Launching a start-up can be an exciting yet intimidating experience. There is a lot of planning and effort involved and some not-so-friendly statistics about start-ups that fail in the first year. Many worry about; the finances, making ends meet, breaking even and eventually turning a profit. But it takes more than these things to grow a successful business; it takes people to invest in the right structure and foundation arrangements and this all starts at the planning stage. The people behind the scenes are key in the venture growing and becoming a market leader; these can be the founder, lawyer and the accountant.
Achieving the right tax advice from a good accountant is paramount when first setting up a business, so that if and when the business is sold, there are no nasty surprises from the tax man.
An accountant can also help to work out what type of business structure will best suit your needs – sole proprietor, a partnership, limited company, discretionary trust or something else. These are important decisions, which will help to determine the way in which you exit the business. Structuring also helps to minimise the risk of exposure to claims against the business or business owners during the life of the business. There is a decision for small business of when to become a company to limit liability for the business owners.
Accountants are especially helpful for writing up business plans if you are seeking to secure a lease within a large shopping centre or buying into a serious franchise. A business plan helps to demonstrate you have a plan of how you will achieve break even and profitability over the next five years. Accountants can also perform due diligence on purchases and valuations on businesses. Accountants also help with setting up the company, applying for TFNs, ABNs and registering for GST. These are important because if you get this wrong, it could hinder your growth when you are looking to bring in new investors.
Taxation is a key consideration and businesses often like to operate through family trusts for the ability to direct business profits to any family member in any combination. This has the benefit of maximising tax efficiency for the family. Another benefit of trusts is the ability to pass through the nature of gains to beneficiaries such as the capital gains tax discount. This is critical where a property development through a company is not able to access the capital gains tax discount, while a trust can pass through capital gains to those beneficiaries who may be able to access the capital gains tax discount.
There are also different ways of securing start up assets such as cars, equipment, technology and other items. These can be purchased with a loan, hire purchase/lease arrangements or rented. The different methods deliver different tax obligations and benefits. Nowadays, chattel mortgages are becoming more popular due to the cashflow benefits of claiming back GST immediately upon the purchase of the assets as opposed to claiming small portions of GST each quarter.
An accountant can also help consider advising on the structure for the start-up so ensure the business can capture the small business capital gains concession. This allows you to either disregard or defer some of the capital gain from an active asset used in a small business.
While the entrepreneur is trying to prove to a sceptical world that their start-up idea can really work, the accountant is behind the scenes working hard to ensure there is a structure and plan for taxes. This is detail that cannot be overlooked, as the accountant can help save money at a crucial time where every penny counts.
Jeff Poe, Founder and Managing Director, Platinum Professional Training