So You Want to Be an Independent Contractor

 

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Confused about what it means to be an Independent Contractor?

Maybe you are working for a business but you want to start your own business.

Maybe your employer has suggested that you could work at home, and they will change your status to that of an Independent Contractor.

Before you make this change, you should know about some of the pros and cons of working independently.

Benefits

  1. Independence. You may be able to work your own hours from whatever location you choose depending on the type of job.  You should be able to negotiate pay rates and a payment schedule.  You will have to keep records required by your host business such as timesheets etc.
  2. No Tax Withholding. Some people consider it a benefit that the payments you receive as an independent contractor don’t have income tax withheld.  This can be a curse if you don’t put away funds to cover this debt.  It will come home to roost every year.
  3. Deducting Business Expenses. Expenses you pay to run your independent contractor business are tax deductible.  Check what is and is not an “approved expense”, never assume.
  4. An Increase in Earning Potential.  Generally contractors are paid on an hourly or daily basis are paid every hour/day they work, unlike employees who are paid a salary. Contractors doing the same job of a full time employee, typically find themselves earning more money than their permanent counterparts.

Drawbacks

  1. No Guarantee of Income. Being independent also means you don’t get a regular paycheck. If you are lucky enough to work for one or more clients who pay you regularly, that’s great.  Manage your cash flow and have a slush fund to cover you through lean times.
  2. Missing Out on Basic Entitlements: Being an independent contractor, you have to surrender the right to entitlement such as sick leave and annual leave. This means it is up to you to make provisions for time of illness and holidays/down time in between contracts.
  3. You Still Pay Taxes. As an Independent Contractor, you still have to declare all the income from your work and you still must pay taxes and any other levies required on that income.
  4. More Administrative Work.  As an Independent Contractor, managing paperwork, tax and administration (e.g. invoicing clients, chasing up account receivables etc.) can be a little time consuming.

TIP:  An Independent Contractor can have a contract.  Get a written contract from each person or business you work for.  Having a contract spells out “what happens when.” Having a contract can settle many disputes before they start, and you can take a contract to court to get paid, if necessary.

If you need further guidance on the benefits and drawbacks of being an Independent Contractor, consider a consultation with one of us at Watson Corporate Services by give us a call on 02 6362 7581 or via our contact form here.  This is a critical decision which can affect your future wealth creation and your current living standards.

Systemise Your Business Before It’s Too Late

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Peter Bridges has a business which sells motor vehicle spare parts for a range of makes and models.  The business has grown rapidly beyond Peter’s expectations and management abilities.  He feels like he is on a runaway train and is desperate to streamline operations.  He and his team are working very hard, yet customer satisfaction is slipping and profits are starting to suffer.

The root cause of the problem is that this type of business requires strong processes and procedures to control stock and orders.  The few systems it has have not grown with the business and are not well documented.

Peter sought the help of his Accountant.  He gave them a sizable brief.  Help me get my business under control.  Find my profit and help me return to working normal hours.

Solution

The Accountant tackled the problem from three fronts:

  • Identify Peter’s business goals: Where does he want to be in 3 years?
  • Streamline operations and increase the efficiency of the processes.
  • Align processes with business goals.

Accountant’s Role

  • Create a short sharp Strategic Plan (how Peter will achieve his business goals).
  • Review operations and redesign business processes to achieve maximum efficiencies.
  • Engage an HR consultant to help with restructure of team.

Benefits for Client

  • Streamlined documented operations, thereby reducing cost of operations.
  • Reduction in cycle time of processes, thereby enhancing the market standing of the client

A client who is confident, is in control and driving the business forward in the direction of his choice.

Want to know how the above can work with you business, we are here to help anytime! Contact Watson Corporate Services on 02 6362 7584 to reach out.

 

Business Planning – Your Blueprint to Business Success

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Running a business without a business plan is like rock climbing blindfolded. Your chances of making it successfully to the top are slim. And the process will surely be a death-defying one.

A business plan is a step-by-step guide to running your business and creating a product or service that will make it successful in the marketplace.  You and your business plan must be flexible.  Your plan will need to be adjusted periodically depending on opportunities in the marketplace, the current health of your business etc.

Every business should have a plan.  It may be formal or informal, it does not matter so long as there is a plan.  For example, the fish-and-chip shop may not have formally written down the plan, but before setting up shop, a smart owner would have assessed the need for a shop in that area of town, the ability to attract clients there, the appropriate amount of stock to carry, the cost of utilities and the parking availability for clients etc.  The owner who waits to figure these things out using trial and mostly error will be lucky to be left with his/her wits, much less any customers.

A business plan minimizes risks and surprises.  Consider the following for inclusion in your business plan:

  1. A reasonable expectation of profitability and when?
  2. How will the business pay you and any team members?
  3. The estimated expenses?
  4. The pricing strategy?
  5. The need for what you are offering, and what profit margin can you expect?

While much of this may have occurred to you, it is very important to write it down.

A documented plan:

  • Helps you determine and coordinate all aspects of business operations.
  • Gives you a means to analyse and determine what might be the best change to boost your business out of a stagnant situation.
  • Assists you in determining the risks and benefits associated with any changes.
  • Decreases your chances of making a mistake or not considering important factors in your business.
  • Increases your chances of success.

So, do you have a Business Plan?  If not, consider discussing the need with Watson Corporate Services

The Next Chapter

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After 40 years in the industry, May Edwards wanted to sell her small business and transition into retirement.  She was a widow with no family available to support her with this transition.  She had no clear plan and limited documentation to demonstrate the value of her business and its growth potential.

Problem

Her problem was how to market her business and get the best price as quickly as possible.  This was her primary asset and best chance for a decent retirement.

Solution

May sought the help of her Accountant.  She wanted as much help as possible, as the process was daunting.

Accountant’s Role

May’s Accountant assisted with the preparation of financial data and due diligence for the purchaser, and negotiations around purchase price and the structure of the transaction.

In particular, the Accountant provided detailed advice with a view to effectively minimizing the tax implications associated with the transaction and moving the proceeds into the most tax-effective environment.

The Accountant also provided a referral for a lawyer and worked closely with that lawyer throughout the transaction. The settlement of the transaction and handover process was seamless for both May and the purchaser, and the estate planning and financial planner referral allowed May to move on into retirement with financial peace of mind.

Benefits for Client

A stress-free transition into retirement and the successful sale of her business.

Might a similar strategy work for you?

Contact Watson Corporate Services on 02 6362 7581 to find out how we can work together to achieve a stress-free transition.

Maximise Value Before Sale

computer-1149148_1920 (tweaked)Selling a business at the right price and terms often takes a year or more. Owners who desire to sell their businesses should begin to maximise the value of their business at least two and preferably three or four years prior to the sale.

There are a number of methods to increase value within this time horizon and the increased payoff can be enormous relative to the company’s current value.  Some of these methods are discussed below.

Increase Profitability

Buyers tend to base their purchase offers on the most recent three or four years of earnings. A trend of increasing revenues and profits is the key to obtaining the best price. The reliability of earnings over a long period of time assures the buyer that it should pay a premium price.  Increasing profitability in the business is not always easy. The first step is to eliminate unnecessary administrative and operational processes. These processes tend to be non-value-added procedures that your customers will not miss.

Know your Buyer

Understanding what buyers are looking for in a business also allows you to identify potential buyers. Develop a list of possible buyers and their requirements and begin to model your company so that it will be attractive to these buyers. If possible, develop business relationships with these prospects. This allows you to negotiate over several years, maximising the overall price and reducing the amount of non-cash terms in the sale.

Financial Information

Most buyers expect to have access to audited financial statements. These should be prepared at least two years prior to the time you want to sell. The audit process provides a more accurate picture of the company’s financial performance and enhances credibility.  It is also important for your business to demonstrate that its reporting systems are simple, accurate, and timely.

Consult a Professional

A professional intermediary, such as your accountant, can help ensure that the business has been fairly valued. The valuation process is important.  Every business is different and requires an independent analysis.  The mechanics of selling your business are best accomplished by a knowledgeable professional who can guide you through the complexities of the selling process.  Your Accountant again, can be a valuable resource and guide.

Avoid Deal Killers

The most common deal killer is an insistence on a high price that cannot be justified by the expected return on investment. Other issues that buyers tend to shun are contracts that cannot be modified and long-term leases. Be a clean company with no environmental, safety or compliance problems. Good housekeeping, repair and maintenance are essential for making a good and valuable impression.

Be Open to Change

Given the time, most companies can improve their earnings. In some cases, a business in a crowded niche should consider purchasing other businesses or product lines to improve its own strategic value to potential buyers. Owners should be open to change in their own business to enhance value over time.

Need help to grow your business, let’s connect with Watson Corporate Services via our contact sheet.

“Stress Free or Stressful” Business Transition to New Owners – It’s a Choice to New Owners

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Blueberry Trailers was established by Jack Jones in 1970.  Since its humble beginnings as a husband-and-wife-based business, the company has grown to manage 30 team members across two factories and build approximately 50 custom trailers per year.

That said, along the way it has had its struggles.

In 2012, Jack suffered a non-fatal heart attack and it suddenly became his children’s responsibility to keep the business alive while their father recovered in the hospital.  The transition in management wasn’t easy.  Dave and Peter were forced to step into their roles at a young age.  They had no training or knowledge of their father’s role.  Jack had set up a great business but it was ‘a handshake type of business’; nothing was documented properly.  Processes, procedures and analysing business performance was almost non-existent.

This is a problem that commonly occurs in the family-run business space.

Accountant’s Role – Trusted External Advisor

Dave and Peter agreed the best strategy was to seek help and to work with an external trusted advisor. They chose their accountant who had a good knowledge of the business and who knew their father.  Bringing in an external party allowed their family to hear a well-educated objective opinion and kept everyone’s egos out of the way.  With the Accountant’s guidance, they ‘flipped the business on its head’.  It took about two years of financial struggle and hard work but the business started to change and it has been for the better.  The company has continued to thrive ever since.

The Result

With their Accountant’s help, Dave and Peter implemented new strategies in their family business.  They successfully took over from their father and now have 30 team members across two factories.

Dave says, ‘Dad was really apprehensive but Peter and I insisted we could prove that we could get the job done and we did.  And we enjoy having our weekends off.’

Imagine how much easier this process would have been if Jack had committed to succession planning.  The issues would have been identified earlier and corrected.  His sons, his team and his business would have been prepared for the event.  Succession Planning would most certainly have made the unplanned leadership transition a stress free, organized event.  Instead it was 2 years of struggle albeit with a happy ending.

Need more help to grow your business?

Let’s connect with Watson Corporate Services Accountants Orange NSW by completing the CONTACT FORM below.