self-managed superannuation fund administrators

On The Money – September 2016

Before You Buy a Business

The greatest compliment we receive from our clients is the referral of their friends, family and business colleagues. Thank you for your support and trust. Starting a business can be a mine field andbusiness for sale no amount of research, passion or planning can guarantee the success of a start-up business. The risks are high which explains why so many budding entrepreneurs look to buy an existing business or franchise operation rather than start from ‘scratch’.

BUYING A BUSINESS

On face value, buying a business seems a safer bet because it is already operational with customers plus a regular cash flow. You would be buying the goodwill associated with the business together with any stock, equipment, fixtures and fittings plus hopefully an up to date customer database that you can market to in the future.

It sounds easy but before you invest in someone else’s business you need to go through the ‘due diligence’ process. As a buyer you should be familiar with the Latin term, ‘caveat emptor’ that means ‘let the buyer beware’. Essentially, you take on the risk that the business may fail to meet your sales and profit expectations. The onus is on the buyer and all too often they are impatient and rush the process. Buying a business is an exciting time but impatient buyers often get burnt fingers.

The due diligence process is all about making sure you know what you are buying. You want to be sure the asking price is fair and reasonable and you don’t want any surprises after you completeMake time the purchase. As such, the due diligence process involves a detailed review of the business’ operations, finances, reputation and industry. If you don’t fully understand the business, the ongoing costs, the staffing requirements and the likely profit and return on your investment, then you haven’t done your homework.

In business, ‘failing to plan is planning to fail’. The research undertaken by Griffith University’s Asia-Pacific Centre for Franchising Excellence included a survey of just over 600 current and former franchisees and independent small business owners and the findings were astonishing. The majority of new independent business owners and franchisees rely on their “gut feel” when setting up or buying a business and close to half of these business operators were not familiar with the term ‘due diligence’. The survey also revealed the level of due diligence undertaken by operators before buying or establishing a new business in Australia was “unsophisticated” and most business owners have a “naive” appreciation of business.

Surprisingly, new business owners only spent a “relatively low” amount of time on the due diligence process and prospective franchisees tend to spend more time than independent business owners. This apparent lack of time and money invested on due diligence is a big surprise given business owners are often nervous and cautious when buying a business. If you’re going to invest a large amount of money and you’re relying on the business to provide you with an income to fund your future lifestyle we urge you to invest heavily in the due diligence process.

There are a number of aspects to the due diligence process but as a starting point you need to address these basics to
reduce your risk:

  • Sales/Revenue – What Customers generated the revenue and will it continue?
  • Business Premises – is the lease transferable?
  • Equipment – is it in good working order and is it free from debt
  • Staff – who do you plan to retain and will they stay on?
  • Suppliers – Will their pricing change?

BUYING A FRANCHISE

Franchises are big business in Australia and in a sense, you are buying a ‘business in a box’ complete with someone else’s brand, systems, processes and marketing materials. While it sounds simple, the ‘box’ comes wrapped in legal red tape and there is always issues around the potential power imbalance between franchisors (who own the network) and franchisees (who run the individual businesses).

There are conflicting stories about the success rate of business start-ups and franchises. The Franchise Council of Australia claim the Australian Bureau of Statistics indicate that 40 to 45 per cent oficon16
small businesses close within the first two to three years, with failures rising to 60 to 70 per cent after three to four years. By contrast, the average term of a franchise contract is five years and the average tenure in a franchise network is seven years. This suggests franchisees generally experience enough success during their initial contract to want to renew, however, a 2008 study suggested that:

  • Only 81% of franchisees are profitable
  • 3% of franchisees generate a loss of more than $50,000
  • 58% of franchisees generate a profit of less than $50,000 per annum

Clearly buying a business or franchise doesn’t guarantee financial success, however, the perception is that buying a franchise carries less risk. Having said that, in the space of 24 hours in October 2011 close to 400 Australian franchisees operating under the Refund Home Loans and Tyrecorp brands were hit with the news that both companies had collapsed. More recently, 7-Eleven have been embroiled in a wage scandal and internal documents obtained by Fairfax Media, show 68 franchisees left the 7-Eleven system in the 12 months to June 2015.

Of course, this is not to say that franchises don’t work because there are some great success stories. The takeaway message is if you’re looking to buy into a franchise you need to do your due diligence and put the franchise contract under the microscope so you know exactly what you are buying and understand all the ongoing franchise fees.

If you’re looking to buy a business or join a franchise we urge you to consult with us to discuss the due diligence process.

SuperStream Compliance Deadline Extended to 28th October

The Australian Taxation Office have granted small business owners a slight reprieve to comply with SuperStream. While the compliance deadline was actually 30th June 2016, the ATO states thatClock it recognises that some small businesses will require additional time to implement the required changes.

SuperStream requires super contributions for employees to be made electronically in a standard format. Although 450,000 small businesses are already registered and compliant, the ATO acknowledged some employers need more time to find an appropriate SuperStream solution for their business. Consequently, no compliance action will be taken against small businesses who missed the 30th June 2016 deadline but must ensure they are compliant by the 28th October 2016.

If you have any queries regarding your Superstream compliance obligations please don’t hesitate to contact our office.

Is Your Website A Billboard Or Lead Generator?

What’s The Primary Purpose Of Your Website ?

Unfortunately, when reviewing most websites it’s hard to tell. So many websites are simply ‘electronic brochures’ that list the who, what and where of the business. In our opinion, no mater what handindustry you operate in, having a website that sells, one that generates a constant stream of enquiries from prospects is critical.

A website that generates traffic and customer leads can make a massive difference to your business success. Let me ask you these four questions about your website:

  1. Do you know how many visitors came to your website today?
  2. Do you know what page they landed on?
  3. Do you know the bounce rate (visited one page and moved on)?
  4. Do you know the percentage of visitors that viewed your site on a mobile device?

These ‘analytics’ are readily available and you need to monitor the performance of your website. Do you know how much new business your website has attracted in the last year? If the answer is negligible it’s time for a new website or at least a makeover. You also need to stop viewing your website as a cost and start thinking of it as an investment.

While businesses fail for a multitude of reasons, the most common ones cited are poor record keeping, inadequate cash flow and a lack of sales. Some of these reasons are really just symptoms and the real cause can be traced back to poor marketing. If your website lacks strategy, quality targeted content, a lead magnet, calls to action and some search engine optimization (SEO) tactics then your business will probably never reach its full profit potential.

Marketing Has Changed – Inbound vs Outbound

In the past decade there has been a fundamental shift in the way consumers make their purchasing decisions. The availability of free, high-quality information online has changed the way they buyinbound marketing
and the internet has also changed the way businesses communicate with their customers.

Historically, we used ‘outbound’ marketing techniques to ‘buy’ the attention of customers. We interrupted consumers with cold-calls, persistent sales representatives, pamphlets, brochures, radio, TV advertisements, newspaper ads, billboards and telemarketing. Courtesy of the internet there has been a massive shift in marketing techniques. These outbound marketing methods have been replaced by ‘inbound’ marketing methods – marketing activities designed to bring visitors into your business as opposed to sales teams trying to get the attention of potential customers. Modern marketing now promotes your business through blogs, podcasts, videos, e-Books, e-newsletters, whitepapers, search engine optimization (SEO), social media channels and other forms of content

marketing. These methods are designed to earn the attention of customers and draw customers to your website by producing relevant, interesting and targeted content.

In the online world, consumers hold the power. They can subscribe or unsubscribe from your newsletter, block a phone call and move on from your website with a simple click of a button. Today’s
consumers will do extensive online research as part of the buying process. They read reviews, participate in forums, use social media channels to get feedback and download guides and product reports. In fact, a study from Fleishman-Hillard suggests that 89% of consumers use the internet to source information 
on products, services and businesses before they make their purchasing decision. Buyers want to gather as much information as possible before they have to speak to a sales person or make a purchase.

The term ‘inbound marketing’ is also associated with the concept of ‘permission marketing’ and inbound marketing has five stages including:Engage

  1. Attract traffic to your website
  2. Convert website visitors to leads
  3. Convert leads to sales
  4. Turn customers into repeat higher margin customers
  5. Analyse for continuous improvement

While the role of your website is to generate traffic and enquiries, the challenge is to convert these leads into sales and nurture the customers so they keep coming back. Marketing automation has replaced high -touch, repetitive manual processes and they trigger a series of pre-defined sequences and actions from the back end of your website. A carefully constructed website will pull traffic from your various sources of content and if you can then engage with your site visitors you can convert the visitors into leads. The next step is to nurture these leads and turn them into customers. That’s really just the beginning because a great website will then have automation processes in place to generate repeat business from those customers.

Your Website is Your Silent Salesperson

Your website is like the front door to your business and often the first touch point with a prospective client or customer. You only get one chance to make a good first impression and your prospectsheart will pass judgement on your brand and business in seconds. It can make or break a business and your website remains the most relevant and important piece of marketing technology for business owners. While your sales people probably work a 35 hour week your website is working 24 hours a day, 7 days a week, 52 weeks of the year. It is your silent sales person and needs to be more than just an electronic billboard.

Remember, you are competing with close to 1 billion other websites on the internet and in your industry you’re probably competing with businesses with much larger marketing budgets than yours. That might sound daunting but the internet is virtually a level playing field so you can compete and beat the major players in your industry. In some cases you’ll find the big players in your industry are complacent about their position in the market and they don’t measure and monitor the performance of their website. You might find they have a ‘set and forget’ attitude to websites and their content is stale so their website is ripe and rotting.

Website success doesn’t come easy and while the internet offers a ‘field of dreams’ in terms of potential leads, if you have a ‘build it and they will come’ attitude you will fail. Your website will always be a work in progress because the search engines like Google crave regular, fresh, original content including videos and blogs. It doesn’t mater how successful your website is right now, there is always scope for improvement. The great websites are simple, informative and consistent. They turn heads, catch the eye and are easy to navigate and understand.

ATO and the ‘Sharing Economy’, Targets Uber & Airbnb

The Australian Taxation Office have announced they will be focusing on undeclared income derived by taxpayers from the ‘sharing economy’. The sharing economy refers to income usuallyuber
derived from buyers and sellers connecting through a facilitator (usually an app or a website) and this may include:

  • Renting a room or whole house for a short term (e.g. airbnb)
  • Taxi and travel services (ride-sourcing) for fare (e.g. Uber)
  • Provision of personal services such as professional or creative services (e.g. graphic designer, creation of websites, odd jobs, deliveries or furniture assembly)
  • Rental of a car parking space

Income earned through provision of the above services needs to be declared when preparing individual tax returns. In addition to the non-declaration of income, the ATO will also be monitoring compliance issues such as taxpayers registering for GST or ABNs where necessary.

Specifically, a ride-sourcing service is providing a car available for public hire and individuals need to register for GST regardless of turnover (i.e. the $75,000 threshold for turnover for GST
does not apply to ride-sharing services), register for an ABN, record and charge GST, provide a Tax Invoice when requested for fares over $82.50 and lodge a Business Activity Statement.

Individuals operating infrequently or non-commercially (e.g. car pooling where passengers provide petrol money or the service is provided without a profit making purpose) need not register for GST.

Provision of a room or house for short term stays does not attract GST as there is no GST payable on residential rent. Providers need to keep records of income and expenditure for inclusion in their tax return.

The ATO advises they have in excess of 600 million pieces of third party data to track activity and income and those that omit significant amounts of income will be caught. If you engage in any of these activities and are not sure of the tax implications, please don’t hesitate to contact us.

Tech Tools for Business – Canva

Unless design is your profession or hobby, there are going to be times when you just want to whip together a quick graphic or picture without having to tackle the complications of Photoshop or other graphic programs. If you need to make beautiful posters, invitations, cards, website graphics or even multiple-page presentations without the expense of engaging a designer, Canva is a free design service you’re going to want to utilise.

Canva is a design service that makes creating easy. All you have to do is choose one of the available templates or start from a custom-sized blank canvas. You then use the layouts and backgroundemplyment certificate
tabs to get a rough idea of what you want to design. There are plenty of options in their templates including social media posts, certificates (see example), events, invitations, ads, blog posts, etc. By using their drag and drop options it is possible for the least creative person to come up with something beautiful.

Use the search function to browse an enormous repository of images and the Text tab to add free text or stylized text with built-in backgrounds. While many Canva elements are completely free to use, most images you’ll see on search results are Premium and will cost you $1 (US) per image once you download your design. You can, however, easily upload you own photos or graphics, or use ones you have on Facebook, so while Canva’s Premium options are certainly tempting, they’re not a must.

5 Sure Fire Ways to Atract an ATO Audit

Every year the ATO contacts around 350,000 taxpayers regarding errors or omissions on their tax returns. Last fnancial year the ATO raised $950 million from reviews-and audits of workmagnifying glass
and rental property deductions. Since July 2014 the ATO has amended over 10,000 assessments in relation to income and deductions for rental property owners alone. Work-related claims are the biggest proportion of tax deductions claimed, around $20 billion of the total $30 billion in deductions and will be under scrutiny again this year.

Below are some of the areas the ATO will be paying particular attention to when it comes to individuals claiming or incorrectly claiming deductions on their tax returns.

1. Rental Property Maintenance

The number one deduction mistake that individuals make with rental properties is claiming repairs that are in fact capital in nature. For example, renovations carried out upon purchase of a rental property are not repairs and maintenance and cannot be claimed as an outright deduction.

2. Income Splittng

The ATO will be examining couples that apportion income to their partner (or omit income) and where they claim deductions in their partner’s name to pay less tax. For example, a couple have a 50/50 investment property but put the deductions in the name of the spouse that will receive the biggest deduction because of their income level.

3. Holiday Homes as Rental Properties

Holiday home owners that claim property deductions where the house is not genuinely for rent are under the microscope again this year. Where a holiday home is reserved for private use, includingisland renting at a reduced rate to family and friends, any property deductions must be reduced by the amount of time not genuinely available for rent.

4. Incorrect Car and Travel Work Expense Claims

Car travel will be a strong ATO focus with people incorrectly claiming travel between work and home as work related car travel. This is a personal expense and cannot be claimed. There are only two methods of car claims for the 2015/16 financial year onwards, the log book method or cents per kilometre method. The ATO will verify with employers whether an employee uses their car for work, whether they travel straight from home and will check that the employee has bulky equipment or goods required for their work performance and that there is indeed, no secure area for them to store these goods at their workplace. Claims for travel allowances will also be scrutinised as people are claiming meal and expense claims when they haven’t had to stay overnight.

5. Claims for Mobiles or Broadband

A big red flag goes up for the ATO when it comes to claiming work-related use of mobiles or broadband expenses. Many people do not get the apportionment right when it comes to these deductions with claims of 90% business and 10% personal being common when in fact, most usage is for personal reasons.

The three key rules for all work-related claims;

a. The employee must have spent the money without reimbursement from their employer
b. It must be related to their job
c. Records must be kept to substantiate the expense.

If you have any queries or concerns regarding getting your tax deductions right, please don’t hesitate to contact us.


IMPORTANT DISCLAIMER: This newsletter does not constitute advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly and we therefore recommend that our formal advice be sought before acting in any of these areas. This newsletter is issued as a helpful guide to clients and for their private information. It should be regarded as confidential and not be made available to any person without our prior approval.

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