Business Checklist for a New Small Business Entity
Tax Structure – You need to decide which tax structure is right for you. You have the choice of:
Sole Trader, Partnership, Family Trust or Company. Your Accountant will be able to explain the rules and benefits of each structure based on your circumstances and needs.
Tax Registrations & ABN – You must apply for an ABN if you are carrying on a business. If you estimate your turnover to be >$75,000 then you need to register for GST. If your turnover is <$75,000 you can register for GST voluntarily. If you have employees, then you need to register for PAYG WI. And you are also obliged to pay superannuation to your employees (and yourself if you are an employee).
Business Name Registration – you need to register your business name with ASIC. Go to: https://asic.gov.au/online-services/business-names/
Business Licences – I.e., Liquor, Food, and any Local Government restrictions on trade.
Bank Account – I strongly recommend setting up two bank accounts. One will be your operating and the other for GST / PAYG WI / Income tax / Superannuation. Your Accountant will be able to calculate an estimate of your tax obligations and then break it down to an amount that you set aside each week. The last thing you need is a quarterly tax bill and no money in the bank to pay for it.
Insurances – Public liability, professional indemnity, work cover, assets, employee fraud, cyber security, income protection & life insurance all need to be considered.
Employees – Employment contracts, wages & employee entitlements per the relevant award, job descriptions, employee inductions, time sheets, uniforms, code of conduct, staff training budget.
Bookkeeping – Good record keeping is essential for all businesses. There are a number of on-line software providers like Xero, Myob and Reckon. Set your bookkeeping up correctly from the beginning so you can track how you are going. Your Accountant will love you for it and it will keep your accounting costs down which means the money you save can be put towards advice on tax minimisation strategies and growing your business. It will also make tax planning easier and preparing your BAS simpler.
Home Office – Running your business from home? You can apportion costs such as land line/internet and electricity based on occupancy. To calculate your business area – divide the area of your office space area by the total area of your home. For example 20m2 / 200m2 = 10%
Motor Vehicles – If you use your motor vehicle for business use, you can claim one of two methods.
1. Log book method.
Under this method, you must keep a log book for a continuous period of 12 weeks, Record your opening odometer at the date of the first entry, Record all trips that are business related and Record your closing odometer at the end of the last entry (end of 12 weeks). You only need to keep a log book every five years unless your business % changes by more than 10% (increases or decreases).
The total business kms divided by the total kms for the 12 week period = Your business use. That % can be claimed on MV expenses like: Fuel & Oil, insurance, registration, repairs & maintenance, road side assistance & depreciation.
2. Cents per km method.
Under this method you must record all your business trips for the year. A maximum of 5,000 kms can be claimed per year and rate is 72c/km.
I recommend using the ATO MV log book app (copy & paste the link below in your browser.
https://www.ato.gov.au/General/Online-services/In-detail/myDeductions/Using-myDeductions/?page=4
Your Spending Plan
Setting up a business involves spending money. Initially you will incur upfront costs like:
Accounting & Business Advice, Legal costs (setting up leases, contracts), rental bonds, licences, software, insurance, equipment, shop / office fit out, stock, signage, website development, marketing, stationery, HR costs, business registration. This is not an exhaustive list and depending on your industry and plans there may be more. You need to then think about where this money is going to come from (savings, business loan).
On top of that, until the business is up and running (breaking even), you’ll need some working capital to pay for your rent, wages, phone, internet, software subscriptions, electricity etc.
But I cannot stress enough, before you begin, calculate your breakeven point. This is the amount you need to turnover to cover all your expenses including your wage (drawings) before tax and business / equipment loans. Calculate your yearly costs then divide it by 12 and this is the monthly turnover required. Make sure you do a budget and ask your Accountant for advice. It’s better to lose a few dollars if you decide not to proceed than walk in blindly and end up losing thousands. Do your research and crunch those numbers!
Cash flow – Good cash flow management practices are vital for a strong and successful business. The challenge for your business is to manage your cash flow so you always have money in the bank.