Business Strategies

Incorporating is not the same thing as registering a business name or having a personal ABN. By setting up a company you are creating a separate legal entity for your business. This is a big step that brings with it a range of advantages but there are also some additional costs that need to be considered.

The main benefit of incorporating is its limited liability.  A company is a legal entity – completely separate from its directors and owners (shareholders). In other words, it gives owners the ability to quarantine business risks inside the company, and away from them as the business owner. Incorporating is a good option if you (i) employ staff, (ii) have turnover of over $200K (iii) operate in a high-risk industry or (iv) if you have personal assets that you do not want to be put at risk (such as your home or investments).

Another advantage of incorporation is that it makes it easier to manage disputes with other potential business owners/or partners.  Each shareholder operates under a set of rules (company constitution) and the stakeholders rights and responsibilities are already somewhat determined.  There are several other minor benefits – but these will depend on your personal circumstances.

But there are costs involved when thinking of incorporating. There is a once off initial setup cost (approx $1300) for the formation of the constitution (rules of the company) and to register the company with ASIC. Additionally, there are annual costs including (i) ASIC filing fees (approx $400 pa) and (ii) annual costs to have an accountant file the annual corporate tax return. 

There is no precise point in time when a business should incorporate. Instead, the best time will depend on the unique circumstances of your business.

Financing through debt – means sourcing funds from a third party and agreeing to pay the money back, with interest by a future date.  Interest, fees and charges on a business loan are tax deductible.

Debt considerations – if you take out a loan to fund any business purchase, you are keeping your own cash reserves in standby in the case of short-term cash emergencies. This is a big incentive for debt financing. But banks are conservative when lending money and new businesses may find it difficult to secure debt finance.  You should always think carefully before borrowing any amount of money and should always aim to match the financing to your needs. For example, using credit cards for long-term expenditure can be very expensive.  Conversely some loans can be inflexible – you could end up paying interest over many years.

Funding purchases personally – the fastest and by far the cheapest way to finance a business is using personal funds (either cash reserves or redraw against a personal mortgage).  But using your own money to finance your business may put a strain on your cash reserves. You may not have enough money left over to cover other business, living costs or emergencies. You should try to have a contingency fund, in case you need extra money to see you through a difficult period. 

We at DSR partners strongly recommend the use of Xero as the preferred accounting platform for our clients. Xero is a cost competitive product that genuinely allows you to run your business better and saves you time, which helps you get back to what you do best. 

Xero is used by our clients of all sizes, from Tradesman operating as a Sole trader to large companies with more than 50 staff. It is an all-in-one solution for clients looking for the below features:

• Invoicing from computer or directly from your phone
• Live bank feed connection to cut down on bookkeeping time
• Payroll processing, Automated Employee superannuation payments, Employee timesheets on a mobile app, as well as full Single Touch Payroll Compliance
• Job Tracking and profitability reporting
• BAS and GST reporting, including lodgement directly with the ATO

Speak to one of our Xero certified advisors and we can show you how taking advantage of this software can help you run your business more efficiently

Recently the ATO and iCare have begun to crack down on business using contractors who act in a manner more like an employee than an independent business, with a look to include the payments to these contractors as taxable wages for insurance premiums or apply Superannuation payments to their wages.

The risk to your business if the proper steps are not put in place are liability for a Workers Compensation claim without insurance coverage or additional premiums due for payment, as well as being liable for Superannuation (currently at 10.5%) on top of what you have already agreed to pay the contractor.

From an iCare and Superannuation standpoint, a Contractor is more likely to:

• Be a Pty Ltd company
• Be able to delegate the contracted work to their employees or their own subcontractors
• Advertise their services to the general public
• Be liable for rectification of works for any deficiencies
• Paid on a quotation or per job basis
• Provide their own specialised equipment

A deemed worker or employee from a workers compensation or superannuation perspective is more likely to:

• Be a sole trader or partnership
• Be required to complete the contracted works themselves
• Paid on an hourly or set rate basis
• Wear a provided uniform
• Only provide their own vehicle/hand tools

Every contract is different, for all clients we strongly encourage the use of the ATO superannuation eligibility decision tool found here or the SIRA Worker Status tool found here