The small business sector is becoming more diverse and accessible – and that’s exciting. But it’s also important that those entering the sharing economy impact the economy in a positive way and are looking out for their own interests.
This doesn’t appear to be happening. Though the number of people in this market continues to grow – about 2.5 million Australians are now employed on a casual basis, according to The Australian Bureau of Statistics, from 13 per cent in 1990s – the reporting of income from these industries isn’t growing proportionately.
This could reflect how many gig economy workers don’t know how to report their income. Or it could highlight a misunderstanding of the downsides of cash and the hidden economy.
If individual businesses and society at large are to get the most out of the gig economy, there are two key areas that I believe all business owners and gig-workers need to know about. They are:
- The cash and hidden economy
- An inadequacy in financial reporting.
The cash and hidden economy
Also known as the “black economy”, the cash and hidden economy is a serious issue that affects every single Australian – and even hurts the very businesses who engage in it. It includes activities like:
- Offering to let customers pay less if they pay cash, and not declaring the cash income.
- Failing to enter cash sales into your POS system, cash register or accounting software.
- Paying cash to employees, not accounting for PAYG, superannuation and other obligations.
These might appear harmless on face value, but they all reduce the amount of tax being paid into the economy. This limits the amount of money that can be spent on other things such as hospitals, schools, and infrastructure. By paying less in tax, you also increase the tax burden on other Australians.
While you might still feel like your business benefits from making cash king, the reality is a bit more complicated. Under-reporting of sales decreases the value of a business and makes it harder to obtain finance and can reduce your business’s value at the time of sale. Research shows access to finance is already a challenge for many small businesses, which stifles growth, employment, and investment. It makes it harder for a business to achieve its potential. So why make it harder?
An inadequacy in financial reporting
Despite some very useful accounting solutions for small businesses like QuickBooks Online allowing business owners and self-employed professionals to streamline processes and better account for profitability and cashflow, there is still a disproportionate number of users to businesses on these systems. Inadequate financial reporting within the small business economy is a problematic trend.
If gig-workers and business owners alike want the best chance of success in getting access to finance, it is crucial to have current and accurate financials. Showing your true profitability is the best benchmark of business success.
By being more organised you’ll not only do your bit for the Australian economy; you will also have a higher chance of gaining access to the finance that you need to keep building your dream.
Matt Alderton, www.b-x.com.au, Founder, Alderton Enterprises and author of “Business for Life”
