Basics of business tax

Different business structures pay taxes in different ways, so it's important to have an understanding of the basics.

Although there are many taxes that a business might be affected by, the main ones are:

• goods and services tax
• income tax
• pay as you go withholding tax for employees
• payroll tax
• excise tax

Other taxes that a business could encounter are:

• fringe benefits
• capital gains
• property
• vehicle
• other duties and levies administered by state or local governments

Taxes Paid on the Business Activity Statement

Once your business is registered for the relevant taxes, several are reported and paid as part of the monthly or quarterly activity statement.

• GST is collected from customers and paid to suppliers, and you pay the difference between GST on sales and purchases
• PAYG Withholding for employees or suppliers that don’t provide an Australian Business Number
• PAYG Instalments contribute towards an expected income tax bill
• Other taxes paid on the BAS (if applicable) are fringe benefits instalments, fuel tax credits, wine equalisation tax and luxury car tax

Taxes and Other Fees Paid to State Revenue Offices

Some business taxes are paid directly to the state revenue office, such as land tax for property purchases and payroll tax once the state threshold of reportable wages is reached. Other common government duties include stamp duty on property transfers and land tax.

Income Tax for Businesses

Income tax is calculated after the end of the financial year, taking into account any PAYG instalments already paid.

Tax deductions for business expenses reduce your taxable income and, therefore, your tax bill.

If financial gain is made on the disposal of assets, such as property or shares, capital gains tax is paid on the amount of financial gain and is paid as part of income tax.

Income tax for business is calculated differently according to the type of entity.

Small Business Tax Concessions

Your tax agent can make sure you are claiming all the small business tax benefits that you are allowed through concessions that reduce the amount of tax liability.

For example, there are specific concessions for asset write-off, primary producers, fringe benefits or start-up expenses. Concessions also apply in some situations to reduce the amount of capital gains tax payable.

Thinking of starting or changing your business?

Talk to us about adding or cancelling tax registrations, concessions and planning for the various taxes your business will need to manage.

Making sure your business finances are in order

Getting your head around the basics of bookkeeping, accounting and good financial practice may not come naturally to all business owners. But the better you understand the numbers, the more control you'll have over your business and your decision-making.

To get you started, here’s a rundown of some of the main financial terms and how they apply to the financial management of your business.

Revenue and money coming into the business

Most of us understand that revenue is the income you generate through your sales.

If you multiply your average sale price by the number of units sold, this is the top level number you get. It’s a gross figure (i.e. before any deductions) and gives you a clear idea of how much money the business is generating through its sales activity.

Revenue can come from various sources, and each income source is known as a ‘revenue stream’.

Revenue streams could include product sales, income from services you provide, income from intellectual property you own (like patents) or income from assets the business owns, like property you rent out at a profit.

Having several revenue streams is a good idea, as it spreads your income generation across multiple areas and reduces the risk of one revenue stream drying up.

Expenditure and money going out of the business

Expenditure refers to any payments you make (either in cash or credit) against the purchase of goods and/or services.

In a nutshell, expenditure is the money that’s going OUT of the business, so it’s important to have a good grip on these costs and to make sure you’re not spending any more money than you need to.

Costs that would fall under expenses include your supplier bills, your payroll expenses, your operational overheads and the costs of any raw materials and goods you buy to keep the business running.

The less you pay out in these expenses and overheads, the more of your revenue will end up as profit – as we’ll see in the next section.

Profit and loss (P&L)

Your profit and loss statement (usually referred to as your P&L) is an incredibly important financial report to get your head around. 

The P&L summarises your revenues and expenditure over the course of a period – usually for the month, quarter or year that’s just ended – and gives you a breakdown of the profits and losses the business made during that period.

If you make more in sales revenues than you spend in outgoing expenses, you make a profit (and that’s vital to your success).

For any business to be financially viable, your financial model MUST be able to generate profit.

Without profits, the business can’t make money, you can’t reinvest back into the company to drive growth, and you (personally) won’t get paid anything.

Cashflow statements and positive cashflow

Your cashflow statement is another vital tool in your accounting toolbox. 

To keep the lights on in the business, you need enough available cash to cover your everyday expenses. Your cashflow statement shows you the cash inflows (money coming into the business from revenues etc.) alongside the cash outflows (payments to suppliers, or operational overheads etc).

For the business to have enough cash in the pot, your cash inflows MUST outweigh your cash outflows. This is called being in a ‘positive cashflow position’ and it’s a level of financial health that every startup should aim for.

By tracking inflows and outflows, and projecting them forwards in time to create forecasts, you can make sure there’s always available cash in the business.

Improving your understanding of the numbers

It takes time to pick up the financial jargon and accounting terms that will help you understand your accounts.

But don’t despair. As your business journey evolves you’ll gradually begin to get your head around the important business finances, numbers, metrics and reports.

Other important finance terms to understand include

• Turnover = the total sales revenue made in a period. It’s also sometimes called ‘gross revenue’, as it’s the number prior to any deductions being made.
• Assets = the things you own in the business, like equipment, property or cash etc.
• Liabilities = the things you owe to other people, like bills, debts and loan repayments.
• Balance sheet = a snapshot of your assets and liabilities on a given date.
• Working capital = your current assets minus your liabilities. In common usage, it’s the capital (money) you have in the business to keep the company operational and trading.
• Funding = bringing additional capital into the business, usually in the form of business finance products like loans, or through private investment from outside sources.
• Credit score = a rating given to the financial health and risk level of the business. The bigger the score, the lower the risk – and the better your access to funding.

If you’re planning for your business, get in touch. We’ll help you set up the ideal accounting system, so you’re in complete control of your finances.

E-invoicing

Is your business using e-invoicing?

It’s a fantastic way to protect yourself and your customers from invoice scams, and it can help you get paid faster. E-invoices replace emailed PDF invoices or links to online invoices. Instead, e-invoices are delivered securely to your clients, even across different accounting systems.

Preventing invoice fraud

Invoice scams are surprisingly common, and can be quite sophisticated.

For example, with intercepted invoices everything looks exactly right, but the bank account number has been altered. When it happens to you, your client thinks they’ve paid you, but the money has actually gone to a scammer. 

Another example is when you receive notifications from suppliers that their bank account number has changed. But it’s not actually your supplier, it’s fake, and your money is going to a scammer.

In the event of an invoice scam, it can be very difficult to get your money back.

E-invoicing prevents these types of scams because the invoices travel directly from one accounting or payment system to another. By directly connecting suppliers with their clients, there’s no opportunity for scammers to intercept the invoices.

Start sending and receiving e-invoices

When you have your accounting software set up for e-invoicing you can send and receive e-invoices immediately.

You can also use e-invoicing if you don’t use an online accounting platform. There are a number of e-invoicing enabled software providers. Talk to us about which one would suit your business.

It only takes a little bit of time to learn how to use e-invoicing.  And once you have implemented e-invoicing you’re more protected from invoice fraud. So, it’s well worth getting it set up!

We can help you set up your accounting software to send and receive e-invoices immediately. Talk to us about how. 

Keeping your business cash liquid – the difference between cashflow and profit

The foundational goal of any business is to make a profit.

As a business owner, that’s one of your key financial aims – to make enough sales, at a big enough margin, to generate profit from your enterprise.

But how does profit differ from cashflow? And why is cash king?

How do profit and cashflow differ?

To really understand the difference between generating profit and managing cashflow, we need to look at what both these terms mean. You might think that delving into the accounts is a job for your adviser, but being in control of your profit and cashflow is an invaluable business skill.

Let’s take a look at the differences:

What is profit? 

Profit is the surplus that’s left from your income once you’ve paid your expenses, supplier bills and tax etc. It's driven by creating a profit margin and generating value from your products and/or services.

What is cashflow? 

Cashflow is the ongoing process of ensuring that the business has the available cash (or ‘liquid’ cash) needed to operate. This provides the money needed to trade, to pay suppliers, to cover wages or to buy raw materials etc.

Why is positive cashflow so important?

‘Cash is king!’ may be a cliche these days, but it’s a maxim which underpins any successful business model. Yes, it’s great to make a profit at year-end, but if you don’t look after your cashflow then the business may not survive as long as the end of the year.

What’s needed is good cashflow management to enhance your financial health. And without a careful eye on your cash numbers, things can quickly go awry.

A business can generate high revenues and big profits, but still be cashflow poor. In other words, it can have profits at the end of the period, but have very little liquid cash to fund it's day-to-day operations over the course of the period.

Talk to us about improving your cashflow management.

Good cashflow management is all about being in control of your cash inflows (income you’re generating) and your cash outflows (what you’re spending). To achieve ‘positive cashflow’ you need to proactively work to keep your inflows higher than your outflows.

As your bookkeeper and BAS Agent, we’ll help you set up detailed cashflow reporting and forecasting, so you can keep the business in that ideal positive cashflow position. And we’ll also look at key steps for keeping your revenues high, margins profitable and meeting your financial targets.

Get in touch to talk through your cashflow management.

Q3 Deadlines for the Diary

Don’t let the relaxed summer holiday feeling distract you from your business lodgement responsibilities!

Lodgement and payment deadlines still apply, although you get a little extra time this quarter for your December obligations.

To help you get organised for the new year, we've highlighted some upcoming business lodgement due dates.

Talk to Us About Lodgement Planning

If we're already lodging on your behalf, lodgement extensions automatically apply. You may have earlier deadlines if you're lodging activity statements and other forms directly with the ATO.

If you need more time to lodge and pay, let us know, and we can help you meet your obligations or arrange a lodgement extension if required.

Some tax return due dates fall within the first quarter of 2022. Talk to us if you're not sure of your business entity's tax return due date.

It's good practice to plan for your lodgement dates, so you're always ahead of the ATO and also for your cash flow planning. Don't get caught out with a penalty for late lodgement!

We are a registered BAS Agent. Get in touch to organise Busy 01 Consulting and First Class Accounts Ovens and Murray to manage your lodgements. 

Plan for 2022!

What are your business goals for 2022?

The beginning of a new calendar year is an excellent time to review the year just finished and reflect on what worked, what didn’t, what you’d like to change and new things you’d like to implement.

Last year, there were inescapable impacts on businesses, with some thriving, others failing, and others just getting by. So what kind of year was 2021 for your business?

Take the time to review the year and acknowledge all that has happened, good, bad or indifferent. Examining the year with an objective perspective can provide valuable insights to prepare for the next business year. Planning and goal setting will help provide a focus for your business efforts.

Your Yearly Business Review

• What were the most significant impacts on your business in 2021? How well did you meet the challenges?
• What worked well last year? What systems, technology, products or services were successful?
• What accomplishments can you celebrate?
• What situation, event or experience provided the biggest learning opportunity?
• What is the biggest challenge or frustration you face as you prepare for 2022?
• What did you most enjoy during the year? Do more of it. What did you least enjoy? Do less of it!
• Analyse your financial reports. Are you earning what you’d like to? Is the business sustainably profitable?

Get Ready for a Great 2022

While there are many metrics you could evaluate to track business performance, we’ve given you just a few ideas to inspire your business planning for 2022.

If you’d like to chat about what you can do differently this year to enable your business to thrive, get in touch with us today.

Automating Bank Reconciliation

Good bookkeeping is all about recording and matching your financial transactions.

Over the course of a usual week of trading, you’ll have a range of payments being deposited into your bank account and a host of operational expenses being withdrawn from that same account.

To keep on top of this, you must match each line on your bank statement with the transactions recorded in your accounting software.

This process of matching the incoming (or outgoing) transaction with the relevant receipt, invoice or supplier bill is called bank reconciliation.

Why is bank reconciliation so labour intensive?

Bank reconciliation (or bank recs) is not the most thrilling part of the accounting process. But it’s essential if you’re going to have an accurate overview of your current accounting balance, and the balance that’s in your business bank account.

Traditionally, to complete the bank recs, you would need to:

• Get a copy of your bank statement for the period
• Check the deposits (cash coming in) and withdrawals (cash going out) on the statement
• Look at the related credits and debits in your accounting software
• Match these transactions to the relevant receipts, invoices or supplier bills
• Reconcile your balance in the bank with the balance in your accounting software.

It’s a necessary process – and something you have to keep on top of. But it’s also a laborious and time-consuming task that eats into your admin time.

So, is there an alternative?

How can automation help to lighten the workload?

Accounting software has evolved in leaps and bounds over the past decade. And many of the innovations that are now available focus on alleviating the time-intensive tasks, like bank recs.

Modern cloud accounting packages offer a range of ways to not only lighten the financial workload, but also to improve speed, accuracy and efficiency.

For example:

Live bank feeds

These software integrations pull all the data from your online banking into the accounting software, giving you a live feed of your bank transactions.

Automated matching

Artificial intelligence (AI) and machine learning are used to automatically match the right invoices and bills with your bank transactions.

One-click matching

In a platform like Xero, you just need to review the automated matches and then click OK to match the transaction and complete the bank rec process.

Reduced human error

With an algorithm doing the matching, there are fewer errors in the bank rec process, and the whole process is completed in seconds, rather than hours.

Real-time bank and accounting balances

With live bank feeds and real-time data in your accounting software, you have the most current overview of your balances.

Talk to us about automating your bank reconciliation process.

If your current accounting platform doesn’t allow for automated bank recs, now’s the time to upgrade. Cutting out the manual processes gives you more time to focus on higher-value financial tasks, and keeps the reconciliation process ticking away silently in the background.

Get in touch to discuss switching to a new accounting platform.

Cashing Out Annual Leave

Are your staff asking to cash out annual leave? 

There are some important rules to remember before paying out annual leave.

Firstly, you must review the employee’s modern award to check that cashing out leave is explicitly allowed.

Most awards do allow for excess annual leave to be paid out, and we give you the general rules here – but you need to check the relevant award for special regulations before agreeing to cash out leave.

Common Rules for Cashing Out Leave

• The leave must be paid at the same rate as if the employee takes the leave. That means you must pay leave loading if it applies, and super is always payable on cashed out annual leave.
• The employee must have at least four weeks of leave left available after paying out any excess amount.
• You can’t pay out more than two weeks of leave per year.
• While leave accrues as usual when an employee takes leave, you don’t need to accrue leave on cashed out leave.
• You need to have a written agreement with the employee, stating the number of hours being paid, the total amount and when you will pay it.
• Remember to check the employee’s award first and keep all records and calculations!

You Can Direct Employees to Take Excess Leave

You can't force an employee to cash out leave, but you can ask an employee to take leave in some circumstances. If you have employees accruing a lot of leave, check the award for guidance. For example, some awards allow an employer to direct an employee to take one week or more of leave if they have more than eight weeks accrued, give at least six weeks’ notice, and leave at least six weeks of leave available.

Need Help?

Remember, annual leave is paid out when an employee leaves your business, so it’s good to keep an eye on how much is owing and not let too much accrue.

Also, employees should be taking leave regularly for their health and wellbeing.

If you need help, talk to us, and we can review your payroll, leave accruals and modern awards to help manage employees’ annual leave.

Managing projects in a remote team

We’re living in a world where remote and hybrid working are now the norm.

Driven by lockdowns and the pandemic, businesses have been forced to adopt a ‘working from home’ approach. And this ability to work remotely has driven productivity and efficiency for some companies but can create its own challenges.

Designing your workflows for remote working

When a whole team, or even a percentage of a team, are no longer sitting in the same office space, there are some very specific considerations to bear in mind. How do they access the systems they need? Where is all the company and customer data stored? How can people collaborate? What’s the best way to communicate?

If you’re going to make it easy to manage a project with a remote or hybrid team, you absolutely need to think through these questions and come up with some practical answers.

For example:

Video-based meetings and project kick-offs

The obvious problem of not being in the same room is that the project team can’t see or hear each other. 

And over the course of the pandemic, we’ve seen video meetings and platforms like Zoom and Microsoft Teams come into their own. Having your kick-off meeting and regular team catch-ups via video calls helps everyone to feel involved, and helps to create more of a ‘team spirit’ between a group of people who may be hundreds, or even thousands, of miles apart.

Capturing actions and briefs

During meetings, you need good ways of taking down notes, capturing actions or summarising what’s been discussed with the client or the team. Using a cloud-based document system, like Microsoft 365, Google Docs or Evernote allows you to capture these ideas as rough notes. Or you could use an AI transcription tool, like Otter.ai, to transcribe the audio from the meeting as it happens and provide you with a full written breakdown of the call.

Job management and tracking tools

Once the project is underway, it’s important to monitor progress, record which tasks have been completed and stay in control of a disparate group of people all working in different places.

There are many project management tools for tracking the progress of a project and keeping everyone on top of things. When these tools are cloud-based, everyone has access 24/7 from any internet-enabled location, so that makes it far easier for everyone to be kept in the loop – and for people managers to see how each person is tracking.

We specialise in this space to support the implementation of these tools, so talk to us about your options. 

Collaborating together as a team

Working together from a distance is another hurdle for a dispersed team to overcome. But with cloud-based collaboration tools, like Monday, Slack or Teams, you can quickly create an online space for the team to share documents, have online chats, upload different document versions and generally boost the collaborative process.

The easier you make it to communicate and share files/info, the fewer challenges you’ll face as the project develops.

Integrating project finances with your accounts

Whatever the project, there are going to be certain costs, expenses and budgetary considerations to cope with. And staying in control of that with a team of remote workers can be a challenge – both for the project manager and the company’s finance team.

The answer is to use a project management tool that integrates with your main cloud accounting software. Many of the top project management and invoicing solutions can connect directly to platforms such as Xero, QuickBooks, MYOB or Sage.

Apps like DiviPay or Pleo also provide ways to manage your remote team expenses when employees are making ad hoc payments, racking up project expenses or have control over their own budgets etc.

Again, we specialise in this space to support the implementation of these tools, so talk to us about your options. 

As the benefits and flexibility of remote working become more widely felt, we’re likely to see even more projects being run remotely – with employees no longer clustered in the same office 5 days per week. So, if you want to keep your competitive advantage, you need to be ready.