Hiring a bookkeeper

Posted on August 7, 2023 by Angus Jones

As a business owner, one of the most important relationships you will have throughout your business journey is the one with your bookkeeper. With this in mind, the prospect of hiring a bookkeeper can be daunting. Here’s how to prepare for your initial meeting.

Debrah Stanton is the General Manager of First Class Financial Group. With over 20 years of experience in the industry, Debrah provides her insights into choosing the right bookkeeper for your business.

It’s OK to get the cost question out of the way

The number one question when hiring a bookkeeper is ask how much their services will cost. “It is absolutely okay to ask this question early on in the meeting,” Debrah says. “The response will give you a solid indication of how transparent and knowledgeable the prospective bookkeeper is about your industry.”

“While bookkeepers generally work across a range of industries and sectors, there will be factors unique to your business model that will require some discussion with you,” Debrah says. To make this process easier, consider the following before your meeting.

What type of accounting system would you prefer to use? “Cloud-based accounting software is the gold standard these days as it is secure, gives you the ability to streamline your business processes and allows for the quick transfer of data between business and bookkeeper,” Debrah says. “That being said, there may be some instances where a hybrid cloud model may be a better option for businesses who need to maintain some in-house data storage.”
How complicated is your industry and business? Debrah says each industry and business is different. “Things such as the number of daily transactions that occur within the business or how many suppliers the business has will affect the amount of work required.”
What level of service will you require? “While many clients just require basic data input and analysis, others are looking for assistance with payroll, BAS returns and even banking,” Debrah says.

The key point of advice here for new business owners is to be upfront and honest about their business needs at this initial meeting. “That way, the bookkeeper has the information required to determine what the service may cost,” Debrah says. “Keep in mind, however, that if you engage a bookkeeper on a fixed-fee basis and they later discover that there is more work than you indicated, they will be likely to review the pricing structure.”

Ask what the bookkeeper will bring to the table to help you with your business

Debrah says business owners should be asking about the bookkeeper’s qualifications and experience, both as a bookkeeper and in previous roles, if bookkeeping is not their first career. “You also want to determine if they have a focus on professional development, what kind of training they have done recently and if they are fully across bookkeeping practices, ATO legislation and legal requirements.”

There may be certain times when you will require your bookkeeper to provide additional advice, and Debrah says you should ask a prospective bookkeeper how invested they are prepared to be in your business. “For business owners just starting out and just generally in difficult economic times, business owners may require more from a bookkeeper, and you need to determine if the bookkeeper is willing to step up at such times.”

Debrah says you should never underestimate the importance of finding a cultural fit with a bookkeeper, both with personal values and industry experience. “You need to feel confident you can build a strong working relationship with them.”

Discuss availability and role definition when hiring a bookkeeper

The role of a bookkeeper should be to add value to their client’s businesses. Debrah says the most efficient use of a bookkeeper’s time is for them to work remotely on a regular but defined basis. “Consider that if your business requirements mean you need to have someone doing the books for you five days a week, then you need to hire a full-time bookkeeper and not a consultant bookkeeper.”

“Again, this comes down to having an open and comprehensive discussion with a prospective bookkeeper about your business needs, defining their role and your expectations,” Debrah says.

Small Business Loan and Equity Funding

Posted on June 28, 2023 by Angus Jones

To start a small business or expand a business to get through a rough patch, chances are you will need to get access to additional cash. The obvious choice is a small business loan, but other options may exist. Money can be sourced from debt (you must pay it back) or equity (someone takes a share in your business). This guide will examine what loans (debt) and equity funding options are available to provide additional cash or financing to start or expand your business.

Debt is when you take a loan or a mortgage with the intent of it being paid back over time. Normally some collateral is used to secure that debt, such as an asset that will be required to be sold if you default on that debt.
Equity funding is when a share of your business is essentially sold to another permanently and is not required to be repaid. Future profits or losses will be shared with any equity partners.

WHY do you need a small business loan?

You may need a loan to start or expand your business and capitalise on a growth opportunity. Although harder to get, funds may be acquired when times are tough, or you owe money.

WHAT are the available Debt options:

Self-funding: If you have personal finance,e you can put more money into the business yourself. You are entitled to get that money back without personal tax implications unless you pay yourself interest. Other forms of finance, like investors and lenders, will expect you to have some self-funding before they offer you money.

A loan: We all understand the basic principle. Normally a bank lends us some money, and in return, we pay it back in instalments plus some interest. A bank wants the confidence it will get its money back, so it will look at your business closely to understand your turnover and assets. A bank may require personal collateral, like your home, to secure the loan. Banks are, however, not the only source of lending. Family and friends are a source but tread carefully. If things go sour, you could ruin friendships and possibly others’ livelihoods. Other organisations like finance companies will also offer loans but be aware, the easier it is to get the loan, the higher the interest charges will be to compensate for the greater risk they are taking.

Line of credit: This is similar to a loan but gives you access to a predetermined amount of credit. You can draw down on that credit and pit ay back whenever you need it. You will pay interest only on the outstanding balance.

Overdraft: This line of credit attached to your bank account allows your balance to go below zero.

Invoice finance allows for a business to borrow money against the amounts due from outstanding customer invoices. The funding company will provide a percentage of the invoice value to you upfront and when the customer pays you will receive the remainder less the funding company fees.

Leasing: Instead of buying equipment you essentially rent/borrow in return for monthly payments. A lease normally has a fixed set term of 3-5 years. The financier purchases it on your behalf and you then lease it back from them for an agreed (and fixed) monthly payment. When the lease is up, you can either re-finance the residual amount and continue a new lease on that vehicle for another set period or pay a final instalment for the ‘residual value’ of the lease and take ownership of the car. You can trade it in and upgrade to a new vehicle. A lease makes it simple to upgrade equipment like a car at the end of the lease. More details can be found in our leasing guide.

Asset financing refers to the use of a company’s balance sheet assets, including short-term investments, inventory, and accounts receivable, to borrow money or get a loan. The business borrowing the funds is providing some of its assets to secure the loan. Default on the loan and your assets will be taken away.

Store Credit: Many retailers, for example, Harvey Norman, will offer their own financing package potentially with an interest-free period. Generally the interest rates are high and failure to pay on time comes with large penalties.

Trade Credit: As an example, you buy your supplies from a company and they give you a 14-day invoice due for payment in 14 days. Thus giving you 14 days to pay for what you have already received.

Factor Companies: A factoring company will buy your outstanding invoices from you for a reduced cost and then chase up the debt themselves. It is a fast way to get cash but at a high cost compared to other methods.

HOW do I get a small business loan?

How do I get a small business loan?

Sources of debt will include banks, building societies, and credit unions.

Finance companies also provide debt but must be registered, check the Australian Securities & Investments Commission (ASIC) register https://connectonline.asic.gov.au/RegistrySearch/faces/landing/ProfessionalRegisters.jspx?_adf.ctrl-state=1cuetuxolm_4

As part of the process of getting a loan your credit history, assets and income will be reviewed.

To understand and compare loan costs and options from different institutions visit https://www.finder.com.au/business-loans

WHY do I need equity?

Equity is a great source of cash if you cannot either get a loan or a large enough loan. It is also a method of spreading risk but assumes the equity provider believes they will get their money back plus some.

WHAT are the sources of Equity funding?

As a source of additional cash in return for a slice of the business, equity funding can be done in the following ways:

Self Funding: as before, you inject additional personal money taking a larger share (assumes you are not a sole trader)

Family or friends will take a share or partnership in your business in return for their money. Remember to consider the implications.

Private investors: Same as above but not a family or friend. A new partner can often bring new valuable skills into a business.

Private equity/Venture capitalists: These are firms who search for high-growth potential businesses to invest in. They usually come with loads of experience and inject their management into the business. They often insist on a controlling percentage of the business.

Stockmarket: A small business is unlikely to list on the stock exchange, but this complex procedure allows individuals to publicly buy and sell shares in the business. Shares are issued in return for a one-time-only cash payment.

Crowdfunding: This is a very modern way of raising money for a business. Essentially you ask many people to either invest or donate monetoin your business idea via the Internet. In return you give nothing if they donated, or if they invested, a product or a cheaper product when you are up and running, equity or money back with interest. See ASIC for more details https://asic.gov.au/regulatory-resources/financial-services/crowd-sourced-funding/

Government: The government does not provide finance and is not likely to buy equity in your business however they do provide grants which may assist you greatly. The types of grants and assistance normally come in the following areas innovation, research & development, exporting, and business expansion. Some information on grants can be found at https://www.business.gov.au/Grants-and-Programs

HINT

More information on funding options can be found at the Australian Small Business and Family Enterprise Ombudsman https://www.asbfeo.gov.au/resources/business-funding-guide

SUMMARY – Get small business loan or equity advice

We strongly recommend that you speak with your accountant or business advisor before committing to loans and equity funding options. Always shop around for the best deal and always think carefully before doing business with family or friends.

We can Manufacture in Australia – ooGee

Posted on July 22, 2022 by Angus Jones

Small Business Answers recently sat down to talk to headgear veteran Peter Walcott who is breathing new life into manufacturing in Australia. In this interview, we delve into Peters 40 year journey to decide to manufacture in Australia rather than importing for his new range of ooGee brand of hats.

ooGee comes from an aboriginal word for headdress.

Peter Walcott’s background?

Forty-three years ago, Peter was working in a Bottle shop when a friend of his dads was looking for someone to help in his hat business packing hats. Peter soon found he had a knack for sales, which led to a flair for ideas and design. He went on to run, then own that business that imported hats and haberdashery.

Covid arrived, and like so many, Peter started reassessing what would be next. He decided he wanted to give local manufacturing a go.

What was the problem/opportunity that drove a change?

Peter thought a new Australian-made hat would be “Fun to do and good to see”. This translates to his desire to reinvigorate local manufacturing and ensure the future of traditional hat-making in Australia.

Peter saw an opportunity to create a stylish hat that suited Australian conditions. One that would always be stylish can survive going for a swim, is cool to wear and can be packed in a bag.

The next stage was to develop something new that was not straw or felt that are easily damaged and hot to wear. His experimental journey took him to the concept of making a hat out of braid. Many prototypes and manufacturing experiments later, the ooGee hat was born with innovations. Such as Flexibraid, meaning the hat bounces back into shape and facilitates airflow, and Comfy-Fit ensures the perfect fit the hat does not blow off your head from a gust of wind.

Why manufacture locally? Can you compete?

Peter was seeing a backlash against products made in China. In addition, if he manufactured in China, he would have to commit to large order quantities. The hat being a fashion item meant that a style may be attractive to the designers but not the general public. Local manufacturing means Peter and his team can trial a new design with a short production run. Depending on how sales go, decide whether they will make any more.

Peter estimates he is paying a 20% premium in costs. Beyond flexibility to test the market, his product is Australian-made. It uses higher quality materials, including Australian cotton, recycled materials, and real leather on some models. This more than justifies the small price difference.

What challenges has OoGee faced?

Once Peter was ready to manufacture, his biggest challenge was finding locally skilled labour expertise. Covid played into his hands with a uniform company having to let staff go. Peter found a key person that led to others, ensuring he had the right team to produce his product.

His next challenge was distribution and finding retailers to sell his product. He was surprised that having a quality Australian-made product was selling itself. His Ogee brand can already be found in retailers and resorts all over the country.

Advice for Small Businesses wanting to manufacture in Australia

Peter’s advice is to be different from others, which will drive better margins. Peter says, “Do your sums! No margin means no profits, which means no business!”

Peter’s other advice is, “If you have the ideas, don’t partner in the ownership of the business. It leads to conflict, especially with friends.” However, Peter partners with other businesses to help drive his various brands, which have been very successful.

Scan invoices and receipts for accounting software

Posted on September 22, 2021 by Angus Jones

By any chance, do you have a shoebox of receipts and a pile of invoices that you need to process?
Making sense of all of this can be a real chore and frustrating. A solution is to scan invoices and receipts. In this guide, we will touch on the importance of keeping good records but focus our attention on making this whole process simpler.

Importing of paper receipts or invoices refers to creating an electronic copy of a paper document that can then be stored or imported into an accounting package. Examples of accounting packages include MYOB and Xero

WHY should I digitise my receipts and invoices?

Keeping good records is important for any small business. Whether that is to help manage your costs, for legal, regulatory or tax reasons, or simply to help manage and improve your business. Collecting, storing, and effectively analysing your data is vital.

The Australian Tax office requires you to keep copies of invoices and receipts for five years.
This subject is covered in detail in our guide to Record Keeping for small businesses.

To scan invoices and receipts or to digitise them has the following benefits:

Records can be kept electronically, enabling them to be searched quickly
Physical copies do not have to be held. Thus, saving physical storage space
Electronic copies of invoices and receipts can be directly imported to accounting software packages saving you having to retype the information
Electronic importing of these scanned documents to accounting packages can reduce data input errors.
Records can be kept easily for legal and government purposes.

WHAT do I need to know about accounting?

An accounting system for your small business can be done manually, via spreadsheets, or through an accounting software package. Visit our guide on Accounting Software to run your business to understand more. The accounting software packages you should consider in no particular order include Xero, MYOB, Quicken, Reckon, QuickBooks and Sage.

You may do this yourself, hire a finance employee, use an external bookkeeper or retain an accountant. Irrespective of how you achieve your record-keeping, digitising those records will save you money and time.

Invoices and receipts are both a cost of running your business and must be measured accurately. These costs have a GST component which must also be tracked.

HOW do I scan invoices and receipts?

Ways to digitise receipts and invoices:

Have invoices and receipts emailed to you in the first place. For most business to business invoice transitions, this is commonplace. Even bunnings and coffee shops are now offering to email you a receipt
Most of the accounting software package companies referenced above provide an App that allows a paper invoice or receipt to be photographed, creating an electronic version. This process has the added benefit of the information automatically populating in the accounts package.
Most modern printers and photocopiers have a built-in scanner. This can be a time-consuming process but utilises resources you already have.
Purchase a dedicated receipt scanner. These purpose-built scanners can scan multiple pages at a time and come with included software to process information from the documents ready for importing into an accounting package. This is a great solution if you have many paper documents that need to be processed.

Suppose you intend to use your digital or scanned image in an accounting package (excluding a provided App). In that case, you need to go through importing that document so it can be used. Your accounting package help function will explain this process.

You should ensure that your records are filed properly within your computer network and that backup copies are kept. This will ensure they can be found and recovered in the event of a disaster.

HINTS

The most common digital format is a PDF file. JPEG files can also be used.

Epson Australia offers the RapidReceipt RR-600W for $699. This wired or wireless scanner can scan up to A4 double-sided documents as fast as 35 pages a minute. The unit features a 100-page document feeder and a 4.3-inch colour display. The display allows you to scan to a PC, USB thumb drive or cloud storage services such as Dropbox or Google Drive. The included Epson ScanSmart software can automatically extract data from receipts and export to XERO®, MYOB®, QuickBooks® Online or Excel. A side benefit of a product like this is it can be used to scan all sorts of documents like photo’s so you just might find yourself using it at home on the weekend.

SUMMARY – Scan invoices and receipts

Accurate financial reporting to your business is important. The ability to scan invoices and receipts lets you organise financial paperwork and accurately processing piles of messy receipts and invoices. Any method that can reduce errors, increase productivity and streamline the process is valuable.

Utilising the latest tools and equipment for which you probably already have can deliver these results. Teaching yourself, your staff will ultimately remove frustration, make things simpler and help with compliance.

Accounting Software to run your business

Posted on May 6, 2021 by Angus Jones

You started with a shoebox of receipts, now you have a storage box or maybe you are meticulous and have it all on a spreadsheet. Either way it is time to start thinking about accounting software. This guide will look at why you need it and lead you through what you should consider in making your decision.

Accounting software, package or system describes a type of application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, journal, general ledger, payroll, and trial balance. It functions as an accounting information system.
source Wikipedia

Accounting software has changed a fair bit over the last few years with new competition driving new features and simplicity. Probably the biggest change however is that it is all in the cloud. Put simply this means you rent access to the solution and do everything via the internet. You no longer have software that you must buy and host internally on extra computer hardware that you must keep safe. Instead you have a user-friendly solution that you can access from anywhere that integrates with your bank, POS system, etc.

WHY should you buy Accounting Software?

WHY should you buy Accounting Software?

Saves you time – track invoices, manage bills and expenses and pay staff in a few clicks
Tax time ready – calculate GST, PAYG and BAS reports
Built for Australian legislation reporting
Get paid faster – online invoices, pay now buttons and automatic payment reminders
Enter receipts on the move – use your smartphone to take a photo of the receipt from Bunnings. Great for travellers and tradies.
An external accountant or bookkeeper can have instant access at the same time you do
Reporting lets you quickly get a good idea of how your business is going now
Accounting software becomes increasingly beneficial as the business gets more complicated

HOW to make a decision on which Accounting Package

So now we understand that this software solution is so much more than getting a bill in the system, it is about automating the whole process. Let us look at the features you should consider when selecting which vendor:

Different accounting package vendors offer different features and even within the same company they offer different levels which means you only get what you need. For example, if you have no employees you do not need the payroll functionality. Consider what package you will need?
Pay Staff – Do you want payroll integration? Does the system calculate all payroll requirements including PAYG, annual leave, long service leave etc.? From July 2019 small employers with 19 or less staff must report payroll info to the ATO through Single Touch Payroll. https://www.ato.gov.au/Business/Single-Touch-Payroll/ (Be sure to read our essential guide on Payroll)
Ease of use – As an untrained small business owner how easy is it to learn to use the package and be assisted through the software to understand what the requirements are of controlling your finances?
Invoicing – Send customised, trackable invoices. Can clients pay right from the invoice? Can automatic payment reminders be sent?
Tax and GST – Can you easily and automatically track what you owe, and see all your position at a glance?
Does the software support Standard Business Reporting (SBR) allowing you to lodge your GST BAS requirements? (Be sure to read our essential guide on GST)
Application integration – Can the package be connected to other software solutions you are using?
Time tracking and billing – If you charge by the hour are there features that will simplify gathering this data? For example, a smartphone App.
Reports and budgets – What level of detail do you need and can you compare against a plan or budget?
Track jobs – Does the system track stock, work in progress, orders, jobs, and other task management requirements?
Bills and expenses – How easy is it to upload your bills and easily categorise expenses?
Point of Sale (POS) integration – Is there a seamless connection to track sales and inventory movements?
Inventory – If you hold inventory/stock will this package help you forecast and manage it? Can you barcode scan items in and out if you want to?
Bank Reconciliation – Will the system be able to handle multiple bank accounts?
Manage customers & suppliers – Can you easily see which customers owe you money, and which you need to follow up on?
Take payments – Does the software allow EFTPOS or credit card processing?
Cash flow management – Can you see your money in and money out at a glance, and understand quickly what your cash position is?
Online accounting – Is there a smartphone or tablet app that lest you enter data or receipts as well as run your business from anywhere?
Multi-currency – Does the system need to handle foreign currency?
Account sharing – Can you invite accountants, bookkeepers, and partners so they can help you manage your business?
Security – What security and backup procedures do they offer to help you protect your data?
Customer Relationship Management (CRM) – Does the system keep detailed records on customers including what they buy, how often they buy, and when they buy?
Service – What support and training are available, what hours and does that support understand Australian regulations?

HINTS

For more information on what accounting tools are available and the specific features, they offer visit

Free trials are available to help you compare and chances are your financial expert will have an opinion on which one to use.

The accounting software packages you should consider in no particular order include Xero, MYOB, Quicken, Reckon, QuickBooks and Sage.

SUMMARY – Right Accounting Software

Having the right accounting package will save you vast amounts of time and effort and will help keep your business compliant with government regulations.

Although these modern tools are brilliant in helping you control your business finances they will never replace having access to a financial expert. We strongly recommend you have access to an accountant or bookkeeper to help guide you.

If you do not have external financial support today you can visit this site to help you find the right person

Car Expenses

Posted on May 3, 2021 by Angus Jones

Work-related car expenses are among the simplest business expenses that can be claimed against your tax bill, thus saving you money. However, claiming does require some discipline. There are different methods like the ATO cents per km and logbook methods to choose from. This guide will help you decide which car expense deduction method is right for your small business.

A car expense is a cost associated with the running of a car and can include fuel, tyres, servicing, repairs, insurance, tolls, parking, registration, hiring, interest on vehicle loans, lease payments and depreciation. A work-related expense is one that is incurred whilst performing your job.

WHY should I bother?

To claim a motor vehicle expense, you must be able to provide the Australian Tax Office (ATO) a sound justification for the kilometres that you travelled for work purposes. Unfortunately, just because you have a work vehicle that may even advertise your services on the side, it does not mean you can claim 100% of its costs. The ATO is looking to understand how much you used this vehicle for business purposes versus private usage. So, unfortunately, the trip down to the beach in the ute is unlikely to be a tax deduction.

When you add up the costs of owning and running a vehicle, these costs can run up to hundreds of dollars a week. Over a year, that is thousands of dollars. If some of this can be claimed, it is much better in your pocket.

WHAT can I claim as car expenses?

Claimable work travel includes:

Travel between work locations
Travel to a customer
Travel to pick up work equipment or supplies
Travel to work-related conferences and training courses

Travel from your home to work is not a tax deduction. This includes travel where you may do minor work-related tasks such as collecting mail. Travel from home to work can be claimed where:

You are a home-based business, so any business travel can be claimed such as visiting the bank or accountant.
You need to transport bulky items to and from their usual place of work where there is no reasonably secure storage provided on-site. For example, a tradie van or ute contains the tools of the trade.
You need to travel to a different location for business purposes, such as a customer meeting before or after work.
You are on-call, and thus your work has commenced before you leave your home. This would include emergency services, medical staff and after hour repair technicians.

HOW do I claim car expenses?

There are three ATO methods to claim motor vehicle expenses:

1. Cents per km method
2. Logbook method
3. Actual cost method

You may only use one method per year per vehicle.

If you are a Sole Trader or Partnership, you can choose between cents per km or the logbook method. However, if you own a motorcycle or a vehicle designed to carry either greater than one tonne or nine or more passengers, you must use the actual cost method. Thus, if you are a tradie with a one-tonne, ute you must keep actual records all year long.

If you are a Company or Trust, you also must use the actual costs method.

Cents per kilometre method

Every year you can claim up to 5000 kilometres per car based on a cents per kilometre deduction. For the 20/21 tax year, this rate is $0.72 per km. You must provide electronic or written evidence such as a diary to substantiate your kilometres travelled. We suggest you record the date, starting and ending kilometres and reason for travel. If you made a business trip in the 20/21 tax year of 32km, you could claim 32 x $0.72=$23.04.

Logbook method

The logbook method is a means to calculate the percentage of business travel versus private travel. It requires you to keep an electronic or written logbook per car for a single 12-week period within the taxation year.

As a separate exercise, you must record all your car-related expenses for that income year such as fuel and servicing expenses. Although we don’t recommend it, costs can be estimated based on odometer readings.

If over the 12 weeks you travelled 10,000 k kilometres and 6,000 were for business, then your business usage would be 60% (6,000/10,000). If your car expenses, including depreciation, were $9,000 for the income year, you could claim $5,400 ($9,000 x 60%).

The ATO states your logbook must include:

when the logbook period starts and ends
the vehicles odometer readings at the beginning and end of the logbook period
the distance the car travelled during the logbook period
kilometres travelled for each journey. If you make multiple journeys on the same day, you can record them as a single journey
- reason for the trip (business reason or private use)
- date of the journey
- odometer readings at the beginning and end of the trip
the odometer readings at the start and end of each subsequent income year your logbook is valid for
the business-use percentage for the logbook period
the brand, model, engine capacity and rego of the car.

Actual cost method

The actual cost method requires you to keep track of every journey and every cost for that vehicle whilst it is owned by the business. As part of this process, you must keep the same sort of records as per the logbook method, but for 52 weeks or the time you have owned the vehicle. The costs for the year, including depreciation, can then multiply by your actual business use percentage to work out the deduction you can claim.

If you provide a vehicle to an employee or a spouse, tax implications are best discussed with a tax accountant.

HINTS

At the time of writing, the government provides a tax incentive to write a car off in the current financial year via temporary full expensing.

If your employee uses their own car for your business, your business can claim a deduction for any motor vehicle allowances or reimbursements you pay them for their costs, such as the cost of fuel.

There are various smartphone applications available to help you keep track of vehicle expenses, just search car logbook apps in your app store. Some of these will use GPS tracking to make your input easier. The ATO also provides a handy app to keep track of vehicle trips and other business expenses and income.

If using the logbook method best not to include your 4-week driving holiday as part of the 12 week calculation period.

Information on buying vs leasing can be found here.

A guide to buying a van can be found here.

SUMMARY – work-related car expenses

Business use of a vehicle is tax-deductible. There are three methods to claim a deduction; the choice depends on your business structure and the type of vehicle you use. Accurate record-keeping is important and will make your life so much easier come tax return time. If in doubt about anything discussed in this guide, we recommend you contact your accountant or seek clarification from the ATO

How to Invoice

Posted on March 31, 2021 by Angus Jones

As a small business owner, you need to keep track of how much money is coming in and how much money is going out. The collection and creation of invoices is a key way to achieve this. Thus you need to know how to invoice.

In this guide, we will look at why, in most cases, legally, you must provide invoices to your customers and how you go about creating one. We will also look at when and how you want to get paid.

An invoice is a time-imprinted business document that itemises and records a transaction between a seller and a buyer. If the goods or services were purchased on credit, the invoice usually specifies the terms of the deal and provides information on the available methods of payment.

WHY should I invoice my customers?

If your business turnover exceeds $75,000, you must register for and pay GST. See our guide on GST. When you make a sale of $82.50 or more, including GST, you must issue an invoice.

If your business has a turnover of less than $75,000, your customers may demand an invoice, and even if they don’t, it is simply good business practice. We have written a comprehensive guide on Record Keeping.

Legally you must keep a copy of your invoices for 5 years. This can be a paper copy or electronic. These copies will help you fill out your BAS.

If a customer requests an invoice, you must provide it in under 28 days.

WHAT terms should I offer my customers?

Before we look at the invoice itself, a very important decision needs to be made about whether you will offer your customers any credit. This is when you expect to get paid for the goods or services that you are providing. Options include:

Deposit – You require a percentage of the total upfront to start work
Cash on delivery – full payment is made at the time of delivery of the product
Payment on completion of work – full payment is made at the time of completing a service
Progress payments – a schedule of payments normally with milestones are set through the project
Credit terms – the customer is given a set number of days to pay
Discount for early payment – You offer an incentive or discount to pay an invoice early, like a 5% discount if they pay within 7 days

Ideally, you get paid early or at the time of delivery, however, many businesses will not accept that if you want to do business with them. Unfortunately, some companies have conditions whereby you have to accept terms of up to 120 days if you want their business. This is robbery, and the norm would be 30 days. The longer a business takes to pay you helps their balance sheet, the quicker you get paid helps your balance sheet.

You will also need to decide what payment methods you will accept. A bank transfer will be the most attractive as it will not attract fees, you don’t have to handle cash, and the money should move to your account within 24 hours. Cash will require you to visit the bank. If you decide to accept a credit card or Buy Now Pay Later (BNPL – for example PayPal), you will get the money straight away, but you will have to pay a merchant fee in the form of a percentage of the transaction. This payment form is convenient for the customer and will get the money to you fast.

Whatever form of payment or payment terms you decide to use, you will need to consider when building your cost model.

HOW to invoice

By far, the easiest way to produce an invoice is through an accounting package. If you create one manually, this can easily be done using a spreadsheet or word processing application. You will find many templates available in those applications, as well as downloadable templates from the internet.

In Australia, an invoice must include:

the heading “tax invoice”
Your business or trading name
your Australian business number (ABN)
date of the invoice
a description of the items sold, including the units (hours or goods) and price
the GST amount– this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, a statement which states ‘Total price includes GST’ (only applies if you are liable for GST)
If the invoice is over $1,000, including GST, you must also include the buyers’ identity or ABN

Example

Tax Invoice

Freds Shop 17 Fake St
ABN: 32 123 456 789 Your Town State Postcode

Date: 25 March 2021

To:         Valuable customer
              56 Down Rd
              Town State Postcode

Description                                                   Quantity             Total
Widgets                                                          1                           $40.00
Labour                                                            2hrs                     $80.00

Total Price including GST $132
GST $12.00

HINTS

Now you have created your invoice, you need to send it to your customer, with the most common form these days being via email. Ensure you have the right contact, and it is also worth copying it to a company’s accounts payable team. You can, of course, hand-deliver or post.

If your customers do not pay your invoices, read more about your options in our guide on bad debts.

The tax office provides guides on requirements for tax invoices here.

SUMMARY – How to Invoice

Accurate invoicing will help you keep your business in check and the ATO happy. An invoice can be easily created. You can use an accounting package to help with the greater task of managing to invoice and your accounts. If your turnover exceeds $75,000, you must provide invoices that specify GST. Invoices are not required for amounts less than $82.50, including GST.

Temporary full expensing

Posted on March 31, 2021 by Angus Jones

Following the COVID support instant asset write off available for small business in 2020, the Australian Government announced in October 2020 Temporary Full Expensing which allows a business to temporarily write off business assets in full.

The Australian Government has announced a temporary measure to allow businesses to claim an immediate deduction for the full cost of eligible capital assets.

WHY should I care?

This means you can write an eligible asset off in one year versus over the useful life as deemed by the Australian Tax Office. For example, a bar refrigerator in a restaurant normally would need to be written off over 10 years, under this measure the fridge’s cost can be written off against your business assets in one financial year.

WHAT do I need to know about temporary full expensing?

The eligible period is for the 2020-2021 and 2021-2022 taxation years and is for assets first held between 6 October 2020 and 30 June 2022. Thus, it is currently scheduled to end June 30th 2022. Your business must have an aggregated turnover of less than $5 billion, and you cannot make any other claim under other depreciation rules.

You may deduct the business portion of the cost of eligible new depreciating assets and the cost of improvements to existing assets. This measure also is available for 2^nd hand assets if your turnover is below $50 million.

Suppose your business makes a loss for the financial year after claiming a full expensing deduction. In that case, you can carry your loss forward to use in future taxation years.

If you wish to depreciate a vehicle, you have a limit for a car of $59,136 in the 2021 financial year. Commercial vehicles with either the ability to seat 9 people or more or have a load capacity of 1000kg or more have no limit.

HOW do I fully expense a capital item

You will be able to fully expense an asset within your 2021 tax return via forms that will be available from July 1st 2021.

From our earlier example, if the new bar fridge bought in March 2021 cost $3,000 and was used 100% for business, the $3,000 cost could be included in the 2021 tax return as an expense versus only $300 if temporary full expensing was not available.

Small businesses that elected to apply simplified depreciation rules have been given an amnesty allowing them to take advantage of temporary full expensing.

HINTS

More information is available from the tax office here.

Your accountant can assist with the process.

More information can be found about completing a tax return in our guide on a small business tax return.

SUMMARY – Temporary full expensing

This is a great initiative by the Australian Government, which not only benefits your expense deductions but may also have a flow-on effect of increasing your sales if you sell items likely to be depreciated by other businesses. This temporary measure allows your small business to expense a capital item in the current financial year rather than over several years. You can claim this simply through your end of a financial year tax return.

Leasing vs Buying Equipment

Posted on February 17, 2021 by Angus Jones

Setting up or expanding a business can be an expensive exercise. To provide yourself with the tools and equipment you will have to either buy items or lease items. Almost anything can be leased from office equipment to machinery and tools. This guide will help you consider the choice between buying and leasing as well as providing further knowledge around the process of leasing.

Leasing of plant and equipment is obtaining the use of machinery, vehicles, or other equipment on a rental basis. This avoids the need to invest capital in equipment. Ownership rests in the hands of the financial institution or leasing company, while the business has the actual use of it.

If you do not have the available cash, further details on ways of acquiring finance can be found in our guide on Financing.

WHY should I lease versus buy?

To understand which is best in your situation it is best to understand the various advantages and disadvantages of each.

Leasing advantages include: making lower monthly payments rather than buying upfront, getting a fixed financing rate instead of a floating interest rate, benefiting from tax deductions on leasing costs, conserving working capital and avoiding cash-devouring down payments, and gaining immediate access to the most up-to-date business tools. The equipment also shows up on your income statement as a lease expense rather than a purchase. If you purchase it, your balance sheet becomes less liquid. The leasing company may also be responsible for repairs saving you maintenance costs.

Leasing disadvantages: You may pay a higher price over the long term versus buying. Leasing commits you to retain a piece of equipment for a certain period, which can be problematic if your business is unstable. Some brands or models may not be available to lease.

Buying advantages: Allows you complete control over your purchase including selection, modifying, and selling the asset for cost recovery. You can control repairs and service intervals. In certain cases, you can claim depreciation as a tax deduction. No agreements or contracts to agree to.

Buying disadvantages: Requires you to have cash flow and might force you into buying a cheaper model. If technology is outdated you have no easy upgrade path other than selling. Unless a warranty or insurance policy exists, repairs and maintenance will be an additional expense.

WHAT do I need to understand about leasing?

If you are just starting a business you may find it difficult to lease equipment. Lease companies will look at your lack of credit history but may consider your personal rather than business credit history during the approval process.

There are four types of equipment leases:

Finance Lease: Ownership of the equipment is with the business. It is on-balance sheet. Lease payments are tax-deductible. At the end of the lease, the equipment is returned to the Lessee or purchased by the business for an agreed price.

Operating Lease (Rental): Ownership of the equipment remains with the Lessor (it is off-balance sheet). Financing payments are tax-deductible. At the end of the lease, the lessee returns the equipment to the lessor or purchased by the business for an agreed price.

Commercial Hire Purchase: Equipment is owned by the business and it is treated as on-balance sheet finance. Only the interest portion of the payments is tax-deductible. The business can claim depreciation deductions on the equipment. At the end of the term, the equipment remains with the company. Sometimes there is a residual value payment required.

Chattel Mortgage: Equipment is owned by the business and the interest component of the payment is tax-deductible. The business can claim depreciation deductions on the equipment. This is a traditional secured loan where the equipment acts as security for the Lender. At the end of the finance term, the borrower remains as the owner of the equipment.

Watch for balloon payments, here you make small monthly payments with a large payment at the end. While this allows you to conserve your cash flow, the final balloon payment may be more than the equipment is worth.

If your lease requires you to return the equipment at the end of the lease and it’s worth less than the value established in the contract, you may be responsible for paying the difference. Also, watch for additional charges such as wear and tear.

HOW to buy or lease equipment?

Buying equipment is fairly straight forward however when selecting the right product you should consider:

What you need both now and in the future?
Would it be more cost-effective to have someone else’s plant or machinery do the task for you?
Do you have the right environment or space to operate this product?
Is the quality or reliability of product critical and does the extra cost make sense?
Do you need to buy new or will 2^nd hand work?
How easily and/or quickly can the product be repaired or serviced?

If you decide to lease, the above list also applies. You can secure an equipment lease through:

Banks and bank-affiliated firms. Banks may offer advantages, like lower costs and better customer service. Check whether the bank will keep and service the lease transaction after it’s set up.
Equipment dealers and distributors can help you arrange to finance using owned leasing subsidiaries or an independent leasing company.
Independent leasing companies.
Commercial leasing broker. Much like mortgage brokers, these people charge a fee to act as an intermediary between lessors and lessees.

HINTS

Every lease decision is unique, so it’s important to study the lease agreement carefully. Compare the costs of leasing to the current interest rate, examining the terms to see if they’re favourable. What is the lease costing you? What are your savings? Compare those numbers to the cost of purchasing the same piece of equipment, and you’ll quickly see which is the more profitable route.

SUMMARY – Leasing versus buying equipment

There are advantage and disadvantages of both buying and leasing. Make sure you:

Understand the tax consequences.
Make sure the product and the financing meets your needs.
Understand what the implications are at the end of a product’s useful life or the end of lease terms.

Your accountant should be able to advise you in these matters if you require additional assistance.

Expense management

Posted on July 14, 2020 by Angus Jones

If you have employees, chances are they will spend money that they will claim back from the business. Is the $200 bottle of wine an acceptable expense? Is there an easy and quick way to process those expenses? This guide will look at how you can use expense management software to improve employee productivity and ensure your records are more accurate.

Expense management refers to the systems deployed by a business to process, pay, and audit employee-initiated expenses. This most likely will include policies and procedures that govern such spending, as well as the technologies and services utilised to process and analyse the data associated with it. Expense management software helps simplify this.

WHY consider Expense Management Software (EMS)?

Imagine you leave a restaurant, open an app on your smartphone, take a photo of the receipt, select the applicable expense item, and submit for approval and payment. You are done in less than a minute. Why? – Because EMS cuts down manual processes, it is easy and fast for both the employee and employer.
Predominately being cloud-based solutions make the software affordable.

What is the difference between manual vs automated expense control?

Advantages of automated expense control:

Productivity. Time and money lost due to misplaced receipts, forgotten expense approvals, and error-prone manual data entry, can put a significant drain on employee productivity and morale. Expense management software can curb these issues and increase efficiency.
Captures GST. The GST on each receipt can be accurately captured for allowable credits (talk to your accountant to understand what is allowable, for example, entertainment is not)
Automatic integration. Allows expense data to be loaded straight into your accounting package without any manual processing.
Analyse spending. The ability to track spending by expense category, unit or vendor provides insight into spending trends and identifies areas for cost savings. Organisations can improve their cash flow cycle and forecast for future expenditures.
Compliance. Internal policies, as well as external government and tax regulations, can cause non-compliance risks for a business. Expense management systems help reduce risks by evaluating expense reports against internal and external regulations.

How do I select an expense management system that is right for me?

Features you should evaluate include:

Accounting integration – Many systems integrate with popular accounting packages such as Xero and MYOB allowing for easy export of reports and eliminating the need for manual data entry. Be sure to read our essential guide on Accounting Software.
Expense compliance – Having some spending policies is a good idea, like a meal allowance whilst traveling. Will the software enforce spending policies and assist with fraud detection flagging expense overruns, duplicate expenses, missing documentation, and so forth?
Car mileage – Ability for an employee to track kilometres traveled for a work trip using their car.
Approval – Does it streamline the review and approval process by enabling you to approve based on expense type and other variables?
Analytics reporting – Will reports help forecast and budget for future expenses, identify spending trends, and highlight cost savings opportunities?
Automatic expense import – Do you want it to connect to email accounts and credit cards, allowing users to pick and choose charges to add to expense reports?
Smartphone receipt capture – Enables users to scan, email, or take a picture of receipts for easy submission.
Direct deposit – Do you want it to link directly to employee bank accounts for quick and easy expense payments.

Summary – photo receipts and accounting software integration

There can be some very fancy features offered from the expense software vendors but in the case of the small business, we recommend you go with the software that offers the basic features like uploading photos of receipts and accounting package integration to minimise costs. You may also find your accounting package either has this feature built-in or an add on module can be purchased.