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Starting or Buying a Business
Starting or buying a business necessitates research, risk, passion, courage and planning. The harsh reality is that enthusiasm, money, hard work, talent or a great idea is not enough to guarantee success in business.
To succeed you need to make the right opening moves and over the years we have mentored hundreds of clients through the business start-up phase. We have earned a reputation as a business start up specialist and developed a number of practical tools and checklists to help you fast track your business success.
According to 2011 Doing Business report by the World Bank, Australia is the second easiest place in the world to start a business with entrepreneurs needing only two days to get a business registered and operational. However, statistics from the Australian Securities and Investments Commission (ASIC) indicate that 10,746 companies entered external administration in the 2013 financial year, almost the same number as the previous year. Clearly, the old saying, ‘people don’t plan to fail, they just fail to plan’ still applies and and it remains both valuable advice and a warning for people intending to start a business.
If you are starting or buying a business the evaluation and establishment phases can be periods of great anxiety due to a combination of excitement, uncertainty and financial risk. Clearly the risks are real and the Australian Bureau of Statistics suggest that 42% of new businesses won’t be around in 3 years time. If you think buying a franchise reduces the risks consider the results of a franchise study in 2008 that revealed:
· Only 81% of franchisees are profitable
· 58% of franchisees generate a profit of less than $50,000 per annum
· 3% of franchisees generate a loss of more than $50,000
These statistics are not meant to be a deterrent. They simply support the importance of planning and professional advice. Make no mistake, the small business journey can be challenging but it can also be very rewarding and there are a number of issues to consider in the start-up phase including:
- Business and Tax Structure - taking into account asset protection, tax minimization, discount capital gains tax concessions and the likelyhood of admitting new partners or investors in the future
- Site selection and the Lease on Your Premises
- Tax registrations including ABN, GST, TFN, WorkCover
- Accounting Software Selection - match your business needs with your level of accounting skill
- Insurances - the most appropriate types and adequate level of cover
- Finance - set-up costs including IT, equipment, vehicles and possibly the purchase of the business
- Legal Issues - including wills, contarct, finance and property lease
This is really the tip of the iceberg and we urge you to prepare a business plan including a cash flow budget so you know the venture is financially viable and you have a clear plan for the direction of the business. Templates for both of these planning tools are available for free from our offices together with our Business Start-Up Expense Checklist that is designed to help you identify every possible start up cost for your business. The checklist is broken down into categories including leasehold improvements, IT, marketing, capital equipment, furniture & fittings, professional services, licenses and permits, initial stock and working capital. These figures can then feed into your cash flow budget to help you identify your finance requirements.
MARKETING YOUR BUSINESS START UP
A great idea or a revolutionary product is not enough to gurantee business success. In the digital age your marketing can be the difference between boom and doom and one of our biggest points of difference with other accounting firms is our marketing expertise. We can assist you with your branding (business name, logo and slogan) and where required, we can also help you create a corporate brochure and harness the power of social media to win more customers.
Unfortunately a lot of entrepreneurs focus almost exclusively on their product or service and then cram their marketing in at the last minute. As a consequence, their websites are often nothing more than electronic billboards that simply list the who, what and where of the business. In the digital age your website is your marketing hub and it demands a lot of planning and attention. The truth is, your website is never 'finished' and it remains a constant work in progress because Google and the other search engines demand fresh new content.
Over the past few years we have worked with dozens of clients to help them create affordable, lead generation websites with incredible functionality including an email marketing system, a blog, calls to action, lead magnets and landing pages. If you need direction with your website contact us today because we can assist you with everything from your design to your content including video production. No job is too big or too small for the team here at MGR Advisory Group.
We'll also introduce you to strategies like re-marketing, social media advertising and search engine optimization that can drive more visitors to your website. We'll make sure your website is responsive to mobile devices (click here to check your current website) and we strive to give you a serious competitive edge in your industry. The fact is, if you aren’t using some of these marketing tools and techniques then your business probably won't reach its full profit potential.
THE RIGHT OPENING MOVES
Our role is to support and guide you through the start-up maze and it all starts with the right opening moves. Unfortunately many people starting or buying a business fail because they didn't seek or receive the right professional advice at the start. Having assisted so many people in your situation you can benefit from our experience and we genuinely believe you want more than just basic accounting and tax compliance services from your accountant. In fact, our client brief includes helping you grow your business, your revenue and profits and in time, build your personal wealth.
Michael Gerber pointed out in his best selling book ‘The E Myth’ that, “Most people work IN their business. The secret is NOT to work IN it, it’s to work ON it so that you don’t have to work IN it.” While you’ve probably heard it all before the fact is, most business owners struggle to find the time to work on their business because they’re caught up in the day to day operations. They have simply created a job rather than a business that works independent of them.
Our business coaching services are both broad and deep and if you need a business plan, succession plan or financial blueprint for the future we can help you. We have the knowledge, tools, resources and experience to turn your ideas into profits. We aim to make your financials more meaningful and when you work with us you have a true business advisor committed to your results.
We are passionate about your business success and to help our clients we have published a comprehensive guide titled 'Starting or Buying a Small Business'. This 45 page booklet provides valuable information on a number of key issues that confront clients starting or buying a business in Australia including :
- Alternative Business Structures and their Taxation and Legal Aspects
- Essential Tax and Business Registrations when Starting or Buying a Business
- Employer Obligations including Superannuation, PAYG and WorkCover
- Record Keeping Requirements and Accounting Software Options
- Legal Issues including Wills, Contracts and Leases
- Permits & Registrations - Council & Government
- Buying a Business or Franchise
- Preparing a Business Plan
- Key Business Insurances
- Preparing a Cash Flow Budget
- Vehicle & Equipment Finance Options
- Alternative Methods of Claiming your Motor Vehicle Expenses
Excerpts of the booklet are below and full copies are available from our office.
EXCERPTS FROM OUR BOOKLET
Accounting Software For Small Business
Statistics suggest the average business owner spends 109 hours a year on their tax obligations so your choice of accounting software is critical. One of the biggest mistakes small business owners make is that they purchase accounting software beyond their business needs and level of accounting skill. This can lead to considerable frustration and business records that amount to nothing more than a computerised shoebox.
The wrong software can also add to your accounting and bookkeeping costs while our mission is to help you reduce the cost of compliance. With so many accounting software programs available it's easy to become confused because they range in functionality and sophistication with a price tag to match. To assist you we provide the following basic software guidelines:
- If you don’t understand double entry accounting (i.e. debits, credits and journal entries) then avoid sophisticated accounting software programs. If you need to use these types of programs because your business needs functions like stock control, point of sale or a full blown general ledger then consider undergoing a training course at a local TAFE.
- Don’t buy software beyond your business needs. If you don’t need inventory or a fully integrated general ledger system don’t use a sledgehammer to crack a nut.
- Your software should be compatible with our general ledger system to allow easy transfer of electronic data. This can save time, money and assist with meeting the various taxation lodgement deadlines including your tax return and BAS's.
Before you decide on which program best fits your business you also need to make a decision on whether you want to use a cloud based program (online) or a conventional software product that you load on your computer. Increasingly our clients are opting for cloud based bookkeeping solutions because of the flexibility and the fact that you can run your business from home, work or on the go. The cloud also has the benefit of 24/7 access and all you need is an internet connection and your password.
You can access your financial data via the internet and invite your accountant or bookkeeper to view your accounts at the same time. This means you can get bookkeeping assistance and valuable advice in real-time. Log in online anytime, anywhere on your Mac, PC, tablet or smart phone to get a real-time view of your cashflow. Your data is completely secure, even if your computer is lost or stolen. Your data is automatically backed up and stored at various secure offsite locations.
All your invited users have access to the latest version of your financial data and you never need to worry about installing software or updates. Your data is never out-of-date and provided your subscription is current, software updates are automatically available when you login. Large upfront fees and switching costs are eliminated using cloud based solutions. These services run on a pay as you go basis so you only pay for what you use and the costs are 100% tax deductible.
Ultimately the idea is to let you spend more time working ON your business and less time on your record keeping. We support a number of cloud based programs like Xero and if you would like a demonstration of a cloud based software solution to assess the suitability to your business, contact us today.
In terms of actual products, MYOB and QuickBooks have a range of products including online products. They are very popular accounting software programs in Australia but they don't suit a lot of business owners who lack formal accounting training. While we certainly support those programs (plus others) we find many people need to engage an external bookkeeper because they don't know how to use these programs. This involves unnecessary costs and experience tells us that most business owners simply need a bookkeeping program to track receipts, payments and GST. You might also require an invoicing and payroll module in your business. Subject to your business needs and level of accounting skill we strongly recommend Cashflow Manager because of its relative simplicity. It looks and operates like a manual cashbook complete with a spreadsheet or column layout and it requires no understanding of accounting principles including debits, credits or the distinction between assets, liabilities or equity.
The program provides business templates that automatically establish columns for certain business types and it represents excellent value for money. More importantly, it could slash your compliance costs. Reconciling your data to your bank account is also very simple and if you use internet banking you can download your bank statements and import the data into Cashflow Manager to save even more time. You can have multiple bank accounts in a single business file and the comprehensive reports explain your business results and make preparation of your BAS very easy. The program includes the debtors function so you can generate tax invoices, track your debtors and produce regular customer statements. If you have staff you can add ‘Wages Manager’ to process pays, print payslips, Annual PAYG Payment Summaries and track staff entitlements.
There is no need to undergo lengthy or expensive software training courses and our staff can teach you the basics is less than 30 minutes.
Business Plan & Cash Flow Budget
While the main reason most people prepare a business plan is to raise finance, your business plan should also prove the viability of your business venture. Included in the business plan is a cash flow budget and a positive cash flow is an absolute necessity if your business is to succeed. Positive cash flow just doesn’t happen, it needs to be planned. That’s why we strongly recommend the preparation of a 12 month cash flow budget before you start the business. In fact, any business that fails to accurately forecast its cash flow in the first 12 months is on a collision course because without realistic cash flow projections, management is unable to identify future cash shortages.
The cash flow budget is based on a number of assumptions regarding the expected future performance of the business. The assumptions must be realistic and supported by research, available data plus known facts such as rentals or forward contracts. The information in your cash flow budget is designed to:
- forecast your likely cash position at the end of each month
- identify any fluctuations that may lead to potential cash shortages
- plan for your taxation payments
- plan for any major capital expenditure, and
- provide prospective lenders with key financial information
Of course, positive cash flow alone is not enough. The business must be returning a profit and the long term trend for both must be positive.
Under common law principles, You and your employees have certain obligations to each other. You also have obligations under Federal and State Territory laws, industrial awards and agreements, tribunal decisions and employment contracts.
If you have employees you must register for PAYG Withholding and withhold amounts including:
- Income Tax for employees (including working Directors of a Company)
- Withhold 46.5% from payments to suppliers who cannot quote an ABN
Before you withhold any payments, you need to register for PAYG Withholding. This can be completed at the same time as your your GST registration and means that you will have either quarterly or monthly reporting requirements. If you operate as a sole trader or partnership, the Tax Office do not regard you as your own employee and you ‘draw’ funds from the business to live on but this is not technically seen as ‘salary and wages’. As such, there is no need to register for PAYG Withholding and withhold amounts from your drawings unless the above examples apply.
Superannuation for Employees
The Superannuation Guarantee Scheme, administered by the Taxation Office, requires all employers to provide a prescribed minimum level of superannuation support for each employee (and some contractors), subject to limited exemptions including :
- You paid a salary or wage of less than $450 in a month, or
- The employee is Under 18 years of age and worked less than 30 hours a week, or
- The employee is Aged 70 years or over
Employers must make the superannuation contributions on at least a quarterly basis. Payments must be made within 28 days of the end of each quarter.
- 1 Jul – 30 Sep due by 28 Oct
- 1 Oct – 31 Dec due by 28 Jan
- 1 Jan – 31 Mar due by 28 Apr
- 1 Apr – 30 June due by 28 Jul
If you fail to pay the minimum level of support (9.5% for the year ended 30th June 2016) by the prescribed deadline you are liable for the Superannuation Guarantee Charge which is equivalent to the amount of the shortfall plus an interest component and an administrative charge.
Insuring Your Business
Insuring your business premises and your assets is a critical part of establishing a business. For new business owners insurance can seem like a costly addition to an already long list of expenses, however, if your business is uninsured you may never financially recover from a natural disaster, burglary, act of vandalism, fire or storm.
Asset protection includes addressing your specific business insurance needs and making sure you are covered for the unexpected. The size and nature of your business will generally determine the type of insurance coverage you need and it is important not to let your coverage fall behind as your business grows or diversifies. A periodic review of your insurance policies is recommended for this purpose and some or all of these additional insurances could be required depending on your circumstances:
· Public liability to cover customers, clients and visitors
· Cover for contents, equipment, stock, furnishings and fixtures
· Professional indemnity insurance if your business is in a service industry
· Product insurance if your business is in a manufacturing industry
· Motor vehicle insurance if your vehicle is used for business purposes
· Personal injury and/or income protection, particularly if WorkCover is not applicable to your business
Employees may be entitled to a limited amount of sick pay from their employer but worker’s compensation only covers you for work related injuries, a small percentage of the causes of disability. On the other hand, an income protection policy will pay you up to 75% of your income (salary plus super and any other benefits) allowing you to maintain your lifestyle and keep paying your mortgage and other debts.
Legal Issues & Contracts
There are a number of key areas where a solicitor can assist you such as contracts and agreements, negotiating your commercial or retail lease, insurance claims and representing your interests in dispute resolutions with authorities or other businesses. If you require a solicitor please contact our office for a referral.
A contract is a binding legal agreement, which is created when there has been an offer, an acceptance of the offer, consideration (usually the price of goods or services supplied) and an intention by the parties to enter into a legal relationship. There are many types of contracts that will affect your business. Not only will you contract with your customers but you will potentially also enter into agreements concerning contracts:
- for the purchase of a business
- for the lease of your business premises
- for the supply of financial services such as an overdraft facility
- with suppliers and customers including the terms of trade
- of employment with your employees
- for the supply of telephone, internet and utility services
With customers, it is important to establish a system that records your terms of trade so that you avoid disputes later on. It can help with the collection of bad debts and the system could be as simple as providing a quote that the customer accepts by signing. Commonly the terms of agreement are often specified on the back of quotations. Remember, if a contract has not been signed it does not necessarily mean that there is not a legal contract. A binding legal agreement may have been established by other means, such as the conduct of the parties and what was said between them.
A lease is a special type of contract between the lessor (the owner) and the lessee to use the property. A lease can relate to land and buildings or to personal property such as motor vehicles, photocopiers and telephone systems. Where the lease relates to land and buildings the owner is called the ‘landlord’ and the lessee is called the ‘tenant’.
The terms of the lease are generally negotiated between the landlord and the lessee and the main issues that need to be addressed in the lease include the term of the lease, the amount and frequency of the rent, details of the tenant's responsibility for the property outgoings, permitted uses of the property, the option if applicable and the bond or bank guarantee if applicable. It is advisable to consult with a solicitor to assist you in negotiating the terms of your lease.
Most leases hold the lessee responsible for keeping the premises, fixtures and fittings in good repair. Many leases provide for payment of all or a portion of the rates, insurance, maintenance and so on. Make sure these are clearly stated as they are additional to your base rent. If you vacate the premises before the lease expires you may still be liable for payment of rent and ongoing costs if a new tenant cannot be found. Before signing the lease the lessor must provide the lessee with a signed copy of the lease. If the lease is for a retail shop, the lessor is also required to provide a Disclosure Statement to the lessee at least seven days before the lease is entered into. Both parties should make sure that they speak to their solicitor, accountant, the local council (to be sure there is approval for the use) before they sign the lease.
Do You Need A Will?
Making a Will is something we all know we should do, but like exercising daily and eating a balanced diet, it’s something many of us never get around to until it’s too late. It is one of the most important documents you will ever sign because you are ‘giving away’ almost everything you own. It is therefore important to ensure it reflects your current wishes and distributes your estate in the most beneficial and tax effective way. You must be 18 years of age and be of sound mind, memory and understanding to make a Will.
A Will is the foundation of good estate planning. It’s critical to obtain competent legal help in drafting your Will because a poorly drafted Will can be the cause of endless trouble for your surviving family and beneficiaries. Dying without a Will can be costly and creates added stress for your family at a time that is already difficult. In addition, you risk your estate being distributed according to strict Government requirements rather than your wishes. This makes your estate difficult to administer and it will take longer to be finalised, resulting in increased costs. You may also lose the choice of who benefits from your estate.
What Do You Need to Consider?
- Do you have an effective, current Will?
- Do you believe you may require the creation of more complex trusts within this Will?
- Do you have beneficiaries with special needs?
- Are you concerned there won’t be enough money to satisfy your family’s needs in the future?
- Do you need to consider any tax or other implications of your estate planning arrangements?
- Who is to benefit from your Life Insurance and Superannuation?
- Do you have property held as tenants in common?
- Does anyone but you know where your tax records and documents are located?
- Does anyone know who your Accountant is? Your Lawyer? Your Broker?
We recommend you review your Will every couple of years, or whenever your circumstances change such as starting a business. Call our office if you would like to discuss any aspect of your Will or require a referral to a Solicitor to draft or review your Will.
Full copies of the ‘Starting or Buying a Small Business’ Booklet are available from our office.
Over the years we have mentored many clients through the start up phase of their business lives. Experience tells us that successful businesses have clear objectives, produce quality products or services, understand their market, manage their money properly and are good employers. They also keep quality records and have a close relationship with their accountant. When establishing your business it’s vital that you seek professional advice from qualified accounting and legal sources.
As a business start up specialist we have developed a number of practical tools and checklists designed to help you fast track your business success. If you want to get your business off to a flying start contact us today.
If you're serious about starting a business we invite you to book a free, one hour introductory consultation to discuss your business, tax, marketing and financial needs. To book a time, contact us today on (03) 5443 8888 or complete your details in the box at the top of this page.