Recently an industry recognised provider, Bstar, prepared a report on small businesses in Australia. We at Harris Black thought we would share the key points with you…
Bstar's report found that small business owners are in fact optimistic and the overwhelming majority (92%) enjoy being in their own business, even in the current economic climate. Across all industries, business owners believe there are opportunities to grow their business, with 79% being focussed on growth in the 2015/16 financial year. Research showed however that, with most business owners admitting they spend little to no time assessing their own performance or planning strategies for improvement, the majority also cannot be certain their optimism in this regard is justified.
The challenge it seems is not in starting a business but staying in business… and most particularly in expanding and achieving growth. Many business owners don't know how to achieve this.
The report found that small and micro businesses fail for three main reasons:-
lack of strategic business planning - only 1 in 4 business owners had prepared a formal business plan;
limited business and financial management skills - 71% of businesses surveyed don't invest in developing their own business and management skills; and
a lack of quality external professional advice – research shows the importance of focusing on the 4 top business concerns of a small business.
Without strategic business planning, business success and growth is largely accidental and many businesses with great potential will fail. Research points to the need for business owners to spend more time working on their business, not merely working in the business with only 1 in 4 currently allocating regular time to strategic business planning.
Bstar asked business owners what their most significant business concerns were and collated the results in the table on the right. This is a long and valid list and businesses will experience many of these issues through the lifecycle of their business.
– in particular for assistance with financial measures and strategic planning.
We want you to know that at Harris Black we do more than just tax returns and accounts. A large part of our own business is to regularly work with clients who are business owners. We help them develop business strategies and plan for growth. Our aim is to promote pathways to success, to reduce their concerns and help them sleep well at night.
Do you have a business concern or want to grow your business?... Not sure where to start?...
Take the first step and give Harris Black a call.
If you would like to have your 2014/2015 tax return completed prior to Christmas and before the New Year rush, we would encourage you to please provide us with your tax information as soon as possible.
Our accountants are keen to receive your work now in the lead up to this period.
Should you have any questions regarding what is required, please do not hesitate to contact your Harris Black team member.
We look forward to hearing from you.
Each month the team at Harris Black will put together a list of their Top 10. For this month's edition we have focussed on the Top 10 Exercise Routes. Here are some of Team Harris Black's favourites. Let's get physical!
1. Mt Warning – Northern Rivers, NSW;
2. Mt Coolum – Sunshine Coast, QLD;
3. The Lake Loop – Forest Lake, QLD;
4. Mains Road Sunnybank Loop - QLD;
5. Georges River to Picnic Point (Rowing) – NSW;
6. Currumbin Valley (Cycling) – Gold Coast, QLD;
7. Edenbrooke Park – Sinnamon Park, QLD;
8. Brisbane Riverside Loop – Brisbane, QLD;
9. Mt Coot-tha – Brisbane, QLD; and
10. The Spit Oceanway (Federation Walk) – Gold Coast, QLD.
For those who operate their business through a company or a trust, there may be times when you need to provide a personal guarantee.
A personal guarantee is a written commitment or promise from a business owner to make a payment or perform an act or duty that is owed to a third party when the business cannot.
Many lenders require a personal guarantee as a way of assuring that a business owner is committed to repaying a lease or loan. Personal guarantees can also demonstrate to third parties the responsibility of a business owner, and their intention to repay all leases or loans. Personal guarantees often arise when a business seeks finance from a bank or when it enters into a lease for business premises.
The parties involved in personal guarantees are the 'creditor', the 'principal debtor' and the 'guarantor'. The creditor is the person who receives the benefit of the guarantee and is usually a bank, finance company, supplier or lender. The principal debtor is the business owner who is borrowing the money or obtaining the benefit of the contract. The party who provides the guarantee is called the guarantor. For a contract of personal guarantee to be enforceable, it must be in writing and signed by all of the above parties.
It is important for business owners to seek legal or financial advice if in doubt before providing or signing a personal guarantee. Owners should also have a thorough understanding of the following:
Personal guarantees come with specific obligations, such as repaying a loan or complying with a lease. It is essential for owners to review these terms before signing the guarantee. If the principal dealer breaches these terms, compliance with the guarantee will then become the owner's responsibility.
The release date of a personal guarantee may vary depending on the parties involved. Some banks will not release a personal guarantee until the loan has been fully repaid, whereas some landlords will release a personal guarantee when a lease expires. Owners need to be aware of the release date in case they want or need to negotiate for an earlier release.
Investigate the person or entity you are providing the personal guarantee on behalf of. Your personal guarantee will only be called upon if the person or entity you have provided it on behalf of defaults in its obligations. You should investigate and make your own assessment as to the likelihood of this occurring before providing your personal guarantee.
The mention of contracts elicits fear in the minds of many who are overwhelmed by the numerous hurdles involved in signing a legal document.
A contract is a formal agreement, either verbal or written that is enforceable by law. For the purposes of business, written contracts are the preferred method, and with them come a number of considerations to ensure that you are entering into a mutually agreeable arrangement.
There is a natural tendency to skip over details within a contract, particularly when the content is lengthy and filled with jargon. However, it is vital that you understand the terms so as not to land yourself in hot water in the event of a breach.
Here are some guidelines to follow prior to entering into a contractual agreement:
All parties to the agreement should be familiar with its contents. Ensure you are in agreeance with all clauses. If not, seek advice.
Contracts involve important decisions and significant time should be spent reviewing the contract before signing. Do not be or feel pressured to sign before you are ready, and make sure you understand the consequences of non-compliance for both parties.
Where a party does not agree with a clause within a contract, it is their right to negotiate. It is important that you propose changes that satisfy both parties in order for them to be considered.
Legal advice is readily available in order to help parties comprehend the specialised language that can be present in contracts. It is important that you remain aware of what it is you are signing at all times.
Separate yourself from the business and sign as a representative. You should clearly state, both verbally and through writing that you are acting on the business's behalf. This assists in the avoidance of personal liability.
With new business market saturation expected to occur over the next five years, businesses should consider whether a merger is their optimal exit strategy.
Company mergers differ according to the industry function, the purpose of the transaction and the existing relationship, if any, between the companies. Mergers often require a significant investment of time in the new business' future, meaning now is the time to investigate the available options. Below are five commonly-referred to types of business mergers:
An amalgamation between firms that conduct unrelated business. This can be further separated into pure and mixed mergers. Pure mergers have no commonality and mixed mergers are firms who wish to expand upon their market regions or products.
A merger between companies within the same industry. These mergers are common in smaller, more competitive markets. The aim is to create a greater market share with lowered manufacturing costs.
This type of merger occurs between two firms that have the same products within separate markets. Amalgamating in this manner is to make a conscious effort to access a larger market.
Two firms that operate within the same market with similar products may look to product extension. This enables access to a larger set of consumers, ideally resulting in higher profits.
Vertical mergers are commonly seen when two separate companies produce goods or services for a common product. The end goal is synergy, where the value and performance of the companies will increase as a result of the merge.
With growing concern that there will not be enough buyer demand to absorb the predicted volume of supply, businesses should begin to consider whether a merger is their most profitable move.
Making lawful deductions from an employee's wage may not always be as straightforward as it seems.
Employers who wish to make deductions from their employees' wages should consider reviewing the framework that sets out how and when employers can lawfully make deductions first. Many employers are unaware of the specific circumstances that permit them to make deductions from an employee's wage, particularly in situations when they seek to recover money they believe is owed to them.
The Fair Work Act 2009 (Cth) outlines the specific provisions regarding the circumstances of when an employer can make deductions from an employee's pay. It is important that employers are aware of these provisions, as an unlawful deduction can result in severe civil penalties that range up to $10,200 for individuals, and up to $51,000 for businesses.
Section 323 of the Fair Work Act 2009 (Cth) requires an employer to pay their employees an amount owing to them in full in relation to their work performance. Exceptions to this obligation can be found in section 324 of the Act, which permits an employer to make deductions when:
• the employee authorises the deduction in writing;
• the deduction is for an employee's benefit e.g. a salary sacrifice arrangement;
• an employee authorises the deduction following an enterprise agreement;
• a modern award or a Fair Work Commission order authorises the deduction; and
• the law of the Commonwealth, a State or a Territory, or an order of a court authorises the deduction.
Before making a deduction, employers must obtain a written authorisation from the employee that specifies the amount of the deduction, (the authorisation can be withdrawn or varied by the employee at any time).
While it also may be common for employment contracts to include provisions that allow an employer to make deductions, it may be a good idea for employers to confirm if these provisions are indeed valid, as such terms may not comply with section 324 of the Fair Work Act 2009 (Cth).
Section 326 of the Fair Work Act 2009 (Cth) states that certain terms have no effect, however, this section only refers to a contract of employment. This reference may confuse some employers since the term 'contract of employment' is not referred to as an instrument from which deductions may be authorised in section 324.
Employers should be cautious when relying on general deduction wording in employment contracts. Whether or not a contract includes such contractual wording, it is the employee's written authorisation that is required, (unless the deduction is authorised by an industrial instrument, legislation or court order).
Expanding your business to reach overseas markets is a strategic decision made to reach a broader, international customer base.
Researching the foreign landscape is crucial in understanding the hurdles you could potentially face. Here are some points to review before taking the step into international expansion.
Cultural characteristics could mean the difference between the success and failure of your expansion. Product customisation may be necessary for customers' needs to be met.
An overseas business partner may be able to offer insight and support (financially and economically) whilst setting up and as your business settles. Successful partnerships require an investment of time to flourish and thrive.
Understanding your foreign competitors will go a long way in helping you expand successfully. Spend time in your new market to get an accurate picture of what it comprises of.
Investigate the requirements you must satisfy prior to expansion. Failing to do so prior to making decisions could prove costly and slow the progress of development.
In a surprise - but welcome - move in the 2015 Federal Budget, the Government announced a small business tax discount. The Government said that, with effect from 1 July 2015, individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received from an unincorporated small business entity. The discount will be capped at $1,000 per individual for each income year, and delivered as a tax offset through the individual's end-of-year tax return.
A person running a business as a sole trader has an annual turnover of $300, 000 and taxable income of $75, 000. Under the current law, the business would pay tax, at the owner's marginal tax rate, of around $16, 000 in total. Under the proposed new law, the $16,000 tax bill on the business income would be reduced by 5%, or $800. While there is no change in the owner's tax rate, under the new law the owner would pay only $15,200 tax.
Legislation to implement the small business tax discount is currently awaiting formal enactment.
The ATO is of the view that most trustees of self-managed super funds (SMSFs) do the right thing. However, it has identified a number of issues concerning SMSFs in pension phase, noting the growing number of people expected to receive a pension in the next 10 years.
The following gives a snapshot of some key issues identified by the ATO:
- Setting up and starting a pension: In the pension establishment phase, a fundamental and critical question that should not be overlooked is whether the member has reached preservation age. The ATO has reminded trustees that the legislated rise in the preservation age came into effect from 1 July 2015 -this affects people born after 30 June 1960;
- Paying a pension: One of the most common reasons for an SMSF in the pension phase not being entitled to applicable income tax exemptions under the exempt current pension income (ECPI) provisions is that the trustee has failed to pay the required annual minimum pension amount to a member; and
- Ceasing a pension: The ATO is starting to see a range of issues related to what happens in the unexpected event of a pensioner's death. For example, is the nominated reversionary beneficiary entitled to receive a death benefit pension under the terms of the SMSF's deed and the law?
The ATO is starting to see liquidity problems associated with real property exacerbated for SMSFs in pension phase where the asset has been acquired under a limited recourse borrowing arrangement (LRBA). As the income of the SMSF is diverted to meeting the loan obligations of the fund, the ATO has found there can be insufficient funds remaining to make the required pension payments. There is also an added level of complexity to LRBAs involving related parties where the trustees fall foul of the arm's-length rules in an effort to try to overcome their liquidity issues. If you have any concerns, please contact our office for further information.
Crowd-sourced equity funding (or equity crowdfunding) is an innovative form of fundraising that allows a large number of individuals to make small equity investments in a company.
The Government is looking at ways to facilitate equity crowdfunding and has released details of its proposed regulatory framework for public companies. However, a key part of the Governments public consultation is to also examine whether its proposed regulatory framework for public companies should be extended to proprietary companies.
The Government notes that proprietary companies are subject to limitations under the Corporations law on the way they can raise funds. These limitations make it difficult for proprietary companies to effectively use equity crowdfunding to raise funds from a large number of small shareholders. Accordingly, the Government is seeking views on way it could amend the law to make capital raisings by small proprietary companies more flexible. Public consultation closes on 31 August 2015.
October 2015 monthly activity statement – due date for lodging and paying
Quarterly activity statements, quarter 1, 2015-2016 – due date for lodging and paying if you are lodging via one of the following:
• Electronic Commerce Interface (ECI);
• Electronic Lodgment Services (ELS);
• Tax Agent Portal;
• BAS Agent Portal; and
• Standard Business Reporting (SBR).
Due date for lodging Superannuation Guarantee Charge Statement – quarterly and paying the super guarantee charge for quarter 1, 2015-2016.