Choosing the right accountant
Business owners have so much responsibility. However, when it comes to your financial position, speaking with an accountant or tax agent is really important, particularly if you’re just starting your business. Having a business accountant will allow you to track and analyse your financial position and keep all of your business and tax records up to date and accurate for the Australian Taxation Office.
Choosing the right accountant is really important. When selecting who to work with, find an accountant that specialises in small business and that has experience working with clients in your industry. An accountant who understands your industry and has an existing base of small business clients may be better suited to your needs.
Questions to ask if you are just starting your business
Are you thinking about starting your own business? Or started your own business recently? When starting out on your own, it’s important to ask your accountant the following list of questions.
1 What is the best way to structure my business?
Many people don’t even realise how important this decision is when starting a business. The decision you make regarding business structure will have a big impact on your business and how it operates.
There are lots of advantages and disadvantages to each type of business structure, so it is always best to talk to your accountant and discuss which type of structure is best suited to your need and the plans you have for the future of your business.
Here are the most common business structures that are available in Australia:
- Sole trader: an individual who is the only owner and controls or manages the business.
- Partnership: a group or association of people who carry on a business and distribute income or losses between themselves.
- Company: run by its directors and owned by its shareholders.
- Trust: a trustee is legally responsible for the operation of the trust. The trustee can be an individual or a company. Profits from the trust go to beneficiaries.
Each business structure has different responsibilities regarding the tax you are liable to pay, asset protection, and associated costs. You are not locked into a structure and can change as your business grows. Your accountant can discuss each of these with you and work out which one is best suited, as well as setting up your business structure and registrations with the relevant government agencies (e.g. ATO, ASIC etc.).
2 Should I hire employees or use independent contractors?
An important responsibility of becoming an employer is making decisions around who to employ them and under which conditions.
Speaking with your accountant regarding the best approach is highly recommended, as they can advise you of all the benefits and drawbacks of each option, whether it be full time, part time, casual, or subcontracting arrangements. They can also help you with avoiding misclassifications, and to manage all of your responsibilities as an employer.
There are major differences employees and independent contractors. For example, for employees, you are responsible for withholding and remitting PAYG withholding tax. On the other hand, for subcontractors, you don’t need to withhold any tax on the employee’s behalf.
Your accountant is well placed to advise you on employment arrangements, and classifying employees vs subcontractors.
3 What are my tax obligations?
As a business owner, your first ever tax time can be very stressful, and you may find that you don’t even know what your specific tax obligations are. This is why its always best to talk to your accountant ahead of time and ask them about the specific reporting requirements and obligations that apply to your business.
Although every business is different, some typical examples of tax reporting and obligations include:
- Business / company income tax
- Personal income tax
- Payroll or PAYG withholding tax
It’s best to talk to your accountant about which taxes apply to you and your business, and work out a plan for meeting these obligations, so you can avoid any potential penalties and maximise your returns as much as possible.
Questions to ask your accountant regularly
Regardless if you have worked with an accountant for years, or are looking for a new accountant for your business, to get the most out of this relationship, it’s important that you know what kinds of questions to ask.
1 What records should I keep?
One of the most important questions you need to ask your accountant is which records or paperwork you need to retain. Retaining tax records allows you to measure profitability, secure funding, and comply with any potential auditing conducted by the ATO. Your accountant will be able to tell you which records your business needs to keep.
Some examples include:
- Financial statements
- Income statements
- Balance sheets
- Cash flow statements
- Business tax returns
- General ledger
- Bank statements
- Credit card statements
- Agreements and contracts
- Business licenses and permits
- Insurance documents
- Payroll records
You will need to keep records for a certain period of time to comply with ATO reporting requirements, so it’s best to store both paper and digital copies in a secure manner. Ask your accountant how long you need to keep each type of record.
2 What types of expenses can I deduct from my business?
You need to be careful when claiming small business tax deductions. Every type of deduction has a specific set of rules and regulations that need to be followed. It’s always best to ask your accountant which business tax deductions you’re eligible for, well in advance of tax time. Your accountant can then advise you regarding which ones you can claim and how to best allocate funds to maximise your returns at the end of the financial year.
There are many types of deductions, but here are a few examples you may be able to claim:
- Use of vehicle for business purposes
- Home office expenses
- Business related travel
- Employee related expenses
- Charitable contributions and donations
- Purchase of materials
- Tools and equipment
Depending on your business, you may be eligible to claim some or all of the above.
3 What is the best way to prepare for tax time?
To ensure that tax time is smooth and easy for both yourself and your business accountant, it’s best to ask your accountant what information you need to collate for them well ahead of time. You may also want to ask for some advice on how to best organise your record keeping to make tax reporting easier. One way to do this is to use cloud based accounting software such as Xero, Quickbooks or MYOB. If your bookkeeping is well organised, tax reporting should be faster, more accurate and seamless.
Remember, your business accountant can file and submit your business taxes to the relevant reporting bodies and agencies (such as the ATO or ASIC) on your behalf.
4 How can I improve my cash flow management?
One of the biggest challenges of running a business, regardless of its size, is to maintain a healthy, positive cash flow. To avoid your cash flow becoming negative, or staying negative for long periods, ask your accountant for some advice on how to best manage this. Your accountant should be able to help you with understanding your cash flow better, analyse and find any potential problems, and develop a plan to improve your cash flow position. In addition, an accountant can help you create cash flow projections so you can manage and plan ahead of time for larger outgoings and expenses.
5 What is my break-even point?
For any business, a break-even point is defined as the point at which your total sales are equal to your total expenses. When a business breaks even, it means that it is making enough income to cover its operating costs. Knowing your break-even point is absolutely critical because it determines how you set the price for your products or services. It also helps with creating a budget for the business, as well as monitoring and reducing costs. Ask your accountant to analyse your financial records and calculate your business’ break-even point. This will allow you to very quickly work out if your business is making profit, losing you money, or just doing enough to cover its costs.
6 How can you help me grow my business?
The ultimate goal of every business is not only to make profit, but also to grow in some shape or form. Whether it’s expanding the number of locations, increasing the number of product lines, or growing your sales, asking your accountant how they can help your business to grow.
Your accountant is a financial expert, and can identify the kinds of opportunities that will help promote business growth, as well as the ones you should avoid altogether. They can also analyse and track your business progress and identify any potential issues that could be limiting your growth as a business, such as overspending in certain areas. Through cash flow projections, they can help you plan ahead for big opportunities and the expenses that come with them.
7 Should I make any changes to my business?
Once you get to know each other, your accountant will gradually become an expert in your business. However, a lot of the time, their expertise remains underutilised. That is why you need to ask your accountant: what changes could I make that would help my business?
Your accountant may not have all the answers because there are lots of factors that affect your small business, but they should still be able to steer you in the right direction and give you some advice on which changes to make. It’s important to have your accountant analyse your business on a regular basis to identify any opportunities to make improvement, even if they are minor in nature.
Staying on top of your business tax
Talking to your business accountant should not be an annual event. It’s important to keep an open dialogue and continue analysing, planning and reporting.
We recommend revisiting this list of questions regularly to ensure your business is staying up-to-date with new tax laws, regulations, and that you are constantly identifying opportunities to improve.