APL Accounting News September 2015
Are you getting the correct advice from your business mentor?
Business mentors are useful, and they excel in many areas:
- sales and marketing
- discussing new ideas and shifting your perspective (mindset changes and a sounding board for new ideas are vital to many business owners)
- keeping you focused and accountable, particularly if you are a personality type that tends to stray from your game plan
But, unless there is some formal financial or accounting qualification and a sound knowledge of tax, financial advice from unqualified parties should be approached with some caution.
Perhaps this is best explained with a true story:
Dr X has a successful practice and he engaged a business mentor to help get him to the next level. The business coach was surprised that in the financial statements, Dr X only took a wage of $50,000. Surely Dr X with his 2 million turnover practice and working a 40 hour week was worth more than this!? Of course, the fact that Dr X did not collect a fair wage made it very difficult to track how the business was doing.
For these reasons, the coach advised that Dr X should take his true worth out as a PAYG wage every fortnight and pay himself $120,000 in the year. This would make his business profits easy to track and Dr X would receive his fair wage in the same manner as if he were working for someone else – it made total sense!
When Dr X then went to his accountant after the end of the financial year the following issues were brought to his attention:
Why on earth did he pay himself a wage through PAYG! – He operates through a trust and his income could have been distributed in a much more tax efficient manner to his non-working spouse and children who were at university and low income earners! Now it was too late, with the wages being declared and submitted to the ATO, there was no turning back. So let’s work out the cost to DR X of inexperienced financial advice:
Two adult children and spouse given $18,000 each tax free leaving him a taxable income of $66,000 and around $13,000 tax to pay.
Instead he paid tax himself on the full $120,000 – around $32,500 tax, a difference of nearly $20,000!!!!
Yes, that’s $20,000 literally down the drain!
Many of you have tax planning with us, the purpose of tax planning in May is partly to budget for your upcoming tax bills but more importantly to identify ways you can minimise the tax you pay.
Often this will save you $20-30,000 in tax due to some tax minimisation techniques. Unfortunately, this also skews your Profit and Loss. At this point you have two choices – don’t have the tax planning, don’t minimize your tax and pay an additional $30,000 in tax. OR, let’s face it, take the sensible option, pay as little tax as possible and let a financial/tax professional explain to you how your business is doing in terms of the financial statements. If at this point you have a business mentor who cannot identify the tax entries and interpret your financial statements in this format, don’t fret this isn’t what they should be used for, keep them for what they’re good at – keeping you motivated and accountable. Don’t be influenced by somebody on how to keep your financials unless they have the expertise to advise you and have professional liability for their financial advice.
What’s more, when we do your annual benchmarking and reporting which is currently underway, we painstakingly sit and go through all your Profit and Loss items to remove these ‘tax minimisation items’ to give you a true picture of how your business really performs. This is often not as easy as we make it sound, and takes a fair bit of accounting and tax knowledge to get right (and 6-8 hours of professional input).
In fact the whole end of year benchmarking and reporting process we do for you is not dissimilar to a business valuation which is charged by other accounting firms at $3,000- $5,000 and which is known for its intricacies.
We then go through the end of year report with you every year and supply an individualised strategic plan for the entire year. This is based on sound knowledge of both your accounting AND how you run your veterinary business. So you will get the true business performance picture from us (with the tax stuff removed).
‘To reward or not to reward, that is the question?’
Zack is a dog who is a couch potato and has an unusual life experience. His owners who were once exciting vets have now become boring accountants. They used to bring him into the exciting vet practice every day, now they bring him into a boring accounting office every day. This gives him a unique dog’s eye view on both professions.
Pictured above taking a ‘Power Nap’ at APL Head Office!
Learning by reward is something I, as a canine, have a lot of experience in. However it appears that humans are slightly different in this respect, so I’m all up for learning what it would take to train my owners better!
To this end I have done some research on human motivation and what should work.
This is currently a hot topic in the veterinary industry with the subject of paying staff commissions becoming very popular. So here are some interesting articles from very reputable sources (Harvard, Dan Pink) saying that it may not be such a good idea (if these links do not work in your email, just cut and paste them into your browser address):
I personally have always been very nervous about commission based rewards, and sticking to my guns here at the APL office, I would rather use ‘intrinsic motivators’ to keep our human staff engaged until such time as we discover more than one or two successful commission based schemes that actually translate into increased profits (to date we have not found a single one that does!).
On the other hand, businesses that use intrinsic motivators such as offering job satisfaction, a nice work environment and personal progression seem to perform better.
Does this mean that you don’t have pay your team well? Of course not! Good team members should be paid very well, but the job is a package, not a bag of money. Changing the perception and creating a reliance on the ‘bonus’ pay cheque appears to be risky business – and the articles above show that I’m not the only one who thinks this.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. In particular, please note that ‘Zack’ is a dog and does not have opposable thumbs so has to type with his nose.