Running a small business has many extra requirements – one of the most important is planning for reporting and managing small business taxes. Here are tips for the ATO – Australian Tax Office, to get you organised –
Reporting and paying tax
As soon as you start up your business, you need to plan for how you will pay the tax you will owe each year when you lodge your tax return.
Paying tax in your first year
In your first year of business, you can stay on top of your obligations by:
making tax pre-payments into your tax bill account;
Once you lodge your first income tax return and report a tax-payable amount above a certain threshold, you will automatically enter the pay-as-you-go (PAYG) instalment system.
If you voluntarily enter into instalments prior to lodgment of your first tax return, you will be able to make quarterly payments towards you tax bill.
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Business Tax Tips / Bookkeeping – Motor Vehicle Assets – How to set up cars in accounting records
Client emailed – Our Companybought 2 cars –
Holden Cruze for $16,700.00 includes GST/stamp duty/transfer fee
Barina for $12,888.00
We traded in the company car – Holden Commodore for $3000 and the wife’s car for $1500. Daniel has not claimed the $1500 but gave it to the business.
Now both ’new’ cars belong to the company.
Invoice for Holden Cruze is $16,700.00
The $4,500 trade in was netted out of the purchase of the Barina so the invoice is
($12,888- $4,500) $8,388.00 net.
We have in our accounts:-
MV @ cost 18539.37
MV Accum Depn 15412.00
Please advise. Thank you.
How to Enter – To keep things simple, we need to set up some new accounts (“NA”) for each motor vehicle, and new accounts for the loans on each car – it is then easiest to leave the final reconciliation and adjustments to your accountant year end.
I assume the 2 MV accounts are only for the Commodore and no other cars. It is good practice to create new accounts for EACHvehicle so the accountant can reconcile at year end with ease!
Separate the Rego (and Insur if included in the deal) from the $16,700 (or you can leave for accountant at year end to pick up).
*Is the Loan a Chattel Mortgage? – Can mention type of loan in account name as well
Monthly payments – for simplicity, allocate from bank to NA Liability MVeh Loan Fin Co Name (the new finance account).
The old car accounts – Asset MVehicle @ Cost Commodore, and the MV Accum Dep can be left for the accountant to calculate and adjust at year end, in case there are other adjustments he needs to do.
For other examples of entering MV assets in the accounts, see –
Cashflow Tips – What is the meaning of, & what does a Cashflow Statement show?
The Cashflow Statement is also called the Statement of Cashflows, and here we explain the meaning of, and look at what the statement shows us. It is one of the 3 main financial statements that businesses report on – the other 2 are Profit & Loss, and the Balance Sheet.
The cash flow statement reports theactual cash generated and used during the time interval stated in its heading. The period of time that the statement covers is chosen by the company, for example, “For the Three Months Ended 31 December, 2015” or “The Fiscal Year Ended September 30, 2016”. Most common is annual.
The cash flow statement actually uses data and the CHANGESbetween periods from the Profit & Loss and Balance Sheet, and organises and reports the cash generated and used in the following categories:
Operating, Investing and Financial activities
What the Cashflow Statement shows –
The profit & loss or Income Statement is prepared under the accrual basis of accounting, meaning the sales/revenues reported may not have been collected yet. Similarly, the expenses reported on the income statement might not have been paid. You could review the balance sheet changes to determine the facts, but the cash flow statement already has integrated all that information. As a result, savvy business people and investors utilize this important financial statement.
Here are a few ways the statement of cash flows is used.
The cash from operating activities is compared to the company’s net income (profit/loss). If the cash from operating activities is consistently greater than the net income, the company’s net income or earnings are said to be of a “high quality“. If the cash from operating activities is less than net income, a red flag is raised as to why the reported net income is not turning into cash.
Some investors believe that “cash is king”. The cash flow statement identifies the cash that is flowing in and out of the company. If a company is consistently generating more cash than it is using, the company will be able to increase its dividend, buy back some of its stock, reduce debt, or acquire another company. All of these are seen to be good for shareholder value.
There are also some financial models that use the cash flow.
The statement of cash flows has four distinct sections:
Cash generated from operating activities
Cash generated from investing activities
Cash generated from financing activities
Supplemental information.
The differencesin a company’s balance sheet accounts from one period to the next, will provide much of the needed information. The changes—or differences—in the account balances will likely be entered in one of the sections of the statement of cash flows.
Of the four sections of the statement of cash flows, those balance sheet accounts which affect each section include –
1. Operating Activities
This section reports the net income and then converts it from the accrual basis to the cash basis by using the changes in the balances of current asset and current liability accounts, such as:
Accounts Receivable
Inventory
Prepaid Insurance
Other Current Assets
Notes Payable
Accounts Payable
Wages Payable
Payroll Liabilities
Interest Payable
Income Taxes Payable
Unearned Revenues
Other Current Liabilities
Note – as well as using the changes in current assets and current liabilities, the operating activities section may list adjustments for depreciation expense and for the gains and losses on the sale of long-term assets/investments.
2. Investing Activities
This section reports changesin the balances of long-term asset accounts, such as:
Long-term Investments
Land
Buildings
Equipment
Furniture & Fixtures
Vehicles
Investing activities involve the purchase and/or sale of long-term investments and property, plant, and equipment.
3. Financing Activities
This section reports changesin balances of thelong-term liability and stockholders’ equity accounts, such as:
Notes Payable (generally due after one year)
Bonds Payable
Deferred Income Taxes
Preferred Stock
Paid-in Capital in Excess of Par-Preferred Stock
Common Stock
Paid-in Capital in Excess of Par-Common Stock
Paid-in Capital from Treasury Stock
Retained Earnings
Treasury Stock
Financing activities involve the issuance and/or the repurchase of a company’s own bonds or shares as well as short-term and long-term borrowings and repayments.
4. Supplemental Information
This section of the cash flow statement reports the amount of interest and income taxes paid as well as significant exchanges not involving cash. For example, the exchange of company shares for company bonds would be reported here.
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21 best business advice tips for success by small business owners who are killing it – news.com.au
Here are 21 great business tips to get your enthusiasm back and get you focused on what you want to achieve in your business, byEmma Reynolds at news.com.au
STARTINGa small business is a dream for many Australians, but it can be daunting.
Here, entrepreneurs who are killing it in a range of industries share their best piece of advicefor making your company a success.
1. Deliver a consistent customer experience
Damian Cerini, owner of cycling tour business Tour de Vines, says you need your business to almost run itself before you look at growth. “The thing about working for an employer is that the business model is already set, it’s about the execution of the idea, whereas a new business is about testing the idea first and developing the systems.”
2. Add a personal touch
Angus Askew, co-director of commercial asset financing company Magnolia Lane Financial Services, says: “In our industry like most service industries everyone is essentially selling the same thing, you’ve just got to do it better. Our number one goal when dealing with a new client is to establish a relationship and make them feel special. Make sure you are remembered. We make it our priority to see all of our customers face to face. Create a rapport as this is what will result in repeat business and an income stream for life.”
3. Leverage social media
A strong marketing strategy is essential in every industry, says Anthony Kittel, director of manufacturing firm REDARC. That means social networking — on LinkedIn, Twitter, Instagram, Facebook or all of the above. “Our brand is everything, so whatever we can do to promote that brand and consumer awareness is critical.”
Author and Flying Solo editor Kelly Exeter says a less frantic life made her more productive.
4. Write your own business bible
Matthew White, whose firm Ergoflex sells memory foam mattresses, says the volume of information available can be overwhelming. He recommends writing ideas and tips in a notebook or tablet as they come up. “It has helped me make some major decisions, and also saved me hours of searching for something I’ve read somewhere.”
5. Focus on your specialty
In the first few years, there can be a lot of pressure to diversify your offering, says Paris Cutler, director of cake decorating company Planet Cake. “Stick to what you do best and do it better and with more focus than anyone else.”
6. Outsource the things you don’t do
Resist the temptation to chase work outside your offering, and use a specialist to fill in any gaps, says Rhys Roberts from accountancy firm Viridity. “I outsource my HR, my IT, much of my marketing and more. The time you free up you can spend doing what you are good at.”
7. Aim high and be persistent
Determination is one of the vital qualities needed when you start on the long road of setting up a small business. Rochelle Miller, co-founder of fashion retailer Another Love, says: “Believe in yourself and your strengths. Don’t take ‘no’ for an answer. There will be bumps along the way, but everything has a solution or another option.”
Consultant Andrew Griffiths thinks about ways to improve his business each day.
8. Embrace a life less frantic
Kelly Exeter, author and editor of small business community Flying Solo says it’s all about finding the right balance for you. “I am learning that I don’t just need physical space to thrive, I need mental space too.”
9. Follow your own path
Designer and illustrator Beci Orpin says she’s not naturally business-minded, but has always worked really hard and built up a strong folio of work. “My business is all about me: my style and what I create, so an important part of developing that was staying true to myself — not worrying about what other people were doing.”
10. Take time out to think about how to improve
Use your best hour in the day to consider ways of moving forward, advises Andrew Griffiths, a small business author and consultant. He does this first thing every morning. Then, each Friday, “I find a quiet place and ask myself a question: ‘How is my business better this week than it was last week?’”
11. Harness your ‘keystone habits’
Entrepreneur and blogger James Clear says we should find the one or two habits or routines that make everything else fall into place. “Improving your lifestyle and becoming the type of person who ‘has their act together’ isn’t nearly as hard as you might think.”
Life coach Kathryn Hockingresearches what competitors are doing.
12. Practice mindfulness
Freelance journalist and editor Jodie Macleod says it increases productivity, reduces stress and improves memory and focus. “Mindfulness is when you are aware of your thoughts, feelings, sensations, breath and everything occurring in the present moment, without attaching judgment to those observations.”
13. Every setback is a stepping stone to success
Lucinda Lions from branding agency Slogan Creator says it’s important to stay positive wherever possible, and see feedback, not failure. “I remind myself tomorrow is a brand new day, a new opportunity to think differently and make better choices.”
14. Hire from within your networks
When Sarah Wilson from I Quit Sugarbegan feeling overwhelmed with work, she decided to get an assistant. She put a call out to her community, knowing taking someone on would involve sacrifice. Five years later, they still have a successful working relationship. “Start out small and then leave the invitation open for expansion.”
15. Keep it manageable
Kate James, start-up coach at Total Balance, says it’s important to remember that it’s not all about non-stop growth — bigger isn’t better if you’ve stopped enjoying what you do. “You need to define your own version of success. Mine is that I need to love my business.”
Sarah Wilson says you need to know when to ask for help.Source:Supplied
16. Know when to work for free
Vanessa Emilio from Legal123, says sometimes working for free is worth it. “‘Free’ doesn’t mean offering an entire job or product for free. It could mean a free initial consultation, free component of a project or complimentary muffin with every coffee.”
17. Stay excited and believe in your business
SEO copywriter and consultant Kate Toon says start-ups should think about clients’ needs and possible issues and create rational responses to persuade them your business is the solution. “Inject warmth, professionalism and even humour, where appropriate. Being human beats boring every time.”
18. Learn to say no
Recognise when a client has unrealistic expectations and nip it in the bud early, or consider referring them on, says author and media commentator Andrew Griffiths.
Try a formal, structured response and keep returning to it. Try, “Thank you for the opportunity, but we are so heavily committed we can’t give your project the time and attention it needs.”
19. Create fans
If you’re on a tight marketing budget, think about how you can trigger word-of-mouth interest. Warren Harmer of The Business Plan Company mentions a small florist that did this brilliantly by 1) Offering quality; 2) Providing value; 3) Inspiring team members to love their job and clients and 4) Creating a physical environment that excited their market.
20. Turn competition into inspiration
Life coach Kathryn Hocking suggests you research what competitors are doing to help identify what makes you unique. Your relationship doesn’t have to be adversarial: they could be a mentor, partner or friend. “Focus on your own purpose and connect with peers that have similar values and who inspire you to greater levels of success.”
21. Know when to take a ‘dream detour’
Sometimes it’s hard to know whether to grab a fresh opportunity or stick to your path. Business mentor Lynda Bayada says you need to outsmart your head so you can listen to your heart. “Give yourself space and trust yourself. And you’ll find that’s half the battle won.”
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In the 2015–16 Budget, the Government announced it will provide funding over four years to deliver an improved experience for clients in their dealings with the Australian Taxation Office (ATO).
Red tape will be reduced and future administrative savings delivered through investment in three foundational initiatives: a digital by default service for provision of information and making payments, improvements to data and analytics infrastructure and enhancing streamlined income tax returns through the my Tax system for taxpayers with more complex tax affairs.
The package of service improvements supports the Government’s commitment to reduce red tape and forms part of the Government’s digital transformation agenda.
This measure delivers on the Government’s election commitment.
The Government has committed to reducing the cost of unnecessary or inefficient regulation imposed on individuals, business and community organisations by at least $1 billion a year. An important part of this commitment is the development of a Framework to review the performance of Commonwealth regulators.
This Framework isn’t just for regulators. It will benefit business and the community, including individuals. Find outmore.
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Working capital is defined as the difference between current assets (CA) and current liabilities (CL) at a specific date. The CA and CL amounts are found on your company’s balance sheet. For example, if your company’s balance sheet has current assets of $150,000 and current liabilities of $120,000 then your company’s working capital is $30,000.
Working Capital = Current Assets – Current Liabilities Normally we want cash and assets that can be turned into cash within 12 months, such as Inventory, debtors who owe the company etc (ie “Current” means within 12 months) to be GREATER than Current (12 months) Liabilities.
But with a significant amount of working capital, a company can still have a period of cash shortage if its current assets are not turning to cash. As an example, a company with most of its current assets locked up in inventory. Or if a company has a large accounts receivables that are not being collected, but even still, this large working capital situation isn’t much immediate help when you can’t meet the payroll run!
There are also other financial ratios use the working capital components such as thecurrent ratio, quick ratio, accounts receivable turnover ratio, and inventory turnover ratio.
Good management means keeping watch on current assets (receivables and inventory) to keep the cash coming into the bank.
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Cashflow Tips – I’m making a profit but no cash – why does this happen?
Is your business making a profit but no cash and you wonder why?
This may be because company reports like Profit & Loss may show you are making a profit but have no cash because profitis an accounting record using revenues and expenses, (accrual accounting) which are different from the company’s cash receipts and cash disbursements (cash accounting).
Put another way, there is a difference between revenues (invoiced sales) and receipts (actual cash receipt of payment of invoices (banked)). There is also a difference between expenses (purchase orders still to pay) and expenditures (actual payment of purchases, and overhead expenses).
Examples
As an example a new company that sells $10,000 to its clients in a month and the clients are given 30 days to pay. The company will have $10,000 of revenues in its first month, but the cash will not be received until the second month. If the company’s expenses are $7,000 in the first month, the company will report a profit of $3,000 but will not have received any cash from its clients. It may not have been paid, and it may not have paid its expenses either.
Another company might report a profit of $60,000 in its first year, but during its first year it uses $65,000 of cash to acquire equipment that will be put into service at the beginning of the second year. This company will have a profit, but will not have the cash.
Other times cash is paid out, but the profits are not reduced at the time of the payment, because they don’t pay for expenses but pay loans, payroll PAYG or super or for stock – they go to the Balance Sheet and include prepayments of insurance, payments to increase the inventory of merchandise on hand, and payments to reduce liabilities.
Profit is the accounting record of what is left after you have made sales and raised all expenses. Of course, remember there is tax on the profit as well. The remaining amount is then reinvested back into the business or distributed to the owners.
Cash is what the business needs to operate every day and can come from 5 different main sources — profit, selling assets, contributing your own personal funds, bank loans or new investor money.
Cash and Timing
The key to remember is that you don’t spend profit in our business — you spend cash, and it is all in the timing.
There are 2 timing situations to be aware of –
Firstly as the old saying goes, you have to spend money to make money. To make a profit, you first need to purchase goods or services to sell, so you will need cash before the sale is made. By selling your product or service at a higher price than what it cost, you make a profit. The point is you need the cash before you get the profit, or get credit and pay the supplier later!
Secondly (that catches most businesses) is providing credit to customers. The longer the customer takes to pay, the longer you have to wait for the cash, and in the meantime you have wages, rent, stock and other expenses to pay. This is where the trouble begins and often ends.
Focus on what matters – cashflow
You need to focus on not only profit but also what drives your cashflow. If you have regular loan repayments, rent and other expenses that have to be made on time, then you will need enough cash to cover these while you wait for your customers to pay. Keeping track of your accounts receivable and following up on late payments will definitely help your cashflow. The other thing to remember is if you can get credit from your suppliers, this may mean that you don’t have to pay for stock until you have sold it — again making a big difference to your cash flow.
The business needs to be profitable to stay in business. Be careful of sacrificing profits to generate cash. Offering discounts to pay early will definitely help your cash position but will reduce your profit.
The best management is to make sure you have enough cash buffer to cover ongoing expenses. Having a finance facility (overdraft, credit card) can help that will tide you over during a cash flow shortage, but this will cost in the form of fees and interest, which again, will reduce your profit.
