S & H Tax Accountants

Category: Firm News

The differences between wages, salary, commission, and bonuses

There are a few different methods that employers use to pay their employees, and while they may have similarities, they each also have their own implications for your business and its employees. On top of that, there may be a blended model at play, in which you offer two types of compensation at once, such as a wage and bonuses.

How you pay your employees will impact your finances and your reporting requirements.

Read on to learn the differences between the main ways of earning money in the workplace.

Wages

Most entry-level positions offer an hourly wage in exchange for work. An hourly wage might be $10. So if the employee works 8 hours that day, they would be compensated $80 for that day.

There are minimums set by law which vary depending on where the business operates. Typically, the minimum wage is directly related to the cost of living in that area.

Generally, there are a set number of hours that can be worked in a week, and working beyond that maximum entitles the employee to a higher rate of pay. There may be premiums associated with working undesirable shifts, or an even higher rate of pay that employees are entitled to for working on holidays.

Because of the number of hours worked, the specific days worked, and overtime, the amount an employee will potentially earn each year can vary widely when paid with hourly wages.

Salary

A salary is the standard compensation for management and upper-level positions. It is an agreed-upon annual total, where a certain number of hours worked per week is expected – typically 35 to 40. There will be other requirements outlined, such as how many days per week are expected.

Depending on the schedule, the total salary is divided into equal payments for each pay period. Often, a salary is agreed to as an annual figure, with each payment equally divided by the number of payments. If you pay an employee a salary of $60,000 a year once a month over 12 months, you would pay $5,000 each payment, not accounting for any deductions.

How a company manages its payment schedule will vary from company to company.

Any other pay, such as overtime worked, commissions earned, or bonuses, are separate from salary. Many companies don’t offer overtime pay for extra hours worked, but they may offer commissions or bonuses for performance.

Commission

This is a form of compensation that is based on performance. The amount an employee receives can vary drastically, depending on how well they perform in a pay period.

Commission is typically a calculated percentage of the value of goods or services sold. It is meant as an incentive to drive employees to make sales. For example, you may offer to pay $1,000 as a commission for each car sold. An employee who sells 10 cars in the pay period would receive $10,000 commission.

All earnings made by commission are counted as taxable income.

Some salaried or hourly positions offer a commission on top of regular earnings. However, some positions, especially those in sales, can be based solely upon commission. This means that if the employee doesn’t sell anything, they don’t get paid.

Bonuses

A bonus is a compensation type that is not guaranteed. It is usually tied to some kind of company goal, usually driven by sales or performance. A bonus might be awarded on an individual basis, or for a team or other work group.

The idea behind a bonus is to create an incentive to meet a specific goal. It is rewarded when the goal has been reached, or evaluated at specific times. Bonuses are offered on top of a wage, salary, or commission.

Because of the unofficial structure, bonuses are loved by some and loathed by others. It can be motivating to receive a bonus, as it’s completely separate from what an employee already earns. However, it can also leave employees feeling disgruntled if they feel they weren’t supported well enough to reach the goal and therefore missed out on the bonus. If the goals are unrealistic, employees may also struggle with motivation even if they are offered a bonus.

Final Thoughts

Whatever payment structure your company follows, make sure you are consistent and fair as an employer, and follow all applicable laws. Contact us to learn more about different forms of compensation and what they mean for your bottom line. S & H Accountants Melbourne offer payroll service for small businesses. Contact S & H Tax Accountants Melbourne to discuss your payroll needs.

05/09/2022
5 ways outsourcing payroll can help you

When you start a business, you’re typically your only employee and payroll is about as simple as it gets. But as you grow, you hopefully find yourself in the position of needing to take on more employees. Before you know it, what was once a very straightforward task becomes a giant undertaking that’s sucking up most of your time.

This is when it makes sense to outsource your payroll. While this is yet another cost to consider, it’s actually a great idea that easily pays for itself. Here are the ways outsourcing your payroll can help you:

1. Free up your time

In any small business, there is a lot of legwork that comes with running payroll. The percentage of time spent on it is quite large compared to the other aspects of your business. This is because it’s a complex task that needs to be done every single week – forever. You may feel that payroll is never done and that’s because it truly never is.

Outsourcing your payroll is one of the easiest ways to free up more of your time, which can then be put into other tasks that actually help your business thrive. Once you reclaim this huge chunk of time, you’ll wish you made the switch sooner.

2. Reduce errors

Yes, there are the actual hours worked that you need to account for. That’s complicated enough. But add in sick days, holiday pay, other types of leave, employees leaving early or arriving late, and other complications, and suddenly your payroll has become a daunting task that you would probably rather just ignore.

This is where the beauty of outsourced payroll comes in. Because you are paying a professional to worry about all of these little things, you no longer have to worry about all of the potential areas where you could make a mistake.

And the thing about a payroll mistake is that it typically takes even more time and energy to fix. Not to mention, you likely now have to assuage a disgruntled employee.

With outsourced payroll, this mammoth task is simply done for you, and done correctly. Every single time. And that’s good for you and good for your employees.

3. Reduce costs

While you may initially balk at the cost of outsourcing your payroll, it’s actually a money-saver. When you put a dollar amount on all of the time you spend struggling through, this is often enough in itself to pay for a pro to take it off your hands.

Not to mention, the cost of fines and penalties that can arise from mistakes. If you find yourself having to cough up money in these circumstances, you’ll wish you outsourced your payroll sooner.

4. Maintain compliance

We can’t all be tax or finance professionals. Chances are, if you’re running a business, you have an entirely different industry on your mind most of the time. So, it makes sense to hire someone who’s in the business of payroll to look after this for you.

Maintaining compliance with your region’s tax authorities is a challenge that has to be met every year. And tax laws and codes are always changing. The average person can’t be expected to stay on top of all of this information, so why not get someone who knows the ropes to take care of it for you? It could save you a lot of money come tax time.

5. Eliminate headaches

There is nothing more valuable than the feeling of being stress-free. When you hire a payroll professional, you can relax knowing that your business is in good hands, that your employees are getting paid correctly and on time, and that you’re doing everything right.

Final Thoughts

There are a lot of reasons why outsourcing your payroll to S & H Tax Accountants Cranbourne and S & H Tax Accountants Malvern East just makes it easy for you.. By letting go of this time-consuming, finicky task, you will likely find that you’re enjoying your business more. Not only that, but you’ll be able to put your energies into other things, meaning your business is likely to grow.

S & H Accountants have the experience and resources to manage large payroll services. If you have any questions contac us on 0387595532.

26/07/2022
How to respond effectively to complaints

Complaints are an unfortunate part of running a business, but they do happen. No matter how hard you work to please your clients, eventually someone will have something negative to say. However, with the right approach, you can turn complaints into a useful tool to strengthen your business.

Here are 6 tips to effectively responding to complaints:

1. Remember that this is not an argument

The reason that a client complains is disappointment. It’s a symptom of a need that wasn’t met. They are not looking to fight with you. In fact, taking the time to complain signals that they wish to continue the relationship. Don’t muck it up by getting into a defensive, back and forth argument. Nobody wins in that scenario.

Your customer is actually giving you an opportunity to continue working together. It’s tough to keep cool when someone comes in hot with a complaint, but remember: feedback is a gift. It just may not feel like it in the moment.

2. Listen

The key here is to put explanations aside. Listen until the client has said everything on their mind. Don’t start thinking of how to respond while they are still speaking – they’ll see your eyes glaze over the moment you do, and that will make matters worse. If it’s a written complaint, read it over a few times to make sure you’re not inserting a tone or accusation that may not actually be there.

You want and need to understand the complaint. Without this information, you can’t move forward in any meaningful way. The moment for explanations and solutions will come. Take this time to really set everything else aside and just listen.

3. Repeat what you heard

It’s important to give the information back to the customer to make sure you’re on the same page. A lot can get lost in translation, so to let them know that you hear them. Make sure that you understand the complaint by saying it back in your own words.

This lets both of you know that you hear and understand the problem. Once they acknowledge that you’ve got it right, you’ll be able to get to a solution.

4. Acknowledge

Forget for a moment that you’re defending your business or firm. Try to imagine how it would feel to be the one making the complaint. You should be able to identify what need wasn’t met, or how you disappointed them.

When you put yourself in their shoes, it becomes clear what solution you would expect. You will also be able to see where you fell short, and how you can avoid doing that to others going forward.

5. Offer a solution

After the work you’ve done to understand the problem, finding a solution will be the easiest part. You know what you’d expect as a customer, and you know what you’re able to offer as a business. Putting this information together will create a solution that makes both parties feel good.

Let them know sincerely that you want to make it right. This is your business after all, and reviews spread a lot faster and further when they’re negative. But, when a business goes out of their way to fix a problem, people let others know about it with enthusiasm.

6. Follow up

This may be the most critical step, and it’s also often overlooked. After some time, follow up personally. This shows your client that you care about the ultimate outcome, and that you want to make sure that they’re doing well with the solution.

It doesn’t take long, but the effort goes a long way. They will remember the time and attention you put into making sure they were satisfied. They will also be likely to come back with more business and refer you to others.

Nobody likes to see a complaint come in at their business. We all work so hard to make sure we’re providing a valuable service that is truly helpful, and knowing that we let someone down can be hard. However, take it as an opportunity to become even better, and you’ll find that your business continues to grow.

11/07/2022
How to Choose the Right Savings Account for You

Virtually everyone can use a savings account to help build up their wealth, but with so many options available, how do you pick the best savings account for you?

The number of options available might make it more difficult to select which savings account to choose, but it also means that with a little bit of knowledge, research, and strategy, you can almost certainly find a savings account that fits your needs.

Here are some things to consider when deciding on the right savings account for you.

1. How you’ll use the account

You could have multiple savings accounts meant to save money for all sorts of occurrences. Your savings account might be for an emergency fund or so you can save up to make a down payment on a future home. You may have the account to save up your travel funds or to cover home renovations.

Ideally, you don’t want to be moving money out of your savings account too frequently, but if you need to make a few withdrawals a month, you’ll want to consider transaction fees or limitations around how often you can take money from your account. If you find you’ll want to access the account a lot, you may be better off with a cash account as opposed to a savings account.

On the other hand, if you don’t plan on touching the money for at least five years, you may be further ahead to invest the money.

2. Your priorities

If you like having access to customer service or a bank with a physical location, you’ll likely want to go to one of the traditional financial institutions for your savings account. If you don’t care about physical locations or if you care more about being able to bank from the comfort of your home, a virtual bank or one with a robust app will be better for you.

Make a list of the features that are important to you in a banking experience and research which financial institutions meet those needs.

3. The fees

Different savings accounts have varying rules that affect fees. For example, some savings accounts require you to maintain a certain minimum balance to avoid fees, or they require you to deposit a certain amount to start the account. Other savings accounts have maintenance fees, which may erase any benefit obtained through their interest rates.

4. Your habits

While it may be more convenient to have your savings account at the same financial institution as your other accounts, if this means you’re more likely to dip into your savings to cover unnecessary expenses, it may be worthwhile to set up the account in another institution.

On the other hand, if it’s easier for you to transfer money into your savings account in the same institution and you know you won’t touch that money, it may be a better idea to keep your accounts with the same bank.

Final thoughts

You aren’t limited to keeping all your accounts at one bank. Explore various options to find the financial institution that offers an account that best meets your needs. Online banks and credit unions also offer savings accounts and may have options that work for you.

If you need any assistance at all with your accounting needs, contact us today to find out how we can help you.

26/04/2022
4 Key Areas to Evaluate in Your Business Budget

With the potential for business life to return to something resembling normal, it’s a good idea to take a look at your budget and see where you may need to shift some of your priorities. Pay attention to how your spending over the past few years affected your business and either helped you achieve, or took you away from, your overall goals.

Considering how your business and your employees functioned in recent years can help you predict upcoming trends–which will enable you to plan for adjustments.

Here are some key areas to evaluate in your budget, so you can determine whether you need to spend more in these areas.

1. Technology

This is possibly the business area with the most room for growth–and the most evidence that adoption is needed. Technology has made it possible for employees to work remotely, for you to provide goods and services virtually, and for you to stay connected with your team while working from home.

If your business is enabling remote work, you’ll need to make sure you’ve got the proper systems and equipment in place, such as document storage, redundancies, cybersecurity, and anything else the law might require of you.

Make sure everyone on your team has access to the equipment they’ll need and knows how to use it.

2. Human resources

With virtual work comes access to employees from across the globe. Geography is no longer a barrier when it comes to hiring skilled employees, at least not in companies that use remote work.

Having teams from across your country and around the globe is an incredible opportunity. Make sure you’ve invested resources in understanding the various rules and regulations that they’re governed by. They likely have different laws regarding payroll requirements and benefits plans. There may even be rules about how you can hire and fire employees.

Make sure you understand whose employment laws govern the work they’re doing for you, and then be certain you take the necessary steps to follow those laws.

3. Automated systems

There are many activities involved in running your own business. Some need your time and attention. Others can be shifted to automated systems, freeing you up for more vital tasks.

Take a look at the activities you regularly carry out. Even those that only take a few minutes a day add up over the course of a year, and chances are they can be automated.

Online invoicing systems make it easy to send invoices and follow up with people who haven’t paid you, all with the click of a button. Customer Relationship Management software (CRM) enables you to track leads as they move through your sales funnel and become your customers. Project management software lets you manage your projects from your smartphone, no matter where the Jobsite is.

Most of these automated systems also produce comprehensive reports so you can gain valuable insights into your business processes.

4. Consultants

You don’t have to be an expert in every aspect of your business. If there are areas you aren’t certain of or want to learn more about, you can hire outside parties to guide your decision-making. Consultants can help you with managing your business, evolving your career, building your relationships, and even marketing your goods and services.

Consultants provide an external and unbiased perspective on your business. Because they’re experts in their field, they have insights into what other companies are doing–and what has and hasn’t worked. They can also help you anticipate and plan for upcoming challenges.

Final thoughts

Examine these four key areas in your business to determine whether it’s worth spending more on them in 2022, as you grow your business.

06/04/2022
Main Causes of Stress for Business Owners & How to Counter Them
Many entrepreneurs believe that hard work and dogged determination are all it takes to build and sustain a successful business. But when you consider the pressures of running a company, it seems wise to add effective stress management to the list. Left unchecked, stress can erode your passion and undermine performance – not to mention, take a serious toll on your health.

Research compiled by Office Vibe reveals that over 70% of professionals regularly experience the physical and mental symptoms of stress. And stress-related illness costs businesses a whopping $200 billion a year in missed work and medical bills.

Wondering how you can stop stress from derailing your productivity, profits, and overall wellbeing? Follow these practical tips for avoiding the main causes of “business burn-out.”

So many tasks, so little time!

Busy business owners have notoriously long to-do lists. Without effective strategies for managing time and sharing the load, you’ll be forced into a reactive versus proactive position – the perfect storm for chronic stress and impaired decision-making.

Try these approaches to free up more of your time:
- resist the urge to micromanage and begin delegating more tasks to partners and employees
- use a project management tool to prioritize and assign tasks, track progress, and share results with clients (here’s a handy list of top-ranked tools)
- hire an accountant to help you navigate taxes and implement year-round time and money-saving financial solutions.
Maintaining positive cash flow

All businesses, particularly start-ups, must ensure they have enough cash to keep running after covering expenses each month. Cultivating a consistent cash flow is crucial for managing both your finances and your stress levels. Here are a few ways to stay cash-flow positive:
- follow up promptly on unpaid bills, and consider offering an incentive for early bill payment (such as a small discount when payment is received within five days of invoicing)
- be wary of slashing prices: if you must mark down a product or service, be sure you can recover your costs elsewhere
- think “less is more” when purchasing inventory to avoid sinking precious cash into excess stock
- have a trusted employee monitor your cash flow, and inform you once it dips below a certain threshold.
Attracting new customers

Starting to panic because you keep missing your sales goals? Auditing your current approach and implementing better growth strategies is key to alleviating that stress. Here are a few ideas to get started:
- drill down into the behaviors and preferences of your customers, so you can better target your marketing
- analyze each step in your sales process to see where the holes are, and tighten your approach
- use your audience research to develop a new product or service – one that fills a unique need for your customers and gives you a leg up on the competition.
Starting and growing a business takes tremendous energy. But by leveraging skilled help and improving key management processes, you’ll learn to pace yourself – and keep that passion burning for years to come.
30/03/2022
5 Steps to Setting Up Your Business Processes for Success

When a business first starts out, it’s natural for the owner to be a jack-of-all-trades. You may not have the capital to hire specialists or access to the technology that can help you. As your business grows–or as you look to take a smaller role in your company–you may find the business has become over-reliant on you, which makes it difficult for you to take a step back.

Here are some steps you can take to enable your business to thrive, even if you can’t be there all the time.

1. Review workflows

Have someone interview everyone in the company to find out what their job is and how they fulfill their tasks. Look at their processes to see if there are ways to make their tasks more efficient and seamless–you could even look at best practices in other companies to see how they manage their tasks.

The goal here is to make processes as simple and efficient as possible. Take out any unnecessary steps and ensure each process only involves tasks that are vital to successful completion.

2. Automate what you can

Often in business, people continue doing a task inefficiently simply because they got used to doing it that way. That can lead to hours being spent in activities that could be automated. Look at activities that are carried out regularly and investigate whether software exists to make that process easier for you.

For example, if your staff spends hours each day updating your customer database, it’s worth looking into customer relationship management (CRM) software, which automatically takes care of that for you, saving you time and reducing the risk of errors. Likewise, if your team spends time following up on unpaid invoices, consider an online invoicing system that automatically sends out overdue notices.

3. Document the processes

Once you have an idea of how people carry out their responsibilities and have identified ways to improve or automate them, write the processes out. If possible, keep the documents digital, so they can be updated as your business evolves and so everyone can easily find them. If you’ve purchased software to automate processes, make sure everyone who would use the software knows how to access it and can do so easily.

Finally, ensure the documents are stored somewhere safe and accessible for your staff. You could use Google Docs or software designed to help with business process management.

4. Train your staff

Now is the time to train your team in your optimal workflows. Make sure everyone has read and understood the documented processes and knows how to access and use any software or technology you’ve purchased. Ideally, you’ll have a couple of people trained to cover each area of your business, so if one is ill or unable to work for a while, someone else can easily step in to carry out those responsibilities.

5. Make your business self-reliant

You want your business to function without you so it still thrives if you become ill, need a vacation or otherwise can’t work for a while. Examine your processes for areas where the company is still overly reliant on you and look for ways to foster self-reliance. This may mean identifying gaps in your employees’ expertise and hiring people with complementary skills, finding new ways to automate workflows, working with consultants and outside service providers to fill in gaps, or creating an FAQ document where questions you’re commonly asked are answered.

Final Thoughts

As your business grows and you step away, you’ll need to ensure you have staff who can take over various activities. Reviewing and documenting your processes, automating what you can, and identifying areas where your business is overly reliant on you will set you up for success.

08/03/2022
How to Choose the Right Software for Your Business
These days, businesses have plenty of options when it comes to choosing software. There are hundreds of developers creating and perfecting new products designed to help you more effectively and efficiently run your business.

With so many options available, it’s important to focus so you know where to start looking and how to make the best decision.

Here are some factors to keep in mind when you choose software for your business.

Your core needs

Not every business needs every type of software, so you’ll want to sit down and think about what your business actually needs, and what will help you achieve your future goals.

Some types of software include:
- Lead generation and sales to help you identify and track prospects throughout the sales process
- Finance and accounting to help you manage your finances, track accounts, and invoice clients
- Supply chain and logistics to help you manage your supply chain and inventory
- Proposal software to help you create, send and track your business proposals
- Productivity to help you improve productivity and track employee activities.
Each of these has its benefits, but you don’t need all of them. Consider what your most important goals and objectives are. Do you want the software to make your business more efficient? Do you need software to take administrative chores off your hands? Is there an important gap in your business that software can fill?

The answers to those questions should help you decide on which category of software to start with.

Software factors

Next, examine products within your chosen category to find the best product for you. This is based on a number of factors, including your current software, the new product’s functionality, and the developer’s responsiveness.

Key factors to consider:

Functionality: Although it’s tempting to go for a product that has all the bells and whistles, you might be paying extra for features you’ll never use–and which could actually cause problems of their own. Look for software that has the features you need and will use.

Integrations: If you’re already using software, you’ll want new products that integrate with what you’ve got.

Security: If you’re handling confidential or sensitive information, you need software that has ample security.

Customer support: You need to know that issues can be handled and dealt with quickly. Make sure there’s a solid customer support policy backing the product.

Budget: Choose the best product that fits your budget and has what you need.

Making the decision

You don’t have to go it alone when making a software decision. Research to find out what software others in your industry use. Talk to your team to find out what their experience with the software has been and what they recommend. Find out what factors they need taken into account to make their jobs easier.

Read online reviews, particularly from companies similar to yours, to find out what they liked about the software you’re considering. If the developer offers it, read their buyer’s guide, white paper or other documentation to get a feel for the product and their philosophy. It’s even better if you can get a demo of a product to try.

Final Thoughts

Buying new software is an exciting opportunity for your business. You’re purchasing something that can make your business more efficient and profitable, while also making your job easier. Take the time to consider what you really need, what will work for you now and as you grow, and what others say about your options before making a final decision.
08/03/2022
Nine Tips to Reduce Debtor Days for Construction Business Owners

Steady, reliable cash flow is crucial for the survival of your construction business – so taking steps to ensure your customers pay promptly is a key priority.

Debtor days refer to the length of time it takes clients, on average, to pay you for the work you’ve done. A higher number of debtor days means clients are taking longer to pay you. A lower number of debtor days means clients take less time to pay you, which means there’s more cash available for your business to use.

In the construction industry, debtor days can average as long as almost three months. Shortening that length can have a huge impact on your cash flow.

When your clients consistently pay on time, you’ll avoid the dreaded “feast or famine” cycle. You’ll be able to pay your vendors, suppliers, and employees on time, and, not least of all, yourself. Additionally, if clients start taking too long to pay you, you may leave money on the table in exchange for collecting anything at all.

Implement these nine tips to get paid without delay.

1. Provide payment terms upfront

Before you start working with any new client, always provide your terms in writing. Clearly state your rates, payment due dates, and your policies regarding late payments – including any fees you’ll charge on balances owing. Make sure your client signs the agreement indicating that they are aware of your terms and conditions. Don’t work with any client who refuses to sign.

2. Understand your client’s payment process

Large clients may have lengthy payment processes that require invoice verification. They may also receive dozens, or even hundreds, of invoices on a regular basis. As a result, their policy may be to pay invoices only on certain days or only after so many days have passed from receiving the invoice.

If possible, submit your invoices with their payment cycle in mind. If they only pay on the 15 of the month, get your invoice in before that date, so you can get paid this month instead of next. Make sure your invoices have all the information your client needs to quickly and efficiently approve your invoice. Have a checklist of all the information to include so they can approve it without coming back to you with questions.

3. Invoice immediately

Invoice as quickly as you can. If your invoice is on completion of a project, have your invoice ready to go by the final day, so you can send it right away. Every day you wait to send an invoice is another day you’ll wait to be paid.

If you’re currently preparing your invoices manually, switch over to an accounting system with automated billing. You’ll never forget to invoice a client, and you’ll eliminate errors. You’ll also be able to see when the invoice was sent, who it was sent to, and when they viewed the invoice.

4. Follow up on invoices

Send an invoice reminder before payment is due. People forget about their invoices, or invoices get misplaced, and a simple reminder can go a long way to helping clients remember.

Call your customer immediately when a payment is a past due. Ask for the status of the invoice and if there’s anything you can do to speed up payment. Sometimes a simple change, like including a purchase order number on the invoice, can speed up processing times.

5. Reward early payers

Consider offering clients a 2% discount when they pay their invoice within ten days. In this scenario, a $1000 invoice would be reduced to $980 – not a huge loss for you, but an attractive cash-saving incentive for your customers. It can be worth it if it frees up cash for your business.

6. Charge interest

As part of your terms, specify that if a client’s payment is past due, a weekly fee of 2% will be added to the total until funds are received in full. If the client goes past due, charge them interest.

7. Get paid upfront

Collect a partial deposit – or the entire amount in full – before you begin a project.

8. Suspend service

Stop your supply of products or services until you receive payment. With this tactic, you’ll avoid the accumulation of an even greater loss with a consistently late or non-paying client.

9. Stay on top of who owes you

Monitor who owes you money and how much on a weekly basis so you can act fast if a customer hasn’t paid on time.

Final thoughts

Perhaps the most important tip for encouraging prompt payment is excellent communication. Be clear on your terms and ensure you send out your invoices promptly.

When you follow up on a late invoice, ask when you can expect a payment, and agree on a date.

If the money still isn’t forthcoming, consider your legal options. You may not want to resort to legal action, but it’s important to send a message not only to that unpaying client but also to others that you will take the necessary steps to ensure payment.

07/03/2022
Pay as you go (PAYG) instalments – What is PAYGI?

Pay as you go (PAYG) instalments applies to small business or investment income of any entity – Sole Trader, Company, SMSF etc. Pay as you go (PAYG) instalments are regular payments made throughout the year to avoid payment of large tax bill when tax return is lodged at the end of the year. The instalments made are based on business and/or investment income. The payments made during the year will be offset against the tax owed, if any, for the year.

ATO estimate the tax payable in a year by taking the business and/or investment income reported in the most recently lodged tax return. Instalments amounts are calculated based on this income, current income tax rates and likely changes in the economy. The instalment amounts can be changed by the taxpayer if they expect a different income than previous years but will be penalized if the payment falls short.

PAYG Instalments are reported and paid through activity statements or Instalment notice. They should be lodged before the tax returns are prepared. Once lodged, it will create a debit entry (debt) in the Activity Statements with the ATO. If the return is not filed on time, ATO might accept the instalment amount on their own in certain situations. Taxpayers must pay attention to the communications received from ATO regarding this.

What happens when PAYG Instalments are paid?

When a payment is made, it shows as a credit entry in the Activity Statement report offsetting the debit entry created while lodging the return. The balance will be zero. When the tax return is prepared, the tax payable on taxable income will be reduced by the amount of PAYG Instalments reported during the financial year. If the tax owed to ATO is less than the Instalment amount, the balance will be refunded.

Example: –

Total PAYG Instalments of John for the year – $10,000

Tax on taxable income – $10,500

Since John has lodged the PAYGI return and paid the same, he will be liable to pay only the balance $500 at the end of the year.

If his tax on taxable income was, say, $9,500, he will receive a refund of $500.

What happens when PAYG Instalments are not paid?

If the PAYG Instalments are not paid, it will continue as a debt in the Activity Statement report of ATO. However, the tax return will still be prefilled with the actual lodged instalment amounts and this amount will be deducted from the tax payable for the year. Taxpayers should be very careful in this situation. The tax payable will be understated or refund receivable will be overstated here. If tax is payable (even after reducing the PAYGI amount, which was not paid), the payable amount will be shown as debt in ‘Income Tax Statement’ of ATO and the PAYGI amount will be shown as debt in ‘Activity Statement’ report of ATO. If the result is a refund (after reducing the PAYGI amount, which was not paid), it will be used by ATO to setoff the PAYGI debt and taxpayer will only receive the rest of the refundable amount, if any. If the refund is not enough to setoff the PAYGI debt completely, the balance will show in the Activity Statement report.

Example: –

Total PAYG Instalments of John for the year – $10,000. He lodged the returns, but never made payments.

Tax on taxable income – $10,500

Since John has lodged the PAYGI return, he will be liable to pay only the balance $500 as income tax at the end of the year. However, he will be liable to pay the PAYGI of $10,000 and will be shown as a debt with ATO in Activity Statement Reports.

If his tax on taxable income was, say, $9,500, his tax return will show a refund of $500. However, he will be liable to pay PAYGI $10,000 and will be shown as a debt with ATO in Activity Statement Reports. ATO will setoff the refundable $500 with this debt and John will be liable to pay the rest $9,500.

The scenario is similar for other entities like Sole trader, Company, SMSF etc. For more information refer ATO website.

Looking for an accountant, S & H Tax Accountants can help. S & H Tax Accountants offer all taxation services whether it be for individuals, companies or even trusts. However we also offer business services, such as registrations or Business Activity Statement (BAS) and even PAYG Installments. We understand that for businesses, these can tasks can be very daunting, that is why we offer the best level of services possible to all of our clients. Our team consists of well-qualified, vastly experienced and extremely professional individuals. Book an appointment today, call us on 03 8759 5532 or you can email us on info@sahtax.com.au.

01/03/2022
FAQ related to Karbon

We are using Karbon to collaborate and deliver the work within the time frame. You will receive an email from us with client task. Here are some Frequently asked questions…

Why have I got a link to these tasks?

You have received a link to these tasks because the person who sent them to you uses Karbon to manage jobs in their company and they have some tasks they would like you complete.

What is Karbon?

Karbon is used by organizations and teams to manage their jobs, email, and collaborate with their clients. You can learn more here.

Why do I have to create a PIN?

You’re asked to create a PIN to ensure no one else can access your client tasks. Creating this PIN will ensure only yourself and the person who sent these to you will have access to these tasks and related information.

Do I have to enter my PIN each time?

If you choose to remember your PIN on this device, then you won’t be required to enter it each time. However, you will need to enter it the first time you access any of your tasks on a second device.

For example, if you first open the link on your mobile phone and create a PIN, and then later click on the link from your desktop, you would be asked for the PIN again.

What if I forget my PIN?

If you forget your PIN, simply click on the “Forgot PIN” link at the bottom of the page. This will send you an email where you can reset your PIN.

Do I need a separate PIN each time my accountant sends me new tasks?

No, you can use the same PIN for each new piece of work.

How do I complete these tasks?

When you have completed the tasks simply tick the box and it will be marked as completed. Before doing this, you can attach any files you’d like to send through this task.

21/01/2022
FBT Implications of Christmas Parties

It’s that time of the year again! As we approach the end of 2021, many businesses host Christmas parties and give gifts to their employees as appreciation for a year of hard work. However, some business leaders don’t understand the fringe benefits tax (FBT) implications of such.

In order to avoid significant costs to your business, read this article and learn more about your obligations.

What is Fringe Benefits Tax (FBT)?

A fringe benefit is a type of payment that employees receive separately from their salary or wage. Fringe Benefits Tax is paid by employers on certain benefits they provide their employees or other associates. It applies even if the fringe benefit is provided by a third party through an arrangement with the employer.

It is important to note that FBT is separate from income tax and is computed based on the taxable value of the benefit. You can claim an income tax reduction for the cost of providing fringe benefits and for the FBT you pay. Also, you can claim GST credits for items provided as fringe benefits.

How FBT affects Christmas parties

There’s no separate FBT category for Christmas parties. However, to avoid getting into trouble with the ATO, here are some guidelines.

Exempt property benefits

The costs associated with Christmas parties are exempt from FBT if provided on a working day, on your business premises, and consumed by current employees. The property benefit is not available for associates.

Exempt benefits – minor benefits

A Christmas party is considered a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of your employee may also be a minor benefit and exempt if the cost for each associate is less than $300.

Christmas gifts to employees

A Christmas gift to an employee is considered a minor benefit that is an exempt benefit when the gift is worth less than $300.

FBT Returns Lodgment

If you have a liability, you need to lodge an FBT return during an FBT year (1 April to 31 March). If you are preparing your own FBT return, you can lodge up to 25 June without any penalty. The due date for the payment is 21 May.

With a tax agent, the due date to lodge and pay is 21 May. On the other hand, if you’re registered for FBT but don’t have to lodge a return, you can complete a Fringe Benefits Tax- notice of non-lodgment form.

With a tax agent, the due date to lodge and pay is 21 May. If you’re registered for FBT but don’t need to lodge a return for the year, you can complete a Fringe benefits tax – notice of non-lodgment form.

Need help with your FBT returns? Get in touch with us today to ease your burden and have some peace of mind.

23/12/2021
4 Benefits to Hiring a Bookkeeper for Your Business
Bookkeepers can be highly beneficial for businesses of any size. They offer expertise and insight into areas that you may not have experience in. They can also take some tasks off your to-do list, freeing up your time and energy to focus on other matters.

Here are 4 benefits to hiring bookkeepers to help you manage your business.

Expertise

A bookkeeper is an expert at managing, sorting and recording your business’s financial transactions. They’ve spent time developing their skills and experience. During that time, they’ve also seen and resolved bookkeeping-related issues that you may come up against. Their expertise makes them more efficient at managing those issues.

Beyond that, they understand business trends and challenges others in your industry face, and can help you move through those as well. They also know what questions to ask to help you make important decisions and can share best practices with you.

Guidance

Your bookkeeper not only helps you maintain accurate records, they understand your financial circumstances. They help you assess how to make important business decisions, such as whether now is a good time to grow or when you should hold back. They can also identify trends in your industry and help you take advantage of those opportunities.

Finally, they can assist you with budgeting, and sticking to your budget. They’ll help you come up with a realistic financial plan that enables your business to grow while achieving short- and long-term goals.

Time savings

As a business owner, you likely have many activities to focus on. In bookkeeping alone there are numerous tasks to be responsible for, such as:
- Collecting and recording transaction data
- Sorting receipts
- Classifying expenses
- Invoicing customers
- Paying vendors
- Managing payroll.
Bookkeepers take on those tasks so you don’t have to. It’s not just about the energy you put into them, it’s about the fact that unless you’re an expert at bookkeeping, it’ll likely take you longer to complete these activities than it would take a bookkeeper.

Think of the time you spend during an average week managing your books, then think of the time you spend during a high-pressure week, such as during tax season. That can add up to a lot of extra hours.

By hiring a bookkeeper, you save yourself that valuable time for other activities such as marketing, perfecting your products or even spending time with family.

Money savings

There’s a time cost to doing your own books, but there’s also a potential money cost in the form of missed opportunities. The time you spend doing your own books is time you could potentially be out creating or taking advantage of new opportunities for your business. Your bookkeeper frees you up so you have the time and energy to identify potential opportunities. They can also advise you on whether you’re in a fiscal position to jump on those possibilities.

Additionally, the expertise bookkeepers bring to their activities means they’re likely to save you from costly mistakes that could affect your finances.

Final Thoughts

Hiring a bookkeeper is a sound business decision as it gives you access to expertise and guidance you might not otherwise have, and it frees up your time and money to take advantage of other business opportunities. Talk to S & H Bookkeepers for you business bookkeeping needs. S & H Tax Accountants offer servicess in Cranbourne and surrounding suburbs.
25/11/2021
Top 3 reasons start-ups fail and how to avoid them

The start of a business is an exciting time. You’ve got a great idea for a business and are enthusiastic to get started.

It’s important to plan ahead to give your business the best chances for success. Planning ahead means anticipating challenges and developing ways to successfully address them, so they don’t upend your start-up.

Here are three reasons why start-ups fail and ways you can avoid them

Lack of market demand

You need to have a market to make money. That means there needs to be enough people who need your product or service and are willing to pay money to buy or use it. Without that, you won’t be able to cover your costs or earn enough to survive. Before you spend your time, money and energy starting a business, make sure there’s a need for it.

Some ways you can identify need:
Look for competition. If no one else is offering the service, there’s a chance there’s no market for it. That might not initially stop you from moving forward, but if no one already offers your product or service—or anything close to it—you’ll have to do more to prove there’s a market.

Conduct market research.
Studies and interviews help determine whether people in your target market agree with you that there is a need for your offering and that they would pay for it.

Lack of expertise

Entrepreneurs might be tempted to partner with or hire their friends or family—people they genuinely like and would work well with. That doesn’t always translate to success, however. For your business to be successful, you need specific expertise, and you need people whose skills complement yours.
You also need people who are willing to discuss your decisions with you, and make sure there’s a business case to be made for each decision you make. Someone with a differing perspective provides a vital way to double check whether your decisions are best in the long-term for your business, or whether other options are available.

Ensure you hire people with balanced competencies. If your business relies on software, you might need a technical expert to ensure the technology runs smoothly. You’ll likely also need a financial expert to help you with bookkeeping and possibly a manager to oversee employees. Likewise, if you open a restaurant, someone on your team should have restaurant experience, ideally a few people in managerial roles will have relevant experience.

It’s fine to hire people you like, but make sure your team also has the skills to successfully manage your business.

Lack of finances

You need money to produce your goods and services and ensure all employees are paid. It’s not enough to know how much money you need month-to-month, you need to forecast your development cycle, how inventory moves through your supply chain, and variations in seasonal income.

If your business doesn’t earn as much in the first few months as you predicted, you’ll need to bring in more money quickly to save your business.

Consider alternative sources of funding, to diversify your options and improve cash flow. Don’t rely just on yourself and friends or family, consider angel investors, business incubators, venture capitalists and business grants.

Final Thoughts

By planning ahead, being strategic with who you hire, ensuring there’s a market for your offerings and considering alternative sources of funding, you can significantly improve your odds of success.

Get in touch with us to arrange a chat.

11/11/2021
4 Tips for Encouraging Repeat Customers

There’s a lot of data supporting the idea that it’s less costly, easier and more efficient to encourage repeat customers than bring in new ones. Among the stats Hubspot lists are that a 5% increase in customer retention is responsible for more than 25% increase in profit; repeat customers are 9 times more likely to convert than first-time visitors; and a 2% increase in customer retention has a similar impact to your bottom line as reducing costs by 10%. Link:

That’s a lot of motivation to encourage repeat customers. Here are 4 tips to encourage your customers to keep coming back.

1. Build relationships with customers

Take time to learn more about your customers.

Do they mention family members? Ask about their loved-ones. Do they frequently buy the same products? Keep track of when that customer comes in and have some items set aside for them. Do they always order the same meal? Mention similar dishes to try. Go the extra mile to show your customers they’re important to you.

Ask for their input, as well. They’ll get to know your products and services, and can offer insights into what’s working and what could be improved. If you engage them–and make changes based on their feedback–you’ll develop a loyal customer base.
The more special your customers feel, the more likely they are to come back. They’ll appreciate that you remember them and value their input.

2. Make it personal

Your loyal customers deserve communications that are more personal and less formal. It’s fine to use impersonal emails for your larger email list, but use more personal communications with your best customers.

If you want to let them know about an important business-related matter, phone them or suggest an in-person meeting. Keep track of important dates, as well. You can send gifts or cards to mark important occasions, or just to reach out.

Make your best customers feel as though they stand out from the rest by being more personal with them.

3. Share relevant information

Newsletters are a great way to stay in touch with your customers and let them know what you’re up to, but if you get to know your customers really well, you can pass along articles, books, or other information that might interest them, even if it isn’t related to your business. It shows them you understand and you care.

4. Remember your loyal customers

Businesses sometimes focus their attention exclusively on new customers, forgetting about loyal and repeat customers. You need new customers to keep your business thriving; however, excluding long-term customers results in customer churn.

It’s great to offer new customers rewards and incentives, but that leaves existing customers feeling ignored. Offer your long-term customers bonuses for their loyalty.

Final thoughts

Encouraging repeat customers makes solid business sense. To be successful, you need a balance of new and long-term clients. This means building relationships with people, personalizing your attention, sharing relevant information and remembering your loyal customers.

A great product or service at a reasonable price might bring your customers in, but outstanding customer service that gives them a positive, memorable experience will keep them coming back.

05/11/2021
Questions to Prepare for When Pitching to Investors

If you’re looking for people to invest in your business, be prepared to answer some important questions. Investors look for smart investment opportunities—that means they want to find out as much as they can about you and your business before they make a decision about whether or not to invest with you.

It’s vital to have well thought-out answers to investors’ questions. Give them evidence you’ve thoroughly examined your business to make them feel comfortable investing with you.

Here are four questions to be prepared for when you pitch your idea to investors.

1. Why does your business need to exist?

Businesses exist to solve a problem. Show investors there is an issue people need solved, and you have the solution.

You’ll have to prove there’s a big enough need for your business to warrant an investment. Identify your target market and why you’re helping them. If it’s not a large group, maybe it’s an exclusive one that you can sell your product or service to at a higher price point.

Show investors the pain point you’ve identified, how your solution addresses that pain point, and how your solution ultimately helps customers, by saving them time or money, for example. Data helps you. Find hard facts and examples to back up why your business is necessary.

2. Why are you uniquely qualified to run this business?

It’s not enough that you’ve identified a problem and a solution, you need to show why you are the person to run this business. Investors want to see how your knowledge or experience gives you an advantage over the competition.

Most investors wouldn’t put their money behind a restaurant that wasn’t owned or managed by someone with restaurant experience, for example. When you pitch to investors, show them what gives you the qualifications to run the business and beat the competition. Maybe you have education that enables you to manage a business, or maybe you have in-depth experience with the issue you’re solving.

Whatever case you make, investors should come away knowing you are the exact right person to run the business.

3. How will you use the funds?

Highlight for investors your plan for using their money, otherwise they won’t want to give it to you. They also won’t want to hear that their money will go to pay for your big salary or a fancy car. It has to go to costs directly linked to making your business successful.

Have a solid and strategic plan for how their investment will be used. The money can be used for customer acquisition, to fund research and development, or to pay suppliers for start-up costs, for example.

Don’t just say that the money will be used for marketing—show a marketing plan with goals and milestones in place so they know you have a strategy.

4. Who are your competitors?

Contrary to what you may think, it’s not good to tell investors there are no competitors, because this suggests there’s no market for your business. Even if there aren’t direct competitors, show investors other businesses that are similar to yours, then focus on what makes you different.

Final thoughts

If you want to pitch successfully to investors, you’ll need to be prepared to answer hard questions. By doing some research, setting out strategies and anticipating the investors’ concerns, you can give them the answers they need to feel comfortable investing in your business.

22/10/2021
Understanding Australia’s Director Identification Number
In its 2020 Budget Digital Business Plan, the Australian government announced the full implementation of the Modernising Business Registers (MBR) program. The program is designed to both establish the new Australian Business Registry Services (ABRS), and enhance how businesses register and manage their information with the government.

Although the ABRS rolls out progressively between 2021 and 2024, one of the immediate changes is that business directors must obtain a director identification number.

Here is what you need to know.

1. Director identification number definition

The director identification number is a unique number you as a director apply for once and keep forever. It’s designed to prevent the false or fraudulent use of your identity.

The number is 15 digits long and is allocated to any director—or someone who plans to become a director—who has verified their identity with the ABRS. All Australian director identification numbers start with the digits 036 (Australia’s country code under International Standard ISO 3166), and end with an 11-digit number plus one digit designed for error detection.

This ID number is yours forever, even if you change companies, stop being a director, change your name or move overseas.

2. Why you need a director ID

Verifying your identity with the ABRS helps prevent fraudulent or false IDs being used, which makes it easier for regulators to trace directors’ relationships with companies over time and identify and eliminate unlawful director activity. It safeguards your identity and reduces the chance of identity fraud.

Additionally, various groups including employees, creditors and shareholders are entitled to know the names of a company’s directors.

3. Who must obtain a director ID

Any eligible officer of a company, including people who are appointed as a director or an alternate director of a company must obtain a director ID. This includes people who are a director of a company, registered Australian body, registered foreign company, Aboriginal and Torres Strait Islander corporation, or corporate trustee.

Under the Corporations Act, a director must be at least 18 years old and cannot be disqualified from managing corporations, unless ASIC or the Court has given permission. Under the CATSI Act, a director must be at least 18 years old, a member of the Aboriginal and Torres Strait Islander corporation and an Aboriginal and Torres Strait Islander person, and not disqualified from managing a corporation, unless given permission from the Registrar.

Finally, there are some people who do not need an ID, such as are those who are a company secretary but not a director; a company’s external administrator; running a business as a sole trader or partnership; or have “director” in the job title, but were not appointed officially as a director under the Corporations Act or the CATSI Act.

Find out more on who needs to apply and when, at the Australian Business Registry Services site.

4. Applying for a director ID

Starting in November 2021 you must apply for a director ID if you meet the director criteria outlined above. Your deadline depends on the date you became a director. If you became a director under the Corporations Act, then:
- On or before 31 October 2021, you must apply by 30 November 2022
- Between 1 November 2021 and 4 April 2022, you must apply within 28 days of appointment
- From 5 April 2022 on, you must apply before appointment.
If you became a director under the CATSI Act, then:
- On or before 31 Oct 2022, you must apply by 30 November 2023
- From 1 November 2022, you must apply before appointment.
To apply:
1. Set up your myGovID
2. Gather your documents, including your tax file number (TFN), your residential address and ID verification
3. Login to ABRS and apply
It is free to apply for your director identification number, but you must apply for your own number and verify your identity. No one else can apply for the ID on your behalf.

Final thoughts

For more information on the director identification number, visit the Australian Government Australian Taxation Office on Modernising Business Registers or the Australian Business Registry Services site with a full overview of the Director Identification Number process.
15/10/2021
4 Ideas to Manage Customer Wait Times Without Hiring More People

Balancing customer experience against your budget is a difficult task. You need the right amount of staff working to keep customers happy, but not so many people that workers are standing around looking for things to do.

If your customers have long wait times, that’s good news for you initially—it means your business is popular. The bad news is customers won’t wait around forever for you to fix your time management issues. If they like your goods or services, they’ll be a bit forgiving, but too many long waits will send them to your competition.

If you need to manage customer wait times without hiring more people, here are some ideas that can help you.

1. Encourage customers to come in at quiet times

Every business has busy times and slow times. One way to lessen wait times is to shift customers from the busy periods to the slower ones. Offer incentives for coming in during quiet hours. For example, you could offer 10% off for customers who come in between 11 and 1, if that’s your quiet time.
Some retail establishments even encourage customers to schedule an appointment to come in, rather than just walking in. This can also help you manage customer flow and shift people to less busy times.

2. Have a separate stand for complicated transactions

Complicated transactions take more time, and they force your other customers to wait longer for service. Have a special station where returns are taken, online purchases are picked up or loyalty program sign-ups are processed, for example. These transactions are not only more complex, they happen less frequently so moving them out of the regular line doesn’t add significant work to your staff, but decreases customer wait times overall.

3. Streamline the queue

See if there are ways to streamline your queue, so customers aren’t waiting a long time to be helped by one person. For example, you could have one employee greeting people, another asking if they need help, and someone else ringing up the purchase. Or you could have mobile point of sale software that allows your staff to help customers anywhere they are—inside or outside the store. Point of sale (POS) software enables staff to search information, find items, close transactions, accept payments and even print receipts, saving your customers from long waits in line.

You can even invest in technology, so customers can check-in with you online before coming to your business. Their wait time overall may still be the same, but they’ll spend part of it at home, so it won’t feel as long to them.

4. Under promise and over deliver

At some point, your business will be so busy that customers will be stuck waiting for service. In those cases, under promise and over deliver. If you know something will take 3 hours, tell the customer it will take 4 hours. Customers are happier if something takes less time than expected than if it takes more.
This tactic also buys you time in case of unexpected delays. The worst thing in this situation is that you have to repeatedly tell customers their wait will be longer. That frustrates them and makes them less likely to come back.

Final Thoughts

Line-ups and wait times are inevitable, but they don’t necessarily mean you need more employees. There are solutions available to you that enhance the customer experience without you hiring more people.

11/10/2021
3 Tips for Working Smarter and Gaining Personal Time

You’ve probably heard the maxim that it’s better to work smarter than harder. Working smarter means allocating your time, energy and money so vital tasks get done more efficiently, freeing up your personal time.

Too many business owners think they must keep working harder—taking on more responsibilities and working longer hours—to be successful. It makes sense, because you’re responsible for your business, but that route leads to work overload and burn out. Ultimately, your business will be unsustainable if you keep pushing yourself to work harder.

Here are 3 tips to working smarter.

1. Commit to deep work

How often do you get five minutes into a project just to be distracted by your email notifications or text messages? It’s difficult to cognitively focus on a task while being so distracted. Your mind has to bounce back and forth between different activities, and it takes time to transition every time a new email comes in.

Set aside time each day where your cell phone is on silent, your email notifications are off and you can’t check your social media. Use that time to focus on your most cognitively demanding tasks. Eliminating distractions frees up your brain to focus on the activity at hand, which in turn enables you to get your work done more quickly.

Deep work was developed by Cal Newport, who has written a book on the subject.

2. Find the right business management tools

There are many fantastic platforms and software-as-a-service tools to help you run your business, but not all of them are right for you. It’s easy to get tempted by the latest app that claims to make your life easier. Before you sign up for another subscription service, make sure it actually benefits you.

Don’t sign up for something because it’s marketed as saving stime, make sure it actually will save you time. Otherwise, it just becomes one more tool that you have to log into and use to justify the expense. Productivity apps aren’t productive if you’ve already got your team logged into three other apps. Get rid of platforms that are redundant or don’t meet your needs. Don’t use any platforms because you can—investigate them to make sure they solve a problem for you or make a process more efficient.

That said, when you do find a tool that makes your life easier and more efficient, buy it and use it. You can purchase software to make invoicing easier, simplify project management, and even manage your time.

3. Increase your rates

If you haven’t increased your rates in a while it’s a great time to consider doing so. Increasing your rates means you can focus on higher paying clients, earning you more money in less time. You don’t have to raise your rates a huge amount, either. Increase them enough that if you lose a few clients, your business won’t suffer financially. Then focus on finding new clients who will pay you at your higher rate.

Final thoughts

Being a successful business owner means working hard—but it doesn’t mean you have to keep working harder. Finding ways to work smarter—by increasing your rates, investigating management tools and committing to deep work—will help you in the long run.

24/09/2021
4 Things to Consider Before Expanding Your Service Offerings

If you’re looking to grow your business, you might consider expanding your service offerings. Adding additional services is a good way to increase your profitability, diversify your income and expand your market. But there are important things to consider before adding to your income streams.

Here are 4 important things to keep in mind when you consider adding to your services.

1. Does the expansion complement your business?

The best way to expand your service offerings is to add value that complements the work you’re already doing and is attractive to your current client base. While it takes more effort to bring new customers in, adding something that your current clients need and that you already have the capacity for is an efficient way to increase your profits.

If you already offer lawn maintenance, find out what other yard work your clients need done, for example. It might be fairly simple for you to offer those services to your clients, and they’d probably be happy for you to do it rather than hiring someone new.

2. Is your profitability consistently high?

Spending money to hire new people and buy more equipment if your business isn’t consistently profitable is risky. It might be tempting if you make a lot of money in one year to jump into offering a new service, but hold back until you’ve got a couple years of high profits behind you. That allows you to save money to cover the increased expenses and ensure that the one year wasn’t an anomaly.

Invest in your business, but expand your services when your profits are consistently up, not when you’ve had one really good period.

3. Is there a potential partnership or merger that makes sense?

There are times when forming a partnership or otherwise merging businesses makes sense. Is there someone out there who works in a similar capacity that you could work well with? Maybe they are great in their field but need help running a business. Explore a partnership or a buy-out.

For example, if you offer immigration consulting and you know someone who offers relocation services, you might form a partnership so the new company can offer both immigration help and relocation services. That can lead to new clients for both you and your new partner.

4. Are you doing it for the right reasons?

There are many good reasons to add new services, but there are also reasons that can increase your risks. Competition, for example. While competition can drive innovation, it’s not the only reason to add a new service—and doing so just to beat your competitors can lead to mistakes being made and money being lost. Rushing to expand is when companies find themselves in trouble for adding services there’s no market for or without a fully-formed plan.

Final thoughts

Expanding your business is exciting, but it’s important to consider some issues before you commit your time, energy and financial resources. If you’re adding new services, do so because it makes sense, you’re in a financial position to do so, your clients want it and you have the capacity for it.

24/09/2021