When you’re a small business owner, sole trader or freelancer, asking for payment on overdue invoices can be a delicate matter. Without an accounts person or department, sometimes you’re trying to secure new work and chase invoices from the same person. That can be an awkward tightrope to walk.

Here are five tips for chasing payments while maintaining customer loyalty:

1. Automate reminders – Set friendly payment reminders that go out automatically – they tell clients they’re missed a payment without making it personal. It’s like your invoicing platform is giving them a nudge, rather than you doing it yourself. You can sign it off with just your business name, rather than your own.
2. Find out who’s behind the payments – Is there another person at the business who’s in charge of accounts or payments? Ideally, you want to be selling your services to your usual contact and chasing someone else to pay your invoices.
3. Enlist help from a friend – If you have a friend who also has a small business, become each other’s accounts support. Set your friend up with an ‘accounts@yourwebsite.com’ address and they can send out email reminders and follow-ups to your clients, or call them about the invoice. Maybe you can do the same for them.
4. Set expectations when you negotiate the job – Firm and clear payment terms make it easier to get paid faster and keep that cash flowing. Set out your terms up front – it’s much easier to talk about your payment expectations when you organise the job, rather than once the invoice has been sent. For persistently slow payers, consider offering an early payment discount or ask for more money upfront for the next job.
5. Be nice, but firm – There’s no need to be rude or aggressive to your clients when chasing payment; you want to maintain a positive relationship. However, at some point you need to cut off their credit. Often saying ‘I’m very happy to do that for you, just waiting on payment of that last invoice’ will give them the impetus they need to pay you. But if they persistently don’t pay, no matter how much you like the client, you’re not providing a free service! Stop working for the client and chase those outstanding invoices more assertively.

What are your business goals for 2022?

The beginning of a new calendar year is an excellent time to review the year just finished and reflect on what worked, what didn’t, what you’d like to change and new things you’d like to implement.

Last year, there were inescapable impacts on businesses, with some thriving, others failing, and others just getting by. So what kind of year was 2021 for your business?

Take the time to review the year and acknowledge all that has happened, good, bad or indifferent. Examining the year with an objective perspective can provide valuable insights to prepare for the next business year. Planning and goal setting will help provide a focus for your business efforts.

Your Yearly Business Review

• What were the most significant impacts on your business in 2021? How well did you meet the challenges?
• What worked well last year? What systems, technology, products or services were successful?
• What accomplishments can you celebrate?
• What situation, event or experience provided the biggest learning opportunity?
• What is the biggest challenge or frustration you face as you prepare for 2022?
• What did you most enjoy during the year? Do more of it. What did you least enjoy? Do less of it!
• Analyse your financial reports. Are you earning what you’d like to? Is the business sustainably profitable?

Get Ready for a Great 2022

While there are many metrics you could evaluate to track business performance, we’ve given you just a few ideas to inspire your business planning for 2022.

If you’d like to chat about what you can do differently this year to enable your business to thrive, book a time with us today.

Getting your head around the basics of bookkeeping, accounting and good financial practice may not come naturally to all business owners. But the better you understand the numbers, the more control you’ll have over your business and your decision-making.

To get you started, here’s a rundown of some of the main financial terms and how they apply to the financial management of your startup.

Revenue and money coming into the business

Most of us understand that revenue is the income you generate through your sales. If you multiply your average sale price by the number of units sold, this is the top level number you get. It’s a gross figure (i.e. before any deductions) and gives you a clear idea of how much money the business is generating through its sales activity.

Revenue can come from various sources, and each income source is known as a ‘revenue stream’. Revenue streams could include product sales, income from services you provide, income from intellectual property you own (like patents) or income from assets the business owns, like property you rent out at a profit.

Having several revenue streams is a good idea, as it spreads your income generation across multiple areas and reduces the risk of one revenue stream drying up.

Expenditure and money going out of the business

Expenditure refers to any payments you make (either in cash or credit) against the purchase of goods and/or services. In a nutshell, expenditure is the money that’s going OUT of the business, so it’s important to have a good grip on these costs and to make sure you’re not spending any more money than you need to.

Costs that would fall under expenses include your supplier bills, your payroll expenses, your operational overheads and the costs of any raw materials and goods you buy to keep the business running. The less you pay out in these expenses and overheads, the more of your revenue will end up as profit – as we’ll see in the next section.

Profit and loss (P&L)

Your profit and loss statement (usually referred to as your P&L) is an incredibly important financial report to get your head around. The P&L summarises your revenues and expenditure over the course of a period – usually for the month, quarter or year that’s just ended – and gives you a breakdown of the profits and losses the business made during that period.

If you make more in sales revenues than you spend in outgoing expenses, you make a profit (and that’s vital to your success). For any business to be financially viable, your financial model MUST be able to generate profit. Without profits, the business can’t make money, you can’t reinvest back into the company to drive growth, and you (personally) won’t get paid anything.

Cashflow statements and positive cashflow

Your cashflow statement is another vital tool in your accounting toolbox. To keep the lights on in the business, you need enough available cash to cover your everyday expenses. Your cashflow statement shows you the cash inflows (money coming into the business from revenues etc.) alongside the cash outflows (payments to suppliers, or operational overheads etc).

For the business to have enough cash in the pot, your cash inflows MUST outweigh your cash outflows. This is called being in a ‘positive cashflow position’ and it’s a level of financial health that every startup should aim for. By tracking inflows and outflows, and projecting them forwards in time to create forecasts, you can make sure there’s always available cash in the business.

Improving your understanding of the numbers

It takes time to pick up the financial jargon and accounting terms that will help you understand your accounts. But don’t despair: as your startup journey evolves you’ll gradually begin to get your head around the important numbers, metrics and reports.

Other important finance terms to understand include

• Turnover = the total sales revenue made in a period. It’s also sometimes called ‘gross revenue’, as it’s the number prior to any deductions being made.
• Assets = the things you own in the business, like equipment, property or cash etc.
• Liabilities = the things you owe to other people, like bills, debts and loan repayments.
• Balance sheet = a snapshot of your assets and liabilities on a given date.
• Working capital = your current assets minus your liabilities. In common usage, it’s the capital (money) you have in the business to keep the company operational and trading.
• Funding = bringing additional capital into the business, usually in the form of business finance products like loans, or through private investment from outside sources.
• Credit score = a rating given to the financial health and risk level of the business. The bigger the score, the lower the risk – and the better your access to funding.

If you’re planning for your business, please do get in touch. We’ll help you set up the ideal accounting system, so you’re in complete control of your finances.

Talk to us about your new business.

Different business structures pay taxes in different ways. Although there are many taxes that a business might be affected by, the main ones are goods and services tax, income tax, pay as you go withholding tax for employees, payroll tax and excise tax.

Other taxes that a business could encounter are fringe benefits, capital gains, property, vehicle and other duties and levies administered by state or local governments.

Taxes Paid on the Business Activity Statement

Once your business is registered for the relevant taxes, several are reported and paid as part of the monthly or quarterly activity statement.

• GST is collected from customers and paid to suppliers, and you pay the difference between GST on sales and purchases.
• PAYG Withholding for employees or suppliers that don’t provide an Australian Business Number.
• PAYG Instalments contribute towards an expected income tax bill.
• Other taxes paid on the BAS (if applicable) are fringe benefits instalments, fuel tax credits, wine equalisation tax and luxury car tax.

Taxes and Other Fees Paid to State Revenue OfficesSome business taxes are paid directly to the state revenue office, such as land tax for property purchases and payroll tax once the state threshold of reportable wages is reached. Other common government duties include stamp duty on property transfers and land tax.

Income Tax for Businesses

Income tax is calculated after the end of the financial year, taking into account any PAYG instalments already paid. Tax deductions for business expenses reduce your taxable income and, therefore, your tax bill.If financial gain is made on the disposal of assets, such as property or shares, capital gains tax is paid on the amount of financial gain and is paid as part of income tax.Income tax for business is calculated differently according to the type of entity.

Small Business Tax Concessions

Your tax agent can make sure you are claiming all the small business tax benefits that you are allowed through concessions that reduce the amount of tax liability. For example, there are specific concessions for asset write-off, primary producers, fringe benefits or start-up expenses. Concessions also apply in some situations to reduce the amount of capital gains tax payable.

Thinking of Starting or Changing a Business?

Talk to us about adding or cancelling tax registrations, concessions and planning for the various taxes your business will need to manage.

Australian residents pay income tax on all forms of income, after a tax-free threshold of $18,200. Tax is calculated at four different rates according to how much income you earn each year, and the tax rate increases the more you make. The highest tax bracket applies to those with a taxable income of more than $180,001.

Foreign residents, children and working holiday makers are taxed differently.

Income tax is the most significant type of tax collected by the ATO, making up around half of all taxes received.

Types of Taxable Income

Tax is calculated on various forms of income, including employment, government support, investment and business income.

• Employment income includes wages, salary, allowances, bonus payments, termination payments, some lump sum payments, fringe benefits and superannuation contributions.
• Government support includes all pension payments, allowances, carer support and COVID-19 support payments. Some government support, such as disaster recovery payments, are tax exempt.
• Investment income includes interest paid by financial institutions, share dividends, rent from investment properties, managed investment trusts and capital gains from profit on selling assets. Cryptocurrency gains are also included.
• Business income for sole traders is assessed as personal income, while business income for other entities such as companies is taxed separately to the individuals running the business entity.

Annual Tax Return

You have to declare all types of income, Australian and foreign. Any income received in foreign currency needs to be converted to Australian dollar value.

Most people need to lodge a tax return with the Australian Taxation Office each year by 31 October. If you have a tax agent lodging on your behalf, you’ll get an extension.

Your employer withholds tax from your wages or salary each pay period and pays the ATO on your behalf. If you’ve earned more money from other sources, such as investments or a side hustle, you might end up with a tax bill in addition to what has been withheld from your pay. When we calculate your taxable income, we’ll let you know in plenty of time if you have to pay more.

Make the Most of Allowable Deductions

Allowable deductions vary significantly according to the type of income you have earned. You can’t claim private expenses or anything that an employer has reimbursed.

Common deductions include home office, tools and equipment, accounting fees, donations, personal super contributions and vehicle expenses. However, it’s best to check with us as you may be able to claim other expenses such as education, cleaning or professional memberships.

When preparing your tax return, we will include any allowable offsets, rebates or concessions that may apply to your situation to reduce your tax bill. We’ll also check that you’ve included all allowable deductions for your situation.

Do you know how much tax you pay on superannuation contributions and withdrawals?

The amount of tax depends on several factors, and it’s possible to minimise the amount you pay by understanding how the tax on super works. Tax on super is generally a lower rate than the tax on your income, and by using a few smart strategies, you can both minimise your tax bill and maximise your super investment.

The tax on super rules are the same for all super funds, whether self-managed, an industry fund, a default employer fund or another regulated fund.

Tax on Contributions

Contributions made to your super fund before tax are taxed at a flat rate of 15% and called concessional contributions. This applies to employer super guarantee contributions, salary sacrifice and sole trader contributions. As your super investments grow, you’ll also pay 15% tax on the earnings. After-tax contributions are not taxed again. If you, your spouse or your employer make contributions from your after-tax income, or you make other contributions not classed as a tax deduction, these amounts won’t be taxed in the super fund.

Carry Forward Provisions to Minimise Tax

There are limits to how much you can contribute to your super fund each year. You could get an excess contributions tax bill if you contribute over the threshold.

However, from 2018, new rules allow you to make extra concessional contributions in some situations without having to pay additional tax. The carry forward rule means that you may be able to contribute more than the concessional contribution cap if eligible, without extra tax charges.

Tax on Withdrawals

Your preservation age, how the funds are paid to you, the type of income stream and other factors affect the tax on super withdrawals. Some withdrawals may be taxed, and others are tax-free. For example, after-tax contributions are tax-free when you withdraw funds, but concessional contributions are taxable.

Want to Make the Most of Your Super?

Tax on super can be complicated! We’d love to review your super and discuss ways to minimise the tax on super contributions and withdrawals. You can receive great tax benefits by making extra contributions while still working and utilising the carry forward provisions.

Whether you’re starting in the workforce, nearing retirement or actively withdrawing from your super fund, we can help you make the most of your super.

Reach out to Chris Bloxham at Solve on 0414 985 724 or email chris@solveaccounting.com.au to discuss your super anytime.

Many people new to running a business and employing people are unsure about the difference between PAYGI and PAYGW. They are not the same thing!

PAYG stands for ‘pay as you go’. This is the means the ATO uses to obtain tax payments from both employees and business owners. Paying tax ‘as you go’ throughout the year means you don’t have to pay it all in one lump sum at the end of the tax year.

PAYG Withholding for Employees Income Tax

PAYG withholding refers to the income tax an employer withholds from employees’ gross wages to meet their personal income tax liabilities. Employers are required to remit the employees’ withheld tax to the ATO each month or quarter, with the business activity statement (BAS) or the monthly instalment activity statement (IAS).

PAYG withholding applies to payments employers make to employees, directors, office holders and labour-hire workers. PAYG can also be withheld from non-employees: contractors with a voluntary withholding agreement, some payments to foreign residents and payments to suppliers where an ABN has not been quoted.

PAYG Instalments for Business Income Tax

If you run your own business, you’ll need to plan for income tax payments once you make more than the taxable threshold. PAYG instalments allow you to pay an amount towards an expected tax bill. Amounts are based on business or investment income from the previous tax year. Once you complete your tax return, the amounts already paid are offset against the total amount of tax due. You will then receive either a bill for extra tax or if you have paid too much, you will receive a refund.

Usually, when you start in business, you don’t pay any tax instalments until you have completed the first year’s tax return. However, if you’re new to business, you can voluntarily enter into the PAYG instalment system to start contributing towards your next tax bill. This is worth considering if you have done better than expected in your first year!

You can pay PAYG instalments by using the ATO determined amount based on information in the last tax return (instalment amount) or using the ATO defined percentage rate applied to your income (instalment rate). The first method is the simplest; however, if your income varies a lot from one quarter to another, it may be better to use the instalment rate so you know you have put aside the correct amount based on your actual income.

PAYG Planning for Cash Flow

If you’re new to business or considering employing people soon, you’ll need to plan for PAYG instalments and possibly PAYG withholding so you can meet your ATO tax reporting and paying obligations. Planning ahead means you’ll never be caught short with cash flow difficulties.

Talk to us to learn more about income tax responsibilities as an employer and business owner.

All employers have to report payments made to employees and closely held payees to the ATO using Single Touch Payroll reporting from July 2021.

Single Touch Payroll (STP) Phase 2 was initially planned for 1 July 2021 to align with the mandatory reporting for all employers, but it has been postponed to 1 January 2022. The ATO will allow employers until 31 March 2022 to start reporting if they don’t have an STP reporting solution in place yet. Some payroll software providers already have deferrals in place to allow a longer time for the transition to Phase 2 reporting.

The planned STP expansion has been extended because of COVID-19 impacts on business and accounting and payroll software providers.

STP Phase 2 will require additional information to be reported with each STP pay event.

Accounting and payroll software products will be upgraded to include broader reporting parameters and categories in line with the ATO requirements for Phase 2.

The Phase 2 expansion will allow employers to report information to multiple government agencies in the STP report. Standardised categorisation of income components will make it easier for employees to interact with Services Australia.

The changes will also include detailed income types, lump-sum payments, itemised allowances, child support and the ability to lodge tax file number declarations from within STP reporting. Employment separation certificates upon the termination of employment will no longer be needed, as Phase 2 reporting will include the reason an employee ceased employment.

If you’d like to review your payroll software and systems before STP Phase 2 starts, talk to us today.

Otherwise, there is nothing you need to change right now – we’ll keep you updated when the implementation is closer.

TL;DR

• Tax treatment can have a large impact on your investment returns.
• Keep accurate records – exchanges used, wallet addresses, transaction type.
• Tracking your portfolio closely is a good idea.
• Either ordinary income tax (traders) or capital gains tax (investors) will apply to your crypto, unless they are “personal use assets”.
• Most likely you are into crypto to make gains, so personal use is unlikely (unless you are using DOGE to buy Telsa merchandise).
• Be aware the ATO has a data matching program in relation to crypto.
• Keep up to date and get in touch if you have any questions or need help tracking your portfolio.

In Detail

Whether you are currently involved in cryptocurrency investment, or considering buying cryptocurrency, it’s vital to explore the tax implications. 

While taxes will vary according to your circumstances, and it’s important to seek professional advice, there are some basic tenets you can start with.

Getting started

No matter how you intend to use your cryptocurrency, you must keep accurate records of your buying and selling.

Your records must include:

• transaction date
• details of crypto exchanges and wallets used 
• the value of fiat dollars (e.g. AUD) transferred to invest in crypto
• the type of transaction and details of the other party, for example, staking on an exchange or DeFi protocol

Tax responsibilities

In Australia, cryptocurrency transactions can be subject to both income and capital gains taxes. 

If you are a frequent trader of crypto or run a crypto based business, you may be taxed on income basis – i.e., taxed on your trading profits and losses.

If you are a long-term investor, you are more likely to be subject to capital gains taxes. In this scenario, each cryptocurrency is treated as a separate asset for Capital Gains Tax (CGT).

A Capital Gains Tax event occurs when you ‘dispose’ of your cryptocurrency. 

A disposal may occur where you:

• sell or gift cryptocurrency
• trade or exchange cryptocurrency
• convert cryptocurrency to fiat currency
• purchase goods or services with cryptocurrency
• use your cryptocurrency to provide liquidity to DeFi liquidity pools

If you have transacted with a foreign cryptocurrency exchange you may also have tax responsibilities in another country. It is recommended you conduct your own research before using a particular exchange.

Personal asset use

Personal use assets are not generally subject to tax on transactions. 

Your cryptocurrency use may be regarded as a personal asset if it is kept or used to purchase personal items. This means that capital gains/losses that arise may be disregarded. 

For example, buying cryptocurrency specifically to purchase an item that can be paid for using cryptocurrency could be considered personal asset use.

It would generally be difficult to treat crypto as a personal use asset where you are ‘hodling’ or trading regularly. One example of personal use may be using DOGE coin to buy Tesla merchandise.

Data matching

You should assume that the ATO has some data in relation to your crypto transactions for the 2021 to 2023 income tax years. 

The ATO has provided notice of its intent to undertake data matching on crypto transactions for these years.

Therefore, it is important to ensure you calculate gains and losses accurately in the event the ATO reviews your tax return.

Keeping up to date

Cryptocurrency is a rapidly evolving area. The ATO has a guide, including examples and links for additional information to help you.

Get in touch. We can explain the ATO’s rules and regulations for your investments and provide guidance for your situation.

It’s always a good idea to think about your retirement. Many people in Australia use a Super Fund to manage their retirement savings. But some people opt to do something a little different, and set up a self-managed super fund (SMSF).

What is an SMSF?

At a basic level, setting up an SMSF means creating a trust which has either individual or corporate trustees. These trustees manage the fund assets, and look after legal compliance, including auditing and reporting obligations.

For people who are prepared to look after the legal and financial elements of running a fund, entering into an SMSF can mean more control over how funds are invested, over fees paid and over what insurance is taken out.

What is an SMSF for?

Any SMSF must have the same purpose. That is, to provide retirement benefits for fund members and their dependants. Any decisions made by trustees must be in line with this aim. Using the funds of an SMSF for anything else isn’t just unethical but is actually illegal.

An SMSF isn’t for:

• Early access to superannuation
• Investing in art or collectible for decorative purposes or personal use.
• Buying holiday homes.

Read more about starting an SMSF

Becoming a trustee

One of the main differences between an SMSF and other types of funds, is that in an SMSF the members are also the trustees and assume the compliance risk. If the SMSF is found to have breached the law, the trustees or the director, can be personally fined.

In addition, if there are disputes between the members, the ATO will not become involved. If the situation is serious enough, mediation or court may be an avenue but these routes will be at the members’ expense.

Understandably, the decision to become a trustee is a major one and needs careful consideration and professional consultation.

Updates to SMSF fund structures

Changes on 1 July 2021 mean that SMSFs can now have a maximum of six members, an increase from four. It’s important to note that as an SMSF is a type of trust, the number of trustees may still be restricted to less than six by existing state and territory laws. As always, it’s a good idea to seek professional advice before structuring your fund.

Learn more from the ATO

We recommend you speak to our advisor, Chris Bloxham, to help you determine whether a self managed super fund might be right for you.