You only get one chance to sell your business - you want to attract the best value possible, especially where it is for retirement funding. Planning, and early planning at that is the key.
- Are any changes required to improve staff performance and attitude?
- Customers – Are they happy? Are there any additional products or services customers could purchase?
- Suppliers – Have key suppliers contributed support, which is reflected in the performance of the business?
- Management – Is the management team functioning at an appropriate level? Will the management team be able to drive the business' performance if the current owner is no longer involved?
- What type of financial data is available? Are sales dissected into component sales and are gross profit percentages and gross profit contribution figures determined for each sales segment?
- What is the labour-to-turnover percentage?
- How does the business' financial performance compare with industry benchmarks?
- What is the unique selling proposition of the business?
- If the business is offering credit terms, how effective is the business' debtors' system?
- What are the business' debtors' days outstanding?
- Has all intellectual property, owned by the business been appropriately documented and have any ownership disputes been settled?
- Will key staff remain with the business, if the sale is negotiated?
- If key staff decided to leave, could a new owner effectively operate the business, especially in the short term without them?
- Have you considered offering a staff retention bonus to retain key people for a period of time after the sale?
- In this way, an assurance can be given to a purchaser that, for at least a period of time (say 12 months), key staff will remain in the business?
As part of getting the business' 'house in order' to maximise the sales value, a review of the following items is advisable:
- Review of the systems operating in the business – could improvements be made?
- Are steps being taken to eliminate unnecessary expenses and wastage?
- Are all business sales being appropriately recorded in the business' books of account?
- Does the customer database show names, addresses, contact details and a record of previous purchases?
- Are the business' intellectual property records current?
- Have team members signed intellectual property agreements? Are these filed correctly?
- Do the business premises present a pleasing aspect to a potential buyer?
- Do the team members require additional training so the potential buyer may be favourably impressed
- Have you reviewed your business' key performance indicators against industry best practice?
If you are considering selling your business and would like to ensure you maximise its achievable sale value, please contact your harris black team member so that an evaluation of focus areas can be determined.
Harris black is now Xero Certified. We believe beautiful business starts with good looking numbers. Xero is online accounting software that gives us a live view of your business finances. That means everyone on your team, including us, can have the latest information available in order to make informed decisions. You can use Xero in the office, on the road, or even in bed! So no matter what you do or where you do it, with Xero we can help you do beautiful business. Have a look at the latest plans available to help get your business on track, and contact us at email@example.com or your client manager on 07 3032 0200 for further information.
Register your interest now to attend an information session in early 2014 about the latest cloud accounting software offerings. We will cover most of the major players including MYOB, Xero and Quickbooks, and explain why moving to the cloud can be beneficial for your business and your time. To register your interest, please email Jamie at firstname.lastname@example.org. We will provide more information closer to the time.
We have been contacted by many clients who have received an email that 'looks like' official Australian Taxation Office (ATO) correspondence. The emails contain ATO logo's and often refer to a refund owing to the client. Please be aware that these emails are Hoaxes/Scams. The ATO will not correspondence with a taxpayer via email. If you receive an email and you are unsure of its authenticity please contact your harris black team member. They can view your ATO accounts online and advise if any money is owing to you.
Sometimes you just don't know where to start. The list of 'work on the business' items can be overwhelming or just not visible to you.
Below we share some common characteristics of what are considered well run businesses.
- To improve stock control, utilise a stock analysis chart so your team members understand the financial contribution that is potentially available from each item or section of stock.
- Think about bonuses and other incentives to generate a desire from your team member to sell the higher margin lines of stock.
- Determine a desired stock turn rate for each stock item and ensure your team members, involved in the sale of product, have been informed of the targeted stock turn rate.
- Analyse the stock performance at the end of each week. This would relate to:
- gross percentages generated for various items of stock
- stock turns achieved; and
- sales person's individual performance, showing total sales, gross profit margin and gross profit percentage achieved.
If you're handling cash within your business, you need sound systems to protect the cash, including:
- Documentation of cash register receipts; – establishment of an appropriate system for the security of large sums of money located on the business premises.
- Systems to ensure cash is banked intact daily; and
If your business is operating a work in progress system, it is recommended that appropriate controls are introduced, which include making sure all materials and subcontract invoices, for purchases of products for individual jobs, are charged on a progressive basis during the month, to the job for which the work relates.
- Ensure that all labour, including labour on cost, is charged to the job.
- Ensure that progress claims and progress claim invoices are processed regularly.
- Calculate the contribution received on each completed job.
If you are contemplating commencing a small business, you will need to consider the various types of business entities. The simplest business entity is to operate a business as a sole trader. A sole trader can trade under his/her own name, or can register a business name. A business name registration does not create a separate legal entity. Registration under a business name has no legal implications other than allowing a business to trade under that name. Even though you may have registered under a business name, you cannot prevent someone else incorporating a company with exactly the same business name.
A sole trader has to include all business income received by him/her in their personal income tax return. All assets owned by the sole trader, both personal and business, are potentially available to pay lenders/creditors of the sole trader's business, because the business has no separate legal status.
In future additions, we will comment on partnerships, trusts and companies.
If you would like to discuss business structures, please do not hesitate to contact your harris black team member.
All businesses operate in an ever-changing world, where different risks can affect the performance and, in some instances, the survival of the business. Some of the risks that may affect your business could be categorised as follows:
- Commercial Risks – risks associated with the market and the sustainability of the business.
- Compliance/Legal Risks – relates to compliance with legal requirements and other regulations.
- Environmental Risks – includes consideration of environmental issues that might affect the business, including:
- weather temperatures, cyclones, storms, floods, tsunamis and droughts; and
- other environmental risks, including incorrect disposal of products.
- External Risks – risks over which the business has very little control, but to which some consideration should be given, such as:
- wars; or
- global financial upheaval, eg:
- global financial crisis – consider current governmental problems in America
- political uncertainty in Italy
- continual problems in Greece
- war in Syria
- Financial Risks – this is a very large risk area, including cashflow, debtors and stock.
- Fixed Asset Risks – damage, deterioration or obsoleteness of plant, equipment or building.
- Staff Disputes – interpersonal or structural.
- Operational Risks – includes:
- website; or
- electricity failures.
- Organisational Risks – including:
- key management leaving the organisation;
- death or disablement of senior management personnel;
- workforce unrest; or
- workplace bullying, sexual harassment, discrimination, claims, etc.
- Reputation Risks – including unprofessional conduct and false product claims.
- Research/Intellectual Property Risks – incorrect documentation of who owns particular inventions
- Safety Risks – safety issues affecting team members, customers and visitors to your premises.
- Have satisfactory pre-start checks being undertaken on vehicles, trains and conveyor systems?
- Security Risks – such as:
- armed robbery;
- brawls; and
- theft and pilferage.
- Stakeholder Risks – change of directors, shareholders, management team and key suppliers.
- Technology Risks – continual improvements in technology to your business, keeping up to date.
- Corporate Governance Risks – directors and management understanding their responsibilities.
Businesses need to firstly identify the risks which relate to their business, then develop strategies to minimise the risk, or have pre-prepared procedures in place, if a particular risk emerges.
If you would like to have a discussion with us relative to risk management within your business, please do not hesitate to contact your harris black team member.
Staff disputes or feuds can be very costly for businesses. Management needs to determine a strategy to, firstly, try to avoid staff disputes/feuds arising and, secondly, have a process to handle any disputes.
- The two main dispute categories are interpersonal and structural issues.
- Interpersonal relates to personality clashes with other members of staff, which can lead to a lack of understanding and intolerance of other staff.
- Poor communication styles can also contribute to the simmering issue. This can relate to differences in values and beliefs by team member.
- Structural disputes can arise through the lack of understanding of the roles each team member has in the organisation. This can lead to confusion on who is doing what.
- The advent of social media, over the last decade or so, is undoubtedly contributing to some staff disputes. Social media is the new medium, whereby people are displaying discontent about their workplace and some of their colleagues. They are using the 'shield of anonymity', giving them a medium to vent their frustrations about their workplace or some of their colleagues to a lot of people.
The question for management is what to do about this? Many of these issues will not fix themselves. It is a very risky management strategy to ignore the issue, hoping that it will go away. Many of these issues start as a very small item, which can turn into a very large issue, if management does nothing.
Staff disputes and feuds can affect productivity of staff, both those involved and those not involved in the actual dispute.
Management has a legislative duty of care, under the Occupational Health and Safety Legislation, to address these issues. Management needs to be monitoring and proactive about these issues.
The members of the team are generally looking to the manager to resolve staff disputes. There is no doubt that some of these disputes can be very difficult to resolve.
In the first instance, there is a need to try to understand the issue. Then try and get the parties involved in the dispute together, for each of them to give their side of the story. It is very important that the manager remains fair and neutral in these discussions. Don't take sides! Don't be dismissive of a claim if you believe it's a very minor issue. It is obviously a big issue for one of your team members. In these types of meetings, it is very desirable that you always prepare notes on the matters that have been discussed – you never know when you might need these meeting notes.
At these meetings, there is an opportunity for the manager to set the expectations of behaviour for all team members. You can set up a program whereby there will be a regular meeting, involving the parties involved in the dispute, to monitor ongoing progress.
Businesses can suffer heavy financial penalties from staff disputes. These can contribute to a lack of morale in the organisation, affecting a large number of people. The business' productivity suffers. People take days off, go on sick leave, or resign – in some cases, staff who are not directly involved in the dispute, but don't like the atmosphere certain disputes are causing in the workplace. Unresolved issues could lead to litigation, which can be very costly.
Under the Fair Work Act, there is an obligation for employers to address these types of issues. This needs to be done to avoid 'adverse action claims' or stress and bullying claims. These types of actions against an SME can destroy the business financially. 'Adverse action claims', in particular, can be very expensive, because there is no cap on the compensation that can be awarded.
- Management needs to define the business' expectations of behaviour, and the values of the business, in their staff manual.
- Make sure this manual specifies what you expect staff to live by, whilst they're at work.
- The workplace rules should include appropriate clauses on how the business will handle workplace grievances.
- Prepare a summary of the key values of the business.
- Prepare a short list of supporting behaviours for each of these values.
- Some of the values for consideration could include:
- communication within the business;
- respect of fellow team members;
- trust within the business;
- business' ethics;
- loyalty to team members; and
- honesty of all members of the business.
- Conduct staff training programs so everyone understands their responsibilities.
If you would like our assistance in reviewing your staff policies, and other aspects of your human resources system, please do not hesitate to contact your harris black team member.
Directors are trusted with the responsibility of administering the company, and monitoring its day-to-day performance. Some of the key tasks of a board of directors include:
- Appointment of a CEO or managing director;
- Approval of a company's business plan, including budgets and cashflow forecasts;
- Review and supervision of a company's risk management strategies;
- Approving the borrowing of funds by the company;
- Reviewing interim financial reports and key performance indicators;
- Reviewing business benchmark performance reports on the company;
- Ensuring appraisals are conducted for all executives and team members;
- Ensuring the company has introduced an adequate internal control system;
- Monitoring the company's exposure to foreign exchange risks (applicable if an exporter or importer)
- Signing off on the annual financial accounts for the company;
- Monitoring any shareholder's agreement to ensure the agreement is properly implemented; and
- Making sure all documentation required to be lodged with the Australian Securities and Investments Commission (ASIC) is lodged prior to the final lodgement date.
If you are a company director, and would like us to discuss your duties and responsibilities, please do not hesitate to contact your harris black team member.
The Administrative Appears Tribunal (AAT) has found that individuals working for a plumbing business were employees of the business and that the business was required to provide superannuation contributions for them. The business argued that the workers were independent contractors and that there was no superannuation requirement.
After reviewing the individuals' relationship with the business, the AAT was of the view that, effectively, the workers were full-time casuals paid on an hourly rate and not eligible for holiday or sick leave. The AAT considered various factors, including that the individuals all had the same contract (with the same terms) with the business. The AAT said one would expect independent contractors to have differing terms, but the fact that their contracts were the same was "extraordinary". Another key factor was that the hourly rates charged by the workers to customers were largely set by the business. Overall, the AAT concluded that the workers were employees and affirmed the requirement to pay superannuation.
The AAT has recently affirmed a decision of the Tax Commissioner to impose a penalty on an individual equal to 50 per cent of the tax shortfall amount arising from deduction claims for work-related expenses that were unsubstantiated.
The individual worked as a cars salesman and in his 2011–2012 tax return made various claims for work-related expenses amounting to around $34,300. The Tax Commissioner determined that most of the claims were unsubstantiated and imposed a penalty of around $6,100, representing 50 per cent of the tax shortfall. The Commissioner also told the AAT that the individual had made similar claims in previous years.
The individual did not dispute that the claims were unsubstantiated, but argued that the penalty was severe and that he was unable to pay an outstanding portion of the penalty of $1,400. The AAT noted, among other things, that the individual did not retain invoices or receipts, or provide satisfactory evidence to substantiate the claims. The AAT was of the view that the individual's conduct was more serious than mere failure to take reasonable care, and held that the penalty imposed was appropriate.
A company (a trustee of a family trust) that had sold a property to an individual has been unsuccessful before the Victorian Supreme Court in a matter concerning whether the individual was required to pay GST in addition to the purchase price on the property.
The purchase price was set out in the Particulars of Sale in the contract as $2,250,000. The Supreme Court reviewed the contract, and in particular, a "special condition" dealing with GST. While the Court accepted that the commercial aim of the special clause may have been to allocate responsibility for any GST liability attached to the sale of the property, it considered that the contract said nothing about whether the purchase price in the Particulars of Sale was actually intended to include GST. Further, it could not discern from the special clause any particular contractual intention of the parties. In conclusion, the Court held that the special clause should be removed from the contract. As a result, it said the $2,250,000 amount in the Particulars of Sale should be understood to be inclusive of any GST payable on the sale.
This case highlights the importance of ensuring that a contract for the sale of property clearly specifies whether the sale is subject to GST and whether the price is GST-inclusive or GST-exclusive.
The ATO has cautioned taxpayers against trading shares on a special market operated by the Australian Securities Exchange (ASX) with the sole purpose of obtaining additional franking credits. The ATO says these arrangements involve a taxpayer selling shares in a company on the ordinary market after a franked dividend has been announced, and retaining the franked dividends. Then, within days, the taxpayer buys back a similar parcel of shares in the same company on the special market, which also has franked dividends. The ATO says the transactions could constitute "dividend washing" and that the taxpayer could face penalties under the law.
Dividend washing occurs where shareholders seek to claim two sets of franking credits on what is effectively the same parcel of shares. Taxpayers who are unsure about their own circumstances should seek independent advice or apply for an ATO private ruling.
The ATO has highlighted areas of concern in relation to certain financial products, particularly a small number of financial products that may offer the promise of tax benefits that may not actually be available to some or all investors who invest in the product.
Key factors that draw the ATO's attention include suggestions that the investor could obtain tax advantages (that most taxpayers would not in fact receive in their individual circumstances), or that the tax law's anti-avoidance provisions may not apply.
An individual has been unsuccessful before the AAT in arguing that he should not have to pay CGT on the sale of a townhouse he owned jointly with his son because, he argued, he was only holding his interest in the property to protect his inexperienced son from selling it on a whim.
The individual had purchased the property for his adult son to live in and transferred the property to himself and his son as joint tenants. After living in the townhouse for a few years, the son moved out to another property. The townhouse was then sold and all of the funds were used to pay down the mortgage on a new property. The individual argued that he received no proceeds from the sale and that he held his interest in the property in trust for his son, or alternatively, that an exemption under the CGT law should apply. The AAT did not accept the arguments and held that as a joint tenant, the individual was liable to CGT on 50 per cent of the net capital gain on the sale.
The (AAT) has refused an individual's claim for input tax credits as it found no evidence that the individual was carrying on an "enterprise". The individual claimed that before she was required to serve a term of imprisonment, she had tried to start a "services business". She claimed that she had purchased, among other things, two motor vehicles, various office equipment, and business promotional materials. The individual made claims for input tax credits totalling almost $74,000 in respect of the various purchases over four years. However, the individual said the attempts to start the business did not succeed and straddled her term of imprisonment. The individual also claimed that any records she had of the purchases were lost or destroyed, or that she had not been asked to produce documentation by the Tax Commissioner.
The AAT said the individual was given various opportunities to produce documents to back her claims before the hearing; however, it noted that her evidence, being mostly personal testimony, did not satisfy the burden of proof that the Commissioner's assessment denying the input tax credits was excessive. The AAT found that there was no "enterprise" for the purposes of the GST law and that the decision to deny the input tax credits was correct.
The Administrative Appeals Tribunal (AAT) has denied an individual's claim that an exemption from capital gains tax (CGT) should apply to a property that he and his ex-de facto partner had sold. The individual had purchased land in 2002 with his then partner, and construction of a house on the land commenced in April 2004. However, the couple ended their relationship in September 2004.
Despite this, the individual argued that they had moved into the house in around May or June 2005 to meet the requirements under the law to sell the property without being subject to CGT. The AAT found that the evidence before it failed to establish that the house became the individual's main residence "as soon as practicable" after construction was completed, and failed to establish that the house continued to be his main residence for at least three months after that. In this case, both requirements had to be met in order for the exemption to apply.