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Superannuation Guarantee and SuperStream

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One day, you look forward to retiring and enjoying the Superannuation you have earned throughout your career. From 1 July 2022, you must pay Super to all employees. The only exception will be employees under 18 who work less than 30 hours. The Super payment is known as the Superannuation Guarantee (SG) contribution and is paid into a superannuation fund as part of their wages. In this guide, we will explain what you must do and how you go about paying Superannuation.

The superannuation guarantee scheme requires employers to provide sufficient superannuation support for their employees. Employers must contribute a minimum percentage of each eligible employee’s earnings (ordinary time earnings) to a superannuation fund or retirement savings account (RSA).
ATO

WHY do I have to pay Superannuation?

Superannuation is a government requirement to help workers provide for their retirement.

  • The SG is currently calculated at 11% of an employee’s ordinary time earnings.
  • The super guarantee rate increased from 10.5% to 11% on 1 July 2023.
  • Businesses will be fined if they do not pay Superannuation or pay super at the correct rate.

WHAT else do I need to understand?

The employer must pay the SG at least four times yearly by the quarterly due dates.

  • you must pay (via electronic funds transfer or Bpay) and report super electronically in a standard format, ensuring you meet SuperStream standards
  • your superannuation payments must go to a complying superannuation fund – most employees can choose their own fund
  • if you don’t pay the SG on time, you may have to pay the superannuation guarantee charge
  • This does not apply if you are self-employed or a sole trader, and your super contributions are only for yourself
  • Due dates for the contribution payment each quarter are 28 January, 28 April, 28 July, and 28 October
Super Administration

Whilst the SG is a cost to the business from a wages perspective, the good news is that the administrative part of the process has been made simple for small businesses. Instead of making individual payments to each employee’s super fund, you make a single payment totalling all employee contributions. You have these choices:

  1. If your Payroll software is SuperStream compliant, you can use it for the process. Ensure that the system covers both the SuperStream-compliant information and the payment.
  2. The Small Business Superannuation Clearing House (SBSCH) offered by the ATO is a free service you can use to make superannuation guarantee (SG) contributions. Eligible businesses have 19 or fewer employees or an annual aggregated turnover of less than $10 million. The big benefit here is they will split the payments across all the different super choices your employees may have made.
  3. Large Super funds have the facility to do it for you. Check with your fund to see if this is possible for your business.
  4. A messaging portal can take your information and make it SuperStream compliant, then send it to the relevant funds. You also provide them with a single payment to cover all employees.

HOW do I pay an employee Superannuation?

When a new employee starts who falls into the SG, you should:

  1. Offer your employees a choice of funds and provide them with the standard choice form.
  2. Provide them with information to help them understand Superannuation and investment options. Note: You cannot provide investment advice unless you are a licensed advisor.
  3. Provide the employee Tax File Number to their fund
  4. Keep records showing you have offered a choice and have paid. These records must be in English and kept for five years.

HINT

This process will be further simplified if you use an automated payroll tool (see our essential guide on payroll software). 

Employees may also make additional salary sacrifice contributions that will be taxed at a concessional rate of 15% up to a limit at which point extra tax must be paid. (This might have the benefit of reducing the employee’s tax obligation). You are required to report this through the same mechanism above as an employer.

Your obligation to pay Superannuation to any one individual is capped. Current rates can be found here.

SUMMARY – Superannuation Guarantee

Superannuation is compulsory for all employees earning more than $450 a month. Employees can choose their fund, and you must report all payments to the ATO, which offer a special service if you have under 19 employees. Remember to budget for this cost in your business calculations.

Small Business Loan and Equity Funding

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To start a small business or expand a business to get through a rough patch, chances are you will need to get access to additional cash. The obvious choice is a small business loan, but other options may exist. Money can be sourced from debt (you must pay it back) or equity (someone takes a share in your business). This guide will examine what loans (debt) and equity funding options are available to provide additional cash or financing to start or expand your business.

Debt is when you take a loan or a mortgage with the intent of it being paid back over time. Normally some collateral is used to secure that debt, such as an asset that will be required to be sold if you default on that debt.
Equity funding is when a share of your business is essentially sold to another permanently and is not required to be repaid. Future profits or losses will be shared with any equity partners.

WHY do you need a small business loan?

You may need a loan to start or expand your business and capitalise on a growth opportunity. Although harder to get, funds may be acquired when times are tough, or you owe money.

WHAT are the available Debt options:

Self-funding: If you have personal finance,e you can put more money into the business yourself. You are entitled to get that money back without personal tax implications unless you pay yourself interest. Other forms of finance, like investors and lenders, will expect you to have some self-funding before they offer you money.

A loan: We all understand the basic principle. Normally a bank lends us some money, and in return, we pay it back in instalments plus some interest. A bank wants the confidence it will get its money back, so it will look at your business closely to understand your turnover and assets. A bank may require personal collateral, like your home, to secure the loan. Banks are, however, not the only source of lending. Family and friends are a source but tread carefully. If things go sour, you could ruin friendships and possibly others’ livelihoods. Other organisations like finance companies will also offer loans but be aware, the easier it is to get the loan, the higher the interest charges will be to compensate for the greater risk they are taking.

Line of credit:  This is similar to a loan but gives you access to a predetermined amount of credit. You can draw down on that credit and pit ay back whenever you need it. You will pay interest only on the outstanding balance.

Overdraft: This line of credit attached to your bank account allows your balance to go below zero.

Invoice finance allows for a business to borrow money against the amounts due from outstanding customer invoices. The funding company will provide a percentage of the invoice value to you upfront and when the customer pays you will receive the remainder less the funding company fees.

Leasing: Instead of buying equipment you essentially rent/borrow in return for monthly payments. A lease normally has a fixed set term of 3-5 years. The financier purchases it on your behalf and you then lease it back from them for an agreed (and fixed) monthly payment. When the lease is up, you can either re-finance the residual amount and continue a new lease on that vehicle for another set period or pay a final instalment for the ‘residual value’ of the lease and take ownership of the car. You can trade it in and upgrade to a new vehicle. A lease makes it simple to upgrade equipment like a car at the end of the lease. More details can be found in our leasing guide.

Asset financing refers to the use of a company’s balance sheet assets, including short-term investments, inventory, and accounts receivable, to borrow money or get a loan. The business borrowing the funds is providing some of its assets to secure the loan. Default on the loan and your assets will be taken away.

Store Credit:  Many retailers, for example, Harvey Norman, will offer their own financing package potentially with an interest-free period. Generally the interest rates are high and failure to pay on time comes with large penalties.

Trade Credit:  As an example, you buy your supplies from a company and they give you a 14-day invoice due for payment in 14 days. Thus giving you 14 days to pay for what you have already received.

Factor Companies: A factoring company will buy your outstanding invoices from you for a reduced cost and then chase up the debt themselves. It is a fast way to get cash but at a high cost compared to other methods.

HOW do I get a small business loan?

How do I get a small business loan?

Sources of debt will include banks, building societies, and credit unions.

Finance companies also provide debt but must be registered, check the Australian Securities & Investments Commission (ASIC) register https://connectonline.asic.gov.au/RegistrySearch/faces/landing/ProfessionalRegisters.jspx?_adf.ctrl-state=1cuetuxolm_4

As part of the process of getting a loan your credit history, assets and income will be reviewed.

To understand and compare loan costs and  options from different institutions visit https://www.finder.com.au/business-loans

WHY do I need equity?

Equity is a great source of cash if you cannot either get a loan or a large enough loan. It is also a method of spreading risk but assumes the equity provider believes they will get their money back plus some.

WHAT are the sources of Equity funding?

As a source of additional cash in return for a slice of the business, equity funding can be done in the following ways:

Self Funding: as before, you inject additional personal money taking a larger share (assumes you are not a sole trader)

Family or friends will take a share or partnership in your business in return for their money. Remember to consider the implications.

Private investors: Same as above but not a family or friend. A new partner can often bring new valuable skills into a business.

Private equity/Venture capitalists:  These are firms who search for high-growth potential businesses to invest in. They usually come with loads of experience and inject their management into the business. They often insist on a controlling percentage of the business.

Stockmarket: A small business is unlikely to list on the stock exchange, but this complex procedure allows individuals to publicly buy and sell shares in the business. Shares are issued in return for a one-time-only cash payment.

Crowdfunding:  This is a very modern way of raising money for a business. Essentially you ask many people to either invest or donate monetoin your business idea via the Internet. In return you give nothing if they donated, or if they invested, a product or a cheaper product when you are up and running, equity or money back with interest. See ASIC for more details https://asic.gov.au/regulatory-resources/financial-services/crowd-sourced-funding/

Government:  The government does not provide finance and is not likely to buy equity in your business however they do provide grants which may assist you greatly. The types of grants and assistance normally come in the following areas innovation, research & development, exporting, and business expansion. Some information on grants can be found at https://www.business.gov.au/Grants-and-Programs

HINT

More information on funding options can be found at the Australian Small Business and Family Enterprise Ombudsman https://www.asbfeo.gov.au/resources/business-funding-guide

SUMMARY – Get small business loan or equity advice

We strongly recommend that you speak with your accountant or business advisor before committing to loans and equity funding options. Always shop around for the best deal and always think carefully before doing business with family or friends.

Gift cards – why you should offer them!

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A gift card is a convenient way for a customer to provide a gift to a friend, family member or business associate. They are most commonly used for gifts when you don’t know what to buy someone. Interestingly a survey done in 2017 by finder.com.au found that one in seven gift cards purchased in Australia went unused. This guide will look at why you should offer them, what are the rules you must abide by and how you go about offering them.

A gift card, gift certificate or gift voucher is a prepaid stored-value money card or certificate, usually issued by a retail store or bank, to be used as an alternative to cash for purchases within a store or related businesses.

WHY should I offer gift cards?

Gift cards offer several advantages for small businesses; the cost to provide them is minimal compared to their potential return. Consumers generally feel a gift card is an opportunity to spoil themselves.

Small Business Advantages include:
  • Give customers an incentive to spend money at your business and create repeat purchases.
  • Revenue is generated in advance sales as no goods or services are redeemed yet.
  • Having customers carry a gift card around with your logo builds your brand.
  • In most cases, customers will spend more than the gift card amount.
  • Gift cards provide you with a promotional opportunity. Spend $100 and get a $10 gift card.
  • Customers may never actually spend the value of the card, whether it be the last few dollars on a card or the whole amount.

WHAT are the Rules around gift cards or vouchers?

As of November 2019, the rules changed around gift cards. The rules now state that a gift card must have a minimum expiry date of 3 years from the date the card is sold. That expiry date must be listed on the card and no post-purchase fees can be added. A post-purchase fee would include activation, account keeping or balance enquiry fees. Penalties for non-compliance are $6,000 for an individual and $30,000 for a business.

When you sell a gift card/voucher, the customer has an asset of your business until the voucher is used. Thus, from an accounting perspective, when you record the sale of a gift voucher, it needs to be recorded as a liability posted to an Unclaimed Gift Certificate account. When the customer redeems the voucher, all you need to do is create an invoice and pay for it using the funds from the Unclaimed Gift Voucher account. This way, you can easily track the value of outstanding gift vouchers or write off any that remain unredeemed after the expiry date.

From a GST perspective, a gift card has a monetary value but does not need to be included in your GST activity statement until it is redeemed for products or services. The exception to this is when a gift card is not for money but rather a tangible product or service, then GST must be paid and reported on the voucher sale. For example, 10 hours of technical services.

 If the voucher expires before it’s redeemed, you’ll need to report the unredeemed amount as income and 1/11th (being the GST component) is reported and paid to the ATO.

HOW do I offer gift cards?

The three most common forms of gift vouchers/cards are:
  1. A credit card-sized plastic card electronically loaded with a specific money amount. Note that some cards can have additional funds added or topped up later.
  2. A gift certificate is some form of a paper promise from a business allowing you to redeem the specified amount back from the store.
  3. eGift cards or vouchers. This is normally a set of codes and sometimes a barcode that you can receive via email. These codes/barcodes can then be applied at the checkout for credit.
As a small business, you should consider the following:
  • Which type of cards you will offer as above?
  • How do you tell customers they are available? Signs, internet, etc
  • Will you restrict to set values or variables? Such as $50, $100 and $200?
  • Will the expiry be 3 years or more?
  • Can it be redeemed in your online store if you have one?
  • If you have multiple stores using the same brand, is the gift voucher transferable?
  • Integrating your POS and Accounting systems allows you to process and track these vouchers simply. (most have this functionality)
  • Are there any special terms? Such as not allowing gift cards to be used to buy gift cards or transferable for cash.

Some plastic card solutions make it simple to activate and redeem cards by simply swiping the card through your EFTPOS reader. Other solutions will require some other type of solution, like keying in a number. Be wary of a manual system that can be lost or stolen.

You can brand your gift cards by having a custom gift card printed by various companies for less than $1 each. However, note some POS software solutions require you to use their gift cards which may cost more.

HINTS

If you sell gift cards, make sure to showcase them in a highly visible place that customers must walk by. For example, placing gift cards next to the sales desk will lead to more impulse buys from customers.

SUMMARY – gift card solutions

Offering gift cards allow customers a convenient way to provide gifts to others. A small business benefits from having the money upfront and encouraging repeat visits to the store. Tracking and accounting is key to managing them with POS and accounting package companies offering solutions.

Buying a business

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Starting a business from scratch means having no customers,no processes, no assets etc, however on the other hand buying an existing business could mean the hard work has already been done.  Alternatively, buying an existing business can also be a way of expanding a business you already own. In this guide we will look at what you must consider.

WHY should you consider buying a business?

There are many advantages of buying a business, which for some might be buying themselves a job. For example, if you bought a lawn mowing business with all the equipment you immediately start to earn income with existing clients.  Your chances for success are greater as the business already has runs on the board.  Even the process of asking for a loan will be easier as there is a known risk. Ideally, you will buy a business that is undervalued or has the potential to grow through your hard efforts.
There are also disadvantages, like the business was misrepresented by the previous owner, that could be turnover, reputations, debts, etc.

WHAT do you need to consider when buying a business?

It is critical that before buying a business you do your research carefully. The more information you have the better the decision.  Unless you have the skills we strongly suggest you retain the services of at least a business advisor, accountant, or lawyer. The following steps may be helpful

Where the business is conducted through a company
  1. Do a company search to verify the vendor
    ASIC Search
  2. Are all ASIC compliance requirements up-to-date?
  3. Does the company have any overseas operations?
Financial position
  1. Review the last four years’ financial statements for the business.  Analyse liabilities, inventory, and accounts receivable and payable.
  2. Understand who currently owns the business such as shares, options, warrants as well as outstanding debt instruments.
  3. Review an up-to-date copy of the business’ credit report.
  4. Does the business have a loyal customer base? For example, subscriptions, loyalty programs, etc.
  5. Have you considered the financial projections and major growth drivers of the business in the next four years?
Tax considerations
  1. What are the tax obligations of the business to be purchased?
  2. Have you obtained confirmation that all tax obligations – for example, income tax, GST, PAYG withholding, stamp duty, and payroll tax are up-to-date and paid?
  3. Obtain the last four years’ tax returns, including supporting schedules and work papers of the business, such as capital allowance schedules, business activity statements, fringe benefits tax returns, etc.
  4. Check if the business is currently being audited by the ATO or has been audited in the last four years and, if so, what the outcome was.
  5. Have you considered the stamp duty implications of the purchase of the business? (fees payable to the government associated with the purchase)
Assets that you are buying that the business currently owns
  1. Has a fixed asset register been obtained detailing all the assets being sold?
  2. Have you sighted the assets and condition of the assets being sold?
  3. Where assets are leased by the business, have you obtained copies of the leases?
  4. Are the assets adequately insured until the settlement of the purchase?
Employee obligations
  1. Have you obtained a list of the employees, including their salaries and other entitlements?
  2. Do any employees have close contacts with customers that, if they were to leave, the business would be at risk of losing customers?
  3. Are there any key staff who would be imperative to the smooth continued running of the business? Considerations should include special skill sets or knowledge.
  4. Are you aware of all employment conditions, including key workplace agreements, incentive bonus plans, staff rotation policies, disciplinary procedures, etc.?
  5. Have all outstanding employee entitlements, such as superannuation guarantee and annual leave, been accounted for?
  6. Are the WorkCover premiums up-to-date?
Inventory
  1. Does the current inventory include any obsolete stock?
  2. Has the inventory been valued at market value?
Business premises
  1. Do you have copies of all real estate lease agreements, deeds, mortgages, and any documents relevant to the premises?
  2. If the same business premises are to continue, has the vendor facilitated a lease transfer to you?
Miscellaneous
  1. Do you know why the vendor is selling?
  2. Has the vendor attempted to sell the business before?
  3. Is there a documented business plan?
  4. How complex is the business? Do you have the skills required to continue?
  5. Are the business operations subject to any government regulations? If so, are all relevant government licenses, permits or consents up-to-date?
  6. Have you done a competitive analysis?  Do you need a non-compete clause to stop the vendors from setting up in competition?
  7. Does the business have any pending or ongoing lawsuits or any recently finalised litigation cases?
  8. Have you searched the local council and other government agency records to ensure there are no plans or council orders that could disrupt the business or lead to a potential drop in sales?
  9. Have you identified the key customer and supplier contracts, and the likely impact a change of ownership might have on these agreements?
  10. Review the business’s current production, distribution, sales, and marketing strategies (including websites and social media) and the likely impact of a change of ownership.
  11. Have you considered potential issues that could negatively impact the viability of the business (e.g. changing technology, trends, etc.)?
  12. Are there any intellectual property matters to consider? For example, trademarks, licenses, patents, etc.
  13. Seek advise on other questions you should answer

HOW do I buy a business?

Once you have completed all your due diligence and you want to move ahead its time to make an offer.  Be prepared to negotiate.  Once you agree you will need a contract.  We strongly suggest you retain a lawyer in this process.  The written contract ensures that both you and the seller clearly understand what each agrees to, for what cost, and what method of payment.

You should also understand what training will be needed and, if the original owner continues to work in the business, a specified period to do a handover.

HINTS

As the last thought we suggest you:

  • Make sure this is a business you want to buy
  • Don’t assume you will not have to work hard yourself and you are buying a money train
  • Have a clear vision and plan for the future
  • Keep records of all conversations and all documents
  • Do your homework

SUMMARY – Get help from a business consultant

Buying a business can help you grow quickly but be sure to follow some strict due diligence to minimise any nasty surprises.  Your accountant or business advisor would be a good independent advisor for the purchase.

Intellectual Property & Trademarks

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The best idea in the world is useless if someone else copies it and they benefit from it. Similarly, just because you register a business name in Australia does not mean it is protected. This guide will look at intellectual property & trademarks, what you need to know about protecting your ideas or brands, and how you protect them.

Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognise it more than others. The most well-known types are copyrights, patents, trademarks, and trade secrets.
A patent is a form of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of years in exchange for publishing an enabling public disclosure of the invention.
A trademark is a type of intellectual property consisting of a recognisable sign, design, or expression which identifies products or services of a particular source from those of others, although trademarks used to identify services are usually called service marks.
Wikipedia

WHY should I protect my ideas and brand?

Let us assume you have registered a business name and set up an internet domain. For example, you own the business name GREAT PLUMBER and the internet domain greatplumber.com.au. This does not preclude someone else from writing great plumber on the side of their van.

If, however, you owned the Australian trademark for great plumber, you could take legal action to stop them from using the words great plumber.

You can apply for a patent if you invent something or have an idea you do not want anyone to copy, and this will give you protection so you might generate earnings from your patent. A patent allows you to stop others from manufacturing, to use, and/or selling your invention in Australia without your permission.

Other types of IP not covered in this guide includes copyright (for example, music), registered design (such as the shape of a product), circuit layout rights (for example, circuit board design), and plant breeders rights (such as a new plant variety)

WHAT do I need to know about patents and trademarks?

Patents

If you wish to discuss your idea with anyone before a patent is issued, you should ensure they have signed a confidentiality agreement. If you have not kept your idea/invention a secret, there is a chance a patent will not be issued.

There are two kinds of patents:

  • Standard Patent – provides up to 20 years of protection and control over an invention. The invention must be new, have an innovative step and be made by or used in industry. Your claims will be examined, and expect the process to take from 6 months to several years. Application fees start at around $400.
  • Innovation Patent – The Australian Government has decided to stop offering innovation patents from 25 August 2021. It is a patent that protects an invention for up to eight years, and it is not as stringent in its requirements as a standard patent and can get approval much more quickly.
Trademarks

A trademark can be a unique symbol, word(s), sound, number, image, or scent used to represent a business or its products. Once you register a trademark in Australia, it gives you the sole right to use, license or sell it to others in Australia. Expect the trademark process to take at least seven months and cost more than $200.

It is possible to register a trademark in different industries by different people, such as Dove chocolate and Dove soap.

If you do not use your trademark, it can be removed on the grounds you are not using it.

HOW do I apply for a patent or trademark?

To apply for a patent or trademark, you must be authorised to do so by the owner/inventor and be planning to use it.

Your first step should be to check if anyone has already applied:

Trademark search https://search.ipaustralia.gov.au/trademarks/search/quick

Patents search https://www.ipaustralia.gov.au/patents/understanding-patents/searching-patents

Patent Applications

Although you can apply yourself, we strongly recommend you use the services of an attorney to increase your chance of success. https://www.ipaustralia.gov.au/patents/engaging-an-attorney-toolkit

A provisional application can also be filed, which helps prove you were the first to come up with an idea before a patent is approved.

You can apply for a patent through a patent attorney, on the IP Australia website and in writing. More details can be found here: https://www.ipaustralia.gov.au/sites/g/files/net856/f/patent_application_guide.pdf.

Trade Mark Applications

Assuming you have checked your trademark is available, you can visit IP Australia and make an online application where you will have two choices for your application:

  • TM Headstart – for a higher fee, you can get assistance with your application and the ability to make changes before your final review
  • Standard – application for formal review

The Australian Government provides a special portal to further help you with your understanding and application here  http://trademarks.business.gov.au/assist/welcome.

HINTS

Although the idea of having IP protection is good, you may end up in a situation where the time, effort and money involved outweigh the commercial benefit.

This guide has discussed registering IP in Austral a. If you wish to have those same protections overseas, you would need to consider IP protection in each country you want.

Visit IP Australia’s website to use the IP Toolkit https://www.ipaustralia.gov.au/tools-resources/ip-toolkit.

You can look at alternative dispute resolution or take the matter to court if you believe your IP has been infringed.  More information can be found at IP Australia https://www.ipaustralia.gov.au/ip-infringement/enforcing-your-ip.

SUMMARY – Intellectual property and trademarks in Australia

If you want to protect your brand’s intellectual property and trademarks or ideas, you will need to register a trademark or pate t. Registering a trademark is a much simpler process and can be done yourself. But it is strongly recommended you get professional assistance if you wish to register a patent. Be prepared to wait six months to several years to get the protection approval. Note that it will only be for Australia and not other countries.

Buying a Franchise guide

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 Have you always wanted to start your own business but never had the confidence or the knowledge to do so? Is this a career change, and is it right for you? Buying a franchise may give you confidence and support in selling a proven offering. This guide will examine the pros and cons of buying a franchise and help you identify the right franchise opportunity.

A franchise is a business opportunity that allows the franchisee (possibly you) to start a business by legally using someone else’s (the Franchisor’s) brand, expertise, ideas, and processes.
Australia has three times as many franchised outlets per capita as the USA. Well-known franchises include McDonald’s, Subway and Jim’s Mowing.

Also, see our essential guides on starting and buying a business.

WHY consider buying a Franchise?

Franchises are offered in almost every industry in Australia. As an investor, you buy into an existing brand which, if you tried to set yourself up, could take years to get into the same position.

Depending on which franchise you are interested in joining, there is no guarantee that you will be accepted as a franchisee. It can be quite competitive, especially when it comes to location and also due to franchisors selecting the franchisee they believe will make the business a success.

It would help if you considered the following:
Advantages
  • Association with an established brand, reputation, product or service
  • Assistance with lease negotiations, site development, and shop fit-out
  • Assistance with buying equipment
  • Initial management training and ongoing support
  • Advertising and marketing support
  • Access to established standard procedures, operating manuals and stock control systems
  • Access to financial systems
Disadvantages
  • Less autonomy when making business decisions (franchisees generally must operate according to a standard operating manual)
  • You can only operate in a restricted territory
  • Paying ongoing fees to the Franchisor
  • Having to use specified suppliers
  • Less control if you sell your franchise; you will be required to follow certain procedures, including having your buyer approved by the Franchisor
  • Restraint of trade provisions (limiting the actions you can take) when the franchise ends
  • At the end of the agreed period, the Franchisor is not required to renew the franchise, in which case the business and its goodwill go back to the Franchisor

WHAT do I need to know about franchising?

There are three types of franchises:
  1. Business – You have the right to use the Franchisor’s intellectual property in your industry. An example is Boost Juice.
  2. Product – You sell the Franchisor’s product or service from a wholesale or retail outlet with exclusive rights within a specific area, for example, Jim’s Mowing or a Mazda dealership.
  3. Processing or manufacturing – You manufacture the product, and the Franchisor provides an essential ingredient or know-how, such as Coca-Cola.

The Franchising Code of Conduct regulates franchising in Australia. The Code is mandatory and governs the conduct of franchising participants towards one another. It covers:

  • Disclosure requirements – the Franchisor must be provided
    • When interested in acquiring a franchise
      • Information statement – 2-page document covering risks and rewards.
    • If you decide to proceed
      • Disclosure document – costs, supply restrictions, and contract details of existing and former franchisees.
      • Franchise agreement – legally binding document between you and Franchisor.
  • Good faith obligations – how you act to one another
  • Dispute resolution mechanism – if a dispute remains after three weeks, either party can refer the matter to mediation
  • Cooling-off period for potential franchisees – you cannot sign for 14 days after receiving documents, and you can terminate the agreement up to 7 days after signing
  • Procedures for ending a franchise agreement – set out the terms for termination, renewal, end of term and transfer of the franchise

Some franchise systems require their franchisees to buy certain products from them or their specified supplier, known as supply restrictions. You might have no choice about where to buy some products.

The entry price of a franchise may seem like a good deal, but there may be further costs that you have to pay to establish and run your franchise. It’s important to understand the total costs you might have to pay.

HOW do I evaluate before buying a franchise?

If you buy into a franchise, investing in advice from a lawyer, accountant, or business advisor with franchise experience will help you make a better decision. You should, however, consider the following when evaluating a franchise:

  • Consider the effect on your family and lifestyle
  • Question if the business interests you and if you are comfortable with investing
  • Research the business. This may include getting expert advice.
  • Age, size, uniqueness and reputation (including management team) of the franchise
  • Understand all costs and fees beyond the initial outlay
  • Understand franchisor directives around logos, uniforms, and future capital investments like a compulsory store refresh
  • Be aware of what marketing support is provided and what your contribution will be towards that
  • Ask to see demonstrations of processes or technology
  • Understand how area territories work and if they are exclusive; thus, you will understand the competition from your franchise. Location is important.
  • Understand what training is available
  • Is the Franchisor a member of the Franchise Council of Australia, as this imposes certain ethical standards
  • Ensure what you receive in writing matches what you have been told verbally
  • Speak with existing and past franchisees to see if the opportunity has lived up to expectations
    • What’s the work like?
    • Any unexpected costs?
    • How is the supply of products or services?
    • What problems have you encountered?
    • How supportive is the Franchisor?
    • How was the training?
    • Was it a good investment?
  • Ask about compliance checks performed by a franchisor
  • Consider what your exit strategy looks like

HINTS

Don’t assume the franchises will be a success.

Don’t assume you will not have to work hard in the business.

Understand your reputation is affected by the Franchisor, for example, 7Eleven underpaying employees.

Guides from the ACCC to help franchisees and prospective franchisees understand some of their rights and responsibilities under the Franchising Code of Conduct. https://www.accc.gov.au/publications/franchising-what-you-need-to-know

Franchise start-up checklist https://www.accc.gov.au/system/files/The%20franchisee%20manual__Mar%202019.pdf

Free pre-entry franchise education program https://www.franchise-ed.org.au/online-courses/pre-entry-franchise-education/

The Franchise Council of Australia has some further resources on this subject. https://www.franchise.org.au/

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can assist in resolving franchising disputes. https://www.asbfeo.gov.au/franchising-disputes

SUMMARY – buying a brand, expertise, and processes

Buying a franchise can be a great way of starting your own small business. It comes with the security of an established brand, expertise, ideas, and processes. However, you will have less autonomy. The mandatory industry franchise code of conduct helps to protect all parties and provides a mechanism to resolve disputes. Before buying a franchise, do your homework carefully and consider using the services of an expert in franchising. 

Tax return for small business

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If you are paying taxes, you are making money. All small businesses have tax and reporting obligations, and this guide will help you understand what is required to do a tax return for a small business and where you can get help.

A tax return is the completion of documentation that calculates a business’s income earned with the amount of tax payable to the Australian Tax Office (ATO).

WHY should you do a tax return?

  1. It’s the law
  2. You may get a refund
  3. It helps you understand the true position of your business

Irrespective of your business structure, you must submit an annual tax return. Sole traders and partnerships will be taxed at the individual income rates as part of your personal income. Companies must lodge a tax return as a separate legal entity and pay tax at a rate of 26% (in 2020/21 dropping to 25% in 2021/22 details here) of every dollar earned.

WHAT do I need to understand about small business taxation?

Your taxable income = assessable income – deductions

Assessable income is your total earnings before tax from an everyday business source such as sales and other business activity like capital gains. It does not include GST.

Deductions are any expenses incurred in running your business.

Sole traders must include any salary or wages in their tax returns, and the ATO will calculate if any tax is owing or a refund is due. A sole trader not paying themselves a salary, including PAYG withholding tax, is likely to receive a PAYG instalment for estimated income to be earned.

Partnerships must lodge a partnership tax return. Then as an individual partner, you must lodge an individual tax return for your share of income or losses. The partnership does not pay income tax; rather, the partners themselves do.

Trusts and beneficiaries must lodge a trust tax return. Then as an individual trust beneficiary, you must lodge a company or individual tax return for your share of income or losses.

Companies lodge a company tax return and pay company tax on assessable income. Companies might pay PAYG (pay as you go). The ATO will inform you if you need to pay PAYG instalments; however, as a general guide, expect to pay it if your assessable income exceeds $2 million. PAYG is a means to collect tax throughout the year versus waiting until the end of the financial year. You can also make a voluntary payment or apply for a variation if you feel your circumstances have changed.

HOW do you lodge a tax return?

A tax return should be lodged by 31 October for the previous year. Exceptions may apply if you use a registered tax agent or file a company tax return. A tax return must be lodged every year you run a business, even if you don’t expect you will have to pay tax.

You can lodge a tax return:
  • By paper
  • Online via myTax if you are a Sole Trader
  • Via a registered tax agent
  • If you are a company, trust, or partnership by standard business reporting (SBR). See our guide on accounting software

If you are required to pay PAYG on your business earnings, this will become part of your BAS reporting and payment requirements. More details on this can be found in our BAS guide. The benefit of having PAYG is that tax is paid during the year, and you can budget to make these payments rather than having a large lump sum payable at the end of the year.

After you have lodged an electronic tax return, the ATO aims to finalise the return in approximately two weeks. The ATO warns that processing may be delayed if there are incorrect or incomplete details in your return.

When completing your income and deductions for business:
  • keep accurate and complete records of your assessable income and expenses
  • use the correct method for calculating and reconciling the amounts you claim
  • report all income and deductions to ATO at the right time
  • pay any amounts owed on time
  • only use valid business deductions
    • the expense must have been for your business, not for private use
    • if the expense is for a mix of business and personal use, you can only claim the portion that is used for your business
    • you must have records to prove it

Types of expenses that are not deductible include entertainment expenses, traffic fines, and private or domestic expenses such as childcare fees or clothes for your family. GST cannot be claimed as an expense if you have already claimed it as a GST credit.

If a prepaid expense exceeds $1000 and you will not receive the goods or service within 12 months, or it is not eligible for an immediate deduction, the expense will need to be apportioned over time.

A capital expense for items such as machinery or equipment will normally be needed to be apportioned over time.

HINTS

The Australian Tax Office provides an online search engine to assist small businesses http://www.sba.ato.gov.au/

You can also book an after-hours phone call http://www.sba.ato.gov.au/Forms/Book-an-after-hours-call-back—small-business-support/

The ATO provides an app providing tax and super information and tools https://www.ato.gov.au/General/Online-services/ATO-app/

If you employ people, you will also have PAYG withholding tax payments you will need to make from your workers’ wages. See our guide on payroll.

SUMMARY – PAYG small business tax

You must pay tax on your assessable income minus deductions. The way you submit a tax return is based on your business structure. You will likely pay PAYG tax in instalments throughout the year, with your tax return determining if any further payments are required or if you are due a refund. Accurate records must be maintained; deductions will only be accepted for valid business deductions.

Close a business

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We understand this is a difficult time for you, and this guide will take you through the steps you should consider to close a business.

The most common reasons for closing a business include the business is no longer viable, costs exceeding income, or you wish to retire, and the business has no value without you.

WHY should you close a business?

There is a fine balance between the emotional desire to be successful and the reality of financial stability.  A decision to close your business might not be needed if you get some help from a business advisor or an accountant.  Similarly, they may also recommend closing your business is the best action. Unfortunately, the truth can be the most painful thing to accept.

Recognising that it is time to close your business may save you from further debt that will still need to be repaid.

If you are closing your business to retire, this can be an exciting time to start a new chapter in your life.

If you are in doubt, these are key indicators that should encourage you to question your business viability.
  • You feel you should close
  • You are losing money
  • Your goals are not being met
  • Many customers but no profits
  • Your product or service is not needed or wanted
  • Nothing you have tried has worked
  • Marketing is making no difference
  • Competitors dominate your industry
  • No long-term customers
  • Your dream is not the reality
  • Home and work life is suffering
  • Employees are leaving
  • Your health is suffering
  • Trouble sleeping
  • You have become negative and angry

WHAT are the steps to close a business?

Once you have decided to close your business, it is best if you work on a plan to achieve this. 

The first step is to decide on a date that will allow you to accomplish the following tasks:
  1. Notify your employees.  This will be difficult for them as well, and you will need to pay out any outstanding wages and leave. Also, ensure that the employee’s superannuation has been paid.
  2. Suppliers. Let them know the date and plan to pay any outstanding debts.
  3. Notify your customers.  It would be best if you showed those who have been loyal to you the courtesy of letting them know you can no longer supply them.  This could be done with a sign on your website or a phone call.  It may also be an opportunity to sell off any remaining stock or assets.
  4. Pay outstanding bills.
  5. Cancel services, including the Internet, power, bank accounts, web hosting, social media accounts, etc.
  6. Sell your business assets.  These can include stock, fixtures, tools, machinery, intellectual property and domain names.
  7. End lease agreements.  This could be for machinery or property but remember, based on the terms you have in your lease agreement, you may still be obliged to continue payments until the end of the lease term.
  8. Taxation responsibilities.  You must pay outstanding taxation debts, including income tax, GST and capital gains. There is also a requirement for you to post final tax returns and a final GST activity statement.
  9. Cancel your ABN. https://www.abr.gov.au/business-super-funds-charities/updating-or-cancelling-your-abn/cancel-your-abn
  10. Cancel your business name. https://asic.gov.au/for-business/cancel-your-business-name/
  11. Keep business records.  Records should be kept for a minimum of 5 years after you close.

HOW can I get help to liquidate?

The following resources may be useful in helping with this process:

Your accountant and or business advisor can assist you with the decisions to keep, close or sell a business.  Business advisors can be found here https://www.business.gov.au/expertise-and-advice.

Suppose a registered company becomes insolvent and goes into liquidation. In that case, a liquidator must be appointed to take control of the company so that its affairs can be wound up in an orderly and fair way for the benefit of all creditors. More details on this can be found here https://asic.gov.au/regulatory-resources/insolvency/insolvency-information-for-directors-employees-creditors-and-shareholders/.

Auction houses like Grays Online can provide a means to sell off your excess stock and assets.

Bankruptcy is a legal process when you are unable to pay your debts. It is a means that allows you a fresh start but may affect your ability to get credit, travel overseas and gain future employment. More details  https://www.afsa.gov.au/insolvency/cant-pay-my-debts/what-bankruptcy

National debt helpline provides free financial counselling  https://ndh.org.au/ or 1800 007 007

Crisis support – Lifeline.org.au  or 13 11 14

Mental health – Beyondblue.org.au or 1300 22 4636

Family dispute resolution – Relationships Australia https://www.relationships.org.au/what-we-do/services/family-dispute-resolution

HINTS

The Australian tax office provides a business viability tool to help determine if a business is still viable.  https://www.ato.gov.au/Calculators-and-tools/Business-viability-assessment-tool/

SUMMARY – a big decision for any small business owner

Closing a business is a big decision for any small business owner. Be sure that you are making the right decisions and not emotional ones. If your business is not going well, be careful in taking on additional debt.  Create a plan around closing your business and make sure you do the best for those who have supported you, like employees, customers and suppliers.  Don’t be afraid of asking for help. There are several free services to support you.

Bad debt – How to avoid it!

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You gave your customer 30 days to pay, but now 60 days have passed without payment. Maybe there is a dispute. Are your cash reserves running dry because the invoices are not being paid? This guide will look at the importance of worrying about getting paid on time and how you can chase up and avoid bad debt.

Bad debt occurs when the payment of an invoice is estimated to be uncollectible. Bad debt is a contingency that must be accounted for by small businesses that extend credit terms to customers when they issue an invoice, as there is always a risk that payment will not be received.

WHY should I worry about unpaid invoices?

It does not matter if it is your best friend that has not paid you or it is a large corporation. If you cannot collect payment promptly, it will affect your cash flow and profitability, and your business will suffer. This situation is further compounded if you have already paid your costs associated with the invoice, such as materials of wages. Essentially you are lending money to your customer, and if you do not have the cash flow yourself, you may be paying interest on a bank overdraft/loan until this invoice is paid, further eating into your profits.

WHAT can I do to prevent bad debt?

When deciding to offer credit to customers, any action you can take upfront to reduce the chance of bad debt is a much simpler process than collecting money from someone who does not want to or cannot pay you.

To prevent bad debts and protect your business ideally you should:
  • Only send out goods or provide services after customers pay their bill
  • Provide simple and clear payment options
  • Invoice customers quickly and properly
  • Give discounts for paying on time or early
  • If you intend to provide credit you should research the customer:
    • Do a credit check (try Equifax, Onedeck or creditorwatch) and ask the customer for references
    • Create a business contract with clear terms and conditions using the help of legal advice
    • Set up effective payment terms
Have a process to manage payments and debt recovery, a good accounting package will help with this:
  • Check contract terms to see when payments are due
  • Ensure you have the right contact details
  • Contact the customer in writing to request payment
  • Keep records of all customer correspondence
  • Set up regular payment reminders (some accounting packages will have an automated system for this)
  • Telephone the customer
  • Send a formal letter of demand

Most important is to create sensible limits on the credit you offer to your customers that they will be able to repay easily.

To prevent bad debts, a factoring company will buy your outstanding invoices from you for a reduced cost and then chase up the debt themselves. It is a fast way to get cash but at a high price as they take on the bad debt risk. (It is unlikely they will not just buy the bad ones)

HOW to deal with bad debt?

The first step is to understand the cause of the debt:
  • How long has it been outstanding?
  • How much is owed?
  • What is the invoice for?
  • Is the invoice disputed?
  •  Is the debtor still trading?
  • How long have you been doing business together?
  • Does the debtor have a history of late payment, is this different to normal?
  • What credit agreement do you have with them and did they sign a Director’s Guarantee?

The sooner you take action to recover your overdue debt, the more likely you will recover your money.

If a customer has not paid you after various attempts, you must decide if the debt owed is worth the additional effort to collect it. For example, $100 is possibly not worth it, but $10,000 is. You must consider your time and cost to recover as well as the likelihood of the debtor paying.

The following avenues can help recover debt:
  • Debt collection agencies – will attempt to collect the debt on your behalf for a percentage of the debt owed.
  • Legal action – a lawyer can issue a lawyers’ letter of demand or start court proceedings.  An online letter service is relatively cheap but going to court is not, however, the recovery costs can be added to the debt.  Court proceedings will enforce an outcome and affect a debtor’s credit rating.
  • Small claims tribunal – provides mediation and a legally binding solution without having to involve lawyers and courts. Is good for resolving disputes. https://www.accc.gov.au/contact-us/other-helpful-agencies/small-claims-tribunals
  • Court – courts will decide on disputes where the amount owed is too high for a small claims tribunal. Consider using a lawyer if your case goes to courts as procedures are more formal and complicated.
  • Community legal centres – can assist with letter writing and filling out court forms https://clcs.org.au/
  • Small Business Commissioner or Ombudsman – advice on how to recover debts and subsidised or low-cost dispute resolution https://www.asbfeo.gov.au/disputesupport

As a small business, you can also take out Trade Credit Insurance which allows a business to insure themselves against bad debts.

As a business owner, you should consider some sort of provision (put money aside) for bad debts, and this is essentially self-insurance. From an accounting perspective, unpaid bad debt can be an allowable deduction as long as it was included as assessable income in the present or even a previous income year and that it is written off as “uncollectable” in the same year that a deduction is claimed.

HINTS

Unfortunately, some scammers ask your clients to pay your recent invoice into a new bank account, being the scammers’ account. Ensure your clients understand that you would not change your payment details, and in the unlikely event you did that, there would be a very clear and robust process in writing and over the phone.

If the business you are dealing with is in administration, liquidation or deregistered, they may not have the ability to pay you. Check whether a company is in liquidation or deregistered on ASIC Registers. https://asic.gov.au/online-services/search-asics-registers/

Let your customer know you plan to take legal action or use a debt collector. This may have an effect without the cost.

SUMMARY – fast action to recover debts

If you decide to offer credit to your customers, you can find yourself in a situation where a customer is refusing or cannot pay your invoice. This is known as bad debt. It is best to have a plan to avoid bad debt, but if it occurs, fast action brings the best results. Your best chance of recovery after your efforts have failed is via a small claims tribunal, using a debt collector or the services of a lawyer.

Register a Business Name

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Your business name is your reputation, and hopefully, it is worth something over time. The last thing you want is to lose it or find someone else who owns it. This guide will cover the process of registering a business name in Australia.

A business name is a name your business operates under. You need to register a name if you conduct business under a name other than your own.

WHY do I need to Register my Business name?

If you do not register your name, you may find someone is already using it, or someone else could register it. Then you would have to find a new name and waste any effort you have already taken establishing your name. There is also the potential for legal action against you.

WHAT you need to do first – Search business names

After you have chosen a potential name, your first port of call should be the Australian Business Name index. ttps://connectonline.asic.gov.au/RegistrySearch/faces/landing/bn/SearchBnRegisters.jspx?_adf.ctrl-state=q7ueeovpl_45

Here you must select “business names index” then enter your potential name in a search box. You will then be presented with a search result. Here you will see if the name is already taken or available.

Your next step should be a simple search on the internet to see if anyone else is using your name and, if so, in what way.

Assuming no one has already used it and your name is not close to someone else’s, you can now apply to register that name. Note some words like “Bank” or “Royal” cannot be used as they might mislead people about your activities.

HOW to register a business name:

  1. Determine your business structure.  Be sure to read our essential guide on choosing a Business structure
  2. Apply for an ABN (Australian Business Number) https://asic.gov.au/for-business/registering-a-business-name/before-you-register-a-business-name/australian-business-number/
    You may have 2 or more business names registered to the same ABN as long as the business structure does not change.
  3. Sign into ASIC Connect. Steps to register can be found here https://asic.gov.au/online-services/business-names/#steps-to-register
  4.  Once logged in Select ‘Business name’ from the drop-down box
  5.  You will now be required to enter your ABN, the proposed name, how many years you want to register for, and your details
  6. Review the information you have entered, most importantly did you enter your proposed name correctly?
  7. Pay for the application and wait for your registration to be processed

HINTS

Make sure you have the right spelling!

The cost of registering a business name can be found here. tps://asic.gov.au/for-business/payments-fees-and-invoices/payment-options/business-name-fees-and-payment-options/

You must have an Australian registered business name if you wish to register an Australian internet domain name like yourbusiness@com.au.

SUMMARY – Your Brand

Selecting a business name gives you an identity. Registering means you are the sole owner of the name and can also register an Australian internet domain name.