The best structure for growing your business

Many start their business on a small scale, operating as a sole trader or trust. Certainly a sensible move, but what happens when you start to out-grow your structure? The answer could be simple: make your business a company.

Why make your business a company?

The benefits are clear. Tax on profits is capped at 30% and it's easier to admit new shareholders.  This not only makes it easier to obtain capital funding, but also increases your asset protection.

As a sole trader or trust, tax legislation allows you to transfer your business into a new company.  No tax is payable at this time and it will only arise in the future when you ultimately sell the company.  As bean counters we refer to this as a 'rollover' for tax purposes.  It's one of several rollover concessions that can be used to ensure a growing business is operating through the best structure.

Aside from the above 'rollover' concession, our clients have also ultilised the 'scrip for scrip' concession.  One client, who was operating as a company, wished to acquire another company that would compliment his existing operations.  He acquired the shares in this company and as payment he issued shares of an equivalent value in his own company.  Effectively, the two businesses have now merged without any cash changing hands.  As a result there has been no impact on cashflow, increased synergy from the combined operations, increased value of the business, and no tax cost.  This shows the importance of choosing an efficient structure.

So if growing, or undertaking a merger or acquisition, it is important to be aware of your options.  The above concessions are a good alterative when a taxpayer isn't able to access the small business CGT concessions. Income tax is not the only issue; there is also stamp duty, GST, and the need to obtain legal advice in relation to the contracts.  There are a wide range of benefits to an efficient structure, including savings on acquiring or merging a business and easier access to equity funding. Ultimately, you can also gain an easier exit from the business through either sale or family succession.

Reap all the benefits you are entitled to, and get your structure right first time.

10 Steps to a refreshed business

By Rowan Wallace

2013 has well and truly begun, so it's time to make (and keep) those new year's resolutions, both personally and for your business. By breaking your resolutions down into 10 steps, you can create a clear pathway to success.

1.  List your business goals for 2013. Remember they should be SMART goals - specific, measurable, achievable, relevant and time bound. Examples include:
•  increase sales by 5%
• increase net profit by 3%
• introduce a new product line
2. Now list two ways to achieve each goal. You might think about retraining staff, streamlining processes or researching new product or service innovations.
3. List 5 reasons why customers should use your business. This is your service standard! Think; open communication, industry expertise, competitive fees.
4. What areas of your business are most profitable? Rank them!
5. Ensure your marketing strategy supports everything you have noticed in points 1 to 4.
6. Get your staff on board. Make sure they are committed to the goals too.
7. Your profit and loss and cashflow statements are crucial. Make sure you understand them fully and monitor them weekly.
8. Set up reward structures for you and your staff.
9. Identify areas of waste in the business and work out ways to eliminate them. Think overproduction, inventory and defects.
10. Sometimes you need an outside perspective, so ask a third party to review these goals.

Let's not procrastinate. Now is the time to put the plans in motion to achieve your goals for 2013. If you need a hand, we're here to help.

w: www.uhyhnbrisbane.com.au

t:  07 3210 5500

GST: buying or selling a business

 

Last month saw a taxpayer make a lucky escape by using the GST going concern exemption.

The exemption applies when an individual or entity is selling their business.  The exemption results in the sale being GST-free, meaning that you don't need to add 10% GST to the sale price.  

Why take advantage of this exemption?

Whether buying or selling a business, the benefits are straightforward. For a buyer, the main advantage is cashflow.  If an additional 10% GST is added to the price, this means more cash is required in the short term to fund the purchase.  With cash being hard to come by in this climate, buyers naturally veer towards a solution that avoids a strain on cash.  For vendors, they can use the exemption as a selling point to assist in a successful sale.  It can also reduce stamp duty payable on sale.

As with all GST concessions, there are several requirements to be met to claim the concession.  For example, the seller must supply all things necessary for the continued operation of the business, and the buyer and seller must agree in writing to apply the exemption.

To fulfill the written agreement requirement, it is standard practice to have the appropriate clause inserted into the contract.  However, this did not occur in a recent Court case, and was discovered by the ATO during an audit.  The ATO denied the exemption, and raised an assessment for just over $200,000.  The taxpayer produced correspondence between their solicitor and the buyer's solicitor, a tax invoice relating to the settlement, and direct correspondence between the buyer and seller.  The Court held all the correspondence was sufficient to indicate the parties had agreed in writing to apply the exemption.

Once again this highlights the importance for our tax team at UHY Haines Norton to review the contract before it is signed.  This allows us to identify if the contract meets all conditions to claim the exemption.  If any changes are required, we can communicate this to your solicitor.  Once the contract is signed, it is difficult both legally and practically to have changes inserted at a later date.  A formal review would have also avoided the above situation, along with the added legal costs and stress involved.  Not to mention potential ATO penalties and interest.

The next step...

We have handled many GST going concern transactions and are happy to assist you in your transaction.

Contact us to discuss your position on 07 3210 5500 or brisbane@uhyhn.com.au.