Being an entrepreneur doesn’t simply end at starting a business; it means constantly striving to perfect your business model and workflow processes and continually (and swiftly) adapting to change along the way.
As an entrepreneur, you might just think of your accountant when it comes to dealing with the fun (read: stress) of tax time. However, have you ever considered that your accountant might actually hold the key to your business’ financial health and the ways to improve it?
Maybe you should, because they do! And it’s a very valuable key!
A skilled accountant should get to know you, your business and your goals in enough depth to regularly keep you up to date on – and ready to react to – any potential factors that could effect your bottom line, for better or for worse.
Generally speaking, entrepreneurs tend to make decisions based on instinct. Sound familiar? Well, maybe it’s time for a different approach. Get to know your numbers and their implications for decision-making to improve and grow your business by asking your small business accountant the following three questions:
- Where, what & why?
It’s important to first ask your accountant the three W’s:
Where are we?
You can’t set goals to determine where your business is headed if you aren’t aware of its current position, can you? Your accountant can analyse a number of metrics to calculate whether your business is making a profit or a loss and to demonstrate where your break-even point is, which is crucial to determining your business’s pricing structure and profitability.
What does it mean?
Never accept data from your accountant with the assumption that you’ll be able to interpret its meaning later. Why not ask your accountant to include a summary with any financial data they present you? Or better still; ask to meet up with them to go over it.
Try to avoid a simplistic ‘elevator analysis’ – a vague overview of the movement of numbers up or down over periods of time, without actual reasons as to why it’s occurring. Numbers on a page don’t help you make good business decisions – real insights do. Once you have your interpreted data, ask your accountant why it’s happening and what you can do to ensure it benefits your business’ growth and success.
- How can I minimise my income tax burden?
Gosh if we had a dollar for every time we’re asked how to avoid paying too much tax!!
Some people are hoping we’re going to give them some kind of magic advice that will mean they can earn millions and pay no tax at all. And almost everyone knows someone who at some point earned lots and paid little. BUT, be careful before you create false expectations based on those stories.
Firstly, they may be one of those ‘old wives tales’ – you know, the type that involves a friend of a friend’s cousin’s uncle’s sister and not actually be true.
Secondly, if that mate, uncle, etc. ran a business last century, the information they’re sharing with you is old and very out of date. The tax rules were different then. Back in the 80’s you could send your child to private school and claim it at least partially as a tax deduction and not worry about fringe benefits tax, GST or BAS, etc.
Finally, if that person is currently running a business and they’re stripping cash out of their business and not reporting it whilst telling you, you should do the same – please think twice. Not only is it illegal, but the ATO’s income matching protocols and focus on chasing ‘cash’ businesses (retailers, pubs, restaurants, hairdressers, tradies, etc.) means it’s only a matter of time before the ATO pings them for it – and it will hurt A LOT when the outstanding tax is extracted, plus fines, plus years of general interest, etc.
We’ve heard stories of people owing the ATO hundreds of thousands of dollars once the ATO audits were complete!
So no, there is no magic bullet to avoid paying tax. There are, however a number of ways to legally minimise the amount of tax you pay, because after all, why pay more than you legally need to?
Given the ATO seems to be forever introducing new policies and compliancy criteria, it’s necessary for your accountant to keep you up-to-date on new happenings to help you maximise your finances. With the proper tax reporting, your business can greatly benefit from tax write-offs – such as the 2015 Federal Budget’s introduction of accelerated depreciation for small business assets under $20,000. (You can find more on that here.)
Minimising your tax burden also involves simply knowing that your business is meeting its tax obligations, so you can rest assured there’ll be no wrestling with the ATO come EOFY 2015/16.
- How can I improve my business’ financial health to support growth?
Essentially, this question is about cash flow. You’ve heard us say it many times before – in business, cash is king! With the help of your accountant, monitoring your cash flow can help you uncover a number of ways to increase your cash flow and reduce costs.
Why not ask your accountant about day-to-day budgeting, refining accounts receivable and accounts payable systems and maximising your pricing strategy? These are just a few tasks that can greatly impact your cash flow.
As we mentioned earlier, your accountant should have an understanding of your personal and business goals, in order to align strategy and practices with growth! In addition, your financial professional might also have connections to other business partners (such as banking/lending/finance partners) who can help your business grow.
If you’d like to find out more on financial health, you might like to read a blog on financial fitness.
Being an entrepreneur, you might often find yourself short of the internal resources – time included – to expertly manage your finances. Of course, if you feel like you could use some extra help with your finances, we’d love to chat! You can give Kerry a call on 6023 1700 or drop us a note.