The information in this article is for general purposes only and should not be relied on as specific legal advice. Should you have any particular questions please contact your solicitor or contact the author directly.

It is important to understand and comply with these duties. The failure to comply with these duties may result in directors being personally responsible for any loss caused by the breach of these duties, or even criminal prosecution by the Australian Securities and Investment Commission (ASIC).

The most significant duties of directors are:

To act in the best interest of the company

A director must act in the best interests of a company and to its shareholders as a whole, ahead of their own personal interest. This can get confusing especially in a situation where the directors and the shareholders are one and the same – a common scenario in small businesses. It is important to remember that the company is considered a separate legal entity, has its own interests, and these interests may not be the same as the director’s interests.

To act with care and diligence

A director must perform their duties with the same care and diligence that a reasonable person would have should they be in the director’s shoes.

To act in good faith

A director must perform their duties in good faith, and not dishonestly or fraudulently.

To use their position as a director for the proper purposes

A director has an enviable position that allows them to control the company’s business. It is important that they do not abuse this position to act in their own interest, or the interest of someone else. In addition to this, a director would commonly come into information as a result of his or her position. A director cannot use this information to act in their own interest or the interest of someone else.

[Next: Avoiding conflicts of interests]

Small Business September is an annual, month-long celebration of the value of small businesses to both the economic and social fabric of NSW.

With over 650,000 diverse small businesses operating across the State, each employing up to 20 people, the sector underpins the economic lifeblood of our community.

The NSW small business sector also makes a major contribution to the Australian economy: they make up 96 percent of all businesses and over a third of the nation’s 1.93 million small businesses are based in our State.

Small Business September is a time when the NSW Government and the community pay tribute to this contribution.

The theme of Small Business September 2010 is Connect for Profit, a message that underlines the NSW Government’s support for small business and the sector’s importance to future economic wellbeing.

Around 300 small business seminars, workshops, awards, conferences and expos will be held across NSW during September exploring ways SMEs can use profit-building strategies.

Small Business September 2010 is an occasion for people in small business to extend their networks, develop their skills and build links with the many support organisations that exist to promote business success.

The workshops, seminars (real-time and virtual) and special events scheduled during the month, address important issues for small firms, including leadership, marketing, cashflow management, information technology and much more.

Small Business September 2010 events are designed specifically to help the State’s small business community.

The NSW Government recognises this contribution and supports small businesses in many different ways, by promoting business growth and investment, encouraging exports and innovation, and creating a better business climate.

The activities of the month are part of a suite of initiatives designed by the NSW Government to bolster this important sector.

One such initiative is the Business Advisory Service network located in 14 metropolitan and regional areas providing advice and information to start-up and existing businesses.

Another initiative is the Innovation Advisory Service (IAS) to help small businesses along the way to commercialising their innovative ideas.

Small Business September is organised by the Industry & Investment NSW, with organisational partners offering events.

The platinum sponsors are ANZ, Australia Post, Cumberland Courier, and Sensis .Gold sponsors are the City of Sydney, Netregistry and NRMA, while silver sponsors are CPA, EFIC, NSW Business Chamber and Virgin Blue.

The recent introduction of new laws to fight Phoenix activity has strengthened the power of the Tax Office to fight payment avoidance.

Directors of companies can be personally liable for tax payments –“existing and future tax liabilities” which could also cover other amounts such as GST, company income tax and superannuation. And while these new laws will curb Phoenix activity, there are still legitimate businesses struggling to pay their taxes.

Contrary to commentary that all sectors survived well during the global financial crisis, many medium and small businesses have suffered and are still suffering. The ATO allowed businesses to enter into payment arrangements during the global financial crisis.

And they have.

But the amount currently owed to the ATO as of December 31, 2009 by businesses and households is a staggering $12.27 billion – up by $1.3 billion in just 18 months, of which $10.18 billion is owed by business, according to the ATO’s annual report. And total debt (debt holdings) owed by all taxpayers – including businesses, disputed debt, tax owed by insolvent businesses and bankrupt individuals was $24.5 billion. Cases (businesses and non-businesses that could not pay) increased from 1.31 million to 1.34 million to June 30, 2009.

While the ATO has been lenient towards struggling businesses, particularly during the height of the financial crisis, this will not always be the case.

The Commissioner of Taxation Michael D’Ascenzo recently told the Council of Small Business Organisations of Australia summit in Brisbane that firmer action will be taken with those who have escalating tax debts or are unable to meet their outstanding tax or Superannuation Guarantees.

As of December 31 2009, there were 147,599 payment arrangements in place for businesses. The ATO was only responsible for 5.6 percent of wind-ups and bankruptcies in 2008, and two per cent in 2009, he said. While much of this can be attributed to the global financial crisis, Mr D’Ascenzo explained, the danger is a further worsening of the economic outlook, which would increase debts to the ATO and put directors under more pressure.

The ATO will also be under pressure from Treasury to chase tax debts owed. And this is not good news for companies already in financial trouble.

ATO Deputy Commissioner Steve Vesperman affirmed this by stating “in balancing our assistance and support for those who are willing to engage with us, we are taking firmer action with those businesses who demonstrate an unwillingness to work with us, have escalating debts or who are unable to meet their outstanding tax or superannuation guarantee debts”.

[Next: What if I have a payment plan with the ATO?]

Tim Reed, CEO, MYOB said, “So far, this has been an election campaign of long term, little-detail policy.  None of the major parties seem to genuinely understand what kind of support the two million plus Australian businesses actually want from the next Federal Government.”

“Our research shows the opportunity is there to establish a clear mandate for reforms that will make business life easier in Australia,” Mr Reed said. “This means bold policy action to minimise red tape, simplify reporting and reduce the complex array of personal income, company, capital gains and fringe benefit taxes. With two weeks remaining there is still time for one of the parties to get serious about business.”

MYOB commissioned the research in July and put together the following 14 point plan of policy initiatives that business owners across Australia have said they will vote for and against.

The main points, in no specific order, include:

POLICIES THAT WOULD ATTRACT VOTES

#1. ASSET DEPRECIATION: 74% of business owners would vote for immediately being able to claim up to $5000 for depreciation of assets.

#2. RED TAPE REDUCTION: 68% of business owners would vote for a simplified and standard Business Activity Statement form.

#3. COMPANY TAX: 62% of business owners would vote for lowering the company tax rate to 29 per cent.

#4. INNOVATION AWARDS: 58% of business owners would vote for Federal Government cash awards for small business innovation.

#5. CAPITAL GAINS: 44% of business owners would vote for the introduction of a standard flat rate of tax on capital gains.

#6. BUSINESS FINANCE: 64% of business owners would vote for Government backed 24 month interest-free business financing packages from major banks for small businesses with less than 10 employees.

#7. FRINGE BENEFITS TAX: 41% of business owners would vote for making employees, not employers, responsible for their fringe benefits tax payments.

#8. WORKERS COMPENSATION: 39% of business owners would vote for a Medicare-style 0.5% of income disability levy to replace worker’s compensation insurance.

#9. FEE FREE BANKING: 73% of business owners would vote for legislating fee-free banking at the major banks for small businesses with less than 10 employees.

#10. RETIREMENT INCOME: 32% of business owners would vote for guaranteed monthly annuities in exchange for superannuation payouts.

POLICIES THAT BUSINESS OWNERS WOULD VOTE AGAINST

#11. SUPERANNUATION RATE: 37% of business owners would vote against a rise in the level of the compulsory superannuation entitlement to 12 per cent.

#12. PAID MATERNITY LEAVE: 36% of business owners would vote against compulsory six week paid maternity leave for staff employed longer than 12 months.

#13. RESOURCE TAX: 36% of business owners would vote against a coal and iron ore resource tax.

#14. CARBON TAX: 43% of business owners would vote against a carbon tax.

“We encourage all political parties to step up and really understand what business owners need to be successful and design policies that genuinely support businesses, the Australian economy and ultimately make business life easier,” Mr Reed concluded.

Critics have widely celebrated this new heist film about dream-stealing, praising its multi-layer story. Mr Cobb, played by one of Hollywood’s favorites Leonardo DiCaprio, leads a team specialized in infiltrating people’s dreams in order to steal their ideas. He is hired by Saito (Ken Watanabe), the CEO of a large Japanese energy corporation, to go beyond what he normally does: stealing information deeply hidden in people’s minds. Saito, fearing a powerful family-run competitor, challenges Cobb to “incept” or plant an idea into the mind of his business opponent through lucid dreaming.

The finely interwoven layers of this complex plot are wrapped around an intriguing theme on family business.

Both script writers, Christopher Nolan and DiCaprio, have cleverly used reality about family firms to construct this engaging story – in particular, the film unveils the little known strength of, as well as the continuity threat to, family businesses.

The power of family business

Family businesses are strong, powerful players in today’s marketplace. Often associated with small, local mom-and-pop shops, family firms are known to be hidden champions. Spending their energy on building powerful positions in their industries, they don’t typically ask for attention by listing themselves on stock exchanges. And, even when they do become ‘corporate,’ a large stake often remains within the family.  Some of today’s well known businesses – Ford Motor Company, Wal-Mart, L’Oréal, BMW, Samsung, and many more – remain rooted in the family lines that created them.

Generally speaking, family businesses are conservatively financed and “under leveraged” according to investment bankers.  Additionally, they are known to be quick decision makers, thanks to the natural alignment between shareholders and management. A number of large-scale empirical studies show that family firms outperform non-family firms, some reporting an outperformance of up to a solid 158% over 10 years.

Inception shows that Saito is very well aware of the competitive threat coming from a family firm called Fischer Morrow. Rather than making a generous offer to buy Fischer Morrow from the founding father/CEO, Maurice, and his son/heir Robert (Cillian Murphy), Saito summons Cobb and his team to subconsciously influence Robert, to “split up his father’s empire.”

Saito understands that this family business competitor is not a small player. He realizes the unlikelihood of making an offer to buy Fischer Morrow and resorts to using non-market means to dismantle his rivals. Cobb’s team devises a plan to incept the idea into Robert’s mind that his father doesn’t want him to follow his foot steps.  From this base of dismantling a family business, Cobb takes Robert into various levels of dreams in order to carry out Saito’s mission.

Conveniently enough, this is Hollywood after all, Saito is able to cunningly take advantage of the reality of business succession.

[Next: The need for succession planning]

Are you able to analyse your lines of stock and forecast sales by product based on historical trends? Can you review your business activity against your staffing to ensure you’re using your staff roster effectively and meeting customer needs? How comfortable do you feel about approaching the bank for a loan using your currently available data? Can your business wear the lag between investing in a new business and generating an acceptable return?

Decisions about expanding a business, obtaining a new business loan or refinancing shouldn’t be taken lightly. It’s important to have a clear business plan, and an understanding of your current financial position, including the costs involved in expanding your business, and expected future cash flow requirements.

One of the easiest ways to track your business finances is to invest in accounting software. Many small business operators fear a system will set them back thousands of dollars, but you can get an effective accounting product, like QuickBooks, suitable for a small business for less than a couple of hundred dollars. This is a fairly inconsequential figure when you consider how much time you’ll save, and the enhanced reporting capability. Just by tracking inventory, managing sales and handling expenses through an accounting system you will be able to automatically undertake analysis to help in your decision making.

Clearly identifying which stock lines are selling, and when they’re selling, to ensure that the right quantities of the correct stock lines are purchased could not only prove very profitable, but also considerably improve your cash flow. Effective inventory management may thus help finance your new venture as well as increase profitability/cash flow by allowing you to identify popular items and growing trends to take advantage of. You will also recognise slow-moving stock that might be better suited to a clearance bin.

Many small businesses utilise casual and part-time staff. You may be able to save costs or improve customer satisfaction by assessing how your business utilises these staff members. For example, if Saturday is your busiest day of the week it is important to ensure your staffing is appropriate. Although the weekend pay rates are higher you may find increasing weekend staffing levels improves customer satisfaction and thereby results in greater sales because  frustrated customers aren’t walking out of the door due to poor service. An accounting system will generate reports that help identify the best staff allocation based on customer flows, for both casual and permanent staff.

Business is also a game that people win and lose at. Yet most businesses don’t have any sort of scoreboard at all. As a business coach I find that the only scoreboard many businesses have is the tax return that is often completed 12 months or more after the end of the financial year. And then the main score that people focus on is how much tax they had to pay. The less the better! The trouble is if they aren’t paying much tax in most cases that means they aren’t earning much money.

Also, it never ceases to amaze me how many ‘supporting scores’ there are when you listen to any sporting commentary e.g. tackle count, time in possession, shots on goal, score assists, handballs, forced errors, unforced errors, first serves in etc. etc. All these supporting scores or Key Performance Indicators (KPIs) are ways for the coaches and players to measure the activities the lead to the final result on the scoreboard.

In business there are also many KPIs that measure all the activities that go on that lead to the business succeeding. For example, revenue, gross profit, number of leads, ‘conversion rate’ of leads to sales, customer satisfaction, employee satisfaction etc.

KPIs help business owners and sports coaches to identify what is working and what isn’t working in a business or a game and give focus to the key areas of activity that need to improve. For example in a business, do you change your advertising to try and generate more leads or better quality leads? Do you change the way you present your quotes or tenders? Do you try and increase your average sale by ‘up-selling’ e.g. McDonalds sells millions of dollars of fries per year by asking ‘do you want fries with that?’

Building Your Own Scoreboard

A great place to start developing a scoreboard and KPIs for your business is to go back the very basics. Start with working out if you actually have a sustainable business model that will bring you the type of prosperity and lifestyle you dreamed of when you started.

Recently I was working with a mechanic Peter and his wife Sarah, about how they could increase the profitability of their business.  They pay themselves a basic wage each year but for the past four years haven’t made a profit and were losing faith in the business.

What is the Break-Even?

We started by setting up a Business Model on a spreadsheet (you can do it with a pencil, paper and calculator as well) and listing the fixed costs for the year so we could work out what the break-even was for the business each week and month.

You Need to Pay Yourself

Next they added in an industry based wage for themselves and then a reasonable net profit figure.   They said they would like to earn a profit of around $50,000 to make running the business worthwhile (and it would help pay off a chunk of their mortgage).

[Next: Revenue, Variable Costs and Gross Profit]

It is always a good idea to try and defer your taxable income to next financial year. For those operating on a cash basis then simply delay the “receipt” of the income. If you operate on a non-cash basis then you may want to defer your invoicing til next year.

2. Scrap obsolete stock and plant

Got some old plant or stock that your business simply can’t sell? Then physically write it off before 30 June and get a tax deduction for it this year. You can value trading stock at the lower of actual cost, replacement cost, or market selling value.  This valuation can be applied to each item of trading stock.

3. Claiming deductions for expenses not paid at year end

Just because you haven’t paid for something doesn’t mean that you can’t claim it. Businesses are entitled to an immediate deduction for certain expenses that have been “incurred” but not been paid by 30 June 2010 including:

• Salary and wages – claim the number of days that employees have worked up to 30 June 2010, but have not been paid until the new financial year;
• Directors fees – claim a tax deduction for directors fees that are “definitely committed” to at 30 June and has passed an appropriate resolution to approve the payment;
• Staff bonuses – claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is “definitely committed” to the expense;
• Repairs and maintenance – claim repairs undertaken and billed by 30 June but not paid until next year.

4. Income splitting

It amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see them paying 46.5 percent tax on income, which could be in put under their lower taxed spouse (0 percent or 16.5 percent) or company (30 percent).

5. Write off bad debts

Like obsolete stock, for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income in order for the write-off to be allowed. Put your decision in writing such as a board minute. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.

[Next: Take advantage of the Small Business Entity concessions]

Online is the new world and while it offers tremendous opportunities for businesses to connect and grow, it can also present significant risks for those businesses that don’t protect their people and information online. In fact, a recent Symantec online survey of more than 500 Australian small and medium businesses (SMB) found that 56 percent of Australian SMB respondents have been affected by a cyber threat, up from 46 percent in the 2008 survey.

The survey also found that SMB respondents believe that cybercriminals are the most dominant security threat and nationally, 52 percent of respondents rated malware created by cybercriminals as the most likely security threat to their business. This increase in cyber attacks and concern for cyber threats can be attributed to the continued growth in both the volume and sophistication of cybercrime attacks.

As businesses embrace the online world and become more mobile, they equally become more vulnerable to online security threats and data loss. The bottom line is that while businesses must stay connected to remain competitive, small business owners must also ensure that their information is protected and secure.

So how can a small business stay safe online and not be a victim of a cyber attack? How can a business recover its customer database in case the system fails?  And what precautions should a business advise their employees to follow when they are given a smartphone or connect onto social networking sites at work?

The following are tips that small businesses can implement to protect their information while navigating today’s business Internet.

Understand Where Data Resides: One of the biggest challenges small businesses face today is balancing the need for information to be readily available at all times from anywhere, with the need for it to be properly protected. Evaluating the potential for risk is essential to maintaining that balance. Businesses must ask themselves questions such as: Where is my confidential data, and how is it being used? And, most importantly, how do I prevent data loss?

[Next: Create a security policy]

Auditors reported 341 suspected breaches of the Corporations Act to ASIC in the last financial year, up from 238 the previous year, The Australian reports. There was only a 14 percent increase in the number of suspected cases of insolvent trading, 37 in the last financial year, up from 32 the year before.

ASIC requires auditors under section 311 of the Corporations Act to tell ASIC when they suspect under ‘reasonable grounds’ that the Corporations Act has been breached, in order to equip ASIC with the information required to prosecute if required.

When looking for reasons behind the increase in suspected breaches of the Corporations Act, some of the 40 percent increase is likely attributable to the wake of the global financial crisis mounting pressure on businesses to stay in business, so corners get cut and breaches of the Corporation Act occur.

The reality, however, may be less alarming than suggested by the 40 percent headline rate. ASIC is increasing the scrutiny on auditors, taking on additional staff to monitor the activity of auditors over the same period, resulting in auditors ratcheting up their reporting out of fear they may be caught out on a minor breach. The reality is more likely the 14 percent increase in suspected insolvent trading is indicative of the increase in suspected breaches of the Corporations Act across the board, and that the 40 percent headline figure is indicative of a trend towards an increased reporting of suspected breaches by auditors.