[Award] Brisbane Young Entrepreneur of the Year 2014 Finalist
In November 2014, I was excited to be announced as a finalist in the Brisbane Business News “Brisbane Young Entrepreneur of the Year” awards.
Each year, the Brisbane Business News searches from Brisbane’s most ambitious entrepreneurs who are carving out their own unique position in the business community.
This award recognises game changers in the industry, bringing together innovation, stellar success, disrupting their market with grit and determination.
To Increase Cash Flow: Know Your Working Capital Days
We all know that cash is king. And what is more necessary than optimal cash flow in your business?
While Revenue and Profit are a “must” to measure, neither of them give any insight into your business’ cash position. Working capital days gives us the context to Revenue and Profit.
Working capital days is an interesting metric – and it can be broken down into a few components.
In short, working capital days measures the number of days between you paying for your cost of sales, and receiving payment from your customer.
The Goal is to Reduce Working Capital Days
The shorter or smaller the Working Capital Days are, the better the business’ cash flow, as the cash is “tied up” in working capital for the least amount of time.
So if we increase Payable Days, and reduce both Work in Progress Days and Debtor Days, this will reduce working capital days and improve our business’ cash flow.
And yes, it is possible (and desirable) to have negative working capital days!
Calculating Working Capital Days
As working capital is made up of other figures, we’ll need to work out what the following numbers are:
Payable Days
Work in Progress Days or Average Stock Days
Debtor Days
Payable Days
Also called Creditor Days.
Although technically working capital days doesn’t include payable days, the date that you pay your suppliers is the ‘start day’ of working capital days.
So what that means is, if we extend our payment terms with suppliers, we’re shortening our working capital days if all else stays the same.
It’s an important lever to measure, as a few words of negotiating credit terms can reduce some pressure.
Work in Progress Days or Average Stock Days
Depending on your business, whether service (WIP Days) or selling products (average stock days).
For the service business, I like to refer to WIP days as “turnaround time”. The time from when the job comes in the door, to when it is delivered to the client.
For businesses who carry stock, there is an art to reducing the number of days your stock is sitting on your shelf (and that cash is tied up too!).
You can also use this formula as a service business if you put a dollar figure on your WIP.
For those without a dollar figure, please keep a track of your turnaround time using a visual scoreboard or workflow management system. Turnaround time is critical not only for cash flow, but in most cases it matters to your customers.
Debtor Days
Debtor days is fairly similar in process to calculating payable days.
Debtor days is calculating using the following formula:
Improve all 3 to Help your Cash Flow
All in all, if you focus on improving all three of the above numbers, then it will have a dramatic effect on your overall cash flow.
Can I claim the kitchen sink? Do’s and Don’ts for Home Office Deductions
With the rise in cloud technology making the need to have a fixed ‘place of business’ outside the home far less important than it once was, many small business owners are choosing to operate from home. Meeting your clients at a decent café is a far more relaxed and friendly environment than a stuffy little serviced office anyway, right?
However, while your business can operate from your private residence with ease, this trend has also created confusion at tax time.
Which home expenses can you claim as a tax deduction?
How do you split expenses that are partially private and partially business?
You used your car for business related trips during the year but are these kilometres deductible?
To help business owners navigate this minefield, we have pulled together the Do’s and Don’ts we usually share with clients who wish to claim deductions for expenses that would usually be seen as private (or ‘non-deductible’ in ‘accountant-speak’):
Household Expenses
The ATO refer to these types of expenses as ‘occupancy expenses’. These include your rent or if you own your house, things like council rates, home and contents insurance and interest on your mortgage. We can also expand this list to include the costs of running the home such as the electricity, water, gas, telephone and internet.
Do claim ‘occupancy expenses’
Before you run off and claim all of your rent in your next tax return, there are some important rules to keep in mind.
Firstly, you need to set up an actual ‘Home Office’. Sitting on the couch with your laptop in front of the TV is not a home office. No questions asked. There needs to be an area in your home set up as a working space specifically allocated to your business.
Don’t claim the kitchen sink (or your floor area that is not an office)
Secondly (and most importantly) you will need to apportion your household expenses based on either the floor area of your home office or the actual usage depending on which expense you want to claim.
To claim occupancy expenses based on the sizes of your home office the calculation is as flows:
(Floor Area of your home office) x $Amount of the expense
(Floor Area of your entire house)
For example, if I have a 200 square metre home and I use a 5 square metre bedroom as my home office, I can claim 2.5% of my rent and other occupancy expenses as a tax deduction in my business’s income tax return.
Do apportion your expenses
Typically some expenses will have a higher business use percentage than that calculated by the floor area method. For example, your home internet and your mobile phone may be closer to 90% business related (if not 100%) so using the floor area method would significantly reduce the available deduction.
In this case you are permitted to calculate a reasonable estimate based on your actual usage. If your usage of your home internet based on hours used is 75% then you can claim that percentage of your monthly internet bill as a deduction.
So which method do you use for each type of home expense? The short answer is whichever method gives you the highest deductible portion, while still being easy to support in the event that the ATO requests evidence.
Do choose which method provides the best deduction
Typically the floor area method will be the most appropriate for occupancy expenses while other home office expenses are usually claimed under the actual usage method.
In the event all of the above just sounds like too much hard work, the ATO does allow a flat rate deduction for home office expenses to cover the extra electricity and deprecation on any furniture used. This deduction is claimed at a rate of $0.34 per hour for every hour spent working from home.
If you are looking to claim your home office expenses on a property you own, its worth keeping in mind the potential Capital Gains Tax (or “CGT”) issues that can arise from using your ‘main residence’ to produce taxable income.
Motor Vehicle expenses
Once you have established your residence as your ‘place of business’, trips from your home to see clients, visit work sites and attend any other business related function are tax deductible.
Do claim your trips from your home office to clients, work sites and engagements
The specifics of claiming motor vehicle expenses for a business owner are the same as those for an employee.
You can claim up to 5,000 work related kilometres per car in a given year without a logbook. This deduction is intended to cover all your motor vehicle expense (fuel, registration, insurance, maintenance, depreciation etc).
Business owners who wish to claim deductions in excess of this amount will need to keep a logbook for a 12 week period, that begins in the financial year you wish to claim the deductions.
The real ‘Do’
The main take away from this article is always make reasonable estimates that you can support when claiming tax deductions. This does not just apply to home office expenses but in all areas of tax.
If you are reasonable with the ATO they’re usually reasonable with you!
Do be reasonable!
How Do I Pay Myself From My Company or Trust?
We have been asked three times in the past week, “How do I pay myself?”.
This is a very valid question, and one that has a few complexities. Let me try to keep it simple…
While you can draw money out either a Company or a Trust the way we treat that money for tax purposes is very different depending on which structure you are using.
Here’s a few concepts you’ll need a basic understanding of
Loan
If you’re looking to take money out of a Company or Trust (an entity), a loan account can be used to record the amounts taken.
When you draw the money out of a company (but not a trust) there are rules that are commonly referred to as ‘Division 7A’ or ‘Div 7A’. These rules require that you draw up a loan agreement between you and the company (or between a relative of the shareholder and the company if the funds were not withdrawn for the shareholder directly).
The Division 7A rules are a significant drawback when considering loaning money from a company to a shareholder and make this type of arrangement inappropriate as a long term strategy. In fact it is better to avoid loans from companies to shareholders at all wherever possible.
If you’ve got a trust and you draw money as a loan, this just sits on the balance sheet as money you owe to the trust. When the distributions are paid for the year, this reduces the balance owed back to the trust and you’re loan account is left at the net amount (cash withdrawn – Distribution).
Drawings
Drawings are simply another word for loans – and with Division 7A, it provides the same problems within a company, just with a different name… As with loans, you’re ok with a trust.
Wages or a Salary
This is a simple way of paying out money from an entity. You essentially become an employee of your own company or trust.
Paying a wage or salary while simple, also requires that superannuation is paid on the gross figure and also that PAYG withholding tax is taken out. This can be a disadvantage depending on your age and cash flow requirements.
Directors’ Fees
Like drawings are to loans, Directors’ Fees are to Wages or Salaries.
The superannuation laws had previously allowed Directors fees to be paid without the need to make a superannuation contribution on behalf of the director. This was changed quite a few years ago and now there is little difference between Directors’ Fees and a salary / wage apart from the name.
Dividends
Dividends are payments (or loan movements if not paid in cash) that are made from the balance of retained profits (aka retained earnings) in a company.
You may have also heard of the concept ‘franked dividends’. These are simply dividends where the company issuing them has paid the tax on them already. What happens then is that you can claim back these ‘franking credits’ when the dividends are paid to you.
Distributions
Distributions are to a trust what dividends are to a company. They’re the method by which we allocate the entity’s profits to the owners of the business. We can only ‘Distribute’ from a trust.
Distributions are also paid out of current year profits, as opposed to retained profits from prior years (when paid in the form of dividends from companies).
The owners of the business (the trustees) need to make decisions about the distributions for an income year before the 30th of June. It is important to ensure these decisions are consistent with the clauses in the trust deed.
How We Recommend Getting Money Out of a Company
The easiest way here is to pay a salary to the owners. If not paid in cash there’s no problems at all – it will simply sit on the balance sheet as owing to the owner.
What we would recommend too is considering a restructure to allow for a better flow of profits and cash from the entity.
It is also important to regularly ’empty out’ the retained earnings in a trading company, so that it does not become a juicy target to be sued by creditors or disgruntled employees.
How We Recommend Getting Money Out of a Trust
As the cash flow of the money coming out of a trust does not necessarily dictate where the tax is paid, you are fine to take money out of a trust and treat it as a loan from the trust.
We would then record the final balance owing to the trust, less any distribution of profits paid throughout the year – which would leave the net loan between yourself as an individual and the trust.
It is also extremely important to work with an adviser who has their finger on the pulse when it comes to distributions. You must work this out before the financial year ends, or you could be in all sorts of strife with the ATO when it comes tax time.
At the end of the day, you need to know you’re doing it right
Taking money out of entities is a fairly complex area. If done without advice, it could lead to mistakes that can cost tens of thousands in tax.
When talking with your adviser, make sure you understand exactly how you can take money out in your circumstances. Even play out the practical ‘to do’ as well – whether raising a pay slip, paying PAYG withholding etc.
Oh, and please ask clarifying questions below in the comments section too 🙂
Why you should eat a GST Free Diet with one of Anthill’s 30 under 30, Mr Ben Walker – Bond Appetit
Ben Walker is the Chief Inspiration Officer of Inspire CA (the accounting firm) and the Beer Development Manager of Inspire Cafe. Inspire CA’s mission is to inspire people to build phenomenal businesses. The dream for the cafe is create a place where you can enjoy a good coffee and something decent to eat with entrepreneurs and business people.
Ben is a qualified Chartered Accountant and his early years were spent learning the ropes at KPMG, a multinational, “Big 4″ accounting firm. He challenges the industry by the way he operates. His accounting business does not function like a normal accounting practice and it’s testament to his entrepreneurial spirit that he has managed to achieve that.
Ben’s mum and the most amazing feat she’s achieved
Nutrition and Meal Plans
What foods to avoid
Calorie dense foods
What foods to actively seek out
GST free foods
Ben’s fondest food memories
Ben realised that the food he got at home which his dad used to cook was just the best ever. But, growing up he used to be pretty fussy when it came to food. Ben’s favourite meal growing up was pizza.
Sir Richard Branson at some of the Brisbane Restaurants on Eagle Street Pier
Last meal on the planet?
A seafood buffet at George’s Paragon
Resources
Eat that Frog Book
Business Structuring Made Easy! Part 6: The Dangers – What if I Get it Wrong?
In order to reinforce the importance of selecting the right business structure, our final article in this series looks at the consequences of getting the choice wrong and the potential costs associated with the transition to a new structure.
Quite often clients start business operations with little to no thought about business structuring and are confronted with multiple complications a few years down the track when changes need to be made.
Income Tax
Any profits made on the transfer of items such as plant and equipment or trading stock between business entities is taxable income in the hands of the entity making the sale. These profits will be reported on the income tax return of the relevant entity and tax will be payable at the applicable tax rate.
Click Here to Download our eBook “Business Structures Made Easy”
If you are transferring out of a company structure, careful consideration must be given to any advances, loans, or intended debt forgiveness by the private company to shareholders and shareholders’ associates. These amounts could potentially trigger Division 7A and create unforeseen income tax consequences for the parties involved.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax charged on capital gains that arise as the result of the sale or disposal of certain assets.
While we cannot hope to cover all of the potential CGT implications of transferring various business assets between business structures and the concessions available to manage the tax on these gains, it is important to highlight that Capital Gains Tax must be considered when changing your business structure.
Stamp Duty
Depending on the state you live in and the type of asset in question it may also be necessary to pay stamp duty on the transfer of assets between business entities.
While most states offer concessions, they do not apply in all cases so you must ensure you have given due consideration to the stamp duty implications on any asset transfers.
Administration Costs and Business Interruption
While not as costly as the other areas of discussion, there are some smaller considerations which may be overlooked in a “big picture” approach to changing your business structure.
The accounting and legal fees incurred in establishing your new business structure and to wind up the old structure can vary from a one thousand to tens of thousands depending on the structural choice and level of advice you require. This process will involve the creation of the new structure and all the associated registrations.
Your new structure will generally have its own Australian Business Number (ABN) and Tax File Number (TFN). This, in turn, means that you will need to establish new bank accounts, update all agreements with your current staff, customers, and suppliers as well as updating the ABN on your existing marketing material.
During the financial year in which you make the transition between business structures it may be necessary for your accountant to prepare financial statements and income tax returns for both business entities. This will increase the cost of your compliance work for the year.
Queensland Business Monthly
This article was originally published in the Queensland Business Monthly, a lift out in the Courier Mail, Friday 29th of August 2014. Written by Nicole Madigan.
Having worked in the accounting industry for just a few years, Ben Walker quickly found himself brainstorming new concepts, determined to make his industry of choice less dry.
“I wanted to create an accounting firm that was far from the typical and stereotypical,” says Walker, who dubs himself “chief inspiration officer”.
The result is an accounting firm that’s as non-typical as you’re going to get.
It’s central hub is an interlinked coffee hub, Inspire Cafe, which not only serves as a connection between Walker’s customers and his business, but has become a landmark in its own right.
“We have businesses from around Brisbane and even flying in from places such as Melbourne and Singapore to run their own workshops and events here,” Walker says.
The 25-year-old developed the idea after outgrowing his first office space, where he launched Inspire CA as the “non-accountants’ accountant”, aimed at helping creative agencies understand the numbers that drive their business.
Despite the success of the business, growing from one to four staff in four months, bringing the cafe from concept to reality would be an expensive process.
So, in addition to the traditional methods, Walker sought out crowd-funding, which essentially means financing a project through contributions of various size from a large group, typically via the internet.
“The crowd funding was an ambitious idea,” he says.
“We used crowd funding site Indiegogo and had available perks like ‘Coffee for Life’ where the funder received coffee for the rest of their life.”
With the cafe installed and ready for service, Walker went about positioning it as a networking venue for local business people and like-minded thinkers – a place that was linked and unlinked to the accounting firm.
“We ran an email campaign of video updates for the cafe. Every week or two, I’d shoot a short video of the build and fitout and upload it on to YouTube and send this out to our audience,” he says.
Citing innovation as paramount to success, even in the seemingly mundane industry of accounting, Walker says his aim is to lead the profession through cutting edge innovations such as online signing and cloud accounting.
And so far, it’s paying off.
“We’ve received plenty of commendations and encouragements from business owners, entrepreneurs and other accounting firms globally of what we’ve created here.
While it wasn’t easy, it was definitely worth it and I really look forward to developing the community even more.”
7 Impressive Marketing Blogs You Can Share With Your Clients
I’m sure that you can relate with your clients that developing engaging content takes an enormous, disciplined effort to get momentum.
So does everything that’s worth it.
Best of all? Like the promise of a flywheel, it gets easier as you go.
But what do you share with your clients during the time in between your own blog posts? There’s plenty of other blogs out there with exceptional content that you can share – and it is sure to add some serious value to your clients.
Moz is heavy into PR, SEO, websites and everything digital marketing. It also has some very impressive tools that you can use to monitor and better your websites.
The Moz Blog is sourced from a wide variety of contributors too, which I find gives you great variety of opinion and expertise.
This is a very impressive website, and I recommend registering for their free membership. There’s over a dozen content heavy eBooks that are available just for providing your name and email.
Seth’s insights are incredible. And I remember reading once that he even writes them daily at 4 something a.m.
Seth is also the author of 17 books, all with golden nuggets to help businesses skyrocket. He is a ‘must follow’ for any business looking for a marketing edge (which should be any business!).
The MailChimp Blog provides some great value for businesses that integrate email marketing into what they do. I would hope that email marketing should be a critical part in any business today.
The blog also doubles as an instruction manual or ‘best pratice’ reference guide to the MailChimp product itself.
If you’ve read a phenomenal marketing blog that I haven’t mentioned here, do share it in the comments section below!
Anthill Online 30under30 2014
Ben has been humbled to be named as one of the Anthill Online 30under30 for 2014.
30under30 is an Anthill initiative that was launched in early 2008 to encourage and promote entrepreneurship among young Australians.
The program provides recognition to 30 entrepreneurs under the age of 30 for their outstanding entrepreneurial endeavours.
To be eligible for this year’s program, the entrepreneur must be under 30 years of age on 1 August of this year and must be an Australian citizen. (In other words, if someone asks you, on 1 August this year, how old you are and you say, “30″, you’re no longer eligible.)
The excerpt from the original article is below.
Ben Walker, QLD (b. 1989)
Name: Ben Walker Age: 25 (born January 1989) Gender: Male State: QLD Known for: Inspire CA and Inspire Cafe
Forget time sheets; forget charging by the hour. Forget difficult to use software and glazing over in conversations with your accountant.
Inspire CA is for the business owner who wants to understand what drives their business, while partnering with an accounting firm who takes ownership of what we believe truly is the role of the business accountant.
“I started Inspire CA to head in the opposite direction to the traditional old way of the accounting industry,” Inspire Founder, Ben Walker, told us.
Ben’s activities are driven by a desire to completely shake up the accounting industry. This led Ben to open Inspire Cafe. As the name implies, Inspire Cafe is a coworking space, located in Newstead, Brisbane.
The company hosts a variety of entrepreneurial events — with a notable slant toward jazzing up otherwise blandish accounting topics – at the cafe each month. (One recent event was “Kill the Time Sheet — Value Pricing: Where to Begin.” Sounds cool).
And Ben is working toward wow factor in his business.
“I really want to build a business (or businesses) that create a “WOW” because of what they stand for and the way that it treats it’s clients – I want to put the ‘heart’ into accounting and lead as an example for other businesses,” he added.
Since its start in 2013, the Inspire family of businesses has been rapidly growing.
“I started with just me on my own, February 2013 with $30,000 in annual equivalent revenue from clients that I brought with me over the years.
We quickly grew to 4 people in 4 months – and in our first 12 months, we grew ten-times in annual equivalent revenue!” Ben told us.
Because of his business’ rocketing to fruition with such rapid growth, Ben Walker joins the ranks of the 2014 Anthill 30under30!
Anthill asks: Ben Walker, what’s your super power?
Haha… I got some feedback on this from the ol’ “peer group” and apparently the closest super hero is the Juggernaut from X-Men… for a variety of reasons, mainly because I’m unstoppable (or rather, I don’t stop).
Smashing Sales – How to Create a Winning Sales Process
We’re all masters at something. But never masters at everything.
Sales can be a nasty roadblock to an otherwise phenomenal business.
I’ve jotted down a few points below of how you can very simply streamline the sales in your business.
Have a Sales Process
Sometimes procrastination to follow up leads can come from a lack of understanding the next steps of sales. There’s plenty of great information out there on sales in general, but nothing very practical of how that should appear within an organisation.
A few key components I’ve found to make an effective sales process:
Have a ‘Vetting’ Step, Up Front
Whether it’s an online form, an application or a phone call, this is a great way to work out whether or not the prospect is a good fit for you.
We all get that gut feel when someone doesn’t sound quite right for your business, so what a great way to move them on, with the smallest drain on your time.
Ask some good questions up front, and you’ll know whether to take them further in the process.
Leverage Your Coffee Time
You as the principal are usually wearing many, many hats in the business. Why not create an effective way of learning about your clients, and them learning about you? It could knock off a good 30 – 45 minutes of time in the first coffee meeting of the usual ‘Getting to Know You’ time – and is a very effective way of directing a conversation.
Make sure you focus this meeting on the client’s needs and ask plenty of questions so you know exactly where you can help the client. Remember to keep digging through layers, as the first answer is not usually the problem, but a symptom.
Time to hit your proposal, but before you close the meeting…:
B.A.M.F.A.M.
A self explanatory acronym: “Book A Meeting From A Meeting”. This is an awesome discipline drummed into me by a good friend MC of Practice Paradox (and plenty of help with the above too!).
BAMFAM’ing helps to keep the sales process moving, in a mutually agreed fashion. Extraordinarily effective, and always alwaysalways book in the next meeting / phone call / follow up.
Pretty Up Your Proposals
If you’re a Creative Agency, surely you’re all over your own delicious marketing collateral. Don’t let the sales experience pull down the prospect’s expectations!
There’s some amazing, easy to set up and use, cloud based proposal tools available at ‘no-brainer’ prices. Some of them let you include video and images to support your proposals. Most have features such as options in your proposal, online acceptance and signing, custom domain & branding, and creating a proposal from a template or previous proposal.
Prettier proposals should also lead to a higher conversion rate too. And you don’t have to reinvent the wheel for each new client!
Track Your Leads in a CRM
You know what a CRM is, you may even have one, but take advantage of it. Use it!
A CRM used effectively can keep all your prospects’ records, touch points, the stage of where they are in your sales process, and even keep track of your chance of conversion. Some CRMs will allow you to run a ‘weighted sales funnel’ report, which calculates the dollar figure based on historical conversion rates at certain stages in the sales funnel. There’s some serious forecasting!
Again, there’s plenty of options out there, depending on what suits your business. We use InfusionSoft, but there are many others such as:
Even if you use Excel or a whiteboard, make sure you’re keeping track of it all!
Automatically Measure Sales KPI’s
Coming back to your business having a Strength in Numbers, most of the tools above allow you to run reports on your key sales numbers. Simple numbers like your conversion rate or average days from initial contact to becoming a client will allow you to forecast many other numbers in your business.
Implementing the tools and processes mentioned above will guarantee a smoother ride in your sales journey!
For businesses who carry stock, there is an art to reducing the number of days your stock is sitting on your shelf (and that cash is tied up too!).
Having worked in the accounting industry for just a few years, Ben Walker quickly found himself brainstorming new concepts, determined to make his industry of choice less dry.
