Question on accounting when starting small

[dp405]

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Hi all,

I’ve recently set up my own company. This is just a side project at the moment and I’ll be using it to do a little bit of consulting, and to potentially apply for some R&D grants (I’m a scientist/engineer in the electronics sector).

I’d love to get some advice on how to handle the accounting at this early stage. For this year I’m only expecting 3-4K in company income, so hiring an accountant would take a sizeable percentage of that.

Is it common for people to handle their own company tax returns/invoicing at this early stage?
Are there any recommended tools/guidance for this?

Alternatively, are there accountants that will take on a relatively simple case like this at a low cost?
I have searched around on the web but have not had much luck finding something suitable.
In am Sydney based if that makes a difference.

Your advice and suggestions would be much appreciated.

Thanks,

David

[Paul – FS Concierge]

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Hi and welcome David.

At your stage of business there are a lot of Sole Traders and this is easier to do DIT tax for than through a Company.

Cheers
Paul

[dp405]

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Thanks Paul, in my case I have had to go for a company (PTY LTD) as it is a requirement for certain R&D grant applications. It is also preferred for me with regards to liability.

[FMJeff]

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dp405 – it is common for folks to handle their own accounting at this stage – particularly when there are few invoices to record / pay / process etc. Freshbooks (https://www.freshbooks.com/) is a relatively easy way to start. If you outgrow it, you can move up to something more indepth such as Xero or Quickbooks online but I would suggest avoiding quickbooks desktop – it is far too detailed / requires accounting knowledge to use effectively.
hope that helps – cheers.

[dp405]

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Thanks for the info, I will check out freshbooks!
I have been looking at Xero, but naturally wanting to keep expenses down whilst the overall income is small.

When it comes to tax returns, is this possible to do myself? From some searching around the web it seems that I can, but only with the paper mail in forms. Not sure if anyone here can clarify that further?

Thanks again!

[James Millar]

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I can certainly understand the desire to minimise costs – nothing wrong with that. The problem will be if you get something wrong you could miss an important opportunity (and some things with tax law can’t be undone).

For example as an early-stage consultant, we would be looking at opportunities to claim any losses against other income – there are legitimate ways which is the secret sauce of our expertise. So say you make a $10k loss and we can claim against other income to produce $3k tax benefit – fees are paid for with only one strategy.

When involved in innovation there are other matters to consider as well. There are tax concessions for both R&D and ESIC’s (early-stage innovation companies).

It’s a dilemma for sure but I think you need to ask yourself…..what am I intending on doing with this business? If it’s a passion project (hobby) with no plan then it’s unlikely to produce much of a financial return which means every dollar you spend is dead money from a financial perspective. If there is some sort of plan and objective then you need to figure out what the business needs to look like to get there. Invariably that will involve some bigger figures and the need for financial expertise to navigate and optimise the tax and financial issues. That benefit will obviously come at a cost (and I don’t mean your typical H&R block $1500 see you next year solution).

There is no point being small for an extended period because it will just burn cash. Unless it’s for the love of it which means there is a positive non-financial return being made.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

[Mandy Barker]

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Hey David, saving pennies is always uber-important, especially when starting out.

I’m not an accountant, and I don’t even run as a company as I’ve been under sole trader set up for 6 years now and I’ve come to this after engaging several different accountants for advice.

But I wonder if you could reframe your thinking around skimping in the area of accounting?

Companies have some very specific requirements, returns and deadlines, it could be easy to miss or mess up a requirement and find yourself in hot water.

Think of getting professional advice upfront as an investment, an accountant can help you structure your business for the best performance moving forward, it is harder to implement things in retrospect. A good accountant could potentially save you more than they cost in good advice.

And maybe a bookkeeper can do the heavy lifting through the year, with your accountant doing the taxes at the end and ensuring you’re claiming what you’re entitled to.

For regular invoicing there are free/cheap options starting with a Word doc to apps like Rounded.

Hope you get where you are aiming in your business!

Cheers
Mandy

[bb1]

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Interesting this one, I was just talking to a friend who is planning to start ”small” with a project, and has decided to skip on insurance because the cost was going to be several hundred per year. But the product they want to sell, could potentially cause much damage to their clients from just one mishap (not going to go into details), so it’s a case of go bigger to cover the insurance, or my suggestion is forget it.

I know accounting isnt as important as insurance, but if you stuff it up, you have the potential for loss or having a grumpy ATO person on your doorstep, which could cost more then a grumpy accountant. If you can’t afford to have an accountant or insurance, you can’t afford to be in business. thats the problem with people talking side hustles, etc, in reality you are just playing games, get serious or stick to your day job.

[dp405]

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Thanks all for the advice so far.

To James and Mandy, i do fully agree that going with a professional accountant is generally worthwhile, and I’d be doing that as long as I was hitting >10K in income (or if one of the grant applications comes through). However, having just started the company and expecting minmal income before tax time, it seems that accounting fees would eat up the majority of the income. I’m not paying any staff, and just have a couple of clients at this stage so book-keeping and tax should all be very straight-forward, but I have not found that accounting fee structures allow for this, they all start quite high and assume relatively higher complexity. Do any accountants offer reasonably priced products for a simple microbusiness such as this?
I do get Mandy’s point of thinking of these costs as an investment, I’ll certainly think on that some more but in general i would rather accept those higher costs once i have more confidence that the company can endure.

In terms of tax time, some options I have found are ‘lodgeit’ and ‘taxopia’, these offer relatively low cost assistance with company tax lodgement, and i can use something like freshbooks to keep track of things.
If anyone has experience with lodgeit or taxopia then I would welcome any comments there.

bb1, i disagree with you regarding side hustles, in my case (and I’m sure for many people) I simply don’t currently have the resources to commit all of my time. However, potential extra income from this side hustle will help be to build the resources for growth there, and to move towards my bigger ideas, likewise, if i am successful in one of the research grant applications then i want instantly have those resources (but as mentioned, they require a company to apply). The alternative is to build up capital through my day job so i can eventually fully commit to building the company, but that delay could lead to missed opportunities for me. I am in the tech area and there are more than a few examples of very succesful businesses that started out as side hustles (Apple, Facebook, Twitter etc.)

[Mandy Barker]

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Whichever way your go David, I wish you all the best for your venture. Be sure to let us know how you get on once you’ve been trading for a while!

[James Millar]

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Hey David

The issue I see as an expert (which understandably you don’t see) is that there is no “simple” in getting the best outcomes for you. There are many elements and moving parts to consider and the absence of payroll or big initial dollars doesn’t automatically mean it should be approached with a cookie-cutter mindset (you can be forgiven for this but accountants cannot be – they ought to know better). I will say however that I know the team behind Taxopia and they are a good crew. At that price point, they are worth looking at for sure.

And while yes – there have been examples in history of side hustles turning into large successful businesses, I would say they are in a very small minority. Most successful businesses come from a greater focus of resources from day one. Back of an envelope observation over 25 years – out of 100 small businesses, Maybe 10 become what I would consider financially very successful (say 20% net earnings after market wages), 40 do ok get by, 50 fail to deliver or fail outright. Now in that 10 cohort that are very successful maybe 1 of those would be from a side hustle. Fewer resources (money and founder time / focus / attention) means less progress.

Now it would be great if you were to become that 1 in 100 that does exceptionally well from humble beginnings in your garage / home office. Can a good advisor make a difference – if you are giving it a red hot crack and it’s a decent idea then yes it can.

Best of luck with it.

• This reply was modified 2 years, 11 months ago by James Millar.
• This reply was modified 2 years, 11 months ago by James Millar.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

[moodycharles037]

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Whichever way your go David, I wish you all the best for your venture. Be sure to let us know how you get on once you’ve been trading for a while!

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