protection includes addressing your specific business insurance needs and making sure you are covered for the unexpected. The size and nature of your business will generally determine the type of insurance coverage you need and it is important not to let your coverage fall behind as your business grows or diversifies. A periodic review of your insurance policies is recommended for this purpose and some or all of these additional insurances could be required depending on your circumstances:
- Public liability to cover customers, clients and visitors
- Cover for contents, equipment, stock, furnishings and fixtures
- Professional indemnity insurance if your business is in a service industry
- Product insurance if your business is in a manufacturing industry
- Motor vehicle insurance if your vehicle is used for business purposes
- Personal injury and/or income protection, particularly if WorkCover is not applicable to your business
Employees may be entitled to a limited amount of sick pay from their employer but worker’s compensation only covers you for work related injuries, a small percentage of the causes of disability. On the other hand, an income protection policy will pay you up to 75% of your income (salary plus super and any other benefits) allowing you to maintain your lifestyle and keep paying your mortgage and other debts.
Legal Issues & Contracts
There are a number of key areas where a solicitor can assist you such as contracts and agreements, negotiating your commercial or retail lease, insurance claims and representing your interests in dispute resolutions with authorities or other businesses. If you require a solicitor please contact our office for a referral.
A contract is a binding legal agreement, which is created when there has been an offer, an acceptance of the offer, consideration (usually the price of goods or services supplied) and an intention by the parties to enter into a legal relationship. There are many types of contracts that will affect your business. Not only will you contract with your customers but you will potentially also enter into agreements concerning contracts:
- for the purchase of a business
- for the lease of your business premises
- for the supply of financial services such as an overdraft facility
- with suppliers and customers including the terms of trade
- of employment with your employees
- for the supply of telephone, internet and utility services
With customers, it is important to establish a system that records your terms of trade so that you avoid disputes later on. It can help with the collection of bad debts and the system could be as simple as providing a quote that the customer accepts by signing. Commonly the terms of agreement are often specified on the back of quotations. Remember, if a contract has not been signed it does not necessarily mean that there is not a legal contract. A binding legal agreement may have been established by other means, such as the conduct of the parties and what was said between them.
A lease is a special type of contract between the lessor (the owner) and the lessee to use the property. A lease can relate to land and buildings or to personal property such as motor vehicles, photocopiers and telephone systems. Where the lease relates to land and buildings the owner is called the ‘landlord’ and the lessee is called the ‘tenant’.
The terms of the lease are generally negotiated between the landlord and the lessee and the main issues that need to be addressed in the lease include the term of the lease, the amount and frequency of the rent, details of the tenant's responsibility for the property outgoings, permitted uses of the property, the option if applicable and the bond or bank guarantee if applicable. It is advisable to consult with a solicitor to assist you in negotiating the terms of your lease.
Most leases hold the lessee responsible for keeping the premises, fixtures and fittings in good repair. Many leases provide for payment of all or a portion of the rates, insurance, maintenance and so on. Make sure these are clearly stated as they are additional to your base rent. If you vacate the premises before the lease expires you may still be liable for payment of rent and ongoing costs if a new tenant cannot be found. Before signing the lease the lessor must provide the lessee with a signed copy of the lease. If the lease is for a retail shop, the lessor is also required to provide a Disclosure Statement to the lessee at least seven days before the lease is entered into. Both parties should make sure that they speak to their solicitor, accountant, the local council (to be sure there is approval for the use) before they sign the lease.
Do You Need A Will?
Making a Will is something we all know we should do, but like exercising daily and eating a balanced diet, it’s something many of us never get around to until it’s too late. It is one of the most important documents you will ever sign because you are ‘giving away’ almost everything you own. It is therefore important to ensure it reflects your current wishes and distributes your estate in the most beneficial and tax effective way. You must be 18 years of age and be of sound mind, memory and understanding to make a Will.
A Will is the foundation of good estate planning. It’s critical to obtain competent legal help in drafting your Will because a poorly drafted Will can be the cause of endless trouble for your surviving family and beneficiaries. Dying without a Will can be costly and creates added stress for your family at a time that is already difficult. In addition, you risk your estate being distributed according to strict Government requirements rather than your wishes. This makes your estate difficult to administer and it will take longer to be finalised, resulting in increased costs. You may also lose the choice of who benefits from your estate.
What do you need to consider?
- Do you have an effective, current Will?
- Do you believe you may require the creation of more complex trusts within this Will?
- Do you have beneficiaries with special needs?
- Are you concerned there won’t be enough money to satisfy your family’s needs in the future?
- Do you need to consider any tax or other implications of your estate planning arrangements?
- Who is to benefit from your Life Insurance and Superannuation?
- Do you have property held as tenants in common?
- Does anyone but you know where your tax records and supporting tax documents are located?
- Does anyone know who your Accountant is? Your Lawyer? Your Broker?
We recommend you review your Will every couple of years, or whenever your circumstances change such as starting a business. Call our office if you would like to discuss any aspect of your Will or require a referral to a Solicitor to draft or review your Will.
Full copies of the ‘Starting or Buying a Small Business’ are available from our office.
Over the years we have mentored many clients through the start up phase of their business lives. Experience tells us that successful businesses have clear objectives, produce quality products or services, understand their market, manage their money properly and are good employers. They also keep quality records and have a close relationship with their accountant. When establishing your business it’s vital that you seek professional advice from qualified accounting and legal sources.
As a business start up specialist we have developed a number of practical tools and checklists designed to help you fast track your business success. If you want to get your business off to a flying start contact us today.
We also invite you to book a FREE, one hour introductory consultation to discuss your business needs. You can expect practical business, tax, marketing and financial advice. To book a time, call us today on (02) 8824 7848 or complete your details in the box at the top of this page.