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5 Reasons Why Small Businesses Need an Accounting Firm

Running a small business can be overwhelming and time-consuming. With the help of an accounting firm, small business owners can simplify their finances and make sure that their company is running efficiently. Here are five reasons why small businesses need an accounting firm.

1. Access to Professional Financial Advice

As a small business owner, it’s important to have a good handle on your finances. An accounting firm can provide professional advice on tax planning, cash flow management, and budgeting. This can be extremely helpful in making sure your business is on the right track.

There are a few things to keep in mind when working with an accounting firm. First, be sure to ask plenty of questions. It’s important that you understand the advice they’re giving you, and how it will impact your business. Second, don’t be afraid to negotiate. Many firms are willing to work with you on pricing, so don’t be afraid to ask for a better deal. Finally, make sure you’re comfortable with the firm you choose. You’ll be working with them closely, so it’s important to make sure you’re compatible. If you’re looking for professional advice on how to run your small business, an accounting firm is a great resource.

2. Improved Cash Flow Management

Accounting firms can help small businesses manage their cash flow more effectively. They can provide advice on budgeting and cash flow forecasting, as well as help set up systems to make sure that payments are received on time.

3. Reduced Risk of Mistakes or Errors

When it comes to finances, there is no room for error. This is especially true for small businesses, who may not have the resources to weather a financial mistake. This is where an accounting firm can help.

An accounting firm can help minimize the risk of financial mistakes. They can help small businesses stay on top of their taxes, ensure accurate accounting records, and provide guidance to ensure that the business remains in compliance with applicable laws.

4. Increased Efficiency

An accounting firm can help small businesses streamline their processes. They can set up systems to automate certain financial tasks, such as billing, invoicing, and payroll. This can save small businesses both time and money.

5. Peace of Mind

As a small business owner, you have a lot on your plate. You’re responsible for keeping your business running smoothly, achieving your goals, and growing your business. This can be a lot to handle, and it’s easy to get overwhelmed.

One way to ease the burden and take some of the stress off of your shoulders is to work with an accounting firm. Having a team of professionals to handle your finances and keep your books in order can give you peace of mind and help you focus on what’s important.

Conclusion

Overall, an accounting firm can be a valuable asset to small businesses. They can provide professional advice and help streamline financial processes. This can save small businesses time and money, while also giving them peace of mind. Working with an accounting firm is an important step for any small business owner.

If you’re looking for a reliable tax consultant, then you’ve come to the right place. SMB Accounting is fast becoming one of the leaders in Australia when it comes to providing accounting services. As an accounting firm serving Brisbane, Sunshine Coast, and Fraser Coast, we help clients by providing business advice, taxation, and XERO/MYOB/Quickbooks consulting. Whenever you need help managing your income tax returns or keeping your finances in check, SMB Accounting is the one to call. Contact us today to get started.

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13 Ways a Good Accountant Can Improve Your Business

As a business owner, you must understand the importance of small business accounting. An accountant can help you manage your finances, stay compliant with taxes and regulations, and make more informed decisions about your business. But a good accountant can do more than just crunch numbers. They can provide valuable advice and insight into your business operations, helping you make the most of your resources and improve your bottom line.

Here are 13 ways a good accountant can help improve your business.

1. Help You Create a Budget

A good accountant can help you create a budget tailored to your business. They can also advise on managing your finances to maximise profits.

2. Prepare Financial Statements

A good accountant can prepare financial statements that will help you analyse the behaviour of your business. This is important for setting objectives and making strategic decisions.

3. File Taxes

A good accountant can help you file your taxes quickly and accurately. This is an essential task for any business and can save you time and money.

4. Analyse Financial Data

A good accountant can analyse your financial data to help you make enlightened decisions about your business. They can also provide advice on how to maximise profits and minimise losses.

5. Provide Cost-Cutting Strategies

Good accountants can help you identify areas of your business that may be overspending or inefficient. They can advise on how to streamline processes and reduce costs, helping you maximise profits.

6. Manage Cash Flow

Accountants can help you manage your cash flow and ensure you’re meeting all of your financial obligations. They can also advise better management of your accounts receivable and accounts payable invoices.

7. Negotiate with Vendors

A good accountant can help you negotiate with vendors to get the best product and service prices. This can save you money and help you stay competitive.

8. Identify Tax Savings

A good accountant can help you identify tax savings that you may need to be aware of. This can help you reduce your overall tax burden and save you money.

9. Monitor Financial Trends

A good accountant can help you monitor financial trends and advise how to adjust your business strategy accordingly. This can help you stay ahead of the competition.

10. Help with Business Expansion Planning

If you’re looking to expand your business, a good accountant can provide valuable insight into the best way to do so. They can help you evaluate potential investments and weigh the pros and cons of different expansion strategies.

11. Prepare Financial Reports

A good accountant can prepare financial reports that will help you understand the performance of your business. This is important for making strategic decisions and setting objectives.

12. Provide Financial Advice

A good accountant can advise on how to make the most of your finances. They can also advise on managing your finances to maximise profits and minimise losses.

13. Help with Fraud Prevention

Accountants can help you identify potential fraud or other financial risks that could put your business at risk. They can advise how to protect your finances better and safeguard your assets.

Conclusion

Having a good accountant can help improve your business in many ways. A good accountant can help you keep track of your finances, help you save money on taxes, provide advice on investments, and create financial plans for the future. By having a good accountant, you can ensure that your organisation is running smoothly and efficiently and that you are taking advantage of all the available opportunities to increase profits.

SMB Accounting is the perfect choice for all your small business accounting needs. We offer individual tax returns, small business accounting with various packages available, SMSF audits, and Xero accounting software-based accounting services. All our services are handled by experienced and qualified professionals who thoroughly understand accounting principles. Contact us today.

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9 Things You Can Refund From Your Work Travel Expenses

Regarding work travel expenses, it can be challenging to know precisely what you can and can’t get reimbursed for. Fortunately, a few standard fees can be refunded, depending on the company’s policy. 

You can get reimbursed for these nine things from your work travel expenses as long as they’re included in the company’s audit process:

1. Airfare

Airfare is typically one of the most expensive parts of any work trip, so it’s essential to make sure you are reimbursed for this expense. Many companies will provide you with a travel voucher or credit card to pay for your flight and then refund you for the cost.

2. Lodging

Depending on the company, you can get reimbursed for your lodging expenses. This could include the cost of a hotel, Airbnb, or other lodging arrangements. Be sure to check the company’s policy to make sure you are within the allowed limits. For example, if you need to stay in a hotel while travelling for work, you can get a refund for the cost of your stay. You will need to keep your hotel receipts to send to your company.

3. Incidentals

Incidental expenses, such as parking fees, internet access, and other costs you may incur while travelling, can typically be reimbursed. Be sure to save any receipts for these expenses to be refunded.

4. Business Supplies

You can be reimbursed for these expenses if you need to purchase any supplies for your work trips, such as office supplies or business cards.

5. Transportation

You can be reimbursed for the cost if you need to take public transportation, such as a bus or train, to get to your work destination. Be sure to save your tickets or receipts to be reimbursed.

6. Meals

Depending on the company policy, you may be able to get a refund for meals while travelling for work. Some companies provide meal allowances or reimbursements for meals purchased while on the job. Remember to compile all receipts and any paperwork related to meals so you can submit them for reimbursement.

7. Car Rental

If you need to rent a car while travelling for work, you can get a refund for the rental cost. Many companies will reimburse you for or at least part of the rental. Compile all your receipts and run them for the company audit process. Wait for it to be refunded.

8. Parking Fees

You can get a refund for the cost of the parking and let it run on your company’s audit process. The companies will reimburse you for the parking, or at least part of it. Keep all your receipts and any paperwork related to the parking so you can submit them for reimbursement.

9. Conference Fees

Suppose you attended a conference or seminar connected to your job. Be sure to keep any receipts from the conference and submit them for reimbursement.

Conclusion

When it comes to working travel expenses, there are a few ordinary expenses that can be refunded. Be sure to check your company’s policy on reimbursement to make sure you are within the allowed limits. You can ensure you get the most out of your work travel expenses with the correct information.

SMB Accounting offers a range of services for small businesses, from individual tax returns to small business accounting, SMSF audits, and Xero accounting software-based accounting. With competitive rates and flexible payment options, our business is suitable for anyone looking for a reliable and efficient audit process and accounting service. Contact us today!

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5 Important Factors to Consider When Hiring a Tax Accountant

Tax season can be a stressful time for individuals and businesses alike. With the ever-changing tax laws, filing taxes can be a complicated and time-consuming process. That’s why it’s important to find a qualified tax accountant who can help navigate the complexities of the tax code. But, with so many options available, how do you know which tax accountant is the best for you? To make the decision easier, here are five important factors to consider when hiring a tax accountant. 

1. Credentials

The first and most important factor to consider when hiring a tax accountant is their credentials. Make sure the accountant you hire has the necessary qualifications and certifications. The most common qualifications include a Certified Public Accountant (CPA) or Enrolled Agent (EA). A CPA is a professional who has passed the CPA exam and is licensed to practice public accounting. An enrolled agent is a federally-authorized tax practitioner who has demonstrated expertise in tax law. 

2. Experience

When it comes to taxes, experience is everything. You want to make sure that the tax accountant you hire has the necessary experience to handle your unique tax situation.

Ask about their experience in filing taxes for individuals, businesses, or both. Additionally, ask about the types of tax situations they’ve handled in the past. This will give you a good idea of whether or not they’re up for the task.

It’s also important to choose a tax accountant who is familiar with the tax laws in your state. This will ensure that they can provide the best possible advice and service.

3. Reputation

Before hiring a tax accountant, it’s important to do your research and find out what others have to say about them. Check out online reviews and ask for references from past clients. This will give you a better idea of the quality of service the tax accountant provides.  You should also ask for referrals from friends or family. If someone you trust has had a good experience with a particular accountant, that’s a good sign.

4. Cost

Cost is another important factor to consider when hiring a tax accountant. Ask for a quote before hiring to make sure that their services fit within your budget. Also, make sure to inquire about their payment policies. You want to make sure that you understand the full cost of the services before signing any contracts. 

5. Communication

Finally, it’s important to ensure that the tax accountant you hire has good communication skills. After all, they will be responsible for helping you make important decisions regarding your taxes. Make sure that the accountant you hire is someone you feel comfortable discussing your financial situation with.

Conclusion

We hope this article helps you gain a better understanding of how to hire the right accountant. These are five important factors you should consider when hiring a tax accountant. It’s important to take your time and

If you’re looking for a tax consultant, then you’ve come to the right place. SMB Accounting is fast becoming one of the leaders in Australia when it comes to providing accounting services. As an accounting firm serving Brisbane, Sunshine Coast, and Fraser Coast, we help clients by providing business advice, taxation, and XERO/MYOB/Quickbooks consulting. Whenever you need help managing your income tax returns or keeping your finances in check, SMB Accounting is the one to call. Contact us today to get started.

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ATO Audit Triggers to Be Aware Of

When people hear the words “ATO Audit,” they usually either try to ignore it or take immediate steps to respond to the situation.

What many do not know is that being aware of the details you include in your tax return is essential to avoiding an ATO Audit. Doing your taxes accurately and honestly is the best way to ensure that you don’t invite attention from the ATO. Being proactive and meticulous with your tax return will help give you a good standing with the ATO and, hopefully, prevent an audit.

It is important to be mindful of your tax documents and ensure that everything is accurate and up-to-date. Double-check that all your information is correct and that you have the necessary documents needed before submitting anything to the ATO. As the ATO has shifted away from its more lenient approach to compliance, errors on your forms could lead to costly consequences. Be sure to double-check everything and make sure you are up-to-date with the latest regulations.

There are many ATO audit triggers. However, we would like to focus on the major ATO audit triggers: data-matching and ATO prefilling. Here, our tax consultant shares some of the things for you to take note of about what triggers an ATO audit:

Data-Matching

Data-matching is a process used by the Australian Taxation Office (ATO) to detect inaccuracies or discrepancies between data reported by taxpayers and data held by third parties including banks and employers. This data-matching process helps the ATO identify any potential non-compliance with taxation obligations.

Data-matching is a key ATO audit trigger. This is when the ATO matches information received from third parties, such as banks, employers, and other government agencies, to the information you provided on your tax return. If there is a discrepancy between the two, the ATO will investigate further.

To prevent an ATO audit due to data-matching, it is crucial to ensure that you accurately and honestly report all income, deductions, and other relevant information on your tax return. In addition, make sure you are paying the correct tax on all income and that you are not claiming deductions you are not entitled to.

Suppose the ATO believes there is a discrepancy between the information provided by a taxpayer and the information held by the third party. In that case, they may undertake an audit to investigate the matter further.

ATO Pre-Filling 

Another ATO audit trigger is ATO prefilling. This is when the ATO prefills your tax return information based on data from third parties. This data includes income, deductions, and other relevant information. The ATO may investigate further if there is a discrepancy between the information you provided and the prefilled information.

To prevent an ATO audit due to prefilling, it is important to review the prefilled information carefully and ensure it is accurate. If there are any discrepancies, you should contact the ATO and provide supporting evidence to explain the discrepancy. 

Conclusion

Data-matching and ATO prefilling are two important ATO audit triggers. It is crucial to ensure that all information on your tax return is accurate and honest and that you are paying the correct amount of tax on all income. Additionally, be sure to review the prefilled information carefully and contact the ATO if there are any discrepancies. Following these tips and working with a reliable tax professional can help you avoid an ATO audit.

SMB Accounting’s tax consultant can guide you and help ensure that you won’t face an ATO audit or, if you already are, that you’ll be taking the right steps so you can sort things through with the ATO. Contact us today to learn more about our services!

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5 Reasons Why Your Business Needs a Financial Audit

Financial audits can provide your business with a variety of benefits. Not only do they help to ensure that your financial records are accurate and up-to-date, but they also allow you to identify areas where you may be able to improve your processes and save money. Here are five reasons why your business needs a financial audit.

Compliance

As a business owner, it’s important to stay compliant with government regulations. One way to do this is to get a financial audit. This will help ensure that your financial records are accurate and up-to-date.

A financial audit can be conducted by an external auditor or by an internal auditor. Either way, the goal is to examine your financial records to see if they are accurate and in compliance with any applicable regulations.

The auditor will review your financial statements and supporting documentation. They will also test your internal controls to see if they are effective. After the audit is complete, you will receive a report that outlines any areas of concern.

Getting a financial audit is an important part of complying with government regulations. By having your financial records audited, you can ensure that you are in compliance with any regulations that apply to your business.

Fraud Detection

Audits can help to detect any fraudulent activity or discrepancies in your financial records. This is especially important for businesses that handle sensitive data or have a high level of financial transactions.

Tax Preparation

Audits can help to ensure that your business is in compliance with tax regulations and can help to ensure that you are taking advantage of any available tax deductions or credits. Overall, audits can be a valuable tool for businesses. They can help to ensure compliance with tax regulations and can uncover potential areas of improvement. If you’re facing an audit, stay calm and cooperate with the auditor. Be prepared to provide documentation and answer any questions that the auditor may have.

Efficiency

Audits can help to identify areas of inefficiency in your financial processes. This can help you to streamline your processes and save money over time. For example, if you are manually processing invoices, an audit can help you to identify ways to automate the process. This can save you time and money in the long run. Similarly, if you are using outdated software, an audit can help you to identify ways to update your system. This can also save you time and money in the long run.

Investor Confidence

Investors will often require a financial audit before investing in your business. Having an audit completed can help to instill confidence in potential investors and increase the likelihood of securing investment.

Conclusion

Overall, financial audits can provide a variety of benefits to your business. They can help to ensure compliance with government regulations, detect fraud, prepare for taxes, identify inefficiencies, and instill confidence in investors. If you have not had your financial records audited recently, now is the time to do so.

If you’re looking for help with the audit process, then you’ve come to the right place. SMB Accounting is fast becoming one of the leaders in Australia when it comes to providing accounting services. As an accounting firm serving Brisbane, Sunshine Coast, and Fraser Coast, we help clients by providing business advice, taxation, and XERO/MYOB/Quickbooks consulting. Whenever you need help managing your income tax returns or keeping your finances in check, SMB Accounting is the one to call. Contact us today to get started.

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Helpful Advice to Apply to Your Tax Return Preparation

It pays to put in a little time and effort to make sure you have every detail of your return correct and that you have avoided some of the more common traps that people tend to fall into. 

This is important, knowing that 84 per cent of taxpayers expect a refund and the average size of refunds last year reached close to $3,000.

Below are the best tips for doing your taxes correctly this year.

Make an Eligible Claim

Any expense you incurred in generating your income is eligible for a deduction. So don’t be afraid to claim an expense if you’ve incurred it for work-related reasons and have the supporting documentation.

Avoid Overstating Deductions

Only the amount you spent may be claimed. Therefore, only deduct expenses that you can show you paid for by providing an invoice, receipt, or bank statement, and avoid inflating deductions to get a higher refund.

Self-lodgers using the ATO’s myTax programme are watched by the ATO’s computer systems while preparing their returns to ensure they aren’t overclaiming. The ATO’s computer systems compare your claims to those of people with similar circumstances. 

If your claim raises red flags, myTax will issue a severe warning and encourage you to reconsider that deduction. If you disregard the warning, an audit may be coming your way.

If it turns out that your deduction claims were false, you’ll have to pay interest on top of the tax you could have avoided. The interest levied by the ATO is determined on a daily compounding basis and is based on the rate for 90-Day Bank Accepted Bills, but with a 3 per cent uplift factor. 

A penalty of 25 per cent to 95 per cent of the tax evaded may also be imposed if the ATO thinks you acted irresponsibly.

Use Caution When Using Pre-Filled Data from the ATO

You may pre-fill a lot of your income information directly from the ATO’s computers with the click of a button. However, be cautious and avoid assuming that income data is accurate or comprehensive. 

Always utilise your own data as the primary source. Some individuals believe that since the data is from the ATO, it must be accurate. That is a perilous supposition.

Even though you copied the data directly from the ATO’s pre-filled data, the legal responsibility will fall on you if you omit income and the ATO questions you.

Note the Basics

The ATO holds up a lot of tax returns because people make simple errors like this. Inform the ATO of any name or address changes before filing your return. 

The ATO won’t be able to connect it with your Tax File Number if you lodge under different details. There will be delays.

You must include your bank information on your return since the ATO no longer mails refund checks. Also, your return may disappear into thin air as the ATO manually matches your information if you accidentally typed an extra letter into a crucial field like your name.

Conclusion

Taxes are complicated, which is why 74 per cent of Australians use a tax professional to complete their tax returns. If you file your tax return incorrectly, you could face penalties from the ATO or a smaller refund.

The majority of consumers find it much less stressful to simply provide their tax agent with all the information they need, trusting that the agency will complete their return accurately and completely. 

A seasoned agent will typically be adept at spotting those elusive tax deductions you didn’t know you could claim, so they can frequently more than pay for themselves.

SMB Accounting is here if you need help with tax returns in Sunshine Coast. We can do your individual tax returns, small business accounting with various small business accounting packages available, SMSF audits, and more. Call us today to get started.

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Your Tax Return – Is it Correct?

Given that 84% of Australian taxpayers anticipate receiving a refund and the average size of returns exceeded $3,000 the previous year, it is in your best interest to double-check that your tax return is correct in every way.

Read on to discover more about tax returns and how to (finally) do it right this time around.

Assess Your Claim to What Is Legitimately Yours

Any expenditure that generates a profit can be deducted as a business expense. You should file a claim for any work-related expenses for which you have documentation. Most taxpayers are permitted to deduct expenses related to automobiles, travel expenses for work, and costs of equipment and work tools.

By speaking with an experienced tax accountant, you can lessen your chances of getting audited by learning which deductions are legal and which are not.

Skip the Dramatics, and Don’t Exaggerate

Only expenses are allowable deductions from taxable income. In order to earn a higher return, do not inflate your deductions; instead, ensure that any charges you claim can be proved by an invoice, a receipt, or a bank statement.

Self-declarants who use myTax are scrutinised by ATO computer systems to ensure they are not filing an excessive number of claims. If your deduction generates a warning, myTax will prompt you to reconsider accepting it. If you choose to disregard the notification, you risk being subjected to an audit.

If the deductions you claimed were incorrect, you must repay the tax as well as any relevant interest. The ATO calculates daily compounded interest at a rate equal to the 90-Day Bank Accepted Bill rate plus three percentage points. If the Australian Taxation Office (ATO) deems that your acts were negligent, it may levy a penalty ranging from 25% to 95% of the tax evaded.

Avoid Using ATO-Prefilled Data

At the moment, ATO’s computers can pre-populate a substantial amount of information regarding income. However, don’t assume that income data is correct or complete. Always rely on your own knowledge and firsthand information. Some people believe ATO data is reliable, but this is simply a dangerous assumption to make.

Even if you utilised pre-filled information on your tax return, you could face legal consequences if you disguised income and were later questioned about it by the ATO.

Focus On Everything, Especially the Essentials

The Internal Revenue Service can delay the processing of many tax returns due to trivial errors.

For example, if you’ve lately relocated or changed your legal name, make sure that before filing, you notify the Internal Revenue Service. If you use distinct information, the ATO will be unable to match your tax filing number.

Another example is if you have not provided bank account information. Because the ATO is unable to ship refund cheques at this time, make sure you give your bank account information. Otherwise, you don’t get the refund.

Furthermore, let’s talk about typos. If you add a letter to a required field, such as your name, the ATO will manually match your information. For example, if you add a letter to the “address” field, it will be automatically disregarded or ignored.

Do It Right with a Professional

Giving their information to a tax professional who will prepare their return in an accurate and comprehensive manner relieves the great majority of clients’ stress. When you hire a good agent, they should be able to identify hidden tax deductions that you were not aware of, resulting in the agent more than paying for themselves. Tax preparation fees are tax deductible!

Conclusion

It’s true that the Australian tax system is so convoluted that many people get confused. Thankfully, we can hire the services of a trusted professional tax agent. By learning with a professional, you can do your taxes right again and again!

Are you in need of a tax professional’s guidance? SMB Accounting is here to manage your finances, including your taxes. Work with us today!

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What Can You Invest Your Self-Managed Super Fund in?

An SMSF is a retirement savings account that allows Australians to invest in a broader range of assets than a traditional superannuation fund. The benefits of an SMSF include controlling your retirement savings and investing in a mix of assets that align with your financial goals.

1. Properties

If you’re looking to invest in real estate through your self-managed super fund (SMSF), there are a few things you need to know. SMSFs can invest in commercial and residential property, but some rules and restrictions apply. 

For example, an SMSF cannot purchase a residential property from a related party of an SMSF member, and the property cannot be lived in or rented by a fund member. Additionally, your SMSF can only purchase your business premises if you pay rent to your SMSF at the market rate. 

When borrowing to purchase property, lenders usually allow self-managed super funds to borrow up to 70-80 per cent of the property’s value. However, they generally require the SMSF to have a company as a trustee rather than individuals.

2. Shares

Your SMSF can invest in a wide range of assets, including shares, property, managed funds, term deposits, and cash. The earnings on these investments stay within your SMSF and go back into accumulating more wealth. For example, the rent from your property is deposited into your SMSF bank account along with interest on your term deposit and dividends from your shares. This allows you to grow your wealth without paying taxes on the earnings. 

Making money through investing in the stock market can be very profitable, but it is important to always research before investing. A good way to start is by investing in various market sectors, such as banks and resource companies. This will help to spread the risk. 

Another good option is to invest in blue-chip stocks, which are stocks of larger, more established companies. This can provide a solid foundation before diversifying further with international shares or exchange-traded funds (EFTs).

3. Cash and Term Deposits

A term deposit is a way to invest your money for a fixed period and earn interest on that investment. Most banks offer term deposits specifically for self-managed super funds, a low-risk way to earn more interest than you would in a savings account. However, you can only withdraw your money from the term deposit at the end. A high-interest savings account is still useful for easily accessible funds.

4. Collectables

Collectables are valued for their rarity, historical significance, or aesthetic appeal. This includes artwork, jewellery, antiques, cars, coins, and memorabilia. In 2016, more restrictive rules were introduced for investing in collectables through an SMSF. This means that fewer SMSFs are investing in collectables now. Understand the rules if you’re considering adding collectables to your SMSF portfolio.

Conclusion

A self-managed super fund can be a great way to invest for retirement. Various investment options are available, and the best option will depend on each individual’s circumstances. However, all self-managed super funds should be diversified to minimise risk.

SMB Accounting does Individual tax returns, small business accounting with various small business accounting packages available, SMSF audits (self-managed super funds) as well as a Xero accounting software-based accounting business. We are your trusted partner when it comes to tax returns and superannuation. If you want to know more about SMSF tax benefits, get in touch with us today! Let us know how we can help.

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What is a Profit & Loss Statement

The profit and loss statement (P&L) is a financial statement that shows your company’s income and expenses over a given period of time. It’s also known as the income statement or the income & expense report. The P&L compares how much money you brought in with how much money you spent during a specific period of time, usually one month or quarter.

Profit and Loss statement

A profit and loss statement, or P&L, is a financial statement that summarizes a company’s revenues, expenses and net income for a given period of time. It’s also called an income statement.

The P&L summary shows you how much money your business made or lost through sales revenue (revenue) minus expenses (costs). The bottom line is the net profit, which can be positive or negative depending on whether your total revenue outweighed your total costs.

Profit & Loss Statement Example:

Income

Income is the money that comes in to a business. Income can come from sales of products or services, and may include interest, dividends and other types of income.

It’s important for you to be able to identify where your income comes from so you can make sure you’re getting as much revenue as possible out of each sale. You can break down your income by category (for example: product A sold X units; product B sold Y units), by period (for example: Q1 versus Q2), or even by customer (for example: John Doe purchased X number of products).

Sales

Sales are the total amount of money your company brings in from customers. Sales are the result of your company’s marketing efforts, pricing strategy and product or service offerings.

Sales can be broken down into four main categories:

  • Gross sales – The amount of money that comes in before any discounts have been applied to it. For example, if you sell something for $1,000 but give a 20% discount; gross sales would be $1,000 (not $800).
  • Net sales – The amount of money that comes in after all discounts have been applied but before taxes have been paid. For example if you sell something for $1,000 which has a 20% discount; net sales would be $800 after tax (not $840).

Financing

Financing is the money you borrow to start or grow your business. Financing can be in the form of a loan or a line of credit.

Financing allows you to buy inventory and pay for other expenses. Financing is usually paid back over a period of time, though it may be paid back immediately if it’s an unsecured line of credit.

Other Income

Other Income is any income that is not part of the normal operations of your business. Examples of other income include interest earned from a savings account, rent received, or money you receive for selling an item on eBay.

To report other income on your P&L, you can use one of two options:

  • The Accrual Method – This method records all revenues when they are earned and deducts expenses when they are paid (or accrued). You can learn more about the accrual method here.
  • The Cash Method – This method records revenues when cash is received and deducts expenses as soon as they occur (when you pay them). You can learn more about the cash method here.

Expenses

An expense is a cost that is incurred in order to generate revenue. You can broadly categorize business expenses into two types: direct and indirect. Direct costs are those that can be specifically identified with a product or service, while indirect costs cannot be so easily attributed.

Direct expenses include things like the cost of raw materials used in the production process and salaries paid to employees who work directly on a project or product. On the other hand, indirect expenses are related to overhead costs such as rent, utilities and office supplies; they’re associated with operating your business but aren’t directly linked to any one specific product or project (e.g., if you have an administrative assistant who works on sales tasks as well as accounting work).

Fixed vs variable expenses

Fixed costs are those whose rates do not change over time—they remain at exactly the same amount every month regardless of your volume of activity during that period (e.g., rent). Variable costs fluctuate depending on how many units you sell each month—the more products sold per month means higher variable expenses (e.g., packaging materials for each unit).

COGS/Cost of Goods Sold/Inventory

COGS is the cost of goods sold, or the inventory on hand. It is also called Cost of Goods Sold and Inventory. When you buy raw materials, receive them in your warehouse, process them into finished products and sell those products to customers, this figure will be used to calculate your profitability (or lack thereof).

Marketing & Promotions

So, what does all that mean? Well, a Profit & Loss Statement is an overview of your company’s financial performance. It breaks down revenue and expenses so you can see how much money you’re making or losing. The first section of the statement is Marketing & Promotions.

Marketing is one of the key drivers of revenue in any business because it helps customers find you and buy your products or services. But marketing isn’t just advertising—it’s also customer relations and public relations (PR).

Marketing can be divided into three main categories: consumer-facing marketing; business-to-business (B2B) marketing; and branding through corporate social responsibility (CSR), sustainability initiatives, etc., which I refer to as integrated communications.

Salaries & Benefits (including Contractors)

Salaries & benefits are a cost of doing business. They include salaries, bonuses, 401k contributions and any other benefits you provide employees (such as health insurance).

Salary: This is the amount you pay your employees. If you have contractors or subcontractors who work with your company but don’t make up a significant part of your workforce, then they would be considered “contractors” here (more on that later).

Rent, Utilities, and Insurance

As a business owner, you’ll want to know what your rent, utilities, and insurance costs are. These three items make up a significant portion of your ongoing expenses as a small business owner. To calculate them:

  • First add together all of the monthly payments that you make for these services. For example, if you pay $2,000 in rent each month and $200 in utilities each month, then your total monthly payments for these two things would be $2,200 ($1,400 + 600 = 2200).
  • Next divide this number by 12 to get an average monthly cost per year (2200 / 12 = 175).
  • Finally multiply this amount by 100% to arrive at a percentage of total expenses (175 * 100% = 175%).

Interest paid on debt or financing including any fees associated with the loan or line of credit.

The interest paid on debt or financing, including any fees associated with the loan or line of credit. This is a cost of doing business, and it will vary depending on the type of loan you take out.

A Profit & Loss Statement is a document that reports your company’s financial performance over a specified time period.

A Profit & Loss Statement is a document that reports your company’s financial performance over a specified time period.

You can use this statement to calculate how much money you made or lost during the given time period.

Conclusion

Profit and loss statements provide a snapshot of your business’s financial performance over a given time period. In addition to showing how much money you made or lost, they provide insight into your company’s expenses and income sources so that you can make informed decisions about future financing needs, inventory levels, pricing strategies and more.

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