Making job profit on every job is important to make a profit and cover your business overheads and administration.

In the world of Building and Construction, there are many types of tradespersons who operate small businesses in Australia.

Some people are great trades person but not always running a business.

Amongst the construction industry, there are those who can run a successful business, those that can make a living but not much else and those that lose money and should not be self-employed!

Making a profit is an art and takes some understanding of your trade, what the market will bear and the cost of the ingredients it takes to make the end service product or project. Might at this stage also throw in mess ups where you have to fix a problem caused by not doing things right!

Yet many don’t take the time to get it right. They rely on their gut and this leads to losses and cash flow problems.

Good habits help makes job profit

Get into the habit of examining every job and take the time to understand costs vs profit. Understand what work you should continue you win and which jobs you should work away. Look at the labour on job and was it efficient or were there defects that required additional time and loss of resources that could have been spent elsewhere?

There are tradies out there that use the back of enveloping approach For them this works only because the price quoted is well above the odds. Often it also leads to low margins and has the reverse impact on profit.

There is no excuse these days with the sophistication of accounting software that you cannot monitor these jobs properly.

Cloud accounting software

 Accounting software such as XERO and MYOB can help you track jobs. A good accounting system can tell you the result or ongoing costs of a job.

There is also specific job costing software that is functional and affordable for smaller trades.

A final tip that many trade businesses neglect to do is while they measure their results on a job to job basis they forget to keep the score of the annual year to date result. This is where you may make a profit in a job but with insufficient margin, your administrative overhead can dilute your profit quickly with undesired effects of cashflow and taxes being unpaid. 

Don’t fall into the habit of not looking at the big picture not just on a job to job basis. Practical ways that some tradies ensure that they make a profit on a job is to :

1. Add 10% to cover for incidentals
2. Throw in a couple of thousand to make it worth while
3. Use a professional quanity quote service
4. Compare othe jobs you have done
5. Ask other tradies as to what they quote

Plan your quotes, do the job and review the outcome. A good business will make nice profits and when you get the taste for profit it becomes something you strive for do better and this is a nice feeling to enjoy

Are you claiming rental expenses that might relate to the private use of your rental property?

The ATO has indicated that they intend to review taxpayers who have rental properties.

Who’s on the title is important!

When declaring the property. The ATO will be looking for the persons whose name is on the title to declare the net rental income or loss. This also goes for the eventual gain when sold.

Many think that if they share in the loan liability that this is sufficient. The truth is it is entirely based on ownership and title details.

Beware of the ATO

The ATO’s focus will be looking closely at those taxpayers that incur expenses beyond the norm for their rental property. The ATO will consider these expenses as both excessive and where the rental property is not available for rent but rather used as a holiday home.

The ATO like all of us is aware if you have a holiday home for rental in most cases there is a big chance you will use it for your personal use.

Travel to and from your holiday home or rental property

From 1st July 2017 travel expenses to your travel holiday home were legislated to be disallowed. (note this does not apply to commercial properties).

The ATO has previously been on the public record stating that they will take a keen interest in the interest expense claims. They will look to see if the property is available for continuous rent vs the percentage of the expense claim. Remember also you can only claim interest from the time it’s available to rent and not before.

Further, those taxpayers who have drawdown additional funds against their investment loan or refinanced will need to ensure the loan interest claim reflects the proportion % of the original loan.

Those using loan offset accounts should be okay

Adjust for private use on rental expenses

Make sure that if the property is used for private use then the property expenses are proportionately claimed accordingly.

The same goes for low rental, not arms-length, adjustments also apply.

The ATO has technological ways to check taxpayers’ stories, including real estate sites, social media and other sources such as water and electricity accounts. Take care when claiming and if in doubt please check with us.

Rental properties are still a great investment. We are now seeing many of the rental schedules being positive rather than negative gearing. This is entirely due to low-interest rates and high rentals.

We encourage you to contact us if you are purchasing a new property and let’s discuss who should hold the property and what claims can be made

Franked Dividends are recognising tax paid by the Company and transferring the tax as a credit when the Company pays Profit to shareholders.

Running your own Company will mean that as a shareholder you will want to access these profits. This is done as a Dividend. In simple terms your company is a money box and the only way to get it out as a shareholder is to pay profits as a Dividend. This will either be paid to you as a Franked or unfranked Dividend.

Profits to shareholders can be paid from the Company retained profits as a dividend.

A company pays distributions to its members. Shareholder members may be individuals or other entities such as your family trust. The amount of a dividend allocated will depend upon a number of shares you hold and the percentage of ownership.

What is a Franked Dividend and a Franking Credit?

Your Company, after paying a paid tax payment, either in the form of a company tax instalment or year-end company tax, will record these amounts as franking credits in the Company Franking Account.

Presently the Company Tax rate is set at 26%

When the Company issues a dividend, it will issue a distribution or dividend statement to each shareholder member.

The dividend statement is then given to each shareholder who receives a distribution outlining their entitlement.

Dividends paid by your company can be either Franked Dividend or an un-franked Dividend. The franking amount will depend upon the availability of tax paid by the company in the company’s franking account. When no company tax has been paid by the company a franked dividend may not be paid. Therefore, the Company may choose to issue a dividend, as un-franked.

The Dividend statement will show the amount of franking credit attached to the distribution. The statement will also show the extent to which it’s franked. Only resident taxpayers of Australia can claim a tax offset for a franking credit attached to a dividend.

Non-resident taxpayers, receiving a franked distribution are exempt from withholding tax in Australia. This is to the extent that it’s franked. Therefore, if it is 100% franked there is no final tax to pay or declare as a non-resident.

We recommend reviewing your Company’s Retained Profits regularly. Leaving large profits in retained earnings can lead to tax problems down the track when you decide you need to access these profits. Regular Dividends can eliminate the problem of tax implications being paid out in large Dividends.

Grossing up your Dividend in your tax return.

An individual shareholder in your Company will pay you a dividend. The franked dividend from the Company must include the amount together with any franking credit as declared taxable income. This is known as Grossing up your Dividend.

Receiving a franked divided also entitles you to a tax offset equal to the” franking credit amount. For tax purposes, this effectively means any tax up to 26% on the income will result in a neutral result.

A tax offset can result in a refund or excess tax payable. The tax may result in the need to pay additional tax liability on the distribution. When this happens, it is known as ‘top-up’ tax.

Taxpayers with lower taxable incomes can receive a refund of all or almost all the franking credits. This will be dependent on their income position.

As your accountant, we try and work with you to obtain the best result for your tax position. Managing how you declare your declared Frank Dividends using the right tax opportune time. The aim is to help smooth out your tax position and reduce your retained earnings in the Company.

Contact us for help 03 9597 9966

Gifting Assets to your Family Trust protects your investments and assets by placing them in a Trust Environment

It is also great for tax planning. Many of us establish a Family Trust for asset protection and to ensure our assets are correctly passed on to the next generation. Having now established your trust, you may now ask how do I get money into the Trust?

Fundamentals of a family trust

Let’s explore the basics of a family trust first. The Trust has a couple of fundamental elements that you should be aware of, but in simple terms these are:

• Trust Deed – the rule book of how you run your Trust
• Settlor – establishes the family’s trust.
• Trustee – runs the Trust on behalf of the beneficiaries
• Appointor – appoints the Trustee.
• Beneficiary – family who benefits from the Trust.

How do I get money into my family trust?

Putting money into your trust can be done in two ways:

1. Gifting assets from your funds to the trust.

2. A Loan from you to trust – repayable defined or non-defined

Either method works but gifting assets to your Trust is better for estate planning.

It must be done properly so that the Trust Assets are secure and recognised as owned by the family trust. This means any transfers should be well documented and explained that it is a gift. It will probably be allocated to the Corpus of the Trust

A Trust is a legal entity. However, some registries won’t recognise the Trust but require the Trustee to be the registered owner on behalf of the Trust.

Beware Gifting means not easy to get it back

There are 2 points here you should consider

Once the asset or money is gifted it forms part of the capital or corpus of the Trust. In simple terms your Trust now owns it and the only way to get it back is to either make a specific distribution as capital or vest (ie windup) the Trust. In most cases, upon vesting of the Trust the capital would be distributable to the default beneficiaries. To understand how it would work for your circumstances you should consult you’re Trust Deed

Point 2 – is the ability of the Trust to enter into a Gift and loan back arrangement. Be careful if you are considering this as again it needs a well-documented agreement and actual $$$ changing hands.

Loaning money to your Trust!

Loaning money to your Trust will allow you to request that you can recall the monies you have lent to the Trust . Repayments will depend upon the Trust the ability to pay and several other factors. Even though a loan agreement is not necessary, many people still decide to draw up an agreement for certainty and estate planning.

The Trustee has an obligation to repay the loan if requested. If no loan agreement, then maybe at a minimum the loan should be recorded by the Trustee by a minute. The accountant should record it on the Trusts balance sheet. Yes, interest can be charged but that again depends upon what you have agreed to with the Trust and you as the lender.

Gifting assets to the Trust

A Trust can help protect you and your family’s assets. Many families gift assets to the Trust. This means that you forego ownership and the asset forms part of the Trust’s capital or corpus. This means that over time creditors, angry family members and newly wedded children cannot make a claim on these assets as they are now owned by the Trust.

In most Family Trusts, the control is established by yourself as the Appointor. The appointor has the ability to fire and hire the Trustee. This means that you effectively control the Trust.

Upon your death, your executor acts on your behalf. The great thing is that the Trust continues to the next generation detailed in the Trust Deed. This will continue until the trust vesting day normally 80 years after establishment.

As the Assets are owned by the Trust, gifting can in some circumstances for social security planning.

Every person’s circumstances are different. Therefore what we have outlined above is a very simplified summary of the operation of the trust and your money. We suggest that you seek professional advice. We are happy to assist you if you need help in this area.

Reach out to Geoff if you wish to talk about your circumstances. Phone 95979966

When I die what happens to my business and my affairs? Will my business continue or just stop?

If you were running as a sole trader and you die, in most cases, your legal personal representative will step in . It is their role to manage your business. They can assess if the business needs to be wound up, sold or transferred to a beneficiary.

Your business asset forms part of the assets of the estate. Therefore legally executed will , can help give certainty to your wishes.

Many clients are unsure of the process of what happens once they die.

There are several matters that should be dealt . These need to be dealt with in a timely matter when it comes to a sole trader business.

What happens after I die? The process of winding up my affairs

The process that can take place after death include

• The business continuation is a going concern ! – The longer the business is left un-managed, the greater chance that the business value may disappear
• Your executor will take control of your business until its decided upon . It maybe be sold wound up or given to a beneficiary as part of the estate distribution
• Choose your executor wisely that can deal with your business affairs
• Until probate takes place, its best to ensure if a beneficiary is to inherit the business that, this takes place as soon as practical. If this cant take place then allow a beneficiary to act as a caretaker mode
• Reassure customers and suppliers of the situation., Ensure, where possible, that the business remains of value and assets are protected from going missing
• Chase down outstanding monies and secure the business assets from theft. Stop and people thinking well the business owner has died they won’t care!

The business forms part of the estate and impacts the final distribution to beneficiaries. Often upon the death of a sole trader, there may be outstanding debts to the ATO, suppliers and financiers. If there are insufficient assets upon realisation to pay the debts, the estate is placed in bankruptcy.

Sometimes a business who is a sole trader dies suddenly leaving lots of debt. If the estate is unable to pay, then the estate becomes bankrupt. Pleas talk to us if this maybe your situation for a person you are acting for after death.

For those who run their business in a Company or a Family Trust

If you choose to operate your business as a Company or a Trust, your legal representative should be appointed as the Director or Trustee in your place. In this case, the business would continue. The ownership if the shares were owned by you it may form part of your estate. This may include any loan account owing to or from the Company.

If your ownership of your business is held by your Trust then you will need to consult your Trust Deed and control will also be held by the appointor and or Trusteee. This is an interesting area of law and taxation and we suggest you consult us.

Careful planning required

We suggest careful planning of your affairs. Planning will ensure that when it comes to your business, your wishes and adhered to and that a plan in cases of death has been considered to assist the executor in managing the sale of the business. It is why for many reasons, Life Insurance is recommended. Insurance will ensure that insurance proceeds can cover some of these unexpected business expenses.

If you are an executor you need to act to preserve the business value and we can help here

As a final tip is to make sure all registrations such as GST, ABN, social media accounts and WorkCover have been cancelled. This will avoid recurring notices. We can assist you here!

We welcome you to contact us and discuss a plan so that we can guide you on how you would like to finalize your affairs after the man upstairs has called you for higher duties.

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Reach out if you need our help

For many businesses, cash flow is an issue that holds the business back. But, unfortunately, there never seems like there is never enough cash when you need it.

With Christmas around the corner, it’s time to plan. Naturally, a business owner will not want to reduce their cash balance unnecessarily at this time. But, on the other hand, an increase in cash into the business can make life easier and lower the cost of financing. Moreover, squiring the money now can pay dividends in the post-festive month of January.

How to reduce cashflow leaks

 To help you preserve or increase your money, here are our five cash management leaks to avoid.

1. Bloated Bank Fees

Some banks are more business-friendly than others.  Therefore, we recommend you assess the fees you are currently charged and aim to eliminate any unnecessary services.

•  Is it practical to maintain a   cash balance to avoid monthly fees? Do you charge merchant fees to recover?
• Are you being charged online banking fees, and are these still necessary?
• Are you being charged for a high volume of transactions or cash drawer services, and are these competitive with other banks?

Banks are open to negotiation, and we sharpen their pencil for a long term relationship.

2. Are you sure you are paying the lowest amount of taxes you legally can do without entering into tax avoidance? 

 There are several opportunities to review to ensure that you are not overpaying taxes anywhere in your business or personally:

• Payroll taxes
• GST tax
• State and local income taxes
• Property taxes
• SMSF – are you in pension mode if you are retiring etc. and can have your smsf pay zero tax

3. The Cheque Is in the Snail Mail!

Customers who take too long to pay you are one of the biggest cash drains in your business. Consider reviewing your terms, asking for deposits, or becoming more aggressive with collections to bring your DSO (days sales outstanding) down. 

When you do, you will see an instant, permanent cash flow improvement. Don’t do work for people that can’t or won’t pay you or are slow

4.  Watch for those unknown bank errors and scammers

You may have an eagle eye on your most extensive bank account, but what about your other cash stashes? 

 PayPal, petty cash, credit cards and business savings accounts are among the places that may not get daily scrutiny.  Ensure those accounts are properly reconciled and have the proper controls so funds don’t go missing or someone else’s transaction ends on your account

5.  It’s in Your Interest

An excellent problem to have is when your bank balances get to be significant

What is your optimum working capital level? First, you don’t need the money immediately, so make it work for you.  Then, make sure that money is still working hard for you by putting the excess in an interest-bearing account, reducing loans or used for more resourceful opportunities. 

Cash is King and so is a good cashflow strategy

We always recommend a cashflow strategy of ensuring your trading company does not become a cash-rich piggy bank. In case of if things go wrong, you leave your cash exposed. Reach out if you would like to discuss this aspect further.

Cash management is important when conducting an import or export business. Planning for funding of containers, currency fluctuations and disruption are all strategic planning matters. We have assisted clients in scenario planning for lumpy cash flow and large inflows and outflows that can happen with these types of operations.

Cash can also disappear when job planning does not happen or the project goes pear shape. Read our article about job management.

Make a your cashflow strategy a priority

If we can help you plug any of these cash leaks into your business, please don’t hesitate to reach out and let us know. A cash flow forward strategy allows you to plan where your working capital can find it hard. If you aren’t using a cash flow plan, then let us help you start the process.

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