Checklist for Small Businesses at the End of Financial Year

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How ready are you for the end of the financial year?

You can begin to get ready even before the start of June. Start early and ease any end of financial year (EOFY) stress. There are a number of things you can do to be able to lodge your tax promptly and to get ready for the coming year. Here is a checklist for small business owners to help them get ready and minimise end of financial year problems.

Follow ATO rules

There are several EOFY tasks that you must accomplish by the end of the financial year. These tasks are:

  • Lodge your income tax return
  • Complete your Business Activity Statements (BAS)
  • Reconciling your PAYG withholding payment summary report
  • Payroll Tax
  • Fringe Benefits Tax

Businesses that employ 20 or more people must have migrated to the SuperStream system before 30 June 2015. This system is designed to simplify the sending of super contributions by employers on behalf of their employees. Businesses that employ 19 or fewer people have until 30 June 2016 to comply with ATO requirements.

Financial software

The financial management of a business is founded on financial software. These days an inexpensive yet powerful, robust cloud-based software service is readily available. You will find this service helpful, especially when the EOFY approaches. By using an online accountancy service, you’ll be able to collaborate with your accountant real time, as well as your automated bank data feed.

Accounts reconciliation

The accounts that you have to reconcile include:

  • Your bank and investment accounts
  • Customers who have hefty unpaid debts
  • Your outstanding debts with vendors and other creditors
  • Your leased equipment
  • Office leases

Payroll reconciliation

The internal payroll matters that you need to reconcile include:

  • Outstanding leave
  • Superannuation
  • Long-service entitlements
  • Other payroll issues that have financial commitments attached

Working capital review

It is important to account for all your stock balances. The perfect time to clear out out-dated stocks with a sale is at the conclusion of the financial year. This is also the right time to review your ordering systems to ease your surplus stock issues.

Small businesses that provide professional services must account for work-in-progress. Find out whether any resources are being held up by individual projects and whether clients are paying bills on time for ongoing work.

Determine the market value of assets

For possible investment opportunities, find out how much is the actual market value of your assets. This information can be useful when applying for bank loans for funding the expansion of your business, or when you want to sell assets that are just idle.

Establish financial performance goals

Were you able to hit your objectives this year? And what targets you want to achieve by the end of the financial year the following year? You can stay on track by putting in place achievable targets for the entire financial year.

Set a cash flow projection

It would benefit you to plan your cash flow in advance. You have to be alert of any possible cash flow deficits so that you will be able to pay your employees and vendors.

If you’re sending out invoices to clients, make sure to find out which clients are failing to pay their bills on time. Keep track of dates when invoices are due, together with other important dates that are related to your cash flow.

Avoid stress when the end of the financial year approaches. Enlist the help of professionals to help you stay on top of the tasks you need to accomplish. PJS Accountants, chartered accountants, provides a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning and bookkeeping. For enquiries, contact PJS Accountants.

Buy and Sell Agreement in Business Planning

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Is it your wish to have the spouse of your business partner as your next business partner?

The issue is that you and your partner have worked together to build a business successfully. But you are sure that you don’t want to run the business with your partner’s spouse in the event your partner dies. In all likelihood your partner’s share in the business would go to their beneficiaries who lack the experience and qualification to contribute to the running of the business or you may not get along well.

Here’s what you have to do:

You may want to buy the exiting partner’s interest in the business, but you lack either the financing or anything in a contract entitling you buy at an approved price.

Ask these basic questions when you sit with your partners and advisers:

  1. In the event a business partner dies or become completely disabled, would you wish to purchase their interest in the business?
  2. Would you be able to mutually arrive at a means to value the business?
  3. If a partner leaves, dies or becomes disabled, should you set up a business succession plan that offers every partner the right to purchase other’s interest?
  4. What financing would you use for this type of plan, and would you set up a facility or strategy to finance it?

A highly recommended strategy is to include a Buy/Sell Agreement in your Business Plan and to specify that the risk of death or disability be financed by insurance. The funds needed by the remaining partners to keep control of the business, and to financially take care of the family of the exiting partner would be provided by the insurance.

Case Sample

Dave and Matt co-own a business, D&M Pty Ltd. The business is a producer of specialised metal parts for the oil and gas well drilling industry.

Their spouses are not employees of the company and don’t actively participate in the running of it. The partners have wills, which grant all of their assets to their respective wives.

First Scenario

Matt took a skiing holiday to Perisher where he had an accident and died. His death gave his widow a 50% interest in the business. She’s financially strapped and wishes to divest her late husband’s interest in the business. However, Dave has informed her that it’s not possible because he doesn’t have the money to buy her shares.

Matt’s wife doesn’t get his wage, and is clueless about the business. Because she fears that she won’t get anything from her husband’s share in D&M Pty Ltd, she went to meet a lawyer.

Second Scenario

Dave and Matt had thought of the possible consequences if one of them dies, becomes disabled, gets sick, becomes bankrupt or just wishes to retire. Their advisors had set up a buy/sell arrangement between them, which contains a specific series of actions to undertake to estimate the value of the business and buy out the shares of Matt’s widow.

To finance the buyout, the partners have bought Life and TPD andTrauma insurance for each of them, with the money to be provided to the family of the departing partner in exchange for the interest in the business.

Under this scenario, you can see the many problems that are often encountered by business owners and the solution for each one. Contact your financial advisor or accountant to set up a business planning strategy for you.

It pays to be prepared for any eventualities when it comes to your business, and planning in the event of death, disability or retirement of one partner is one of them. PJS Accountants offers a full range of services, including tax planning and compliance, accounting and SMSF services, and bookkeeping. For enquiries regarding our services, contact PJS Accountants.

Strategies to Minimise Taxes for Small Businesses

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What small business owner wants to pay more tax than they need to? No one! So, here are tips to ensure you get the most out of your money during tax time.

Utilise the $20,000 immediate tax deduction.

In the budget issued on 12 May 2015, the Federal Government announced that qualified small enterprises can claim an immediate tax write off for assets bought for less than $20,000. This law will replace the $1,000 limit until 30 June 2017.

In order for the deduction to qualify for the 2015 financial year, you have to make sure the assets are set up and operational by 30 June 2015. If you don’t need any assets, or have not got the money to pay for one prior to the end of the year, don’t forget that you can deduct the balance of any small enterprise pool with a deductible amount of less than $20,000 and receive an instant write off.

You have to make sure that your assets are qualifying assets. For example, capital works are not covered by the basic depreciation guidelines and are covered by various rates, which are way below the general pool and immediate deduction rates.

Maximise contributions to your super fund.

Plan for your future – in the form of superannuation. The concession limit beginning 1 July 2014 is $30,000 for all persons. However, the limit is $35,000 if you were 49 years old or older on 30 June 2014. When making the most out of your concessional contributions, take note that your mandatory 9.5% is included in the cap and all contributions must be sent to the super fund before 30 June.

Prepayments – a no brainer!

Making prepayments, if you have the available money, is a wise move. Businesses can write off prepayments given in the amount of over $1,000, provided the eligible service is used in under 12 months. Consider making prepayments for part of your rent or interest on loans. You can write off prepayments below $1,000 no matter what the service period is.

Time Capital Gains Tax events appropriately.

Whether you are trading as a single entity or on behalf of a trust, find out if the 50% General Discount is valid for any planned asset sale. This means that it is a prerequisite for you to hold the asset for no less than 12 months. As a result, you have to study the timing of the sale.

Furthermore, you may also have the right to claim more concessions and discounts for your small business, including Rollover Relief or Active Asset. If you’re thinking of selling an asset, it is recommended that you meet with a tax specialist to advise you on the possible outcomes of transactions and the allowances that you are entitled to.

Consider writing off bad debts that you will never collect.

It is advised that accruals basis taxpayers with bad debts consider writing off those debts prior to 30 June to make sure they can claim tax deductions for the present year. If your GST payments are made on an accruals basis, any changes made to bad debts will probably cause a refund of the GST that has already been paid on a past BAS. When you write off bad debts, comply with the guidelines to make sure that it is really a bad debt and the required measures have been taken to get payment for it.

Ensure outdated stocks are written off.

Always perform an inventory of your stocks prior to the conclusion of the financial year. Make sure you write off obsolete stocks that you have identified. Your tax liability will decrease as a result of this.

Change your tax planning for the better by investing in good online accounting software and heeding the advice and recommendations of your accountant or bookkeeper. PJS Accountants can help you organise your tax, accounting and bookkeeping affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

Is your Small Business Profitable but Has No Cash?

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Small businesses typically have cash flow problems. However, it is hard to understand why if your business is making money. The reality is many businesses fail because they don’t have sufficient funds to keep their operations running.

Being profitable doesn’t mean you have cash. You can make profit only after you’ve generated sales and taken care of all expenses. Obviously, you’re required to pay tax on any profit you earn. The amount that remains is then spent on the business or shared to investors.

You need cash for daily operations. There are many sources where cash can come from – profit being one of them. The other ways of generating cash is divesting assets, giving your own money, getting bank loans and signing up new investors.

Determine the Right Time to Spend.

Always remember to not spend profit in your business – spend cash – and spend at the right time. The old saying “You have to spend money to make money” is true. To earn money, you first have to buy goods or services to sell. This means you require money before you make a sale. You earn a profit by selling a product or service at a price that is higher than their original. Bottom line is: you get the profit after you spend the cash.

Another timing issue, which trips most businesses, is giving credit to customers. The longer you receive payment from your customer, the longer you wait for the cash while you have monetary obligations to fulfil such as salaries, stock and other expenses. This is the point where the problem starts and frequently culminates.

Pay Attention to What’s Important.

You have to pay attention not only on your profit but also on what propels your cash flow. If you have payment obligations that need to be met on time, then you require sufficient cash to pay for these while you await payment from your customers. Monitor your accounts receivable and follow up on late payments to help keep your cash flow going. Another thing to take note of is if your suppliers give you credit, this may allow you to not pay for the stock until you have sold it – which could deliver a significant boost to your cash flow.

Your business will need to be profitable in order to stay afloat, but you also need to be cautious when forfeiting profits to earn cash. Giving discounts for early payment will strengthen your cash flow but will cut down your profit. To relieve the dilemma of cash versus profit, the best course of action is to ensure you have sufficient cash to pay for ongoing costs. You could go for getting a finance facility to tide you over when you’re short on cash, but the downside is you have to pay fees and interest, which will reduce your profit.

PJS Accountants offers expertise in helping improve your business and take it to the next level. We can help you come up with a custom plan to implement your business strategies and methodologies, boost profit and increase market shares. Contact PJS Accountants for enquiries.

How can your Accountant Help Improve your Profit?

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If you are not satisfied with the profit that your business is generating, the first person should call is your accountant. They are your most reliable advisor and the foundation of the financial sector. The first person who you must contact to guide you in expanding your business, especially your profit, is your accountant.

Accountants can identify ways to increase your profit that you may overlook because you are in there battling it out for profit and growth every day. Your accountant can help you improve your bottom line through these ways:

Evaluate spending.

Your business operating costs can be evaluated by your accountant to find out which ones are too steep according to industry standards. Your business earns profit directly from the money saved by analysing your operating expenses.

Bargain for a better deal with your suppliers.

By scrutinising your material sources and evaluating your suppliers, your accountant can determine if you can bargain for better terms with your material suppliers.

Minimise disadvantageous debts.

Your accountant can make sure you don’t incur losses from bad debts by putting advising on a sound debt collection process. Your profits can easily be diminished by bad debts. You can revamp your current debt collection process and provisos of trade with suggestions for improvement from your accountant. Your cash flow and your profits could only improvement with these changes.

Remove loss-making goods or services.

The unprofitable products or services in your business can be reviewed by your accountant. The ones that have to be let go because they are costing your business money can be identified by your accountant.

Reorganise financing.

You can save interest on your business loans by considering finance restructuring. You will improve your profit by saving on interest.

Maximise the price levels of your products or services.

Your accountant can scrutinise your pricing systems covering all products and services to find out if your pricing is in accordance with market expectations. Perhaps it’s time to raise your prices, which would significantly increase your profits.

Analyse the cost of labour.

You can also find out if you can use your labour in a more efficient manner with the help of your accountant. Saving on wages and ongoing labour costs can improve your bottom line.

Monitor the returns on advertising costs.

You can compute the rate of return of each dollar you spend on marketing and advertising your business through your accountant. This would allow you to determine if you are earning sufficient sales and more profit from this investment. A lot of business owners ignore how much they are financially getting from spending on marketing and advertising. They don’t know of the rate of return or whether it’s a profitable investment.

Create a business plan for profit.

You, with the guidance of your accountant, can come up with a business plan designed to improve profit. You must plan for your profit because it just doesn’t fall on your lap. Your business can benefit from having a flexible business plan that establishes important targets and plots a course of action towards profitability.

Know your important customers.

By reviewing customer database and figuring out how much profit each customer contributes to your business, you can identify which of your customers are most valuable. There are cases where your smallest customers are giving you less problems and the most profit, but they are being overlooked.

Seek the help of your accountant to improve your bottom line. You may have knowledge of the inner operations of your business, but your accountant has years of experience in helping other clients with their profitability. Use their knowledge and experience, and you will soon see your profits boom.

PJS Accountants offers expertise in helping improve your business and take it to the next level. We work to understand your business and its inner workings and how it can compete effectively in the present business environment. From this knowledge, we can come up with a custom plan to implement your business strategies and methodologies, boost profit and increase market shares. Contact PJS Accountants for enquiries.

Your Guide to Organised Accounting

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Keeping your accounting organised must be an attainable objective when running a business. However, the lack of discipline can sometimes result in problems later. So instead of getting into trouble in the future, here are some tips that can help you keep your accounting in order.

1. Separate your bank accounts.

You are courting disaster when you mix up corporate and private transactions in your bank accounts. Separate corporate bank accounts for your business transactions at all times, and keep your private bank accounts strictly for private transactions. It doesn’t cost much to open and maintain business bank accounts these days, so there’s no reason for you not to have one or more. Practice making frequent transfers of drawings from your corporate account to your private account.

2. Don’t use cash, if possible.

Avoid using cash for business transactions. In case you use it for an emergency, repay yourself with an appropriate expense claim, which evaluates the spending between spending categories. In this way, every business transactions are logged and the GST is securely captured.

3. Pay your credit card bills.

It is fine to use a credit card for your business, but pay your business credit card bills from your business bank account at all times. This would help you to easily track all business transactions and capture all GST. In the same manner, if you utilise the incorrect Eftpos card by error (like the one for your personal bank account), pay yourself utilising the correct expense claim.

4. Put a system for accounts receivable in place.

Implement a process for tracking whether your accounts receivable have been paid by your customers, clients or patients.

Similarly, record how long the accounts receivable have been left unpaid so you can ask for payment immediately. Your process must also log any special plans to pay over time or the reasons given for not paying. It need not be refined – it will be handled by your accounting software. If you are not utilising invoicing or accounting software to send invoices out, just note on the front of the invoice whether it has been paid or not, recording separately those that have been paid or those that are unpaid. You’d be surprised by how many business owners are not aware of who is indebted to them, which is crazy if you think how difficult it is to make money in the first place.

5. And don’t ignore accounts payable.

Likewise, put a process in place for your accounts payable. It is important to keep your accounts payable in order and pay your suppliers, etc. on the 20th of each month so that they are aware of when they are going to receive payment and you are aware when you are sending payment to them. According to study, the most successful enterprises are never late paying their bills.

6. Keep your paperwork in order and go digital where possible.

All your business paperwork should be kept in an organised manner. These days you can scan documents and store them electronically, either on your accounting software or in a basic electronic filing system utilising the date system so that all things are filed chronologically. Organise them in a separate e-folder for every month and year. If you are hesitant to adopt modern ways, you can store them in physical form. However, almost everything today is sent out digitally that it’s not smart to keep printing them out, wasting ink and paper.

You save time and money, as well as make your business a success, by keeping your accounting in an orderly fashion. Maybe, the more important thing is that it should prevent you from getting stressed.

PJS Accountants offers a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning and bookkeeping. We have over 30 years’ experience with local businesses in Capalaba, Cleveland and the Redlands. Our team will be at your disposal, ready for your call to assist you to stay in charge of all aspects of your business. For enquiries, contact PJS Accountants.

Using your Self Managed Superannuation (SMSF) to Buy Property

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Purchasing property using SMSF is becoming widespread. However, careful consideration is required before you decide to do this.

Make sure that it fits perfectly with your general investment strategy to prevent needless risk.

Property Purchases in SMSF 101

Properties purchased through super have become popular as a result of the Limited Recourse Borrowing Arrangements (LRBA).

Super funds are allowed to buy an asset, or a group of similar assets with identical market value, using borrowed monies. The beneficial interest in the assets purchased is received by the SMSF trustees. However, the holding trust has the legal ownership of the asset.

The good thing is your entire super fund is protected under LRBA in case the loan is defaulted. The manner that a debtor can recoup their funds is also restricted. Ask yourself these questions before proceeding:

  • What type of property should you buy if you use your SMSF?
  • What is your option if you don’t have a super fund?
  • What benefits would you derive from creating an SMSF to buy property?

The upsides

Owning a property in an SMSF offers many advantages. 15% tax will be deducted from your super fund on earnings, a rate that is significantly lower that majority of individuals’ personal tax rate.

The capital gains tax is computed at a reduced rate if the asset is divested during the accumulation phase. If the property is divested when the super fund is in pension phase, it is not taxed at all.

But before you start on establishing an SMSF specifically to purchase property, residential or commercial, you have to take note of some important things.

Buying a home in an SMSF

The first you should know is buying a residential property for you to live in, or a relative to live in, is not allowed.

There is a rule that the trustee of the fund, its members, or any family members, cannot benefit from the asset.

The only purpose of buying an asset is to support the fund’s investment strategy in growing wealth for retirement.

Is your super short of funds?

If you are considering purchasing a house but your SMSF does not have sufficient savings, or you prefer not to use an LRBA, another option is available to you.

In a Tenant in Common (TIC) process, you can divide the borrowing across your super fund and your family home.

For instance, if the price of the asset you want is $400,000, you are allowed to loan $200,000 against you family home and use $200,000 from your super fund under TIC.

Buying a commercial property in an SMSF

Usually, people utilise their super fund to purchase a commercial property to be rented back via their business. You have to be aware of a few specific conditions if you are considering this:

  1. No rental holiday: You can’t skip the rent when the market is down. You have to pay rent on time, all the time, in full.
  2. Commercially competitive: You have to be sure that the terms of the lease are commercially competitive. Leasing it back for “mates’ rates” to benefit financially is not permitted. SMSFs are regularly monitored and audited by the ATO to make sure all arrangements are compliant?
  3. Sole purpose test: The ‘sole purpose’ test must be passed by the investment. This purpose is to offer retirement benefit to the SMSF’s members.
  4. Valuations: The super fund’s compliance depends on routine valuations being conducted on the asset. This requires time and involves plenty of paperwork to accomplish.

Still going through with it?

In the end, the test decision to purchase an asset in an SMSF should be made rationally using facts and sound advice.

Ask these questions about your potential investment:

  • Is the asset deemed a good investment?
  • Will its value increase?
  • What risks should I anticipate?
  • What is the income?

To help you make a sound decision, hire a qualified, independent third party to review the potential investment and give you their honest opinion. You may not be able to get good advice from a person who would benefit from selling the property.

If you are considering buying a property, whether commercial or residential, using your SMSF, meet with one of our tax experts to guide you through the process. If you want to know more about super funds and how to use it to purchase asset, contact PJS Accountants.

The Basics of Fringe Benefits Tax

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You can recognise and reward the important roles that your employees play in your business by giving them benefits. However, remember that certain benefits or perks trigger Fringe Benefit Tax (FBT). This is a tax employers pay on most non-cash benefits they give to their employees.

The Types of Fringe Benefits that are Taxable:

  • The use of a car for non-business purposes
  • Payment of private spending
  • Low-interest loans used for private purposes
  • Some types of entertainment such as meals for when an employee is not on an overnight business trip
  • Other perks if the expense does not exceed certain limits

How to Compute FBT

There are Type 1 and Type 2 Fringe Benefits. The ATO has provided steps to help you compute your FBT.

  1. Determine the amount of all Fringe Benefits you give to your employees that can be taxed.
  2. Ascertain from step 1, the aggregate amount (pre-gross up) of Fringe Benefits you give in which GST credit (Type 1 benefits) can be applicable.
  3. Determine the grossed-up taxable amount of these Type 1 benefits. Do this by multiplying the aggregate taxable amount by 2.1463, the current type 1 gross up rate.
  4. Ascertain from step 1, the aggregate taxable amount of benefits in which GST credit is not applicable. For example, supplies you delivered that were either input taxed (Type 2 benefits) or GST-free.
  5. Determine the grossed-up taxable amount of your Type 2 benefits. Calculate this by multiply the aggregate taxable by 1.9608, the current type 2 gross up rate.
  6. Get the sum of the gross-up values from step 3 and step 5. The amount is your overall Fringe Benefits that are taxable.
  7. Calculate the total FBT value that you must pay by multiplying the aggregate Fringe Benefits taxable value (from Step 6) by 49%, the current FBT rate.

Sample

Let’s say an employee receives $100,000 per year in wages and got a car benefit having a taxable amount of $10,000 in the 2015-2016 FBT year. The annual salary is taxable at the applicable pay as you go (PAYG) withholding rate and the car benefit amount is taxed in this manner:

Taxable Amount                                              $10,000

Multiplied by Gross-up rate x                        2.1463

Grossed-up taxable amount                           $21,463

FBT Rate                                                               49%

FBT Payable (rounded)                                   $10,517

Rules on Reporting FBT on PAYG Payment Summaries:

In case the pre-gross up taxable amount of the Fringe Benefits is over $2,000 during the FBT financial year covered (from 1 April to 31 March), employers are required to report the grossed-up taxable amount of those benefits on the Payment Summary of the employee for the corresponding payroll financial year (from 1 July to 30 June). Certain Fringe Benefits do not have to be included on Payment Summaries.

Sample

For the car benefit mentioned above, the value that must be reported on the employee’s PAYG payment summary for 2016 is as follows:

Taxable Value                                                      $10,000

Multiplied by Gross-up rate x                             1.9608

FBT Reportable amount                                     $19,608

Consider consulting your accountant with regards to FBT because it can be complex. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.