How to impress the bank
Make a plan, do the maths: Before approaching a bank for a loan, ask them for a business plan template.
This way, you will be prepared with the answers to the issues that will be considered by the lender when deciding a loan application.
Bankwest’s template, for example, lists 20 pages of questions about everything from the premises to telecommunications.
Bankwest head of small business, Louise Ardagh said one method of figuring out how much money you need to borrow is to use a break-even calculator, on the bank’s website.
The calculator pinpoints exactly how many sales you need to cover your costs, after considering set-up costs, profit and loss forecasts, cash flow and balance sheet forecasts.
Once a loan is approved, you will need a business bank account and may need to consider credit cards, overdrafts, asset finance to fund the purchase of vehicles and equipment, as well as flexible lines of credit.
Ms Ardagh says preparation is key.
“Small business operators need to clearly understand their personal and financial situation and be prepared to field questions from a prospective lender or financier, ” she said.
“Put simply; being unprepared and unprofessional will not aid your cause.”
Choose your type: The Bankwest website highlights four main types of business structures – sole trader, partnership, company and trust - which each have different legal obligations and tax implications.
Sole traders have the simplest tax structure as business profits are treated as personal income. Sole traders, like everyone else, also have to submit a personal income tax return.
Partnerships involve at least two people with equal responsibility for the business.Companies are more complex arrangements, but one benefit is that, all other things being equal, it is easier to sell a company than partnership or trust. Companies require at least one director to control it for the benefit of its shareholders.
A trust is another complex arrangement and it involves a person or company who commits to hold an asset, which can include a business, for the benefit of the others, who are known as the beneficiaries.
Get digits: It is essential to get an Australian Business Number, known as an ABN so you can claim GST credits and avoid having Pay As You Go tax withheld on payments at a rate of 46.6 per cent. ABN’s are issued by the Tax Office and you can get one through the Australian Business Register website.
The same agencies can provide you with a business tax file number which is required by all businesses, except sole traders.
ABNs can be issued to all business types including sole traders and partnerships, but only companies have the alternative option of getting an Australian Company number through the Australian Securities and Investment Commission.
Name it: Registering a business name is a legal obligation, and it requires the business owners to either have an ABN, or be in the process of applying for one.
Registering a business name does not give you exclusive ownership of that trading name.
However, registering a trademark does give the owner the exclusive rights, and infringements can result in hefty penalties.
IP Australia provides a free trademark check, called TM Check, on its website which helps identify pending and registered trade marks which may be similar or identical to your proposed business name.
Business owners can also buy exclusive use of a domain name, which is a unique electronic business address, through an internet service provider.
To buy a .com.au or a .net.au, you must be a commercial entity with either an ABN or and ACN.
If you want to align your domain and business name, you can check your preferred name does not clash with another trademark through the Australian Domain Register.
Pay up: Businesses which expect an annual turnover of at least $75,000 – which is your gross business income - should register for GST in order to ensure they are not hit with a hefty tax bill.
As an employer, you must deduct tax from staff salaries and pay this to the Australian Taxation Office.
You must put aside 9.25 per cent of a full-time, part-time or casual employee’s pay, provided they earn at least $450 a month, and pay into a fund. Adding extra money to their weekly wages does not count.
Get covered: Some insurances are mandatory, such as workers compensation if you employ people, and third-party personal injury insurance if you own a motor vehicle.
Then there is non-compulsory insurance that most would advise to cover your assets, such as building and contents, as well as revenue, such as business interruption and cyber insurance, and lastly, your liabilities, such as public liability insurance.
© The West Australian
First published in the WestBusiness Big Deal magazine.
More business news at thewest.com.au.