Michelle Pearce is the founder of Face Chartered Accountants, a boutique taxation and accounting advisory firm in Sydney. Michelle has been in public practice since 2001. With over 15 years experience, including Deloitte Touche Tohmatsu, Michelle has developed skills in the specialist service areas of taxation, business services, corporate recovery and insolvency.
Michelle has provided taxation commentary for Julianne’s book “All about the Money, Honey!” and featured several times on the Sky Business show “Your Money, Your Call” discussing taxation issues including, estate planning and year end tax strategies for individuals and business.
What are the common financial mistakes that small business owners make?
There are several key financial mistakes small business owners make:
- Not developing a business and financial plan – Many small businesses fail because they do not have a clear pathway to follow and underestimate the costs of setting up their businesses. Others develop their plans and put them in the bottom drawer. Planning is the key to success.
- Spending too much money initially –Everyone loves to have their business set up perfectly from the start. A fancy fit-out in the CBD may sound like a successful start to your business, but is this really necessary? Maybe working from home with a virtual office is a more cost effective way of doing business until you have generated enough profits to reinvest back into the business. By limiting your spending upfront, you have more chance of success – as well as limiting your financial exposure should things not work out.
- Not seeking advice from professionals and not seeking the right advice – It’s important with the constant changes to business laws and taxation legislation to seek advice. Also, setting up the right business structure in the beginning will save you money later on. Small business owners should seek legal and financial advisors that they can afford, the most expensive are not always the best but be wary of those that charge very little. You should make sure you check out the backgrounds of the advisors, make sure they have sufficient qualifications and ask other business owners for referrals.
- Not charging enough for the product or service – This probably the most common mistake small business owners make, particularly women. Small businesses seem to greatly undervalue their product and service which can have obvious affects on the profitability of the business. Take pride in your business and don’t discount – not even for friends. You may lose customers, but were these customers you really wanted in the first place?
Any tips for the 2008 tax returns?
- Lodge on time – Don’t be late
I know this sounds like an obvious tip but you’d be surprised at how many businesses fail to do this simple task. If you don’t get your tax return in by the due date, you may be liable for penalties and potential interest charges from the Taxation Office (ATO). The ATO has been fairly relaxed in levying penalties to date however I would not expect this to continue. Penalties can be pretty expensive and are not tax-deductible so you’re wasting money by incurring them.
- Record Keeping - Good record keeping will save you time and money
Some businesses will be using an accounting software program such as MYOB or Quicken to record their business transactions. Other smaller businesses may be using spreadsheet programs like Excel or the cashbook software provided by the ATO. If you are using any of these methods you should provide a soft copy of your computer file to your accountant for them to use, or if you are using a computer package that has an accounting module export this information into a format your accountant can use (such as Excel). A soft copy of the accounting file makes it easier for your accountant to review, sort and calculate the information to prepare your annual accounts and return. Printing out this information is not only bad for the environment (think of the trees) but means that the accountant needs to spend time manipulating the data manually – this adds no value to the accounting process but it will cost you money.
- Tax planning basics – improve your tax position
Ideally, tax planning is something you should be looking at regularly throughout the year. The reality, however, is that most of us tend only to look at it just before the end of the year. Whilst there is no magic formula for the ‘best’ tax planning strategies, good planning practice aims to:
- cover the basics - such as including all your assessable income and maximising all the tax deductions to which you are entitled; and
- look at opportunities to improve your tax situation – this depends on your particular circumstances but may include things like ensuring any capital gains are offset with any available capital losses or maximising your superannuation contributions for the year.
- Final Note – Time for reflection and forecasting
This time of year presents a good opportunity for you to review your business performance against your budgets and goals and make sure you are reaching your objectives. It’s also time to prepare this year’s forecasts or adjust any budgets already set based upon events from the previous year. This is an important part of good financial management so make sure you don’t place it in the too hard basket.
As a business owner, what’s your attitude about your own wealth?
I believe that having the right people to support you in your wealth creation strategies is key to success. This includes my financial planner, my bank manager and my lawyer (obviously I don’t need an accountant). Keeping in regular contact with them about my changing circumstances is important as they may be able to suggest strategies you are not aware of. And I have a plan – both for my business and personal wealth. This plan is reviewed constantly and updated when needed.
What’s your best financial decision?
Going into business for myself. I not only generate profits for myself but I get much more enjoyment out of what I do for my clients. This enjoyment translates into passion which attracts more clients – which leads to financial success.
If you were given $20,000, what would you do with it?
I’d probably use it to go on holidays with my husband –balancing work and family is a constant battle for a business owner and you need to re-energise to keep being successful. However, assuming this wasn’t an issue I would most likely use it to reinvest back into my business either by setting up better systems to make the business more efficient, look at marketing strategies that the money could be used for or investing in my staff.
What’s my 2009 financial goal?
Firstly, to expand my practice and increase turnover by approximately 20% and secondly, use any excess monies to put onto my home mortgage, particularly with interest rates as high as they are.