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First published in 2016 by Debra Anderson

All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the author.

National Library of Australia Cataloguing-in-Publication entry: Creator: Anderson, Debra, author.

Creator:	Anderson, Debra, author.
Title:	Taking care of small business.
ISBN: eISBN:	9780994563552 (paperback) 9780994563569
Subjects:	Small business. Small business – Management. Success in business.
Dewey number:	658.022

Printed in Australia by McPherson’s Printing
Project management and text design by Michael Hanrahan Publishing
Cover design by Peter Reardon

Disclaimer: The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.

CONTENTS

Foreword

Tim Reed, MYOB CEO

Introduction

A dream come true

Who is this book for?

PART I: LAYING THE FOUNDATIONS

1.The foundations

It’s a bit like building a house

Now what about starting a business…

2.What structures are there to choose from and what do they really mean?

Why do business structures matter?

What options are there?

Can I set it up myself?

What registrations do I need and where do I go to get them?

3.Accounting systems

Do I really need an accounting system?

So then what are my choices?

You’ve mentioned add-ons – what is an add-on and do I need one?

What’s this cloud thing everyone is talking about and is it safe?

Where do I go to get advice on what system I should use?

How much is this system going to cost me?

What do I need to do in preparation for setting up a system?

Everyone talks about a General Ledger – can you tell me what it actually is?

I hate filing – seriously, do I need to do this?

Keep your business and personal finances separate

PART II: GETTING DOWN TO BUSINESS

4.Invoicing and paying the bills

Let the games begin

Giving customers credit accounts

Make it easy for your customers to pay you

I’ve finished the job and I haven’t been paid. What do I do now?

Chasing money owed to you

I’ve been chasing the money but still I’m not getting paid. Where to now? What are my options?

Should I send statements?

Paying the bills

Managing supplier invoices

What about when I’m struggling to pay the bills?

5.Paying your staff – and yourself!

But they’ve got an ABN so I don’t need to worry about this stuff, right?

What is SuperStream? Where did that come from?

But what about me? How do I pay myself?

The real world…

How much should I pay myself?

Can I pay my spouse?

6.Automating the boring stuff

Bank feeds are life changing

Bank rules are the bomb

If I use bank feeds do I still need to do bank reconciliations?

PART III: BAS’S, TAX AND THE DREADED JUNE

7.Congratulations, you’re in a relationship…with the ATO

But I don’t want to pay tax…

But our tax system isn’t fair; big business isn’t paying their fair share of tax but us small businesses are expected to

The ATO scares me

Is an accountant the same thing as a tax agent?

Choosing an accountant

8.Okay…time to talk tax

How many business taxes are there and what are they?

Am I paying too much income tax?

Tax deductions

When is my tax return due?

What is PAYGI and why am I paying it?

How much money should I be putting aside for tax?

What if I can’t pay my taxes? What should I do?

I’ve heard the ATO put businesses into liquidation all the time for paying their tax late. Is this true?

What about GST?

Why are there so many GST codes and what do they mean?

The dreaded BAS

This is starting to get complicated – should I get a bookkeeper?

So where is the line between tax agent and BAS agent? How do I know who does what or should being doing what?

Audits…arrrrgghhhhh

9.30 June is not the end of the world

What do I need to do, when and how?

PART IV: TAKING CONTROL OF YOUR BUSINESS

10.Keeping an eye on how your business is tracking

What reports should I be running and what do they mean?

How often should I run these reports?

Are there any other useful reports I should run?

The difference between profit and cash flow

Strategies for avoiding future cash flow headaches

You need a plan

Working out your break-even point

Conclusion

Key dates that every business owner needs to know

FOREWORD

IN TODAY’S INCREASINGLY digital global economy, there has never been a better time for businesses of all sizes to become better connected and more competitive by using online technologies.

It’s important to build a solid foundation for your business – and this includes the right business processes and tools, such as cloud accounting solutions. All of this can play a vital role in your success. The benefits include increased efficiencies and productivity, and greater connectivity and mobility.

A strong commitment to making business life easier – something we do for more than 1.2 million businesses today – has been the cornerstone of MYOB’s philosophy since 1991. For a number of years now we have introduced cloud-based business management solutions, to the point where more than 60% of all our new clients are taking these up.

That is one big reason why we think Taking Care of Small Business is a must-read for every small business operator. I’ve known Debra Anderson for a long time – she is a highly-respected certified MYOB consultant and considered a thought leader in her industry. She has a strong passion for small business. Her clients, colleagues and extended network mean everything to her. Debra is also the owner and director of Anderson Tax & Consulting, a successful accounting and bookkeeping business. You’re in great hands.

Whether you are new to business, new to technology or a savvy business operator, this book will give you greater confidence to set up your business for prosperity.

I wish you every success!

Tim Reed
MYOB CEO

INTRODUCTION

A DREAM COME TRUE

Starting a business is an exciting time. There’s never-ending, ridiculously fabulous ideas, grand plans of market domination, and dreams of success and wealth. Often businesses are conceived ‘on the side’ while we are still working for someone else, which means lots of late nights and weekends as we devote hours, days, even weeks to coming up with the perfect name for our dream business, tossing around ideas, and researching our products/ services and our target market so we can start marketing and selling as soon as possible.

When we make that landmark first sale, the French Champagne that has been sitting in the cupboard just waiting for a special occasion is chilled and the cork is finally popped to celebrate this huge milestone – starting our very own business. It’s a dream come true – our very own business. No more working for someone else. No more making someone else rich with our ideas and hard work.

It’s a big thing. It’s a huge leap of faith, not just in your product or service but in yourself too. It’s not a decision that any of us make lightly. I mean, it’s huge, right? It’s life changing on so many levels – and yet so many of us just ‘wing it’. We Google how to do things, do most of it ourselves, call on friends for advice, and call in favours because we’re trying to keep our costs down until the sales start rolling in and we can afford to do it properly.

The problem is, though, that by the time the money does start flowing in we’re so busy trying to keep up with business – and getting more business – that we never go back to the beginning and get the basics right. Instead of being money poor we become time poor, so we put in halfbaked systems just to get us past today’s issues, which by default then become ‘our system’.

I think it’s fair to say most people don’t go into business because they enjoy paperwork, accounting systems or compliance, but unfortunately these are necessary evils required to ensure that market domination, infinite success and bottomless pots of money are not just achievable but sustainable. Every day I work with the most incredibly inspiring business people who have a kick-arse product or service but they’re struggling. They’re struggling because they love what they do but they don’t love the paperwork or compliance side of business. They’re struggling because they focused wholly on getting an amazing product or service out to market and ignored getting the financial side of their business in order first. They’re struggling because they’ve put their head in the sand for too long and ignored the books until they no longer even resemble the state of the business anymore. They’re struggling because they’re stressed, have no money in the bank, and this dream of owning their own business is slowly becoming a nightmare, keeping them up at night, and they don’t know where to turn for help.

This is why I wrote this book. I get it. Like you, I started my business because I love what I do. But unlike you I love paperwork and compliance, and it breaks my heart to see such wonderfully talented and passionate small business people doing the best you can (and you’re doing great work, by the way) but you’re struggling with the paperwork and the compliance is killing you. This is what keeps me up at night. Each day as I help another small business, my drive, my passion, my desire to help small businesses just increases. I have reached out to the likes of the Australian Taxation Office and MYOB to offer my day-to-day experiences with each of you to help them simplify the systems you have to deal with every single day. It’s a long, slow battle, but for those of you who know me you know I just keep pushing until eventually someone listens and things start to change. This book is the culmination of all of those efforts, but it’s also my ultimate effort to help as many small businesses as I can. This is my effort to reach out and help those of you who can’t afford to have me come into your business and give you one-on-one help and those of you who maybe don’t even realise you could be doing things better, easier and quicker.

I sincerely hope that by reading this book you will get some ideas that you can implement in your business. Please keep your mind open, and I dare you to try something new. You don’t have to change everything at once: test strategies with one client, then another client, and see what works and what doesn’t. Tweak the suggestions to see how they can work for your business.

In the wise words of Henry Ford:

‘If you always do what you’ve always done,
you’ll always get what you’ve always got.’

WHO IS THIS BOOK FOR?

If you’re about to start a new business, well done for recognising the importance of these issues early. In years to come you will be grateful you did, and you will also avoid many of the headaches small business people usually have as they start to grow because you’ll have your foundations right.

If you’ve been in business for a number of years and you are struggling with some of this stuff, please know you’re not alone, and the good news is it’s never too late to get your house in order. I promise you the information in these pages will help you do just that.

So what exactly am I going to cover in this book?

Firstly, I am going to go through getting the foundations of your business right, foundations being both your business structure and business systems, because they need to be solid in order to grow and thrive.

But I can assure you I cover a whole lot more in this book.

I also go through actually doing business: doing it better, quicker, smarter, what’s important, what’s not, and who to go to for help when you need it. I spend a lot of time going through one of the biggest pain points of all – cash flow – and give you some insight into how to understand and manage it better, as well as explaining how to have the best possible relationship with the Australian Taxation Office, because – even if you haven’t realised it yet – when you started your business you entered into a lifelong relationship with the ATO.

I show you how to work out your break-even point, and tell you what reports you should be running and when, and more importantly I explain what they mean.

Throughout the book I make no assumptions. I explain everything from what Pty means through to GST and P&L. You may have been in business for 20 years but I know that doesn’t mean you understand what everything is, so I’ll go over the basics to make sure you have a solid understanding.

If you’re new to business you may read this book from front to back, and that’s great. But for those of you already in business I expect you will go to the parts that you need help with now, and use this book as a practical reference to improve and refine how you are doing business.

So, I think that’s enough introduction. Now it’s time to get into it. Let’s go and help you to take care of your small business.

PART I

LAYING THE FOUNDATIONS

I KNOW FOR most of you just the thought of reading about business foundations is enough to make you want to vacuum the house, mow the lawn or – worse still – do the ironing. It is the least exciting part of business, but it’s also the part that can, and will, have the biggest impact on you financially. This is the part that will determine how much tax you will have to pay, not just every quarter or every year, but also if you sell your business down the track.

All too often I see businesses paying more tax than they should just because they have the wrong legal business structure, or getting a nasty surprise at BAS time because they don’t have the right system in place that helps them see and understand what is coming up. Getting these essential foundations right can save you tens or hundreds of thousands of dollars – or potentially millions of dollars – during the lifetime of your business.

So let’s get stuck into it, and remember if you need to change something in your foundations, it’s not too late – but please, please get some professional advice about your specific individual needs, as this advice is of a general nature and there may be other circumstances in your life and business that need to be taken into consideration. Do not go making changes on your own.

PART II

GETTING DOWN TO BUSINESS

SO WE’VE GOT the sexy stuff under control: logo, website, business cards. We’ve done the boring stuff: the business structure, legal registrations, and set up our accounting system. Now we’re doing the fun stuff: ideas galore, products/services, potential customers, advertising, networking – and it’s all happening. But…now what?

When you started your business you probably thought it was all about what you do – all about selling your products or services. Say you’re a plumber. I bet you thought all you had to do was get yourself a van, some tools, a few customers and start fixing stuff. Well, I’m sorry to break it to you but that’s only part of running a business. The rest is all about administration, and when I say administration I’m talking about paperwork, invoicing customers, chasing customers for money, paying bills, managing staff – and that’s just some of it.

It’s about here that I realise just how lucky I am. I really empathise with you because I went into business because I really love doing this stuff, but I can bet anything you didn’t go into business because you love doing this stuff.

Well, the good news is if you’ve nailed Part I you’ve got the foundations right, so the rest is going to be a lot easier now than if you had just ‘winged it’. The bad news is there’s more of this administration stuff to this whole small business caper than you probably realised when you had that initial brilliant idea to start your own business.

Now I’m going to go through how you actually can use the systems you implemented in Part I so you can make life easier for yourself and take control of this business before it takes control of you. If you’re already in business and want to take back control, this will be just as important for you to implement – it’s never too late to get control.

Let’s start with the basics, and where better to start than with my favourite part: invoicing customers.

PART III

BAS’s, TAX AND THE DREADED 30 JUNE

WHEN I ASK small business people what keeps them up at night one of the most common answers is compliance. Interestingly, it’s not actually the compliance that they say is stressful, it’s that they’re worried about what they haven’t done or what they may have missed. So my aim with Part III is to give you an overview of all the bits and pieces you need to know about. Because I’m an accountant compliance is second nature to me, but as I was writing this part even I was amazed at just how much there really is to know. I was quite genuinely surprised at not just the volume but also how difficult it is to simplify our very complex system – it made me realise how overwhelming this is for small business owners.

What I also realised was that as much as I wanted to teach you how to do all this compliance stuff, the best advice I can give you is that you must know about it and have an idea of what’s involved but then you really should decide whether you leave it up to someone like me, who lives and breathes this stuff. Believe it or not there are people – and I’m one of them – who actually enjoy compliance and love nothing more than helping others through this crazy maze.

So while you’re reading this section, know that I’m not expecting you to do all this yourself. There will be parts you can do, parts you should do, and parts I would implore you not to do. But best of all I’m going to tell you who you should go to for help and what to look for when you’re getting that help.

I often have clients ask me if they should do a four-day bookkeeping course so they can do it themselves. Let me just say this…if I did a four-day course in graphic design would that make me a good graphic designer? If I did a four-day course in law would that make me a good lawyer? If I did a four-day course in hairdressing would that make me a good hairdresser? If I did a four-day course in building would that make me a good builder? You get my drift…Bookkeeping is not something you can master in four days, or even four weeks. It takes years to learn to do it well; it is an art as well as a science.

One of the most difficult things about tax and compliance is that it is always changing. Just because it was like that last year does not mean it is like that this year, or that it will be like that next year. So keeping up to date is challenging – even for people like me who do it for a living – but the important thing isn’t to know exactly what the rule is but to know that there is a rule. To know that you need to get advice or that you need to learn about something new. Knowing that you don’t know something is crucial, as is surrounding yourself with the best possible advisors to ensure that all bases are covered.

So enough of just talking about compliance – now I’m going to dive into the specific areas of compliance and give you a solid overview of what you need to know.

PART IV

TAKING CONTROL OF YOUR BUSINESS

REMEMBER HOW IN Part I I talked about getting your accounting system set up by a professional because it’s not about getting your tax return right it’s about managing your business?

Your system is only as good as the information in it. As they say: garbage in, garbage out. So if you’ve been skimping on bookkeeping, doing it yourself or getting a ‘friend’ to do it for you in their spare time and you’re not confident in the reports you’re getting out of your accounting system, you’ve done yourself a huge disservice, because trust me when I say the reports you get out of your system are imperative to you being able to manage your business effectively and successfully.

If you only get your bookkeeping done quarterly, you are also doing yourself a disservice. So much can happen in three months – it’s even a different season of the year. One of the major advantages small business has over big business is that we are nimble. We can change strategy or direction quickly and easily. We are speedboats while they are ships. In order to use this to our benefit we must be able to make fast, informed decisions, and for that we need regular, accurate reporting.

In this part I’m going to go through how to use your accounting system to help you understand your business day in, day out, so you can make fast and informed decisions in good times and bad. I’m also going to go through cash flow again because without cash your business is dead. To help you with cash flow and forecasting I will also go through making a budget and working out your break-even point.

Let’s go…

THE FOUNDATIONS

I LIKE TO use the analogy that starting a business is like building a house. When you start building a house you don’t just start laying bricks down on the bare ground because you know it wouldn’t be a matter of if the house fell over, it would be a matter of when. But let’s assume you do just start laying bricks and the house stays up, but a few years down the track you have a couple of kids and decide you want to extend the house and add another level. You’d be crazy, right? Crazy because the foundations, or lack thereof, of the house are not going to support another level. If you don’t have a solid foundation, it just isn’t going to be stable enough to support the expansion.

It is exactly the same with a business: if you don’t set it up correctly from the beginning, when it comes time to expand it will be exponentially trickier, more stressful and definitely more expensive than it would have otherwise been. And even if you have no plans for expansion, as you will see you may end up paying too much tax, struggle with cash flow, or just simply overcomplicate your life unnecessarily…and no-one needs a more complicated life.

IT’S A BIT LIKE BUILDING A HOUSE

So, let’s start by thinking about building a house. What would be your first steps when building a house?

In big-picture terms it would go something like this:

Research, viability and costing

1.I’ve got a block of land and I want to build a house on it

2.I’ll engage an architect and talk about what I have in mind: size, style, materials and so on, considering the limiting factors such as budget and block size and shape

3.The architect designs a blueprint of the house, costs it out, and we discuss and tweak as required

Preparation

1.Apply to council for approval

2.Engage a builder who prepares the site and lays the foundation

3.Put up framework and build the house to lock-up stage, using licensed electricians to do the electrical work, licensed plumbers to do the plumbing, and so on

4.Once at lock-up stage, fittings, appliances and so on are installed

The new house

1.Hand-over

2.Minor defects fixed

3.Move in

4.Landscape

5.Purchase of furniture

Down the track

1.Maintain property

2.Renovate and/or extend

When building a house, do you just wing it? Do you just Google it and do it yourself? Do you draw up the plans yourself? Do you let the architect lay the foundation? Do you decide to save a few dollars and ask your mates to come around and help put up the framework or lay bricks?

I bet you’re shaking your head, laughing and thinking, ‘No, of course not’, because you’re not a builder. And you know even if you were the world’s best handyman, if you don’t do it properly the doors might not close, the shower could leak, or – even worse – the house could fall down from suspect carpentry or burn down from dodgy electrical work. You know that if you muck it up the cost of fixing the mess you’ve made is going to far outweigh the cost of getting it done right from the beginning.

Even if you were a licensed and highly experienced builder, would you draw up the plans yourself? No, of course you wouldn’t. You’re a builder, not an architect, so you would get an architect to do it because you know that if the basics – for example, the roof line – aren’t right then the rest of the plan isn’t going to work either.

So, we agree that any reasonable person wouldn’t just ‘wing it’ when building a house – yet most reasonable and highly intelligent people just ‘wing it’ when they start a business…

NOW WHAT ABOUT STARTING A BUSINESS…

So, what are the comparable steps when you decide to start a business?

Research, viability and costing

1.I’ve got an idea for a product or service and want to start a business

2.I’ll engage an accountant and/or business advisor and talk about what I have in mind and what my wants and needs are considering factors such as budget, market, economy and business structure

3.The advisor advises about a suitable structure for the business, costs it out and we discuss and adjust if required

Preparation

1.Set up the business and obtain relevant registrations and licences, domain name, bank accounts, and so on

2.Advisor recommends and sets up an accounting system and assists with processes to support the business’s requirements and budget before marketing commences, so it’s all ready to go when needed

3.Additional systems researched and implemented, such as CRM, email and social media

4.Logo, website and business cards designed

The business

1.Advertising and marketing

2.First sale done – crack open another bottle or three of French Champagne and celebrate

Down the track

1.Tweaking of products/services and pricing according to market feedback

2.Implement additional systems, such as CRM or other processes, as the volume and complexity of the business changes and we need to manage things better

3.Day-to-day running of the business

4.Expand business – hire staff

You can see from the above the complexity involved in starting a business, the different skills and knowledge required across a wide range of areas, and the huge potential for problems if you don’t do this correctly. Think about it like this:

•If you have the incorrect business structure to begin with you could be paying more tax than you should be. And changing the structure later will be time consuming, complex and costly, as well as potentially having capital gains tax implications.

•If you have the wrong accounting system in place you won’t be able to monitor and understand exactly how your business is tracking, so you will be relying on ‘gut feel’ rather than using real data to make important business decisions.

•If you have a DIY logo, website or business cards, your business could look unprofessional as these are the first impressions of your business that prospective customers see.