MBC: Accountants in Orange NSW providing business advisory for trailblazers
Trailblazing. Live it! At MBC, we believe trailblazers are the lifeblood of our thriving community. You’re a trailblazer if you’re an entrepreneur, a start up, a business prepared to take risks in a new industry.
You are the people who aren’t afraid to roll up your sleeves and have a go. Trailblazers provide opportunity and find ways to do things differently. You care about making life better for the people who work with you and the people you serve.
As a trailblazer, you’ve set out to make a positive impact on the world. We understand this, because that’s who we are, and we’re passionate about working alongside trailblazers like you, to create a lifestyle that’s purposeful, fun and financially rewarding.
MBC provides business solutions for your startup or small business
We see our role as helping you to get to where you want to be, in your business and financially.
We’ll step you though our Trailblazing Process where together with you we will map out your destination, how you’ll get there, where you are now and how you’ll stay on track to achieve your business and financial goals.
Why MBC Accountants in Orange NSW
MBC are now doing my books and I am a free man!
MBC takes the stress out of bookkeeping
We've experienced time to spend with customers as well as time to spend ON the business.
We have benefited greatly from their dedicated service and knowledge of the vast business world…
Before I began working with the team at MBC, I was struggling with finding the time to analyse our profit and loss breakdown...
MBC have proven to me on numerous occasions that they have their 'finger on the pulse of the business'
It’s been your dream for months (if not years), and now you’re determined to make it a reality.
You’re going to open your own restaurant.
Congratulations. That’s fantastic news. So what style of restaurant will it be? What will you have on the menu? How’s your marketing plan coming along? Where will the restaurant be located?
You may not know the answers to all those questions. You may not have even considered some of them. But you can still fulfil your dream of having your very own restaurant.
Introducing the franchise model
By buying a franchise restaurant, you’ll be bringing your raw enthusiasm to a successful business model. And that immediately gives you a number of advantages:
- A lot of the work is done for you. Didn’t have answers to some of those questions we asked earlier? Don’t worry. With a franchise, a lot of them will already be answered—restaurant style, branding, marketing, recipes, menus, even systems and processes. And you know they work because they’ve already been tried and tested in the other restaurants in the franchise network.
- Less paperwork to deal with. In many cases the franchisor will negotiate and hold the lease for you. Of course you’ll still have to pay the rent, but that’s pretty simple compared with sorting out lease arrangements.
- Staff training is often provided. You can’t run a restaurant on your own, which means you need to not only hire staff but also train them. Fortunately, a lot of franchises include face-to-face training for staff and procedure manuals for them to follow.
- An inbuilt support network. If you have any questions or concerns you’ll not only have the wisdom and experience of the franchisor to draw on, but also the support of the other franchise owners.
Of course, some of the advantages of owning a franchise can also be disadvantages. You may not be creating the restaurant (or even the food) you’ve always envisioned. The franchisor’s conditions and expectations may seem unrealistic. And the costs of being part of the franchise may put it out of your reach.
But while owning a franchise may not be a dream come true for everyone, it’s certainly worth considering. The franchisor wants to make a return on their investment, and so they’ll do their best to help you make a return on yours. And there are a lot of successful franchisees out there.
That’s one of the great strengths of the franchising model: The inherently win-win situation where the franchisor succeeds by helping their franchisees succeed.
Best of all, buying a franchise restaurant means you don’t start ‘from a blank page’. You hit the ground running and get a feel for the business, learning what it takes to run your own restaurant. And who knows? You might one day decide to open your own restaurant: One where you get to choose the style, the menus, and everything else. Maybe your own original restaurant concept will become so successful that you’ll franchise the business and have many dozens of franchisees in your own franchise network.
The world’s your oyster as a restaurant entrepreneur. And starting out as a franchisee could be your ideal first course.
In a lot of situations, hiring a contractor to get a particular job done makes perfect sense. It may require expertise or skills none of your employees has. You may only need someone for a short timeframe to clear a backlog of work. Or maybe you just want to avoid having to go through a formal recruitment process.
But be careful. Even though you hired them as a contractor, the Australian Taxation Office (ATO) may actually see them as an employee. And the penalties for disguising an employee as an independent contractor (known as “sham contracting”) can be up to $51,000 per instance.
So how can you tell whether your latest recruit is an employee or a contractor? Well, here are some of the major differences between the two.
1. Where and how they work
An employee is considered part of the business, and in most cases works on the premises (unless they’re telecommuting). They generally have to accept any work assigned to them, and can’t ask someone else. And they have do the work themselves.
A contractor, on the other hand, runs their own business. And while they may be asked to work on the premises, they can work pretty much anywhere they can get the work done. They can also sub-contract or delegate the work to someone else.
2. How they’re paid
Employees are paid regularly for the time they work, by the item or activity they complete, and/or a commission.
Contractors have a contract stating the work they’ll do (but not how they’ll do it), and for how much. And while they can ask for partial payment up-front, they’re generally paid when that work is completed.
3. Tools of the trade
Employees are given all the tools they need to do their job, whether it’s computers, earthmoving equipment or anything in between. If they need something else to do their job, the employer either buys it, reimburses them or gives them an allowance.
A contractor will have their own set of tools, which they use to perform the work they’ve been asked to do. If they feel they need another tool, either to complete the job or to do it more efficiently, they use their own money to purchase it.
4. The risk factor
Employees aren’t under any financial risk while they’re working. They don’t make a profit or a loss--the company does.
But contractors can make a profit or a loss on every job they do. If they finish the job quickly, they’ll still be paid the same amount than if they took their time. But if the job takes longer, or they have to put in more work because the job was done poorly, they could well make a loss.
Employees are entitled to receive superannuation contributions from their employer, which gets paid into a nominated superannuation fund. They are also entitled to paid leave (e.g. annual leave, personal/carer’s leave, long service leave), or a loading in lieu of leave entitlements if they’re casual employees.
Contractors are generally responsible for paying their own superannuation, although in certain situations they may be entitled to receive superannuation contributions. And they don’t receive any paid leave.
Employees have tax deducted from their pay by their employer, whereas contractors pay their own tax (including GST) directly to the ATO.
Of course, the distinction between employee and contractor isn’t always so cut-and-dried. A contractor may have all of their equipment supplied, or get paid every fortnight. They may even receive superannuation contributions.
Fortunately the ATO has come up with an Employee/Contractor Decision Tool to help make the distinction. By answering a series of questions, you can quickly see whether the ATO sees your latest recruit as an employee or a contractor.
Paying someone as a contractor when they’re actually an employee can have serious consequences for your business. As well as the financial penalties, your business may end up with a bad reputation that drives both customers and potential employees away.
So use the ATO’s decision tool and if still in doubt, get in touch and we’ll help you make sure your contractor isn’t really an employee.
Think back to the days before you started your business, when you were working for a boss. Chances are you were rewarded for your hard work with a regular salary. It may not have always been the same amount, but it came through like clockwork. And for the next week, month or however often you got paid, you’d do your best to make it last.
But now you are the boss, and so you don’t need to be restricted to a set salary, do you? You can simply draw money out of the business whenever you need it, right?
7 good reasons to pay yourself a regular salary
As a business owner, here are seven reasons why you should pay yourself a regular salary instead of treating your business like an automated teller machine.
1. It’s what you’re used to.
When you first started working for someone else, you couldn’t ask the boss for more money whenever you ran out. All you could do was hold out until the next time you got paid. And having a regular income also made it easier to budget for your income and expenses, manage your money, and save up for a mortgage or investment.
So why change now?
2. Much of the money in the business’ bank account is already spoken for
It’s easy to think all the money sitting in your business’ bank account is yours. After all, it’s your business, isn’t it?
But that money actually belongs to the business—not you personally—and is needed to cover things such as:
- Salaries and wages
- Paying contractors and suppliers
- Stock purchases
- Rent and utilities
- Future tax payments
It doesn’t matter how profitable your business is. If the money isn’t there to pay the bills when they’re due, your business is as risk of becoming insolvent (i.e. you have more commitments and bills to pay than cash or available funding to pay them with).
Having sufficient cash flow is vital for any business. And it’s far easier to manage cash flow when you have predictable expenses you can plan around—including your salary.
3. You need money to grow your business
A growing business is a cash-hungry business. As it grows you may need to move it to a larger premises or invest in new staff or technology to grow your capacity. Even if you can keep a lid on your fixed expenses, your business may require an increase in variable inputs such as materials.
And all this ties up cash.
So whatever your growth plans, you’ll need enough money in reserve to fund them. And that’s on top of the money you need to keep the business running at its current level.
As you can see, knowing exactly what cash is flowing in and out of your business, and saving as much of your profits as you can to build up your cash reserves, is important for a growing business.
But if you keep ‘raiding the till’ whenever you’re short of cash, you’ll never know how much cash you have in reserve, or when you have enough funds to initiate the next stage in your growth plans.
4. You won’t be risking ‘lifestyle creep’
The lifestyle we lead is largely dictated by the amount of money we have readily available. So if your business does particularly well one week and the bank balance is up, you might be tempted to draw a little extra money and spend it on dinner at a fancy restaurant, a weekend away, a new ‘toy’ or some other indulgence.
It’s okay to spend money in these ways if it’s a bonus for achieving a certain result or milestone in your business. But these bonuses should still be within the planned and documented salary and remuneration package the business pays you.
If you’re not disciplined in this area, it doesn’t take long for these indulgences to become part of what you consider a ‘normal’ part of your lifestyle, and so you start drawing extra cash on a regular basis.
And that’s not good for the health of your business.
By living off a regular salary (and nothing more) instead, you’ll learn to live happily within your means, which is a key to building wealth.
5. You’re more likely to fly under the taxman’s radar
Governments’ tax departments are used to people being paid a regular salary. It’s generally how things work. And by giving yourself a regular salary, you’ll be seen as just another salary earner and be more likely to fly under the radar.
If, on the other hand, you start drawing large amounts from your business at irregular intervals, you may raise a few eyebrows with the governments’ tax auditors. And that’s never a good thing.
6. You could be creating a tax liability for your business
When wage and salary earners are paid, the employer must withhold and set aside a portion of their pay as tax, which is periodically paid to the government on the employees’ behalf.
When you withdraw money from your business, it’s not ‘free money’ (i.e. tax-free). These amounts need to be properly accounted for as:
- drawings or a loan from the business
- dividends (a portion of your profit)
depending on your business structure.
Your actions here could be building up a potential debt that will need to be paid at some point. And that debt could lead to severe cash flow problems down the track, especially when it comes time to sell the business.
You’re much better off accounting for, setting aside and paying taxes as they fall due. It will not only help your business, but also the quality of your sleep.
7. You’ll more easily qualify for mortgages and other loans from the banks
When it comes to assessing a person’s ability to service a potential loan, banks much prefer consistently earning wage and salary earners to sporadically earning self-employed business owners.
The bank wants to know you can comfortably service the loan each month, and by paying yourself a regular salary you’ll have the payslips and bank statements to show a steady cash flow history.
So the sooner you set this up in your business, the better.
A successful business is a great way to create creation and accumulate wealth. But don’t disadvantage yourself by presenting a poor case to the banks when applying for a mortgage or other type of loan.
How much should you pay yourself?
As you can see, there are many good reasons to pay yourself a regular salary instead of continually raiding the till. The question is, how much should you pay yourself?
That’s a question we can help you answer.
Obviously you need to pay yourself enough money to cover your basic living and lifestyle requirements. The last thing you want is to be stressing about your personal finances, especially when you’re trying to make business decisions.
But it’s not a good idea to pay yourself too much in salary—even if the business can easily afford the cash flow. Depending on your business structure, there are probably more tax-effective ways to receive income from your business, such as dividends.
Every business and person’s situation is different in this regard, so it’s important to get one-on-one advice in this area. Don’t view this article as personal advice to you—it’s not. We’re simply opening your eyes to the many benefits of paying yourself a consistent salary as a business owner.
To work out the right amount to pay yourself regularly, you’ll need to consider things such as:
- What your business’ cash flow can comfortably pay you on a regular basis
- What you feel you’re worth (e.g. if you were employed by someone else)
- What will let you achieve your personal and family wealth creation goals, such as paying off your mortgage and building your investment portfolio
- Tax considerations so you pay yourself the optimum amount to meet your needs without needlessly paying too much personal income tax
- The business’ projected profitability for the financial year. (Your shareholding percentage and dividend policy on withdrawing profits or retaining and reinvesting profits in the business will determine your projected profit dividend.)
As you can see, it makes sense to get professional advice on calculating your salary as a business owner. We’ll help you work it out by taking into account your current business and personal situation. We’ll also set up payroll systems to automatically create and distribute the necessary tax-related paperwork each pay period.
You enjoy being your own boss.
Now it’s time to also enjoy being your own employee.