Key Points to Consider when Hiring Employees

In light of the revised Australian Tax Budget of 2015, which is dedicated to stimulating the economy by improving the overall state of the small business sector, it is the perfect time for people with entrepreneurial inclinations to make their first jump into the world of business.

One of the first few hurdles a first-time entrepreneur would face is the whole process of employment, which can be costly, time-consuming, and stressful when done incorrectly regardless whether you’re in Brisbane, Sunshine Coast, or Gold Coast.

Here are 6 questions you should ponder on to improve the probability of getting good employees: Continue reading

Contractor Or Employee – What’s The Difference?

Hiring an employee can be a time consuming and expensive process as such businesses now are also considering the option where plausible to engage a contractor to perform the same work an employee would. However, a business wanting to engage a contractor instead of an employee must know the differences between the two and what the Australian Taxation Offices definition of a contractor and employee are in order to avoid hefty penalties and protect the business from potential legal claims against it. By understanding the distinctions between a contractor or employee, you will know what is best for your business from the outset to maximize return from the business’s investment in human capital and minimize the cost of the investment.

In general terms, employers need to in addition to paying the wage of an employee need to at a minimum for a casual employee pay Superannuation and insure employees through Workcover or a Workcover equivalent depending upon which state you employee in. If you choose to hire a permanent employee, than as an employer you will need to also consider holiday and personal leave entitlements, long service leave, pay for public holidays and the cost of processing and keeping the required payroll records for the employee.

If you choose to engage the services of an independent contractor on the other hand and the contractor successfully passes as a contractor using the decision tool listed on the Australian Taxation Office’s website at http://www.ato.gov.au/content/00095062.htm?alias=employeecontractor these same employer expenses and benefits do not apply. You must be certain when engaging the services of a contractor that the individual is actually a contractor because if you fail to classify the individual as an employee when they are an employee and not a contractor, you may have to pay the individual for missing wages, entitlements and superannuation that as an employer you were supposed to pay under government legislation.

Unfortunately there is no single indicator that will help you identify whether the individual is an employee or a contractor, generally it depends on the amount of control you exercise over the individual’s job role, if the individual provides their own tools and equipment, if the individual has more than one client and if the individual sets their own work hours. Some key rules that determine whether the individual is an employee or contractor are:

– Does the worker have an Australian business number (ABN)?

– Is the agreement made with a company, partnership or trust (other than a labour hire firm) and payments made to that company, partnership or trust for the services of the worker?

– Does the agreement you have, give the worker the right to pay another person to do the work instead of them?

– On what basis do you make the payment to the worker?

– Do you or the worker provide any equipment, tools of trade, plant or vehicles to perform the work (excluding incidental use)?

– Is the worker liable for the cost of rectifying any defect in the work performed?

Contractors are paid to deliver a result for the business which contracts them. Contractors may also have control over their own workers which gives them the ability to delegate or sub-contract workers in order to deliver the sought after outcome. A contractor will generally have tools, equipment and any other assets of their own that are necessary for completion of the work. Commercial risks are taken by contractors as they are primarily responsibility for their own work and are liable for the cost for rectifying any type of defect. There will generally also be a written contract between the contractor and the business which contacts them which will generally define a set period for the work to be performed, the cost for the work performed, material to be used, key milestones which may dictate payment and other terms and conditions.

Meanwhile, employees are primarily part of a business and work in it. The business has the authority to direct the worker as they see fit. An employee cannot delegate or sub-contract their work and cannot pay just anyone to execute the work. Employees are paid based on the activity or item, commission and or time they have worked by submitting a time sheet for the payroll period. Employees are provided with most or all of the necessary tools, equipment, and any other assets that is required in order to complete their jobs successfully. Employees generally receive a reimbursement or allowance for any out of pocket expenses in the course of their employment. Lastly, it is the business’s responsibility for the work undertaken by employees as well as any liability or defect that may arise from the employee working on behalf of the business.

What To Look For When Applying For A Business Loan

Applying for a business loan and receiving final approval can be a lengthy process, but it can make a substantial difference between keeping your own business operating and shutting it down which certainly makes the whole process worthwhile. The exact time for approval can vary depending on the type of business loan you are applying for, its complexity, and the timeliness of the borrower providing the information. The amount of a loan may also differ depending on the needs, profitability, and credit history of the business. The good news is the fact that most of the loan providers require the same information and documents from business loan applicants. Below are the usual documents and prerequisites for a business loan application.

Form for Loan Application

Keep in mind that the application forms vary from lending institution to lending institution. However, lenders typically ask for the same information in your application. So you have to prepare for questions such as – what is the purpose of your application and where you intend to use the proceeds of your loan when received. Other questions may focus upon the assets the business possesses, credit history with preferred suppliers, existing business debts, the key members of the business’s management team, and the directors personal background. These questions need to be considered first before filling out the application form.

Resumes as Evidence

Some lenders may require supporting evidence to secure claims in a director’s resume that proves their experience in business management and the industry. This is crucial for business loans that are to be used for start up businesses.

Solid Business Plan

Submission of your business plan together with your application form is imperative in all types of loan applications. Your plan should cover your projected financial statements for specifics like cash flow, profit and loss, and balance sheet. Lenders will generally inquire into a director’s credit report, which can be a key determinant in the lenders issuance of a loan. It is advisable to ensure your credit report is clear of any red crosses before starting the application process.

Income Tax Returns

All lenders will request to see at least the last financial year’s tax return for the business as well as the director’s personal income tax returns. The lender will also likely ask to see a copy of the Australian Taxation Offices balances for the integrated client account as well as the income tax account for the business and possibly the director’s where applicable. This will help determine the applicants ability to service the repayments of the loan.

Financial Statements

Lenders may require directors owning a percentage of a business to provide personal financial statements pertaining to themselves. Statements will most likely be expected to include an income statement, bank statements, cash flow projection, and balance sheet that cover the period of a year

Accounts Payable and Accounts Receivable

Another general requirement of a business loan application will be the aged debtors and creditors of the business at the most up to date point in time possible. This is to understand the breakdown of your creditors and debtors which may determine further risks of the loan.

Collateral Guarantee

Collateral is always one of the primary concerns of lenders. Substantial collateral is a requirement for loans that involve higher default risk factors. It is not often that you will not be asked to provide collateral but if the business has strong financial statements, substantial assets and a current relationship with the lender this may not be required. However, whenever applying for a loan you should be prepared to offer some form of collateral as this is the rule more often than not.

Legal Documents

Lenders may also require you to submit pertinent documents like articles of incorporation, copies of contracts with third parties, and franchise agreements. An applicant needs to be prepared to be totally transparent in their business dealings as questions can sometimes be considered intrusive.

These requirements from possible lenders will serve as guidelines in order for an applicant to consider before beginning the loan application process.

Outsource Bookkeeping to a Bookkeeper

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In today’s world, continual cost cutting and innovation businesses are trying to determine how they can successfully reduce overheads, increase profits and deliver a better product or service than last year to stay ahead of the competition.  One way businesses are achieving this successfully is through the principle of outsourcing.

Outsourcing has penetrated nearly every major identifiable business department in the western world whether it be sales, customer service, advertising, production and even bookkeeping, accounting and financial management. This trend in itself proves that the expertise is there so why not seek it out and take advantage of it? Well, the reason that businesses often do not consider this as an option is management do not want to risk compromising the products or services that they deliver to customers.

If outsourcing can be achieved successfully at a basic level without compromising the quality of a business’s products or services can this be done across all business units? Time has proven that outsourcing can be achieved with a level of success as everyone will have experienced the product of outsourced sales or customer service when engaging multi national and international companies. But What if a business considered outsourcing the bookkeeping and accounting functions in its operations? Could a business unit that is so critical to everyday operations and carries a high level of information sensitivity be successfully outsourced?

When somebody thinks of the term “outsource” they generally think overseas but this is not always necessary to achieve the results that are sought after. This is true especially if someone were looking to outsource a business function which requires a greater level of knowledge and expertise of national law and customs they would feel more comfortable outsourcing domestically to a business which specializes in that particular need. In today’s marketplace in Australia the domestic market is very competitive in the industry for the outsource bookkeeping and accounting services.

Today, if a business requires personnel to execute bookkeeping or accounting functions that business would typically first look to employ somebody internally to fulfill this need. However there are a number of factors that should be considered if a business is seriously evaluating whether to hire internally or engage an external accounting or bookkeeping firm to fulfill the immediate and foreseeable financial needs of the business.

Overheads are one of the greatest considerations of taking on extra staff. Beyond what the basic wage and entitlements are of employing somebody you also need to consider other employment costs. Other employment costs which a business takes on generally with a new employee are the recruitment and training costs, staff amenities (tea and coffee etc.), additional office space, cleaning costs for the additional office space. The list could continue on but these are some of the main costs incurred when taking on new staff. But what if a business could engage someone to take care of the businesses bookkeeping and accounting requirements without having to introduce any of the overheads?

Engaging an external domestic bookkeeping or accounting firm could be a game changer for many small and medium sized businesses. Having a professional bookkeeper or accountant that can pick up the workload of a business without introducing the overheads listed above is probably something that many businesses have not even considered and have just come to expect holistic employee costs a bi-product of doing business. This does not need to be the case though as we will now explore the advantages of outsourcing the bookkeeping and accounting functions of a business.

The advantages of engaging an external or public bookkeeper or accountant for the financial requirements of a business are as follows. A public accountant or bookkeeper must keep up professional development requirements in order to maintain their registration with the tax Practitioners Board. Both accountants and bookkeepers are required to have specific qualifications in order to practice in the industry this ensures that the service which is delivered is generally of a high standard. In comparison to this internal bookkeepers or accountants require neither in order to execute their job function.

Further advantages of engaging a public bookkeeper or accountant are the reduction of overheads which include all costs which would be incurred in employing a staff member (see paragraph 6). In some cases it may also negate the requirement of having a physical office where over the counter service is not required. Also the requirement of having to manage bookkeeping or accounting staff can also be bypassed, where a strict criteria of deliverables exist and are communicated to the bookkeeper or accountant effectively.

Baring in mind the advantages of engaging an external/public accountant or bookkeeper a business manager should strongly consider their options when confronted with the opportunity to make this decision.

If you are considering outsourcing your bookkeeping follow the link to find out more information.

Bookkeepers Rates and Charges

One of the first considerations when a business manager decides to engage a bookkeeper is the cost burden the business will have to bare. Cost in most cases is the primary determining factor which determines the caliber of bookkeeper that a business will engage. Cost will always be connected to the workload variable which is influenced by the size of the business, the number of transactions the business engages in and the information that a business manager desires.

Where a large workload exists a bookkeeper may be required to manage the workload and provide input on a daily basis to ensure the business operates at the level dictated by management. Where the workload is at a smaller level a bookkeepers input may only be required on a weekly, fortnightly, or monthly basis and in some cases even quarterly. Generally bookkeeping services are charged out on an hourly basis however, bookkeepers are starting to move towards a fixed fee scenario because this is more appealing for a business manager as it provides certainty and can easily be budgeted for.  There are a number of elements which need to be considered which could affect the cost of a bookkeeping service for a business, these may or may not be relevant to each business but will have a bearing on cost, these are as follows:

Find the Base Rate

Business managers now within the current economic climate are often looking for a quality and cost-effective accounting service. The downward pressure this has on bookkeeping service providers ensures that a business will easily be able to locate a bookkeeper at a cost which reflects the bookkeepers rates that had been budgeted for by management. But the cheapest is not always the best so a business must be careful which bookkeeping firm they engage to fulfill their service requirements as this can have dire financial implications for a business if the bookkeeping is not done properly.

Get to Know the Business

In order for a business manager to understand the amount of time which would is likely be involved in  managing and executing the bookkeeping tasks they must look at a few general aspects of the business and consider the following:

Does the business currently use accounting software to manage the bookkeeping functions?

–          If so, how effective is the current software at executing tasks in a time efficient manner and which also produces the features that a business requires?

–          How many invoices does the business send out per day/week/month?

–          How do customers pay for their goods/services? Is this a very manual process and can it be streamlined?

–          How are the suppliers managed and paid? Is there a better way to manage this?

–          What other time consuming tasks exist which require a high level of manual input in order to execute?

The Three Month Review Policy

A business manager should take the time to review with the bookkeeper the time it takes to execute the tasks required to fulfill the expectations of the manager. This approach will enable the bookkeeper and the business manager to discuss a new price equilibrium which is fair for both parties after the bookkeeper has experienced role and what is required of the role. There may be a large + or – time variance compared to what was initially thought which may provoke a discussion regarding internal process improvement. A process improvement discussion may result in the form of new software being implemented which may be able to automate processes currently done manually or the removal/addition of processes which could add value to the business.

Further Notes To Consider

Bookkeeping is no longer what it used to be due to the introduction of new legislation which governs the provision of bookkeeping or Business Activity Statement services (BAS) and is enforced by the Tax Practitioners Board. This in turn has led to the standard of bookkeepers greatly increasing over the past 3 years as a number of rogue operators have been removed from the industry. This has been a catalyst for a number of positive and negative aspects for a business manager wanting to outsource the business’s bookkeeping requirements. A positive aspect is there is now a minimum standard of learning and qualification which is required for a bookkeeper to be eligible for registration with the Tax Practitioners Board so to provide BAS services. This ensures a business manager that if they engage the services of a BAS agent then they are generally assured of a quality service. However with this has come an increased cost to bookkeepers attaining this level of qualification and certification which will manifest in slightly higher fees for businesses than prior to the new legislation being introduced. Ensure when you engage a bookkeeper that they are a registered BAS agent to protect the financial health of your business as a bookkeepers work will generally have powerful tax implications for a business.