Anderson Taking Care of Small Business

How to Take Control of Your Small Business
1. Auflage 2016
ISBN: 978-0-9945635-6-9
Verlag: BookBaby
Format: EPUB
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 200 Seiten

Do you dread doing your bookkeeping? Are you missing out on tax deductions because you don't have good systems in place? Would you like more time each month to spend with your friends and family instead of doing your accounts? With the right business structure, solid foundations and utilising cloud accounting you can easily reclaim 10 to 20 hours of your life per month by setting up systems that do the boring, time-consuming work for you. Taking Care of Small Business gives you simple, practical tools and advice that will make a huge difference to you, your business and your cash flow. From choosing the right business structure to setting up your accounting system, from bookkeeping through to taxation, this book covers them all.

Autoren/Hrsg.

Anderson, Debra

Leseproben

2

WHAT STRUCTURES ARE THERE TO CHOOSE FROM AND WHAT DO THEY REALLY MEAN?

WITHOUT A DOUBT the single most common and completely avoidable mistake I see all the time is having the wrong business structure.

If you’ve already set up your business it’s worth reading this chapter so you can identify if your foundations are a little shaky, and then speak to your accountant about how to fix them – because they can be fixed, and the sooner the better.

If you’re new to business, this chapter will be one of the best chapters you will ever read because it will give you a solid understanding of the differences between structures, what you need to do, what you need to ask about and where to go to get help.

WHY DO BUSINESS STRUCTURES MATTER?

There are a lot reasons why structure matters:

•you could be paying too much tax

•you could be accepting too much personal responsibility as a business owner

•your personal assets may be at risk

•you could be paying too much for compliance and accounting

•you could be paying too much in ongoing costs for your business

•you need to consider your ability to bring in or get rid of business partners or investors

•you need to consider raising capital – now or in the future

•you need to consider voting and decision making

•you could be unnecessarily overcomplicating your life.

That’s just to mention a few…and trust me – there are many, many more.

WHAT OPTIONS ARE THERE?

So what are the options when it comes to structuring your business? Although business structures are extremely complex and could fill a book of their own, for the majority of small businesses there are basically four main structures to consider:

•sole trader

•company

•trust

•partnership.

Each has advantages and disadvantages. Which one is right for you will depend on issues such as the size and revenue of your business, your plans for the future, your personal circumstances, your personal and business assets, and much more.

So, let’s have a closer look at each of these structures.

Sole trader

A sole trader means that you and your business are one and the same in both the legal and tax sense, and if you die your business dies too. You and your business have the same ABN and tax file number and you will most probably trade with a registered business name, though you are also able to trade with your own name if you wish. This is the simplest type of business to start, run and close down.

Sole trader pros

Sole trader cons

•Cheapest business to start, run and close down. •Only need to lodge one tax return. •If your net income (profit not sales) is below $18,000 then it is below the tax-free threshold and no tax would be payable. •Profits are taxed at personal income rates which, depending on the amount, could be lower than the flat company tax rate. •You and your business are one and the same, therefore – depending on your industry – multiple registrations may not be required. •You don’t need to pay yourself superannuation on money you take out of the business. •If you use your name as your business name, it is free. •There are some capital gains tax advantages. •It is simpler for bookkeeping purposes.

•No asset protection as you are personally liable for all debts. •Profits taxed at personal income rates which, depending on income, could be significantly higher than the company tax rate. •If you die your business dies with you. •Some larger businesses may only want to deal with companies. •Doesn’t appear as professional as a company. •Not conducive to taking on a business partner.

Company

A company is a common structure, and it usually has ‘Pty Ltd’ at the end of the business name. The ‘Pty’ means it is an incorporated entity, not a sole trader, and ‘Ltd’ means that the company’s liability for its debts is limited up to the value of the shareholders’ shares or equity. A company is a separate legal and tax entity from the owners, and has its own identity completely separate to its owners. The key here is that a company is not you. If you die, the company lives on, as does its obligations.

Company pros

Company cons

•More professional to the outside world. •Increased asset protection. •Profits distributed to shareholders can be franked, meaning that the shareholders can claim back the tax already paid on the profits in their personal tax returns. •Losses can be carried forward indefinitely and offset against future profits, provided some basic rules are met such as the business must have the same owners and must be conducting the same sort of business; e.g. if you had losses from running a plumbing business you can’t offset those against profits now that you are running a graphic design business.

•All profits taxed at the company rate – there is no tax-free portion or threshold, meaning you pay tax on every dollar of profit. •There are set-up costs and ongoing maintenance costs. •There are annual fees payable to the Australian Securities & Investments Commission (ASIC). •If you pay yourself wages you must pay yourself superannuation on top, even if you are the sole owner/ shareholder of the business. •If you provide personal services – e.g. consulting – you may not get any of the tax advantages of a company. This area of Personal Services Income (PSI) is particularly relevant to consultants and requires professional advice. •Easy to bring in and exit partners or investors. •You need to keep your personal and business finances completely separate – remember you and the business are separate legal entities. •You may have to pay Fringe Benefits Tax; e.g. if the company owns your vehicle. •You cannot take money out of a company as if it was your own. It must be correctly and accurately accounted for. •You are not allowed to owe the business money without a formal loan agreement being in place. •As a company Director you have responsibilities and obligations under the Corporations law for which you are legally liable.

Trust

Trusts come in various different types, but the common two are unit trusts and discretionary trusts, which are usually family trusts. Trusts are a complicated structure and have their own set of rules.

Trusts are often favoured because you can split income between beneficiaries, but there are some strict rules around this and I’ve found that the circumstances where this can be done legally aren’t as straightforward as people seem to think.

Another reason trusts are often used is for additional asset protection, however for some businesses trusts can be overkill and provide no benefit other than to increase your financial complexity, and hence by their very nature increase your compliance and accountant fees.

My pet hate of trusts is that profits must be distributed at the end of the year, which means that for many people they are paying personal income tax on profits that they haven’t actually received any money for yet.

Trust pros

Trust cons

•If you have a family trust or discretionary trust you can choose – within the rules – how much and to whom you distribute profits. •Trusts add an additional layer that increases asset protection. •There are some capital gains tax advantages.

•Losses are trapped in the trust. •They are expensive to set up and maintain. •You will usually have a Pty Ltd or corporate trustee – therefore another cost. •Much more complicated than other structures and...