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Five signs of a well run business

    Home Uncategorized Five signs of a well run business
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    Five signs of a well run business

    By April Tata | Uncategorized | 0 comment | 3 October, 2019 |

    Every small business owner wants their business to thrive, but it can be tough to keep the money coming in the door while staying on top of all the necessary paperwork.

    One way to ensure success is to understand the behaviours that separate a well-managed business from one that’s just muddling through.

    Surprising as it may sound, the ATO is keen to help small business owners prosper and to share its insights on running a successful business.

    Getting the basics right

    Since it’s charged with keeping an eye on almost four million Aussie small businesses, the tax regulator is well placed to know what works and what doesn’t when it comes to keeping the doors open.

    According to the ATO, when a small business is operating well, it tends to get the basics right. That means keeping good records and having in place effective tools so you can easily reconcile your business’s income and expenses.

    Here are five simple steps you can take to ensure your business is running smoothly:

    1. Keep informed

    The ATO finds business owners who are operating effectively take the time to understand their tax and super obligations and to keep on top of any changes affecting their business’s processes.

    2. Know your cash flow

    Small businesses that are well managed use a cash flow projection or budget tool, as this is the main reason small businesses fail. If you don’t have clear insights into your cash flow position and are not carefully managing the business’s income and expenses, it can be a recipe for trouble.

    The cash flow projection or budget tool can be an off-the-shelf product, or talk to us about how we can work with you to use the ATO’s new Cash Flow Coaching Kit to improve your management of this area.

    3. Declare all income

    Well-run businesses declare all their income – including any cash income – in their income tax return. Although it’s the ATO’s job to collect tax, it argues small businesses not declaring all their income are heading for trouble down the track.

    4. Split your expenses

    It’s important to carefully apportion (or split) your business expenses between private and business use.

    5. Keep up to date

    The final marker of a well-run business is that all its details are up to date – particularly with the ATO. That means keeping your ABN details, contact information and bank details current and easy to find.

    Although many of these indicators are straightforward, it’s surprising how many small businesses don’t take these simple actions.

    Behaviours to avoid

    Just as there are habits that mark a well-run business, there are behaviours common to operations heading for trouble.

    Businesses that omit income by depositing it into private accounts or mortgages, or that don’t declare cash sales or record director’s fees correctly, are not on top of things.

    The same goes for failing to account correctly for private use of business assets or funds. If you are claiming an excessive business portion of an expense with both personal and business use, it’s a sign of poor management. As is claiming private expenses as a business expense, or not having the necessary records to substantiate your claims.

    Making errors because you don’t understand your tax responsibilities is also a sign that things are not being well-run.

    Bring in the professionals

    With so many rules and regulations, it’s not surprising that business owners may occasionally overlook some of their obligations. There is an easy solution though.

    Well-run small businesses seek professional advice when they need it. We can work with you to improve your business overall, not just to meet your tax obligations.

    In fact, the ATO’s 2017-18 research and audit work with around 120,000 small businesses indicated that those who have regular contact with a tax professional are more likely to report correctly.

    For business owners who make the odd mistake, the regulator is keen to provide support and guidance. As ATO deputy commissioner, Deborah Jenkins, noted recently: “We want small businesses to feel comfortable to approach us if they realise they have made a mistake, because we want to support them to work through that and get on top on things.”

    Her top three tips for effectively managing your business are to maintain good business records, keep an eye on your competition using the ATO’s Small Business Benchmarks and to take care of your mental health because running a small business can be very stressful.

    If you think your business could do with a financial tune-up, give us a call today.

    Tips for keeping your business records

    Good record-keeping is critical to business success, not just ensuring your tax and super affairs remain compliant.

    To keep high-quality records and avoid mistakes:

      • Keep all your business records (including income, expenses, bank and GST records) for five years, although some will need to be kept longer.
      • Ensure your business records contain enough information to calculate and support the amounts you claim in BAS and tax returns.
      • Include all cash, online, EFTPOS, bank statements, credit and debit card transactions in your business records.
      • Check the tax invoices you receive for purchases that include GST are valid.
      • Keep records showing when business purchases were used for private purposes. This will help you work out the portion claimable as a business deduction.
      • Keep business records separate from personal records to avoid confusion.
      • Take pictures of paper receipts to avoid faded records.
      • Store a copy of all records electronically and have a backup system in place, where possible.
    • Check all your information is transferred correctly if you change your record-keeping software during the year.
    business

    April Tata

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