Up close and personal with the ATO

Did you know that a small business can get a visit from the Australian Taxation Office with the surprising message, ‘We’re from the ATO and we want to help’?

At the centre of the ATO‘s help program is a business register which has been created following a business, for example, filing its first group tax return.

An officer from the tax office will then set up a meeting with the business owners, who can have a tax agent present if they want, to check that the correct record-keeping procedures are in place. There are tax advisers specifically assigned to this task force.

“Our work with small business shows time and pressure with record-keeping leads to downstream problems,” says the ATO‘s deputy commissioner, small business.

Apart from the one-off visits for new businesses, those on the register are monitored for two years to ensure that no tax problems develop.

If not checked early, tax mistakes may result in fines and back-tax payments but also could undermine cash flow, which is one of the biggest reasons for small businesses going bankrupt.

Don’t get caught
According to the ATO, businesses were surprised, but also very appreciative of the ATO‘s involvement.

There are four areas where small business often performs poorly:
o Record-keeping is often inadequate
o Budgeting for tax obligations is unrealistic
o Fringe benefits tax issues, where the business owner is unaware that there is an FBT liability
o Business structure problems, which give rise to different compliance issues.

On the issue of FBT, the ATO suggests that a business owner should simply ask whether the business delivers a benefit which is not in cash, particularly if the owner is also on the books as an employee.

The part-time use of a car owned by the business is a classic FBT issue. Aside from being keen to educate small businesses on FBT issues, the ATO is also concerned about businesses which are not really businesses.

Hobby farmers, direct marketers and people in the arts and craft area are sometimes targeted and tested to see whether they are a real business.

“There is a large number of people who are claiming tax deductions who are not really in business,” the ATO says.
However, the ATO doesn’t necessarily presume that home-based consultants are non-businesses.

Where do you fit in?
While some workers simply leave a job and become self employed to reduce the tax obligations of both the employer and the employee, the ATO conceded that in this age of downsizing some genuinely unemployed people were going into business for themselves.

The ATO suggested the following tests as key determinants of the existence of a business:
o Is there more than one customer?
o Is the consultant available to work for anyone?
o Does the consultant advertise?

All these characteristics of a real business would be important when the ATO investigates the credentials of a business.

In addition to the visiting program, the ATO holds free seminars and issues several helpful publications such as A Tax Guide For New Small Businesses, and A Guide To Keeping Your Business Records.

Getting close and personal with the ATO might be a way to keep on the right side of this often misunderstood organisation.

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Wealth creation

Edward de Bono said great business owners think outside the square; they are lateral thinkers.

Over the years, I’ve pondered what really holds people back and I reckon the greatest hurdle to success is old habits. You see it with athletes when they change coaches, or even get a coach for the first time. They excel. Deep down, anyone who wants to build a business is also in the wealth building game.

You need to be inspired
Building wealth is like building a great business – it not only rests on getting the fundamentals right, it also requires commitment to doing things right.

Of course, business owners hopefully use their operation to create a platform for wealth building. And putting more effort into building a great business makes more money sense.

Unfortunately, like eating junk food, it always seems easier to do the wrong or easy thing instead of the right or hard task.
That’s where inspiration comes in, and that’s why so many high achievers I’ve dealt with never underestimate the importance of being inspired.

Anyone cynical towards the importance of inspiration and motivation has never owned a small business. Business owners know that at times when deadlines, suppliers, customers, staff and even yourself are all piling the pressure on, recalling words of wisdom, experience or success can simply lift you.

Mingling with magic
Not too long ago I did a ‘talkfest’ road show, which meant I worked as a master of ceremonies with some absolutely inspirational people.

They included Lauren Burns, who won a gold medal in taekwondo at the Sydney Olympics, and Ben Darwin, the Wallaby rugby union player whose career ended prematurely with a terrible neck injury in the semi-final of the 2003 World Cup against the Kiwis.

Then there was that great cricketer, Bruce Yardley, who was named international cricketer of the year in the 1980s and who played with great Aussies like Thommo, Lillee and the Chappells.
Another was a guy called Tony Mowbray, who not only battled the seas of that tragic Sydney to Hobart Yacht race in 1998, when many lives were lost, but he also broke the record for sailing solo around the world.

Mimic the magic
Individuals who have taken on the odds and pulled off big results should always be studied. The best way to build a great business is to copy the best.

I once observed young artists copying the masters in the British Museum, and that’s what would-be master business people should be doing to – mimicking the magic.

Follow the success trail
Some champions can give you small yet enduring hints for success, while others can give you a virtual blueprint.

One unforgettable line that Lauren Burns uses is: “I think success leaves clues.” She told her audiences that successful people leave clues on how to win. Working hard was important, but she said when she was young she did too much and overtrained. When she accessed experts at the Australian Institute of Sport, she worked smarter.

Divine inspiration!
One short story before I finish. This is not about a well-known star, but a local hero who turned around a potential poverty problem.

This fella left the priesthood in his 50s and when you cut out of God’s service, there is no superannuation or divine pension.
He had ‘diddly squat’ and there’s not many jobs for out-of-work priests.

After talking to a money expert, he decided the only way he could catch up in the money stakes was to buy ramshackled homes – he didn’t have much money – and he simply did them up and sold them.

He had somewhere to live while he did them up and, as it was his principal residence, he was able to sell the homes with no capital gains tax.

He pulled off the triple play. First, he built up his wealth, so he is set to retire with a lump sum better than most Australians. Second, he gave himself a job, which was really a development business in doing up the properties, and, third, he had somewhere to live.

Part of the inspiration was the knowledge that there is no capital gains tax on your principal residence, while the other part of the boost was the money expert who convinced him he could do it.

Spend a penny to make a pound
We all can do it, but we need education, commitment and inspiration. Often experts or coaches can show small business owners how to do it better.

Too many business owners are not willing to face what is wrong with them and therefore what is holding back their business. That’s where a pair of independent eyes can work wonders.

By the way, the advice and the recommendations will generally cost money, but it will often be the best money ever spent.

Tips:
o Look to others to inspire you if you feel yourself getting flat.
o Mingle with magical people by going to seminars and reading books or this column!
o Make a determined commitment to write a success plan and mimic what successful people do.
o Follow your success plan – if you go off the trail, get more inspiration to get back on it.
o Spend a penny to make a pound.

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What employees want

Do we really know what an employee wants from their job? According to a comprehensive survey conducted by the Gallop Organisation, they want many things. Gallop asked 80,000 managers and more than a million employees about the things that are important to them at work and distilled the answers to 12 requirements of a great workplace. Employees generally want the same things out of their workplace, which means they face some common issues at work.

Sales and negotiating expert, Mike Schoettler of Sales Sense, says the findings are a good reminder about the investment we’re prepared to make in our own people. He takes us through the 12 questions asked in the survey. Both the questions and answers give you some good food for thought about your staff.

What’s expected from me at work?
It sounds basic, but in truth it’s easily overlooked.
You probably know someone who’s always busy and says they’re constantly being told what to do, but they don’t really have a clear picture of what it is they’re supposed to be doing. This has happened to most people at some stage or another.

Do we have the materials and equipment we need to do our work properly?
Employing people means you have to start at the basics first. If people really don’t know what’s expected of them, and don’t have the tools to get it right, it’s very unlikely that they’re going to be really happy and satisfied trying to do this. These first two questions formed the foundation of the survey.

Do I have the opportunity to do what I do best everyday?
They use strong, extreme language in these questions so that the people answering the questions have to answer specifically. The Gallop survey has a one to five rating. To get a five is really an outstanding result – they didn’t expect to see a lot of fives. Of course, they got them in some groups.

Most of us have the ability to think back to different positions we’ve had, different organisations we’ve belonged to, where you would say you were really keen to go there and it was really exciting to show up and you probably felt like you could do your best every day.

Have I received recognition or praise for good work in the last seven days?
See how precise that is? In the last seven days. We like to think that we’re in a good environment and it would be easy enough to say that we do get to hear about the things we do well and people do mention it, sometimes publicly, sometimes not.

When you specifically say in the last seven days, as you can imagine it separates the groups that have the atmosphere of receiving praise from the ones who really do. There are not a lot of people who would actually say they really received recognition or praise for their good work within the last seven days.

Does someone at work care about me as a person?
Generally, people talk about joining a company and having a real opportunity to get involved in an exciting industry, or doing something for a company that’s really moving ahead. But typically if you talk to people when they’re leaving an organisation and going elsewhere, they say they’re not really leaving the company. Frequently, they’re leaving the person who they work for.

So the common expression is, “we join companies and leave managers” and that fifth question in the survey – “Does he/she care about me?” – indicates it is not a question of whether you are getting correction or praise, it’s a question of whether or not you think they are really involved in your result.

Is someone encouraging my development?
This is a similar question to the last, but it’s not necessarily referring to your supervisor. Historically, we used to have personnel departments that were supposed to help people in their developments and we had senior supervisors who were supposed to come around with certain training opportunities.

Now, we’re not sure who the person might be, but we just want to know if there is somebody there, a mentor, if no-one else, who’s actually taking an interest in our development. That’s part of being really happy and feeling like you have an opportunity.

In the last six months has someone at work talked with me about my progress?
This reminds me of a joke I heard once. A fellow slipped into a bar and used the pay phone to ask if there were any openings in a company and he hung up. The bartender said to him, “Were you looking for a job?” and he says, “no, I just wanted to find out what they thought about my work”.

All too often we have to go out of our way to find out whether or not things that we are doing, our opinions, our views, anything we’re working on, actually seems to matter to the people around us because they don’t incorporate it, they don’t seem to respond officially. We are just lacking feedback and some people will go to those extremes of asking other people to find out.

Do my opinions count?
If you don’t believe that you have a say, you’re being deprived of that sense of belonging that most of us want. You don’t have to be the decision maker, but if somebody will at least believe that you are worth listening to, they can lift your view of yourself.

If they start behaving as if they don’t care what your opinion is, it can work the other way very quickly, too. You have to feel sorry for people who work in that environment and you certainly understand why their retention rates are low.

The mission purpose of my company makes me feel my job is important.
When we talk about the importance of a vision or values for the company, we’re talking about the part that says what we’re doing is actually worthwhile. If you don’t feel like you are producing something, it’s hard to believe in what you’re doing.

There’s a stage in life where we are not actually working for the money – most people have a desire to feel like that what they are doing actually is worthwhile.

Are my fellow employees committed to doing quality work?
It’s tough to work in an environment where other people are trying to slow you down or discourage you. We’ve all heard stories where people come back and say, “The people around me don’t want me working so fast, or doing this so well”. That can really sap your spirit.

The reality is most of us want to have a group around us that encourages us to lift our game and even when we have been there a while there’s always something we can learn from people around us and we’re hoping it’s something positive. The question is sure. It’s there to specifically identify those situations where even with a great leader, the team around you can pull you down.

Do I have a best friend at work?
Some people actually seem to show up at work and don’t get involved. If you do get involved, you’re bound to have relationships. You’re going to develop some friendships. You work there for a while, certainly a new person probably would say, “No, I don’t have a best friend”. Someone who’s been there for a while should say they do.

In the last year, have I had opportunities to learn and grow at work?
This is extremely important because it has a total effect on each individual’s self development. Not talking to people and not developing isn’t good for the business. It isn’t good for any of the measurements we talked about.

The fact that a survey of this size was run shows in itself how important it is to be mindful of how your employees are thinking and acting. As Mike Schoettler says, “We need to be reminded of the investment we make when we take on staff and we need to look after that investment”.

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It’s in your system

Imagine you woke up one morning and decided you wanted to build a new garage in your backyard. So you hired a truck, picked up a few of your mates and went to one of those hardware outlets that look like an aircraft hanger. You bought sand, cement, steel, timber and bricks and by midday you were off and building.
This would be a dream with nightmare written all over it.

A garage may be a piffling structure, but every year tens of thousands of new businesses start up with virtually the same “go get a truck and some building supplies” attitude as our garage builder.
And what is even more surprising is that many people in micro-businesses, employing fewer than five workers, actually do pretty well for quite some time. But eventually the worlds collide and business problems ignite. A time bomb will explode. And if it doesn’t ruin the businesses, it can badly damage them and a hell of lot of relationships along the way.

I recently talked with an award-winning couple, who had set sales standards that few could match in their franchise system. They had great staff and plenty of business, but they had cash flow problems and they usually did their Business Activity Statement a couple of days before the deadline.
They knew something was wrong and were smart enough to go looking for experience to help them beat a growing problem.
Many of us have heard the cliche: “Small businesses don’t plan to fail but fail to plan.” And then there’s: “Small business people spend too much time working in their business and not enough time working on their business.”

There is a real-life difference between a business owner and an entrepreneur, and it’s that the business owner often works at the coalface. He or she is the shopkeeper, the plumber, the accountant, the consultant, the sandwich-maker or the service provider. They do the work of their business: put in the pipes, talk to the customer, solve their problems, send the bills and collect them as well. But they don’t think about the real product.
Most tradesmen try expanding and find being an employer and a paper shuffler for the federal and state governments extremely challenging. Many just pack it in and go back to being a one-man band.

The entrepreneur comes to see the business as the product he will grow. He or she uses systems to solve frustrating problems in the business and the systems, when they are put together, can define the business: the way a phone is answered, the way a complaint is handled, the way a customer is served and how transactions are recorded.
This is what a whole lot of smarties have done in creating franchise businesses. The guys at Gloria Jeans have a system that means both a school teacher and a journalist can throw in their jobs and become coffee shop owners with the minimum of training.

Last year I looked at the young entrepreneurs who started Sumo Salad and Wellbeing, young people who could see the customer shift to healthy food. The business owner would have created a shop and maybe opened another and then tried to manage both. But these entrepreneurs, from the outset, were looking to systematise the business so others could buy it from them. They worked on the business until it was a product they could sell.
This year the goal should be to systematise your business, not only to eliminate frustrating problems – which makes the business easier to grow and live with – but to make it easier to sell, like a franchise.

As with all things, such as building a garage, get a plan. And if you don’t have the skills to do the job yourself, find an expert to help.

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The right mix

How can I attract and retain good staff?
The success of your business is a function of many things but two important ones are having a great business plan and your staff. Like most small businesses you probably don’t have the luxury of a dedicated human resources (HR) person.

The business owner usually takes on this role. If that’s the case in your business, then develop a HR policy and procedures manual so you can effectively align your business goals and objectives and communicate them to your staff. This is all part of developing systems in your business. If something’s not on paper then, as the saying goes, it’s not on the planet.

Do you have written procedures when it comes to staff? A manual will provide clear guidelines that will comply with legal requirements and empower your staff to maximise their contribution to your business. They should be handed a manual when they start working with you – and sign a document to say that they have read it.

It can cover a vast range of topics depending on the size and nature of your business — even if you have only one employee.

We have a few pages written down. Are you saying we need to develop a proper system?
Having a few pages is a start but once you start to have people in the business other than you or your partner you can run into trouble if you don’t have a formal manual that clearly outlines the practices and procedures of your business as well as a comprehensive job description for your employee.

You see, as a small business owner you’re used to juggling tasks, but you can’t expect staff to be that dexterous. A proper job description, for example, let’s them focus on what you employed them to do!

I have mostly family working for me – do I need a recruitment strategy?
So often, the employment decision is made without following a structured process. The potential new employee might be a relative, a friend or come recommended- but does that make them suitable for the position? Will they be able to perform the tasks? Sure, it can be a quick solution but it also may not work out in the long term – an expensive exercise.

To be effective, recruitment must be planned and structured. If you haven’t developed a job description, you need to be absolutely clear what you’ll require the person to do. How can anyone give their best performance if they don’t know what they’re expected to do?

Most employees who leave a job within six months state that the job did not meet their expectations! This is a direct reflection on the recruitment process!

So it’s all about hiring right?
Getting the right staff is one thing. The next thing is to keep them and keep them trained so they add value to your business.

How do you do that?
You have to reward them! Your employees need to know that they are a valued member of your business and contribute to its success.

A lot of people say that they prefer working in small businesses because they feel more like a real person than just a number. See this as a real plus for your business and make sure that you take advantage of this – get to know what makes them tick. Make sure that you know what motivates them. Seek their suggestions on how to make your business better.

How can I understand my team better?
Anne Bartlett-Bragg, a HR consultant who not only provides professional development service and training to small business, she is also a university lecturer in human resources.

She believes that to understand a team better you could consider using a team performance profile and she recommends the Kolbe Systems. She says that by using the Kolbe tools:
o Team ineffectiveness can be diagnosed
o Strategies can be developed to enhance both individual and team performance
o You can work towards appreciating the diversity of others and how to avoid procrastination and inertia by understanding the instinctive drivers of each employee.

How often do you review or assess your staff performance?
Bartlett-Bragg says that performance and appraisal should link closely to the job description and done at least once a year and that ongoing underperformance can cost your business a lot in time and productivity.

She says that you can buy off-the-shelf performance appraisal products which are good but if you find them too cumbersome then you need to modify them and use their framework rather than the full process.

What minimum training should a business owner provide for staff?
Give all employees the opportunity to perform their roles to the best of their abilities, and with sufficient guidance and training.

Bartlett-Bragg says you should categorise training into these groups:

1. Induction training
Do you remember your first day on a job? How did you feel? Nervous, excited, apprehensive, terrified? New employees are likely to feel all these emotions and more – at once!
Ask yourself, what do you do to make them feel welcome and a valued member of your team?

Bartlett-Bragg worked with a small organisation that wanted to improve their induction process. She considered the essential issues that have to be addressed when you start a new job – payroll, paperwork, contracts, forms, all types of administrative issues. Then she asked why did we have to do that on the first day – what message was that sending the employee about the company? Not the one we wanted to portray!

So her company designed a kit and sent it to them before they commenced work – all the paperwork was clearly numbered and explained – the new employee had to do hand it in on arrival.
Then she went a step further – she wanted to get them excited about the company.

She brainstormed with the existing team members things they would have liked to have known about the company before they started. That information was then collated in a fun way and included in a separate kit – ‘Stuff you might like to know’ – it included public transport information, car park locations and rates, best places to eat (or not in this case – so bring your own), locations of major banks, favourite Friday night pubs (chosen by the team) and so on!

How would you feel receiving a pack like that in the mail, before you start your new job? The feedback has been tremendous – the new employees are already starting to feel like a valued team member BEFORE they arrive on day one!

She says that structured induction training involves planning – ensuring that someone is allocated and responsible for looking after the new employee – for at least the first month. She advises that you:
o Don’t cram it all into day one – they won’t be able to remember a thing!
o Introduce them to the rest of the team informally – have a morning tea, lunch or afternoon tea – use name tags. Ask each team member to explain (briefly) what they do and why the new employee would need to deal with them. Sometimes, one of the hardest things in a new job is working out who to ask!
o Check in with your new employee regularly and informally for the first week. Show some genuine interest and encourage their feedback.

2. Technical skills required to perform the job
Consider what technical skills are required and to what level that skill must be performed. For example, if the role requires basic knowledge of Excel spreadsheets, there is very little value sending someone to an advanced Excel course.

3. Soft skills to enhance their job and overall business effectiveness.
This is your area of greatest competitive advantage! If customer service is going to be your major focus it’s your responsibility to ensure your staff have the necessary skills to deliver that!

Consider all types of communication skills training and development sessions, customer service sessions, sales skills, negotiation skills, team building, etc.

4. Other – including updating skills and knowledge, further interests outside their role
Small and large businesses often ignore training. When was the last time staff were given the opportunity to update and further develop their technical skills – what extra efficiency and productivity might this provide the business?

What other areas are staff interested in? Again, supporting your performance management strategies with training and learning opportunities beyond the scope of their current job is a great motivator!

Where are affordable courses?
Some businesses attend Train the Trainer courses and complete qualifications like the Certificate IV in Assessment and Workplace Training to provide them with the ability to design and deliver effective training sessions themselves, and give them the knowledge to better understand and evaluate what external course providers are offering.

Why not consider some kind of strategic alliance with other businesses in your local area? The buying power of a small group is often a more economical alternative than sending an individual to external courses.

Tafe colleges, short courses offered by universities, and Continuing Adult Education organisations are also options worth considering.

Bartlett Bragg says to give your employees a statement about your vision/mission and objectives is crucial for your staff to understand what you’re trying to achieve. How can people contribute to your success if they’re unsure what you’re striving for?

She says to also provide them with a statement about safety at work that outlines your obligations and the responsibilities they have to maintain their working environment and/or report any accidents. She also says to include a statement outlining your adherence to your legal obligations to provide a workplace free of discriminatory practices and encourages diversity will clearly outline your position on these matters.

Don’t just put it together on paper, share your policies and procedures manual with your staff so they understand your intentions and expectations about the important issues.

And finally – your staff are such a valuable asset to your business – enjoy them, develop them, and treat them how you would like to be treated yourself!

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Business structure

Want to read something boring? No? I think you better think again. What lies below is compulsory reading for anyone who does not want to go broke or be bounced by some government body designed to seek and destroy dodgy or amateur businesses.

Getting your structure right will ensure you don’t end up on the wrong side of the law and the all-important bottom line.

The starting point
Get accounting and/or legal advice especially if you are planning to enter a partnership or set up a company.
Choose your business structure with an accountant as it affects:
o The tax you’ll pay
o Your personal legal liability
o The availability of capital to establish and operate your business.

Types of structures
1. Sole trader – a one man band
My dad owned a business that supplied some of Sydney’s best restaurants with fruit and vegetables. While at University, I helped with deliveries. Dad ran the business on his own but he liked it that way. He’d get his brothers or a close mate to help him when things got hectic.

His accountant did his tax returns but little else — no advice, no business planning. He claimed business expenses but did not take advantage of splitting his income with mum, who did take orders and do other work in the business, so he could have taken advantage of her tax-free threshold.
Dad was a classic case of someone who worked hard IN his business but not ON his business.

Most businesses are sole traders. It can be the right choice when starting out. You may then be single, know the business is going to run on lean profits for a few years or prefer to keep things simple.
As you grow however, talk to your accountant about restructuring. A company may be, by that time, more suitable.

Advantages of a sole trader:
o Simple and cheap to set up
o No separate tax return required
o No registration if your name used
o Full control over business
o Owner takes all the profits
o Easy to wind up.

Disadvantages:
o Personally liable for all debts
o May be hard to sell if owner dies
o Hard to get time off for holidays.

2. Partnership – be careful!
Partnerships in business, I guess, like in normal life, are fraught with danger. In the top ten reasons for business failure, selecting partners for the wrong reasons is right up there.

A friend recently encountered a partnership story, straight out of the X Files, underlining how crazy business can get when desperate people are chasing money.

This friend was building her home and looking around for a kitchen company. A worker on site approached her (let’s call him Chris) and said his mate (Joe) was a highly skilled joiner.

They were going into partnership building kitchens.
Chris told her they were the best of friends and was excited by this business venture. He would do all the organisational work while finishing his apprenticeship and Jo would be the cabinetmaker. Their quote was good and Jo held a great reputation for his craftsmanship.

They started the kitchen. For the first few weeks they laughed as they worked. It was a marriage made in heaven. Then came the problems.

Chris was slow and inexperienced and Joe began to feel he was doing all the work. Communication problems started and the kitchen would be left for days with no work done.
My friend called Chris to see what was happening and spoke to his wife, who expressed disappointment about Joe’s casual attitude to business. The partnership was crumbling.
Joe turned up to finish off.

In the meantime, Chris called my friend to say he was working elsewhere but asked her a favour. He wanted a phone call before she made the last payment so she could write two cheques. My friend at first agreed but sensed problems. Joe did most of the work and was there to the end. Was she going to play mediator when a fight broke out about money on her property?

Chris had dropped out potentially jeopardising the whole contract. He now wanted my friend to play debt collector.
Joe turned up for the final payment. She told him about Chris’ request and he said he’d sort things out.

Joe had always been the recipient of other progress payments. My friend paid him in full and got a receipt.
Chris’s wife then started to call my friend and sent invoices demanding money and insulting letters upsetting my friend, who sought legal advice.

As you can see, this is crazy stuff and an innocent consumer has been dragged into a mess because two partners did not select each other for the right reasons.

To make matters worse, on setting up, they did not put in place an agreement on how to handle disputes, payments and bust ups. It was amateur hour from the outset and everyone connected suffered.

Solicitor, Nick Prassas of Comino Prassas, says the consumer in this case acted in accordance with her contractual agreement. “The dispute between the partners is a matter to be sorted out between them. The terms of the agreement should be the means for settling it,” he says.

This is commonsense but when people and money get mixed up with a bad partnership arrangement, no-one is safe. So get a partnership agreement drawn up, no matter how good a friend you have.

Advantages of a partnership:
o Easy and cheap to set up but a partnership agreement is needed
o Family partnerships have tax advantages eg income splitting
o Opportunity to take time off
o Combined experience and skills.

Disadvantages:
o Each personally responsible for debts incurred by any other partners
o Potential for clashes, disputes and relationship problems
o One can dissolve the partnership which could ruin the business.

3. Company – for the organised only!
You can buy a shelf company, which decreases the complexity of setting up. Ask you accountant about this. Inform the Australian Securities and Investments Commission (ASIC) you are a director or you’ll be fined. Directors have serious responsibilities and obligations, which are set out in the Corporations Law.

You should contact the Australian Institute of Company Directors as they have vital information and courses that will help you run your company properly.

If, as a director, you have been careless or dishonest with the company’s assets, which causes the company to owe money to others, or do not act in the interests of the company, you can be personally sued or prosecuted, sent to prison or face heavy fines. An undischarged bankrupt cannot be a director.

A director cannot say they:
o Didn’t have time to understand the details of the business
o Weren’t responsible for a part of it
o Let management solve the problem.

Like all professionals, directors must take care in carrying out their professional duties. Non-executive directors have an equally important role.

Non-executive directors must:
o Be informed about the business
o Monitor its activities
o Get independent advice if needed.
You are responsible because, while the company is a ‘person’ in its own right, it only acts through decisions and actions of its directors.

How must you act?
o With honesty
o With due care, skill and diligence.

And your responsibilities?
o Know what the company is doing
o Know all financial commitments
o Get professional advice if needed
o Ask management about business
o Be involved in directors’ meetings
o Never rubber stamp decisions
o Disclose any conflicting interest
o Understand the Corporations Law
o Act in accordance with the spirit of the Trade Practices Act
o Ensure the company has necessary insurance to protect office holders, employees, customers and clients.

When will you be liable?
Your legal duty to ensure the health, safety and welfare of all your employees means the workplace must be operated without putting anyone at risk of injury or disease. You can be held personally liable if you breach this.

If proper accounts are not kept and the company is wound up, its affairs are investigated, stops carrying on business or is unable to pay debts, you can be personally liable.

You are at risk if you act irresponsibly or fail to carry out obligations you have accepted as a director. The Trade Practices Act makes it easier to sue directors personally and you can be liable up to the full extent of your personal assets.

Keep records and books
You have a duty to keep these records at your registered office:
o Minutes of any general meetings
o Minutes of meetings of directors
o Accounting/other records
o Members register (shareholders)
o Option holders (if you have them)
o Debenture holders
o Register of charges created by the company over company property
o Hold proper GST records.

Duty to report changes
To keep the database of companies accurate, you must inform ASIC if the company changes:
o Registered office or business hours
o The company name
o Directors/secretary or their address
o Allots new shares or divides or converts shares to a different class
o Creates a charge on company assets or assigns or varies a charge on company property
Each change has a form which must be lodged with ASIC.

Keep financial information
Generally small companies don’t have to lodge audited financial statements with ASIC. The Corporations Law defines a small propriety company as having any two of the following:
o Less than $10m turnover in the financial year
o Less than $5m assets at end of the financial year
o Less than 50 workers at end F/Y.
Any companies controlled by the small company must be included.

You must still keep records so accounts can be prepared and audited. There must be a systematic record of the financial transactions — not simply a collection of receipts, invoices, bank statements and cheque butts. If a computerised accounting system is used, information stored electronically must relate to records.

Advantages of a company:
o Owners not responsible for debts of company unless personal guarantees
o Greater access to finance
o Can be owned and operated by one shareholder and director
o Income splitting opportunities
o Superannuation opportunities.

Disadvantages:
o High establishment accounting costs
o Directors subject to legal responsibilities
o Higher annual accounting costs
o Compliance costs in terms of money and time are higher.

What are your duties?
Directors must:
o Consider the welfare of the company, its shareholders and creditors even before your own
o Never use information gained as a director to your own personal advantage. An example of insider trading is when a director of a company buys or sells shares before the release of a company announcement. The penalty for insider trading is five years’ gaol, a $200,000 fine or both
o If the company cannot pay a debt, you must provide a report to an externally appointed administrator within seven to 14 days.

As soon as you become a company, you MUST put in place various things.
o Put the company name on invoices, receipts, stationery, etc.
o Open a bank account in the company name. A bank will ask for a copy of the Memorandum and Articles of Association. Ask your accountant for these
o Bank all company monies into this account
o Where possible, pay all company expenses from this account
o Separate private from company expenses
o Keep company records (cash books, invoices and receipts received, petty cash vouchers, letters, sales invoices etc) for five years. The Australian Tax Office does audits to see if business records are adequately kept and that deductions claimed are business related and allowable
o Register as a group employer. Ask your accountant to help here
o Consider FBT and GST liabilities
o If your business is ever sold, Capital Gains Tax could apply
o Take out Workers Compensation for employees
o Any lease in your name must be assigned to the company.

A director may be liable to pay compensation to a company if they were a director when their company incurred debt while insolvent or went into insolvency by incurring the debt. A company may be insolvent if it is unable to pay debts. Penalties for insolvent trading are severe.

Trusts and your business

Seek advice from your accountant about which form of business structure best suits your business — sole trader, partnership, company, or trust.

You may be at a stage of business growth where it’s time to form a company. Seek help from an accountant specialising in small business about the advantages and disadvantages of incorporating.

Recent changes to the corporations law have lightened the load for small businesses when it comes to filing accounts with ASIC.

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Family feud

Remember this: you should run a family business like a business – not like a family where there’s a place for all those family emotions that knit people together. I read something recently that was so spot on – family businesses often take the family to work and bring the business home.

Too often, too much emotion comes into play in a family business and this can ruin the business and put stress on family relationships. It’s important to have business meetings, but they should be run according to the rules of any meeting.

Here are some tips:
o It is important to start a meeting on time
o Issue an agenda in order to make sure that everyone is prepared for the meeting
o Send the agenda to all family and non-family members before the meeting and ask if they want any items added to it for discussion
o If anyone can’t attend the meeting, ask them to send an apology
o Conduct the meeting in an orderly fashion. Have one person chair the meeting so that this person keeps control of the flow
o Focus on the objectives of the meeting. If any issue can’t be resolved make sure a person is appointed to follow up and seek a solution
o End the meeting on a positive note. Seek to have any business issues between family members worked out as quickly as possible after the meeting. If you find that squabbling occurs every meeting it might be wise to bring in a facilitator – an independent person who can assist in cutting out the conflict
o Send out minutes of the meeting to all who attended
o If there’s continuous tension, seriously consider employing a third party to help resolve any ‘burning’ issues.

Objective eyes
Many family businesses hate seeking outside advice or using consultants and would rather struggle on with each meeting more like a battle ground. They like to keep things in the family.

A family business usually has good lawyers and accountants but they only let them get involved in the business as the need for their services arises – tax time, renewal of a lease, etc.

What happens is that family members get to a point where they’re so stressed about the business, that they don’t know where to turn.

There will often be a major turning point for one of the family members, who wants change and is prepared to do what it takes to make it happen. Sometimes it can be a spouse who’s fed up and threatens to walk out, or sometimes one of the family members gets sick – both situations necessitate change.

So how does change occur? Unravelling the issues between family members can be so complex and quite often a dispute that happens in the present can be traced back to some issue that happened way back between siblings or close relatives.

Experts in dispute resolution can help unravel some of these issues and then the family business can move on once they recognise that this conflict is negatively impacting on the family and the business.

I remember the late Jason Lea of the chocolate success story Darrell Lea. Jason was a major force behind Family Business Australia. He told me once that squabbles in his family were constant.

At one time they went public and outsiders were brought in, but every meeting was still a major fight and eventually the family decided that if they were going to fight with strangers they may as well buy back the company and just stick to fighting with family members!

Maybe a different strategy could have prevented this heartache …

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For better or worse

Employees taking employers for a ride are costing the economy hundreds of millions of dollars each year, and experts warn an increasing part of the cost is linked to would-be employees falsifying qualifications and other credentials.

“It’s an untapped and hard-to-measure problem,” says Dr Russell Smith, principal criminologist with the Australian Institute of Criminology. “It’s a global problem, where we are seeing the likes of CEOs include false information, such as degrees, to get top jobs.”

According to KPMG Forensic’s 2006 Fraud Survey, corporate fraud cost $154.9m to businesses in Australia and New Zealand during the period April 2004 to January 2006. But the big worry for employers is the revelation that 54% of corporate fraud is internal and approximately 61% of such cases are reported to the police.

Dr Smith says there is a history of unreported fraudsters re-offending.

Sally Mooney, of a Sydney-based company which runs extensive checks on potential recruits for employers, warns that there is a lot of deception by employees in the workplace.

“We conducted a survey of 1000 applicants who had been short-listed for a job and found 21% had been falsifying information,” she says.

“A common area was for applicants to leave out a job that might not have been a positive experience from their employment details.”

Identity fraud, which involves an employee ‘massaging’ employment records or personal achievement data, is on the rise. Some hopeful employees add a degree, or two, leave out a criminal record, or convert a divorce into a very happy family.

Deception could be as ‘innocent’ as losing a year, or 10, off one’s real age.

Not too long ago the analytics website caslon.com.au suggested that there are about 500,000 false tertiary degrees in the US, including 10,000 dodgy medical degrees. The US Federal Trade Commission estimates that as many as nine million people have their identities stolen each year.

The Australian Institute of Criminology believes the overall cost of fraud in Australia is some $5bn a year.

Dr Smith says the rush to employ means that many employers leave themselves open to costly mistakes. “The pressure to get an employee through recruitment means references are not checked thoroughly.”

Drake Consulting research says it could cost an employer 30-200% of an employee’s salary to replace someone hired on the basis of deception or fraud. That means someone on $56,000 could cost the boss between $16,800 and $112,000 to simply get it right.

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Learning to sell

When a person opens up their shop or becomes a consultant for the first time, they can be surprised that they’re actually in sales. Those who work as professionals (doctors, lawyers, etc) often don’t realise the sales side of their business and the whole system of customer service behind that.

Why do some sales people have it and others don’t? What makes a person good at sales?
Brian Tracy is one of America’s leading authorities on the development of human potential and personal effectiveness. Prior to founding Brian Tracy International, Brian was the chief operating officer of a development company with $265m in assets and $75m in annual sales.

He has had successful careers in sales and marketing, investments, real estate development and syndication, importation, distribution and management consulting.

Tracy is a man who knows more about sales than most other people in the entire world and while this might be a big call, he’s certainly up there. All around the world, his writings and lectures are well attended by people who know a lot about sales.

So where did the knowledge come from?
I started off as a poor boy. I didn’t graduate from high school. I worked at labouring jobs and finally stumbled into sales when I couldn’t find a labouring job, and then I spun my wheels for months and months and months until I began asking why is that some sales people are more successful than others?
I began to ask people, and it became almost like a blazing question for me. I began to ask top sales people what they were doing differently from me and the most amazing thing is they told me. They said show me what you’re doing and I’ll critique it for you’.
So I realised that selling was not a matter of talking. Selling was a matter of, first of all, separating prospects from suspects.

In brief, a prospect is someone who needs your product, wants your product and can use and afford it – but Tracy goes into depth with the definition.

You’re not looking to selling things to people that they can’t benefit from, you’re looking for people who can most benefit from what your product does for them. That’s a critical difference in selling – junior sales people sell what the product is; professionals sell what the product does, because all people ever buy is improvement, Tracey says.

They buy to improve their life or work in some way. So you need to be clear what is it that your product or service does to improve their life or work, and then you find people for whom this improvement is a real value and for whom the benefit is greater than the amount that you charge. So that is a prospect, he says.

So if you’re wanting these prospects to buy your goods and services, what do you have to know about them?

One of the things that we teach – and we spend all day on this – is this: who is your perfect prospect? If you could identify your perfect prospect – age, education, background, income, experience, knowledge, need and capability of buying – who is your perfect prospect for the benefits that your product or service offers?.

So once you’ve developed a profile for your prospect, what next?

Where can you find those people? And then, how can you appeal to those people – what value do they seek from you, why would they buy, why wouldn’t they buy. So everything in business, from the beginning to the end, is this incredible intense focus on the customer and how you can help that customer improve his or her life or work in some way.

Some people are great at customer service, but they still don’t generate enough customers. What are those sorts of people doing wrong?

What they don’t realise is that customers have two major fears – it’s the same in Australia, it’s the same worldwide. First, they have a fear of being taken advantage of. And why did they have this fear? Because they have been. That’s the normal nature of commercial society, people will be taken advantage of.
Second, they have a fear of being hustled or manipulated, being talked into something that’s not in their best interests because it has happened in the passed.
Therefore, the second part of professional selling is to establish a reputation of belief and credibility with the prospects. The person knows you and likes you and trusts you and believes that what you’re saying is true. I don’t mean this to be manipulative – it has to be straight forward and honest because in the final analysis you can never fake it, he says.

Good business people are cognisant of how important it is to build and maintain a high quality customer relationship with a prospect.
The best sales people, the best businesses, are those who their customers like and trust and feel confident doing business with, so it’s really an essential part, he says.

How important is it to understand the needs of a customer when it comes to selling?

It’s absolutely essential. In fact, there have been millions and millions of dollars of research done and what you find is that the customer is not really on the field of play until the customer realises they have an unsatisfied need that you can satisfy.
So therefore the focus in building trust is to ask questions about the customer situation in his or her needs, he says.

Tracey refers to articles in The Wall Street Journal and the Harvard Business Review that mention a recent study on this. It was found that people had three types of needs.

There are clear needs, there are unclear needs, and there are non-existent needs. And when you meet with a person for the first time, the biggest mistake that people make is to assume that they have an existing need of which they’re aware.
Many people have needs they didn’t even know that they were aware of, and the only way you can uncover that is by asking really good questions and listening closely to the answer until it becomes clear to you and to the prospect, and the prospect says ah yes’ and realises they need that. Only then can you start talking about your products or service, he says.

How important is research? Have those who are poor at sales not researched their potential customer bases or markets?

The 80/20 rule applies to selling as to every other field. Approximately 80% of sales people are mediocre because they’re lazy. I’ve trained a million sales people and I’ve worked for a thousand corporations. They’re lazy. They do the very least to get by, they don’t make any effort to learn as much as they can about their product, their competitors’ products, and especially about their customers.
The top 20% however, are different. These people are ambitious and eager to make a good life as sales professionals, they see this as a professional field, and they’re veracious about learning. They read everything they can, they listen to audio programs, they attend courses, they study their product and their competitors’ product, he says.

I asked Tracy to give some examples of people in this 20% category.

Probably one of the best examples is Sam Walton of WalMart. On the list of the 10 richest people in American, the richest multibillionaires, five are descendents of Sam Walton.
He started off with a little store in a little town called Bentonville, Arkansas, and he had this idea of satisfying people by finding out what they really wanted and then looking everywhere to get them the lowest prices and when he could manage it to buy in bulk.
So we have lower prices – he always passed on 50% of his savings to his customers in lower prices. There’s a lot of controversy about WalMart today, but WalMart is a great company because it’s focused single-mindedly on selling the very best quality at the lowest price to people who can afford the very least, the littlest guy in society.
So what Sam Walton will do is, from the time he started his business, he would travel to other towns to visit other stores and walk around the stores and take notes looking at what they were doing right to satisfy their customers and then come back and incorporate it into the WalMart approach, Tracy says.

When talking to Gerry Harvey recently, I mentioned that when I was listening to what he does it reminded me of a top-notch athlete who is focused 24/7 on success. Is this the hallmark of great sales people and great business people?

I say that there are many qualities that are helpful to success and there are two that are essential – one is focus, which is being absolutely clear about who you are and what you want, and the second is concentration, the ability to concentrate without diversion or distraction on your most important goal.
And both of these are learnable skills, by the way, and very few children have them and you can learn them by practice, he says.

But what do you say about people who are in sales who have done nothing to actually teach themselves the skills of selling?

Recently, I heard from an expert in retail selling that it’s not smart to start off with the question can I help you? and most people in retail with no training will ask that question and annoy the customers.

That’s all they know. Many companies are started by people who are not sales people. We’ve done hundred of thousands of dollars of research – there’s two types of companies. There are companies with an entrepreneurial CEO. This is a person who worked his way up, sold his way up, and built a company. Then there are companies that are run by non-entrepreneurial CEOs. These are people who moved in from a different field and never went through the selling experience. These people have no sense for how important the sales are.
IBM got into serious trouble in the late ’80s and early ’90s and they were even talking about breaking it up. The reason was because the last of the great sales guys, Thomas J Watson Jr retired in about 1986/87 and they said we are a big company now, we can run this company with accountants’. So the person they put in charge was an accountant and the accountant felt that selling was a completely unnecessary part of IBM and began slashing sales budgets, marketing budgets, slashing rewards – basically completely, as they say, disrespecting the sales function – and the company in three years was almost like a ship turned over in the water.
And when they brought in a new president, the first thing he did was bring in McKinsey and Company, spending $3m finding out what was wrong. They reported back that low sales was the problem, and high sales the solution. What’s the key?, he asked. Get your sales people out there face to face with customers, helping them solve their business problems, and get them off the phones and out of the offices’.
And within 24 months they turned the entire company around. Every single business that gets into trouble, somebody has to say let’s get back to selling, let’s get back to getting face to face with customers and helping them with what they really want and need.

Peter Switzer’s tips

  • Appreciate this reality – when you’re in business, you’re in sales
  • Work out your prospects
  • Research these prospects intensely
  • Identify your prospects needs
  • Write scripts for your sales staff so they know how to talk to prospects and customers
  • See selling as a profession
  • Seek sales training
  • Be honest and ethical in your dealings
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29 Characteristics of an entrepreneur

So you want to be an entrepreneur? Years ago, after the exploits of Christopher Skase and Alan Bond, the word ‘entrepreneur’ fell into disuse because of the negative connotations attached to it. But hard working business owners have in more recent times resuscitated the word.

Bob Cowan, who in his time, secured multi-million dollar contracts with the US Navy to supply recompression chambers, might prefer to be known as just a ‘bloody hard worker’!

When you employ over 40 workers and you wind up building these recompression chambers for Uncle Sam for many millions of dollars, then go broke, have to sell your house and move your family into a caravan while you fight for your dream, then you are an entrepreneur in the real Henry Ford meaning of the word.

Important business lessons
I remember attending an excellent conference a few years back called ‘Encouraging Entrepreneurs – How to Build on Their Ability’ at the Australian Graduate School of Engineering at the Warren Centre in Sydney. This was not an academic blab fest, but looked to people who had actually done it, searching for the lessons everyone in business needs to learn.

The experts at this conference warned entrepreneurs they were in danger of being left behind if they didn’t embrace technology.

We agreed the new formula for success was to add new technology to existing markets, or to find a new angle. And we forecast that the most successful entrepreneurs will be small to medium operations with a technology bent, and Asia will be the place where a lot of the future will unfold. How the future becomes real!

While it sounds like we were blowing our own trumpets, while we were ‘crystal-balling’ we came up with seven personal attributes of a good entrepreneur:

1.Creativity
2.Imagination
3.Confidence
4.Energy
5.Commitment
6.Good health
7.Luck

The final sentiment may have you wondering about new businesses facing high risks as they do not have good cash flow, and that’s why good people are essential. I can’t remember who said it, but 80% of a business is people, and a good business is a function of good people. And let’s face it, sometimes finding good people, comes down to luck.

Exploiting opportunities
I’ve got to admit that we did get one presentation from an academic at this conference. Happily, he did not put me to sleep. Trevor Cole, who is the executive director of the Warren Centre, lucidly defined the entrepreneur and showed us what characteristics they possessed.

He said that people shouldn’t think they were an entrepreneur just because they started a business. Everyone in business innovates – some well, other poorly, but entrepreneurship is one level above innovation, according to Cole. The core attribute of the entrepreneur is an ability to make decisions, but essentially they stand out because “they search for change, respond to it and exploit it as an opportunity”.

Bob Cowan certainly did all that. His story gives this title of ‘entrepreneur’ a good name again. Bob was no ‘fancy pants’ engineer, but a tradesman who started up a sheet metal factory 25 years ago, virtually in the bush. But that did not hold him back from seeing an unusual opportunity and exploiting it.

The lucky break came on a fishing trip to Cairns, where a mate was talking about recompression chambers and how US naval contracts were available for someone who could knock them up economically, but to a high standard. Bob observed how they look like basic sheet metal work, so, as he put it: “I educated myself … built a mobile recompression chamber … the US Navy wanted it!”

While the idea to the receipt of payment ended up being years, his first contract brought in $2m, Bob’s second with the US Navy was worth $10.2m. While this sounds like good money, it is in fact repayment for a job well done – and one done the hard way.

Along the way, Bob had a continual battle with governments who could not share his dream. The quest resulted in Bob and his family living in a caravan until ‘pay dirt’ was hit.

At one stage, he had a gutful of bank knock-backs, so he went down to the head office of a bank in Sydney (which would no doubt prefer to remain nameless). He provoked them to ‘get off their bums’ and come onsite to see what recompression chambers were all about. The ensuing visit shocked the lenders and made money matters easier after that.

The Cowan success story is all about persistence, focus and determination to win, and considering the value of the contract and the toughness of the client – the US Navy tested the chambers at the North Pole before they gave the deal the not! – the success is Olympic-like.

Money for nothing
That emotion aside, in listening to Bob’s tale and others at the conference, it is sensible to observe that many entrepreneurs, and businesses generally, need to look more carefully at how they source their funding.

It is easy to ‘bag’ banks – and definitely they don’t always do their job professionally in assessing the true merits of a project. But there is no value in bellyaching about it: you have to accept reality and do something about it!

Memtec’s Quinn alluded to this in his presentation to the conference. He stated that since money is so important, why don’t we all put more work into our presentation to the banks?

When we go begging to the bank for money, we should make sure that the business plan is first-class. There should be audio visual aids as part of the presentation, and every trick know to mankind should be employed in order to jump one of the biggest hurdles facing the business heading for gold.

Peter Switzer’s 29 characteristics of the entrepreneur
Check out these characteristics that are typical of those people who call themselves entrepreneurs:

1. Can’t work for anyone else – like to be the boss

2. Egalitarian – like to be the boss, but they’re not elitist

3. Takes action – they are not daydreamers

4. Their business doesn’t make them a champion – from an early age, they are champions in the making

5. Often launch with very little money

6. Speak their mind

7. Handle rejection

8. Like to prove others (doubting Thomas’) wrong

9. Know how to get around obstacles

10. Believe in being hands on

11. Don’t mind being alone

12. Can cope with failure

13. Like control

14. Future focused – don’t get caught in today

15. They tick faster than the clock – they never watch the clock

16. Adrenalin charged

17. Manage time well

18. Goal oriented

19. Into self improvement

20. Often want to move faster than time

21. Strong work ethic

22. Having nothing is no barrier

23. Often have a naïve confidence in their own ability to do things

24. Respect staff

25. Understand the importance of systems in the business growth process

26. Not afraid of making mistakes

27. Make decisions even if they are wrong ones

28. Don’t like to be penned in – look for challenges

29. Retirement is not an option

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