Your accountant is a key source of advice on how to start a business. They come with knowledge and experience you can take advantage of if you know the right questions to ask.
If you type in the word ‘businessman’ or ‘businesswoman’ into Google, the images you will see will be all high powered corporate’s in navy blue suit’s. But the reality is many start up businesses are not from a business background. So it is not reasonable to expect you to know everything there is about setting up and running a business.
When I have a leaking pipe, I call a plumber to fix it and I am happy to pay them for it. If the plumber wants business advice, then they come to me and are happy to pay for it.
So to help you on your way to starting your business, here are 10 questions you should ask your accountant before you start.
1. Am I a business?
Some people will start a business that, well, really shouldn’t be a business. There are circumstances where you won’t need to be set up as a business as you simply don’t make enough money or your business really is a hobby.
In certain circumstances it is to your detriment to be a business. So ask your accountant if you need to be a business. This might save you dollars and hard work you don’t need to do.
2. How should I set up my business?
This is your first question (okay, first question after the first question!) as this establishes how your business will be set up. For example, should you set up as a sole trader, a partnership, a company or a trust? Each will have their pros and cons. Have your accountant ask questions from you about you and your proposed business so they can give you the best advice possible.
3. What are the costs and benefits of this business set up?
Most people consider the initial costs when discussing this point. That is to say how much will it cost to buy a company or draw up a trust deed. But the costs go beyond the initial establishment costs. Consider the ongoing maintenance costs such as accounting fees, annual lodgement fees etc. Also discuss what protection the business structure offers if anything goes wrong. Will the structure protect not only the business assets but more importantly your personal assets such as your house and investment’s?!
4. What type of business do I have? What is Personal Services Income (PSI)?
Leading from question 1, many people take an Australian Business Number (ABN) to make a few extra dollars in addition to their employee pay, especially labourer’s and tradies. But there are rules around how your income is treated and what you can claim for tax deductions. So ask your accountant if you’re business is a PSI business and what that means.
5. Do you have experience in doing work for this type of business?
To give a better understanding about accountants, not all accountants prepare tax returns for a living. Some specialise in certain fields of accounting or in certain industries. For example, doctors can be general practitioners or specialists, accountants can be similar. Asking if your accountant has experience in your business industry is helpful to know but not always necessary.
Ask them what services they can provide you also. For example Foley Business Management provides bookkeeping services including the preparation and lodgement of Business Activity Statements (BAS). We also have additional services, providing management accounting and reporting and consulting.
6. Will I need to register for GST?
This is an important question as it will
- impact your selling price
- your ongoing costs for the preparation and reporting of your Business Activity Statements (BAS) to the Australian Taxation Office
- paying GST owed.
7. What insurances will I need?
For many businesses you will need some form of insurance. Some of the most common types of insurances a business may have are
- professional indemnity;
- product and public liability;
- income protection or key man insurance,
It is important you have the necessary insurances in place before you start actually trading. Insurance is something you realise you really need after something goes wrong. At this time it is already too late!
8. What expenses should I consider for my business?
A lot of people don’t realise there are a number of business expenses that goes into a business. In addition to the establishment costs there are insurances, accounting, bookkeeping, rent, motor vehicle, mobile phone, plant and equipment, utilities as electricity and water etc. These can be upfront and or an ongoing cost of doing business.
9. What personal expenses can I claim in my business?
Sometimes a draw card to owning a business is being able to claim personal expenses such as a motor vehicle or gym fees and equipment as a ‘business expense’. But the reality is you can’t claim personal expenses. In many cases you will need to justify them as a legitimate business or work expense to claim all or part of the expense as a deduction. BEWARE!! The ATO has identified it will be targeting and scrutinising small businesses in 2017/18.
Some purchases you cannot claim the whole costs irrespective of the business use, such as on a luxury motor vehicle. There is the possible issue that having your business pay for personal expenses will incur Fringe Benefits Tax. Ask your accountant what Fringe Benefits Tax is.
10. Does the business sound like it has potential?
This is where a good accountant with general or specific experience with businesses will be able to give you some feedback. They may not tell you whether the business is going to be a success or failure, but they can give you some critical feedback of their considerations. At the end of the day, you will be the one that makes the decision, not your accountant. But a good accountant will give you their opinion on the matter within means or at least some points to consider before you proceed.
11. BONUS QUESTION- Am I better off just staying as an employee?
Who wants to become the next Mark Zuckerburg or Bill Gates?! Being a business owner sounds great. You become your own boss, you don’t answer to anyone but yourself, you don’t have to worry about superiors telling you how to do your job. Best of all the money you make from your work goes to you. You’re the King of your domain!
The reality is different. 80% of businesses fail in the first year. Nobody sets out to start a business with the intent to fail, but for every 10 that start, 8 will fail. Consider your options.
For some people being an employee and earning a wage is better than pouring all of your savings into a money pit only to go broke. It is also easier being an employee where your work day starts at 9am and finishes at 5pm, from Monday to Friday. When you’re in business you are working 24/7 as you will never switch off from thinking about it.
Still Feel Like You Need More Help?
Starting a business can be daunting for anyone. As we discussed, a plumber is great at fixing pipes, a management accountant is great at business advice. You aren’t meant to know everything there is before you start and you want to get on with doing what you do best.
Foley Business Management provides financial management solutions to assist small business, not for profit and social enterprise make more informed business decisions around their finances. We provide bookkeeping, management accounting and reporting and consulting services.
If you would like to speak to us as part of our free 30 minute initial consultation then email enquiries@foleybizmngt.com and we will contact you to organise a time to speak over the phone. This is a no obligation service we provide to those wanting to start their journey into business. Otherwise email us your question and we will try to reply with a general response to your situation. This is a once off email provided free, as we have a commitment to our clients to service them.