The Tax Institute’s 2013-14 Federal Budget Submission urges the Government refocus its efforts on areas of the tax law that are in need of urgent and significant reform.

Taking into consideration the range of matters that affect small business, The Tax Institute has outlined ways in which the Government can help alleviate the compliance burden and improve tax policy outcomes for small businesses in Australia.

Steve Westaway, President of the Tax Institute, said this would involve, “exploring the possibility of creating a separate, ‘small business entity’ structure, streamlining definitions and access to small business concessions, and simplifying carry-forward loss integrity measures.”

A separate ‘small business entity’ structure would integrate the benefits of existing, available structures such as the company, trust, partnership and sole trader structures.

Simplifying and minimising the costs associated with carry-forward loss integrity measures such as the ‘continuity of ownership test’ and the ‘same business test’ would allow greater flexibility in capital raising and making changes in business operations.

The Tax Institute also encourages the Government to pursue a more ‘open and transparent timeline for legislative change’ so taxpayers aren’t left in limbo for much longer and can start making informed investment decisions.

A greater depreciation deduction may reduce your taxable income in a high profit year.

Firstly, there is an increase to the instant asset write-off threshold. You can now claim an outright deduction (write-off) for most depreciating assets purchased that cost less than $6,500 each. This has increased from $1,000.

For example, if you buy a new laptop for $2,000 and a high resolution printer for $4,500. Both the laptop and printer are depreciating assets used entirely for the business. As each asset cost less than $6,500, you can claim a deduction of $2,000 for the laptop and $4,500 for the printer in the 2012-13 income year.

The second area of new simplified rules is with regard to accelerated deduction for motor vehicles. From 2012-13, if you buy a motor vehicle to use in your business, you can claim an immediate $5,000 deduction. You can deduct the remainder of the cost through the general small business pool at 15% for the first year and 30% for later years.

Pooling for depreciation has also been simplified for small business. From 2012-13 most depreciating assets that cost $6,500 or more (regardless of their effective life) can all be ‘pooled’ under the simplified depreciation rules and deducted at a single rate of 30%. The exception is newly acquired assets (such as a motor vehicle) which are deducted at 15% for the first year.

If you had a long life pool (which no longer exists), its closing balance is rolled over to form part of the opening balance of the general pool for the 2012-13 income year (to be depreciated at a rate of 30% instead of 5%).

Speak to your accountant to ensure that you receive the full benefit from the new depreciation rules and so that you can time your purchases of assets to reduce tax in the most beneficial tax year.

When the economy and business compliance are discussed in the media do your ears tune in or out? Are they topics that appeal as much as bitter cough syrup you know must drink but avoid until the last minute? Here’s an easy to read update that should make your medicine a little easier to swallow…go on, it might help you keep your business healthy.

The Federal Government recently announced the 2012-2013 MYEFO (Mid-Year Economic & Fiscal Outlook). The MYEFO is a mid‑year budget report that provides updated information on, and assessment of, the government’s fiscal performance since the Federal Budget was revealed six months earlier. It has also prompted key policy changes that you should take notice of.

Local and global economic conditions play a huge part in determining changes in fiscal strategy. According to the report, the fundamentals of the Australian economy remain strong and the outlook remains positive, despite a weaker global economic outlook. Our economy continues to outperform every major advanced economy, with the country’s real GDP forecasted to grow 3 percent in both 2012‑13 and 2013‑14. In comparison:

• Euro area GDP: – ½ percent (2012) and ¼ percent (2013)
• US GDP: 2 percent (2012) and 2¼ percent (2013)
• Japan GDP : 2 ½ percent (2012) and 1 ¾ percent (2013)
• India GDP : 5 ½ percent (2012) and 7 percent (2013)
• China GDP: 7 ¾ percent (2012) and 8 percent (2013)

After examining local and global economic conditions, as well as fiscal performance of the past six months, the Federal Government has proposed some key policy changes that could impact SME operators, their staff and families. Some of these are:

1.     Monthly PAYG instalments for large companies – from 1 July 2013 onwards

For large companies, the aim is to align tax instalments with their income and trading conditions (and their GST payments) by requiring them to make PAYG income tax instalments monthly, rather than quarterly.

The challenge for these large businesses is to keep an eye on their cash flow to ensure they meet their new monthly tax obligations.

At present, smaller businesses pay their company tax obligation every quarter with their PAYG payment.

2.     Private Health Insurance Rebate will be indexed by inflation (April 2014 inwards)

The government’s contribution to private health insurance will be calculated using commercial premiums as at 1 April 2013 and then indexed annually by the lesser of CPI or the actual increase in commercial premiums. This will be used to determine an individual’s private health insurance rebate.

At present, 30 percent of your total private health insurance is paid by the government as a rebate (the amount varies based on the individual’s salary). Previously, if your insurance premium increases by say, 15 percent, the government would pay 30 percent of that 15 percent increase. The proposed change means that the rebate will be indexed by inflation (currently at 1.2 percent). So if the cost of health insurance increases above current inflation rates, the individual will bear the extra costs.

3.     Baby bonus decrease effective 1 July 2013 onwards

The Federal Government will reduce the Baby Bonus payment for second and subsequent children to $3,000 from 1 July 2013. The Baby Bonus will remain at $5,000 for the first child of eligible families and for multiple births. The payment will continue to be paid in 13 fortnightly instalments.

The reduced amount could affect the number of requests for parental leave pay as both cannot be paid for the same child. If you are eligible for both payments, you will need to choose which payment is best for you – check the Paid Parental Leave Comparison Estimator.

Hopefully we’ve made the MYEFO more interesting for your business here. Australian business owners and managers are known for digging deep, embracing change and adapting, and it shows in our economic outlook.

Note the above is just a snapshot, so if you’d like to know more about the MYEFO, visit: http://www.budget.gov.au/2012-13/content/myefo/html/index.htm

With this in mind, follow these 9 steps and you’ll be well on track to choosing the right accounting solution for your business.

1. Talk to your accountant first

There is nothing like expert advice. Your accountant is the best person to advise you on which accounting or bookkeeping system to use. Independent market research has shown that business owners using solutions recommended by their accountants have high levels of happiness (95 percent) and confidence (91 percent) with their bookkeeping – so don’t waste hours of time trying to review all the different options available on your own. Seek expert and well-informed advice!

2. Identify your abilities and preferences

According to the market research, one in three Australian business owners find that time is the biggest frustration when it comes to their accounting, so be honest with yourself about how much time you can afford to spend doing your books. Some solutions will require more time than others – particularly those ‘do-it-yourself’ accounting packages. So make sure you have an accurate idea about how much time you can (and want) to spend on your accounting.

Other frustrations reported by business owners included the stress, cost and complications involved with doing their books, along with the fact that their accountant has to re-do some of their work. Remember time is money and what is the cost to your business if you have to spend 30 hours a month of your time on your bookkeeping?

3. Understand your business requirements

Develop a checklist of what you need from your accounting solution – different businesses have different needs such as invoicing, debtors, bank reconciliation, reporting and/or payroll. This checklist will help you identify the best option for your business which offers just the right amount of features.

Some businesses need a full “do-it-yourself” double entry accounting package, while others are more suited to a simpler solution that handles only a few requirements.

Don’t be fooled into thinking the solution with the most ‘bells and whistles’ is the one that will do the best job. It is often the case that an accounting solution chosen solely on the basis of its features ends up being too complex to use properly.

4. Trying to do all your bookwork will not necessarily reduce your accounting fees

The market research shows that many business owners use their accounting solution because they think it saves them money on their accounting fees. Yet many are struggling with the time and complexity of their solution, as well as often supplying incorrect information requiring extra work by their accountant. The result can often be higher accounting fees as well as the wasted time and frustration from using an inappropriate package. Talk to your accountant about whether the system you are using (or thinking of using) really does reduce your accounting fees.

5. Find out what it costs

If you do decide to operate your own accounting software, make sure you understand the costs associated with using the support system, if there are annual upgrade costs or ongoing monthly costs, and what the potential costs may be if you need help or training. Desktop products usually have higher upfront costs but lower ongoing costs compared to the consistent monthly costs of online products. You should also consider the related technology costs. Desktop products require higher specification hardware whereas online products require a higher specification internet connection. Some packages may seem a good investment initially, until you consider the longer-term costs.

6. Choose a product than automatically imports bank data

While there are many features that you will be considering perhaps the most important from a time saving perspective is the ability to automatically import and process your bank data. Whether you or your accountant use your bank data as your core record of your businesses transactions or whether you reconcile your bank transactions with your invoicing and payments records, you will find that automatically importing and processing that data saves considerable time and reduces the potential for errors.

7. Check out the security of your bank data

Check what level of security your accounting solution offers. If your product get feeds of bank data find out how your data is being gathered. Some accounting solutions use secure feeds direct from the business owner’s financial institution, while others rely on ‘screen-scraping’ methods to obtain these transactions.

Screen scraping requires a business owner to provide their internet banking login and password details to a third party, which stores those details. That third party then automatically logs in to the business’ internet banking account at regular intervals, copies their transaction details and supplies them to their accounting services provider.

Make sure you are aware how your transactions are being obtained, and never disclose your login and password details to any third party. If you do you are likely to be liable for any fraud that may occur – whether or not it is related to the screen-scraping service.

Although the security risks from screen-scraping may appear low, cyber security threats are becoming increasingly sophisticated and ever more frequent, and the consequences of any issues could be significant. Are you prepared to place such mission critical information in the hands of a third party?

8. What happens if the company providing your software fails?

Make sure you conduct some basic due diligence on potential software providers, especially if you are considering a cloud provider where you do your accounting completely online. Cloud accounting solutions can offer great convenience, but make sure you know where your data is being stored, and how you can access it if something happens to your provider. If the provider of a desktop solution fails you will still have access to your data.

Assess the risks – what happens if you lose your data and what processes would you have to go through to get it back?

9. Switching isn’t easy

Make an informed decision before signing on the dotted line – switching providers is not an easy process and it takes time and training for you to learn how to use a new solution.

Make a list of the pros and cons of each potential accounting solution. There really isn’t a ‘one-size-fits-all’ product when it comes to accounting solutions, so review your options carefully. The time you spend now could save you significant time and money later on.

Be informed and seek professional advice. While some products are great for some people, for others they can create even more work. Don’t be swayed by hype or special deals.

As of July 1, 2012, businesses are able to immediately write-off any new asset worth up to $6,500. The changes could prove to be a significant benefit; however, many SMBs are still unaware.

A LinkedIn poll, conducted by Intel, revealed that 51 percent of small and medium business decision makers did not know about the instant asset write-off.

Small business owner Raymond Lam was not surprised that the changes had slipped by unnoticed. “SMBs tend to not have access to the same calibre of financial advice as larger enterprises. They’re stretched for time and resources, and usually don’t have face-to-face contact with their accountant on a regular basis,” he said.

Intel national marketing manager Anna Torres agreed that it was ‘understandably easy’ for this knowledge to go under the radar of small businesses at tax-time.

However, she stressed the importance of this new benefit, which could affect purchase decisions all-year round.

According to the poll, 64 percent of SMBs who were aware of the write-off said they would use it to purchase new technology for their business.

Torres acknowledged that buying new technology can seem like a big investment, but pointed out that it can lead to savings down the track. She said that older PCs can cost 1.5 times more to maintain and operate.

Lam also emphasised that lost data can be expensive and  difficult to recover, making reliable IT equipment a worthwhile investment.

MYOB chief strategy officer John Moss advised SMBs to take advantage of the increased instant asset write-off. “Even simple software and hardware updates can result in improved business productivity, team engagement and cash flow- not to mention less time spent on IT issues,” he said.

To find out more about the changes to the instant asset write-off scheme, visit the ATO website.

What reports are the most useful for your business?

Here are some key reports I think are useful for a generic business, any effective accounting program should be able to easily run the following reports which I’ve listed.

Cashflow reports and forecasts

Managing cashflow effectively remains a significant hurdle for many small businesses in Australia. The cashflow forecast will compare the cash you have on hand, as well as money that should be paid to you, against the money you need to pay within the same period. For many smaller businesses having cash readily available is crucial to their success, therefore having a solid base for forecasting cash (i.e. reliable historical records as well as visibility of future transactions) can be extremely beneficial.

Balance sheet

This is the statement of your business financial position at a point in time. The balance sheet will clearly show you assets versus your liabilities, in other words what you own and what you owe.

Profit and Loss

The Profit and Loss statement shows your business trading result over a specified period. It is most helpful to compare specific months, quarters or years against each other to get an overall picture of how the business is performing. If you find revenue is lower in the current quarter compared with the same time last year you will be able to pinpoint when the downward trend began and start to find out why.

Accounts receivable ageing summary and accounts payable ageing summary

While the cashflow forecast shows how much money is expected to come into the business, the accounts receivable ageing summary clearly shows which customers owe you money and how long these amounts have been outstanding. Similarly, the accounts payable ageing summary complements the cash flow forecast by clearly showing to whom you owe money and how long these amounts have been outstanding.

Other reports you’ll find particularly useful include bank reconciliation, as well as top customer and top supplier reports.

Reporting on business activity and performance can offer incredible insights into cashflow, the future success of your business, customer buying habits and more. How critical is reporting to your business success? What reports do you find most useful?

Please note the information contained in this article is intended to be general in nature. You should seek professional advice regarding individual circumstances. 

The end of financial year is nearly upon us and for businesses across Australia, this means facing up to tax time reporting obligations. For several years, we have asked thousands of small business owners to share their thoughts on what tax time means to them. Every year (understandably) we hear that it represents a difficult time for them. The amount of time spent processing invoices and reconciling receipts, the stress related to ‘getting it right’ and ensuring reporting is done on time are all concerns that have been voiced. This year, it seems that confusion reigns over what tax concessions small businesses are able to access.

Just 13 percent of Australian small business owners surveyed by American Express this year said they were completely up to speed with the existing tax breaks and concessions for small businesses. This number was slightly higher at 21 percent among those businesses that prepared their tax returns without the help of an accountant. Either way, these figures indicate that the vast majority of Australia’s small businesses might be paying too much tax. Considering that cashflow is one of the biggest concerns for small business owners, missing out on the tax breaks available to them will serve only to exacerbate this issue.

Understanding what your tax obligations are is a must for ensuring accurate reporting, but knowing what concessions are available is just as important. A good place to start is by consulting an expert – your accountant should be able to give you an overview of what rebates and concessions you are legitimately entitled to. Alternatively, the ATO runs a free national seminar program for people who are new to business and covers off topics like this.

Another glaring result from our recent tax time survey was that a lot of small business owners (more than one third) still resort to keeping receipts in a shoebox. This may account for why the majority of business owners admit to having lost receipts for business expenses like petrol and stationery. Ironically, those younger, more tech-savvy business owners are the most likely to store their receipts in a shoebox. While 60 percent of ‘shoeboxers’ are worried about staying on top of their receipts, this compares to just 40 percent of those who log their receipts electronically and 36 percent who use specialist software. In an age where technologies have been developed to help make life easier, these results are surprising and demonstrate that life can be made easier with a little bit of organisation.

As 30 June approaches, tax reporting continues to be a source of stress for the vast majority of small business owners. In fact, most would prefer to be doing something else such as catching up with filing, chasing outstanding invoices or even cleaning out the office fridge.

In terms of specific causes of stress relating to tax reporting, topping the list were:

• Keeping track of all receipts and invoices (43 percent);
• Worrying about inaccurate reporting (41 percent); and
• The amount of time tax reporting takes (35 percent).

A lot of small businesses surveyed did admit to wanting to make some changes to the way they manage their finances going into the new financial year.  As many as 44 percent of small business owners said their new financial year resolution is to be more organised in filing their receipts and collating information throughout the year. Other resolutions included improving tax reporting with the assistance of an accountant or business mentor and setting aside more time to complete tax reporting. Even small measures can count – so whether you decide to consult an accountant once a month, or invest in some accounting software, you’re sure to make life easier when tax time comes around in 2013.

There are simple steps that can help ensure that your new financial year resolutions become a reality. Some time-saving tips that will help you get ahead in the next financial year include:

1. Keeping on top of receipts and records by entering them into the company’s reporting system regularly. This way, even if you are prone to a bit of ‘shoeboxing’, your systems will be more accommodating of lost receipts.
2. If you haven’t already, consider introducing accounting software into your business. This can help minimise the time you spend collating receipts and reconciling them against transactions made.
3. Consider the time-saving benefits offered by a business charge card. Some cards can provide a monthly breakdown of expenses on a single statement with ATO approved, GST compliant itemisation. This data can be easily and quickly downloaded into accounting software packages which eliminates the need for manual data entry and receipt itemisation. Some cards have the added advantages of credit-free days (which makes cashflow management easier) and rewards points which can be reinvested into your business.
4. Always keep business and personal expenses separate – this will ensure that your personal assets will not be held as insurance against your business activities. Again, instead of having business expenses on a personal credit card, a business charge card can help you keep these separate.
5. Speak to an expert – whether you’re stuck knowing what you should be reporting and what you should be claiming, seek advice from an accountant. They will be able to suggest what solutions best suit your business.

Most importantly, stick with it – sometimes it can be easy to start a new financial year off on a good foot but as with all resolutions, good habits can wane. Be sure to continue the year as you started it, staying more organised and seeking the help of experts where you need it.  Who knows, next year we might find that tax time has become a whole lot easier for you.

Here are a few tips from Chan & Naylor to help your business get through the busy period:

 1. Delay Payments

If you’re experiencing difficulties with cashflow, you can delay some payments until after June 30. Wages and bonuses paid to employees after 30 June 2012 are still deductible in this financial year if the employment service period is pre-June 30, as are the June 2012 FBT instalment and the Work Cover and payroll tax.

2. Reduce payroll tax

There are a few ways to reduce your payroll tax liability, including salary packaging exempt fringe benefits like work-related laptops, providing nil fringe benefits, or paying dividends to directions or their associates instead of wages.

3. Hire Purchases and GST

Under current law, businesses that account on a cash basis claim the GST progressively on hire purchases i.e. as each payment is made. However, under the new law coming in on July 1, cash taxpayers will move into line with accruals taxpayers by claiming GST upfront i.e. at the time the first payment under the hire purchase is paid. This will apply to arrangements entered into on or after July 1.

4. Increased Instant Asset Write-Off Threshold 

From July 1, small businesses can write off depreciating assets costing less than $6,500 in the income year in which they start to use the asset or have it installed ready for use. Where possible, delay purchasing assets costing between $1,000-$6,500 until after June 30.

 5. Streamlined Pooling Provision 

From July 1, all assets other than buildings will be depreciated in a general small business pool at 30 percent, with a rate of 15 percent applying in the first year, as the small business long life pool ceases to exist. The closing balance of your long life pool and general small business pool at June 30 is to be added together in order to calculate the opening balance of the general small business pool for the beginning of the 2012/13 income year.

In addition, small businesses can write off $5,000 of a car costing $6,500 or more in the income year in which they start to use the car – new or second hand – from July 1. The remaining value is depreciated through the general pool rate.

With an estimated 2.5 million Aussies using the Government’s electronic tax return service (e-Tax) each year, cyber criminals are using this to get access to user’s hard-earned funds and personal information.

AVG security advisor Michael McKinnon said cyber criminals have begun their end of financial year scams, which aim to trick taxpayers into revealing sensitive and financial information.

“Internet crime and taxes are now two of life’s certainties. As younger members of the community join the workforce and others shift from paper-based to online tax return processes, there is always a new audience for inventive tax season scams,” McKinnon said.

McKinnon warns people to be suspicious if they receive any email offering government services – from baby bonus applications to notifications about changes made to their tax rates.

But that’s not all. In their latest attempt, cyber criminals have added carbon tax compensation to their list of cons. A simple click from an email attachment could redirect you to a malicious website putting you at risk of identity theft and computer viruses that extract personal and financial details.

McKinnon said any email that sounds too good to be true is, and should be ignored.

“That’s not how the ATO or any other Australian government agency operates,” he added.

As June 30 approaches, businesses are advised to follow these tips to ensure their tax return is filed safely:

1. Review: Taxpayers should use the end of financial year to review their personal or business online security systems to ensure protection is fully and automatically up-to-date – on all computers, phones, other mobile technologies, plus USB and other memory devices.
2. Research: By keeping up to date with the ATO and SCAMWatch online security pages about how to recognise, avoid and report scams.
3. Protect your information: When communicating with your tax advisor, taxpayers should create a password protected Zip file of your financial data.
4. Be smart: Never open or click on links found within an email. Always open your e-Tax filing directly from the ATO’s site.
5. Be internet safe: Never use a public WiFi connection without a firewall. Always use a trusted WiFi or Ethernet connection from your home or office to file your tax return.
6. Be alert: If you haven’t directly requested information, never respond to communications you did not initiate.
7. To the bin: Delete all related emails from your server once you’ve filed your return.
8. Report it: If you receive suspicious communication from ‘the ATO’ or any other ‘government department’, do not click on any links in an email or answer phone questions. Report it immediately to the ATO.

However, if you own your own business and also have a self managed super fund (SMSF), you can have the best of both worlds, by borrowing within your SMSF to purchase your business premises. This allows business owners to access the funds currently ‘trapped’ within superannuation, while offering the following business benefits:

• Tax advantages: by paying rent directly to your SMSF as the owner of the property, the rental income and capital growth is retained in the concessionally-taxed superannuation environment. In some cases, this may even be tax-free.
• Additional cash: if you already own your business premises, you can sell the property to your SMSF and release that cash, which you can then use for any purpose, including reinvesting it in your business.
• Asset protection: by holding your business premises within superannuation, you’ll have greater protection from creditors.

The Strategy

To be able to acquire your business premises through your SMSF, it must be classified as ‘business real property’, a requirement under the Superannuation Industry (Supervision) Act 1993 (Cth). This means that the property must be used wholly and exclusively by at least one business, excluding home offices within residential properties that do not classify as ‘business real property’

Once it can be determined that the premises are exclusively for business purposes, then it’s possible to acquire your business premises from a third party or even a related party through your SMSF.  Your SMSF can than lease it back to your business at ‘arm’s length’. Importantly, though, both the purchase price and the rent must be based on fair market value. With this strategy, rent is paid, by you, directly to your SMSF, providing the added benefits of:

• Controlled rent: this strategy allows you to effectively control your rent, protecting your business from any unexpected rent increases
• Tax deductions: deductions are available to the SMSF for its interest and other expenses relating to the property, while the business owner gets a deduction for rent paid. The SMSF may also be able to sell the property, if necessary, without paying capital gains tax.

Another advantage of this strategy is that the SMSF can even use borrowings to repair and maintain the business premises. For example, loan funds could be used to ensure that things like the property’s plumbing and heating continue to function.

Make sure you talk to your adviser about the best strategy for your business. Aside from acquiring property directly, there are a number of other ways that an interest in real property can be owned by a super fund. There can also be some limitations to acquiring your business property through your SMSF, so make sure you discuss your specific situation with a reputable adviser.

Failing to organise business finances prior to the June 30 deadline may result in extra stress business owners can live without.

MYOB Tim Reid said businesses that take action prior to July 1 put themselves strides ahead of their competitors and allow them to take a proactive approach to the year ahead.

“For example, a business that pays building and construction contractors should start capturing those contractor payments as of next month. Otherwise they’ll be playing serious catch up when the first report is due next year,” Reid said.

Businesses should see the EOFY as an opportunity to give their finances, operations and strategy a tune-up, Reid said,

“…the end of a financial year can be a launch pad to a happy and prosperous new year,” he added.

With this in mind, Reid has the following 10 tips for ensuring headache-free, happy new financial year:

Don’t wait to get to know your business better. If cashflow, taxation and forecasting aren’t your areas of expertise, contact an accountant with experience in your industry to help. They can immediately identify potential EOFY issues, such as incorrect transaction dates, foreign exchange rates or inventory anomalies, and these aspects can be monitored throughout the year.

2. Compare the current financial year against the previous year:

Compare your 2011 tax year against previous years to pinpoint the positive and negative trends. When were your peak periods? How well did each of your products/services perform? Talk to a professional who can help identify which ones deliver the healthiest returns, re-evaluate your margins and loan terms, help you with managing cash flow, inventory and staying on top of debtors, and on the like. They can even perform business-benchmarking activities, comparing your performance against similar businesses. 

3. Familiarise yourself with key compliance changes for the new financial year:

Did you know the flood levy will no longer apply after 1 July and tax-free thresholds are changing? Are your systems prepared for the introduction of the carbon tax? If you operate a business in the building and construction sector, are your systems prepared for the annual reporting of contractor payments in 2013? Click here for everything you need to know about EOFY compliance changes.

4. Ensure your BAS and superannuation guarantee charge statements are lodged and paid by July 28:

Be sure to pay your super guarantee contributions for the fourth quarter of 2012 by 28 July 2012. If you or your clients miss this deadline, you must submit a Superannuation Guarantee charge statement to the ATO.

5. Take advantage of deductions, write-offs and rebates before June 30:

Take action to scrap worthless stock, plant and equipment before June 30 by reviewing your asset register (which keeps track of your company equipment including items purchased, sold or disposed of). Consider holding off buying business assets until the new financial year, because the instant asset write-off increases from $1,000 to $6,500 from 1 July 2012.

Conversely, there are several government initiatives valid only until the end of the financial year that allow business owners to write-off purchases for business. Maximise these in the current financial year by purchasing any such assets before the end of June. Contact your accountant to discuss what is available to you based on your business.

6. Write off bad debts before June 30:

If any debts have been outstanding for more than 12 months and/or are considered non-recoverable, you may be able to claim a GST credit and write them off as an expense. Be sure to look into this now.

7. Back up your data to ensure compliance with record-keeping requirements:

An ATO requirement is for businesses to keep detailed business records for a minimum of five years. Make sure you have a secure data back-up system. If you don’t use accounting software currently, consider starting the new year on a product like MYOB LiveAccounts that automatically does the back up for you.

8. Get on top of your books and diarise dates to review them:

From now on, lock in time to update your data entry and records at least once a week. Compile as much information as you can in preparation for updating your financial records.

Identifying errors is much easier over a short time period than after 12 months’ time has passed, so perhaps review your books every two months rather than every quarter. Mistakes can be picked up sooner, potentially saving you money in the long term.

9. Keep your business house in order:

Your transition to a happier financial year will be more seamless if your financials are well organised and compliant. Up to date accounting software acts like a virtual assistant by automating many aspects of this. It also gives you a comprehensive snapshot of your business that’s available at a glance at any time.

10. Invest time working on, your business rather than in, your business:

Take the time to formulate a refreshed business strategy for FY2012/2013. It should contain everything from a SWOT analysis to competitor intelligence, a marketing plan and specific, measurable goals. These targets may be financial, such as increasing lead conversion by X percent, reaching a revenue target at a specific time and halving operational costs. Or, they may be operational, such as expanding your product line, moving into another geographic region and up-skilling staff.

Consider involving team members in building the strategy to help improve their buy-in.

A new study by American Express has found the majority of businesses owners are confused as to what tax entitlements are relevant to them. Only 13 percent of participants admitted to being completely up to speed with existing small business tax breaks. The number was slightly higher for businesses who prepared with their tax returns without the help of an accountant, at 21 percent.

American Express head of small business services Jason Fryer said the survey shows many small businesses may be unknowingly missing out on concessions, which could assist their business in the next financial year.

“Depending on the size and activity of the business, the value of these concessions could be quite substantive. Understanding what tax concessions are available is just as important as being familiar with reporting obligations.”

According to taxation expert and author Adrian Raftery, one of the most common questions he’s asked by small businesses owners is: ‘Is there something we are missing out on in our tax?’

“This [survey] supports my belief that there are thousands of Australian business owners out there who are paying too much tax simply because they are not aware of what rebates and concessions they are legitimately entitled to.”

Raftery said that learning what can be claimed doesn’t need to take up a lot of time, and could save businesses significant amounts. Despite this, the survey showed 83 percent of businesses owners see tax reporting as a ‘stressful task’, with 64 percent preferring to do other administration duties, including cleaning out the office fridge.

“End of financial year tax reporting is always going to be an arduous task but there are many ways it can be made easier: use software to help collate receipts and record transactions or use a business charge card to separate business and personal expenses and to provide GST compliant itemisation for ease of reporting,” Fryer added.

Over one quarter (28 percent) of participants said they are confident they can improve their tax reporting with the help of their accountant or a business mentor.

Looking toward the new financial year, the survey uncovered a number SMB owners have new financial year resolutions, which include; improving the efficiency of their tax reporting (78 percent) as well as becoming more organised in filing their receipts and collating information throughout the year (44 percent).

“Even small measures can help make tax reporting more efficient, accurate and less stressful. I encourage all small business owners to stick to their resolution, stay more organised and seek the help of experts when they need it,” said Raftery.

But it doesn’t need to be this way. A quiet revolution has been taking place in the tax world, with an increasing number of accountancy firms using new technologies to change the way they handle annual returns for their customers.

Mi-fi is one such example. A new breed of web-based accountants, instead of utilising the time-based billing model, users access the services they require for a fixed fee as often as they want.  What makes this possible is the smart way Mi-fi is using Zendesk, a cloud-based help desk service, to streamline communications so that it can offer the level of service promised, in a way that is also commercially viable.

Mi-fi co-founder, Campbell King explains, “Business owners shouldn’t be afraid of contacting their advisor for fear of being charged for it. In fact, we believe they should contact us whenever they need to, no matter how big or small the issue they may be facing. This way they can tackle it early and we can help them make better decisions.

When a customer sends an email it is captured in the Zendesk system and sent to the person dealing with that particular customer. Campbell explains,“With Zendesk, the conversations we’ve had with clients via email are easy to find and track, giving us the ability to search and organise customer enquiries for more accurate and timely responses.

“I think it’s well known that taxation and doing tax returns is becoming somewhat of a commodity, and something like Zendesk allows us to deal with clients in a more proactive way and add value that way,” Campbell said. “I think that accounting firms who don’t take this approach will be left behind.”

It’s not just accountancy firms who are changing their approach to year end. Many small businesses are starting to take a more proactive approach to how they manage their accounting. It’s this ‘hands-on’ approach which is driving Xero’s success.

An online accounting software solution, Xero enables small businesses to access the type of enterprise-class solutions in the cloud that up until now have been the preserve of much larger organisations.  As a result, small businesses can now access the vast array of functionality previously only found in large corporate environments, with minimal commitment and up-front cost.

Chris Ridd, managing director, Xero Australia, says, “Our customers are often business owners, busy people on the go, so having mobile or tablet access to their accounting system, from wherever they are is vital. Online accounting systems enable small businesses to gain a real time view of their finances and track their cash flow throughout the year, taking the time and financial burden away from the end of financial year.”

For small businesses wanting to make the most out of the cloud and their accounting systems and avoid tax time stress, Ridd has three top tips:

1.    Review your accounts regularly:

Keeping a regular check on bills, expenses, receipts and tax payments helps, avoid a mountain of finance paperwork at the end of the financial period.

2.    Know your accounting onions:

Ask your accountant to explain what reports mean.You’ll develop a deeper understanding of what is required at the end of the financial year as well as having a forecast to plan for what the future brings.

3.    Show your accountant your system:

Invite your accountant into your accounting system and they’ll have greater visibility of your accounts and daily cashflow position to help manage the business more effectively. This means less stress for you, especially when it comes to tax time.

The latest MYOB Business Monitor found 42 percent of SMB owners still don’t have a clear idea about how the carbon tax will affect their business. Some 37 percent said they knew ‘quite well’ and 17 percent said they understand ‘very well’.

The most poorly informed industries, at 51 percent each, were agriculture, forestry, fishing and construction trade. The best-informed businesses are those in the finance and insurance industries, at 34 percent each.

The research found a distinct knowledge gap between the sexes, with 36 percent of males stating they’re ‘uninformed’ about the impact of the tax, compared with 51 percent of females.

“It is deeply concerning that our research has found such a low level of awareness about the carbon tax impact on business amongst SMEs, the engine room of our economy,” MYOB CEO Tim Reed said.

Half of small businesses surveyed believe the carbon tax will have a negative impact on their operations, with 33 percent expecting no impact and 11 percent expecting a positive impact. The remaining 5 percent did not know.

“This is a major piece of legislation that will have a lasting effect on all business owners. What many don’t realise is that the carbon tax could very well be a positive experience for those who take action now to research, plan ahead, health-check their business fundamentals and capitalise on the opportunities,” Reed added.

With this in mind, MYOB has these six steps for how businesses can prepare for the carbon tax:

1. Review your current expenses and those incurred over the past year, identifying energy intensive costs that will be affected by the inevitable energy price rises. Direct costs may be fuel, electricity and gas, and indirect costs may be business travel, freight and waste removal.

2. Gain a deeper understanding of where additional costs may be incurred by asking suppliers about the effect on their business and when they will be able to tell you their price impacts.

3. Consider locking in contracts with key suppliers now, at pre-carbon tax rates.

4. Review your important business processes and identify areas where you could be operating more efficiently by, for example, changing processes, upgrading equipment and re-training staff.

5. Analyse your current pricing and assess how the additional costs may impact your profit margins. You need to justify any price increases not only to your customers, but also to the ACCC if asked.

6. Ensure your accounting software is up to date so that the carbon tax changes are seamless.

To further assist SMBs to prepare for the carbon tax, MYOB has created a free downloadable ‘Carbon Tax Toolkit.’ The kit contains carbon tax facts, tips to help businesses lower their carbon footprint to save money, plus steps to help minimise the impacts and maximise the opportunities. We welcome all business owners to take advantage of this practical tool that we hope will make the carbon tax less taxing.

Click here to download it.

With the new financial year just weeks away, it’s important to ensure that you are planning for the year to come. Your plan doesn’t have to be long and complex—in fact, the shorter and more actionable, the better. But it does have to set out your vision for your business and what you’d like to achieve over the next 12 months.

So here are five easy steps to help unlock the potential of your business and get the new financial year off to a great start.

Step 1: Do the vision thing

The first step is to review your current plan, assuming you have one. Not only to check that you’ve achieved your goals, but to ensure that it captures your evolving vision for your business.

That’s because a good plan is more than just a budget. It also defines the things that make your business different and keep your customers coming back, especially your unique selling proposition (USP).

You may find that your business model has changed or that your day-to-day operations have drifted away from your original USP. If so, now is the time to update your plan and set a clear vision for the future.

Step 2: Set goals

A plan isn’t a plan without some concrete goals. But make sure they’re specific, achievable and measurable, then assign clear responsibility to someone in your team for achieving each one. Create an action plan with milestones for each step, then regularly follow up to ensure you stay on track. Remember, what gets measured, gets managed, so have good tracking systems in place.

Tips

• Update your plan with specific, measurable goals for the year ahead.
• Measure everything about your business, from the number of leads each month to the profitability of each product you sell.

Step 3: Check your finances

Now you know your goals, you need to make sure you have resources in place to achieve them. And with the Australian economy still not firing on all cylinders, it also pays to have a cash reserve ready in case of emergencies. Start saving some of your excess cashflow, or talk to your bank about an overdraft or line of credit. Because the best time to talk to your bank is when your business is performing strongly, not when things are tight.

Tips

• Aim to keep between two and six months expenses in reserve.
• Put finance in place ahead of time, rather than waiting until conditions tighten.

Step 4: Keep cash flowing

With average payment terms for Australian businesses remaining high (according to Dun & Bradstreet), your business may already be feeling cashflow pressure. And even if you’re not, it’s always a good idea to make sure that your cashflow systems are running at maximum efficiency.

The first step is to create a cashflow forecast, then track incomings and outgoings scrupulously. Online banking tools can give you an up-to-the-minute snapshot of your cash position at any time of the day or night. And your business banker can also help you make sure you’re using the best payment and cash management tools for your business.

Tips

• Create a cashflow forecast and track your cashflow position each week.
• Review your accounts receivables process. Make sure you’re invoicing promptly and following up overdue accounts.
• Make it easy for your customers to pay electronically—by BPAY, direct debit, funds transfer or card. That puts money into your bank account sooner.

Step 5: Put it into action

With your plan in place, you’re ready to act. But don’t keep it to yourself. Tell your vision and your goals to everyone who matters: your staff, your clients, your suppliers, your banker and your accountant. And if circumstances change, don’t be slow to update your plan and your goals—it’s a living document.

This article originally appeared in Giftrap magazine, the Australian Gift and Homeware Association’s member magazine.

For those small business owners who have not yet caught up with PSI, it essentially relates to individuals earning non-salary income, often via a company structure, through work as a sub-contractor.

There are a number of tests that a company must satisfy in order to not fall under the PSI restrictions. These restrictions limit what a business is allowed to claim in the way of allowable tax deductions as well as access to certain small business concessions.

The key tests are for PSI are as follows:

1. The business premises test

If you can answer yes to five questions relating to your business premises then you will be exempt from the PSI rules. Essentially if you have a business location separate from your home and your associates/clients and it is used more than 50 percent of the time you will pass this test. Working from home automatically means you fail this test and will need to pass one or more of the other tests.

2. The results test

You’ll pass this test if you provide your own equipment for the work you do, are responsible for fixing your own mistakes and you only receive payment once the work has been completed. Regular payments look like wages income and will be treated as such by the ATO.

3. The unrelated clients test (or the 80/20 rule!)

To pass this test you must receive income from at least two unrelated clients and must obtain your income from services that have been offered to the public at large via advertising. Just listing with a hire agency is not sufficient.

4. The employment test

If you have employees working for you and performing at least 20 percent of the paid principal work then you will pass this test and not be subject to the PSI restrictions.

Without breaking down each of the tests in too much depth in this article, (each test could easily be an article on its own) let’s jump straight into two recent rulings the ATO has made on PSI-related matters to illustrate some key aspects of PSI laws to look at the practical implications of PSI income rules.

The first case concerned the unrelated client’s test where the Federal Court has recently confirmed a decision made by the ATO that the taxpayer failed the unrelated clients test for the purposes of the Personal Service Income (PSI) in relation to a drafting business he carried on through his private company.

In this particular case, the taxpayer did not satisfy the requirement of a business to make general offers to the public for their services. The taxpayer directly contacted known associates within his industry for potential work and therefore did not comply with making offers or invitations to the public at large or a section of the public as required by section 87-20(1)(b). This is part of the unrelated client’s test that must be met in order to escape the restrictions of the PSI laws.

The ATO takes the view that if you are not openly advertising or promoting yourself in the marketplace, then the odds are you are only earning income through one or two contacts and are not really operating a true business. Unless you are able to prove without any doubt, that you have made clear, unambiguous offers to the public of your services then the ATO will treat all income and expenses as non-PSI related income.

The second case (AAT Case [2011] AATA 682) concerned a taxpayer who was operating a small IT business, earning its income through a small number of contracts. These contracts were all through a related group of businesses. The fact that the taxpayer’s income all came via a group of associated businesses denied the taxpayer the ability to pass the 80/20 rule and thus be eligible as a PSI-earning business.

The fact that the taxpayer’s clients were all related is similar to the reasoning behind the first case mentioned earlier. In sourcing all of his income via a group of businesses the taxpayer demonstrated to the ATO that he had not gone out of his way to market his services to the general public and had relied on a small number of business contacts to secure the contract income. Further, the taxpayer was also heavily penalised by the ATO for not demonstrating reasonable care in making himself aware of the PSI requirements.

By not coming clean and disclosing all of this information as soon as the ATO had made an initial inquiry into this taxpayer’s affairs, the taxpayer gave the impression of either neglect or negligence and the ATO had no choice but to penalise the taxpayer.

The difference between being caught by the PSI rules or not can be quite substantial in terms of what expenses you can legitimately claim against your business. If your income is designated as being PSI then you cannot pay any wages or income to your associates, essentially meaning your husband, wife or children in most cases.

Additionally, you cannot pay any superannuation on behalf of your spouse, even if he or she really does help out the business with bookkeeping and so on. If you operate using a trust structure then all income after legitimate expenses must be declared as income in your hands, whether as declared wages or a trust distribution at year’s end.

The PSI rules are clearly designed to catch taxpayers that have established company structures for what is essentially employment-related income. The benefits in terms of what can and cannot be claimed are often too tempting for some taxpayers. If you have such a company structure and have not met with your accountant to seek out specialist advice on whether or not you satisfy the PSI rules, then I can only urge you to make it a high priority.

The ATO is clamping down in this area and it may only be a matter of time before you as a small business owner get a phone call or letter from the ATO requesting that you satisfy the PSI rules or face a potential audit; something no taxpayer wants to face at any time.

A ‘financial roadmap’ will help improve profit and cashflow by ensuring funds will be available to spend on developing new products and services, marketing, sales, operations, customer service and human resources. If you want to grow a business you must have funds available at the right time to cover your needs.

The easiest way to develop a financial roadmap is to have a budget and a cashflow forecast. Here’s an explanation of the difference between the two:

A budget is a financial plan of what you are going to sell, what it is going to cost you and what overheads you are likely to incur. It also includes finance costs such as interest. The budget sets out how much profit or loss the business is planning to make, usually on a monthly basis.

A cashflow forecast is a plan of when the cash will flow into and out of the business. It’s important to have both because a budget may show that you’re going to make profit, but customers take time to pay and suppliers require payment, often before customers have paid you. It’s vital to plot this all out in black and white, so that you can see where the ‘peaks and troughs’ are likely to occur and plan what you’re going to do to manage them.

A budget is often required by lenders and only done for that purpose. If you do a budget for yourself as a business owner it provides a fantastic financial roadmap and helps to clarify what everyone needs to work towards for the business to be profitable and successful.

People will often say “I can’t do a budget because I don’t know exactly how much I’m going to sell.” This is a reasonable enough statement, but shouldn’t put you off developing a budget.

The best way to start a budget is to work out your break-even point, which helps you to work out how much you need to sell to make neither a profit nor a loss i.e. a zero result. Obviously this isn’t what you’re in business for, but it’s a great place to start to give you targets to work towards and to avoid losses. To work out your break-even point, the best place to begin is with your overheads, that is, the fixed expenses you incur whether you sell anything or not, such as rent, permanent staff wages, equipment leases etc.

You then need to know what your gross margin is on sales. Gross margin is the percentage you make on sales after direct costs of your product or service such as cost of the actual product or labour and materials on jobs are deducted. For example if you know that products or jobs cost you 40 percent (on average) of your sale price, that means you’ve got a 60 percent gross margin left to cover your overheads. If your yearly overheads are $600,000 you will need to sell $1,000,000 to break-even.

Once you know your break-even sales figure you can use this as a basis for your budget by entering the monthly figures into a spreadsheet and play around with increasing and decreasing the monthly sales to see what would be the impact of changes. You could also work it backwards to calculate what profit you desire and therefore what you need to sell to achieve the result. Or if you can find ways to reduce your direct costs how much impact that could have on your profit.

A cashflow forecast is similar to a budget, but looks at the situation from a cash perspective rather than a profit one. You begin with your opening bank balance, then plot in monthly what income you expect to receive, based on when and how much customers pay, against what you expect to pay out based on fixed monthly overheads and amounts owed to suppliers. It also includes items such as tax, repayment of loans and dividends which aren’t included in the budget. By doing this forecast you can see what will be your closing bank balance for each month and where you might experience peaks and troughs. Once you know what to expect, you can play around with a spreadsheet to work out how to retain a positive bank balance or when you may need funds to cover a shortfall.  By doing this at the beginning of the year, you can approach lenders with a clear picture of your requirements rather than rushing in ‘cap in hand’ begging for help to cover a shortfall you didn’t expect.

Both of these financial tools will help you to sleep easier at night and be able to plan for the best or worst in your business.

Sue Hirst is the founder of CAD Partners, a nation-wide mobile CFO “On-Call”/financial control/business accounting service for SME owners. CFO On-Call will run webinars on ‘How to develop a financial roadmap’ in May and June. To register, click here.

The surging wave of the information/electronic age that is sweeping the globe has changed the way we conduct ourselves in so many aspects of our lives and businesses. The fact that most of our transactions and interactions are recorded electronically presents its own set of risks and benefits for every individual and business.

The Australian Taxation Office has certainly been at the forefront of utilising the electronic age to conduct its affairs in terms of both compliance with the law and tax revenue collections. The assurance that taxpayers are complying with our nations taxation laws is the paramount concern of the ATO and recent successive governments, both Labour and Liberal, have increased funding to the ATO coffers to ensure that we all pay what we are legally obliged to.

The key aspect of the ATO’s compliance focus in recent times is with its data matching projects. Various industry groups have been selected, based on strategic risk assessments, and then targeted for data matching reviews. The ATO has at its disposal all banking and credit card records, property sales and acquisitions and even motor vehicle purchases as recorded by our various state motor registries. So as you can see, they have a broad database to select from.

On top of this, the ATO has its very own database of lodged income tax returns. Each tax return that is lodged has an industry code that specifies what industry your business operates within. All of the data from each industry is collated by the ATO to then form an industry average. These averages target cost of goods sold, motor vehicle expenses, wages and rent as percentages of turnover. If you then lodged an income tax return that falls outside the normal range of averages, you can expect to be targeted by the ATO. Of course, if you do fall outside the average range for your industry as determined by the ATO it does not necessarily mean you are doing anything illegal, but it may well prompt the ATO to investigate your business further for an explanation.

In a specifically targeted campaign, the ATO will be conducting a data-matching project within the building industry. They are clearly targeting the possible non-declaration of cash income and the fact that the Government is then missing out on collecting both GST and income tax on non-reported income. The ATO, using its rather wide ranging powers, has been able to secure the financial data of Wesfarmers business, Bunnings. Any client of Bunnings that holds a trade account and has made large single transaction purchases of between $10,000.00 and $3,000,000.00 will have their account scrutinised and matched up with their income tax returns and state building licenses. Any building and construction business that has had complaints lodged and recorded against its license number will obviously be a target for the ATO. Any anomalies in the data collected by the ATO are sure to see your business selected for either one of two actions. You’ll either receive a letter from the ATO asking you to explain any inconsistencies in your accounts with the option of making a voluntary disclosure of any errors or undeclared income. The second action the ATO can take is that they proceed straight to a full blown audit of your financial records.

If you’re in business and have never heard of the ATO benchmarking records, you owe it to yourself to get acquainted with them. The ATO website has a full database of benchmarked percentages for most industries nationwide. Seek out your industry and see how your business compares with the ATO benchmarks. If your financial accounts are within the acceptable ranges then you should have no need for concern, but if your business percentages are not within the ATO acceptable benchmark then action must be taken.

A review of your business’s financial accounts may well find that whilst your business does not fall within the ATO benchmarks, there is nothing illegal or unusual about your business. You may have simply had a poor trading year or perhaps timing issues in your accounting records may throw out percentages from time to time. There can be many reasons for falling outside the acceptable bands but the lesson here is that you must be prepared to explain why, to the satisfaction of the ATO.

So the message is clear: Take interest in your financial accounts and not just how much money is in the bank. Be proactive, speak to your accountant or trusted financial advisor and make sure your financial accounts are bullet proof, because I can assure you, the ATO has some serious weaponry in its arsenal and it’s ready to fire.

So you’ve been thinking about going into business or have been presented with an irresistible opportunity to go it alone. The decision to leave steady employment and go it alone should not be taken lightly! While those who do often seem to think that it’s just a matter of doing the work and the rest will take care of itself, let me tell you here and now, be very careful if this is you. Yes, that’s right, running a business will require your daily attention. So be prepared to allocate time to just running the business, apart from actually doing business, the two are NOT mutually exclusive.

Having an understanding of your own motivations and business personality will go a long way towards achieving your ultimate long-term goals. The three main business personality types are a Lifestyle Seeker, a Business Builder and a Passionate Professional. If you take some time to think about these three categories I honestly believe that you will get a clearer picture of what you are aiming to achieve in small business.

1. Getting Started

So now that you’ve thought long and hard about going into business, there are many areas that you need to educate yourself in.

One of the first aspects you will need to concern yourself with is establishing the correct business structure. This can have a significant impact on all areas of the business, but is most important from a tax minimisation and asset protection stand point. Having the proper structure in place before you start your business is vital for the following reasons.

• Effective tax minimisation
• Asset protection
• Succession planning
• Selling your business/retirement

2. ATO requirements, obligations and opportunities

I’m sure you’ve heard the old saying “there are only two certainties in life, death and taxes” Well we can’t do much about the former, that’s in your hands! But the fact that the ATO must be dealt with and taxes paid cannot be denied. Of course, how well you handle your taxes will have a major say in your ability to live a relatively stress-free business life. The amount of tax you pay is reliant on so many factors. Tax office requirements, obligations and concessions seem to be changing at an ever increasing rate, often as a result of politics, rather than good economic sense, and no small business person can be expected to keep up to date with the ATO.

To be fair, in recent years the ATO have certainly stepped up their efforts to work with small business and this, combined with changes being made by successive governments, has resulted in a number of concessions that are generally available to businesses with turnover less than $2 million per annum.

3. Insurance

Insurance is often seen as a necessary evil but should not be treated lightly. Contemplate for just a second, how you would get your small business back to operating status should you be affected by flood, fire or major theft of critical data or stock. Do your business insurance policies provide adequate cover and are they all up to date, do they cover stock or other valuable items of equipment. Other insurance that is actually compulsory is worker’s compensation insurance for your staff. You may also need to consider personal insurance such as life insurance and income protection insurance, should you be personally affected. This is especially vital for those of us with partners. Other policies that may need to be considered are key man insurance and public liability and indemnity policies. Again, these are issues that should be in place before business commences, you just never know when you might need to call on them.

4. Employing Staff

One of the biggest expenses of any business is going to be your staff. Ignoring this aspect of your business can result in disgruntled, under-performing employees who can actually do a lot of damage to a small business either directly via theft and fraud, or indirectly through the loss of your hard won reputation.

You should carefully check the awards in place with Fairwork Australia to make sure that staff are being paid the correct amount of wages, especially take note of some awards that specify various allowances and conditions relating to shifts, breaks and leave entitlements. Any underpaid staff can and will take you to the Fairwork Australia ombudsman.

5. Cashflow

Cash flow is often treated as one of the dark arts by many small business operators as they are invariably failing to understand how vital it is to the ongoing success of any business. It is important to try and start with a cash buffer as businesses in the first phase of their life cycle will often not yet be strong enough to sustain themselves. There is no exact amount I can give you, but having enough cash put aside to cover at least two months without any income would be a good start.

Keeping cash flowing through the business is dependent on a steady stream of income into the bank account. This doesn’t just mean keeping work coming in, it means focusing on your debtors on a weekly basis and having a clear and definite strategy to prevent ANY debts from blowing out to the point where your business suffers. Having this job allocated to one specific person in your business is a good start.

On the flipside are the expenses of your business. Keeping a firm control of these is also vital, as all the cash in the world will not help you if expenses are being left to run out of control. A weekly budget and forecast can assist in seeing where the money is going and will allow you to focus on key areas where savings can be made.

6. Financing your business

When we talk of finance, people often only think of the interest that loans and leases end up costing them. It is my experience that finance is not a dirty word and by purchasing costly items on hire purchase agreements and even operating leases it can free up your cash flow and create opportunities that will more than outweigh the cost of any interest.

Even the initial outlay of capital to either buy or start a new business from scratch can be financed, if your credit record allows. By doing so, you may just prevent some of the issues previously discussed from arising, namely falling behind with the ATO due to a lack of cashflow.

Establishing and running your own small business can be one of the most rewarding challenges in life if handled properly. Seeking out a core group of trusted advisers will ensure that you get off on the right foot and hopefully hit the ground running. It will never be all plain sailing but for businesses that can survive the tough times be assured that you will invariably see greater successes over the long term if you have the right strategies in place and stick to your game plan.

- John Corias is a Senior Partner at m.a.s accountants, the original accounting office for small business – Celebrating its 50-year anniversary in 2012.

Accountants often seem to abbreviate their thought process in their speech or written words, often leaving clients second guessing meanings. No more! – Have a look at the most common abbreviations and their usage.

General:

WIP – Work in Progress (accounting for certain income flows over time, as the contract proceeds)

Depn – Depreciation (to deduct assets over their expected time frame, or rather the ATO’s time frame)

Coy – Company

Accts – Accounts

Adj Jrnl – Adjusting Journal (this type of journal is usually provided at the end of the job to allow your accounting software to align with your Financial Statements and Tax Return at year end)

IWO – Immediate write off (where an asset is immediately deductible as opposed to being depreciated over its expected time frame)

ATO – no explanation needed for the Government’s principal revenue collection agency.

A/R -  Accounts receivable (those that owe money to you)

A/P – Accounts payable (those who you owe money to)

GIC – General interest charge (interest charge imposed by the ATO for late lodgement and/or penalties)

RBA and RBS – Running Balance Account or Running Balance Statement (ATO statements that provide a running balance of your BAS account)

Specific Taxes & Benefits:

FBT – Fringe Benefits Tax (A tax paid on certain benefits you provide to your employees or your employees’ associates)

FTB – Family Tax Benefit (Benefits looked after by the Family Assistance Office (not ATO!) to help families with child and other family expenses)

GST – Goods and Services Tax (no surprises here!)

LCT – Luxury Car Tax (a tax imposed on luxury vehicles over a certain threshold. Threshold of $57,466 for the 2011/12 financial year)

PAYGW – Pay as you go withholding (reporting of taxes you have withheld from your staff)

PAYGI – Pay as you go installment (a system for paying installments towards your expected income tax liability on your business and/or investment income for the current income year)

ETR – Education Tax Refund (an offset available to families in respect of certain educational materials for primary and secondary students)

ETO – Entrepreneurs’ Tax Offset (an offset available for small businesses that fall below certain income thresholds. Please note this offset is now family means tested)

HELP (formerly HECS) – A loan available to eligible students enrolled in Commonwealth supported places. A HECS-HELP loan will cover all or part of the student contribution amount. Compulsory repayments commence where your adjustable taxable income is above $47,196 in the 2011/12 financial year.

Reporting:

BAS – Business Activity Statement (the pink sheet that comes by every 3 months or annually to report your GST and/or FBT and/or PAYG requirements)

IAS – Installment Activity Statement (a pink sheet as well, but one that only reports your PAYG Installments)

ITR – Income Tax Return

Hopefully the above helps prevent you second guessing your next advisor’s email or letter.