Pain Points of Business Owners
Many business owners fall into business. Half an opportunity presented itself and it grew from there with no plan of attack and no financial understanding, just gut feel and it worked well for a while.
For some, it’s like a duck to water and were made to be in business and do well. Yet many still struggle with a strategic plan, understanding the numbers, understanding the levers that make business much more profitable and valuable.
The stories I hear from frustrated business owners are : “Competitors keep undercutting my quotes”, “how can they do it at that price”, “my customers are slow payers”, “I make money but never see it”, “I just don’t seem to make much profit but my turnover is high”, “ I would love to buy my own building and control the rent”, “Payroll tax is a joke”, “I’m paying too much tax”, “I’m always getting tax surprises”.
This is very common, but why does this happen?
Firstly, the current economy and market is not as generous as it has been for the last 25 years. So not all business owners have had exposure to each one of these challenges in the past.
Secondly, lack of guidance from tax accountants whom don’t have business advisory skills nor the experience to help in these business matters.
Lastly, the reluctance of the business owner to engage with the advisor because of cost.
All of these problems can be overcome by discussing how the business will turnaround and the money it can now make versus the cost of getting help.
The Armada Group are here to help. Contact us on (08)6165 4000 or alternatively, you can email me at firstname.lastname@example.org;
By: Mark De Luca | Director, Tax & Accounting
The importance of keeping business records
Businesses operating in a fast-paced and dynamic environment, the task of keeping records can fall secondary to everyday business operations. However, failing to efficiently keep up-to-date and comprehensive records can hurt your business’s long term operations.
Probably the most important reason behind sound record-keeping is that it allows you to learn and grow from your own business experiences. Keeping your records in check will help you understand the current situations of your business and also project future profit or losses. In addition, good record keeping will also show you where your business needs improvement or re-invention. Here a few records to keep that will prove invaluable in the future.
Keeping accurate and up to date financial statements will help you at a time of lending applications. These finances include income statements as well as balance sheets that show assets, liabilities and the equities of your business at a specific date.
Purchases and expenses:
The items you buy and sell to your customers and the costs of running your businesses. Supporting documents for both of these include invoices, email records, credit card slips, cancelled cheques, cash registrar tapes and account statements. These can help you to determine whether your business is improving, which items are selling, or what changes you may need need to make.
At tax return time it’s handy to have an assortment of receipts and documents that outline your
deductible expenses. These can be costs of travel, transportation, uniform and entertainment.
The properties that you own and use in your business. These records verify information regarding your business assets, such as when and how you acquired these assets. They will also help you to determine the annual depreciation when you sell the assets. Examples of these records include the purchase or sales invoices and real estate closing statements.
Should you work with family and friends?
One place small business employers often fail to search for new job applicants is the families and friends of their best employees.
Before rushing headlong into hiring family or friends, consider the people and all areas of business that will be affected. Hiring friends and relatives can be a balancing act. If not handled well, it can sour the working environment. But hiring friends and family can have great benefits too, as long as you proceed carefully with these following points:
Business is not a charity:
Don’t hire an employee’s relative just because they ‘need’ a job. If someone has trouble holding down a job, you don’t want them either. Make it clear that if the relative or friend doesn’t perform as expected, he or she will have to go. Hire on a probationary basis, establishing a two-week or month-long period to see how things work out.
Hire for the right reasons:
People rarely see their own relatives clearly and are therefore likely to make general and positive statements that don’t tell you if they have relevant work experience or training, rather than analysing their capabilities. With this in mind, ask specific, detailed questions about their qualifications before you agree to interview them.
Be aware of spouses:
Spouses or domestic partners working together can present a number of difficulties. There are logistical issues that can arise, such as holidays or family emergencies, which could leave you doubly short-handed. There are behavioural issues to consider as well, a terrific, eager worker may change dramatically with a spouse around. The dynamics of a couple’s relationship is stronger and usually more emotive than an employer/employee relationship.
Never play favourites.
Be toughest on your own relatives. Before you hire a relative, make it clear to them that they are going to have to prove themselves, and they will be held to the highest standards. Make sure all the rules apply to all employees. Everyone has to be qualified and they have to do their jobs well. Otherwise, they’re not hired.
What are franking credits?
Franking credits are a kind of tax credit that allows Australian companies to pass on the tax paid at a company level to shareholders. Franking credits can reduce the income tax paid on dividends or potentially be received as a tax refund.
Where a company distributes fully franked dividends (and those dividends are included in the taxable income of the taxpayer) the taxpayer can claim a credit against their taxable income for the tax that has already been paid by the company from which the dividend was paid.
Since the 2016-17 income year, the standard formula for calculating the maximum franking credits is:
Franking credit = (dividend amount / (1-company tax rate)) – dividend amount
Franking credits are paid to investors in a 0-30% tax bracket, proportionally to the investor’s tax rate. If an individual’s top tax rate is less than the company’s tax rate, the ATO will refund the difference. Therefore, an investor with a 0% tax rate will receive the full tax payment paid by the company to the ATO as a tax credit. Franking credit payouts decrease proportionally as an investor’s tax rate increases. Investors with a tax rate above 30% do not receive franking credits with dividends and may even have had to pay additional tax.
There can be eligibility requirements that must be met before franking credits can be paid, such as that you must hold the shares ‘at risk’ for at least 45 days to receive a total franking credits entitlement of $5,000 or more. There are also rules that can apply to buying, holding and selling shares with franking credits attached.
Can you change your business or company name?
Changing your business or company name can be an exciting leap. You can find yourself thinking about things like redesigned logos, rebranding and new customers, but before that, you have to think about the steps required to officially change your name.
You cannot request to change the name of your existing business once it has already been registered under the Australian Securities and Investments Commission (ASIC). If you decide you want to trade under a new name, then you must register a new business application through the Australian Government Business Registration Service. If you choose to register a new business, you can cancel the existing registration through ASIC, however, the fees for a cancelled name will not be refunded.
If you’ve realised that a legitimate mistake has been made in your existing business name, then you can request for a correction to be made if there is a typographical error, the name of a place is incorrect, or the date of birth is incorrect. To support your correction request, you must provide evidence of the error, for example, a driver’s license or passport. You can request a correction through your ASIC Connect account.
If you have a company, which is a separate legal entity registered with ASIC, then you are able to change the name of your registered company without applying for a new company for a fee of $408. The new name you choose in this case is still subject to be rejected if it does not meet the following criteria:
- It cannot be identical to an existing company name.
- It must not contain any restricted words, e.g. consumer, bank or ANZAC, unless Ministerial or Public Authority consent has been granted.
- It cannot suggest a connection to the government or other organisations if the connection doesn’t exist.
- It must not be offensive to members of the public or suggest illegal activity.
Tax implications of buying a holiday home
Buying a holiday house can seem appealing, whether it’s to rent out for income, for your own holidays or both. However, it is important to be aware of the different tax implications for how you choose to use your holiday house.
If you own a holiday house and do not rent it out, you cannot claim any expenses relating to the property. If you decide to sell the property, you will need to calculate your capital gain or loss. Even though you don’t need to include anything in your tax return while you own the property, it is still important to keep all records to determine the capital gains tax implications for when you sell it.
If you own a holiday house and rent it out to others, you have to include the income you receive from rent as part of your income in your tax return. Deductions can be claimed on expenses incurred for the purpose of producing rental income, such as cleaning, advertising costs, pest control, insurance, maintenance and repairs. The cost of repairs and renovations cannot be claimed immediately, but are deductible over a number of years.
You are only able to claim deductions for the periods the property is rented out or genuinely available for rent. A holiday house may not be considered genuinely available when:
- It has none or limited advertising, e.g. when you only advertise by word of mouth or restricted social media pages.
- It is rented out free or discounted to family and friends.
- You use the property for yourself.
- There are unreasonable conditions for renting, e.g. restricting children and pets and only being available during off-peak holiday seasons.
If a holiday house is shared between two owners, then the deductions need to be split accordingly. For example, if the house is owned 50-50, then the owners can claim equal shares of the expenses. If one partner owns 20% of the property, they can only claim 20% of the expenses.
Do you have insurance with your super?
Most super funds offer insurance as part of their super plan. It is important to be aware of what types of insurance you are covered by through your super fund to help you determine if you need extra cover outside your super and if you have adequate support in the event that you cannot work. There are three types of insurance that can be available through super funds:
Life insurance (also known as death cover):
This is the most common of all personal super insurances and is part of the benefits your beneficiaries will receive when you die. Life insurance is typically applied to your super account by default. It is not compulsory with your super, however, if you have a self-managed super fund (SMSF), then you are required to consider insurance as part of your investment strategy.
Total and permanent disability (TPD) cover:
This insurance pays a lump sum if you become permanently disabled and are unable to work again, protecting you against the risk that your retirement income is cut unexpectedly short. TPD cover is often automatically joined with life insurance as a default cover.
Income protection (IP) cover:
This pays you an income stream for a period of time that you are not able to work due to temporary disability or illness. It is only available as a default cover in about one-third of super funds. It may be particularly useful if you are self-employed or have debts.
From 1 April 2020, you will not be given insurance through your super fund if you are a new member under the age of 25 unless you specifically request insurance and they accept, or if you work in a dangerous job.
You can check what insurance you have with your super fund on your annual super statement, your online super account or by contacting them. Through these you can see the type and amount of cover you have, and how much you are paying for it.
Creating a successful work team
If you’ve never had a bad teamwork experience, then you’re often considered to be very lucky. Creating a successful team at work can be challenging as it forces people with a range of opinions, values, work styles, work goals and past experience to work together in proximity. To help build a successful team, certain measures can be considered:
Choose the right people:
Taking the time to deliberate and choose a group of people with the right skill set for the project can increase the team’s chances of success. Having the right amount of people doing a particular job in the team can help prevent there from being too many workers in one area with other areas failing to be completed. Choosing a diverse team can also provide a broader perspective on the project and allow for growth.
Encourage team-building exercises:
Allowing the team to spend time together before undertaking a collective project can be a good way for them to get to know each other without the pressures of work. This can strengthen relations and make it easier for team members to ask each other questions, ask for help and offer their opinion when the work begins. Having team-building exercises can also help identify who is suited for what role and who works well together.
Have a clear purpose:
Make sure that your team is all on the same page about their purpose and the short-term and long-term goals they should be working towards. It is helpful when these goals are specific and measurable to avoid arguments of what the team is working towards.
Outline performance expectations:
If the team is unsure of what is expected of them, they may get off track or not meet work standards. Outlining deadlines, work quality and work hours can help the team perform effectively. This can also prevent arguments and criticism about each others work performance.
Reward good teamwork:
If the team excels in an area of work, it can be motivating to show your recognition of their achievements. This can be as simple as verbally congratulating the team on their work, or can be more formal, such as a workplace announcement or a spot in the company’s internal newsletter.
While teams may feel uncomfortable with being micro-managed and feeling like they are under constant surveillance, having simple evaluations throughout the project can be helpful. The results from evaluations can show you if your team is on track as well as if there are any problems that may be arising. This can help the team be motivated to succeed and help you identify and resolve problems early.
Building customer relationships on social media
With the overflow of businesses posting high-quality content on social media every day, it can be a challenge to make yourself stand out and keep people’s loyalty. One way to increase consumer appreciation and attract returning customers is to work on developing relationships on social media.
Create good captions:
Having a caption that only consists of hashtags, is hard to understand, is irrelevant, or doesn’t resonate with your target audience can potentially reduce the amount people care and the legitimacy of your business. When writing a caption, make sure that is relevant to the social media platform you are using, your audience and your brand. When using multiple hashtags, putting them below your caption can prevent it from being distracting and messy.
Respond to comments:
Taking the time to read and respond to comments can be a great way to build relationships with your customers. People are more likely to remember your business if you respond to them, as they often don’t expect a response. Replying to comments can show customers that you care and are listening to them. This practice can also help you understand what your customers like and don’t like and improve your business and social media accordingly.
Many businesses use bots to automate conversations, whether it’s on social media, phone answering machines or online messaging services. You can stand out from these businesses by communicating with your audience in a way that seems more personal and human. Some ways you can achieve this is by:
- Addressing customers by their first name if it is supplied on their profile.
- Always responding to comments in a polite and friendly manner, even if they are complaining or being rude.
- Using appropriate language – depending on your business branding, you don’t always have to be formal and robotic. You can show the audience that you relate to them and understand them by using language that they are comfortable with. Think about how your target audience typically communicates.
Use content from your audience:
Hashtags and profile tags are a great way to see how your customers are engaging with your business. If a customer posts something about them enjoying your products/services, consider reposting it. This demonstrates that you value their opinion and appreciate their support. As well as this, potential customers are more likely to try your products/services if they see that another customer is benefitting from it, as this can be seen as more trustworthy than advertisements straight from the business.
How to prepare for a quick hire
With usual recruitment cycles taking up to two months, business owners may panic when faced with the need for a quick replacement.
Fortunately, there are some ways to prepare for a speedy recruitment process:
External hiring can be lengthy, between interviews, background checks and competency tests, an external hire can take months. Consider notifying and encouraging suitable internal employees of the available position before posting the job advertisement externally. Internal hiring reduces time spent as the employee’s information is already in the system and they are familiar with the company culture.
Formulate an action plan
An action plan can help ensure a stress-free emergency recruitment. Consider drafting and updating job descriptions all year round so they are immediately ready for use. Training documents, business processes and login details should all be stored in a central document which is easy to access.
It is also a good idea to collect resumes all year-round. Use your business’ website and LinkedIn page to inform potential candidates you are always accepting applications.
Screen candidates before interviewing
Don’t feel obligated to interview everyone – only interview candidates that stand out on paper. Interviewing is the most time-consuming part of recruitment, so be selective when deciding suitable candidates to reduce your recruitment time.