5 Signs of a well run business
Every small business owner wants their business to thrive, but it can be tough to keep the money coming in the door while staying on top of all the necessary paperwork.
One way to ensure success is to understand the behaviours that separate a well-managed business from one that’s just muddling through.
Surprising as it may sound, the ATO is keen to help small business owners prosper and to share its insights on running a successful business.
Getting the basics right
Since it’s charged with keeping an eye on almost four million Aussie small businesses, the tax regulator is well placed to know what works and what doesn’t when it comes to keeping the doors open.
According to the ATO, when a small business is operating well, it tends to get the basics right. That means keeping good records and having in place effective tools so you can easily reconcile your business’s income and expenses.
1. Keep informed
The ATO finds business owners who are operating effectively take the time to understand their tax and super obligations and to keep on top of any changes affecting their business’s processes.
2. Know your cash flow
Small businesses that are well managed use a cash flow projection or budget tool, as this is the main reason small businesses fail. If you don’t have clear insights into your cash flow position and are not carefully managing the business’s income and expenses, it can be a recipe for trouble.
If you are using cloud-based accounting software, cashflows and budgets can be easily integrated into your everyday reports. Get in touch with us on our contact page if you need any guidance to assist with the implementation of cash flows and budgets in your software.
3. Declare all income
Well-run businesses declare all their income – including any cash income – in their income tax return. Although it’s the ATO’s job to collect tax, it argues small businesses not declaring all their income are heading for trouble down the track.
4. Split your expenses
It’s important to carefully apportion (or split) your business expenses between private and business use.
5. Keep up to date
The final marker of a well-run business is that all its details are up to date – particularly with the ATO. That means keeping your ABN details, contact information and bank details current and easy to find.
Although many of these indicators are straightforward, it’s surprising how many small businesses don’t take these simple actions.
Behaviours to avoid
Just as there are habits that mark a well-run business, there are behaviours common to operations heading for trouble.
Businesses that omit income by depositing it into private accounts or mortgages, or that don’t declare cash sales or record director’s fees correctly, are not on top of things.
The same goes for failing to account correctly for private use of business assets or funds. If you are claiming an excessive business portion of an expense with both personal and business use, it’s a sign of poor management. As is claiming private expenses as a business expense, or not having the necessary records to substantiate your claims.
Making errors because you don’t understand your tax responsibilities is also a sign that things are not being well-run.
Bring in the professionals
With so many rules and regulations, it’s not surprising that business owners may occasionally overlook some of their obligations. There is an easy solution though.
Well-run small businesses seek professional advice when they need it. We can work with you to improve your business overall, not just to meet your tax obligations.
In fact, the ATO’s 2017-18 research and audit work with around 120,000 small businesses indicated that those who have regular contact with a tax professional are more likely to report correctly.
ATO deputy commissioner for small business, Deborah Jenkins recently gave her top three tips for effectively managing your business: maintain good business records, keep an eye on your competition using the ATO’s Small Business Benchmarks and take care of your mental health because running a small business can be very stressful.
If you think your business could do with a financial tune-up, give us a call today on 03 5120 1400.
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