Build a business built to last. Cash Rich Business tip #2 – Get your structure right!

Pick any business structure you like to launch your small business, it makes no difference at all in the very, very short term… and then suddenly… the pain. The type of pain that can really hurt you and your family because it will hurt your business right in the coffers.

The Cash Rich Business workshop on June 2 and 15, will guide you away from the pain that will come from setting up your business under the wrong structure.

It’s all on you and yours! But it doesn’t have to be

Often people who are taking up the opportunity to create their own future via small business ownership are baited into sole tradership by the lure of low set up costs and simplicity itself. They don’t realise at the time that the trade-off is that they become the business. Which also means they take on any and all liability associated with the big wins and telling losses that are often part and parcel of running a business.

To be clear, the business’s income is your income and that means the potentially sizeable tax impost is your responsibility too. Instead of paying the tax rate you’ve become accustomed to, brace yourself for a tax bill hovering somewhere around the 49% mark depending on the figures. Ouch!

What’s more, sometimes people make mistakes, things are misinterpreted and clients can feel like they need to be compensated. Not only does this mess fall into your lap but your personal assets can come into play from a compensatory perspective. Not good – in fact it’s bad.

In many cases, the same can be said for partnership structures. With the right safeguards under ideal circumstances, with people you would trust with your very life no matter what – perhaps a partnership structure could work. But again, personal assets can come into play if things go awry.

Running and benefiting from a cash rich business negates much of the downside and protects you from a range of difficult circumstances. Importantly, a cash rich business is most often the business that was built, established and now runs with a structure suited to:

Minimising tax so that those funds (sometimes tens of thousands of dollars) can be reinvested back into the business and/or your family
Protecting your assets so that what’s yours remains yours for you and your family to benefit from – even during times of difficulty within your small business
Maximising cash flow allowing you, your business and your relationships to flourish, thanks to less pressure, more opportunity and freedom to live life.

Operating your small business under the structure that works for you, starts with knowing and understanding your options. At Inspire, we are 100% committed to doing all we can to ensure you derive the best lifestyle for you and yours from your business. That’s why we delight in educating, sharing and working with clients on achieving these goals.

The Cash Rich Business workshop is a big part of this effort and we hope you can join us.

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Building a Profit War Chest and save your Business

How a Small Business owners can very quickly amass Emergency Cash Reserves and Build a Profit War Chest:

Most business owners don’t have the time to or know-how to read the different accounting reports necessary to manage the financial aspect of a Business.

So many resort to “Bank Balance Accounting”, which is where we look at our bank balance every day and make important financial decisions based on what we see.

Very dangerous waters … but that’s not the worst thing.

Sales – Expenses = Profit.

In other words, Sell as much as you can.

Incur the expenses you need to deliver on your promises.

Then whatever is leftover is profit.

Profit is a leftover. Profit is an afterthought.

No wonder so many business owners tell me there barely is ever enough profit left over!

What a shame, given all the effort you put in. But there’s hope.

I have been behind many very successful businesses, and as the owner of an Accounting firm, I have see everyday what businesses can do to stop bleeding cash and start accumulating great profits.

It doesn’t matter if you turnover $5M, $500k or $50. The Cash Rich Business Model works.

Here’s what Small Business Owners are saying about the Become a Cash Rich Business [Workshop]

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Want to flip the formula, put profit first and get on top of your numbers?

NEXT STEPS:

Book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.
Attend our Cash Rich Business Workshop where we will spend 2 hours walking you through the exact step by step process to become a far more profitable business than you currently are. https://inspireca.com/events

Building a “profit war chest” is just like riding a bike. A crucial step towards becoming a cash rich business

Most business owners agree that cash is the oxygen that keeps the heart of a commercial enterprise pumping. It doesn’t matter if we’re talking about trades, financial services or product sales and distribution, without a healthy cash flow, things start looking pretty sickly. So it’s always a good idea to build a cash reserve, an easily accessible emergency fund, a war chest. But the question is how?

This June 2nd and 15th, we’ll be conducting “Cash Rich Business” workshops aimed specifically at helping small business owners rid themselves of the anxiety and stress that comes with cash flow problems. During these workshops we directly address the topic of building your “profit war chest.” Something sturdy and reliable that will be there for you if unforeseen circumstances create a sudden need for cash.

Keep your eyes on the road and your finger on the pulse

At Inspire we believe that your finger must stay firmly on the pulse of your business’s critical numbers at all times. One of the reasons for this is that it will help you “pick a number” between 10 and 25. That number is the percentage of income that most businesses are able to claim as profit. What’s yours? Got it? Great, so after paying your regular outgoings, tax, salaries, paying down some debt and of course paying yourself, you’re ready to commit your agreed set percentage to your war chest.

But here’s where the riding a bike part comes in. We suggest starting off by committing an amount smaller than your target percentage to get started. Have you ever seen someone try to mount a bike that was already travelling at or near top speed? Disastrous, painful and ultimately you don’t end up getting anywhere (maybe the hospital). It’s best to start your contributions off at around 5% – see how the business reacts. Keep your finger on the pulse. Does the heart keep beating steadily when you up it to 10-15% a couple of months later? Is there a spike in blood pressure, sweaty palms, rapid breathing? Adjust accordingly, when you find equilibrium, stick with it.

By knowing your numbers and understanding what they are telling you about your business, you’ll be able to rest easier at night knowing that your war chest is there for you should the need arise.

How big is too big?

When it comes to war chests keep in mind what it’s there for. Its purpose will determine the amount you keep on hand. As a guide, understand that many crises can be safely navigated within a month or two. We recommend growing your war chest so that your business can comfortably stay afloat for three months. With three months’ worth of funds on hand, should major difficulties arise, you can work through your circumstances without dealing with the usual white hot panic.

Once your war chest funds exceed that three month funding level, you might consider distributing a dividend to say thanks and well done. Cash on hand for your business is one thing – and it’s an important thing. But as always, remember why you decided to own a business. It’s a vehicle to provide for your family and ensure you get to spend more valuable time enjoying life with them.

A cash rich business will get you there. Join us in June to learn more.

The 10 minutes that could save you hundreds every month. Get ready for the Autumn “spring clean”

It’s the invisible expenses that hurt your business the most – he amounts that sneak under the wire of your business accounts every month or quarter. And even if you were asked point blank to name them all, you just couldn’t. But who cares, right? They are just small expenses – subscriptions or memberships probably. Besides, you never know when they’ll come in handy.

C’mon, get serious! As soon as you start losing respect for your hard earned money, no matter the amount, you’ve started your descent on a very slippery slope. But all is not lost, after all it’s only a small amount… or is it?

How much money are we talking?

Well you tell me. I personally went through an exercise, call it a self-audit if you like, some time ago and was shocked at what I found. Now to be clear, I’m not referring to snacks or casual drinks with friends from time to time. This is certainly not about curbing your lifestyle. It’s simply about looking hard at where your money is going and a fair sum of it may be heading down the gurgler wrapped in unused subscriptions and memberships.

Some context: I love tech, I love being on the cutting edge, I feel it’s absolutely necessary to work smarter in order to enjoy all life can offer. That definitely means enlisting help from some carefully selected apps. The problem is, we’re not always as careful as we could be. I’m not saying I bought a dud or subscribed to something that doesn’t work. I mean that too often, I got caught up in my own good intentions. I always intended to trial apps, make notes, carefully assess how they could be integrated into my business life with a view to freeing up more time. But I would never got around to it. By the time I did, I found that the free trial period had expired and I had already paid for 4 months before I realised I still had it.

Thinking about the costs, too many people take up the free trial of a promising piece of software and possibly take up a membership to an enlightened collective of likeminded thinkers only to be blindsided by a busy period at work. A few months pass and suddenly they realise they’ve been paying for 3 or 4 subscriptions and membership fees to something they hardly ever attend, to the tune of $235/month. That’s usually just the start!

Ok, I want to bank that cash, how do we do this?

You can actually do this yourself and/or sit down with your accountant for an honest chat about what it is you’re actually trying to achieve. Here are the key three steps.

Remind yourself about what it is your business needs to achieve (tip: think vision, mission, values and your magic number – the earnings your business needs to pay you (properly), your team and expenses including tax, paying down debt and contributions to your “war chest”)
Identify any and all expenses that directly benefit your business by advancing you towards the sustained achievement of your magic number
Eliminate ALL other expenses. You will discover those unfamiliar looking but regular direct debits to “somethingtech” and “CU There meet-ups” as well as emags that come floating past your inbox and are almost instantly incinerated by your firewalls.

It’s all got to go because it’s eating into your precious profit as well as whatever you were going to put on the family dinner table tomorrow night.

Take breath, take a look and take a scalpel to all those unwanted, unneeded expenses hiding in plain sight and put that money towards your cash flow.

Go ahead.
Cheers

3 reasons your original purpose can determine your future

If you can’t tell someone in two sentences what you do and why, your business is in trouble or heading that way. Sure you may have a solid business structure, you’ve minimised your tax and things might be going well but your sales and/or service pipeline is kept full by a fuel called purpose. Purpose is not something that your business should stumble upon along its journey. Purpose is not something that you should rely on appearing to you in a dream sometime during your second year of business and suddenly turning things around if times are tough. Purpose needs to be there with you right from the very beginning or things could come to an abrupt end.

There are a lot of books about finding your purpose in business and life but I think for the small business owner with a family to provide for, it’s important to understand how purpose helps businesses.

Returning to base to refuel is vital

Yes it is. But you have to make sure you have a base first. Starting off with a clear vision of what you are going to achieve, with what, why and by when, is a great first step in any business venture. Especially, when compared to vague launch ideas like, “I want to open a bakery, I love bread so here’s some cash, let’s get started.” Disaster waiting to happen.

When things get complicated, and in small business they will from time to time, nothing shines through the mists of confusion and distraction like your original, clear purpose. Your why. Getting back to your why, refreshes you, refocuses your efforts and clears a path forward.

Helps you steer clear of expensive distractions

Pouring your energy and effort into your original intent in the right way is time and money well spent. We find that some small businesses try to get too big too fast or get distracted by opportunities to diversify before they are properly established. Succumbing to anything that tempts you away from fulfilling your original intent will end up costing you – time, money and family time.

Tip: keep your original statement of intent or vision, mission and values displayed throughout your workplace as a reminder of why you’re there and what you’re doing. Anything that doesn’t get you closer to achieving that purpose qualifies as a distraction. Avoid it.

Focuses your team on operations so you can focus on the business

As mentioned throughout other blogs, you cannot do this on your own – not for the long term anyway. You’re going to need help but as they say in the classics, you’re going to have to help them, help you. If you work to:

clarify your original purpose,
document your processes and
ensure everyone knows the path your business is on

…you will enable and empower others to look after the operational side of your business while you drive the vision. A vision that hopefully sees you drawing more money, time with family and happiness from a business you started or bought, for that very purpose.

Tax: are you paying too much, too little or about the right amount? 3 tax lies that ensure you get this wrong

First of all, know your numbers inside and out. Those of you who are familiar with Inspire remember that “knowing your numbers” is part of our mantra. It’s the foundation upon which we help build significant tax savings, robust cash flow and better lifestyles for small business owners with young families. Knowing your numbers will cut through the three most common tax lies small businesses fall victim to in the lead up to end of financial year

Your “gut” will tell you if you’re paying too much tax

So here’s why you shouldn’t trust your gut – entirely. Take another look at the question in the title. Because we’re dealing with tax here, as opposed to bundle deals for your home entertainment and connectivity needs for example, it’s kind of hard to say if we’re paying “a fair price” so to speak. With the home entertainment scenario, you could ask a friend in similar circumstances, what they pay, or you could compare online. There are a lot of ways to find out whether you are paying too much.

Unfortunately, you can’t really call a friend across town who also runs a business that might be/ sort of similar to yours and ask how much tax they pay and expect to get a useful answer. Too many additional factors to consider, too many numbers, too many variables. And given that we all know that we should be paying some tax (not sure how much), it seems a lot easier just to go along with whatever your accountant said you have to pay.

If you’ve been in business for some time or even if you’ve only dealt with your personal taxes, you know it has to be paid or else, and you also know that the penalties for getting it wrong are pretty steep. So why rock the boat? Your gut tells you that maybe you could be paying less but at the end of the day, it all evens itself out.

No need a 2nd opinion if you or your accountant just follow the ATO’s guidelines

We all know that good business owners pay their taxes and they do so on time, without trying to squirm out of things or slightly sauté the books. Their accountant’s word is gospel and it’s obeyed as if it was the word of the ATO itself. And that’s the problem. The ATO is aware of the tax laws and collects the taxes you pay. If you overpay them because of advice that you receive from someone else, they’ll collect that too – guaranteed.

So, while you, your accountant or even a “pretty cluey” friend may have a good idea about filling out and filing your forms in compliance with ATO guidelines. That doesn’t mean that you have not overpaid! At Inspire our firm belief is that our clients (and everyone else for that matter) should pay only what they owe and not a cent more. When you’re on your own or with a “fill and file” type of accountant, this may not happen first time around.

Taking a second look at my taxes isn’t worth the hassle

On the way to achieving over $1.2M in tax savings for our clients last year, we found that some businesses were overpaying by staggering amounts. A number of the businesses we worked with saved between 20 and 40 thousand dollars – much to their surprise.

At Inspire, we know that after a quick glance through the books of an average small business, we can identify thousands of dollars in savings. This is how common it is for people to miss thing(s) when they fill and file the necessary paperwork and hurriedly move on. Sure, it means that it’s done, out of the way and out of your hands – but so are the thousands of dollars that you gave away.

So the answer is almost always, “too much”. Get in touch if you’re paying too much tax and want that to stop.

Leading the way to more time with family. You can’t be all things to all people – so why try?

“I can’t give you the secret to success but I can give you the secret to failure – try to please everyone”. Someone famous said that a very long time ago and it is as true now as it was way back when. But we’re all guilty of it in varying degrees in a variety of roles. However, the guiltiest slice of the population would be small business owners. Our guilt isn’t as overt as some cases but it’s a sneaky guilt that may well be stifling your business growth and available family time.

The big difference between guilt and innocence here is probably leadership versus operational focuses.

When you’re just starting out, it may well be just you and a laptop with a borrowed printer, making you the head of customer service, operations, admins, finance and marketing. That’s a lot. At first, in many cases, it’s absolutely necessary to run this lean (and in doesn’t get leaner than one person and a laptop) but ultimately it’s not sustainable. You can’t expect to be all things to all people.

Let’s work as a team and do things my way… wait, I’ll do it myself!

This is “operations” in “leadership’s” clothing and it never looks, feels or does any good for anyone. You’ve probably seen this on countless shows where a restaurant owner, for example, tries to run the kitchen, the front of house, the dining room and do the books. Then an exceedingly angry British chef has to scream at them until they allow others to take the reins – at least in their own departments/sections.

Alright, what has this to do specifically with saving me money or tax? Nothing! But it does have everything to do with saving you “life”. At Inspire we’re not just obsessed with saving your tax and stabilising your cash flow. The reason we’re here is to help ensure families of small business owners get to enjoy more of their life together. The other elements are simply the “how to”. If you are in charge of everything, regardless of the roles held by others in your team, you… will… not… have… time… for… anyone… else.

Role Clarity is the key

And the key to role clarity is a clear vision and the establishment of an appropriate and hopefully inspiring culture. This is leadership. Sure there is mentoring, guiding and inspiring but at the end of the day, not much good is going to happen for very long without a leader that has set the vision.

Ideally, everything else belongs or is owned by everyone else. Again, role clarity is key here. It can’t be just a case of you at the pointy end of the pyramid coating your desk in Teflon and tilting it towards your team. By understanding the nexus between needs and talent resources within your business you should have the people on hand to service and enhance every facet of the customer experience and operations. This leaves you more time to spend with your family. And of course, you can and should try to be all things to them.

The accidental tax (over)payer. Are you really going to tip the ATO?

Just like any good business or even a studious school kid, our government works to a budget. They look at the income and outgoings of our great land and even come up with a magic number of sorts to plan and allocate spend on roads, schools, health… helicopter rides (maybe). The fact is that they know, more or less, what they should be collecting from you but if you pay extra tax, at best it’s looked at as a short term loan but usually it’s a hefty tip. Thanks!

Tipping in restaurants, cafes and diners is not the institution in Australia it is in say, the United States of America. But even so, a tip may be given as a thanks or gratuity for exceptional service – going above and beyond. Again, here in Australia it’s not compulsory, not even close.

So why are you leaving such a generous tip for the government?

We know, for a FACT, that some of our clients have, in the past, paid 20, 30K, $40K more tax than they needed to which seems… excessive. Did they mean to do it? Does anybody. Here at Inspire we’re here to ensure you pay the correct amount of tax and eradicate “accidental” tipping.

If you have a burning desire to contribute more tax than you need to, go ahead, but do it on purpose. Otherwise, you’re just taking food off the family table, in both a figurative and literal sense.

Let’s look at some of the ways business owners like you inadvertently pay more tax than you need to and yes, it’s very easy to do. Especially, if your area of expertise lies outside accounting.

Paying tax on a promise – you haven’t received payment yet but you know the cheque’s in the mail so you go ahead and pay the tax… We covered this in a facebook live session today. Catch up here.
Focusing on the specials and forgetting about when the best time would be to make a purchase according to the calendar. Next Wednesday people, see you on facebook
Operating under the wrong business structure for you. This… can… cost… you… thousands. See you in a fortnight on facebook.

As you know, our goal is to save our clients a cumulative $1m in tips tax. Why don’t you head over to our facebook page and see how we’re going, how we’re doing it and most importantly, how we can get it done for you!

Ensure your risk pays off… regularly. Funding the founder is only fair

Really well paid people not only get paid for what they do and what they are going to do, they get rewarded for what they have done. Not all of their achievements are on open display though. We often debate the worthiness of say, sportspeople raking in huge dollars on the 1st and 15th of the month or the CEO of a multinational signing huge bonus checks with their own name printed next to “payee”. And this may or may not be a debate for another time. Here’s a question for right now though – and it’s just for you.

Are you paying yourself enough?

Be honest. Sure you may tell yourself that it’s the staff you’ve hired that do the real work: the customer-facing tasks, the production, site inspections and so on. But did they decide to lay their future, and that of their family, on the line one sleepless night (maybe) to go “all in” on a business idea? Did they trade-in the deep, dreamless slumber of a salaried employee for the night terrors of total autonomy and raw consequence? Okay, it’s not like that – all the time.

Basically, as the owner, you have decided to accept ALL (yes, underlined, bold and italicised) the risk on pretty much every level with almost everything at stake. Sure, the waters have calmed and with your processes in place, numbers identified, achieved and locked in, you might reason to yourself that things were never that bad. Just remember, nostalgia is just history with the bad bits edited out.

How did you even get here?

Back to the sportsperson/CEO argument (just for a moment) and an interesting number – we love numbers. 10,000 hours. That’s how long theorists tell us we need to practice, to achieve world class excellence. Let’s break that down. Let’s say that you intended to play basketball at the highest level by the time you turned 20. Let’s assume that you practiced two hours per day 5days per week. You’d be fine – IF you started when you were 9months old.

Let’s say you started out showing some business nous aged, say 12 and really started actively pursuing an entrepreneurial path at 15. You study, learn, attend seminars, try and fail and succeed a little and improve. You keep this up 5 days a week, 6 hours per day – not including coffee or comfort breaks or lapsing into some quality youtube time. Great, you might have a shot at coming out on top by your 21st birthday.

Wait, what do you mean “might”?

Yes, that’s right. Might! Fortunately/Unfortunately, luck still has a hand in all this. The good news is that those 10,000 hours, if used properly, will insulate you against some of the risks of not ending up right where you imagined you would. Don’t get me wrong, those hours will all but guarantee you a good measure of success but there are no ironclad guarantees in long term business success.

So tell me, what’s that worth to you? All that time you put in, the sacrifices, the dedication.

Again, let’s ask the question – are you paying yourself enough?

Maybe it’s time to test drive an accountant answer that question by taking a good look under the hood of your business.

Cheers

We’re going to save our clients, $1m in tax… again!

Some of the things we just love to do around this time every year at Inspire. Enjoy our 4 day Easter break – check. A planned getaway of some sort – locked in. Provide excellent year round service to our clients – of course. Oh and save them over one million dollars in tax. We’ve done it before and we are going to do it again.

As many of you know we were able to achieve over $1.26m in tax savings for our clients last year against a bold, audacious and frankly, scary target of $500,000. Yes, there was some hesitation around aiming for a number that big but as more and more of our clients came to understand that we proactively work and plan to achieve maximum savings, that target went from intimidating to realistic. Well we want to do it again. Why? Because we know for a fact that too many business owners are paying too much tax and that excess would mostly likely do more good in the hands of those young families.

Too much of a good thing is bad – for you

Don’t get us wrong, we believe that paying tax is a good thing and absolutely necessary. It’s just that it seems to be those that can least afford to pay more than their fair share that get caught up doing just that – year after year. To help disrupt that cycle of overpayment that has business owners coming to accept it as “just one of those things”, we aim to give a helpful, business changing, if not life changing answer to the throwaway question, “oh well, what are you going to do?” Here’s what we think you should definitely do:

Get in touch with us about how your business numbers are looking
Set some goals with us around tax savings
Let us locate all possible opportunities to ~~ensure~~ you only pay your fair share of tax
Keep up with our progress against our target and regular tips and tricks
Tell others in small business, by sharing our posts or via word of mouth that we’d love to help them reduce their tax

Cash flow is so important to small businesses, you know this better than most. We are also going to help you find out more than most about saving tax in Wednesday’s “Don’t pay tax on money you haven’t received” live session. It’s all a part of our commitment to saving a million, saving tax and making small business even more rewarding for owners and their families.