Determining the right business structure is very important and can differ from business to business. Here are some of the things an accountant will look at when determining an appropriate business structure for a client.
- Is the business being run for the benefit of a single family or a number of unrelated parties;
- Is it the intention that over time the business will have significant assets;
- How is the business to be funded – eg, through a loan or equity;
- Are the activities of the proposed business likely to expose the owners to high risks and therefore potential liability;
- Will the business incur losses at any stage;
- How much income is the business expected to generate;
- Is the business likely to bring in other partners/owners at a later stage;
- Does the owner/s understand the various types of structure;
- Is there a business plan in place;
- What role does superannuation play in wealth creation for the owners; and
- What are the long- term goals of the business person.
This is not meant to be an exhaustive list but it gives you an idea of the type of information an accountant will want to know so as to be able to provide you with the most appropriate advice in setting up a business structure.
For example, if the business is being run by a family solely for the family, then a discretionary trust might be an option whereas if the business was to be run by a number of people unrelated then it is unlikely that a discretionary trust would be the best option.
Potential business owners also need to understand that the structure of the business is more to do with protecting the assets of the owner/s rather than the tax advantages. That is to say, obtaining an tax break is less important than the risks associated with exposing the business owner/s to high liability claims and they have the potential to destroy the business and place the owner/s at risk of losing the assets that they have work hard to achieve.
If you are thinking of going into business, or you are not sure if you are operating under the right structure, call Balanix today on 3264 4783.
Recently, Mr Shorten announced the intended crackdown on Family Trusts should the opposition come into power at the next federal election. The plan is to simply tax all distributions from Family Trusts at 30 per cent which totally ignores the major reason many small businesses set up a trust. Trusts are an instrument which enables the protection of assets from potential claims against the assets. Also, something the Opposition has not thought about or has elected not to bring into play is the capital gains benefits gained through a trust that are not available to a company structure.
There is no denying there can be a potential tax benefit but any crackdown has to take into account the whole package not just a part of the package.
Purely, from an income tax or company tax perspective a company at a reduced tax rate of 27.5% may become appealing as opposed to 30% for family trusts leaving aside asset protection and capital gains.
However, I hold that for the majority of my clients, who have a family trust, will be disadvantaged as their level of income is not excessive and the purpose of asset protection plays a significant role in having the trust and are therefore being punished for having the most effective structure for their business.
I am truly amazed that the Federal Government has effectively remained silent on this issue. Given the current status of the political polls showing that the Federal Opposition will be our next Government this is not something small business should take lightly if the polls remain as they currently stand heading into the election period.
I would like to strongly state that Balanix is not politically aligned to any party but will support good policy by any party and likewise condemn what is believed to be bad policy by any party.
We will always act solely in the best interest of our clients and speak on their behalf where we think they are being hard done by!
Recently, the National Australia Bank (NAB) released the “Moments that Matter: Understanding Australian Small to Medium Businesses” Whitepaper which details the growth, challenges and opportunities encountered by Australian business owners today.
The research found that Australian Small to Medium Enterprises (SMEs) are confident of the future, with two thirds of millennial SMEs set to expand their businesses over the next three (3) years. A snap shot of information gathered found:
- 57% of Australia’s GDP is contributed by SMEs.
- 23% of Millennial SMEs are online-only businesses.
- 66% of Millennial SMEs intend to expand their business over the next three years.
- 23% cite ‘competitive pressures’ as a trigger for expansion.
- 32% rated high profits as an important measure of a successful business but this was well behind other things such as financial management (58%), positive word of mouth (56%), productive staff (49%) and happy staff (45%). 11% ranked large turnover as a measure of success.
For a full analysis of the Whitepaper follow this link: http://business.nab.com.au/wp-content/uploads/2017/06/J002580_MTM-Whitepaper-IPSOS-FINAL_C1-2.pdf
Call Balanix Solutions today for your SME health check 07 3264 4783.
“In capitalism, people are going to try to take that castle from you so you want a moat around it and you want a knight in that castle who is pretty darn good at warding off marauders.” – Warren Buffett
While we can protect our business in many ways there are three basic ways to build a moat around our business. Creating barriers to entry, being a cost-leader or differentiating yourself from your competitors.
So how do we create barriers to entry? For a lot of industries government regulation can prevent easy entry e.g. requiring some form of government licence, achieving economies that make it very expensive for a person to enter the industry. So, if you are looking to set up a small business look at how hard or easy it is for a competitor to set up business against you or conversely what business/s already exist in the location that you are going to set up your business against and what can they do to prevent you from succeeding.
The easier it is to enter an industry the more unlikely that you will earn above average profit.
The second option is to be a cost-leader, i.e. run your business where your costs are lower than your competitors. Examples to achieve this is to run the business from home to remove costs of renting or only carrying sufficient stock to meet client needs. Interesting that Woolworths just recently declined to stock another variety of Coke- A-Cola on the basis that shoppers already had sufficient choice. If you produce what you sell what can you do to reduce manufacturing cost compared to your competitors. Outsource where you can provided the outsourcing does not reduce quality or reduce your control over the process. Spend what time you have doing the things you are good at rather than endless hours dong things you hate e.g. bookkeeping. How many more sales would you need to make to meet the cost of outsource your bookkeeping. If you have five spare hours a week spend it on sales or marketing something that will drive revenue rather than wasting inefficiently on something you are not great and does not generate revenue.
Lastly, something that small businesses often overlook! How can I differentiate my business from my competitors? Remember it is significantly harder for a store like Bunnings to provide anywhere near the personal service that a small family run business can provide. Bunnings looks to sell high volumes which means that it is unlikely to want to compete in speciality items with low volumes e.g. paint used for vehicle spraying.
Another area where I personally have seen small businesses differentiate themselves is through the patents or IP that they have developed through trial and error. Quite often they do not realise the advantage that these give their business over competitors particularly in terms of costs savings and developing barriers to make it more difficult for new business to enter your market and compete.
Find your niche and work extremely hard at maintaining it, as often for small business this is one of the best ways of making your moat deeper and more difficult to penetrate.
Ever wondered if some of it could be yours!
You can search on ASIC’s MoneySmart website to see if there is any unclaimed money associated to you. It’s easy to search – all you need to do is enter your full name and select “search now”. You can also search for family or friends.
If the search comes up positive, the process to claim depends on the type of unclaimed money. Bank account or life insurance policy claims need to go to the relevant financial institution. Other unclaimed money can be claimed directly from ASIC.
(Reference ASIC for image and information)