Don’t know where to begin, or what things you should have in place before you begin?
Then read on...
As a CPA Accountant with over 10 years in Public Practice I have come across a lot of different questions and issues, SO..... I have gathered the most frequently asked questions by clients as well as some extra tips that generally are forgotten about or not known by the general public.
1. What is the best structure for me?
This is something you need to talk to your Accountant about in proper detail, and most definitely don’t talk to your unqualified friend down the road that says you should be this or that. There are many things to consider before , for example, family situation , category of business, how much protection you require, your budget, your expected income etc etc.
2. Do I need a business plan?
There is a famous saying “Fail to Plan, Plan to Fail” I have mixed feelings about this area, I have seen some people who develop a business plan and it’s a flop, and someone not have a business plan and succeed tremendously. My biggest belief that you need to have the fire in you to succeed. Believe you will succeed. Put your blood sweat and tears in and you will succeed. If part of you is a person that needs to see the Plan in writing then sure write it down but make sure you put it to Action too.
3. What Insurance Coverage I need?
There are many different types of insurances that you need to consider when starting a business. Basically you will need public liability, this will protect you from if any one were to get injured on your premises, or by your business directly. Professional Indemnity insurance is also needed if you provide professional services. Work cover if you have employees. Motor Vehicle if you have a business related vehicle (well everyone needs this even if you are in business or not). And insurance that will cover other items like loss of tools or equipment.
4. Do I need to be registered for GST?
This will depend on your level of income. The turnover limit is $75,000 before you need to register for GST and add this on your invoices. If you are unsure if you hit it usually you can begin trading and then the moment you become aware your turnover reaches that limit you can then register. When registered you must complete a Business Activity statement (BAS) that is usually done quarterly and in some cases annually.
5. How much tax should I put aside for the end of year?
This will depend on a few things, firstly your structure; If you are GST registered then you need to put 10% away for GST and 20% for Income tax. If you are in higher income brackets then I would suggest increasing the amount of Income tax to 30%. This is also something that you can discuss in more detail with your accountant. Or you can get yourself familiar with the different tax rates that are provided on the ATO website.
6. What requirements are there regarding my staff?
Payslips must be provided to employees 1 day after their pay cycle. Payment Summaries need to be issued. Super is also to be paid to employees that are over 18 and earn more than 450 per month. Work cover also needs to be paid. As well as Annual Leave and Sick Pay considerations when employing someone on a permanent basis.
7. What's the difference between an employee or subcontractor?
If your subcontractors works for 80% or more of their time for you, then they could be classed as an employee. Therefore work cover and superannuation will apply. However there are other conditions that can still excluded them as an employee.
8. What are the general rules for cash flow?
Rule of thumb I always like to live by is have a float, pick a figure that will easily cover expenses for a month (3 months if you are an over conservative person) and that should be your float figure. This doesn’t mean if your float is $20K and you have $25K that you need to spend that $5K but you can put it in a savings account, or offset it on your mortgage and get it to work. This gives you a good focus that if your float fall under your said amount you will hustle that little bit harder to get it back on track.
9. Do I need to pay myself a wage?
Legally you do not have to pay yourself a wage but as said above this could be a good habit to get into, make it a non-negotiable expense, and you will find the money to pay it. The other plus side of paying yourself a wage is if you need to apply for loans etc down the track a steady consistent income will look very appealing to the Bank.
10. What about record keeping such as tax invoices?
Depending on the size of your business and how involved you wish to be with your record keeping will also depend on how you keep such records. Some people use programs such as MYOB, Quickbooks or Xero to keep their records. Others hand their Bookkeeper or Accountant a box of receipts or their bank statements so they can deal with it which can work really well for those who are time poor. Obviously the more work you put in the less your bills are going to be from your Accountant.
11. Should I operate from home or rent a space?
This is a Personal choice and will depend on your business, if you service clients and have regular meetings then this is something that can be a little hard to do from home and can look a little unprofessional depending on the type of business you are operating. However, if you for example are a trade based business and you go on site to your clients then having the business home based would be the best choice as not much space is needed and you carry your tools with you. Web based business’ are another good one to run from home as no one needs to have that contact with you.