Advice Budgeting Business Strategy Tax

BAS Tips For The Time Poor

15/09/2021

If you are a new business, doing your Business Activity Statement (BAS) can seem overwhelming.

And if you are an established business, it can seem never-ending!

In this article, we will look at a few ways that you make BAS submissions easier.

DO I NEED TO SUBMIT A BAS?

You will need to submit a BAS when you charge GST.

Generally, you don’t legally need to register for GST until your revenue is forecast to be over $75,000 per annum. You can register for GST at any point.

But it is not compulsory until it is clear you will reach $75,000 for the financial year.

If you are not registered to pay GST, you cannot charge GST. If you are charging but not paying it to the government, you have to reimburse your clients. Which can get complicated and be a little embarrassing.

It is confusing whether or not you should charge GST when you are starting out, especially if you are not sure of what your revenue will be. But it pays to get it right.

If you are not sure if you should be charging or paying GST, book in a chat with me and we can discuss what your tax obligations are and make sure you are set up correctly.

WHAT HAPPENS WHEN I NEED TO REGISTER FOR GST?

If you are a business that transitions from not paying GST to paying GST, the best practice is to notify your clients – so it is not a surprise, and add GST to the rates moving forward.

It can be uncomfortable to charge an additional fee to your clients, especially those that supported you from the start. We recommended that you communicate clearly with your clients that it is now a legal requirement for you to charge the additional 10% GST.

You can ‘absorb’ GST out of your rates. But this comes out of your pocket. Let’s look at an example:

Jenny is a VA and charges $50 per hour. She has reached the threshold and now has to pay GST.

Jenny works 30-hours / week:

  • Rate: $50 x 30 hours
  • Total: $1,500 per week

If she is to charge the additional 10%:

  • Rate: $1,500
  • 10% GST: $150

Invoice Total: $1,650

Jenny must pay $150 in GST each week, but the revenue to Jenny remains the same. However, if Jenny absorbs the GST into her rate of $50/hour, her accounts for the week will look a bit different:

  • Hourly Rate incl GST: $50
  • 10% GST: $ 4.55
  • Hourly Rate excl GST: $45.45
  • Rate: $45.45 x 30 hours: $1,363.65
  • 10% GST: $136.35

Total: $1,500

By not passing on the GST, Jenny has to pay GST of $136.35 out of her own pocket each week, which adds up.

Over the course of a year, Jenny would reduce her income by $6,500 by simply not on-billing GST.

WHEN IS MY BAS DUE?

Essentially, your BAS is a summary of all the business taxes you pay to the government during a specific period. Most Australian businesses will lodge their BAS monthly, quarterly or annually depending on the business’s cash flow.

Don’t forget that we can help you apply for GST and understand your BAS schedule if you need assistance.

WHAT DO I INCLUDE?

A BAS will include the taxes your business pays, such as:

  • Goods and services tax (GST)
  • Pay as you go (PAYG) income tax instalments
  • Pay as you go (PAYG) tax withheld

THAT SEEMS LIKE A LOT OF WORK?

It can be, but if you use an accounting platform and keeping good records as you go, it will help you stay on top of it and make your reporting a lot faster.

Your accounting program should be set up to keep records of all sales, fees, expenses, wages and other business costs – including tax credits.

Most platforms will make it easy to track GST credits and code each item’s correct GST accounting method.

You may have a bookkeeper who does most of this for you, but it is still vital to understand your obligations.

If you are processing your own BAS, you need to make sure that you understand how GST Credits work.

WHAT ARE GST CREDITS?

GST Credits are defined as the GST you have incurred as a business. They are called Input Tax Credits.

If you engaged Jenny from our example above, her invoice includes $150 GST.

The ATO will allow you to claim back the GST you have paid as credits.

As part of your BAS, you need to add up the GST you have paid or are liable to pay on your business expenses, which you will offset against the GST you have collected.

QUICK GUIDE TO CLAIMING GST CREDIT:

  • Only claim GST Credits on the business portion of purchases
  • Don’t claim GST on private expenses, such as food or entertainment
  • Claim GST credits upfront for purchases under hire purchase – if you account for GST on a cash basis
  • Claim GST credits on the Australian dollar value when claiming invoices in a foreign currency

AVOIDING ERRORS

We all want to get our BAS reports out of the way quickly, but an error from rushing can lead to bigger headaches in the future. A few things that you can do regularly to ensure accuracy in your reports include:

  • Checking GST is included on invoices you issue for sales
  • Make sure invoices are only counted/entered into your system once and not accidentally duplicated
  • Check you are using the correct formulas to work out GST
  • Have a separate column for GST in your cash book

Finally, you will need to keep all your tax invoices and other GST records for five years. Having a bookkeeping system that you save all your receipts and invoices in can make this easy to store and access if you ever need to.

HOW DO I LODGE MY BAS?

You can lodge your BAS online through the MyGov portal, or a registered tax agent like us can submit them on your behalf. Don’t forget; we can also help you set up or run through refresher training in your accounting platform to help you streamline your processes.

Advice Budgeting Business Education Strategy

Small Business & Cash Flow

27/08/2021

When we talk about Cash Flow, we are talking about the money coming in and going out of your Business.

With so many transactions undertaken via payment gateways such as Credit Cards, EFT, Paypal, Afterpay and even digital currencies such as Qoin, ‘cash’ is a term that can be a little confusing.

How often you review your Cash Flow will depend on your Business’s size and the number of transactions. Generally speaking, a monthly review of your Cash Flow is best practice. However, each Business has a different structure, and you may benefit from more frequent reviews.

Why is Cash Flow so important for any business?

Improving your Cash Flow Management can help you anticipate and prepare for any significant upcoming expenses, such as Tax Bills or Supplier Invoices.

Small Businesses often operate with small margins, which means a large and unexpected bill can be stressful. Even the small invoices can add up and snowball when you start getting behind.

It’s common practice to wait for an account to be settled, so you can use that cash to pay your outstanding debts. Managing your Cash Flow means prioritising debtors and being proactive about overdue accounts. It helps to understand your financial position and prepare for a ‘rainy day’, or confidently invest in your business with a full understanding the financial risks and benefits.

Cash Flow can also help you with:

  • Better reporting
  • Clearer goal setting and tracking
  • Informed financial decision-making

Good Cash Flow Management means you will have the money available for paying expenses when they are due. If your debts become unmanageable, Banks may foreclose and your suppliers could cut supplies.

Cash Flow Management is a strategy to reduce the stress of managing your business finances, and ensure your hard-earned money is going where it is most needed.

What is the difference between Cash Flow and Revenue?

Revenue is the total amount your Business has generated from the sale of products and/or services.

For example, you sell a product for $200.

  • It costs you $50 to make the product.
  • Your revenue is $200.

Your Profit is the difference between revenue and cost. So in the above example;

  • Your Revenue ($200) minus the Cost ($50).
  • Your Profit is $150.

Your Expenses are the funds coming out to pay your suppliers and expenses. In the above example;

  • That $50 it costs you could be:
    • $40 Manufacturing.
    • $10 Postage.

Your Cashflow is:

  • Revenue: $200
  • Expenses: $50

‘Cash’ or funds in your bank account: $150

How does Cash Flow Management work?

Cash Flow Management is the process of monitoring, analysing, and optimising the money coming in and going out of your Business.

For Small Business, the most important aspect of Cash Flow Management is avoiding an extended Cash Flow shortage. This occurs when you have an overly large gap between incoming and outgoing funds for an extended period.

Quite simply, if you can’t pay your bills and they start compounding, most Small Businesses will struggle to stay afloat.

What tools/methods do you use to manage Cash Flow?

Properly using an accounting system will help you track your Cash Flow and plan for upcoming key dates. Importantly, they can make it easy to produce financial statements such as Cash Flow Statements and Profit & Loss Statements (P&L). If you can better understand your Cash Flow, you can manage it more effectively.

If you don’t understand anything in the statement or your accounting system, talk to your Accountant or Bookkeeper. It is well worth the investment to sit down and make sure you understand the full financial position of your Business.

If you don’t think you are getting the full potential out of your Accounting Software, consider investing in training with your Accountant.

How to keep track of your Small Business Finance and Cash Flows?

By planning your Cash Flow and anticipating financial deadlines – from loan repayments to tax deadlines, you can reduce a lot of financial and personal stress so you can focus on building your Business.

Your Cash Flow Statement is just a type of financial report. If you are using an accounting system, the report is automatically generated by reconciling your income and expenses. If you are reviewing or doing a self-audit on your Cash Flow report, you will be looking at the underlying account balances.

Begin by auditing the balances that make up the balance sheet and income statement.

  • Have all of your income and expenses been put through your accounting system?
  • If you know your insurance is due on the same day every month, are you able to enter that into your Cash Flow to account for it in the future?

It’s important to note that the Profit & Loss Statement doesn’t take into account any loan repayments or drawings you have made from the business.

If you are new to accounts, getting your accounts in order can seem overwhelming. But if your financial transactions are entered regularly and correctly, you will have an up-to-date understanding of your Business financial position.

It will allow you to make informed financial decisions and lay the foundations to understand where you can make savings or improve revenue.

Can a profitable business have a Cash Flow Problem?

In short, yes. As mentioned earlier, one of the biggest Cash Flow issues is an extended cash shortage.

Consider that you have taken on a large contract with a 25% upfront deposit. The balance is due on completion of the project, but you still have to cover your operating expenses in the meantime.

The sizeable contract will cover your operating expenses with a reasonable profit. However, the 25% upfront deposit only partially covers operating costs to complete the project.

Your Business is profitable: Upon completion of the project, you will receive a sizeable profit.

However, you have a Cash Flow Problem until you receive your final payment – especially if your account takes longer to settle than anticipated.

You might not have enough money to cover payroll or other operating expenses during a Cash Flow shortage.

Importance of Managing your Cash Flow

Many businesses start from something you are passionate about, and your passion probably isn’t doing your accounts. If you are a Business Owner, it is important that you are on top of your Cash Flow and regularly reviewing debts, expenses and revenue.

Outsourcing your Bookkeeping and/or a strategy session with your Accountant can be instrumental to keeping on top of your Cash Flow, managing your financial stress and making informed financial business decisions.

We are here to help. Book a confidential appointment with Amanda to see how we can help your Business.

Business Strategy

10 Tips For Starting A Small Business

20/05/2020

If you’ve thought about opening your own business, you might have begun to look for advice. There are so many tips for starting a new business out there that choosing which ones to follow can get confusing.

As a seasoned entrepreneur, I can tell you that there is no perfect formula for starting a small business. I’ve learned that the best business advice usually forces you to think in a new way. So, I’ve compiled a list of tips for starting your own business that you might not have heard.

Tips for starting a small business

Opening your own business is often a learn-as-you-go process. But, the more smart decisions you make early on, the better chance your company has for success. If you have an entrepreneurial idea, try these ten tips.

1. Address excuses

Countless people dream of becoming entrepreneurs, but they never do. They’re burdened with excuses and fears of failing. From money to time to responsibilities, you can make a million cases for not starting a business.

Let’s face it, being your own boss is scary. In most cases, new business owners have a lot to lose with little insight into their chances of success. Worrying about the risks of business ownership is normal.

But, excuses only slow you down from reaching your goals. If you really want to start a business, you need to address the reasons you think you can’t start a business and get rid of them. Find a solution to the issue rather than let it hold you back.

2. Absorb everything

Listen to what others have to say—friends, family, experts, even yourself. When it comes to things that have to do with your entrepreneurial goals, be a sponge. As you learn, start to work out the idea in your head. Write things down. Keep notes from all the resources you come across to develop a detailed plan.

When you tell people about your startup, read their body language. Do they like the idea? Or, are they just being nice and really think you’re going in the wrong direction? Encourage your listeners to be honest with you. The collective opinion you get from peers could be a reflection of how consumers will react.

Don’t ignore the power of advice from experts and veteran business owners. These folks know first-hand what does and doesn’t work. Smart entrepreneurs learn from the mistakes other business owners have made.

3. Be a solution

Rather than starting your idea with what to sell, think about what it will solve. It’s a lot easier to gain a solid customer base when your business is fixing a problem. Your startup should fill a hole in a certain market or niche.

For example, I didn’t create Patriot Software just because I had a passion for software. I wanted to solve an issue that small business owners like me faced. After doing some research, I found I could provide payroll and accounting software that is easy-to-use and affordable.

Home in on why you are opening your own business. Understanding your motives will help you create a brand and market your company. Know what problems your target customers face and how you can solve them.

4. Keep it simple

If you’re like many entrepreneurs, you have a business idea and you’re ready to run with it. Be careful not to let your concept snowball into something overcomplicated. You could end up with an expensive, elaborate end-product that nobody wants to buy.

As a new business owner, try to start small and narrow your focus. Learn how to test your business idea. Create a simple, quality good or service. A successful business idea should fulfil promises to customers and exceed expectations.

Cut unnecessary features that water down your offerings and cost you money. As a small business, you don’t need all the bells and whistles of a giant corporation. It will be easier to add to your business as it grows.

5. Count the costs

Once you start to develop your business idea, add up how much it will cost. You will need to factor in every business expense necessary to launch and operate. Some costs to keep in mind include your location, rent, supplies, marketing, and more.  

Come up with the most educated number you possibly can. Then, take whatever you think that dollar amount is and quadruple it. Seriously, quadruple it. You’ll experience unexpected costs of running a business around every corner. It’s better to be over-prepared than short on funds when bills start to roll in.

When you’re thinking of the cost to start a business, don’t forget about your personal budget. Look at how much money you need to live, including rent, food, gas, healthcare, etc. Lay these expenses out in order of which ones you must pay (e.g., mortgage) to ones that can slide if the money runs out (e.g., entertainment).

Once you have a grasp on all your expenses, start to create a business budget. At first, you might need to get some outside capital to make ends meet, like a small business loan. Go over all of your options before putting your money into the startup.

6. Imagine yourself with zero money

I mean zero. There is a high probability that this will happen. I’ve had several businesses not make it for the long haul. And, I’ve come close to bankruptcy.

Launching an unsuccessful business idea is a reality for many entrepreneurs. Over half of new businesses fail within the first five years of opening. How would you handle having no incoming money?

It’s a good idea to come up with a “just in case the worst outcome happens” plan. You might need to get a job on-the-fly or temporarily live with your parents. You might have to go without comforts that you’re used to. Figure out how you would get by if your business plan went south.

Look at your current sources of income. What do you earn from your current job? How long would your savings last if you quit? What unexpected things could mess up your plan (e.g., you wreck your car or your furnace breaks)? Prepare yourself for all the situations that could happen if the business idea doesn’t work out.

7. Earn while you build

If you want to start a small business, don’t quit your day job—yet. Launching a successful startup is a process. Build your business in stages and gradually transition from employee to entrepreneur.

As a new business owner, it will take some time to earn a steady income. Keep your nine-to-five and work on the business during off hours so you can earn during those tough, first stages. Once you have a healthy inflow of cash from your company, you can tackle business ownership full time.

8. Speak up about your business

One challenge many business owners face is that they don’t know how to sell. It can be intimidating to share your business with the world, especially when you’re new.

If you’re worried about what people will think about your business, you need to get over it. If you can’t convince consumers to buy from you and support your company, it’s difficult to make money. Not outgoing? Fake it ‘till you make it. If you really want business success, you can’t afford to be shy.

In my early days as an entrepreneur, I had to to do public speaking for the first time. Back then, I didn’t have any training or experience in talking to large groups of people, not to mention I wasn’t very keen on the idea of facing my worst fear.

But, if I wanted my young company to succeed, I need to to get out of my comfort zone. This came in the form of planning and hosting nearly 70 three-day conventions for my customer base of network recruiters.

I can’t begin to tell you how afraid I was. As it turned out, I became a lot more comfortable in front of people after speaking at the conventions. Though I was more introverted than extroverted, I learned to “put myself out there” for the sake of my business.

Be ready to speak confidently about your business, even if it makes you uncomfortable. As a new business owner, you will need to market and network constantly. From networking with clients to negotiating supplier payment terms, you must be able to communicate.

9. Know the legal requirements for starting a small business

Starting a business is exciting. Laws are not. But, you need to understand the rules that come with opening a business. If you fail to follow government regulations, you could face steep penalties.

From forming a legal structure to setting up an accounting system, you must follow laws. You need to register the business with your state. You must also take care of business-specific tax liabilities. And as you hire workers, you need to follow employer laws.

The rules that apply to you depend on your state, business structure, and industry. Consider talking to a small business accountant as you set up your company.

10. Balance passion with wisdom

One of the most important ingredients in a successful business idea is passion. Passion will consistently drive you to improve your process so your business grows.

That said, don’t let passion take over all your decisions. Passion will move you forward, but knowledge will point you in the right direction.

Conduct market research on your industry and talk to target customers to find out your business’s potential. Ask experts questions about launching a startup. Reach out to professionals that can help you with certain areas of business, such as financial advisors and lawyers.

As your business starts to come together, think of it like driving a car. Let your passion hit the gas pedal and your mind control the steering wheel. That way, you can be confident about the direction you’re headed and sustain the momentum you need to get there.

Source: Forbes.com

 

Advice Budgeting Business

JobKeeper eligibility explained: Everything we know so far

22/04/2020

The Morrison government’s $130 billion JobKeeper wage subsidy package passed through parliament on Wednesday, giving effect to the largest single piece of fiscal policy in Australian history.

But the question on the mind of more than 730,000 businesses heading into the Easter long weekend remains whether or not they’ll be accepted into the scheme, which will provide $1,500 fortnightly payments for each eligible employee on their books.

About six million workers are expected to be covered by the program, but many businesses remain nervous about their prospects heading into April, as the Australian Taxation Office (ATO) prepares to begin accepting formal applications.

Despite reassurances that officials will look to be inclusive rather than excluding well-meaning firms, there are still more questions than answers about the types of business activities the ATO will be taking into account when considering eligibility.

Legislation passed through parliament yesterday outlines how the JobKeeper scheme will work for those accepted into the program, but includes far fewer details about eligibility requirements and the application process.

Under the laws, which amend the Fair Work Act temporarily, Treasurer Josh Frydenberg has been granted broad powers to pen additional rules about eligibility under the program, including the manner in which payments are made, the process for reviewing decisions and record-keeping requirements.

Treasurer and tax commissioner have broad powers

The making of these rules can be delegated to tax commissioner Chris Jordan by the Treasurer, enabling officials from the ATO and Treasury to maintain a large degree of flexibility about which businesses and workers will and won’t be eligible for JobKeeper payments throughout the life of the scheme.

It’s been designed that way to enable officials to modify and update the JobKeeper framework as the program progresses, preventing a situation where the ATO is forced to rule out businesses based on regulations already enshrined in the Fair Work Act.

These rules may cover:

  • Eligibility criteria for JobKeeper payments;
  • How JobKeeper applications must be made;
  • Whether a payment will be made in instalments or a lump sum;
  • Entitlement to payments or instalments;
  • The amount of JobKeeper payments;
  • When a JobKeeper payment should be made;
  • Conditions for applying to the JobKeeper scheme;
  • Providing information or notices; and
  • The rights, obligations and liabilities of JobKeeper recipients and other entities that benefit from those payments.

At the time of writing on Thursday morning, the JobKeeper legislation has not received Royal Assent yet. While this part is largely a formality, it limits what the ATO is able to say publicly about the scheme.

SmartCompany is expecting responses to a list of questions about the administration of the program next week; we’ll update this article when that information becomes available.

What we know so far

We already know a fair bit about the approach the ATO will be taking though. The headline eligibility requirement for employers and sole traders, updated by Treasury last Sunday, involves:

  • Businesses estimating their turnover has, or will likely, fall by 30% or more (where turnover is under $1 billion);
  • Businesses estimating their turnover has, or will likely, fall by 50% or more (where turnover is over $1 billion).

Businesses are expected to provide evidence, such as with business activity statements (BAS), of these revenue declines.

Most businesses will be required to prove their turnover has fallen over the course of a month or quarter (depending on their BAS reporting period), relative to their turnover in a corresponding period a year earlier.

Turnover will be calculated in the same way it is for General Sales Tax (GST), which is reported on BAS statements.

The headline criteria published Sunday is slightly more flexible than previous guidance initially outlined by Treasury, which required firms to show a 30% decline on a comparable period a year ago, of at least a month.

Firms which don’t meet the criteria will be relying on “tax commissioner discretion” to have their applications approved.

Treasury says firms which have not been in operation for 12 months, or which can show their turnover a year ago was “not representative” of their usual average turnover, will fall under this discretion category.

Firms which have undertaken acquisitions or have typically highly variable turnover have been singled out by Treasury as candidates for eligibility discretion.

“The Tax Commissioner will have the discretion to consider additional information that the business or not-for-profit can provide to establish that they have been significantly affected by the impacts of the Coronavirus,” Treasury said on Sunday.

The ATO will also have the discretion to set out alternative tests for firms, with Treasury saying there will be “some tolerance” for businesses which, in good faith, estimate a 30% fall but experience a slightly smaller decline.

What employees are eligible?

This part has not changed too much since the JobKeeper scheme was first announced on March 30. Although under the laws passed Wednesday, the Treasurer and tax commissioner have broad powers to change eligibility rules for workers.

As it stands, the following workers are eligible for JobKeeper payments:

  • Full-time and part-time staff; and
  • Casuals employed on a regular and systemic basis for longer than 12 months as of March 1, 2020.

There are additional requirements staff need to meet as well:

  • Staff must be currently employed by an eligible employer (including those stood down or re-hired);
  • Eligible staff must have been employed on March 1, 2020;
  • Staff must be at least 16 years of age as on March 1, 2020;
  • Staff must be Australian citizens, the holder of a permanent visa or a 444 visa holder as of March 1, 2020;
  • Staff must be residents for Australian tax purposes as on March 1, 2020;
  • Staff must not already be receiving JobKeeper payments from another employer;
  • Employees cannot be receiving parental leave pay from Services Australia; and
  • Employees on workers compensation will only be eligible if they’re working (even on reduced hours).

I’m a sole trader, what about me?

Sole traders are eligible to apply for JobKeeper payments and can register alongside all other businesses.

Firms without employees are required to provide their ABN and then nominate an ’employee’ (that’s the sole trader in most instances) to receive the payment alongside that person’s Tax File Number (TFN).

Sole traders must also have included assessable income from their business in their 2018-19 tax return and lodged taxable supplies between July 1, 2018, and March 12, 2020. This is basically a test to ensure an applicant has been operating their business.

Sole traders must have had an ABN on or before March 12, 2020, and have been “actively engaged” in their business.

Eligible sole traders must also meet the same age, citizenship and visa status requirements as employees (explained above).

Sole trader payments will be made monthly to a nominated bank account.

Other than this, the same eligibility criteria apply to sole traders as other businesses regarding turnover decline and ATO discretion.

Businesses operating through partnership structures can only nominate one partner to receive the JobKeeper payment, but where shareholders provide labour to the company but receive dividends in lieu of wages Treasury says one shareholder can be nominated for JobKeeper.

Sole trader structured firms with employees will be eligible to receive one JobKeeper payment for the director and other payments for eligible employees.

Source: SmartCompany

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