Fundraising not the end-goal

Should a business bootstrap or raise external financing?

There is a time and place for either strategy, but what we've noticed is that startups tend to fixate on the latter. 

Some believe that once they've raised enough money, everything's going to be okay. But while raising capital definitely helps, it shouldn't be the end goal of a business. 

Working with someone else's cash gives business owners a sense of confidence and accountability. But there are many things bootstrapping can teach founders. 

In fact, it's quite common in Australia for business owners to bootstrap. They have credit card limits of $30,000 to $50,000 - enough to run their businesses on personal credit. That's very risky. But in the process, founders become more disciplined and thoughtful about where they spend their cash. 

At the end of the day, it isn't just about raising the funds, because a business isn't about going from fundraising to fundraising. It's about being able to achieve a goal, such as acquiring new markets or launching proprietary products, with that cash.

Growing small to medium business with grants
Collins Hume are award-winning grant funding specialists. Click here to find out why we care enough to identify grant funding opportunities for business owners.

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Financial transparency important

Financial transparency is important to investors

When pitching a business to investors, getting the right number - whether it's net profit, sales, margins - is key. 

financial transparencyBut the kind of data you present depends a lot on the stage of your startup and the kind of investor you're looking at. 

As an investor himself, Sam had this advice to give: "If we're talking about seed [funding], they'll be investing more in the team, personality, vision, and market-depending on the stage." 

He goes on to advise small and medium enterprise that "annual finances are useless in the beginning because business is changing so frequently. Investors will want to see on a month-on-month basis what's happening."

Mature startups appealing to investors who have part-ownership of the business is a different story. 
Investors typically want financial transparency to understand the health of the business. Like Sam, they usually ask for a monthly update using consistent growth metrics. But it's a bonus if the investors are aware of what's happening in the business' bank accounts as well. 

A business could have sold to a client and earned $200,000, for example, but they might not be receiving the payment another 90 days. This kind of information helps everyone involved make better decisions. 

Tools like Xero are extremely useful in this case because it provides real-time insight into a business' cash flow. Especially since cash flow management is one of the top issues for small and medium businesses, this sort of transparency is essential to grow and scale.

Related reading: Numbers should tell a story

By making accounting easy, we empower business owners to focus on scaling and doing purposeful business. Call Collins Hume in Ballina or Byron Bay on 02 6686 3000 today.

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FBT and ridesharing

FBT and Uber style ride sharing

When an employee uses a taxi service for travel to or from work or if the employee is sick, it is generally exempt from Fringe Benefits Tax (FBT) under the FBT taxi travel exemption. 

Ride sharing and FBTThe question is, what about Uber and other ride sharing services, do they also qualify for the exemption? If Uber is considered to be a taxi for GST purposes, that is, all drivers need to be registered for GST and charge GST as they are considered to be a taxi service, does the FBT exemption extend to employees using Uber for travel?

The ATO has confirmed its view that travel in ride sharing services is not exempt from FBT under this specific exemption as they do not meet the definition of a taxi service under the FBT laws (even though they do under GST law).

However, this does not mean that FBT will necessarily apply to travel undertaken by employees using a ride sharing service. 

FBT taxi travel exemption
Taxi travel by an employee is an exempt fringe benefit if the travel is in a single trip that begins or ends at the employee's place of work. In addition, if the taxi travel is a result of sickness or injury to an employee and some or all of the journey is directly between the employee's place of work, their residence or any other place that is necessary or appropriate for the employee to go as a result of the sickness or injury, it would qualify as exempt.

Under FBT law, a taxi is "... a motor vehicle that is licensed to operate as a taxi."

Ride sharing and FBT
While an Uber trip is 'taxi travel' for GST purposes, and therefore GST applies as there is a $0 GST threshold, the ATO's view is that it would not generally meet the definition of a taxi for FBT purposes as ride sharing drivers re not generally "licensed" to operate as a taxi.

If an employee travels to or from work in an Uber that is not a licensed taxi and the cost is covered by their employer then the FBT taxi travel exemption does not apply and the trip would trigger an FBT liability for the employer unless:

  • The "otherwise deductible rule" applies (i.e. the employee would have been able to claim a deduction for the trip); or 
  • The minor benefits exemption applies (i.e. the value of the benefit is less than $300 and is provided on an infrequent and irregular basis).
Let Collins Hume partner with you to achieve greater business and lifestyle success as your trusted advisers. Call us in Ballina or Byron Bay on 02 6686 3000.

Business cash payments ruling

Why the Government does not want your business accepting cash payments of $10,000 or more

From 1 January 2020, the Government intends to restrict the value of cash payments a business makes or accepts to amounts under $10,000. 

cashIgnoring the limit will become a criminal offence with penalties of up to 2 years in prison and/ or $25,200*.

Payments of $10,000 or more will need to be made electronically or by cheque.

We'll, easy enough you say, just break it up into smaller amounts! But, the law has already thought of that. The cash payment limit will apply to the total price of a single supply of goods or services, regardless of whether the price is split into a series of payments over time. If a customer is making cash payments over time, for example instalment payments on a car, the total cash component cannot equal or exceed $10,000 – payments above this amount will need to be made using alternative payment methods. 

If a genuine mistake has been made, you will need to be able to prove that you, "reasonably believed that a payment did not include an amount of cash that was equal to or exceeded the cash payment limit." Making a mistake does not stop the breach being an offence, it merely limits the fault element. Recklessness is not a genuine mistake.

Why the change?
The cash limit initiative came out of the Black Economy Taskforce and targets untraceable payments. The concern with large cash payments is that cash can be anonymous and untraceable. Making payments in cash makes it easier for businesses to underreport income, and to offer consumers discounts for transactions that reflect avoided obligations, gaining a competitive advantage over businesses that either cannot or will not offer such discounts. In other words, under the counter deals.

Interaction with AUSTRAC reporting entities
Dovetailing into the new cash payments limits are changes to AUSTRAC reporting. At present, financial services, trading in bullion, and gambling services generally need to report to AUSTRAC for transfers of physical or digital currency of $10,000 or more.

From 1 January 2021, certain AUSTRAC reporting entities will not be required to report physical cash transactions of $10,000 or more as they will be unable to make or accept them. 

The cash payments reform was originally announced in the 2018-19 Federal Budget and were due to commence from 1 July 2019 but pushed back to 1 January 2020. The reforms are not yet law and are currently before Parliament.

*120 penalty units for individuals. Entities face 300 penalty units per offence (currently $63,000).

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