Tax. It can be a stressful time, particularly at the end of the financial year. Unless you are a tax accountant, sorting out your taxes can seem like a monumental and overwhelming task. As most startup owners are not tax experts, there is a significant risk of making a mistake when first starting out in business and during business.
Day-in day-out we see businesses, including large national companies, make common, easily avoidable tax mistakes. So to help you avoid errors, we have compiled a list of common issues that startups face when kicking off their business:
- Not keeping their accountant in the loop
You can’t know everything, and it is absolutely okay to admit that. This is why we have advisors and specialists who take time to understand our business and then use their expertise to point us in the right direction. This is very much the case when it comes to your business affairs – particularly your tax – and your accountant. Getting the accountant on board with your idea from the beginning can really assist in thinking forward and planning for the future. They know the tax system and have the skills to ensure that you are informed of your tax and reporting obligations from the start.
- Know your reporting requirements for each business structure
While your accountant or legal advisers can help you understand the different reporting requirements, doing your own research can also upskill you and give you the tools to navigate the various ATO and other websites and portals required when you have to report your business affairs.
For example, if you are a sole trader then your annual individual tax return usually incorporates your business income, so the reporting requirements may be lower. On the other hand, if your business operates through a company, you will need a specialised accountant to keep track of the finances and, depending on your company type, all the reporting obligations such as your Business Activity Statement (BAS) or reports to the Australian Charity and Not-for-profit commission..
Consult with your accountant before you start your business, even if you do not plan on using one, to help inform you of your business’s reporting requirements.
- Reporting and Rhythm
Many businesses fall into the trap of relying on a single spreadsheet to keep track of their company’s finances. While a spreadsheet may seem like a low cost, easy-to-use solution, a manually updated spreadsheet can quickly become outdated when the business scales up or when your business and life get busy. Updating a spreadsheet with your sales, GST, expenditure and other information may not be sustainable when keeping up with the demands of a growing business.
Spreadsheets also don’t store receipts and your business’s inventory and stock will not automatically update. There are various solutions to this issue, with many business turning towards the old school MYOB system, or using mobile applications to keep up while on-the-go such as Xero, QuickBooks, Expensify. Even the ATO has created a mobile app that helps you conduct your tax and track your expenses.
Alternative to the DIY ideas, we would also recommend engaging a bookkeeper, or looking for a professional accounting software that will integrate with your business.
- Recording Habits
While it may seem tempting to dismiss those monotonous administrative tasks and prioritise actual work, it is important to stay on top of updating your books. Forming good habits from the beginning by setting aside time in your week to update your records will save you time, money and stress later.
Putting off bookkeeping can easily lead to stress when reporting season looms. If you rush your reporting or accounting obligations, you are more likely to make a mistake or even cause more expense for yourself when your accountant has to wade through all your receipts. Set that mandatory business administrative time each week or month to tackle the paperwork – it will save you.
- Steer clear of dodgy deductions
It’s often really useful to take the time to understand what your business can claim as a tax write off. There are many tax incentives offered to startups and small business, like the $30,000.00 instant asset write-off available to most businesses. Talk to your accountant and do your research on claimable deductions and the incentives available to you to take advantage of. Just remember to claim honestly and don’t break any laws or make illegal deductions.
- I wish I knew about that!
By only meeting with your accountant or financial advisor once a year, you may miss some pretty significant changes to tax law, which may impact or benefit you and your business. If your accountant or financial advisor has a newsletter or mailing list, then it might be an idea to subscribe to keep up to date. Otherwise, have a chat with your accountant or financial advisor and see if they can keep on top of any new incentives that may be beneficial to you. You could also consult with your accountant more than once a year.
Get ahead of the game and engage your accountant and financial advisors early. Just remember that there are people and professions out there that can help you along in your business journey and decipher those boring laws and regulations, particularly the tax laws. Make sure that you set yourself some time weekly or monthly to tackle those administrative jobs required as a business owner. If you get stuck, then reach out to your advisors. Our aim at Bolter is to partner with our clients, alongside their accountants and other advisors, to shoot for the stars and really make it happen.