Surviving in Business

What structure to choose GST - when to register and how to

record State and Federal requirements Record keeping Business planning

Business Structure

Sole Trader Partnership Pty Ltd Not for profit.

Sole trader

A sole trader is an individual who runs the business without partners or a company structure. The sole trader has full control of the business including ownership of all profits and responsibility for all debts and liabilities.

Partnership A partnership involves two or more co-owners

participating together in a business. A partner may be an individual or a company and each partner shares in the responsibility and profits of the business.

It is always a good idea to have a partnership agreement to govern the rights of the partnership. In the absence of a formal written partnership agreement, the law will assume that each partner has an equal share in the business.

It is advisable to have a solicitor prepare the partnership agreement.

Limited partnership

Limited Partnership The NSW Partnership Act makes provision for a

limited liability partnership structure whereby the liability of a partner contributing capital can be limited to the amount of financial contribution, provided that person does not take part in the management of the business.

The advantage of the limited liability partnership is that it allows an investor to invest in a partnership without being liable beyond the extent of their financial investment, provided certain conditions are met.

Key Items to include in a Partnership Agreement (not an exhaustive list)

The commencement date and duration of the partnership.

The treatment of partnership property and leases undertaken for the partnership.

Conditions under which partners can assign or change their interest in the partnership.

Apportionment method for profit, capital and losses of the partnership.

Person/s of authority to make payments on behalf of the partnership.

Method of valuation of assets upon dissolving or altering partnership.

Whether majority decisions of partners govern all matters.

Agreement to engage an independent accountant.

Propriety Limited Proprietary Limited Company A business may operate as a separate legal

entity in the form of a company. This is a more complex form of business structure governed by Corporation Law, which covers how a company operates and the duties of the directors.

The Corporations Law was updated as the Corporations Act 2001. The effect of the Act is to substantially ease the regulatory burden applying to small business. Under the amended legislation, proprietary limited companies may have only one director and only one member.

A business operating as a company must register a company name with the Australian Securities and Investment Commission (ASIC). The Commission also publishes information sheets on company requirements and director obligations. These can be accessed from their web-site at www.asic.gov.au or from ASIC Business Centres and ASIC Info line - phone 1300 300 630.

Other Business Structures

Other Business Structures Other types of business structures include cooperatives

and trusts. A trust is a popular structure adopted by family business

or for income-splitting purposes. In family trusts the trustee is typically a member of the family and the trust can also be used as a device to split income. Trusts are considered a complex business structure. A trust is not a legal entity, however, the trustee must be a legal entity, such as a person or company, in whose names all assets of the trust are held. Each trust operates under its trust deed, which is like a book of rules for trustee obligations. Tax implications of trust structures must be considered and professional advice should be sought before forming and transferring property into a trust.

About co-operatives  Co-operatives are people centred organisations that are

owned, controlled and used by their members. A co-operative’s main purpose is to benefit its members.

The International Co-operative Alliance (ICA), an independent, non-government association that unites and represents co-operatives worldwide defines a co- operative as:

“…an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise”.

Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. Their members believe in the ethical values of honesty, openness, social responsibility and caring for others.

Co-operatives are different from other forms of incorporation because of their member ownership, democratic structure and the use of funds for mutual, rather than individual, benefit.

When a co-operative is formed it has its own legal identity separate from its members.

A co-operative can: enter into and enforce contracts, including the

ability to hold, acquire and deal with property sue or be sued continue regardless of changes to membership. Although there are benefits to be gained from

incorporating as a co-operative, there are also obligations.

For example, directors have similar responsibilities to those of company directors, the co-operative must maintain proper financial and membership records and registers, and decisions which have a significant impact on the co-operative must be approved by the members.

What can a co-operative do?  Co-operatives can be involved in a variety of

social and commercial activities. A co-operative may carry out any activity defined within its rules.

Co-operatives generally fall into four categories, including:

Consumer – buying and then selling goods to members at a competitive rate.

Marketing – branding, marketing and distributing members’ products and services.

Service – providing services to members, such as health, electricity or housing.

Community – resource, information and skill sharing that encourages ownership and participation.

Register for an Australian Business Number (ABN) The ABN is a unique 11 digit identifying number that businesses

use when dealing with other businesses. For example, you generally need to put your ABN on your invoices, or other documents relating to sales that you make. If you don't, other businesses may withhold 46.5% from any payment to you.

You also need an ABN in certain dealings with the Tax Office and other areas of government.

Registering for an ABN is not compulsory, but you will need one to register for the GST. Your ABN allows you to:

facilitate a single Business Activity Statement confirm your business identity to others when ordering and

invoicing avoid PAYG tax on payments you receive claim GST credits claim energy grants credits obtain an Australian domain name. Register for Fringe Benefits Tax

FBT is a tax payable by employers for benefits paid to an employee or the employee's associate in place of salary or wages. Examples of benefits include a car, car parking, low interest loan and payments of private expenses.  

If you are an employer and provide fringe benefits to your employees, the Tax Office recommends that you register for FBT.

Register for Goods & Services Tax You must register for GST if: your business has a GST turnover of $75 000 or more ($150 000 or more for non

profit organisations) you provide taxi travel as part of your business, regardless of your GST turnover. To register for GST you will need to complete an application form. If you wish to

apply for an ABN at the same time, then use the same form. Be aware that you need an Australian Business Number (ABN) to register for

GST, as the ABN is part of the GST system. Your ABN will also be your GST registration number.

Register for Pay As You Go (PAYG) withholding PAYG withholding is a legal requirement to withhold amounts for income tax

purposes. If you have employees, you're required to withhold tax from payments you make

to them. You may have to withhold tax from payments to other workers, such as contract workers.

You may also need to withhold an amount from payments to other businesses if they don't quote their ABN to you on an invoice or other document if required.

You must send all withheld amounts to the Tax Office. As a new employer, you must register with the Tax Office before you withhold

from payments to your employees.

How GST works Generally, businesses and other organisations

registered for GST will: include GST in the price of sales to their

customers claim credits for the GST included in the price

of their business purchases. So while GST is paid at each step in the supply

chain, businesses (other than those making input taxed supplies) do not actually bear the economic cost of the tax. The cost of GST is borne by the final consumer, who can't claim GST credits.

Collecting and paying GST on the sale of goods What you need to do If you run a business or other enterprise and have a GST

turnover of $75,000 or more ($150,000 or more for non-profit organisations), or provide taxi travel, you need to:

register for GST work out whether your sales are taxable (that is, subject

to GST, and not GST-free or input-taxed) and include GST in the price of your taxable sales

issue tax invoices for your taxable sales claim GST credits for GST included in the price of your b

usiness purchases account for GST on either a cash or non-cash basis and

put aside the GST you have collected so it can be paid when due

lodge business activity statements to report your sales and purchases, and pay GST to us or receive a GST refund.

Register for an Australian Business Number (ABN) The ABN is a unique 11 digit identifying number that

businesses use when dealing with other businesses. For example, you generally need to put your ABN on your invoices, or other documents relating to sales that you make. If you don't, other businesses may withhold 46.5% from any payment to you.

You also need an ABN in certain dealings with the Tax Office and other areas of government.

Registering for an ABN is not compulsory, but you will need one to register for the GST. Your ABN allows you to:

facilitate a single Business Activity Statement confirm your business identity to others when ordering

and invoicing avoid PAYG tax on payments you receive claim GST credits claim energy grants credits obtain an Australian domain name.

Register for Fringe Benefits Tax FBT is a tax payable by employers for benefits paid to an

employee or the employee's associate in place of salary or wages. Examples of benefits include a car, car parking, low interest loan and payments of private expenses.  

If you are an employer and provide fringe benefits to your employees, the Tax Office recommends that you register for FBT.

Register for Goods & Services Tax You must register for GST if: your business has a GST turnover of $75 000 or more

($150 000 or more for non profit organisations) you provide taxi travel as part of your business,

regardless of your GST turnover.

To register for GST you will need to complete an application form. If you wish to apply for an ABN at the same time, then use the same form.

Be aware that you need an Australian Business Number (ABN) to register for GST, as the ABN is part of the GST system. Your ABN will also be your GST registration number.

Register for Pay As You Go (PAYG) withholding

Federal Government requirements

Australian business number (ABN) Fringe benefits tax (FBT) Goods and services tax (GST) Tax file number (TFN)

Register for Pay As You Go (PAYG) withholding PAYG withholding is a legal requirement to withhold

amounts for income tax purposes. If you have employees, you're required to withhold tax

from payments you make to them. You may have to withhold tax from payments to other workers, such as contract workers.

You may also need to withhold an amount from payments to other businesses if they don't quote their ABN to you on an invoice or other document if required.

You must send all withheld amounts to the Tax Office. As a new employer, you must register with the Tax Office

before you withhold from payments to your employees.

Register for a Tax File Number (TFN) A TFN is a unique number issued by the Tax Office to

individuals and organisations.

Partnerships, companies and trusts need their own TFN. A TFN can be obtained at the same time as an ABN, using the same application form. 

Sole traders use their individual TFN in dealings with the Tax Office.

Some of the main reasons for having a TFN are: to quote to employers (this applies to individuals only) to quote to investment bodies responsible for paying

interest, dividends and unit trust distributions to quote to government bodies, for example the Tax

Office, when applying for an Australian Business Number (ABN) or lodging income tax returns.

Register for Pay-roll tax Pay-roll tax is a state tax on the wages

paid by employers. It is calculated on the amount of wages you pay per month. You must pay pay-roll tax if your total Australian wages exceed the exemption threshold that applies in your state or territory - exemption thresholds vary between states.

As a business, you engage in various activities whereby money flows through your business.

Essentially, you have money coming into your business and money going out of your business. These money flows are called transactions.

Money flowing out of your business may be:

payments for expenses of carrying on the business

payments to buy or replace business assets

payments to you from the business (drawings)

money lent to others. Owners Drawings or Wages for

employees.

Money flowing into your business may be:

income from selling goods or services money from selling business assets money you have contributed to the

business money you have borrowed.

The following diagram shows how money flows through a business. $in $out

Sales

Asset Sales

Owner Contributions

Finance

Business

Business Expenses

Assets purchased

Owner drawings

Loans by theBusiness

In order to protect all parties, these transactions are supported

by documents recording their details. There are different types of transaction

documents, including tax invoices, wages records, cheque butts and

credit card statements. They contain information you need

to record, such as the: date of the transaction total payment or amount received amount of goods and services tax (GST).

Business Planning A good business plan will increase your chances of

business success. It will help you identify your customers, market area, pricing strategies, financial and operational goals.

By completing a business plan you will better understand your competitive advantages, new opportunities, current weaknesses and longer-term objectives for the business.

Having a business plan is also an important requirement for gaining finance from financial institutions.

How to Start the Business Plan Before you start writing a business plan

it is wise to do some background work. Collect and Analyse Information Product/Service What goods/services do you want to

offer? Market Is there a market for your

product/service?

Competitors Who/What are your competitors?

Operations and Finance What level of finance do you need to

start or expand your business?

Formulate your Business Goals Answering the above questions will

help

Federal Government requirements

Australian business number (ABN) Fringe benefits tax (FBT) Goods and services tax (GST) Tax file number (TFN)

Surviving in business requires a range of commercial, personal and management skills. To survive in tough times means careful management of your business and being extra alert to financial, operational, management and marketing issues.

It is important to plan your day Allocate blocks of time for your business

and blocks of time for family and leisure activities. Work time is divided into technical work and management tasks.

You will need to work out when you are going to need money and how much money you will need. The essential financials tools to guide you in this task are a Cash Flow and a Projected Profit and Loss.

FINANCE

Cash shortages can prevent you from meeting your financial obligations and make it difficult to expand your business. In some cases it will mean you will need to close your business

IT IS IMPORTANT TO KNOW YOUR CASH FLOW POSITION

Manage your cash inflow and outflow. Be prepared for tax instalments and other payments.

Your banking should be done regularly, both for security reasons and well as keeping track of your cash flow

Reconcile your bank statements regularly

If you are registered for GST ensure you have all the receipts of your purchases to support your claim for input tax credits.

MONEY MATTERS

Invoice your customers early and often Keep a detailed account of all your

debtors Promptly follow up on dishonoured

cheques. Consider offering discounts for early

payment (a better options could be one free hour or something similar)

Ensure you have a sales terms and purchasing terms.

If suppliers want to be paid early ask about discounts for early payments.

Keep a detailed list of amounts that you owe.

Manage you investment debt DON’T OVER BORROW

Keep some cash for rainy days Don’t overcommitt your personal

expenses.

Business Tip

If you have staff or partners even make sure they are on the same page as you!

Management Tip

Regularly plan time blocks to do the more mundane management tasks in the business, such as filing and account keeping. If your files, paperwork or accounts are in complete disarray, set aside a whole day to get up to date.

MARKETING

Marketing is more than just selling and advertising It’s about what you need to do to capture and keep your customers over time. Your marketing plan need to answer the question Why am I in business, what do customers want and why will customers buy from me and not my competitors.

Marketing Do and Don’ts

DO Regularly review your marketing strategies to meet

changing situations. Focus on your customers wants and needs, not on

what your think you have to offer. Identify a unique selling proposition ( ie a unique

aspect of your business that will give you and advantage) Work on this advantage to keep you ahead

Know your core customers and occasional customers. Work out strategies to attract repeat business from both groups of customers.

DON”T Waste money on promotional

opportunities that do not fit with your strategies

Neglect building networks to help you promote your business and build your reputation

Forget to assess the effectiveness of your strategies.

Better Business Tip

Look at your workplace, shop or office through your customers' eyes.  Familiarity with your surroundings can make them comfortable and adequate to you.  But to your customers they can look shabby,

Remember perception is everything in marketing. 

Only by creating the right perceptions about your business will your customers understand what you can offer them.