When you’re running your own business there are all types of situations you find yourself in where there’s an important decision to make.
When it comes to these decisions, making the wrong one is often hard to reverse and could cost you thousands of dollars more than going another way about something. It could result in your assets and family’s wealth not being protected from a business deal going wrong and personal assets could be lost. It could mean you’re not giving yourself and your business the greatest chance of success.
If you have an accountant and your instinct is not to call them when you’re making a decision it could be time to look around for another. Having an advisor who you trust and listen to is going to help no end.
I hear clients are often scared of picking up the phone due to the concern of receiving an unexpected bill. A strategy we use at EASE is to put all our clients into a service agreement which encompasses these discussions. If the issue is more than a quick phone chat we will present a fee for your client to approve or not before we go away and complete the work.
The following are some situations we feel talking to a professional is important and we also explain why:
| What | Why |
| Are there consequences of using this money for personal use? | If you pull cash out of your business with no regard to what tax consequence it brings you could be digging yourself a hole that takes years to get out. The instinct when you own your own business is that every dollar is there for you to spend. That money is often money not yet taxed meaning, in reality, you should be saving anywhere between 5% and 40% of each dollar for the taxman. You need to ensure anything you’re spending is not creating an unexpected tax bill down the track which if not discovered early could take years to dig yourself out of. |
| How much money is available for me to spend? | Running a business has many hidden costs which are easy to not plan for. Things like GST, PAYGW, future income tax and super all need to be paid for and have strict deadlines. Knowing and setting aside for these amounts is so important. Doing this from the beginning rather than getting behind is going to make the world of difference in ensuring your business not only survives but also thrives much more quickly than otherwise.By only spending money for yourself with funds after other bills are taken care of means the chance of you staying on top of cashflow is so much more likely. |
| What entity should I purchase this asset in? | Buying a car? Buying some machinery? Buying your own home? These decisions all have factors to consider such as asset protection, fringe benefits tax issues, paying the right amount of tax up front and on the eventual sale. |
| Is now a good time to sell this asset? | Timing can be everything when it comes to selling something. If it’s a property and it haas been used partly as a main residence and partly as an investment there may be ways to avoid paying tax if you sell it at the right time and with the right valuation information.The tax treatment also differs if an asset is a business or personal use asset. Depending on the time a year you could hold off paying tax by 12 months if you sell an asset at the beginning of a financial year rater than the end. |
| Is there a good way for me to join forces with my friend to sell this product/service? | A common scenario is you want to go into business with someone to provide a particular good or service. This creates a whole myriad of issues you need to consider:How to structure it? Is a separate structure with separate ABN appropriate?Are there GST considerations to considerAre you and the other party on the same page about responsibilities? How and when will profits be shared?How do you end the agreement if one or both parties want to end it?What is key here is to have these discuss and document things up front. |
All these issues and more can be a lot less stressful and provide much better outcomes when they’re discussed up front with your accountant. It’s no use taking action on something and then calling your accountant afterwards to update them on your situation. Often decisions cannot be undone or at least not without costing you more.
Reach out today if you need to discuss a decision in your life that could be made easier with an accounting professional’s input.
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