What are the main issues Australian start-ups are grappling with? Accountancy and business advisor network DFK recently conducted a survey of its clients and staff to identify the top 10.
We’ve already highlighted number 10, cloud computing, and number nine, exit strategies. The beefy Australian dollar is in at number eight, while political uncertainty is seventh, growing pains number six, while number five is how to hire and keep staff or let them go quickly. Number four was falling consumer consumption.
We’ve now reached number three, dealing with the Australian Taxation Office. Many small to medium enterprises find it hard to deal with the ATO. This is how you do it.
It is estimated that one in fifteen small businesses fail because of inaccurate record-keeping necessary for the ATO.
The ATO’s requirements were set up, not only for the purpose of tax collection, but to push small businesses to have more financial control. So, is it possible for you to change your mindset and use the ATO’s requirements for your own benefit, turning it into a highly beneficial process for your business?
The answer should be “yes”. This will lead you to having better financial information and, therefore, the ability to operate your business more successfully.
A well-run business is less likely to fail. The appropriate documentation of your paperwork and figures will give you greater knowledge of your finances – this will in turn provide you with a greater understanding of your business’s strengths and weaknesses. This is a must if you are an entrepreneur wanting to grow and develop your business.
The ATO now audits more and more small businesses and has a large data base of over 30 industry standards used for benchmarking. This data provides guidelines for many business statistics, including how much profit your business should be making.
Any significant difference in the amounts you pay or declare as income at the end of the year is certain to flag a potential audit within the ATO system. Furthermore, if you work in an area that predominantly deals with cash, the ATO is more likely to take a closer look as to how you operate.
The ATO usually has a lot more confidence in payment arrangements organised by an accountant, rather than an individual.
“A new client of mine had five failed payment agreements with the ATO that they organised themselves and they failed due to various reasons. When they wanted a sixth one, they were denied it based on past history.
“We managed to get an arrangement with the ATO since we were managing the accounting affairs now and had put in place a cashflow management system,” says Graeme Bellach, partner of DFK Australia New Zealand.
Poor record-keeping probably means that you are not fully aware of how your business is performing and you will likely not be making the right business decisions required to help your business grow.
The ATO will reconcile BAS information, PAYG information and end-of-year tax returns and will expect you to be able to explain any differences between the different statements. If the ATO is not satisfied with your data or explanations it assumes that extra money is coming into the business to cover expenses. This will lead it to charge you income tax and maybe penalties based on their calculations of what they perceive your extra income to be.
Late lodgement of documents is also an issue, with late BAS statements incurring fines of up to $850.
“I say it over and over again; keep to your deadlines, even if your figures are not 100% correct. It’s better to show a BAS estimate, 99% correct, on time, than show a 100% correct BAS late,” Bellach says.
Top 5 tips to keep your business and ATO happy:
1. Change your attitude towards paperwork and get on top of things. If you absolutely cannot do it yourself, get someone else to do it and report back to you. After all, what’s the point of running a business if you are not making money?
2. Get your accountant to negotiate with the ATO if you’re behind. An accountant has greater rapport with the ATO and greater experience doing so. A business owner is usually more emotionally loaded, which is not a good space to negotiate from.
3. Stick to your deadlines, an approximate BAS is better than none.
4. Check the industry benchmarks on the ATO’s website to make sure your business is within the ballpark figures.
5. Make sure that you lodge your tax and BAS returns in time as the ATO has increased the fines.