Author Alan Maddick 5th Feb 2020
I have been an Accountant for a while now and part of my role in MAS Tax Accountants (a national Accounting network with over 15,000 clients) I worked very closely with the ATO in the audits they conducted at the firm. Of course with so many clients you see many and varied things including poor record keeping, poor systems and occasionally very deliberate tax fraud. In many cases after an Audit the business in question is closed or sold within a year – why? They cannot afford to pay the back taxes, fines and interest involved.
The main reason things went wrong for most of these clients was just bad planning and establishment of systems, basic things like keeping tax invoices, setting up good bookkeeping systems and hiring employees as employees and on the right hourly rates! Lets have a look in a bit more detail at the main issues I have seen close businesses down;
- Records – you need good records. In today’s world there is no excuse, systems like Xero and Quickbooks Online do so much of the bookkeeping for you. Good records will tell you key things like if you are making money and how much, how much of the money in the bank is yours and how much belongs to the tax office. Good records are also the key to making a tax audit go away quickly and painlessly.
- Sham contracting – what do I mean? Hiring someone “on ABN” or as a “Contractor” when really they should be an employee. While hiring people on ABN is common in many industries (for example building and construction, hair and beauty, transport and logistics) just because its common does not mean its legal! In many cases a contractor has the same legal rights as an employee so you may be liable for super, workcover even annual leave! If you have have a few contractors this potential liability can quickly run into big numbers.
- Poor employment practices – Paying people the wrong pay rates, not paying them for overtime, not paying super on time or not paying at all. Any of these issues can quickly bring a good business unstuck, just look at George Calombaris’ Hellenic Republic (sold to pay fines and unpaid wages) or Heston’s Melbourne restaurant Dinner by Heston which has just been put into liquidation as they cannot pay the back pay of wages that an exhaustive Fairwork audit has found owing.
In my experience in businesses that go under for whatever reason (cashflow, ATO Audit, owners have had enough) there are major issues in one or two of these 3 key areas. While businesses that have these key areas under control tend to run there business for a long time and with a lot of enjoyment and profit.
If you want help setting up your business for success we are here to help! If you are already in trouble with this stuff we are also here to help!