Small Business Starting Out Queries

G'day All,

I'm starting out on my own as a contractor / small business this year and was hoping to seek some thoughts from the community regarding a couple of matters.

Prior to this year, I was working a PAYG job and also had a side gig (through a sole trader ABN) and an IP. I diligently recorded all income in YNAB, budgeted every dollar, etc. etc.

This year I've established a PTY LTD company (of which I am the sole employee) and due to the more rigorous reporting requirements and the desire to get my **** together a little more, had intended on using some sort of accounting software (it's looking like Quickbooks at this stage - cheaper than Xero and seems to provide the same functionality for my purposes).

My rough plan at this stage is as follows:

ABC PTY LTD (ABN Holder)
- Establish Business Bank Account & Business Credit Card (to only be used for work related expenses - transport, office supplies, education, etc.)
- Send Invoices Out, Receive Monies (hopefully?)
- Establish budget for - Company Tax , GST, Wages, Super, General Expenses (further categories in here - software subscriptions, etc.). Set money aside from these for each invoice as required.
- I was also going to establish a little "annual leave" budget category to set money in to so that if I do choose to take some time off, I will still be able to pay my monthly salary. I realise this isn't necessary but I figure will help keep things clearer in my head as to what each dollar's "job" is in my Business Account.
- Pay myself a salary which will be calculated to minimise my individual income tax liabilities while still covering all relevant personal expenses.

Me Myself & I (TFN holder)
- Continue as normal, really. I budget the salary I receive from ABC PTY LTD + rental incomes, carry on as per normal.


1) Is this how other people do it? Could you give any recommended improvements or changes?

2) At this stage I am going to attempt to do all my own bookkeeping and potentially BAS reporting as well to try and keep costs down and because of the nature of the business, I don't expect there to be a great deal of accounting to do. Around 5-6 invoices per month + my own expenses. Thoughts on this?

3) If I had some kind of surplus cash in my business account, could I loan it to myself interest free to store in an offset account?

4) Also, if anyone knows of any good websites or other resources for advice for small business owners, e.g. a blogs or forums, that'd be greatly appreciated!

Cheers

 

3 - only once before breaching Div7A, but issues if interest free.

 

Out of interest who are the shareholders of your company?

Jason

 

Just myself mate.

 

Whyyyyyyyy!

 

What Terry said.. I’m surprised there is not a discretionary trust involved (either as the owner of the shares or as the operating entity with a corporate trustee).

Jason

 

You can always sell some non-voting shares to a spouse.

 

I started out similar to you then after further advice started a family trust and sold my shares to the trust. See your account as to why it makes sense, I'm not savvy enough to try and explain it properly.

I do like you, I set aside sick pay & annual leave for my employees so it's always there when needed. I also pay the Super fortnightly with the wages, direct from Xero, so my employees always know they are getting their Super!

A big vote for Xero from me, super easy and very slick. I also use Harvest for estimating and project tracking & invoicing. Harvest and Xero connect easily so invoices copy direct from Harvest to Xero automatically. Took a few days of head scratchiness to understand it all but I'm no book keeper and I managed to work it all out pretty quick, I also do all the payroll, which again, is very easy in Xero once you get your head around it.

Our accountant can link straight into the Xero account too (it's all cloud based) and they tweak anything that may need to be tweaked before the year end.

Good luck with it all!

 

I spoke to my accountant about it last year and he didn't raise any issues with it - maybe I wasn't clear enough when discussing it with him?

Could you explain what the issue is? Cheers

Thanks mate - I will reconsider Xero - maybe should ask my accountant if he has a preference.

 

Dividends of a company can only be paid to the shareholders. If that is you then there is no flexibility.
If the shareholder of a discretionary trust then the dividends could be paid to the trust and then out to any one or more of a whole range of beneficiaries. Tax can be saved.

In addition there could be asset protection if you were to ever become bankrupt.

I is pretty basic stuff. perhaps you need a new accountant.

 

Thanks for that, that makes a lot more sense.

Applying occam's razor, I think it's more likely I misinformed him (or he didn't understand that I intended on setting it up myself).

I'll contact him now about making the change - thanks again.

 

I thought that would be legal advice not financial?

 

Yes legal advice really as it covers ownership and trust law, but an accountant could suggest a trust.

If the shares have already been issues there are important legal and tax considerations - asset protection is a real issue to worry about.

 

Can also look at at using any number of the rollover provisions to transfer the shares from your own name to the trust without CGT implications.

The shares at an early stage might not have much value anyway particularly if its just you providing your own services (check the PSI rules dont apply)

 

If you contract to multiple parties, does this still become an issue? ie 3 or 4 distinct projects over a year or 6+ different clients/month?

 

may be ok but an important part of the unrelated clients test is that you provide services as a direct result of making offers or invitations (such as advertising) to the public