Get off to a good start in 2016-17 with these essential tips for small businesses.
There's plenty of advice available about things you should attend to before the end of the financial year. But what about getting ready for the new year? We spoke to H&R Block's director of tax communication Mark Chapman for his advice.
Chapman’s first tip bridges the old and new years. Small businesses that operate as companies are about to get a tax cut, so there's something to be said for delaying any remaining invoices until 1 July.
Companies with turnovers below $2 million will see their tax rate fall from 28.5 to 27.5 percent, and those between $2 million and $10 million will be redefined as small businesses which means their tax rate drops even more, from 30 percent to 27.5 percent.
How much difference that makes will depend on your profitability, and you should also take into account the cashflow impact of delaying invoices by a week or two.
Sole traders and partnerships will benefit from a slightly more generous tax discount, but the upper limit remains at $1000, Chapman warns.
While the usual advice is to bring expenditure forward, Chapman points out that the redefinition of businesses with up to $10 million revenue as small businesses means that from 1 July they will be able to take advantage of concessions such as the $20,000 immediate write-off.
But "don't let the tax tail wag the business dog," he warns. The concession is useful for items you were going to buy anyway, and make sure you really can afford the purchase.
Get your systems in order
"Start the new year with record-keeping systems that are up to speed," Chapman advises.
Good record-keeping is essential for good management and compliance. If you do face a tax audit, life will be much easier if you can readily produce details of all your transactions.
A new tax year is "a great time to start" on improving your systems, he says.
That includes adopting accounting software for the first time, or switching from one system to another. A lot of small businesses still use paper systems, even though "accounting software is not expensive these days," he says.
There are plenty of choices including some that are suitable for very simple businesses, he adds, "and they're very cheap – it's worth making that investment."
Know when to get advice
A sure sign that you need help from a bookkeeper or accountant is that you're not keeping up with the financial side of your business. That usually means you don't have the time, inclination or skills required, and you need outside help. The longer you leave it, the worse it will get.
Other triggers for seeking advice include a growing business (for example, is the business structure still appropriate, or should you establish a company or a trust?) and plans to retire or sell the business. "You really need professional advice" in these situations, Chapman says.
And there's the complexity of tax matters: research carried out for H&R Block and Officeworks found 99 percent of small businesses didn't understand the $20,000 immediate write-off.