Tag Archives: ATO

Accounting Software to run your business

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You started with a shoebox of receipts, now you have a storage box or maybe you are meticulous and have it all on a spreadsheet.  Either way it is time to start thinking about accounting software. This guide will look at why you need it and lead you through what you should consider in making your decision.

Accounting software, package or system describes a type of application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, journal, general ledger, payroll, and trial balance. It functions as an accounting information system.
source Wikipedia

Accounting software has changed a fair bit over the last few years with new competition driving new features and simplicity.  Probably the biggest change however is that it is all in the cloud. Put simply this means you rent access to the solution and do everything via the internet.  You no longer have software that you must buy and host internally on extra computer hardware that you must keep safe.  Instead you have a user-friendly solution that you can access from anywhere that integrates with your bank, POS system, etc.

WHY should you buy Accounting Software?

WHY should you buy Accounting Software?

Saves you time – track invoices, manage bills and expenses and pay staff in a few clicks
Tax time ready – calculate GST, PAYG and BAS reports
Built for Australian legislation reporting
Get paid faster – online invoices, pay now buttons and automatic payment reminders
Enter receipts on the move – use your smartphone to take a photo of the receipt from Bunnings. Great for travellers and tradies.
An external accountant or bookkeeper can have instant access at the same time you do
Reporting lets you quickly get a good idea of how your business is going now
Accounting software becomes increasingly beneficial as the business gets more complicated

HOW to make a decision on which Accounting Package

So now we understand that this software solution is so much more than getting a bill in the system, it is about automating the whole process.  Let us look at the features you should consider when selecting which vendor:

  • Different accounting package vendors offer different features and even within the same company they offer different levels which means you only get what you need.  For example, if you have no employees you do not need the payroll functionality. Consider what package you will need?
  • Pay Staff – Do you want payroll integration? Does the system calculate all payroll requirements including PAYG, annual leave, long service leave etc.? From July 2019 small employers with 19 or less staff must report payroll info to the ATO through Single Touch Payroll. https://www.ato.gov.au/Business/Single-Touch-Payroll/ (Be sure to read our essential guide on Payroll)
  • Ease of use – As an untrained small business owner how easy is it to learn to use the package and be assisted through the software to understand what the requirements are of controlling your finances?
  • Invoicing – Send customised, trackable invoices.  Can clients pay right from the invoice?  Can automatic payment reminders be sent?
  • Tax and GST –  Can you easily and automatically track what you owe, and see all your position at a glance?
  • Does the software support Standard Business Reporting (SBR) allowing you to lodge your GST BAS requirements? (Be sure to read our essential guide on GST)
  • Application integration – Can the package be connected to other software solutions you are using?
  • Time tracking and billing – If you charge by the hour are there features that will simplify gathering this data? For example, a smartphone App.
  • Reports and budgets – What level of detail do you need and can you compare against a plan or budget?
  • Track jobs – Does the system track stock, work in progress, orders, jobs, and other task management requirements?
  • Bills and expenses – How easy is it to upload your bills and easily categorise expenses?
  • Point of Sale (POS) integration – Is there a seamless connection to track sales and inventory movements?
  • Inventory – If you hold inventory/stock will this package help you forecast and manage it? Can you barcode scan items in and out if you want to?
  • Bank Reconciliation – Will the system be able to handle multiple bank accounts?
  • Manage customers & suppliers – Can you easily see which customers owe you money, and which you need to follow up on?
  • Take payments – Does the software allow EFTPOS or credit card processing?
  • Cash flow management – Can you see your money in and money out at a glance, and understand quickly what your cash position is?
  • Online accounting – Is there a smartphone or tablet app that lest you enter data or receipts as well as run your business from anywhere?
  • Multi-currency – Does the system need to handle foreign currency?
  • Account sharing – Can you invite accountants, bookkeepers, and partners so they can help you manage your business?
  • Security – What security and backup procedures do they offer to help you protect your data?
  • Customer Relationship Management (CRM) – Does the system keep detailed records on customers including what they buy, how often they buy, and when they buy?
  • Service – What support and training are available, what hours and does that support understand Australian regulations?

HINTS

For more information on what accounting tools are available and the specific features, they offer visit

Free trials are available to help you compare and chances are your financial expert will have an opinion on which one to use.

The accounting software packages you should consider in no particular order include Xero, MYOB, Quicken, Reckon, QuickBooks and Sage.

SUMMARY – Right Accounting Software

Having the right accounting package will save you vast amounts of time and effort and will help keep your business compliant with government regulations. 

Although these modern tools are brilliant in helping you control your business finances they will never replace having access to a financial expert.  We strongly recommend you have access to an accountant or bookkeeper to help guide you.

If you do not have external financial support today you can visit this site to help you find the right person

GST do I have to pay it?

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They say two things are certain in life, death and taxes. We certainly hope your small business lives a long and prosperous life and that you never fall foul of the taxman.  In this guide, we will explain the GST and show you that it is not a tax you pay but instead one you help collect from the final consumer.

The Goods and Services Tax (GST) is a broad-based tax of 10% on most goods, services, and other items sold or consumed in Australia. If you are registered for GST, you must add GST on all your applicable taxable sales unless they are GST-free or input-taxed. You are able to claim credits for GST included in the price of business purchases of goods and services.

WHY do I need to register?

If your business exceeds $75,000 turnover or provides taxi or ride-sharing services you must register and charge for GST! You need to register within 21 days of exceeding the turnover threshold.

WHAT are the steps to follow for Standard GST registration?

  1. Register for GST online, by phone or through a registered agent. Make sure you get an Australian Business Number (ABN) first. https://www.ato.gov.au/Business/GST/Registering-for-GST/
  2. Determine which of the goods and services you sell must include GST.
  3. Issue tax invoices when you sell something which GST is included you must issue an invoice clearly showing the 10% GST added.  For example, $100 x 1.1 = $110 inc GST. Under Australian legislation, all goods and services pricing should be indicated as total price with GST included. For example, from the previous example, $110 inc GST, not $100 ex GST.
  4. GST credits for anything that you have bought for your business. Collect tax invoices that show GST has been paid . Link

Australian GST-free products and services
Most basic foods, some education courses and some medical, health and care products and services are exempt from GST.
Exports of goods and services from Australia are generally GST-free.
The supply of a service is GST-free if the recipient of the service is outside Australia.
Further info
  1. Your accounting system should clearly show how much GST you have collected and paid. (Be sure to read our essential guide on Accounting software as this will simplify the process). Ensure you put aside any GST money you have collected, as it must be paid to the tax office and it is not your business’s revenue. You will pay your GST collected minus your allowable credits to the ATO.
  2. Lodge a BAS statement. A Business Activity Statement (BAS) is your report to the ATO on your GST activity. You can lodge online through MyGov, the ATO Business Portal, directly through some accounting software, tax agent, or mail.
    If your turnover is less than $20 million you must lodge quarterly otherwise monthly. More details can be found in our How to Complete a BAS guide.

The Australian tax office requires GST invoices to include certain information and this will differ based on the sale being below or above $1000. The above $1000 format can be used for the lesser value.  The specific requirements and a suggested format can be found here https://www.ato.gov.au/business/gst/Tax-invoices/

BAS due by QuarterDue date
1. July, August, and September28 October
2. October, November, and December28 February
3. January, February, and March28 April
4. April, May, and June28 July

HINTS

  • Keep good records
  • Ensure your sales reconcile with your bank statements
  • Keep all your tax invoice and GST records for 5 years
  • GST is not claimable on private expenses such as entertainment and food
  • All claims must be in Australian dollars
  • When claiming a tax credit for less than $82.50 for you only need one of the following; a tax invoice, a cash register receipt, a receipt, or an invoice.
  • You cannot make credit claims for invoices that do not include GST
  • Further GST and BAS tips can be found on the ATO website

If you sell something that is GST exempt you can still claim credits for the GST included in the price of purchases you use to make your GST-free sales.

SUMMARY – GST do I have to pay it

In summary, GST will be part of your business, so ensure you keep accurate records and employ an appropriate person to help and/or use a software tool to ensure you stay compliant.

Temporary shortcut method – claiming WFH deductions

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The Australian Taxation Office (ATO) reminds the community that the temporary shortcut method is available to those claiming working from home deductions this year.

The temporary shortcut method was created at the height of the pandemic last year to respond to the sudden influx of makeshift home workspaces.

Assistant Commissioner Tim Loh said that “even with people shifting back to the office, we know many Australians have opted to continue working from home at least one day a week.”

The working from home shortcut method allows claims at the all-inclusive rate of 80 cents per hour, rather than needing to do complex calculations for specific items.  

“The shortcut method is straight forward; just multiply the hours worked at home by 80 cents,” Mr Loh said.

“The only proof you need is a record of the number of hours you’ve worked from home, such as a timesheet.”

The temporary shortcut method can be claimed by multiple people living under the same roof. Unlike existing methods, the temporary shortcut method does not require a dedicated work area.

The shortcut is all-inclusive. You can’t claim the shortcut and then claim individual expenses such as telephone and internet costs and the decline in value of new office furniture or a laptop.

Taxpayers can still claim under the existing arrangements if they choose.

“If you decide to go with an existing method, I would encourage you to do your research and keep good records. Keeping track of each individual expense and calculating the work-related use of each one can be fiddly, so be organised. So, make sure you’ve read the guidance on our website or chat to your registered tax agent”, Mr Loh said.

Top 4 no-go expenses

If you chose to claim your working from home expenses through the fixed-rate or actual cost methods, remember you still can’t claim:

>    Personal expenses like coffee, tea and toilet paper. While they might normally be supplied by your employer, they still aren’t directly related to earning your income.

>    Expenses related to your child’s education, such as online learning courses or laptops

>    large expenses up-front. Any asset that costs over $300 (either in total or per item), such as a computer, can’t be claimed immediately. Instead, these claims should be spread out over a number of years

>    Employees generally can’t claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes and rates. Working from home does not mean your home is a place of business for tax purposes.  If you claim occupancy expenses, you may have to pay capital gains tax when you sell your home, even if it is your main residence.

Three different methods for 2020-21

You can choose one of three ways to calculate your additional work from home running expenses for this tax time:

·           claim a rate of 80 cents per work hour at home for all your working from home expenses;

·           claim a rate of 52 cents per work hour at home for the heating, cooling, lighting and cleaning of your dedicated work area and the decline in value of office furniture and furnishings. Then calculate the work-related portion of your telephone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device.

·           claim the actual work-related portion of all your running expenses, which needs to be calculated on a reasonable basis.

Remember, to claim any work-related expense, you must have spent the money yourself and not been reimbursed. The expense must be directly related to earning income (not a private expense). You must have kept any necessary records (a receipt is best).

Additional information

More information about working from home is available at ato.gov.au/home.

Small business Answers guide to tax returns can be found here.

Car Expenses

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Work-related car expenses are among the simplest business expenses that can be claimed against your tax bill, thus saving you money. However, claiming does require some discipline. There are different methods like the ATO cents per km and logbook methods to choose from.  This guide will help you decide which car expense deduction method is right for your small business.

A car expense is a cost associated with the running of a car and can include fuel, tyres, servicing, repairs, insurance, tolls, parking, registration, hiring, interest on vehicle loans, lease payments and depreciation. A work-related expense is one that is incurred whilst performing your job.

WHY should I bother?

To claim a motor vehicle expense, you must be able to provide the Australian Tax Office (ATO) a sound justification for the kilometres that you travelled for work purposes. Unfortunately, just because you have a work vehicle that may even advertise your services on the side, it does not mean you can claim 100% of its costs.  The ATO is looking to understand how much you used this vehicle for business purposes versus private usage. So, unfortunately, the trip down to the beach in the ute is unlikely to be a tax deduction.

When you add up the costs of owning and running a vehicle, these costs can run up to hundreds of dollars a week. Over a year, that is thousands of dollars.  If some of this can be claimed, it is much better in your pocket.

WHAT can I claim as car expenses?

Claimable work travel includes:
  • Travel between work locations
  • Travel to a customer
  • Travel to pick up work equipment or supplies
  • Travel to work-related conferences and training courses

Travel from your home to work is not a tax deduction. This includes travel where you may do minor work-related tasks such as collecting mail. Travel from home to work can be claimed where:

  • You are a home-based business, so any business travel can be claimed such as visiting the bank or accountant.
  • You need to transport bulky items to and from their usual place of work where there is no reasonably secure storage provided on-site. For example, a tradie van or ute contains the tools of the trade.
  • You need to travel to a different location for business purposes, such as a customer meeting before or after work.
  • You are on-call, and thus your work has commenced before you leave your home. This would include emergency services, medical staff and after hour repair technicians.

HOW do I claim car expenses?

There are three ATO methods to claim motor vehicle expenses:

1. Cents per km method
2. Logbook method
3. Actual cost method

You may only use one method per year per vehicle.

If you are a Sole Trader or Partnership, you can choose between cents per km or the logbook method. However, if you own a motorcycle or a vehicle designed to carry either greater than one tonne or nine or more passengers, you must use the actual cost method. Thus, if you are a tradie with a one-tonne, ute you must keep actual records all year long.

If you are a Company or Trust, you also must use the actual costs method.

Cents per kilometre method

Every year you can claim up to 5000 kilometres per car based on a cents per kilometre deduction. For the 20/21 tax year, this rate is $0.72 per km. You must provide electronic or written evidence such as a diary to substantiate your kilometres travelled. We suggest you record the date, starting and ending kilometres and reason for travel. If you made a business trip in the 20/21 tax year of 32km, you could claim 32 x $0.72=$23.04.

Logbook method

The logbook method is a means to calculate the percentage of business travel versus private travel. It requires you to keep an electronic or written logbook per car for a single 12-week period within the taxation year.

As a separate exercise, you must record all your car-related expenses for that income year such as fuel and servicing expenses. Although we don’t recommend it, costs can be estimated based on odometer readings.

If over the 12 weeks you travelled 10,000 k kilometres and 6,000 were for business, then your business usage would be 60% (6,000/10,000). If your car expenses, including depreciation, were $9,000 for the income year, you could claim $5,400 ($9,000 x 60%).

The ATO states your logbook must include:

  • when the logbook period starts and ends
  • the vehicles odometer readings at the beginning and end of the logbook period
  • the distance the car travelled during the logbook period
  • kilometres travelled for each journey. If you make multiple journeys on the same day, you can record them as a single journey
    • reason for the trip (business reason or private use)
    • date of the journey
    • odometer readings at the beginning and end of the trip
  • the odometer readings at the start and end of each subsequent income year your logbook is valid for
  • the business-use percentage for the logbook period
  • the brand, model, engine capacity and rego of the car.
Actual cost method

The actual cost method requires you to keep track of every journey and every cost for that vehicle whilst it is owned by the business. As part of this process, you must keep the same sort of records as per the logbook method, but for 52 weeks or the time you have owned the vehicle. The costs for the year, including depreciation, can then multiply by your actual business use percentage to work out the deduction you can claim.

If you provide a vehicle to an employee or a spouse, tax implications are best discussed with a tax accountant.

HINTS

At the time of writing, the government provides a tax incentive to write a car off in the current financial year via temporary full expensing.

If your employee uses their own car for your business, your business can claim a deduction for any motor vehicle allowances or reimbursements you pay them for their costs, such as the cost of fuel.

There are various smartphone applications available to help you keep track of vehicle expenses, just search car logbook apps in your app store.  Some of these will use GPS tracking to make your input easier. The ATO also provides a handy app to keep track of vehicle trips and other business expenses and income.

If using the logbook method best not to include your 4-week driving holiday as part of the 12 week calculation period.

Information on buying vs leasing can be found here.

A guide to buying a van can be found here.

SUMMARY – work-related car expenses

Business use of a vehicle is tax-deductible.  There are three methods to claim a deduction; the choice depends on your business structure and the type of vehicle you use. Accurate record-keeping is important and will make your life so much easier come tax return time. If in doubt about anything discussed in this guide, we recommend you contact your accountant or seek clarification from the ATO

ATO turns on Online services for business

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The Australian Taxation Office (ATO) has flicked the switch on for its new service Online services for business, replacing its existing Business Portal.

The change makes Online services for business the ATO’s default service for businesses that interact directly with the ATO online. 

ATO Deputy Commissioner Deborah Jenkins said, “The Business Portal has served us well over the last 17 years, but it’s time to replace it with a much more contemporary service that’s been developed with business, so we know they’ll enjoy using it.”

“We’ve done extensive testing with clients. In the spirit of designing with the end-user in mind, many businesses have been involved in developing the service from the very beginning. We are grateful for the valuable feedback we’ve received. We’ve made many tweaks and improvements to the service as a result and continue to work through how we can further improve the experience for all businesses as they transition to our online platform.”

The new service makes it easier for businesses to interact with the ATO online and provides a secure channel to manage their tax and super obligations. It can be accessed on multiple devices, including on devices like your smartphones or tablets.

In addition to providing the services available in the Business Portal, Online services for business allows users to access new services including:

•               view and print tax returns and income tax history
•               create payment plans
•               switch between your businesses with a single login
•               customise your homepage
•               access new secure mail subjects.

“The new time-saving features include the ‘switch ABN’ function, which allows clients to easily move between the businesses they manage without having to log out and back in again. Businesses have also told us they love being able to organise a payment plan with us online using the service rather than calling us, which saves them precious time,” Ms Jenkins said.

“We’ve seen a great increase in participation from small business owners making the switch to the new service. Businesses in the professional, scientific and technical services and construction sectors have been quick to jump on board. We’d like to see more of manufacturing, retail trade, health care and social assistance businesses also start using the service”.

Businesses can start using Online services for business by logging in with their myGovID as they did for the Business Portal. Those new to our online services, will need to set up a myGovID and be linked to their organisation through Relationship Authorisation Manager.

“We understand this year has, and continues to be, challenging for many clients. We know businesses have a lot on their plate. So we will maintain the electronic superannuation tool (eSAT) and Business Portal for a transition period over the coming months to help users adjust to the new service. We are here to support businesses through this transition and whilst the new service will ensure an improved experience across a range of services. It is important to note that it is not a replacement for the professional advisory services provided by tax professionals,” Ms Jenkins said.

For information about Online services for business, including how-to guides, visit www.ato.gov.au/OSB.

Small Business Answers guide to tax returns can be found here.

How to Invoice

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As a small business owner, you need to keep track of how much money is coming in and how much money is going out. The collection and creation of invoices is a key way to achieve this. Thus you need to know how to invoice.

In this guide, we will look at why, in most cases, legally, you must provide invoices to your customers and how you go about creating one. We will also look at when and how you want to get paid.

An invoice is a time-imprinted business document that itemises and records a transaction between a seller and a buyer. If the goods or services were purchased on credit, the invoice usually specifies the terms of the deal and provides information on the available methods of payment.

WHY should I invoice my customers?

If your business turnover exceeds $75,000, you must register for and pay GST. See our guide on GST. When you make a sale of $82.50 or more, including GST, you must issue an invoice.

If your business has a turnover of less than $75,000, your customers may demand an invoice, and even if they don’t, it is simply good business practice.  We have written a comprehensive guide on Record Keeping.

Legally you must keep a copy of your invoices for 5 years.  This can be a paper copy or electronic.  These copies will help you fill out your BAS.

If a customer requests an invoice, you must provide it in under 28 days.

WHAT terms should I offer my customers?

Before we look at the invoice itself, a very important decision needs to be made about whether you will offer your customers any credit.  This is when you expect to get paid for the goods or services that you are providing.  Options include:

  • Deposit – You require a percentage of the total upfront to start work
  • Cash on delivery – full payment is made at the time of delivery of the product
  • Payment on completion of work – full payment is made at the time of completing a service
  • Progress payments – a schedule of payments normally with milestones are set through the project
  • Credit terms – the customer is given a set number of days to pay
  • Discount for early payment – You offer an incentive or discount to pay an invoice early, like a 5% discount if they pay within 7 days

Ideally, you get paid early or at the time of delivery, however, many businesses will not accept that if you want to do business with them.  Unfortunately, some companies have conditions whereby you have to accept terms of up to 120 days if you want their business.  This is robbery, and the norm would be 30 days. The longer a business takes to pay you helps their balance sheet, the quicker you get paid helps your balance sheet.

You will also need to decide what payment methods you will accept.  A bank transfer will be the most attractive as it will not attract fees, you don’t have to handle cash, and the money should move to your account within 24 hours. Cash will require you to visit the bank.  If you decide to accept a credit card or Buy Now Pay Later (BNPL – for example PayPal), you will get the money straight away, but you will have to pay a merchant fee in the form of a percentage of the transaction.  This payment form is convenient for the customer and will get the money to you fast. 

Whatever form of payment or payment terms you decide to use, you will need to consider when building your cost model.

HOW to invoice

By far, the easiest way to produce an invoice is through an accounting package.  If you create one manually, this can easily be done using a spreadsheet or word processing application. You will find many templates available in those applications, as well as downloadable templates from the internet.

In Australia, an invoice must include:

  • the heading “tax invoice”
  • Your business or trading name
  • your Australian business number (ABN)
  • date of the invoice
  • a description of the items sold, including the units (hours or goods) and price
  • the GST amount– this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, a statement which states ‘Total price includes GST’ (only applies if you are liable for GST)
  • If the invoice is over $1,000, including GST, you must also include the buyers’ identity or ABN
Example

Tax Invoice

Freds Shop                                                                             17 Fake St
ABN: 32 123 456 789                                                           Your Town State Postcode

Date:  25 March 2021

To:         Valuable customer
              56 Down Rd
              Town State Postcode

Description                                                   Quantity             Total
Widgets                                                          1                           $40.00
Labour                                                            2hrs                     $80.00

Total Price including GST                                                       $132
GST                                                                                              $12.00

HINTS

Now you have created your invoice, you need to send it to your customer, with the most common form these days being via email.  Ensure you have the right contact, and it is also worth copying it to a company’s accounts payable team. You can, of course, hand-deliver or post.

If your customers do not pay your invoices, read more about your options in our guide on bad debts.

The tax office provides guides on requirements for tax invoices here.

SUMMARY – How to Invoice

Accurate invoicing will help you keep your business in check and the ATO happy.  An invoice can be easily created. You can use an accounting package to help with the greater task of managing to invoice and your accounts.  If your turnover exceeds $75,000, you must provide invoices that specify GST.  Invoices are not required for amounts less than $82.50, including GST.

Temporary full expensing

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Following the COVID support instant asset write off available for small business in 2020, the Australian Government announced in October 2020 Temporary Full Expensing which allows a business to temporarily write off business assets in full.

The Australian Government has announced a temporary measure to allow businesses to claim an immediate deduction for the full cost of eligible capital assets.

WHY should I care?

This means you can write an eligible asset off in one year versus over the useful life as deemed by the Australian Tax Office. For example, a bar refrigerator in a restaurant normally would need to be written off over 10 years, under this measure the fridge’s cost can be written off against your business assets in one financial year.

WHAT do I need to know about temporary full expensing?

The eligible period is for the 2020-2021 and 2021-2022 taxation years and is for assets first held between 6 October 2020 and 30 June 2022. Thus, it is currently scheduled to end June 30th 2022. Your business must have an aggregated turnover of less than $5 billion, and you cannot make any other claim under other depreciation rules.

You may deduct the business portion of the cost of eligible new depreciating assets and the cost of improvements to existing assets. This measure also is available for 2nd hand assets if your turnover is below $50 million.

Suppose your business makes a loss for the financial year after claiming a full expensing deduction. In that case, you can carry your loss forward to use in future taxation years.

If you wish to depreciate a vehicle, you have a limit for a car of $59,136 in the 2021 financial year. Commercial vehicles with either the ability to seat 9 people or more or have a load capacity of 1000kg or more have no limit.

HOW do I fully expense a capital item

You will be able to fully expense an asset within your 2021 tax return via forms that will be available from July 1st 2021.

From our earlier example, if the new bar fridge bought in March 2021 cost $3,000 and was used 100% for business, the $3,000 cost could be included in the 2021 tax return as an expense versus only $300 if temporary full expensing was not available.

Small businesses that elected to apply simplified depreciation rules have been given an amnesty allowing them to take advantage of temporary full expensing.

HINTS

More information is available from the tax office here.

Your accountant can assist with the process.

More information can be found about completing a tax return in our guide on a small business tax return.

SUMMARY – Temporary full expensing

This is a great initiative by the Australian Government, which not only benefits your expense deductions but may also have a flow-on effect of increasing your sales if you sell items likely to be depreciated by other businesses. This temporary measure allows your small business to expense a capital item in the current financial year rather than over several years. You can claim this simply through your end of a financial year tax return.

Can’t pay my debts – Insolvency Reforms

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With Australian small business gripped by the effects of COVID-19, many find themselves in a position where they can’t pay their debts.  The Australian government has stepped in to help by introducing insolvency reforms.

Insolvency is when you find yourself in a position that you do not have the funds to pay the money you owe to others. As the owner of a small business your business and most likely you personally are responsible for paying your debts.

WHY should I pay my debts

If you don’t pay money that you owe to others, they have the right to recover those funds.  If you don’t have the funds, you become insolvent or essentially bankrupt.

Before January 2021 it was illegal for a business to trade if insolvent. The Australian government has introduced reforms that will allow a small business more time to restructure and survive the financial effects of COVID-19.

WHAT do insolvency reforms mean to me?

If you find your self insolvent and your debts are less than $1million, you will be eligible. Note that you must also have paid your employees their entitlements including superannuation and have your taxation lodgements up to date.

The small business reforms package consists of:

• A debt restructuring process providing a quicker and less complicated procedure for financially distressed but viable firms to restructure their debt.

• A liquidation process to allow faster and lower-cost liquidation, maximising returns for employees and creditors.

These reforms have been announced as temporary so at some point they will be removed!

Most importantly, this means that you can keep trading under your control while developing a debt restructuring plan.

HOW do I get help?

Traditionally you would need an administrator who would take control of your business which would be placed in voluntary administration.

Now a small business restructuring practitioner is recruited, which will reduce the complexity involved.

If you are facing financial stress, you should approach a practitioner immediately to discuss your options. There is a flat fee to do this but remember it is the difference between closing your business immediately and trading out of your insolvency.

The practitioner will work with you over up to 20 days to create a plan that your creditors must vote on.  If the plan is approved, the practitioner will administer the plan, including making payments on your behalf to creditors as set out in the plan.

HINTS – Small Business Reforms Package

A government fact sheet can be found here

You can find a registered restructuring practitioner here. Only a person registered with the Australian Securities & Investment Commission (ASIC) as a “registered liquidator” can act as a business restructuring practitioner.

SUMMARY – Can’t pay my debts

Key to your business success is good record keeping.  Knowing your financial position and understanding if your business has become insolvent means you may be able to trade out of your issues.  Alternatively, shut your business down without also destroying any personal assets.  The recent government reforms show sympathy and understanding of small business. They are making it easier to get back on your feet.

Hire Staff – hiring the right people

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A business is only as good as the people it employs.  Do they work hard, do they work smart, are they loyal or do they just want that paycheck and be out of there. This guide will look at if you have a need to hire staff, defining the role they will do and the task that must be completed.  Will they be full time, part-time, casual, or a contractor?

The common types of employment are:
full-time: an employee who works 35+ hours per week on an ongoing basis
part-time: an employee who works less than 35 hours per week and has a guaranteed minimum number of working hours
casual: an employee whose work hours may vary each week, depending on the work available
fixed term: an employee who works for a fixed period of time e.g. 3 months
shift workers: an employee who works shifts and gets an extra payment for working shift hours
An employee works in your business and is part of your business. A contractor is running their own business.
contractor can be great for short term projects and can also be paid by the hour without superannuation requirements.

WHY hire staff?

You may not have the skills or the time to do some tasks, or perhaps your time is better spent working on other parts of the business. If so and its time to hire staff assuming their efforts will drive more profit than their salary.

WHAT do I need to understand before you hiring staff?

Ask yourself, what level of skill will this person have and how much will you need to pay to attract the right candidate?  You do need to comply with government legislation in regard to award pay levels which can be found here https://calculate.fairwork.gov.au/findyouraward and discrimination laws here https://www.humanrights.gov.au/our-work/employers/quick-guide-australian-discrimination-laws

HOW to hire staff?

Finding candidates

To find the right candidate, you can either do this yourself or use a recruitment agency.  A recruitment agency will charge you either a set fee or a percentage of the employee’s salary.  If you can afford this it offers a great way to only interview a small number of vetted candidates. If you decide to do this yourself make sure you don’t hire the first person you interview.  Even if they turn out to be the right person you need a point of comparison.  You can find people by word of mouth, an advertisement in your window, the local paper, social media post, or a post on your website or newsletter. A job board like LinkedIn or Seek is handy and with a small fee, it will significantly increase your pool of candidates.

Candidate selection starts before the interview stage where you decide who you will interview.  Many businesses may have 100 applicants for 1 position.  Start by setting the criteria that are most important from a skill perspective to perform the job, for example, must have managed people before.  If the candidate has not they are out of contention.  Seek has a function where you can ask candidates set questions during the submission process. Once this is determined start reducing your list of candidates down to around no more than six people.  Your time is valuable and you cannot interview everyone.  A very important criterion is to ensure the candidates have the right to work in Australia.  There are ways around this but require a significant investment of time and regulation. https://www.business.gov.au/People/Hiring/How-to-hire-an-overseas-worker  Even those with working or student visas have restrictions,  students only being able to work 40 hours in a fortnight and holiday visa workers are not able to work for someone for more than 6 months.

Interview

Now it is time to interview.  Consider where you will interview them, for how long, by whom, and specify if you want them to bring anything. Remember they are interviewing you as well as you interviewing them.  A candidate wants to understand your business, and you as the boss, to decide if they indeed want to work for you.  So some points to consider include what you wear, how you treat them and what questions you ask. You do not want to be a tyrant and you are not their friend so remember to treat them with respect.  A successful practice is to ask each candidate the same questions and to rate them against each other.  That way you have a clear comparison and a method of comparing the person you interviewed today with the one two weeks ago who you can hardly remember. You should take into consideration how each person fits with the skills set you defined earlier, how they will fit into your organisation culture, if they can show you their previous achievements and if they are passionate  (remember a small business is only as good as its people).

In some industries it is common practice to test potential employees through a trial.  We recommend that you pay them and give them a proper opportunity to show their worth.

You have now found the right person but before you hire them on the spot it is a wise idea to check references.  Unfortunately, some people do lie, and the more you are sure about someone the better things will work out.  Okay, all that checks out and the person has great references.  Now it’s time to make them an offer.  The offer needs to be clear around working hours, salary, place of work, anticipated start date, and may include additional items like employee confidentiality or IT policies. A template for an employment offer can be found here. https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/templates

On-boarding

Once they accept, congratulate them and provide them with any further information to ensure they know the next steps, like what time you need them and what the dress code is, etc.  Now comes the hard bit.  Unsuccessful candidates interviewed with you and chances are they put a bunch of effort into that process.  You need to contact them and let them know they were unsuccessful.  Ideally be specific with the reason, for example, they lacked a specific skill, so they can improve next time rather than some generic statement like the other candidate was better.

The big day has now arrived for your new employee. Before they turn up you need to plan to induct them into your business and decide what they need to be taught and by whom.  Chances are it is you and it will take a lot of effort to begin with, but if done well you will have a happy and hardworking employee in no time.

You are now responsible for a new employee both personally and from a legislative perspective. If you don’t already have systems in place you must consider reporting like timesheets, payroll and taxation, superannuation, annual and sick leave, insurance, and workplace health and safety. (Be sure to check out our essential guides on these topics)

HINT

Candidates may attempt to negotiate employment terms such as wages. Always listen but remember it does not mean you have to compromise. 

Additional information can be found here

SUMMARY – Hire the right people

Your people are your business. Having the right employees is critical to your success. To Hire staff can be a rewarding process and will become simpler the more experience you gain.

Bank account for small business

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You have started your new business, you open your wallet and pull out some cash, and you wonder is that my money or some petty cash from my business?  Even if you have chosen to be a sole trader it’s a great idea to open a bank account, if you are any other business structure you must have a business bank account for tax purposes.  Once you do it opens up the ability to articulate which money belongs to you and which to the business. This guide will help you understand the benefits of having a business bank account and help you understand what you should consider in selecting an institution.

A bank is a financial institution that accepts deposits and recurring accounts from the people and creates demand deposit. Lending activities can be performed either directly or indirectly through capital markets.
Wikipedia

WHY have a separate Business Bank account?

When running a business you must keep account of business transactions and a bank account is a great way to have an auditable paper trail.

A separate business bank account will help you to:
  • Clearly show your business finances separate from your personal finances
  • Analyse your cash flow
  • Monitor your business income and expenses
  • Extract information needed to meet your tax and reporting requirements
  • Get detailed records of your business transactions. These can be downloaded to a spreadsheet or imported to an accounting package.

WHAT else can you do with a Business Bank account?

If you have a credit card attached to your business bank account and do most of your transactions through your credit card, your bank statements will, in effect, be a checklist of those expenses.

Some banks offer overdraft facilities, essentially providing a loan facility to go into a minus balance.

To open an account you will need an ABN and ID documents of an authorised owner or director of the business.

HOW to choose a business bank account?

So which bank should you choose? In fact you may not choose a bank, it may be a building society or credit union.  The answer is the one that suits you best and you should consider these points when making your decision:

  • What are the fees and charges?
  • Do they offer merchant facilities like EFTPOS?
  • Are their interest rates competitive if you need to borrow?
  • Do they cater to the needs of small businesses and do they have offers/solutions to suit?
  • Is there a local branch in case you need to visit? 
  • What is their online banking interface like and will it integrate with your accounting package?
  • What information is reported on each transaction?
  • What security measures do they offer for online transactions to protect your business?
  • How fast do they transact instructions and until what time at night?
  • Do they offer foreign transfer arrangements and what are the charges?
  • Can you have access to your own bank manager or business banking specialist?

For more information and comparing various bank accounts visit
https://www.finder.com.au/business-banking

For taxation purposes, the ATO provides the following guide on record-keeping https://www.ato.gov.au/Business/Record-keeping-for-business/Detailed-business-record-keeping-requirements/Running-your-business—records/Banking-records/

Here you will find useful information such as the requirement to keep records for 5 years including the period of review.  For example, did you know that if you did your 2015 tax return in 2016 you would need to keep your 2015 tax records until 2021.

HINTS

Regularly bank all the cash your business receives so your income and expense information is always up-to-date and you can easily reconcile your accounts and analyse your cash flow

Register for online banking – this may simplify your record keeping and bank reconciliation process as you can:
  • easily get detailed records of your business transactions
  • download financial information from your online account to your accounting package
  • identify extra transactions in your account including bank fees or interest charges, and direct debits and credits
  • check and record any errors or omissions
Regularly reconcile your bank records, which may help:
  • you be more confident that your records contain all the information you need to prepare your tax return and activity statements
  • you to better understand your cash flow
  • reduce the time it takes to prepare your activity statements or tax returns

SUMMARY – Small Business Banking

Unless you are a sole trader you must open a business bank account.  It will help you manage your finances and different providers will have an offer to suit your needs.  Always check to see what other services the bank may be able to offer your business.

A handy comparison of bank rates and fees is available here to help you compare. https://www.finder.com.au/business-banking