Build a good foundation for your franchise
We work closely with small businesses and associations as part of our everyday work, and we understand from them that running a business can be difficult. In conversations we have with small businesses, we have noticed certain topics that some of you are unsure about, which are covered below.
While every business has different circumstances, building a good foundation for your franchise can help minimise potential problems and help you along your journey.
Make good record keeping a habit
Record keeping is a crucial part of any business. In addition to meeting your tax and superannuation obligations, having good records will give you a more accurate picture of your business to help you understand how you are doing, so you can spot potential problems sooner rather than later. Keep accurate records of all business transactions to support your claims and make it easier for you, or your registered tax or BAS agent. For example:
- all income (including cash, EFTPOS, credit or debit card, online sales and other payments you may receive) expenses (such as operating expenses, business travel expenses, and payments you make to employees and contractors including any cash wages)
- bank statements
- records of business purchases or use of business stock for personal purposes (to help you work out the business portion to claim as a deduction, and to account for the stock used).
Remember, without proper records you may not be able to claim what you’re entitled to. Keep your business and personal finances separate to avoid any confusion, and store your records electronically if you can and have a backup – you generally need to keep them for at least five years. Being able to develop summaries and reports, streamline your accounting practices, and better track sales and expenditure, are just some of the perks of electronic record keeping.
Good record keeping doesn’t have to be hard; find a system that works for you. Get it right from the beginning to avoid making mistakes, but if you realise you have made a mistake you can still fix it. Use our Record keeping evaluation tool to review your record keeping practices from time to time and see if you’re still on the right track.
Stay on top of your cash flow
Cash flow is important for the success and viability of your small business – understand your cash flow and know how you can put money aside for regular financial commitments.
Developing a cash flow projection is a good way to get an idea of what expenses you have coming up and what income you are expecting to receive. Regular monitoring is also important, so you can see your financial position at a given time. It’ll also help you plan for major expenses such as your tax payments, and identify fluctuations that may lead to potential issues.
To help small business improve their knowledge and skills to effectively plan and manage their cash flow, we have developed an easy-to-understand seminar, Planning Your Future Commitments. Feedback has been very positive, and has highlighted how simple steps can make a difference. Additionally, we are working with tax professionals to roll out coaching conversations using the tools in the Cash Flow Coaching Kit. If you would like assistance to better understand how to effectively manage your cash flow, speak with your registered tax professional or find out more on the ATO website.
Good record keeping is essential in helping you understand your cash flow and plan your future commitments.
Keep your registrations up to date and know if you need to register for GST
An Australian business number (ABN) is an 11-digit identifier that is unique to a business, and as a franchisee, you need to have an ABN that is separate to your franchisor. Remember to keep your ABN details, such as your authorised contacts and the legal name of your entity, up to date. Other businesses may need to verify your information (for example, that you’re operating a business or whether you’re registered for GST). If you make any changes, update your details with the Australian Business Register (ABR) within 28 days.
Since you’re trading under the name of the franchise, you also have to register your own business name with the Australian Securities & Investments Commission (ASIC), if you haven’t already done so. Many franchisees use the name of their franchise plus their location as their business name.
If you created a ‘trading name’ before 28 May 2012 and are still using it, make sure you register it as a business name by 31 October 2018 to continue operating with it. From November, only registered business names will be displayed on the ABR.
If your business turnover is over $75,000 (or you expect it to be), you need to register for GST and lodge business activity statements (BAS). This generally means you need to include GST in the price of your goods and services – you will also be able to claim credits for GST included in the price of goods and services you buy for your business. For example, if your franchisor is registered for GST and they’ve included GST in their franchise service fees, you can probably claim a GST credit for that amount once you’re registered for GST.
Know when to lodge and what deductions and concessions you can claim
All businesses need to lodge an income tax return every year, and it’s important to lodge by the due date. If you don’t have a tax agent yet, and are thinking of engaging one, contact them before 31 October and get on their client list, they will let you know when your tax return is due. If you’re lodging your own return, it’ll generally be due by 31 October. You will also need to lodge BAS if you’re registered for GST.
When it comes to deductions, you can usually claim most costs incurred in running your business; just remember the three golden rules for claiming business expenses:
- the money must have been spent for your business – not a private expense
- if it is for a mix of business and private use, only claim the portion that’s related to your business
- you must have records to prove it.
There are also a range of tax concessions available for small businesses, covering deductions (for example, the $20,000 instant asset write-off), income tax, record keeping, GST and more. Visit ato.gov.au/ concessionsataglance to see what you may be eligible for.
A business is made of its people; not just the product or service that you might be selling
Many businesses underestimate the potential value their workers can bring to their business, particularly if they’re in direct contact with your customers – first impressions count and they represent the face of your business. Your workers can be one of your greatest assets, so look after them. Make sure you provide them with what they need to do their job well (such as proper training for using cash registers and dealing with certain situations) and do the right thing by them (such as paying wages correctly, contributing to their super funds, and having adequate insurance to cover them in case of accidents).
You will have different tax and legal obligations depending on whether your workers are employees or contractors.
Ask for help if you need it
We want to make it as easy as possible for you to understand your obligations and get your tax and super right. We have a range of tools and services to help you, including our online services, the ATO app, small business benchmarks, calculators, and a range of learning resources. You can also get the latest news about all things small business delivered straight to your inbox through our Small Business Newsroom.
If you need help with your tax payments, use our Payment plan estimator to work out a plan that meets your circumstances and contact us to set up a payment plan. We also offer free, confidential and tailored support services to help keep businesses on track or get them back on track.
Find a list of our supporting services for small business at ato.gov.au/sbsupport
For information on small business, visit ato.gov.au/business (you can also enter search terms on the ATO website). For information specific to franchising and tax, visit ato.gov.au/franchise
Matthew Bambrick is the Assistant Commissioner for Small Business Risk and Strategy at the Australian Taxation Office (ATO).