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.

A lean business is a healthy business. Keep fit year round

Diets are temporary by their very nature. They last from point A until point B, they are a means to an end. What’s more they are usually the second last resort before far more drastic measures come into play. The same applies in our businesses when we say we’re slashing costs, tightening the belt and other ways of whispering, “stay calm but… we have a cash flow problem, people!” At best it relieves some pressure in the short term, but at worse it signals to your team, key stakeholders and your family that things are not looking good. Just like when someone goes to extraordinary lengths to achieve significant weight loss in an unfeasibly short period of time. Don’t do it!

Professional Bodybuilding and Accounting

Yes they do belong in the same heading but only in this context. Pro-bodybuilders used to bulk up in the winter, consuming otherworldly amounts of calories and supplements and then a couple of months before the big contest day they would literally starve themselves – almost to death! Okay, regardless of your thoughts on this particular sport, there came a time when things took a turn for the better from a year round health perspective. Instead of dieting quite so viciously for three months in the year, a number of athletes decided to stay relatively lean year round. Sure, they didn’t look quite so massive in the dead of winter but when it came time to get into “contest shape”, they only had to lose a few kilos instead of say 25+ kilos. Far more sustainable and easier on the digestion… I assume.

Avoid financial whiplash

All that is to say that looking at the year ahead, you could and should set your objectives and the KPIs that will get you there. Then take a long hard look at the resources needed to make it all happen. Do those resources include, weekly give-aways, lavish lunches at the finest restaurants in town and hire car upgrades? No? Then eliminate them. You might miss some of the perks and what we sometimes call profit-killers but their absence will also stop you from having to unexpectedly wrench on the budgetary handbrake. That’s how people and the businesses they run get hurt.

Year round conditioning is the key and success depends on you staring hard at your objective and consciously deciding to eliminate costs that do not get you closer to those goals. Be ruthless at first and set yourself a baseline. Understand that this will be as difficult as it gets and then you can plan to add a sensible layer of fat. But that should come in the form of performance related rewards as opposed to perks that simply breed entitlement – which doesn’t help anyone.

A lean business model is one that efficiently delivers more sustainable profit and time for you to enjoy your life and loved ones. And it looks good year round.

Compound interest cuts both ways. Kill your debt before it kills you.

There’s a lot to be said for the miracle of compound interest and how it can turn modest savings with small regular contributions into a sizable nest egg that hatches holidays, jet skis, long term financial security and more. But as with most things, there is another side to the big, cuddly compound interest bear. That’s the side with the fangs and claws that tear away at your savings and ravage your profits and yes, your lifestyle too.

If, like me, you liked but were shocked and amazed by the man versus bear fight in the recent release, “The Revenant”, you will understand what I mean. I will admit it’s fun to get all cinematic, exaggerate and characterise debt as a marauding grizzly bear but the truth is that there’s nothing fun about working hard for the banks – unless you’re actually employed them. And that’s exactly what’s happening when you don’t attack your debt as if your business life depended on it because, without exaggeration, it just might.

Alright, I mentioned how making regular deposits can work with compound interest. With the right plans in place, it is not at all unreasonable to suggest that you will double your money over a reasonable period of time. Flip that on its head and think about that “easy to apply for, even easier to get approved” business loan for $20K. In our private lives, we might shudder at the thought of a 4-figure credit card debt with its ravenous interest rates but we’re somehow okay with paying the bare minimum on a business loan with another zero or two on the end of it. Expect that debt to have doubled by the time you’ve paid it off using minimum repayments.

But what about opportunity costs?

Yes, almost forgot about high school economics. If I pay off my debts quickly, I won’t be able to afford office upgrades right away and it’ll eat into my profits for the next 12 months. You’re right. But that sounds like the introduction to a good news story that you’ll be able to tell and retell for years. You know where I am going with this. If you were to stick a fork in your $20-$40k debt within 12 months say, you will have paid your establishment fee and some other costs of doing business with your lending institution of choice. You will have also paid the required interest (up to a year’s worth) and the loaned amount.

Forget the costs and focus on the opportunity. Over time that debt would have cost you another $20-40k on top of the amount borrowed! The compound interest bear will have been feasting on your interest repayments (PROFITS!!!) for years and years denying your business the opportunity to build a war chest, build a better product or service… (how about this one?) build a better life for your loved ones.

Compound interest on debt is a dangerous beast that stalks your business, steals your profits and murders long term growth. It’s a kill or be killed game you’re playing when dealing with debt. So act quickly and FINISH HIM!!!

Why don’t you test drive an accountant that can help you get the most out of your business both now and the years to come.

The Sheeran School of Business Success. Because talent is very rarely enough

It’s becoming increasingly obvious, even to those that have joined the party a little late, that Ed Sheeran is a very successful singer songwriter. I heard somewhere that he paid his dues by never refusing an opportunity to play and actually played 300+ gigs one year while travelling throughout his corner of Europe. BUT… that’s not necessarily why he is successful. Sure it accounted for notoriety, even fame and of course, talent had a lot to do with being heard but the secret may be the people he’s got around him. I’m not even talking about the entourage like, say the guitar technician, promoters and roadies. I speak of the numbers and money people.

It’s been proven again and again and again that you can teach yourself to sing beautifully, compose songs and play an instrument but doing all that and handling all your own financial affairs? Well, it’s said that Ray Charles achieved that successfully but surely he was one of a few rare exceptions.

If Mr Sheeran ever opened a business school, I would think it’d be a mistake, but if he did, I’d like to think he’d look at his amazing career so far and inspire us with the following lessons:

Do what you love – obvious
Work at it tirelessly so you can get from good to great – harder to do but makes sense
Get some trusted experts in the necessary fields around you – roadies and stuff, yup
No, I meant CFO, Accountant, numbers people, advisors – right, of course… why?

Here’s where it all goes so horribly wrong!

There are countless, singers, sportspeople, actors, lottery winners that have made a lot of money and not too many years later, grace the (web)pages of TMZ with their finances in tatters. Gone are the Lamborghinis, incredible homes and flashy clothes. Right now, I’m actually thinking of a particular basketball player who earned more than $105m during his time as a pro and 5 years later filed for bankruptcy. Wait, what? Ok some of that would be due to corrupt practices and that is really, really unfortunate but even in those cases, having good people with even better advice around you proves invaluable.

We’d like to think that prolific and (we hope) enduring artists such as Ed Sheeran continue to understand the value of what they do and how it will shape the future of those they care most about. If that’s the case, you could assume that a CFO type is weighing up risk versus reward on financial growth opportunities, accountants are ensuring that only the right amount of tax is being paid out and trusted advisors have told Ed not to branch out into hard core death metal music… or business school administration.

If you recognise that a trusted team of numbers people will keep your business on song, do contact us to chat or test drive an accountant that can help you.

Thinking BIG will save your business pt 1 – think structure, save $$$

Entrepreneurs who want to change their world and possibly even rule it, constantly think big picture and act accordingly. They paint their destiny in bold brushstrokes and display it for all to see. This isn’t for everyone of course. Some prefer to stay out of the limelight and achieve some form of success on the smaller commercial stage and leave it at that. Either way, business is business and there are ways to help set you up for success regardless of what success and/or satisfaction looks like to you.

Ignore the “get back in your box” crowd

Don’t grow too big too fast, stick to what you know, stay in your lane, don’t overstretch, carve out a little niche for yourself, go it alone – sole trader’s the way to go. These are pieces of advice that have some merit but too often they limit the thinking of the ambitious and stunt the natural growth potential of small business owners. The truth is that even if, for whatever reason, you as a business owner wanted to focus on a certain clientele, keep your operations small and limit your exposure, thinking big will help you, protect you, maybe even save you.

There are dozens of reasons why thinking big(ger) structure-wise, will help even the smallest operator in a niche market. Here are just three to start with:

Flexibility – you may want to stay small or start small and that’s fine but if you remain open to the possibility of growth, when opportunities comes around (and they usually do when you least expect it), you’ll be ready – if you want to be. The last thing you want is to recognise the opportunity of a lifetime, only to find that you are structurally ill-equipped to take advantage. Be ready!
Protection – the right structure means better protection. What I mean by that is that a Company structure provides better protection for you and your personal assets than when starting out or remaining in a sole trader structure. A lot of people see the increased costs of setting up a Company versus the low cost of a sole trader and make their decision based on initial outlay. Unfortunately, this may leave them open to actions that may put at risk their house, car, profits… Speaking of which…
Tax minimisation – sole traders can often find themselves in the unenviable position of handing over half their profits to the tax man – unnecessarily. By thinking big and structuring your business accordingly, you protect more of your company’s profits and pay only 30% to the tax man.

One of the keys to sustainable success in business is knowing what you want to achieve and how, remaining open to opportunities and being equipped to protect your profits. Thinking big will help achieve that. Think about it.

Avoid the “vanity” lease and preserve your profits

Every Friday we just want to stop the world for a moment and give you a couple of real tips to think about that will make a real difference to your business and in your life.

There is a fine and potentially very expensive line between securing the right workspace for your business and ego-driven extravagance. At the polar extremes it’s pretty obvious what represents a sound investment and what’s just plain silly. However the grey areas are where even well-meaning and sensible business owners can fall under the subtle spell of extravagance. Here are a few tips to help you spot the difference and avoid getting the stink-eye from your business, your associates and your accounting team.

From the garage to the… penthouse? Don’t do it!

A lot of businesses start out in a friend’ basement, a garage with a desk or even from a bedroom with a laptop and a borrowed printer. Eventually, and hopefully sooner rather than later, the commercial entity will have grown to the point where a work environment that reflects the progress made and where the business may be heading is required. Sooooo… half a floor on the 30th floor of a CBD office tower. Sweeeeet!

Okay, not many people would go that far. That’s the extreme that I mentioned. But plenty of people go ahead and lock themselves into a pricey lease based on the euphoria of recent success, overconfidence and a near lethal dose of not knowing their numbers. One or two big contracts in the bag and we are heading to the top… (tire screech)… (crash). How do you avoid that collision with reality?

Tip: work out your business’s income, expenses (including tax, paying down debt but excluding rent), the amount you get paid for both working in and on the business and a contribution to your profit war chest. Essentially your “magic number” minus the rent. Okay, now what do you have left at the end of your typical month according to your calculations? That number is what you can afford to pay for commercial space.

Once you have that figure, you might find that your brand will be represented just as well working from a co-workspace, a smaller office, something closer to the 10th floor maybe…

In short, when thinking about locking yourself into a long term lease that looks fantastic (especially from the private balcony that leads to the roof or that cool loft, open plan in the heart of the creative district) – think long, think hard, think again.

Tip: If you’ve done the numbers and all ledgers point to that big office with the extra storage space and cool reception area, shop around for a lease that doesn’t lock you in beyond the foreseeable future if possible. Nowadays there are a number of purpose and brand fit spaces for different types of businesses that have flexibility – you just have to ask.

Remember, you may think that visual impressions are the be all and end all (or at least very important) but what really counts is your bottom line.

And that’s the bottom line! Have a great weekend.