Five steps to help you better your franchise

Tom Wheeler | Assistant Commissioner | Australian Taxation Office (ATO)

Five steps to help you better your franchise

There are many things you need to consider when running a franchise. Here are five to help you along the way.

A lot of factors can contribute to how well a business performs. Help better your franchise by:

1 Being on-trend with customer payments

Many people like to pay by card. Cash will always be around, but card is becoming the number one thing people reach for in their wallets. Research shows that over two-thirds of in-store payments are now made by card. Electronic payments for transactions under $10 have also grown; 31 per cent are paid with ‘tap and go’.

In addition to making it easier for your customers to go through with their sale (after all, customer is king), having some type of electronic payment facility means:

  • less time spent counting money and balancing your till (the more you rely on cash, the longer it takes to reconcile your sales);
  • less paperwork and administration;
  • less worry about counterfeit notes; and
  • less likely to be targeted by theft (both external and employee theft).

To help educate small businesses on the benefits of electronic payment facilities, we’re currently visiting businesses around the country, some of whom advertise as ‘cash only’ or mainly deal in cash transactions. We’re doing this because large amounts of cash often leads to more mistakes, and it also provides more opportunity for some people to deliberately do the wrong thing and gain an unfair advantage over honest businesses.

2 Practicing good record keeping (get it right the first time)

Generally, 70 per cent of the businesses we visit have something they need to fix – whether it’s learning how to keep better records, finalising forgotten income tax or activity statement lodgements, or fixing their under-reported income or over-reported expense claims. You’ll be surprised how we still find people who keep cash boxes under their cash registers, or have an excessive number of ‘voids’ or ‘no sales’ made through their cash registers.

Our visits aren’t about trying to catch people out; if you need help to take control of your record keeping, we show businesses the tools that are available and how to use them. During the visits we’ll be reviewing record keeping systems, checking GST registration, and seeing if activity statement and income tax lodgements are up to date. We’ll also assist with any questions businesses may have.

Consider investing in an electronic record keeping and payment system to save you time. It’ll also help you be more organised if you need to get additional finance, a mortgage, or if you want to sell your business later down the track. There are hundreds of different packages available that are often designed for specific types of businesses. If nothing else, a basic package that records sales, voids, refunds and exchanges makes the end-of-theday reconciling so much quicker. Then there’s the other end of the spectrum that helps with invoicing, payroll, budgets, forecasting and even managing stock.

It’s worth going online and reading reviews and also having a chat with your registered tax or BAS agent. See what they use and get something that’s compatible with your agent’s system to make it easier when sending files and information across to them.

3 Fixing your mistakes ASAP

If you know you’ve made a mistake, it’s easy to fix. It’s also better for you to make the first step and make a voluntary disclosure instead of waiting for us to come to you. You’ll need to pay back the tax you haven’t paid (everyone needs to pay their fair share), but you may reduce any penalties and interest by making a voluntary disclosure.

In one of our past visits, we realised a business was using various Australian business numbers (ABNs) on their cash register receipts. We asked the business owner a few questions, and they decided to make a voluntary disclosure about over-claimed expenses. We found unreported income and overstated expenses totalling more than $1.1 million. After taking legitimate deductions into account, the business had to pay around $211,000 in income tax, GST and some penalties (after taking the voluntary disclosure into account the penalties were reduced by $12,000).

4 Using small business benchmarks to help track your performance

Small business benchmarks help you see how you’re performing compared to similar businesses in your industry (they’re also a helpful indicator to gauge the health of your business). You can use the business performance check in the ATO app to do this. The benchmarks use information from tax returns and activity statements collected from over 1.4 million small businesses, and they’re published as a range for each industry (so you can compare apples with apples). If your business is outside the benchmarks, it may mean:

  • you’re doing something much better than your competitors;
  • there are areas you can improve on;
  • you’ve reported something under the wrong label; or
  • you’ve used the wrong business industry code.

In addition to helping small businesses, the benchmarks are also one of the risk indicators we use to identify businesses that may be deliberately doing the wrong thing.

Evaluate your business’ performance regularly to help you identify potential issues early on – it’s always better to correct problems sooner rather than later.

5 Understanding your obligations and doing the right thing

It’s important to do the right thing, and in addition to helping us identify businesses that may need some assistance, data matching is one of the ways we protect honest businesses. We regularly get data from franchisors to see if franchisees are reporting the same numbers to them as what they’re reporting to us. Unfortunately, sometimes we find that the numbers don’t match, but we also find that the franchisor’s controls may not be as good as they think they are.

In another one of our visits to a franchisee retail business, we found the owners weren’t consistently reporting the tax withheld from their employees’ wages, and the business didn’t seem to have enough employees to keep it running and was dealing in significant amounts of cash.

We investigated further, and discovered the business wasn’t fully reporting the sale of extra products and didn’t have a cash register to record the extra sales (they were only recording franchise product sales in the electronic system supplied by the franchisor). The owners decided to make a voluntary disclosure. We took this into consideration and reduced their penalties by $14,000 – the business paid $3,000 in penalties and $24,000 in tax for the extra income.

Other red flags we investigate include when business owners appear to be living beyond their reported income. Our data-matching capabilities can help us detect those who try to get an unfair advantage by not doing the right thing. We also tend to take a closer look at industries that mainly take cash payments, such as restaurants, cafes and takeaways, hair and beauty, and general retail.

Remember you also have employee and superannuation obligations (for example, from 1 July 2017, all businesses need to make employee super contributions electronically through SuperStream). We receive over 10,000 calls a year from concerned community members, employees that have been taken advantage of, and customers who are asked to only pay in cash or don’t get a receipt with their purchase.

These are just a few of the things for you to consider when it comes to running your franchise.

Tom Wheeler is an Assistant Commissioner for Small business at the Australian Taxation Office (ATO). He has worked in the ATO for a number of years and has a wealth of experience covering tax, GST and the cash and hidden economy.

If you’d like more information on the work the ATO does, visit: www.ato.gov.au/protectinghonestbusiness