Posted in: business
You’ve found the perfect business for you to buy. It fits all your requirements and you’re in a position where you can comfortably buy the business. What’s next?
Before you sign the contract to finalise the buy, it is important to conduct due diligence. For this, you should review the financial records, business operations and legal documents. These will prepare you to manage the business and identify any risks or problems in process that you might need to tackle head on. You will also be able to better understand what will be expected of you as owner of the business and which responsibilities have been allocated to that position.
You should review items such as:
- Licenses and permits: Have all the necessary permits and licences been acquired, and if not, look into why this might be the case – were they denied a permit due to any issues with the business?
- Contracts and leases: Have you spoken to the landlord and whether they’ll be transferring the lease agreement/negotiating a new lease? Is the business in contract with another that is problematic?
- Agreements: Are there any agreements the business is in that you don’t feel comfortable with?
- Status of plant, equipment, and fixtures: What is the current status of the equipment and machinery? When will you need to replace it? Has it been approved by the relevant authorities?
- Assets: Identify any assets that are under the business. Does it have any intellectual property?
- Inventory: How much inventory is there? Is it included in the sale? How is the inventory managed and will you still be able to source it from the same place? What is the status of the current inventory i.e. can it be used?
- Liabilities: What liabilities do you need to be aware of? Are there any outstanding debts? Any fines, warranties, refunds that need to be paid for?
Additionally, you need to conduct financial due diligence. Examine the past 3 to 5 years of the following financial documents:
- Tax returns
- Business activity statements (BAS)
- Records of accounts receivable and payable
- Balance sheets
- Profit and loss records
- Cash flow statements
- Sales records
You should examine these to make sure that record-keeping has been conducted and maintained appropriately. This will also inform you of any changes that need to be made once you start running the business yourself.
Posted in: super
Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees.
Firstly, SMSFs require a lot of on-going investment of time:
- Aside from the initial set-up, members need to continually research potential investments.
- It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
- The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.
Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying.
Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fee, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.
Thirdly, investing in SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.
Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund.
Posted in: tax
Record-keeping, if done well, can help running a business much easier. It gives you an overview of the business’ financial progress so that owners can assess their strengths and weaknesses and make decisions accordingly. Record keeping also enables owners to meet their tax and superannuation obligations easily – all the data and information required is readily available. Finally, record-keeping provides owners with a profile, of sorts, which demonstrates the financial position of the business to banks or other lenders.
Record-keeping requirements related to tax and superannuation need to be met. The specifics will depend on the unique tax and superannuation and obligations your business may have and the structure of your business (sole trader, partnership, company or trust).
The Australian Taxation Office (ATO), requires the following from all businesses:
- The records cannot be changed and further, the information should be kept so that it cannot be changed or damaged.
- The records must be kept for 5 years from the date they were prepared, obtained or a transaction was completed – or the latest act they relate to. The records might need to be kept for longer periods in certain circumstances.
- The business must be able to show the ATO their records if requested.
- The records must be in English or easily translated into English.
The ATO will accept paper and electronic records.
- There has been an inclination towards electronic record-keeping for both tax and super requirements as this makes certain tasks easier and reduces workload after initial set up. There may be some laws which require paper records in addition to electronic ones.
- Businesses may also keep paper records electronically i.e. scan paper documents and store them on an electronic medium (and dispose of papers).
- If records are stored electronically, then they should be on a device which owners have all access to, has been backed up, and allows the owner to have control over the information that is processed, entered or sent from the device.
Posted in: money
Debt consolidation is a form of refinancing which involves taking one larger loan out to pay off multiple small ones. Although this might make managing repayments easier, you may end up paying more money interest rate or fees.
There will be companies that make offers which are too good to be true. If you feel that an offer is unrealistic and the company is promising that they can get you out of debt no matter what your situation is, you should reevaluate using their services. Don’t trust companies that:
- Are not licensed
- Ask you to sign blank documents
- Refuse to discuss repayments
- Rush the translation process
- Won’t put all loan costs and interest rates in writing before you sign
- Arrange a business loan when you only need a consumer loan
The goal behind the consolidation is to manage your payments, not create more fees and interest for you. Therefore, before signing onto an agreement, check how consolidation compares with your current fees and interest rates altogether. Also, take into account expenses and penalties associated with your existing loans and whether you will have to pay more money for paying off your loan early. If the expenses work out to be more, it might not be worth going through this entire process.
Debt consolidation isn’t the only option if you’re struggling with repayments. Other options may be available which are more suited to you. You should discuss with your mortgage provider, credit provider or financial advisors to determine if there is anything that can be done.
Posted in: business
Company culture has become an important part of how businesses are perceived. Businesses with a positive culture are more likely to attract clients and customers. Statistics also show that over 50% of executives believe that having a good culture can influence productivity, creativity, profitability, firm value and growth rates.
However, while it can be easier to describe and quantify a company’s products and services, defining culture is a lot more difficult. It requires capturing the company environment, values and relationships.
Identifying what your company culture is, or what you want it to be, will determine your work processes, hire new people into your team, and how you and your employees interact with clients.
The first thing to do is to identify key traits that describe your culture. Bring together a diverse group of people from across your company and brainstorm words and qualities which describe the culture. Collate the words which you hear the most so that you end up with a list which is representative of the culture that employees most relate to.
The next thing you need to do is distil this list down to the core values you can see in it. You can conduct surveys (if you have a large company) or talk to your employees (if the company is small) and ask them whether the values you have chosen resonate with them, and if not, which ones do. At this point, you should aim to have around 5 values, but this is a flexible number.
Last of all, once the core values have been established, share them throughout the company. Employees should relate to these values and they should also feel motivated to embody them. Communicate with your employees about why these values may or may not be working/suitable.
Remember that this is a process. You may not get it right the first time, which is why it is important to be receptive to feedback from all members of the company.
Posted in: super
The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.
You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.
- Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer’s compulsory contributions as well as any voluntary contributions you may be making.
- Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
- Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.
TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.
Posted in: tax
How much tax you pay on your super contributions and withdrawals depends on a variety of factors. The process takes into account your total super amount, your age, and the type of contribution or withdrawal you make.
How are super contributions taxed?
The money that you contribute to your super account through your employer is taxed at 15%, and this is the same with salary sacrificed contributions. But there are exceptions to this:
- If you earn $37,000 or less, then the tax will be paid back to the super account due to the low-income super tax offset (LISTO)
- If your income and super contributions add up to more than $250,000, then you are also required to pay an additional 15% Division 293 tax.
Any after-tax super contributions (non-concessional contributions) are not taxed further.
How are super withdrawals taxed?
How much tax you pay on withdrawals depends on whether you withdraw as a super income stream or a lump sum. Since this can be a convoluted process, it may be beneficial to approach an advisor and clarify any questions you may have before you withdraw money.
What about beneficiaries?
If someone dies, then their super money will go to their beneficiary. This is known as a super death benefit. As a beneficiary, the tax you pay on the death benefit is dependent upon:
- The tax-free and taxable components of the super
- Whether you’re a dependant for tax purposes
- Whether you take the benefit as an income stream or a lump sum.
Posted in: business
A business loan can give you the support you need to fund growth or temporarily relieve cash flow pressures. These are some things to know before applying for the loan:
- Understand the purpose of your loan: You should be sure about why you want a loan and what you will be doing with the loan.
- What loan amount do you need: Realistically calculate how much money you need and how you’ll be allocating it to your needs
- What can you afford to pay: Consider the length of the loan, payment options and other details before you apply. Think about what you can afford to pay so that you can discuss which of these features can and cannot be adjusted to suit your needs.
- Secured or unsecured loans: A secured loan means that you provide an asset for the loan, your interest will be lower than for an unsecured loan and the lender may be able to sell your asset if you are unable to pay the loan. An unsecured loan means that you don’t provide an asset so that the interest rate is higher. It may be difficult to get approved for an unsecured loan.
- Fixed or variable interest: If you are confident that you can meet the repayment requirements even if the rate increases but a fixed rate makes it easier to manage your cash flow as all your repayments are the same.
- Fees and charges: The true cost of any loan is only apparent when you take into account all the additional payments that are incurred. These could include early repayment fees, exit fees, valuation fees (to secure your loan), etc.
- Paperwork: Planning your paperwork ahead of time will make it easier for the lender to approve your loan, this will also make the entire process faster.
- Consider speaking to an expert: You may want to discuss with an advisor about whether a loan might be the best option for you and what alternatives are available if any.
Posted in: super
There are four different categories of super funds. These have different primary features and are more applicable to certain people than they are to others.
Retail super funds
Anyone can join retail funds. They are mostly run by banks and investment companies:
- Allow for a wide range of investment options.
- Financial advisors may recommend this type of fund as they receive commissions or might get paid fees for them.
- Although they usually range from medium to high cost, there may be low-cost alternatives.
- The companies that own these funds will aim to keep some of the profit they yield
Industry super funds
Anyone can join bigger industry funds, but smaller ones may only be open to people in certain industries i.e. health.
- Most are accumulation funds but some older ones may have defined benefit members
- Range from low to medium cost
- Not-for-profit, so all profits are put back into the fund
Public sector super funds
Only available for government employees
- Employers contribute more than the 9.5% minimum
- Modest range of investment choices
- Newer members are usually in an accumulation fund, but many of the long-term members have defined benefits
- Low fees
- Profits are put back into the fund
Corporate super funds
Arranged by employers for employees. Large companies may operate corporate funds under the board of trustees. Some corporate funds are operated by retail or industry funds, but availability is restricted to employees
- If managed by bigger fund, wide range of investment options
- Older funds have defined benefits, but most are accumulation funds
- Low to medium costs for large employers, could be high cost for small employers
Self-managed super funds
Private super fund you manage yourself. Many more nuances to this type of fund. Most prominent feature is the autonomy over investment.
Posted in: tax
Businesses receive four different types of concessions on top of CGT exemptions and rollovers which are available to everyone. These allow businesses to disregard or defer some or all of the capital gains from an active asset which is used in the business.
The four additional concessions include:
- 15-year exemption: If the business has owned an asset for 15 consecutive years and you are 55 years or over and are retiring or permanently incapacitated, then the capital gain won’t be assessable when you sell the asset.
- 50% active asset reduction: Being a small business, ATO permits reduction of the capital gain on an active asset by 50%. This is in addition to the 50% CGT discount if ownership of the asset extends over a year.
- Retirement exemption: Capital gains incurred from the sale of active assets are exempt up to a lifetime limit of $500,000. However, you must pay the exempt amount into an appropriate super fund or retirement savings account if you are under 55 years of age.
- Rollover: You may defer all or part of a capital gain for two years upon selling an active asset. Your deferral period can be longer than two years if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset.
Note that these concessions are only available upon disposal of an active asset and either of the following:
- Small business with an aggregated annual turnover of less than $2 million
- Asset used in closely connected small business
- Net assets have a value of no more than $6 million (this excludes personal assets e.g home, as long as these have not been used to produce income)
There are also other criteria and conditions that the business will need to meet but you can apply to as many concessions that are applicable to you. Importantly, you can only apply to these in a certain order so be wary of this.