Starting a Business?

Transcription

1 Intelligent Financial Direction Starting a Business? INFORMATION PACK RHODES DOCHERTY & CO Chartered Accountants Financial Advisors Top 100 Accounting Firm

2 RHODES DOCHERTY & CO Starting a Business? Starting your own business for the first time can be a bewildering experience. With the majority of new small businesses In Australia failing in the first five years, the planning you put into your new business venture is crucial. This booklet is designed to give you some food for thought, and some guidance through the requirements for establishing your business. The first step you should take is to prepare a detailed business plan. Why is a business plan important? Preparing a business plan should be the first step you take in setting up your new business. It is probably the most important thing you can do to help your business succeed, yet very few businesses actually undertake a formal plan. The main benefit of a business plan is that it gives you a map to follow as the business starts out. It covers areas such as what your business will do, who your customer base will be, what the business s strengths, weaknesses, opportunities and threats are and how you will address them, and a cash flow forecast for at least the first 12 months. By putting a lot of thought and research into your business plan before you commit yourself and your money to the business, you will be in a much stronger position to control the business as it grows and develops. Banks and other

3 lending institutions also look favourably on you having a strong business plan, so it is vital if you are seeking finance to fund the business s development. Which structure should I use? When setting up a business, there is a variety of different structures that you could use, including: Company; Trust; Partnership; and Sole trader This list is not exhaustive, but these are the main entities used by small business in Australia. Each of these entities has different advantages and disadvantages, and you will need to consider your needs, and those of your business, against each of these structures, to determine which is the most appropriate for you. Some of the issues you may wish to consider include: Tax rates the company tax rate is a flat 30% (due to fall to 28.5% from 1 July 2015 for companies with annual turnover under $2 million), whereas with trusts, partnerships and sole traders you are usually taxed at your individual marginal tax rate. On the other hand, trusts, partnerships and sole traders have access to capital gains tax concessions that are not available to companies - this could be important if you are building the company up for eventual sale, in which case a large capital gain could result. Asset protection as a sole trader or partner, you are directly liable for the debts of the business. A Control depending on the number of people involved in your new business, you may want to share control and reward in the business a company or unit trust could help to formalise that control, through ownership of shares/units, or through directorships, for a company. Cost operating as a sole trader or partnership is usually cheaper than a company or trust in terms of set-up and reporting costs. There is no one entity that is going to be right for everyone. Take some time to talk though your options with your accountant before putting your structure in place, to ensure you select the best business structure for your needs. I have my business structure what next? Once your structure is in place, there are other registrations and processes to attend to before you start trading. Broadly, these usually include: Registration for an Australian Business Number (ABN). All Australian businesses are required to have an ABN and, if the business turnover will be over $75, per annum, you will also be required to register for GST. If your business will employ staff, you will also have to register for PAYG Withholding. You will then report gross wages paid and tax withheld from those wages, to the ATO on a regular basis - usually quarterly, with the business s Activity Statement. Business name registration if you intend to trade as a sole trader under your own name, or if you have a company and will trade under the company s name, then you do not need to register for a business name. Otherwise, you will

4 RHODES DOCHERTY & CO usually need to register the trading name for your business. Business names can be registered with the Australian Securities and Investments Commission (ASIC) for any state or territory in Australia. Other registrations depending on the type of business, you may be required to obtain a licence (e.g. Builders licence) or other registrations before you may commence trading. Insurance the most important insurance policies to take out will be public liability and workers compensation (for all entities other than sole traders/partnerships with no employees) or sickness and accident insurance (for sole traders & partnerships with no employees). Banking a separate bank account should be set up in the name of the business. All business income and expenses should be processed through this bank account. It is particularly important to bank income received in cash, to ensure that all income is accurately reflected in the business s financial results. Reporting before starting a business, you should give some thought to how your accounting records will be kept. Most small businesses use off-the-shelf accounting software to record income and expenses, and attend to their GST reporting obligations. These can be very basic spreadsheet-related programs through to full accounting software such as Xero, MYOB or Quickbooks, so there is bound to be a system that will suit your business. You should also decide who will be responsible for maintaining the accounting records, particularly if you will be staffing up a mum & dad business or a business with other parties. Again, this list is not exhaustive - these are the bare minimum of issues to be considered before you commence trading. How do I control my business dayto-day? Once you have started trading, it is easy to get caught up in the coal face of running the business, particularly in the early stages where you are trying to establish yourself in the marketplace. However, it is important to ensure that certain backoffice functions are being attended to regularly, right from the start. Starting with good habits will not only strengthen the running of the business, it will also give you more control, as you will have accurate records of the business s performance. This will help you to pick up problems in their early stages, before they get out of control. Some of the habits you should cultivate in your business are: Daily banking of business income including all cash; Regular updating of your accounting records at least weekly; Timely lodgement of your BAS and income tax returns. Keeping up to date with your lodgements helps in many ways: If you are up-to-date with your lodging requirements, it usually means you have up-to-date reports on the business s performance; Late lodgement of forms results in penalties and interest, which a new business can do without;

5 On-time lodgement of forms will show the ATO that your new business is making a genuine attempt to meet its obligations which makes it less likely that they will bother you with GST reviews or audits. Regular back-ups of your computer data and offsite storage of your back-ups are crucial. These days business people rely on their computers more than ever - and one computer crash could create havoc for your new business if you do not have proper back-up systems in place. Regular review (weekly) of your accounting records, including review of the profit & loss statement and balance sheet. This is particularly important in the first few months of the business, as you will learn to read these reports and interpret how they record your business s performance. They will help you to pick up issues such as customers who are not paying you, cost over-runs, wasted/spoiled stock and other issues that are important to your business. It is usually a good idea to have four or five reporting targets that you will compare the actual reports to for example, gross profit margin, stock turnover, number of days it takes your customers to pay you, etc. By comparing these sorts of figures to targets, you can give yourself visible goals to work towards. As we mentioned at the start of this booklet, starting a new business is a bewildering process there is so much to think about and often you will be jumping in with little or no experience of running your own business. You will have a lot of questions so write them down! Keep a notebook handy so you can jot down your questions or concerns as you go then you can refer these to your accountant, or other business support people. You may even find the answers yourself. By keeping the questions (and answers!) together in a handy location, you will slowly build up a bank of knowledge that can be passed onto others as your business grows.

6 RHODES DOCHERTY & CO Anything else I should know? There are many websites available to provide you with more information about setting up your business. While this booklet provides an overview of some of the issues, these websites may offer more detailed advice in relation to your own business, and they are a useful resource for further research into starting up a business. Australian Securities and Investments Commission Fair Trading NSW Business.gov.au Workcover Small Business NSW Small Business website These websites are excellent reference tools and provide a wide range of information to assist you further. We recommend that you explore the above websites to find out more about setting up your new business. Don t forget, Rhodes Docherty & Co has experienced staff who can assist you in setting up a new business and advise you of the steps you should take to give your business every chance of success. Published July 2015 What s the next step? If you require advice regarding a new business venture, or assistance in setting up your new business, please contact Rhodes Docherty & Co to make an appointment. Call IMPORTANT This publication is presented in summary form, as a guide only for clients of Rhodes Docherty & Co Pty Ltd ABN It should not be relied on as a substitute for detailed advice or solely as the basis for making business decisions.

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8 John Docherty Director FCA SMSF Specialist & Financial Advisor (02) Carol Rees Director CA SMSF Specialist (02) Maria Krnjulac Director CA (02) Simon Havas Head of Financial Advice BBus (Accounting Financial Planning) (02) Suite 1.01, Level 1, 828 Pacific Highway, Gordon NSW 2072 Locked Bag 1011, Gordon NSW 2072 Phone (02) Fax (02) Website RHODES DOCHERTY & CO Chartered Accountants Financial Advisors Top 100 Accounting Firm