Often the concept of an accountant is somewhat blurred and people don’t really understand what type of work we often become involved in.
Accordingly I thought I would outline just some of the things we here at Level One have been up to lately:
SELLING A BUSINESS is often a difficult task.
Determining the value of a business as well as the component parts of stock, goodwill, plant & equipment, restrictive covenants, payment terms and conditions is difficult enough. Then the taxation treatment of each of these items varies as well as the vendor’s eligibility for a variety of Capital Gains Tax (CGT) exemptions.
Recently we advised a client on their position with regard the above matters and once that was done we assisted with the preparation of an Information Memorandum to assist with the sale.
This Information Memorandum was a comprehensive document covering products and services, market segments, market penetration, pricing structure, staffing levels, staff experience, current and proposed marketing activities, potential growth strategies, margin analysis and the list went on.
Having completed this work our client was in a much better position to understand the true value of their business and the appropriate asking price. Similarly potential purchasers were presented with a detailed presentation of both the financial and non-financial aspects of the business, which made for an efficient analysis and sale process.
Finally and importantly when determining the final sale price, through our financial planning arm Level One Financial Planning Pty Limited, we were able to advise our client on what financial position they would be in in retirement and how critical or not achieving the final sale price would be to their retirement lifestyle.
Given our ageing population there appears to be a growing number of sellers and a dwindling number of buyers in the market place generally and accordingly planning needs to commence early for anyone contemplating a sale. early for anyone contemplating a sale.
TAX EFFECTIVENESS AND ASSET PROTECTION are critical issues in today’s business environment.
Recently we were asked to review a business structure put in place by another accountant some years ago. Your business structure is critical to the tax effectiveness and degree of asset protection achieved.
The taxation system is far from static in nature. Continual changes are made in response to varied internal and external factors. This may mean that a business structure that was once appropriate, no longer has the taxation effectiveness that it did in years gone by.
Accordingly we made some recommendations which will result in significantly less capital gains tax payable on the eventual sale of the business than under the existing structure.
A SHAREHOLDERS AGREEMENT for business owners is a critical issue.
We have recently had to assist 3 clients with this issue.
What happens when one shareholder or business partner wants to exit the business or alternatively what happens when one shareholder or business owner dies?
IN THE EVENT OF DEATH – the deceased no doubt bequeaths the shareholding to family and the surviving shareholders are now in business with potentially the wife/ spouse and or the children of the deceased.
Issues which arise include:
• What say or input will the new shareholder have in the running of the business day to day operations?
• Does the new shareholder want to keep the shareholding or sell it? • If the decision is to keep the shareholding, what dividends would be expected in future years?
• If the decision is to sell – who will be offered the shares and at what price?
• Do the continuing shareholders have enough cash/wealth to afford to be able to acquire the deceased’s shareholding?
• Who will be advising the benefactors of the deceased’s estate on the above matters?
IN THE EVENT OF EXIT – that is one party wants to leave the business after numerous years of business operation we had to advise on the value of the business. Because nothing had been put in place in earlier years the owners of the business had vastly different views on an appropriate value or valuation method.
As a result shareholder A acquired shareholder B’s interest when at the beginning of the process it was in fact shareholder A who wanted to sell.
Unfortunately the process took a considerable amount of time and caused much angst to all parties involved. Had the details of such a valuation and the process involved been sorted out much earlier with less emotion involved the process would have proceeded much more easily for everyone concerned.
WORKER’S COMPENSATION AND PAYROLL TAX AUDITS have been increasing at a consistent rate of late as the NSW State Government increase their audit activities.
Accordingly we have had to work through numerous client records to ensure; all employees are included in the calculation; all relevant grouping provisions to associated entities are considered; contractors are reviewed to determine whether they would be “deemed” to be employees; all allowances & benefits are considered for inclusion.
COMMERCIAL PROPERTY OPPORTUNITIES are regularly reviewed for clients throughout the year.
Some clients are looking for a passive investment while others are looking at acquiring their business premises. Obviously the real value of any property varies greatly depending upon your own circumstances.
As a passive investor you may demand a net yield of 7.5% – 8% per annum. This yield exceeds traditional residential yields because of the increased level of risk (vacancy). Understanding the existing leases and the wider market rental rates are critical in making a good investment.
Alternatively an acquisition by an “owner – occupier” is motivated by a completely different set of factors such as certainty of location or exposure – not just yield and potential capital growth.
Obviously any future development of the proposed site needs to be considered and factored into “your” value assessment.
Debt structuring is a critical issue here as is the ownership structure of the property.
An analysis of the different structures is required to determine whether the property is owned individually or via a unit trust, discretionary trust, company or superfund.
Tax effectiveness, asset protection, flexibility and retirement planning are all significant issues to be reviewed as well.
FEDERAL BUDGET CHANGES each year keep us on our toes at Level One as well.
In the 2006 Federal Budget there were many changes to our taxation and superannuation system.
In one particular case we advised a client to postpone the signing of a contract until after June 30, 2006. As a direct result the client saved over $300,000 in Capital Gains Tax (CGT).
In addition to this case numerous clients revisited their superannuation funding and decided to increase their contributions given the abolition of Reasonable Benefit Limits (RBL’s).
By abolishing RBL’s the tax office has effectively opened the gate for people to increase funding within their superannuation fund significantly.
By allowing people over the age of 60 to access these funds completely tax free has simplified the system also.
FAMILY LAW matters become very emotional and when a couple decide to part company an independent view is often invaluable before agreements are made.
Recently we had someone approach us to review their financial position and suggest a fair and equitable split of the assets.
While we cannot provide legal advice we can express an opinion on the financial value of assets held and what is often overlooked, being the taxation implications of dividing up assets.
For example if a couple have a family home worth $500,000 and a rental property worth $500,000 you could be forgiven for assuming that if each person took one property they were effectively splitting the assets on a 50 / 50 basis.
Unfortunately this is not the case and the person who takes the rental property would be subject to Capital Gains Tax (CGT) on sale where the other party would receive the CGT exemption on the family home.
The ‘after tax’ position always needs to be determined and this is ever so important in any property settlement, particularly when significant assets and possibly businesses are involved.
BUSINESS PLANS are always considered a bit of an elusive concept.
Most small to medium sized businesses don’t have one and couldn’t tell you what one looked like. Over the past year we have become involved in developing a business plan for a client which has generated significant benefits.
Firstly a general manager was promoted from within the business, the spouse was “sacked” as the administration officer and an office manager was employed.
Accordingly the business principal has spent more time on marketing and looking at new products and areas the business could expand into.
With less time spent on day to day operations the business principal was able to further develop strategic alliances which became critical to growing the business and future potential sale strategies were examined in more detail. Importantly the business principal spent more time on what he enjoyed doing.
The senior employees were given clear operating procedures and systems with specific Key Performance Indicators (KPI’s) to help measure performance and improve their job satisfaction and the spouse was so happy she didn’t have to help out in the office anymore she got a part-time job somewhere else which she actually enjoys. She also spends more time shopping.
In addition the business owner really understands his business, its systems, strengths and weaknesses and his focus is on ensuring future profitability whereas his managers are focusing on achieving this years budgeted profit and KPI’s.
YEAR END TAX PLANNING is conducted throughout the year with many clients.
You often hear about businesses doing year end tax planning in June each year but if you’re managing your business correctly planning should ideally start at the beginning of the year.
The advent of quarterly BAS statements and the production of quarterly management accounts greatly assists with tax planning on trading income.
Remember it is never too early to review your position and know what options are available.
SYSTEMS AND PROCESSES are what make our businesses run efficiently.
Recently we conducted a complete review of the internal procedures and systems of a client and identified potential weaknesses and improvements thereto.
Furthermore we discussed and outlined the benefits of building an Intranet. By doing this it becomes a lot easier for people to know exactly what system is in place, to update that system of processes easily and efficiently and to train new staff in an efficient and uniform manner.
Essentially your Intranet can be used to build and convey a culture as well as detailing “how we do it here”.
Accordingly, consistency in the delivery of services and products is enhanced and employees are more certain as to what is expected of them.
UNPAID SUPERANNUATION for an employee can be a costly issue.
Recently we had a client approach us because his employer had not paid his superannuation for a considerable period of time. We wrote to the employer involved and the Australian Taxation Office is pursuing the money. Often business owners don’t realise that they can become personally liable for unpaid superannuation and that it is a requirement of the law to pay each employees superannuation each quarter and to note the details of the amount paid and the name of the superannuation fund on the employees pay slips.
TAXATION
Obviously keeps us busy as well with the need to prepare income tax returns and quarterly BAS statements as well as attending to land tax, payroll tax, stamp duty, capital gains tax, fringe benefits tax and the list seems to go on and on.
ADVICE
Should you or a friend or colleague require some advice on these or any other matters please feel free to make an appointment.