Cashed Up Book Mini Version Full

CASHED UP
7 steps to pull more

money, time and happiness
from your business
Ben Walker and Harvee Pene

Publisher: Inspire Big Ideas Pty Ltd
Cover & Table Design: Autumn Co.
Book Design & Typesetting: Book Cover Cafe
Copyright © 2018 by Inspire Big Ideas Pty Ltd

All rights reserved. Published 2018
ISBN: 978-0-646-98605-0
Printed in Australia
Disclaimer:
This publication is designed to provide accurate and authoritative information in regard
to the subject matter covered. It is sold with the understanding that the publisher is not
engaged in rendering tax, accounting, or other professional services. If formal advice
or other expert assistance is required, the services of a competent professional person
should be sought.
Inspire Big Ideas Pty Ltd is a publisher of business, self-improvement, and professional
development books and online learning. We help Young Families use their Small Business
to get Cashed Up.
Any information and content in this book is general in nature only. It does not take into
account the objectives, financial situation or needs of any particular person. So before
acting on anything to do with your finances, you need to consider your financial situation
and needs before making any decisions based on this information.
Benjamin Walker of Inspire SMSFS Pty Ltd (ASIC Authority 1243433) ABN 38 879 130
483 is an Authorised Representative of Finance Wise Global Securities Pty Ltd ABN 60
146 708 045. Finance Wise Global Securities Pty Ltd holds Australian Financial Services
License No. 397877.
Benjamin Walker is a credit representative 503406 of BLSSA Pty Ltd, ACN 117 651 760
(Australian Credit Licence 391237).
Benjamin Walker is a Registered Tax Agent 00657000.
Inspire CA Pty Ltd is a Registered Tax Agent 27286004.
Got a feeling you’re paying too much tax? Or is it time to Change Accountants? Please
visit inspireca.com, email hello@inspireca.com or call 1300 852 747.
Dedicated to -
Our Family.
Contents
ABOUT INSPIRE: Life Changing Accountants vii

Chapter 1 – The Seven Smart Financial Decisions of a 1
Cashed Up Business
Chapter 2 – Your Business Scoreboard 7
Chapter 3 – Cut Tax 11
Chapter 4 – Capture Profit 80
Chapter 5 – Control Cashflow 98
Chapter 6 – Check Numbers 114
Chapter 7 – Crank Business Value 137
Chapter 8 – Cover Assets 163
Chapter 9 – Create Lifestyle 207
About the Authors 232
ABOUT INSPIRE
Life Changing
Accountants
B ored with the “boring” tag the Accounting industry seems stuck
with, Inspire is a firm on a mission to become “Australia’s Most
Impactful Accounting Firm”.
As Accountants and numbers people they believe that family
is number one and get excited to help Young Families Use Their
Small Business to get Cashed Up. Best known for proactively
saving $4M+ in tax for small business (as of Apr 2018), and giving
4M+ days of access to food, water, health and hygiene is given to
families in need across 16 countries.
Acknowledged by Anthill as “one of the Top 100 Companies
In Australia,” Inspire is throwing out timesheets and by-the-hour
charges. Embracing cloud tech like Xero and giving part of its
profits to families in need in the developing lands instead, makes
them all the more interesting.
CHAPTER 1
The Seven Smart

Financial Decisions of
a Cashed Up Business
T his is not a “how to book”.

First and foremost, it’s a “why to” book that doubles as an
essential guide to drawing from your business, everything you need
to set up your family with everything they need.
Reading and following the guides in this book won’t mean that
you’ll never have to “borrow” some additional hours from your
“family time” account, but it will mean that you’ll be able to pay it
back on time and in full.
And most importantly, just like you, your family will understand why.
Understanding “the why” behind “the what” is and always will
be the best key for unlocking all-round success.
The “why” is the reason we expend effort, strive to achieve big
dreams, believe in things and derive joy.
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This book is not about a higher philosophy, empowerment,

enlightenment or how to achieve any of that – directly. But we
absolutely key in on why there are steps that you should take to enjoy
the kind of happiness and fulfilment, we believe only comes from
providing opportunities to embrace a full life with, and for, your family.
Shall we get started?
Great, we have a lot to talk about. Let’s start with some facts:
1. I want to jump straight in here and tell you that small business
owners all over Australia are paying far too much tax and their
families are paying for it. It’s a sad fact that this alone has the
potential to push many businesses to the edge of extinction
and relationships on the home front, to the edge… There are
some simple solutions here. Simple but not always easy to spot
at first glance. We’ll talk about that. Our message? Pay the tax
you are supposed to pay and not one cent more.
2. Most people who have an association with small business
ownership have an all-consuming relationship with one of
Australia’s biggest killers. Stress. In this case, stress comes from
not knowing why things are happening to, and within, your
business. When things are going surprisingly well, we wonder
(and worry) about when the good times will stop rolling. When
things have taken a turn for the worse, we struggle and fight
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CHAPTER 1: THE SEVEN SMART FINANCIAL DECISIONS OF A CASHED UP BUSINESS
as hard as we can like someone stuck in quicksand. This usually

spells disaster. Stress comes from not fully comprehending what
just happened, not realising what is happening and having no
idea whatsoever about what’s waiting for you around the corner.
Understanding your business’s key numbers are essential to
alleviating the kind of stress that puts pressure on businesses
and wrecks lives. This a big one.
3. Turnover is a big-ticket item and it does indicate the state of
play within a business – but what about profit? Profit is what
signals the kind of growth that means more time with family…
on a beach… far away… from your awesome home that you are
buying are / paying off finished paying off (don’t shake your
head, dream big!). Turnover is the beautiful dinner plate with its
gold leaf decorations, profit is the meal you can taste, savour
and from which you derive nourishment.
4. We also know that growing your business is about a bigger operation,
a bigger slice of the commercial pie within your market and bigger
workloads for all. But what if it doesn’t mean those things? Like
most things in life, growth can be redefined, refined and made to
fit our own ambitions and goals. Not many people have a burning
ambition to spend more time at work only to bring home to the
family the same amount of money. That’s the opposite of growth.
That’s the law of diminishing returns in action and it’s one that
can and should be broken by a focus on adding value. Increasing
the value of our services and products will add value to our
assets, business and livelihoods. That’s what we mean by growth.
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On the subject of growth, let’s get a little bit personal and

return to the original question.
Why are we here? Not here on this planet, or in this particular
solar system.
I mean here in small business ownership. Are we masochists
because we love working long hours for the same pay-off that’s
waiting for someone in a set-hours, salaried job?
Perhaps because we are hopeless dreamers/romantics that truly
believe that (insert your product or service here) will truly change
the world or at least the world you live in.
Here’s another big question: what exactly are you doing and
how do you know if you’re doing it well – or can keep doing it well?
Oddly, a lot of us decide to change our life’s direction and
support our families – loved ones, small children we have or will
raise from birth - and promise ourselves that we will support them
in a world we’ve helped make better.
And how will we know that we’re keeping this beautiful promise,
how will we know if its realisation is slipping from our grasp? Not
by measuring the buckets of sweat we produce, not by hairs that
turn grey or fall out and certainly not by the litres of midnight oil
we burn every month.
The unfortunate truth is that many of us just don’t know the
answer to that one – for a lot of reasons. Maybe “speed to market”
with a game changing product had to be our first and only priority
in a highly competitive commercial environment.
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CHAPTER 1: THE SEVEN SMART FINANCIAL DECISIONS OF A CASHED UP BUSINESS
Perhaps we got caught up in the “what” and the “why” and

completely overlooked the “how” and the “how much”.
There must be thousands of reasons for not knowing and
unfortunately the outcome only goes one of a few ways:
zz Stressed out, overtired and on a collision course with

commercial difficulties (to say the least).
zz Stressed out, overtired and keeping the head above water.
zz Stressed out, overtired but winning… for the moment.
Pick your poison. The only antidote really though, is a solid

handle on numbers.
How do these numbers work? How do they work together? How
can I get them to work for me? Well, the first thing to understand
is that the system has not set small business owners up to fail.
However, too often we, the small business owners, set ourselves
up to fail by failing to set up:
zz business structures that suit our businesses,

zz key performance indicators (KPIs if you love a corporate
style 3-letter acronym) that drive better performance,
zz cash flow controls that allow business growth and restful
night’s sleeps,
zz protections that ensure what’s yours, remains yours, or
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zz lifestyle parameters that enable you and your family to live

life in a style that makes you happy, bringing and keeping
you all closer together.
Strangely, the most impersonal thing in the world, cold hard

numbers and their correct and expert handling, is the best indicator
of how we can keep one of our most personal promises.
Oosh! That was quite a large dose of emotion.
How about, from this point on, we focus on the business of
getting your business to provide a lot more happiness, (family) time,
money and the 7 Steps to becoming Cashed Up:
1. Cut Your Taxes

2. Capture Your Profit
3. Control Your Cash Flow
4. Crunch Your Numbers
5. Crank Your Value
6. Cover Your Assets
7. Create Your Lifestyle
Ready? Good. Chapter 2 is waiting.
6
CHAPTER 2
Your Business
Scoreboard
Introducing your business scoreboard
I have never known an important sporting event to be decided

without a scoreboard.
Without it, officials, spectators and fans are left in the dark
as to who is winning, who is losing, by how much and what, if
anything, can be done about it.
And what about the participants? In the business game, the
participant is you. You can’t do all the things that successful sportspeople
and/or teams do without having a firm handle on the score.
And yes, we’re talking sport, games. But what about the game
of life? Your life!
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This chapter is simply here to help you keep score as you work
your way through this book and, at the same time, evaluate your
business while coming to understand the adjustments that you
could and should make.
The scoreboard should tell you more

than just the score
I strongly recommend that small business owners establish and

regularly check their scoreboard or dashboard, and we’re not simply
looking for the amount of money in the account.
While cash on hand is important (vital actually) it doesn’t tell
the full story.
Buried (but not too deep) in monthly and weekly numbers are
profit drivers and lead indicators. They are hiding in plain sight just
waiting for someone to take a look at and formulate some next
steps based on what the numbers are saying.
Too often, small business owners see a lower than expected
(hoped for?) number and start feverishly cannibalising their
own margins to prop up the turnover figures. Dangerous. Very
dangerous. We’ve talked about how times of difficulty call for an
increase in value not heavy discounting.
With a clear view of the numbers, problems are solved while
they are still just lead indicators, leaving you plenty of time to
prepare your countermeasures.
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CHAPTER 2: YOUR BUSINESS SCOREBOARD
Similarly, when forecasts indicate an upswing in sales based on

real data, a knowledge of your numbers will signal the right time
to take advantage with added investment in staff, capital or simply
a larger safe.
Using a dashboard regularly (weekly) and for its intended
purpose, represents an investment of time and money that will
pay for itself many times over, regardless of the story it tells.
“Forewarned is forearmed” and “first in, best dressed” are the
key messages that highlight the value of knowing your numbers.
Not just the ones that tell you what happened in your business,
but the ones that show what can happen for you.
How do I read the scoreboard?
Scoreboards vary in complexity from sport to sport. Baseball and

cricket scoreboards seem far more involved than say soccer or
basketball.
Your business scoreboards are different again. To ensure you get
the most out of this book, your business and yes, your livelihood,
I placed scoreboards throughout the book.
They pose some straightforward questions from which you can
assign your business a score based on your answers. There’s a
scoreboard for each of the crucial 7 steps to becoming Cashed Up,
except tax in the next chapter.
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I want you to focus on your outputs and results as opposed to

the process – the why more so than the how.
Shall we get in to it? Game on!
10
CHAPTER 3
Cut Tax
Saving tax is both essential and

simpler than you thought
T his chapter is essentially about one thing and one thing only
– taking home more money to your family.
However, there are two important things you’ll have to know
and do in order to make that happen.
Firstly, you’ll need to know the difference between effective
charitable contributions and flushing money down the government
S-bend.
Effective charitable donations benefit those that are less
fortunate than ourselves.
“Flushing” is what happens every time you pay more tax than
you need to. There are some common reasons for this mishap but
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assuming people aren’t doing it deliberately, it generally boils down

to a lack of understanding.
You become an accidental tipper (or over-tipper).
There are times when you’re travelling in a foreign land and
you’re ready to pay for a meal at a little bistro but you don’t quite
have the hang of the currency yet. There’s a significant language
barrier, you don’t quite understand the wait-staff and you don’t
know what they’re saying so you place some notes on the table
thinking, “That should cover it”. You smile, give a thumbs-up, kinda,
sorta mumble something that you hope means, thanks a lot, we
loved it and you’re out of there. You may never know (and maybe
don’t care) that you inadvertently left a 60% tip.
Okay, that’s a price of a meal. But what if it was 10K, 20K, or
45K. You wouldn’t let that ride but many small business owners
do because like our friend at the bistro, you simply don’t realise
what you’re doing and you’re none the wiser because you’re not
speaking the same language.
The ATO is not in the business of chasing hapless business
owners down the street shouting, “Hey come back, you paid too
much tax!”Not only that, the vast majority of accountants out there
are reactive, don’t carry out proactive tax planning with clients and
fail to implement and keep up with concessions and strategies you
can use to legally save tax.
Secondly, understand that there are a number of 100%,
squeaky-clean ways to minimise your tax without having to
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CHAPTER 3: CUT TAX
effectively learn a different language. Learn and adopt a different

mindset? Yes. A different language? No.
Let’s launch into an easily-digestible, 12-part tip sheet that
features:
zz business structures that protect your earnings, assets and

the income you’ve earmarked for building a wonderful life
for your family,
zz SMSF tips that ease the tax burden while looking after the
future, and
zz Sensible strategies that don’t necessarily mean unreasonably
high tax imposts
zz …and much more.
Again, my aim here is to help you make a positive impact

on your bottom line by reducing the amount of tax that you’re
currently paying.
Let’s do this:
Structure your business so you don’t

hand half your profits to the ATO
When assessing if you’re in the right structure, there are three

considerations that need to be made.
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1. How much tax does each entity pay?

2. Can the entity distribute profits?
3. How much protection of your assets does it provide?
And I kid you not – this is THE strategy that will determine the
effectiveness of the rest of the strategies.
You MUST get this one right before you continue - no questions asked.
P.S. If you aren’t here for tax and want to skip ahead to Asset
Protection, then head over to Chapter 8 – Cover Your Assets.
So, here’s how the three business structures stack up against
each other in a little more detail:
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CHAPTER 3: CUT TAX
zz Sole Traders
}} will pay up to 47% tax and that makes me sick! (Well,
actually 55% tax if they have a HECS/HELP debt…) We
never ever want a client to pay tax at that rate.
}} cannot distribute any income to other entities, like
a spouse who may pay tax at a lower rate to you. Tax
planning is very, very limited.
}} have NO protection for your personal assets.
At INSPIRE CA we NEVER recommend anyone go into business

as a Sole Trader. It’s the danger zone and we’ve seen so many war
stories from businesses who have been sued and lost their family
home and savings in the bank.
zz Companies
}} are the most common structure for businesses today and
they pay a flat rate of tax.
}} tax rates depends on the company’s turnover.
}} turnover under the ‘turnover threshold’ attracts a tax
rate of 27.5% currently, reducing to 25% by the 2026-27
financial year. The turnover threshold is what the ATO
defines as a ‘Small Business’ which is how it qualifies for
a reduced rate of tax (note there are other definitions
for ‘Small Business’ by the ATO – this one relates to the
company tax rate and a few other concessions)
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Income Turnover Company Company

year threshold tax rate for tax rate for
entities over entities over
the threshold the threshold
2015-16 $2m 28.5% 30.0%
2016-17 $10m 27.5% 30.0%
2017-18 $25m 27.5% 30.0%
2018-19 to $50m 27.5% 30.0%

2023-24
2024-25 $50m 27.0% 30.0%
2025-26 $50m 26.0% 30.0%
2026-27 $50m 25.0% 30.0%
}} turnover exceeding the turnover threshold, your rate is 30%.

}} it’s important to note that the reduced tax rates for
‘under the threshold’ only apply to companies that run
a business and NOT investment companies, like ‘bucket
companies’. We’ll talk about that later. So, bucket
companies are taxed at 30%.
}} current year income cannot be distributed to another
entity with a company – but prior year profits can be
distributed to the shareholders through a dividend.
}} have some tax planning benefits, so companies get a
‘half-tick’ or a wavy line in the table above for their
ability to plan for tax.give you a form of asset protection
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– but cannot protect against things like fraud, insolvent

trading, director’s guarantees and some other risks.
(More in Chapter 8)
zz Trusts
}} tax rate of 0% is a bit of a trick. A trust doesn’t pay tax
itself*, it can only distribute income to other people or
entities (we’ll go through the 10 options for you next in
TPS 2).
}} *well not entirely true – a trust can pay tax, but it will
usually pay tax at 47% if you don’t distribute the profit
(something we want to avoid) or non-resident rates of tax if
the trust is distributing profits to non-resident beneficiaries.
}} are the most flexible structure from a tax planning
perspective.
}} when set up correctly, can protect your assets too!
(Similar limitations to a company though, with fraud,
insolvent trading etc. More in Chapter 8.)
We’ve summed up a lot of information into a few dot points

above. But here’s our take:
zz Sole trader – don’t do it. At all.

zz Companies – suit some people, but more so those who can’t
make the most of distributing using trusts.
zz Trusts – the most flexible, long term solution and our
preferred vehicle in most cases.
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FAQ’s: Business Structures
How do you know what’s right for you?

Please reach out to us for a ‘Look Under the Hood’ – a second opinion on
your tax. We can give you feedback on your current business structure.
But what if I need to change structures?

Rule of thumb is to do this as soon as possible.
Why? Because the longer you leave it, the more your business
is worth. With any business re-structure, you need to consider
Capital Gains Tax and Stamp Duty. The more the business is worth
as it grows over time, the more these taxes are likely to be.
Not only that, we’ve done it – it’s a pain to change bank accounts,
supplier accounts, customers paying you into the new bank account, etc.
How do you take money out of a company or a trust?

We’ve just learned that sole traders aren’t the way to go. So
what’s the difference between the company and the trust? The
biggest practical difference is how you take the money out.
There are three ways to take the money out of each:
Company
1. Salary (PAYGW & Super 9.5%)

2. Loan (Div7A)
3. Dividend (Prior Year Profit)
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Trust
1. Salary (PAYGW & Super 9.5%)

2. Loan (Drawings)
3. Distribution (Current Year Profit)
Taking money out of a Company
1. Salary (Super 9.5% & PAYGW)

Salaries are paid to employees of the company. When paying
salaries the company has the obligation to withhold tax for their
employees in the form of PAYG withholding, as well as paying
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superannuation at a minimum rate of 9.5% of their ordinary time

earnings. This means that even if you are a director (maybe even
the only employee of the company) you will still have to pay
yourself super throughout the year.
The first way to take money out of a company is through paying
yourself a salary.
Paying yourself a salary from your company is exactly the same
as if you are an employee of another business, where you need to
pay yourself superannuation on top of the salary (9.5% minimum),
and also take tax out from your salary and pay this tax to the ATO
each quarter (this tax is called ‘Pay as You Go Withholding’ or
PAYGW). Salaries aren’t as effective as other ways of taking money
out of companies trusts, but we still use them from time to time.
2. Loan (Div. 7A)

You can’t just “take” money from the company - even though it
is your company. This is because of Division 7A of the Income
Tax Assessment Act 1936. The Act was made to prevent business
owners using business funds for personal use but instead of paying
the full 47% income tax rate in their own names, they were only
paying the 30% company tax rate - aka, a tax dodge.
These ‘Div. 7A’ rules came in for loans from companies after 1997,
after the ATO changed the rules to pick up on this previous loophole.
This rule says that when a shareholder or associate of a shareholder
(spouse, relative, related trust etc) receives money or assets from
the company that is not a salary and is not paid back in full before
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the companies lodgement date (end of financial year), it should be

classified as a loan under Div. 7A and needs to be documented and
repaid with interest. These “loans” are sometimes a headache for
business owners as the simplest things could trigger a Div. 7A loan.
When you create a Div. 7A loan, you normally have seven years
to repay the loan, and you must make minimum repayments as
calculated by the ATO each year.
If your loan from the company is secured on property (a
common strategy for our clients), then you have 25 years to
repay that loan.
Even though these loans are complex, it doesn’t mean that we don’t
use Div. 7A loans, or they are bad. It just means we need to be strategic
in using them and make sure we meet the legislative requirements. They
can be a great way of balancing tax bills over multiple financial years.
3. Dividend (Prior year profits)

The final way to take money out of the company is through
dividends.
A dividend is a payment of a percentage in the company’s prior
year profit.
Similar to if you were to own shares, in say Woolworths or BHP,
and they issue a dividend each year or a couple of times a year –
which is a payment of their profits to shareholders.
However, in order to issue dividends, the company must first
earn a profit, lodge a tax return and pay tax on the return before
it can distribute dividends to the shareholders.
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In other words, you cannot issue dividends from a company in

its first year of operation or that has not yet made a profit. Once
the company has paid tax on profits, it is able to distribute these as
fully franked dividends (meaning the tax has been paid at the tax
rate for companies and the individual only has to pay the difference
or ‘top up tax’).
Even though dividends are a little more complicated, we do use
this method to get money from the company from time to time but
it is certainly not the most flexible.
It’s also very important to get the shareholders of the company
correct from the start. Often we see the business owner, or their
spouse, owning the shares directly – which means the dividends
can only be paid to their names personally.
The problem with this, is we have no other option of who to
give the money to when paying dividends, and could get caught
paying 47% tax on these dividends.
We recommend a trust always owns the shares in a trading
company. This is because when the trust receives the dividend, it
can choose who receives it and who pays the tax. (We’ll learn about
this shortly when we look at Trusts – ‘Distributions’.)
Taking Money out of a Trust
Salary (Super 9.5% & PAYGW)

The first way to get money out of the trust is the exact same way
to take money out of a company - paying yourself a salary.
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Just like paying yourself a salary from the company, you need to pay
yourself superannuation (9.5% minimum) on top of that and you also
need to take tax out of your salary when you pay yourself (PAYGW).
Loan (Drawings)
Loans or ‘Drawings’ from trusts are the second way to take money out –
and the most common way to take money out during the financial year.
There are no Div. 7A rules for drawings like there are for loans
from companies as stated above.
This means you can take $10,000 in cash from the trust bank
account and there is no obligation to pay it back with interest.
Drawings work hand in hand with distributions – the third way
to take money out.
Distributions
Before the end of the financial year, the Trustee has the ability to
distribute income to the beneficiaries of the trust. That means that you
have full discretion of who benefits from the profits of the business.
The distributions are payment or allocation of the current
year profit of the trust. (Compared with prior year profits paid as
dividends from companies.)
So if the trust makes $200,000 in profit during the year, it must
be distributed or allocated to beneficiaries (otherwise the trust will
pay tax at 47%).
The allocation of profit is done ideally with your accountant,
and during the process of tax planning. At Inspire, tax planning
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runs from April to June, so before the 30 June (when the financial
year ends).
We estimate the trust’s profit for the full financial year (and
other family members and entities profits throughout the year). We
then work out who the profit from the trust should be allocated
to, to pay the least amount of tax possible.
We’re going to learn shortly some people and entities in the
family group that you can distribute your trust profits to.
Key Tax Rates Cheat Sheet

Before we get into the people or entities you can distribute to, it
would be great to get the context of the tax rates.
People over 18, tax residents of Australia, for the 2018 FY
including Medicare Levy:
Income bracket Tax Rate

$0 - ~$20k 0% ‘tax free threshold’
~$20k - $37k 21%
$37k - $87k 34.5%
$87k - $180k 39%
$180k or more 47%
Now just a few notes on the above – the tax-free threshold is

$18,300 or so if you looked it up on the ATO website. But couple
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this with the low-income tax offset, and the tax-free threshold is
effectively $20,500 in taxable income.
Also, the tax rates include the Medicare levy that everyone
pays (2% of your income) but doesn’t include the extra Medicare
Levy Surcharge which is what you pay if you earn over $90,000
as a single or $180,000 as a family and do not hold private health
insurance, hospital cover.
Non-residents (for tax purposes) over 18 pay tax at the
following rates (no Medicare Levy):

$0 - $87k 32.5%
$87k - $180k 37%
$180k or more 45%
Company tax rates for 2018 FY are:
Type of income Tax Rate (flat

rate of tax)
Business income up to $25M revenue 27.5%
Business income over $25M revenue 30%
Investment income (including from discretionary 30%

trust distributions/“Bucket Companies”)
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10 People or Entities that you can

distribute money to:
1 Distribute to Yourself
This one is the obvious one – you can distribute money to yourself.
Now the magic number we aim for here is usually $87,000 in
profit. That’s the limit before the tax rate goes from 34.5% up to
39% - and there’s usually better places we can distribute it to.
Not saying that $87,000 is always the number to aim for – it totally
depends on the profit of the business and other options to distribute
to. But if you’re getting more than $87,000 in taxable income in your
own name, it’s usually a warning sign you’re paying too much tax.
2 Distribute to Your spouse

This is the next most obvious place to distribute money.
Now again $87,000 is the magic number – don’t really want to
go over here.
We also need to watch for other income your spouse may
be earning – whether from their employment if they work, or
investment income.
We also need to watch if your spouse has a HECS debt – the
repayments kick in just after $54,000 in taxable income in the
2018 financial year.
3 Distribute to your Retired Parents.

Parents can be the gift that keeps on giving.
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Many of us had parents that we could and did depend on for

everything throughout our younger years.
Now, it seems for those involved in small business, we can
offer some kind of recompense (although there’s no substitute
for love and care) that actually benefits both parties! That’s right,
distributing your income to your parents can actually save you tax.
We just need to watch that they are self-funded retirees. And
not receiving Centrelink.
If they are receiving the old-age pension, then distributing to
them may cause them to lose their pension. So this needs to be
done very carefully, because it could end up costing you more in
lost pension than the tax savings.
Also, keep in mind if they are receiving a pension from their
superannuation, and they are over 60 years old, it shouldn’t be
taxable in their own name.
This means the first $20,000 or so we give a retired parent
attracts $0 of tax – woohoo!!
Two retired parents can mean $40,000 tax free! (Compared
with maybe $15,600 in tax if kept in your own name at 39% tax.)
Rapid fire questions:

What about the in-laws, they’re retired too. Can I flick them
$37,000 each too?
In most cases, yes - which just increases the tax savings! #FistPump
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Do I have to actually give them the $20,000 each?

Yes. The cash needs to transfer to their accounts from the trust.
What they do with the money after that is their decision! This is
the same for all these distributions.
I love this strategy. I didn’t do it last year. Can we back date the
strategy for last year too?
NO. If you could have done this, you need to fire your accountant
IMMEDIATELY. They just cost you almost $16k. You can only
implement this strategy from the current financial year forwards.
4 Distribute to your Grandparents

This should also be able to be done – so long as your grandparents
are included as beneficiaries in your trust.
Keep in mind similar things to retired parents (like Centrelink
and any other income they are already receiving).
5 Distribute your Children Under 18.

You love your kids and they love you and they’d love nothing more
than to help reduce your tax burden. Well now they can!
But they can’t receive very much income at all.
You can distribute $416 to each child and pay $0 in tax. Any
amounts over this $416 will attract 47% tax in their name.
So, if you have 3x children, that’s $1,248 in income tax free.
That just saved you $486 in tax (compared with 39% in your
own name).
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So, don’t have kids just to save tax – until they turn 18! When
they turn 18, the first $20,000 you give them will be tax free
(assuming they aren’t working / receiving other income).
Rapid fire questions:

Why $416? Seems low...
Many years ago, this used to be a few thousand dollars for each
child. The ATO has reduced the limit over the years, and it now
sits at $416 per child.
My wife is pregnant and baby is due after 30 June. Can I still flick
$416 to the bun in the oven?
Nice try… but no. They have to be born on or before 30 June
to count.
Do step kids count?

Yes. Most trust deeds will allow this if you’re married or in a de
facto relationship with their mother or father. Otherwise update
your trust deed.
Do I have to actually give them the $416? They already cost me

more than that a week!
The fact that you’re already supporting them more than $416 in
the year means that you have already given the money to them (or
paid for expenses on their behalf worth more than $416). So you
don’t need to give them $416 in pocket money! Phew!
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So you’re telling me, if I have 15 children, I could bring my taxable

income down by 15 x $416?
Yes, that’s right. Tax free income of $6,240. (A saving of $2,433
at 39% savings!) BUu-u-u-t, just keep in mind, that’s a lot of kids!
6 Distribute to your Brother or Sister

If you’ve got a brother or sister who is over 18 and on a lower
income (perhaps they’re studying, travelling or raising children),
they’re a great option to distribute income to.
Keep in mind any other employment or investment income they
might be receiving.
And also HECS is a common thing to watch out for here as well.
7 Contribute to your Super fund

Super funds pay tax at 15% on pre-tax contributions received and
you can distribute $25,000 per year (as of the 2018 financial year).
This is a fantastic strategy to get your personal tax down, while
building your retirement nest egg at the same time.
8 Distribute to a Church or Charity

Not only will you pay no tax on a distribution to a registered church
or charity, but neither will they.
Usually churches are not registered as ‘Deductible Gift
Recipients’ or DGRs. This means that you cannot claim a tax
deduction by donating money to them. Unless you distribute
this money from a trust – then you don’t pay the tax, and the
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church would normally have an income tax exemption so neither

will they.
Compare this with charities registered as DGRs, where it
doesn’t matter what tax structure you are (sole trader, company
or trust), you can claim a tax deduction so long as you have a tax
invoice, and the amount was over $2.
9 Distribute to a second business making a

loss
Great if you have two businesses.
Business A is making great profit, while Business B is making a loss.
You can, if structured correctly, distribute $50,000 in profit
from Business A to Business B making a $50,000 loss and pay no
tax on that amount.
10 Distribute to a bucket company

Remember that companies running a business have a set tax rate of
currently 27.5% or 30% (depending on if you’re turning over more
or less than $25,000,000 a year).
But distributions to a company are considered investment
income, which is taxed at the 30% rate regardless of how much
it is.
But compared to paying up to 47% tax in your own name,
distributing to a company and paying tax at the company rate can
be a huge tax saving. We call this type of company that is set up
for receiving income from a trust, a ‘bucket company’.
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Bucket Companies: The least known

and most underutilised strategy to
save thousands in tax.
I’d love to shed some light on what we call ‘Bucket Companies’,

also called
zz Corporate Beneficiary,
zz Dump Company,
zz Family Vault,
zz Second Super,
zz And a few other creative ones!
Why this strategy is so critical is because it can help cap your

tax rate at 30%.
And as a quick refresher, as a sole trader you can pay up to
47% in tax.
Who is a Bucket Company strategy for?

Ideally:
zz Business owners (or investors),

zz Running their business or receiving income through a
discretionary trust structure,
zz Not caught under the Personal Services Income (PSI) rules.
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The idea of a bucket company is that they take ‘excess’ profits, after
distributing a reasonable amount to the people within a family group.
Bucket Companies are incredibly useful
1. For business owners who earn more than their cost of living,
and want to build a nest egg for their family;
2. When business owners are having big fluctuations in incomes
between financial years as they can be used to make the tax
bills more consistent; and
3. For business owners coming up to retirement or selling their business,
and no longer earning as much business income moving forward.
What are the tax benefits of using a Bucket

Company?
If done right, Bucket Companies can generally save thousands of
dollars in tax for a client, year on year.
Let’s use an example of a trust earning $300,000 in profit. But
we’ll review the tax rates first.
For 2018 FY, the individual tax rates (including

Medicare levy) are:
Income threshold Tax Rate

$0 - ~$20k 0%
~$20k - $37k 21%
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Income threshold Tax Rate

$37k - $87k 34.5%
$87k - $180k 39%
$180k+ 47%
Company tax rates for 2018 FY are:
Type of income Tax Rate (flat

rate of tax)
Business income up to $25M revenue 27.5%
Business income over $25M revenue 30%
Investment income (including from 30%

discretionary trust distributions /
“Bucket Companies”)
So if we have a trust that’s earned $300,000 in profit, we need

to allocate that to people or entities within a family group.
Now it makes sense to take eligible people up to $37,000 in
income. That means we’ve taken them up to 21% tax on their
income, and for every dollar over $37,000 (but under $87,000)
they pay 34.5% tax. (See the table above)
Compare that to a company, where it would only pay 30% on
the first dollar it receives, but every dollar after that.
But our ‘magic number’ from a distribution perspective to
individuals (or people) is $87,000, which might defy some people’s
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logic. This means they will be paying 34.5% tax on the income

between $37-87k. Do read on.
Do I need to actually pay the cash to the

Bucket Company?
The reason why the magic number is $87,000 is that when we
distribute to a company, the cash needs to follow as well (the
company needs to get paid). Otherwise we raise Division 7A
issues and the ATO doesn’t like ‘on paper’ distributions without
the intention of ever paying them.
We find that the $87,000 mark usually covers people’s cost of
living, and they can commonly pay all or a good portion of the cash
to their bucket company.
If you distribute to a company, the company itself will have a tax
bill. So you’ll have to pay at least 30% of whatever you distribute
to it as a tax payment eventually!
What are the Tax Benefits of a Bucket

Company?
Let’s look at the benefits of the bucket company using $300,000
profit as a case study:
Without Bucket With Bucket

Company Company
Profit Tax BIll Profit Tax Bill
Spouse 1 $150k $46.1k $87k $21.6k
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Without Bucket With Bucket

Company Company
Spouse 2 $150k $46.1k $87k $21.6k
Bucket Company - - $126k $37.8k
Profit $300k $92.2k $300k $81k
The tax saving by using a Bucket Company is $11,200. Not bad, eh?
Getting the cash out of Bucket Companies

We discovered above that the cash actually has to follow the distributed
amount from the trust. And then the tax bill needs to be paid.
But now we’re left with some money in the company, so how
do we get the money out?
Well there’s two ways to do it:
1. Loan it from the company, or

2. Pay dividends to the shareholders from the company.
They both have their pros and cons - let’s hit it:
1. Loan it from the company

These loans are called ‘Division 7A loans’ and are a minefield if not
treated correctly, but can be used effectively.
Your Bucket Company effectively becomes a bank.
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You loan money from it, and have to pay principal and interest
repayments.
If your loan is unsecured, you have seven years to pay back
the cash.
If your loan is secured (on a property, let’s say), then you have
25 years to pay back the cash.
The interest rate is set each financial year by the ATO, but
usually not ridiculous. (5-7%)
So it’s kind of treating your company at arm’s length, like a bank,
without dealing with the muppets.
This strategy can be very effective for loaning your 20% deposit
for a house or property, then the 80% difference from an actual
bank. That way (if secured) you get 30 years to pay back the loan
to your own company. More on this in a moment.
2. Pay dividends to the shareholders from the

company
The second way to get money out of a Bucket Company is through
paying a dividend to the shareholders of the company.
The shareholders are who ‘own’ the shares in the company.
Now when we pay a dividend, the shareholders get taxed on
that dividend, but they receive a ‘franking credit’ for the tax that
the company has already paid.
Sidenote on franking credits: The company has paid 30% tax
on their income, or 30 cents for each dollar it earned. When the
company pays dividends, the shareholder is taxed on the full
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amount of the dividend (or profit the company has already

paid tax on). But the franking credit offsets the tax bill for
the shareholder. For instance, if the shareholder will pay on
average 34.5% in tax on the dividend they receive, they get a
30% franking credit, only having to pay ‘top up tax’ of 4.5% on the
dividend they received.
So you should always consider the tax impact of paying that
dividend.
And MORE importantly, you must consider who the shareholders
are of the Bucket Company.
If they are individuals, then you can only distribute to those
individuals (in the percent of shares that each of them own).
All too often we see husband & wife owning 50%/50% of the
bucket companies. But the problem with this is we may have
little control on what the husband and wife earn separately to
the dividend.
The best entity to own the shares in a Bucket Company is
actually another, separate discretionary trust. We call these
‘Asset Trusts’.
That means when we pay the dividends from the company,
they fall to the asset trust, then the trustees of the asset trust can
allocate the dividends to the family members who pay the least
amount of tax. You retain ultimate flexibility.
In summary, getting the money out isn’t straightforward, and
working with an advisor who knows their stuff is non-negotiable.
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How will giving money to a Bucket Company

affect my ability to get finance from a bank?
Stupid disclaimer and warning: always consult a savvy mortgage
broker for questions about finance, aka a “Loans Guy or Girl”. Ben
Walker is a licenced Credit Representative (No. 503406) of BLSSA
Pty Ltd ACN 117 651 760 (Australian Credit Licence No. 391237).
It’s based on our understanding of banks at the time, but they
change their policies more than they change their underpants. Let’s
keep in mind this is general advice and does not take into account
your personal needs and financial situation.
Our understanding and experience with banks is that Bucket
Companies don’t stop you getting finance from the banks.
Because you’re a business owner, the banks don’t just take your
personal income to service your loan.
They’ll look at all related companies and trusts, and assuming
there’s consistency, they’ll take your total group income into account.
So if you distribute $100,000 to a Bucket Company, banks
should see this as your business income.
Can I use equity in my current property, plus cash

from the Bucket Company for a deposit to buy an
investment property?
While this is a complex question and scenario, we’ve made this
happen.
But always check with your switched-on mortgage broker to
find the lenders who will do this.
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Can the company buy property?

The company can technically own property and use the built up
cash to buy it, but I wouldn’t recommend that strategy.
The simple reason why is that a company is NOT eligible for
the ‘50% Capital Gains Tax discount’, but a trust or an individual is.
Now in English, the ‘50% Capital Gains Tax discount’ means that
if you own an asset (like a property or a parcel of shares) for more
than 12 months, you get a 50% discount on the amount you get
taxed on when you sell that asset and make a gain.
Some quick numbers on the benefits:
Company Trust or Individual

Purchase Price $500k $500k
Sale Price $600k $600k
Gain $100k $100k
Taxable Gain $100k $50k
Example Tax Rate 30% 34.5%
Tax on Gain $30k $17.25k
The tax saving by owning property in a trust or individual is

$12,750.
So to maintain ultimate control of your tax bill when you sell
the property, own the property or asset through an Asset Trust.
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Ok, so how do I use the cash in the company to buy

property?
You can loan the money from the Bucket Company to your Asset
Trust (secured). Then the rest can come from the bank.
This gives you 25 years to pay back the loan to the company,
and assuming it’s an investment property, pay tax deductible
i n t e re s t f ro m t h e A s s e t Tr u s t b a c k t o y o u r o w n B u c ke t
Company.
See the “Loan it from the company” section above for more
details.
And always, always, always see a switched-on mortgage broker
for help with this sort of loan structuring.
In conclusion…
That’s a super detailed overview of what we call ‘Bucket Companies’
and how you can use it to cap your tax rate at 30%
Bonus Tax Saving Strategies
1) Write Off Bad Debts.

Bad debts are awful. They are the physical embodiment of
wa s te d t i m e , wo r k a n d ef fo r t . Bu t i t h a p p e n s . Wh at a l s o
happens is that the bad debt hangs around, if only in the back
of your mind, for a long time. Let’s look at how that much at
least, can change.
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How does this strategy work?

Imagine you are a plumber, and builders are your clients. You
send them invoices regularly for your work. Sometimes they pay.
Sometimes they don’t. There always seems to be a dispute.
Here’s an unpleasant scenario torn from the pages of recent
history and we’ve changed almost everything about it apart from
the amounts and of course the outcomes.
Let’s say for a $1,000 invoice you send, the builder pays $800
but refuses to pay the last $200. He claims your guy never showed
up on that day (even though he did!). So, you chase up the $200.
You ring, you SMS, you email, you knock on doors, you send ‘the
boys’ around. Nothing. Zip. Zilch. Nada.
The $200 sits on your Debtors Ledger aka “Your list of people
who owe you money!” The $200 becomes BAD… No, the debt
didn’t grow a beard, nor did it start wearing a black leather
jacket and start smoking. It’s BAD because it’s likely you’ll never
get it back!
You’ll probably spend more than $200 just chasing the damn
thing. Same principle applies if the builder went bust. It’s bad.
While $200 doesn’t sound like a lot, this scenario is pretty
common in the Building Industry. This scenario needs to happen
just a few times over a couple of years and you’ve built up a
WHOPPING $12,000 in Bad Debt.
Here’s how the numbers would crunch. The example we’ll use
is where your taxable income is once again, $200,000.
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Option 1 (Without Tax Planning): Pay in your own

name.
The tax rate in your own name would be at individual rates of up
to 47%. You’re up for $67,232 Tax.
Ouch! (Told you)
Option 2 (With Tax Planning): Write off $12,000

worth of bad debt.
Your taxable income would reduce to $188,000. By writing off
$12,000 of Bad Debt, you’d save $5,640 in tax, when compared
to paying in your own name.
What do you need to implement this

strategy?
zz A Business.
zz Bad Debt.
zz Evidence of your attempts to recover - emails, phone calls,
death threat letters (complete with cut out magazine letters).
zz Evidence of your decision to write the Bad Debt off - a
meeting minute will do.
zz A chat with an Inspire Chartered Accountant.
zz To take action prior to 30 June.
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FAQs: Writing Off Bad Debt.
What happens if I write off a Bad Debt and then it

gets paid back?
While this situation should be rare if you’ve written off the bad
debt, you’ll need to add it to your profit in the year that it was
paid to you.
Is there a limit on the Bad Debt that I can write off?

No. If a debt is bad, it’s bad!
When does a Bad Debt become bad?

While it isn’t definitive, here’s some considerations. You:
zz Must not have a chance of receiving the money.

zz Must have proof of following up and doing what you can to
recover the amount, even though unsuccessfully.
zz MUST have considered the debt bad, before 30 June of the
year you write it off – and document that decision.
Bad Debt and Debtors are affecting my cash flow.

What advice would you give?
This signals that something isn’t right in your business. It could be your:
zz Pricing strategy,
zz Quality of your product or service,
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zz Clients you’re choosing to work with, or

zz When you take payment for your services.
But something is out of kilter and it’s time to speak to a trusted

professional.
2) Consider making Additional Super

Contributions to Reduce your Tax.

You may be aware that superannuation is the best investment
vehicle for tax purposes out there. It’s also easy to put this in the
back of your mind for a number of reasons. You might think:
1. “I can’t touch it now, so why bother…?”

2. “There’s hardly anything in there, so I’m going to concentrate
on making money in my business.”
3. “The laws change every five minutes. I’d rather not worry about it.”
But while those thoughts may have an element of truth, there are
some very effective ways to incorporate your superannuation into a
broader wealth creation and tax planning strategy. For instance, you can:
1. Use your superannuation to purchase your business premises,

even if you don’t have the full amount in super.
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2. Pay 15% tax on earnings on your superannuation if you’re

accumulating a balance.
3. Pay 0% tax on earnings if you’re drawing a pension (with
conditions, if you’re over 60).
So, here’s how the numbers would crunch. As always, your

taxable income is $200,000.
Option 1 (Without Tax Planning): Pay in your own name.

The tax rate in your own name would be at individual rates, of up
to 47%. So you’d be up for $67,232 Tax.
Yikes! (changing it up, still hurts though)
Option 2 (With Tax Planning): Contribute $20,000

to Super prior to 30 June.
Your taxable income would reduce to $180,000. By contributing
$20,000 to Super prior to 30 June you’d save $9,400 in tax, when
compared to paying in your own name.
What do you need to implement this strategy?
zz A Business.
zz Cash flow available put into Super.
zz To take action and put the money into super prior to 30 June.
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FAQs: Do I ever get taxed on money in

Super? If so, when?
Yes, you get taxed at 15% in Super for everything you contribute and
claim a tax deduction for. This 15% is paid by your superannuation
fund when they lodge the tax return (if you own an SMSF); or the
tax is taken straight from your balance when you deposit it if you
are using a public Super fund.
Is there a limit as to how much I can put into Super?

Yes, there sure is. The limit is currently $25,000 regardless of your
age. (It was previously $30,000 if you’re 48 years old or younger.
And $35,000 if you’re 49 years, plus.) The limits are a lot higher
(can be up to $300,000 in a single year) if you’re making the
contributions from after tax money.
It’s likely that these limits will change over the next few years
and they announce these limits in the Federal Budget – so always
check before you contribute!
What happens if I don’t have the cash flow to put

into Super?
To get the tax deduction, the Super needs to be paid by 30 June
of that year.
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If I have many family members, can we pool our

Super limits?
A Super limit is per person.
Can I contribute to Super on behalf of other family

members?
Yes, you can contribute the $25,000 for each person. It will end up
in their own superannuation account though, so for instance, you
cannot ‘borrow’ a Super limit from another family member and pay
yourself $40,000 instead of $25,000.
3) Pay your Employee Super Payments

1 Month Early to get 10 Months of
Additional Cash Flow.
Now we’re starting to get you to think counterintuitively. That

said, a lot of the strategies are counterintuitive because we’ve
been conditioned to think very conservatively about tax and how,
when and how much we pay. As mentioned, the prevailing attitude
has always been that tax, no matter what it looks like and how
it impacts our businesses and lives, just has to be paid without
question. But as is so often the case in life and business, it’s all
about timing.
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Each month you pay superannuation for your employees. 9.5% of
their wage. For a quarterly payroll of $100,000, that’s $9,500.
Now, your Employee Super Payments are typically due on the
28th day of the following month after each quarter finishes. For
the quarter of March to June 2018, it’s due 28 July 2018.
But what if we were to pay that bill early? Just one month early.
You’d get the tax deduction now, which is an additional 12 months
of cash flow. Here’s how the numbers pan out...
The company tax rate would be 27.5%. So, this $9,500 Super
Bill would reduce your tax by $2,613.
Option 1 (Without Tax Planning): Pay the $9,500

super bill on time in July 2018 aka NEXT financial year.
$9,500 Super Payment goes out in July 2018. $2,613 Tax Reduction
comes back in August 2019 (when you lodge your company tax
return). 13 months later.
Option 2 (With Tax Planning): Pay the $9,500 super

bill early aka THIS financial year.
$9,500 Super Payment goes out in June 2018. $2,613 Tax
Deduction comes back in August 2018 - 2 months later.
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By paying your Employee Super Payment 1 month early,

you’d enjoy $2,613 in your bank account for 10 months
longer, when compared to paying on time.
Now a couple of grand extra cash flow for 10 months doesn’t seem
like much. But when you layer a few pre-payment strategies on
top of each other, we’ve seen clients with an additional $10,000
- $40,000 cash flow. That’s a game changing amount. And with
that, you can –
zz Sleep at night. I mean really sleep, soundly!

zz Pay down your debts.
zz Make a deposit to your Profit War Chest.
zz Invest in business growth (see step 3 + 4).
zz Turn $1 into $2 (see step 5).
zz Build a “rainy day” fund (three months business expenses).

strategy?
zz A Business.
zz Cash flow available to pay early.
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FAQ’s: Pay Employee Superannuation in

June, not July.
By when does the payment have to clear the

account?
You need to make your payment before business closes on 30 June.
(It must have left your bank account to count as a tax deduction.)
Can I pay more than one month’s superannuation

payments early?
Yes, you can, but we wouldn’t recommend going overboard. You might
accidentally go over your employee’s Super contribution caps ($25k
in a year). Doing this would cost them up to 47% in tax on that Super.
Can I prepay other expenses early to get the

same effect?
Yes, you sure can. So long as your business turns over LESS than
the ‘turnover threshold’ mentioned above in a financial year –
currently this turnover threshold is $25M. And you’re not pre-
paying an expense for any more than 12 months.
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4) Pay your Life Insurance Premiums from

Super - and get Double Tax Benefits.
Life insurance will not benefit you one little bit… unless peace of
mind is valuable to you. Ensuring that the people you truly care
about are being looked after, after you’re gone can make life a
little lighter so there’s that. Still, there’s those premiums and it’d
be great if something could be done about those to contribute to
your overall tax planning, right? Look this over.

Life Insurance is money your family will receive in the event of your
kicking the bucket (levity makes it easier to talk about… apparently).
Interestingly, the premiums you pay for Life Insurance are not tax
deductible, unless they’re paid from your superannuation. Let’s say
the premiums for your Life Insurance are $5,000 per year.
Option 1 (Without Tax Planning): Pay the $5,000

Life Insurance premium outside of Super.
No tax deduction applies. Sad face emoji (still trying to keep it light).
Option 2 (With Tax Planning): Pay the $5,000 Life

Insurance premium from your super fund.
First of all, we need money into your superannuation fund to pay
the premium. Business contributes $5,000 into Super. This alone
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saves $2,350 tax, when compared to paying 47% tax in your

own name.
Super fund pays 15% tax on $5,000 in Super = $750 due.
Super fund pays $5,000 Life Insurance premium.
Super fund get 15% tax deduction for premium expense =
$750 refund.
Super!
By paying your Life Insurance Premium from Super, you’d save
$2,350 in tax on the Super contribution IN (when compared to
paying tax in your own name) AND you’d receive a tax deduction
for the $5,000 premium paid.
zz A Business.
zz A Super Fund - industry fund or Self-Managed Super Fund.
zz A Life Insurance policy.
FAQs: Pay life insurance premiums from Super.
Why are Life Insurance premiums not tax

deductible outside of Super?
You cannot claim life insurance as a deduction (outside of Super) because
you don’t pay tax on the money received when you die. Because no
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tax is payable when your family receives that money, it would be

unfair to be able to claim a deduction for the premiums along the way.
The ATO has special rules and allows a deduction in superannuation.
If I paid the same $5,000 premium outside of Super,

how much would I have to earn pre-tax to pay that?
If you pay a rate of 47% in tax, you’d have to earn $10,638 BEFORE
tax, then pay $5,638 in tax. Leaving the $5,000 after tax to pay your life
insurance policy.
Does the same strategy apply to other insurances

like TPD, Travel, Home, Car, Pet and Income
Protection?
zz TPD - Yes, it’s deductible through Super only (only the ‘Any
Occupation’ component).
zz Travel – no, not tax deductible, unless the travel itself is deductible.
zz Home - no, unless it includes business related assets.
zz Car - no, unless you use your car for business.
zz Pet – no, unless you use your pets for business (legit,
tradesman can sometimes claim this).
zz Income Protection - yes, fully tax deductible.
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5) Accelerated Asset Depreciation -

100% Deductible NOW, if it’s Under $20k.
I’ve mentioned before, timing is everything when it comes to

business and this is especially true when you’re working through
and executing your tax plan. This strategy has a couple of moving
parts to get your head around but as always, a committed, qualified
professional can work with you on this.

You buy an asset, a car for example and you use it for running around
doing quotes onsite. Here’s the thing that you probably already know.
Its value will GO DOWN (aka depreciate) over time. Happily, the tax
man lets you claim that depreciating value – Thanks, Tax Man!
The key to THIS strategy is the magic number of $20,000.
If the asset is $20,000 and under, you get a 100% tax deduction NOW.
Option 1 (Without Tax Planning): Buy a company

car for $20,001.
You can claim depreciation … bit by bit over the next 8 years. Sad
face emoji. Actually, make that a sad and impatient face emoji.
There are other accelerated depreciation rates for assets that
cost more than $20,000+GST.
You need to write it off:
15% of the value in the first year
30% of the ‘written down value’ each year after that.
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So a $20,001 car would be written off like
Year Opening Value Depreciation Closing

Value
First Year $20,001 $3000 (15%) $17,000
Second Year $17,000 $5,100 (30%) $11,900
Third Year $11,900 $3,570 (30%) $8,330
Fourth Year $8,330 $2,499 (30%) $5,831
And so on each year at that 30%.
Option 2 (With Tax Planning): Buy a company car

for $20,000.
You get a 100% Tax Deduction this year. Woohoo!
By purchasing an asset worth $20,000 and under, you’d save
up to $9,400 tax in the first year, when compared to paying 47%
tax in your own name.
BOOM.
So, if you were already shopping for a new asset for the
business, remember the magic number - $20,000.
zz The Coffee Machine for the Cafe

zz The Squat Rack for the Gym
zz The Drill for the Sparky
zz The Abacus for the Accountant (lol – must be gold plated!)
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zz The Scanner for the Doctor

zz The Microphone and Laptop for the Podcaster
zz The Deep Fryer for the Cook
zz The Pole for the Dancer
zz The Table for the Physio
zz The Camera lens for the Photographer
zz A Business that turns over under the turnover threshold

(currently $25M).
zz An invoice for an asset under $20,000 or under $22,000 if
you are GST registered and the expense has GST on it.
zz To take action prior to 30 June. (I feel like you know this already)
FAQs: Accelerated Asset Depreciation.
Why have I never heard about this strategy?

This strategy has been around since May 2015. Your accountant should
have made you aware, if they’re a good adviser for your business.
Why $20,000?
This is the limit that the ATO advised in the May 2015 budget.
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What if I turnover more than the threshold ($25M)?

Can I still use the strategy?
No, sorry. The strategy is only available for what the ATO calls
‘Small Businesses’ - those who turn over less than $25,000,000.
6) Time Your Capital Gains - Hold for 12

Months and Sell in a Low Income Year.
Timing again. It really is everything and as is often the case, your

timing and your readiness to act on a solid plan is vital to the
success of the strategy.

You bought an investment. And let’s say it’s a property for example.
You bought it for $200,000, sold it for $300,000. You made
$100,000 profit - woohoo!
The tax man wants a piece of your pie – C’MON, really!?! It’s
called Capital Gains Tax and yes, it stings a little. There are two
strategies around TIMING to minimise Tax on your Capital Gain.
Quickly, to the options!
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Timing Your Capital Gains: Part 1
Option 1 (Without Tax Planning): Pay Capital Gains

Tax on $100,000 Profit.
47% x $100,000 = $47,000 tax. Or only $53,000 profit left. :(
Option 2 (With Tax Planning): Hold off the sale of

the Property until you’ve held it for 12 months.
You only get taxed on half the profits.
That’s 50% of $100,000 tax free (woohoo!) and
47% x $50,000 = $23,500 tax.
By timing the sale of your property you’d save $23,500 TAX
and get $50,000 of profit TAX FREE, when compared to selling
before 12 months is up.
Timing Your Capital Gains: Part 2

Alright, you’ve had a great year aka your income is high. Any
profits you make on the sale of an asset will go straight onto your
(already high) taxable income. This TIMING strategy also relates
to timing the sale with a year in which your income will be lower.
You know that crappy year where nothing really went well in
business? Good Timing. Sell!
zz A Business.
zz An asset that you’re going to sell at a profit.
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FAQ’s: Timing Your Capital Gains.
Does the same strategy apply to selling shares in

my business?
Yes, it certainly does. Although there are other concessions for
which you may be eligible to pay even less tax, or in some cases
NO tax when you sell your business.
What about when I sell shares in someone else’s

business e.g. Telstra?
Yep - same treatment as well!
What if I hold the assets in a trust? Can I avoid

paying Capital Gains Tax?
Nice try - but no. You cannot avoid capital gains tax. Besides,
tax should be minimised at every opportunity but never avoided.
Semantics? Yes. Serious implications, though? Yup!
If you hold assets in a trust, this strategy still applies. Just hold
for over 12 months and sell in a low-income year!
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7) Prepay Interest on a Loan to Reduce

your Future Payments and Increase
your Tax Deduction.

Let’s say you have a loan for an investment property. You pay
interest on the loan throughout the year. If you were to pre-pay
your interest on that loan this year, your payments next year would
go down and your tax deduction this year would go up. Let’s say
the interest component is $5,000 for a year.
Option 1 (Without Tax Planning): Pay the $416.67

interest each month next year.
Receive the full tax deduction at the end of the next financial year.
Option 2 (With Tax Planning): Pre-pay the $5,000

Interest expense before 30 June.
This alone saves $2,350 tax, when compared to paying 47% tax in
your own name.
By pre-paying your interest expense a year in advance, you’d
save $2,350 in tax this financial year instead of next.

strategy?
zz A Business.
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zz A Business or Investment Loan, structured so you can

prepare interest..
zz Cash flow to fund the pre-payment.
FAQs: Pre-pay Interest on a Loan.
Can I pre-pay more than one year’s interest?

No. The rules around pre-paying expenses only apply for up to 12
months of prepayments.
Can I do the same strategy on a personal loan and

get the tax benefit?
No. The interest MUST be tax deductible in the first place. A
personal loan is not tax deductible, therefore pre-paying the
interest would also not be tax deductible.
8) Contributing More Super than

Allowed Will Cost you 47% - Don’t Go
Over the Limit.
Enthusiasm, foresight, commitment to the journey. You have all

that and if you didn’t there’s no way you would be owning your
own business. However, balance and control are also required, not
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only for business success but in order for this strategy to work for
you and yours.

You only get t axed at 15% for contributions INTO Super.
That’s a massive tax saving if your tax rate is higher than 15%.
But remember there is a limit as to how much you can put
into Super!
The limit is $25,000 regardless of age. If you go over the
cap, you’ll pay 47% on anything over the limit. Let’s say you
accidentally pay $5,000 over your cap. You’d pay $2,350 tax on
the $5,000 alone. Oddly, accidentally paying more than the cap
is more common than you think. I know what you’re thinking…
How does this happen?

A few reasons:
1. People don’t know what their superannuation cap is. These

laws change regularly.
2. People forget they may have already contributed to their
superannuation throughout the year.
3. People have insurance policies with a different fund to their
normal Super fund. They contribute up to the cap in their
normal Super fund, and then the insurance amount to the
other fund.
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zz Cash flow available to put into Super.

zz Awareness of your superannuation cap.
FAQs: Super Contributions to Reduce Tax.

Is there any way I can contribute more than the cap, without
getting penalised?
Yes. There’s something called ‘non-concessional’ contributions.
This means you use after-tax money to contribute to your
superannuation fund.
The annual caps for non-concessional contributions are MUCH
higher than concessional contributions because you can’t get a
tax deduction for them. You also pay no tax when it enters your
superannuation fund.
9) Investment Property Depreciation -

Get a Depreciation Report and Save.

You have an investment property and you earn income from it - the
rent your tenants pay you. You pay tax on that income, but you can
reduce that tax by claiming depreciation on the property.
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What can you claim depreciation on?

If you own an investment property (new or old, large or small), two
areas of depreciation are available:
1. Plant and Equipment; and

2. Capital Works on the Building.
Different items within a rental property have different rates

of depreciation based on what’s called the ‘effective life’ of the
item. Qualified inspectors have the expertise and knowledge to
know which items are depreciable and how savings can be made.
To claim maximum tax benefits on an investment property the
ATO requires property investors to complete a fully compliant tax
depreciation report.
What is a property depreciation report?

A property depreciation report (also called a depreciation schedule)
sets out all tax depreciation and building write-off claims for a new
or existing investment property.
Option 1 (Without Tax Planning):

Your taxable income (after a $10,000 rental property loss) is
$200,000.
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Option 2 (With Tax Planning):

You get a compliant tax depreciation report, which allows you to
claim an extra $10,000 in depreciation on the property. You save
47% of tax on that $10,000 which is $4,700 in tax saved!

strategy?
zz Employment or business income.

zz An investment property - residential or commercial.
zz An ATO compliant Depreciation report.
FAQ’s: Investment Property Depreciation.
Is this strategy only available for certain properties?

Kind of. Most properties will have at least a small depreciation
claim of a few hundred dollars. But following the ATO rules, you
can claim a much higher amount for properties that were BUILT
(not purchased) after 17 July 1985.
What if I missed this claim last year?

The fortunate thing is that you can amend your prior year tax
return to include this claim if you missed it last year.
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10) BONUS Investment Property Tax

Tip – the ‘6 Year Rule’ to selling your
home CGT free:
This is an underutilised and often unknown tax planning tip.

It’s for owners of investment properties that first lived in the
property as their main residence.
Now most Aussies know that if they make a profit on selling
their home, or their ‘Castle’, they don’t pay tax on this.
Accountants call this the ‘Capital Gains Tax Main Residence
Exemption’. Basically, there’s no tax on the house you live in and
call home.
There’s a special ‘add-on’ to this. It’s where you first live in your
house, and say you move out of it later and rent it out. You have up
to six years to sell the property from the date you rented it out and
you can choose to claim the Main Residence Exemption – paying
no tax on any gain you make!
Now with this, if you move out of your property, and into
another one that you own, you cannot claim the main residence
exemption on more than one property at any time.
So if you bought a second house, moved into it, and rented
the first house out, if you choose to use the 6 year rule, then you
cannot claim the exemption on your second house during the time
you owned your first house.
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That’s our Top Tips for Business Owners –

what about Employees?
At Inspire, our mission is to help young families use their small
business to get Cashed Up.
Step one of getting cashed up is to Cut Your Tax.
Most of what we spoke about above is focussed on business owners.
But business owners often come with a spouse who might be an employee.
Now in terms of saving tax, it’s a lot easier to implement strategies
in a business – compared with an employee – but we do have a few
tricks up our sleeve when it comes to saving tax for employees.
The following section is our top 9 strategies. If you or your
spouse is a high income employee, tick off these 9 strategies as you
go – or you might want to start a to-do list to get them in place!
The Top 9 Tax Planning strategies for High

Income Employees
We recently had a question from a client, not about structuring for his
business, but what his wife could do from a tax planning perspective.
The scenario is the husband runs a business, and earns a good
$130,000 profit. And through proactive tax planning, we ended up
saving him over $35,000 in tax, keeping his average tax rate on the
business income less than 20%.
Great! He loved that, so what about his wife?
His wife earns $250,000 as an employee. This means she’s
paying 47% tax on a good portion of that income, but an average
tax rate of about 37% on each dollar she earns.
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Not cool.
Unfortunately, there are not as many things you can do to plan
for tax as an employee than you can as a business.
And I would NEVER recommend spending $1 on something tax
deductible to save 47 cents in tax just for the tax savings. Although it
sounds tempting – you lose 53% of what you’re spending money on.
As a refresher, for 2018 FY, the individual tax rates (including
Medicare levy) are:

$0 - ~$20k 0% ‘tax free threshold’
~$20k - $37k 21%
$37k - $87k 34.5%
$87k - $180k 39%
$180k or more 47%
So, what are the top tax planning

strategies for high income employees?
1. Contribute to your Superannuation Fund

The first way you can reduce your taxable income, and therefore
your tax on that income, is through additional superannuation
contributions.
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Your employer needs to make these on your behalf as salary

sacrifice contributions, and they do this from your ‘before tax income’.
You cannot make these yourself from your after tax income. (At
least for the 2017 financial year and earlier this is the case. The
government changed the rules in the recent budget, and you will
be able to make these tax deductible contributions from after tax
employment income from the 2018 financial year onward.)
Be careful to not exceed your ‘Contribution Cap’ for deductible
superannuation contributions.
These deductible super contributions include both your
employer minimum (mandatory 9.5% they have to pay on your
salary) plus any salary sacrifice contributions that you do.
For the 2017 Financial Year (ending 30 June 2017) the Cap (or
maximum you can put in, without additional tax) was based on
your age.
If you’re 48 years or younger, the limit was $30,000 in the
financial year.
If you’re 49 years or older, the limit was $35,000 in the financial year.
For the 2018 financial year (from 1 July 2017 onwards) both of
these caps reduce to $25,000 regardless of age.
Going over the caps mean you pay an effective tax rate of 47%
in tax. Ouch!
Crunching the numbers, let’s imagine that your employer
already chipped in $20,000 so far in the tax year as the minimum
they need to on your salary, and because you’re 52 years old, you
have $15,000 that you could contribute, taking you up to the cap.
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You’d have to sacrifice or pay that $15,000 of money into super,

but it would save you $7,050 in tax by doing so (if you were paying
47% tax on your salary).
Division 293 Tax

This is a tax that was brought in in the last few financial years.
It’s an extra tax on super contributions for people who earn
over $250,000 now, and in addition to the 15% contributions tax
that your super fund pays, you will be up for an additional tax of
15% on your contributions, called ‘Division 293 Tax’.
This extra tax can either be paid from your personal pocket or
from your super fund.
Keep an eye on the $250,000 limit though – as this has changed
over the years (down from $300,000 previously).
Always talk to a good Financial Adviser to make sure this is
appropriate for your situation.
2. Negatively Gear an Investment Property

Another very common scenario is that high income earners have a
negatively geared investment property.
What this means is that the tax deductions they get from renting
out the property outweigh the rent they receive from the property.
This could be $25,000 in rent received, less $20,000 in
expenses paid for during the year (like interests on loans, council
rates, agent’s fees), and then a further deduction of $20,000 for
depreciation on the property.
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Under this scenario, while the property ‘made’ $5,000 net in

positive cash flow, the property made a taxable loss of $15,000.
If you’re paying tax at 47%, this ‘negative gearing’ would reduce
your tax bill by $7,050.
3. Get Private Health Insurance

Having Private Health Insurance (hospital cover) means that you
do not have to pay the ‘Medicare Levy Surcharge’.
There’s often confusion when clients have hospital cover, but
they still pay Medicare Levy. That’s because there are two types
of Medicare payments on your tax:
1. Medicare Levy (all individuals pay this, and it is calculated at 2%

of your taxable income if you’re earning more than ~$27,000)
2. Medicare Levy Surcharge (additional 1% to 1.5% depending on
your income)
You need to pay the Surcharge component if you’re single and

earn over $90,000, or have a spouse and together your income
combined is more than $180,000 – and you don’t have private
health insurance (hospital cover).
Of course if you, or you and your spouse, do hold the hospital
cover, you do not have to pay the surcharge component.
If you earn $300,000, you’d be up for $4,500 in Medicare
Levy Surcharge alone.
And Hospital Cover may only cost you $2,000 to take out!
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On that maths, you’d be up $2,500.

So if you’re over the income threshold ($90,000 if you’re single,
or $180,000 if you have a spouse, incomes combined), or are
creeping toward it, it may be worth taking out cover.
And just as an FYI – having Private Health Insurance (extras
cover) does not remove the surcharge.
4. Salary sacrifice your vehicle

Some people salary sacrifice a vehicle that they use both for
business and private use.
This usually looks like your employer organising a novated
lease, operating lease, hire purchase or paying for your car.
There are many ways to structure it depending on what your
employer is comfortable with – and we recommend getting advice
on what option is best for you and your employer at the time.
This can usually shave a few hundred, or a few thousand off
your tax bill.
5. Donate to Charity
If giving is something you do, or want to do, then consider making
a tax deductible donation.
As an employee, you can claim a donation of anything over $2,
to an Australian Deductible Gift Recipient (“DGR”), and as long as
you get a tax invoice from them.
To work out if a charity is a DGR, you can check the Australian
Business Register here: http://abr.business.gov.au/
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Once you search for your charity and find it, you can look down
the bottom of the search and the ‘Deductible Gift Recipient Status’
will show up:
Donating or ‘tithing’ to most churches cannot be claimed as a

tax deduction on an individual tax return – unless you check that
they are a Deductible Gift Recipient.
6. Income protection insurance

If you’re ballin’ on six figures or more of salary, it’s probably a good
idea to protect your income, especially if you’re the sole earner
in the family, or have loan repayment obligations each month
that, if you all of a sudden found yourself out of work, you’d have
trouble paying.
You can do this through taking out income protection insurance.
While we do not offer advice on how much to take out and
what cover you need, we know that if the policy is paid personally,
we can claim the premiums as a tax deduction.
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If you need help with this, reach out and we can put you in
touch with some great people who can help.
7. Self-Education, Training or Executive

Coaching
If extra study or developing your skills are of interest to you,
then you can pay for self-education, professional development or
training and claim this on your tax.
You could also hire an executive coach to help you perform
better in your role.
Keep in mind that there has to be direct connection with the
training and what you do as an employee.
For instance, if you have HR responsibilities at work, and want
to do a training course on how to manage people better, then this
would be deductible.
But if you’re in a sales role and want to learn how to fly a plane
(which in this example has nothing to do with your employment),
then sorry, that’s not deductible.
8. Structure Investment Income Appropriately

We often see highly paid people build wealth over years.
It’s critical that the ownership of any investments (such as
interest earning bank accounts, shares, investment properties) is
carefully considered.
Whoever owns these assets and receives the income pays the
tax on that.
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So if the wife owned the assets, she’d pay 47 % in tax on the

investment earnings.
Compared with say the husband at a rate of 34.5% – a big
difference.
Be careful with restructuring investments that you own at the
moment, as shifting between family members or entities usually
triggers Capital Gains Tax, or stamp duty (or both!)… Best to chat
with an accountant who understands this stuff!
9. Change the way you get paid

The biggest and best way we’ve seen highly paid, high functioning
people reduce their tax is through changing the way they get paid.
Most common is to start a business consulting to other similar
businesses who need their skill, knowledge or service.
To make this worthwhile and beneficial from a tax perspective,
you would need two or more clients.
And one single client could not pay you more than 80% of your
total income. For instance, if you earned a total of $300,000 gross
from consulting, your biggest client could not pay you more than
$240,000 (or 80%) of that total in a year. (These rules are tricky,
so get advice and don’t shoot from the hip.)
It’s also worth noting that the two clients cannot be related
parties. Even with two different ABNs, if the businesses are related
or associated, this cannot happen.
But if changing the way you get paid (such as starting a business)
is a possibility, do let us know.
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TAKE A BREATH!
That is a lot to take in. Some of the strategies I’ve just shared and that
all of the qualified team at Inspire use to help our clients reduce their
tax burden, are the centre of hours long discussions. So you are right
to feel like your head might just explode. But that’s why we’re here.
Before moving on to the next chapter, I’d like you to put a book
mark or fold on this page because I’d like to very quickly recap the
list of recipients that can reduce your tax burden.
Structure your business so you don’t give half your profits to
the tax man
zz Sole Trader (47% tax)

zz Company (27.5% or 30% tax)
zz Trust (0% tax – gives profit to other people or entities)
How you take the money out of a company or trust

Company
1. Salary (PAYGW and Super 9.5%)

2. Loan (Div7A)
3. Dividend (Prior year profit)
Trust
1. Salary (PAYGW and Super 9.5%)

2. Loan (Drawings)
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3. Distributions (Current year profit)
10 People or Entities you can distribute profits to
1. Yourself
2. Your spouse
3. Retired parents & in-laws
4. Grandparents
5. Children under 18
6. Brother or Sister (including in-laws)
7. Superannuation
8. Church or Charity
9. Business or Investment making a loss
10. Bucket Company
Bonus Strategies
1. Write off bad debts

2. Make additional super contributions
3. Pay super (and other expenses) before 30 June
4. Pay life insurance premiums from super
5. Accelerated depreciation
6. Time your capital gains
7. Prepay interest on a loan
8. Don’t go over the super contribution limits
9. Get a Depreciation Report for your investment property
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10. The ‘6 year rule’ to selling your home CGT Free
High Income Employees
1. Contribute to super
2. Negatively gear an investment property
3. Get Private Health Insurance (hospital cover)
4. Salary sacrifice your vehicle
5. Donate to charity
6. Income protection insurance
7. Self-education, training or executive coaching
8. Structure investment income appropriately
9. Change the way you get paid
As mentioned, we’ve really gone to town on this the first

step towards getting cashed up. Tax is a complex and changeable
beast and since our goal is to minimise your tax as means of
making your business more profitable, a lot of time has been
spent on this.
But speaking of profit, this chapter was a means to an end. Let’s
step through how to capture sustainable profit. And while profits
are not the end game, the freedom to spend quality time with your
family and enjoy life is. More often than not, you can’t have that
with learning more about profit.
Let’s keep going.
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CHAPTER 4
Capture Profit
That’s a noun and a verb
O kay, this chapter is literally the money chapter, because

it relates directly to all things profit. What is it? How do I
preserve it, maximise it, protect it, grow it, keep it coming? Let’s
start with a simple rethink of a complex formula:
You’re used to seeing Revenue – Expenses = Profit where
revenue is made up of sales.
But what if your sales are low value that yield little to no
margins. You’re on the slow road to frustration and quite possibly
futility. This is not good because it takes some people quite some
time to realise why their business isn’t working for them (in fact,
the other way around). Why not look at your business through the
prism of this formula:
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Leads x Conversion = New Clients + Existing Clients = Total

Clients x Retention x How Much x How Often = Revenue x
Margin = Profit x Multiple = Business Value
In short, increase lead generation to amplify the effectiveness of

your conversion rate. Increase your retention rate by improving the
value of your offer. The increased focus on the quality your clients
derive will increase your margin potential which will increase profit,
which in turn will increase the overall value of your business.
But this doesn’t all happen by accident. Improvement needs to
be the result of planning.
Profit improvement planning
It’s always a great thrill when you look at your P&L and realise
that you’ve made a profit. Let’s face it, everyone loves a profit,
especially when it’s big and healthy and we don’t even mind if it’s
an unexpected event. It’s hard to think of a circumstance where
the sudden arrival of a substantial profit is not welcomed with
open arms.
Too often, profit is something that small business owners
fervently hope for, and when it arrives, it’s greeted with gratitude,
relief and yes, even surprise. While it’s certainly a happy event,
should genuine surprise always be the reaction? If it is, that would
suggest a lack of planning and more than just a smidgeon of luck!
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As we all know, luck is a wonderful thing to have on your side, but

it is not to be relied upon to bring home the bacon month in and
month out, year on year. For that you need a plan.
Planned profit is the best profit
Understanding growth indicators and triggers is an activity in which

successful owners of Cashed Up businesses invest a lot of time.
They understand that profit fluctuations occur for a reason – it’s
not left totally to chance. Yes, we understand that being in the
right place at the right time has a lot to do with success but smart
business owners also believe that there is a science and an element
of planning behind sustainable profit and profit growth.
As always it comes down to knowing the numbers, being able to
look at your Profit & Loss report and understand what has occurred
and why. That’s only step one because having a firm grasp on past
performance, in and of itself, may not mean that you understand
what should happen next. This is why formulating a “profit
improvement plan” with your “numbers team” (CFO, accountant
etc) is critical to ensuring improved cash flow.
Planning demonstrates intent by setting forth actions based on
what the numbers are telling you. Instead of simply hoping that
the lucrative month you just rejoiced in is repeated in upcoming
months, adopting logical steps that may call for planned operational
tweaks and adjustments will help achieve that goal.
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Sometimes when you win, you lose

It’s funny how one bit of good fortune keeps you in the game –
believing that there’ll be more good luck just around the corner.
However, relying on the ebb and flow of profit fluctuations and
hoping to “catch lightning in a bottle” from time to time is not
feasible.
The hard truth is that if you don’t work with some kind of profit
improvement plan, you will always struggle. Why? Because if you
can’t rely on the achievement of a certain amount of profit or
growth, you have little choice but to “hustle” hard all the time. If
you don’t have a profit improvement plan, you can also forget about
planned holidays – the type where you’re not sneaking back to the
room to check emails and payments and the like. Even on holiday
you can never truly switch off and that, is simply not sustainable.
Truth be known everybody gets lucky – but no one stays lucky.
Especially not lucky enough to build and sustain a cashed up
business. That takes planning.
Expenditure and cost control
There is a fine, and potentially very expensive, line between

securing the right workspace for your business and ego-driven
extravagance. At the polar extremes, it’s pretty obvious what
represents a sound investment and what’s just plain silly. However,
the grey areas are where even well-meaning and sensible business
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owners can fall under the subtle spell of extravagance. Here are a
few tips to help you spot the difference and avoid getting the stink-
eye from your business, your associates and your accounting team.
From the garage to the… penthouse?

Don’t do it!
A lot of businesses start out in a friend’s basement, a garage with a

desk or even from a bedroom with a laptop and a borrowed printer.
Eventually, and hopefully sooner rather than later, the commercial
entity will have grown to the point where a work environment that
reflects the progress made and where the business may be heading
is required. Sooooo… half a floor on the 30th floor of a CBD office
tower. Sweeeeet!
Okay, not many people would go that far. That’s the extreme
that I mentioned. But plenty of people go ahead and lock
themselves into a pricey lease based on the euphoria of recent
success, overconfidence and a near lethal dose of not knowing
their numbers. One or two big contracts in the bag and we are
heading to the top… (tyre screech)… (crash). How do you avoid that
collision with reality?
Tip: Work out your business’s income, expenses (including tax,
paying down debt but excluding rent), the amount you get paid for
both working in and on the business and a contribution to your
profit war chest. Essentially your “magic number” minus the rent.
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Okay, now what do you have left at the end of your typical month
according to your calculations? That number is what you can afford
to pay for commercial space.
Once you have that figure, you might find that your brand will
be represented just as well working from a co-workspace, a smaller
office, something closer to the 10th floor maybe…
In short, when thinking about locking yourself into a long-term
lease that looks fantastic (especially from the private balcony that
leads to the roof or that cool loft, open plan in the heart of the
creative district) – think long, think hard, think again.
Tip: If you’ve done the numbers and all ledgers point to that
big office with the extra storage space and cool reception area,
shop around for a lease that doesn’t lock you in beyond the
foreseeable future if possible. Nowadays there are a number of
purpose and brand fit spaces for different types of businesses that
have flexibility – you just have to ask.
Remember, you may think that visual impressions are the be
all and end all (or at least very important) but what really counts
is your bottom line.
War chest – what is it, why would I

want one?
Most business owners agree that cash is the oxygen that keeps
the heart of a commercial enterprise pumping. It doesn’t matter if
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we’re talking about trades, financial services or product sales and

distribution, without a healthy cash flow, things start looking pretty
sickly. So, it’s always a good idea to build a cash reserve, an easily
accessible emergency fund, a war chest. But the question is how?
Keep your eyes on the road and your

finger on the pulse
At Inspire we believe that your finger must stay firmly on the pulse
of your business’s critical numbers at all times. One of the reasons
for this is that it will help you “pick a number” between 10 and 25.
That number is the percentage of income that most businesses are
able to claim as profit. What’s yours? Got it? Great, so after paying
your regular outgoings, tax, salaries, paying down some debt and
of course paying yourself, you’re ready to commit your agreed set
percentage to your war chest.
But here’s where the riding a bike part comes in. We suggest
starting off by committing an amount smaller than your target
percentage to get started. Have you ever seen someone try to
mount a bike that was already travelling at or near top speed?
Disastrous, painful and ultimately you don’t end up getting
anywhere (maybe the hospital). It’s best to start your contributions
off at around 5% – see how the business reacts. Keep your finger
on the pulse. Does the heart keep beating steadily when you up
it to 10-15% a couple of months later? Is there a spike in blood
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pressure, sweaty palms, rapid breathing? Adjust accordingly, when

you find equilibrium, stick with it.
By knowing your numbers and understanding what they are
telling you about your business, you’ll be able to rest easier at night
knowing that your war chest is there for you should the need arise.
How big is too big?
When it comes to war chests, keep in mind what it’s there for.
Its purpose will determine the amount you to keep on hand. As a
guide, understand that many crises can be safely navigated within
a month or two. We recommend growing your war chest so that
your business can comfortably stay afloat for three months. With
three months’ worth of funds on hand, should major difficulties
arise, you can work through your circumstances without dealing
with the usual white-hot panic.
Once your war chest funds exceed that three-month funding
level, you might consider distributing a dividend to say thanks and
well done. Cash on hand for your business is one thing – and it’s
an important thing. But as always, remember why you decided to
own a business. It’s a vehicle to provide for your family and ensure
you get to spend more valuable time enjoying life with them.
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Profits are there to ensure you are paid

what you’re worth
Every business faces a period when revenue drops below

expectations for a time. Hopefully this occurs at the beginning of
your ownership journey, not the end. It’s at this time that knowing
your numbers will either provide comfort and reasons for optimism
or indicate that you are sailing far too close to the rocks! Either
way, knowing your numbers, listening to what they are saying and
taking action should see you back in calmer waters.
Sounds soooo simple but… it isn’t. “Overcorrection” means
that you’ve seen the danger, you’ve reacted and taken action.
Too much action. And now you’re facing danger again. If you’ve
ever been skydiving and the safe landing zone is quite small, you’ll
understand what we’re talking about, particularly the consequences
of overcorrection.
I want to be correct without

overcorrecting
To ensure that you don’t go too far with say, budget cuts or frenzied
reinvestment plans we use a humble(ish) $100 note. Your business
$100 note. Let’s start with a few easy ones. Of every $100 that
flows into your business, how much is assigned to:
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zz Paying the tax man?

zz Your pocket in the form of your pay?
zz Profit, which is the jewel in the crown of your business?
If you don’t have the numbers to hand, your business might just
be costing you an arm and a leg because too often owners take
a pay cut when they don’t need to and shouldn’t. Unfortunately,
ignorance is not an excuse when it means that you’ll be bringing
less money home to the family or spending more time away from
them. Okay, lecture’s over, let’s look at a typical example.
We find that a lot of businesses split their $100 notes like this:
zz Profit – $0.30
zz Owners pay – $11.00
zz Tax – $15.00 (and this really does depend on your structure
and the advice you receive)
zz Operational expenses – $73.70 which in some cases can’t
be helped but surely it’s worth a closer look.
Replacing the numbers above with the numbers that are specific
to your business is an important step towards reducing the correct
costs. Isn’t it strange that we’re in business for ourselves, hoping to
provide for our families and when push comes to shove we blindly
start hacking away at costs (including profit and our own share)
without seeing the full picture. That has got to stop.
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Look closely once again, at your $100 note and its break up.
When push comes to shove, perhaps it’s the tax component, the
company car use and premium delivery services that come under
the spotlight for a month or two.
Your pay, your profit and your time should remain sacred. Take
note.
Pay your staff what they’re worth – to

your business
One more thing. We often fall into the thinking that staff incentives
are the key to overall performance. And yes, that’s the truth. Or
at least half the truth. Too often those incentives come with the
territory, the desk, the laptop, the uniform when they need to come
with the promise of over and above achievement.
The value of knowing your numbers is in everything you do in
your business but especially in the area of preserving and growing
profits by incentivising and rewarding your team against your
overarching business goals.
Sales professionals the world over, dating back more than half a
century from 1960s real estate offices to modern day outbound call
centres, know that having a sales target is a motivator, a compass
and a necessity. You can’t hit a target you can’t see. In many cases,
the shorter-range targets are easier to hit. Tell your staff that they
need to hit $1.75m in sales in the next 12 months and it might
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happen. Break it down to weekly goals, even daily and chances of

success will have increased significantly.
Unless…
…the numerical targets allocated out are not aligned to the
overarching goal, the big number, the one that counts. It’s all well
and good to get everyone from the front desk/counter/room to the
chief decision-makers motivated with target numbers but it all falls
flat if they achieve them but the business does not.
Start with the most magical of magic numbers: turnover, expenses
and PROFIT (yup, all caps, italicised, underlined and bold). If everyone’s
individual numbers (KPIs, SLAs and other three-letter acronyms) flow
from that critical number, they will have something solid to aim at.
This will absolutely allow them to have a real and quantifiable impact
on your business’s goals. The key though, is to align your big goals and
from there, identify the numbers that will get you there. Your profits
will thank you for it and so will your family.
Your profit deserves special treatment
Maybe when a parent, long-lost “rello” or best friend you haven’t

seen in forever is coming to town and is hoping to catch-up. This
is not a situation where one drink at the local has led to too many,
I’m talking about someone special to you who you may want to
accommodate for a few nights if not longer. Do you point them
to the couch and toss them an old doona or do you make up the
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spare room? If it’s a parent maybe you’d be happy to give up your

bed, so they can have a comfortable night’s sleep.
Profit should be treated well, if not revered by your business.
Your business is alive and well because of profit. Profit has given
you the world and the least you could do is provide a separate bank
account to ensure that it is protected.
Separate accounts within your business might seem like one
more unwanted complication, but think about how much easier
life becomes when:
zz GST obligations are easily met because you never take from
the GST account.
zz Tax (assuming you have the right advice) is never an issue
because that’s separated from the daily transactions.
zz Superannuation is paid on time, because you’ve been setting
it aside throughout the quarter.
zz PROFIT is preserved exclusively for business growth and the
benefit of you and those closest to you.
If you treat your profits like regular funds flowing in and out
of your business to cover expenses and the like, you will find it
difficult to sustain and grow them.
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Use it or unsubscribe it!
It’s the invisible expenses that hurt your business the most – the
amounts that sneak under the wire of your business accounts every
month or quarter. And even if you were asked point blank to name
them all, you just couldn’t. But who cares, right? They are just small
expenses – subscriptions or memberships probably. Besides, you
never know when they’ll come in handy.
C’mon, get serious! As soon as you start losing respect for your
hard-earned money, no matter the amount, you’ve started your
descent on a very slippery slope. But all is not lost, after all it’s only
a small amount… or is it?
How much money are we talking?
Well you tell me. I personally went through an exercise, call it a

self-audit if you like, some time ago and was shocked at what I
found. Now to be clear, I’m not referring to snacks or casual drinks
with friends from time to time. This is certainly not about curbing
your lifestyle. It’s simply about looking hard at where your money
is going and a fair sum of it may be heading down the gurgler
wrapped in unused subscriptions and memberships.
Some context: I love tech, I love being on the cutting edge, I
feel it’s absolutely necessary to work smarter in order to enjoy
all life can offer. That definitely means enlisting help from some
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carefully selected apps. The problem is, we’re not always as careful
as we could be. I’m not saying I bought a dud or subscribed to
something that doesn’t work. I mean that too often, I got caught
up in my own good intentions. I always intended to trial apps,
make notes, carefully assess how they could be integrated into
my business life with a view to freeing up more time. But I would
never get around to it. By the time I did, I found that the free trial
period had expired and the credit card I put down when I signed
up had already paid for four months before I realised I still had it.
Thinking about the costs, too many people take up the free trial
of a promising piece of software and possibly take up a membership
to an enlightened collective of likeminded thinkers only to be
blindsided by a busy period at work. A few months pass and
suddenly they realise they’ve been paying for 3 or 4 subscriptions
and membership fees to something they hardly ever attend, to the
tune of $235/month. That’s usually just the start!
Ok, I want to bank that cash, how do

we do this?
You can actually do this yourself and/or sit down with your
accountant for an honest chat about what it is you’re actually trying
to achieve. Here are the key three steps.
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1. Remind yourself about what it is your business needs to achieve

(tip: think vision, mission, values and your magic number – the
earnings your business needs to pay you (properly), your team
and expenses including tax, paying down debt and contributions
to your “war chest”)
2. Identify any and all expenses that directly benefit your business
by advancing you towards the sustained achievement of your
magic number
3. Eliminate ALL other expenses. You will discover those unfamiliar
looking but regular direct debits to “something-tech” and “CU
There meet-ups” as well as emags that come floating past your
inbox and are almost instantly incinerated by your firewalls.
It’s all got to go because it’s eating into your precious profit as
well as whatever you were going to put on the family dinner table
tomorrow night.
Take a breath, take a look and take a scalpel to all those
unwanted, unneeded expenses hiding in plain sight and put that
money towards your cash flow.
Go ahead.
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Indicators that you are profiting from

your business (scoreboard alert)
Every business is unique and most operate in challenging

environments, if they didn’t, everyone would be doing it. But how
do you know if your profit story is an uplifting tale or an awful, soul
destroying saga? Of course, there is quite a bit of middle ground
but regardless of where you think you might be, these very brief
thought starters may help you course-correct in time to enjoy the
life your business should provide for you.
zz “Would you enthusiastically re-employ each of your current

employees?”. If you answered “No” to this question, you’d
need to get rid of those team members. One or two
underperforming team members could be chewing up $150k
annual profits.
zz You would be earning at least $250,000 or more revenue
each year for each owner in the business. Any less and you’ll
struggle to take a decent profit.
zz You would have a separate account (other than your main
operating account) where you put no less than 15% of
revenue aside for Tax & GST.
zz You would have another separate account (other than your
main operating account) where you put at least 15% of
revenue aside Profit.
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zz You would be profitable by the end of this year. If not, shut

up shop and get a job.
zz You would only pay your fair share in tax. Not a cent more!
zz You would donate at least 10% of your profits to a charity,
a church or causes dear to your heart.
zz You would consider yourself to be highly rewarded
financially, for your industry.
In addition to those points, there are some bonus resources we

feel can make a huge difference
find these on inspireca.com/book-resources
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CHAPTER 5
Control Cashflow
Step 3 - Control your cash
W e just talked in depth about profit. How to secure it, build

it and keep it coming. It felt good and I hope you still
have a smile on your face. What happens to your face when the
profits dry up though? Does the tension show? Is there a trickle of
perspiration? Is life less fun for you and your family?
What about when the cash is flowing, you have a smile from ear
to ear and you can’t help thinking, “When it rains, it really does pour!”
Then, admittedly sometime later, you think, “Wow, there’ll probably
be a bit of a quiet patch, cashflow-wise, a bit later…” Hmmm. These
ups and downs, these emotional swings and roundabouts, are a part
of owning a business but they shouldn’t be the norm. This chapter
will be heavily punctuated with dot pointed helpful hints, in sharp
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contrast to the last chapter. The aim is to improve and maintain your
cashflow so that your profits keep coming.
How to tell when your cash flow is in a good

place
This is important because simply glancing at your accounts,
checking your pockets and licking your finger and sticking it in
the air are all about as useful as each other when determining
cash flow status. That’s because cash flow is not static, it moves
and shifts over time. Here are 8 points that will determine your
cashflow position now and into the short to medium term:You
would receive part or all of your revenue before you deliver your
product or service.
1. You could tell three months in advance if there will be a shortfall

or excess of cash.
2. Your revenue would come mainly from recurring sources
(retainer, subscription, repeat order).
3. You would easily pay a BAS or tax bill in full and on time, using
money in your tax reserve.
4. You would pay everyone on time.
5. Everyone would pay you on time.
6. You’d have three months of expenses in an emergency rainy
day fund as mentioned in the previous chapter.
7. No one client or customer would represent more than 20% of
your total revenue. Diversity is the key to longevity.
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Keep these 8 steps in mind because they will help ensure that
you have one eye on the future instead of focusing exclusively on
what is right in front of you, or on top of you (invoices etc).
Alright, your head may be spinning even though you get that
these steps or goals make good sense. Let’s take it a step further,
get a little more specific. Ask yourself these telling scorecard
questions. You might squirm a little as you answer some of them
but recognising where the potential areas for attention are is far
better than squirming (and shrugging your shoulders) in front of
your accountant at a critical point in future.
So, to the questions and a few explanatory notes to soften the blow:
1. Do you receive part or all of your revenue before you deliver

your product or service?
To get the cash flowing in the right direction you can invoice
for at least a part if not all of your fee upfront. This indicates
that you are committed and that the customer/client now has
a vested interest in the goods and/or services you provide.
Importantly, it also places you in a better position cash flow-wise.
With a sound reputation for getting results and providing
valuable customer service, you’ll find, as we do, that people
won’t mind paying upfront.
2. Can you tell three months in advance if there will be a shortfall
or excess of cash?
Not asking you to be a fortune teller here but with the help of
your proactive accountant and/or finance team, you can learn
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to read the signs or indicators. This gives you enough lead time
to make adjustments if necessary or book some serious family
time. After all, that’s why we’re here, right?
3. Do you have a recurring revenue product or service (retainer,
subscription, repeat order)?
When a small business can show turnover, unencumbered by
heavy costs of doing business such as business development
time (and associated fees and or salaries), it’s a clear sign
that margins are healthier. It also suggests that profits will be
healthier and more sustainable. Potential investors or those
in the market to buy all or a piece of a small business, will be
attracted by the sweet, sweet scent of recurring dollars. Even
if you are not interested in selling your business or taking on
an investor, take their interest as affirmation that you are on
the right track and the value that you add for your clients has
made your business even more valuable.
Recurring revenue or retainers also suggest to interested
parties that you have, and maintain, good relationships with
those clients. It says that you and your commercial enterprise
are easy to do business with, which means running the business
will be easier. All of these aspects of your business represent
valuable ticks in all the right boxes and are important features
of a “Cashed Up Business”.
If 50% or more of your revenue is derived from monthly
subscriptions or similar, you will automatically have more time
to work on your business (the offer, the customer experience,
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innovation and future-proofing…) instead of in it. You will have

progressed from maybe “owning a job” where you find yourself
well and truly in the operational space to owning a Cashed Up
Business. Now you can rely on your established processes and
systems to help keep the business and the revenue ticking over.
4. When presented with a BAS or Tax bill, do you usually pay them
in full and on time?
We’ve talked about separating what’s yours and what’s not
using different accounts (business transactions versus accounts
specifically for GST and tax imposts). The discipline you apply
to this practice will impact your ability to take care of your tax
responsibilities without the panic.
5. Do you owe or are you owed more than $5,000 or 5% of your
monthly revenue past the payment terms?
Another, more pointed way of asking this question is, are you
part of the problem or struggling to deal with the problem? Or
neither (hopefully)? If, for whatever reason, you are withholding
payments from a supplier for example, the stress and knock-
on effects can be debilitating to a business. If, on the other
hand, you’re are still waiting on a substantial payment to come
through, you already know about the frustration and stress I’m
referring to. These occurrences will either artificially inflate
your balance sheet in the very short-term or place them under
very real and possibly lasting pressure.
6. If no revenue came in for 12 weeks, could you meet payroll and
your lease payments?
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This is the old, “hope for the best, plan for the worst” scenario.
Again, looking back to the last chapter, a “war chest” will insulate
your business, for a time, against unforeseen circumstances that
would otherwise place your business, livelihood and lifestyle
in jeopardy.
7. Does your biggest customer or client represent more than 20%
of your total revenue with your current cash reserve?
The idea of diversification and expanded client mix is not just
for the big businesses with international reach and unending
resources. If your business was to suddenly (or not so suddenly)
lose 20-40% of its revenue… well let’s stop right there. The
point is that businesses lose clients all the time and sometimes,
it’s not even their own fault. Perhaps your client met with
some kind of market-induced downturn or met with their own
planning difficulties. Diversification can insulate you against
big losses as can ensuring you have an active client pipeline to
work with as well.
Now think about your important business cycles as we continue

with the inquisition:
1. Sales Cycle – How much time elapses between first presenting

my value proposition and the client saying, “yes”?
Time is money and this question speaks to both elements. In
terms of money, you also need to think about how much it
costs you to present your offer as well as how much you’re
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foregoing in terms of profitable activity. Some may suggest that

automation is the key but as you may well have read elsewhere,
documentation is the key to accelerating your sales cycle
because that makes it replicable - taking the pressure off you.
2. Production & Inventory Cycle – How long does it take to either
produce my product/service or how long does it sit on the shelf?
Shelf space is essentially commercial real estate and every square
metre of a manufacturing or retail business for example, has to
earn its keep. In the FMCG (fast moving consumer goods) space,
you’ll expect a high stock turnover, perhaps restocking shelves
every couple of days. If this is not you, turnover rates need to
be a big part of your thinking and planning. The same is true for
production. The aim of the game is to take orders, fulfil orders, get
paid and repeat. It may sound harsh but try to steer your thinking
towards the saying, “If I’m not making money, I’m losing money”.
3. Delivery Cycle – How long does it take us to deliver the final
product from when the client said YES?
This question could also be filed under customer satisfaction,
which gets filed under reputation management and/or branding.
In terms of this chapter, file it under “expediting turnover and
increasing cashflow”.
4. Billing & Payment Cycle – How long does it take for us to bill
the client after they say YES and then how long does it take for
the money to arrive in the bank?
Okay, referring to the title of this chapter – are you a bank? No?
Well here’s something important to consider: obviously, you
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wouldn’t agree to say, 30-day payment terms and then add an

interest component to the invoice. You can’t – that’s not what
you agreed to and, as already mentioned, you’re not a bank. If
the payment is late, maybe. But by then the horse has bolted in
a way – you’re already 30 days+ without any kind of payment.
Let the pains begin.
TIP: Remember, offering generous payment terms is not

a must. Get comfortable with setting terms on your terms
and sticking to them.
And now to collect… hmmm

Often filed under, “easier said than done”, this task is sometimes
complicated by (how do I put this?) clients/customers that simply
don’t pay within the agreed terms. This obviously puts a strain on
your cashflow and needs to be addressed but how?
How to address non-payment or “getting

paid faster”
It goes without saying that a business needs cash flow to keep
operating. If too many customers forget, delay or refuse to pay,
your business could end up in serious trouble!
Debt collection is an aspect of cash flow management where
a lot of businesses underperform. However, it doesn’t have to be
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difficult. If you have the right person for the job and develop a
workable protocol, the process of debt collection can be made
easier and it will have a positive effect on your cash flow.
Employing the right person

Admittedly, the term ‘debt collector’ has a negative connotation.
It conjures up images of harassment and fear! Not only that, many
business owners might assume that because collecting money
comes under the umbrella of finance or accounts, then their
bookkeeper should be an expert and enjoy chasing up outstanding
bills! That’s not very often the case.
The responsibility of collecting money (known as ‘accounts
receivable’) is likely to be suited to someone who is good with
people – friendly and confident. They should be well-organised,
have good time management skills and be able to keep handy
records of customers’ habits and tendencies when it comes to
paying their bills.
Measuring effectiveness
Generating a report showing outstanding debts broken down
into 30, 60 and 90 day columns won’t show the average accounts
receivable days, that is, how many days it takes on average for
customers to pay their invoices. Businesses operating on payment
terms of 30 days may not realise that in reality customers take
much longer on average to pay their bills.
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Working out the average accounts receivable days provides

a useful indicator for your debt collector to measure their
effectiveness, and can be calculated using this formula:
For example, a business might have generated revenue
of $95,000 for the first quarter of the year. The outstanding
invoices, or accounts receivable, on record for that period total
$65,000. Therefore, the days in accounts receivable are calculated
as follows:
Accounts Receivable / Revenue x Time

$65,000/$95,000 x 90 days = 62 days in a quarter
Monitoring this indicator from one quarter to the next, or over

a 12 month period, will show whether debt collection efforts are
improving, remaining the same or ineffective. These results are
helpful both to the person responsible for collecting debts and
the business owner.
Your action plan

Any task, particularly one that may be somewhat complicated
or difficult, becomes simpler when supported by a plan and
a documented process. How you adapt that to your business
circumstances is up to you but here’s a solid two-step start:
1. Designate a well-organised and amiable employee to be in

charge of debt collecting. Together develop a protocol for
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collecting debts and use the indicator to measure progress and

performance.
2. Schedule time in your calendar to review outstanding debts
regularly!
Both simple and effective, this approach will help you/your

organisation confidently address outstanding payments and
accelerate your cash flow.
Accelerating cashflow into the future

In some ways, everything I’ve just written relates to remedial
actions – how to get paid faster, how to recover debt, what to say,
what to do. And that’s all fine, it’s necessary and good to know.
But let’s now look at the cashflow glass as being half full. What can
we do to draw more cash as opposed to what can we do to collect
cash owing?Increasing existing cashflow is a three-step process
as I see it.
1. Do it faster. By “it” I refer back to the production and sales

cycles. It bears repeating because at the end of the day, time is
money and that will always be the case. Streamline, automate
and accelerate your cycles and you’ll increase your capacity to
generate cash.
2. Reduce mistakes. Doing things twice, doubling back to make
corrections, making amendments, they all eat into your time.
Time that could and should be spent either growing your
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business or enjoying your family and whatever else will have a

healthy positive impact on your life.
3. Fix the business model. “Mine doesn’t need fixing, everything’s
okay”. Here’s a rule of thumb to consider: if you or your team
are doing something manually that could easily be automated
without a negative impact on your business or customer
experience, you need to fix your business model. Again, if
time is money (and it is), do all you can to understand how
you can make the most of it. Time and motion studies might
sound arduous but think of them as another way of emptying
your pockets to see if there’s any loose change or notes in
there. Remember, the harder you look for cashflow-friendly
improvements, the more likely you are to find them.
Some excellent resources that will definitely

help you out
The (business) world is full of blogs, videos, books and presentations
that may or may not be of use to you, particularly in the area
of improving your cashflow. My hope is that you’ll get around to
absorbing all of them. Impossible? Correct! So here is a curated list
of resources that I highly recommend:
zz Blogs from our Inspire website library that will inspire you
to accelerate cashflow
}} “Breaking even is the new Breaking Bad. It seems okay…
until…”
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}} “Avoid the vanity lease and preserve your profits”

}} “Profits are down so do I take a pay cut?”
zz Automation and add-ons for Xero users to make chasing
up payments less time consuming, allowing you to focus on
growth
}} Chaser - https://youtu.be/vt0Al8I-7wI
}} Debtor Daddy - https://youtu.be/5dZ0TKO8yV0
zz Simple strategies for chasing debtors
}} https://www.xero.com/blog/2016/07/chasing-debtors-
simple-strategies/
zz Effective scripts to make collection easier and faster from
our Inspire blog “Get paid faster”. Cut and paste these three
scripts from the blog into an email or letter to help you
collect faster.
}} «ContactAddressee»
«PostalAddress»
«PostalCity» «PostalRegion» «PostalPostcode»
Hello «ContactSalutation»
Friendly Reminder – Overdue Invoice
This is a friendly reminder in relation to the overdue

amount on your account for [$Amount].
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We would appreciate your prompt attention to this

matter and ask that you please arrange payment of your
account as soon as possible.
Enclosed is a statement for your reference. Payment
options are listed at the bottom of your statement.
If you have made the payment required within the
last few days, please disregard this notice.
We look forward to hearing from you soon.
Kind regards
[Debtor Champion]
[YOUR BUSINESS NAME]
«PostalAddress»
Urgent Attention – Overdue Invoice
We wrote to you on [Date] advising that your account of

$[Amount] has been overdue since [Date].
We would appreciate your urgent attention to the
payment of this account as it now exceeds our usual
payment terms of 14 days.
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Enclosed is a statement for your reference. Payment

options are listed at the bottom of your statement.
If you have made the payment required within the
last few days, please disregard this notice.
Kind regards
[Debtor Champion]
«PostalAddress»
Final Notice – Immediate Payment Required
We have contacted you on numerous occasions

requesting payment for the following outstanding debts:
[Entity Name] – Invoice Number [Number] – $[Amount]

[Entity Name] – Invoice Number [Number] – $[Amount]
Total Amount Payable: $[Amount]
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It is unfortunate that you have not paid our Invoices on time,

and you have not even proposed a payment arrangement
with us.
Your lack of action has now resulted in us having
to make a business decision. Unless payment in full is
received no later than 7 days from the date of this letter,
we will be engaging our Lawyers to commence immediate
debt recovery procedures.
We have been more than accommodating in our
previous requests, and therefore will be making no
further extensions beyond this timeframe.
Enclosed are statements for your reference for each
entity. Payment options are listed at the bottom of the
statements.
Regards
[Debtor Champion]
If you remember nothing else about cashflow, please remember

this: Panic, anxiety and stress exist in that space between your
product or service being accepted by the client/customer and
the appropriate funds landing in your business account. Diminish
that space and you’ll have more room for growth, both inside and
outside of your business.
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CHAPTER 6
Check Numbers
Step 4 - Check Your Numbers
I magine a plane flying over the Pacific Ocean, full of passengers.

Halfway through the journey, the captain announces, “I’ve got bad
news and I’ve got good news. The bad news is that the gauges aren’t
working. We are hopelessly lost, I have no idea how fast we are flying
or in what direction, and I don’t know how much fuel we have left. The
good news is that we are making great time!” (from ‘Traction’ written
by Gino Wickman, 2012).
It sounds frightening, perhaps a time for panic, but this
metaphor applies to many businesses today when it comes to
owners managing their numbers. In effect, they are flying blind
with no gauge as to where they are, where they are going, or if they
are even heading in the right direction. Amazingly, these owners
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CHAPTER 6: CHECK NUMBERS
rarely see a reason to be concerned or to panic when it comes to

the future of their business.
Know Your Numbers

Business owners who know their numbers have a tremendous
advantage over those who do not. Your financials tell a story - and
understanding the story behind your numbers can be one of the
most important ingredients for long-term success.
Section 1 - The numbers you need to know.

Let me just put this out there. Gut feel is overrated as a long term,
decision-making device. It is a useful indicator if finely tuned by
experience and expertise but those indications should really just
be used as a guide as to where you need to focus your analytical
enquiry. In other words, if you have a nose for business, you
probably have a head for numbers as well.
The problem is though, that time, your time, is limited and of
course there’s your family and life outside your business. Therefore,
to make best use of your time, you’ll need to get your head around
the key numbers and there are 10 critical numbers for business
owners that they must know:
1. Your Magic Number ($)

An essential requirement for hitting a target is knowing where
(and what) it is. As mentioned many times before, if you have
not yet worked out your “magic number” (your expenses + tax
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payments + payroll + your pay +10% for the war chest + money
to pay down debt) or the amount you need to earn each month,
you are doing your business and yourself a huge disservice.
Knowing your target is essential to achieving your target and
you cannot do that unless you know your numbers.
2. Your Team’s Magic Number
Sales professionals the world over know that having a sales
target is a motivator, a compass and a necessity. You can’t hit
a target you can’t see. In many cases, the shorter range targets
are easier to hit. Tell your staff that they need to hit $1.75m in
sales in the next 12 months and it might happen. Break it down
to weekly goals, even daily and chances of success will have
increased significantly.
Unless…
…the numerical targets allocated out are not aligned to
the overarching goal, the big number, the one that counts.
It’s all well and good to get everyone from the front desk/
counter/room to the chief decision-makers motivated with
target numbers but it all falls flat if they achieve theirs but the
business does not.
Start with the most magical of magic numbers: turnover,
expenses and PROFIT (yup, all caps, italicised, underlined and
bold). If everyone’s individual numbers flow from that critical
number, they will have something solid to aim at. This will
absolutely allow them to have a real and quantifiable impact on
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your business’s goals. The key though, is to align your big goals
and from there, identify the numbers that will get you there.
3. Monthly Recurring Revenue ($)
This number and the next are linked for obvious reasons. What
may not be quite so obvious is that it is crucial to sustainable
success, to know what these numbers will look like on a month
to month basis - ahead of time.
Staying with revenue for a moment: if you can’t project
revenue, you are leaving profit (your business’s life blood) to
chance. That naturally includes everything you might have
planned to do with that profit – think family holiday, slicing
chunks off your debt, investing in exciting opportunities,
growing your business. All up in the air unless you have a solid
understanding of your revenue.
I want to be clear on this point though, entrepreneurial
enquiry is great and necessary – this is one of the foundations
of growth but regular revenue from retainers and the like will
allow you the necessary breathing room to explore growth
options when the time is right. This all comes down to knowing
your numbers.
4. Monthly Recurring Expenses ($)
Read the previous point again but add this thought: your
recurring expenses might be static but their respective
percentage of revenue will depend on how much your business
brings in from month to month. In a very good month, expenses
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may only take a 40% bite out of the revenue pie, the average
might 70% and a tough month might represent 90%+.
There is a huge difference between being “aware” of this
principle and knowing, understanding and shaping strategy
around it. Again, know your numbers.
5. Your $100 note - Simplified P & L
We talked about this one in the chapter on profit – breaking up
the $100 note to clarify expenditure and identify profit. What I
didn’t mention was that while it is very important to understand
how to read your P&L, it is even more important to understand
what it is saying at a glance. The $100 note exercise helps you
do just that.
6. Cashflow Days
A Cash Flow Day equals how many days it takes to [SELL IT] +
[MAKE IT] + [DELIVER IT] + [BILL IT]. Imagine a business that
has counted their days - 30 + 18 + 10 + 61 = 119 Cash Flow
Days. That’s how many days they are out of pocket and in stress
mode, struggling to make ends meet. So, what is a cashflow day
really costing this business? Well, a Cash Flow Day = Annual
Revenue / 365 days. For a million dollar business, a single cash
flow day is about $2,700 ($1,000,000 / 365 days). A 119 day
cash flow cycle means you’re out of pocket $321,300 ($2,700 x
119). Finding smart ways to reduce your cash flow days by just
15 days, and that’s an extra $40,500 in your account.
And with that you can sleep at night, pay down your debts,
make a deposit to your profit war chest and invest in further
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business growth. But it all starts with knowing your days.

Remember: What you measure, you treasure.
7. Current Business Valuation
If someone made you an offer to consider, for the sale of your
business, what price would you find acceptable? If someone
asked you to “name your price”, how many zeroes do you think
you could scrawl on that napkin and not have it screwed up and
thrown back in your face? Or even worse – have them shake
your hand so quickly that you couldn’t help but feel that you’d
undervalued your years of hard work?
Having a realistic (and accurate) grasp of the value of your
business is as important as knowing how much money you are
going to make or need to make over a given period. If you have
hopes, dreams and aspirations for your family, your business
and how you get to live your life, you simply have to know what
your business is worth at any one time. And not just because
an investor with millions burning a hole in their pocket may be
eyeing your commercial enterprise with growing interest. It’s
important to know what you’ve got, how far you’ve come and
how long until the next milestone sparks party-poppers and
high fives in the meeting room/kitchen/workshop.
8. Current Net Wealth
Most business owners either don’t know how much their
business is worth or they own a worthless business. The
formula for a simple business valuation is Profit x Business
Sale Multiple = Business Value.
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So, an accounting firm that make $100,000 Profit could

sell their business at a multiple of 3.5 times profit, making
their business worth $350,000. Whether you plan on selling
your business or not, knowing your current valuation and the
factors that affect your value, can help you to increase the
potential sale value - increasing the value of potentially your
largest asset.
9. Days until next family holiday
It’s good to know exactly how many days until your well-
deserved break. It’s important to you, your business and for
your family. Why? Because you deserve a break.
“Hard work is its own reward.” Have you heard that one?
There are elements of truth to this but even the hardest of
hard-core, hard-driving business owners recognises that there
has to be more to work than more work. Recognising that
you and your business have done well is vital for motivation,
endurance and resilience. Rewarding yourself with a getaway
is the big one for making this happen.
Plus knowing the days until your next holiday means that
you actually have to book it in, and it’s not left up to chance!
Let the countdown begin!
10. Current level of happiness (scale 1 - 10)
Let me pause for a moment. You may have picked up this book
thinking that it’s a business advisory book or something similar.
It’s not. It is a book that aims to help you shift the needle
on your happiness meter from wherever it usually resides to
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somewhere considerably north of that. I want this book to help

make you and your family happier.
So, with your permission (and you are welcome to skip
ahead) I would like to spend a seemingly disproportionate
amount of time on helping you with your happiness score,
keeping in mind that happiness is (or can be) a number between
1 and 10.
Alright, so if happiness was as simple as forcibly contracting
a set of facial muscles, we’d all be happy – whenever we wanted
and the world might be a better a place. However, that’s not
the case. So this question might sound a bit forced but it’s a
starting point to finding more happiness in your business life,
drawing it out and enjoying it with family and friends. On a
scale of 1-10 (10 being “all-the-time” awesome and one being
“I’m so exhausted, my brain has decided to switch everything
off but my heart and lungs), how happy are you?
Wait, don’t answer that yet.
How happy are you at the end of your weekend when
Monday, whenever that occurs for you, is only a few hours
away? Dreading it? Take a point off. Does the weekend just
mean that you can get on with more work and admin without
having to necessarily answer the phone or emails? Take another
point off. Has it become a pattern that another weekend flew
by without you having a chance to have some meaningful
time with your family – or even your “non-work self”? Take a
thousand points off! Yes, a thousand! Now answer.
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We get it, you’re operating on auto-pilot, staggering from

one week to the next, maybe you don’t know what to do about
it and that’s all very frustrating. But as usual there is an answer.
Men are from Mars, Women are from Venus and

Frustration comes from not knowing
Frustration makes you feel helpless, a little bit angry and comes
with an overwhelming feeling that change is a long, long way away.
Of all the numbers we like to talk about such as your magic number,
what your business is worth, the payment terms you offer etc, all
roads surely lead to this number: Your happiness score out of 10.
Your happiness score’s natural enemy is frustration and frustration
comes from not knowing your other numbers. Let’s look at a couple
of test scenarios in dot point form:
zz You don’t know how much money you’re going to have to

pay out this month – frustration
zz You don’t know how much money is coming in this month
– frustration
zz You don’t know if you’ll have enough to cover BAS (how’s
that for timing?) – frustration
zz You don’t know if you could have paid less tax – frustration,
anger, resentment, bitterness
You know what? There’s no way you could enjoy a true

happiness score over maybe a 4 with all that frustration.
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Lift your awareness, lift the burden, lift your game,

raise your happiness score
Rather than us simply saying to you, “If you’re not as happy as you
think you should be, just force a smile and you’ll feel better”, we
want to offer you the type of sound advice that allows you the
freedom to be genuinely happy. Happy with yourself, your business
and of course your family. If you’re not feeling it, they’ll know and
no amount of cheek muscle raises and flexes will fix that.
We’re all about helping you get to a point where work doesn’t
feel like toil and it actually brings a certain joy to you and your
family – and if not joy, at least an average score of around 8/10.
If you like the sound of that then I would love to hear from you.
Ooookay, we’re back.
Section 2 – The Value of Accounting Software

Xero is the answer, now ask me the question. That’s the sort of
confidence that you should have when being asked about your
business. Even if (or especially if) you, as the owner, are the one
doing the asking.
We preach long and hard at Inspire about the inarguable value
of knowing your numbers. Now I want us to devote sometime to
working through the best ways of obtaining those numbers. Why?
Inspire is built on the premise that we can help small business
owners with young families, draw more happiness in the form
of time and resources from the work they do. One of the things
standing in the way of owners achieving this goal is too much
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time spent on invoicing, bookkeeping and administration. Now

this doesn’t necessarily apply to everyone but ask yourself these
important questions.
At the end, we’ll tell you what it all means.
1. Do you fire up the laptop to “just finish up a few admin/invoice

things” when the rest of your loved ones are hitting the hay?
2. Are you tired and jaded in the morning because the invoicing
had to be done last night?
3. Do you stare intently into the middle distance when you’re
asked about your business numbers?
4. Did you just doze off for a minute there – because worry and
stress has robbed you of decent sleeps?
5. Weekends. Did you know they consist of two and sometimes
three or four days?
6. Have you ever messed up the trading terms on an invoice you
wrote at 2.30am?
7. Is nailing 7-9 hours of sleep three nights in a row just a dream
to you?
8. Did you know people do that?
9. Do you ever mess up your cash flow because you didn’t get
your invoice out promptly?
10. Do you keep a shoebox to store all your receipts and still lose
the important ones?
11. Do you understand that these answers are affecting your
business, your family and you?
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12. Do you wish you could answer “no” to the vast majority of these
questions but can’t, in all honesty?
13. Are you still wondering how on earth to find a few more hours
per week with the family?
We’ll leave the questions there because you probably need to

get back to your invoicing and/or admin. But what does it all mean?
Let’s take a look.
If you answered “yes” to any questions aside from questions 5
and 8, we need to talk because you have problems that we can help
you solve. And Xero will feature in many of the solutions.
Bonus question: How can I use automation and easy access to

my numbers to drastically reduce stress and time away from my
family?
Answer: Xero
Talk to your accountant or us about switching to Xero and get

your head out of the books and back into the clouds, where it
belongs on your days off… you know… days off?
It bears repeating – Xero is the answer. Still don’t believe me?
Our people at Inspire would love to talk to you about the benefits
of using Xero and all things cloud-based accounting including:
zz Why you should change.

zz Converting from MYOB.
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zz Switching from servers.

zz What is the cloud?
zz How secure is it?
zz Setting up Xero.
zz Our favourite time and money saving Xero add-ons for small
business owners.
zz Reading financial statements like a boss.
zz Business Budgets: Start telling your money where to go.
zz Profit & Loss.
zz Balance Sheet.
zz Cash Summary Report.
zz Financial Ratios.
Xero will help with all of this and we like that because we’re
here to help as well.
Section 3 - Keeping your accountant

accountable.
Sometimes a bit of Q&A is a great way to get to the heart of
matters and the first one I have for you is:
Is your Accountant making or taking your money?

As accountants ourselves, we know that part of the glory and all of
the blame rests with us when the final (tax) reveal takes place post
the end of the tax year. If you’ve saved a lot of tax because of the
advice you received and the actions you took as a result – happy
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times. If not, one of two things generally happen. One nothing. Or

two, disappointment (perhaps some unkind words but rarely) and
then… nothing.
This is not a good outcome for you, the small business owner. It
should, all things being equal, start the search for a more invested,
proactive accountant to guide you through the fiscal jungle or at
least lead to some fairly direct conversations about expectations.
Why does my accountant look so calm before

hitting “enter” for the last time?
You know that moment when you’ve been sitting with your
accountant for quite some time and they are just about to tell you
what you owe or what you’ll be getting back from the ATO? You’re
excited, perhaps you’re nervous, perhaps you’re feeling physically
sick. This could be bad, it could be really, really bad. And yet, there
they sit, as cool as a cucumber.
Why?
There are two possibilities. One because they know they have
done some great work for you and they know you’ll be delighted
with the result. If anything, they’re mildly curious about how you’ll
spend all that extra money that you thought would be heading the
ATO’s way.
Or two, they simply don’t care. Unfortunately, there are
those in our industry, and every industry for that matter, who are
permanently in “fill and file” mode. This is not great, but it gets
worse when you realise that someone like that is “taking care”
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of your small business’s money. The same money with which you
promised yourself, you’d make a great life for your family.
How much will a good accountant cost my business?

Nothing. Costs, particular when it comes to tax, can mount up
pretty quickly if you don’t have a good accountant. But if you do,
you will find that their fees will be dwarfed by the amount you
save as result of engaging their services. We’ve said it before, but it
bears repeating – If your accountant isn’t putting $10,000+ a year
back in your pocket in tax savings it might be time for a change.
What else should my accountant be doing for me?

Aside from taking care of lodgements there are a number of things
your accountant can and should be doing for your business:
zz Educating you on your numbers and what they mean,

zz Ensuring you only pay your fair share of tax and not a cent
more, and
zz Insulating you against pressure from the ATO through great
advice and even organising payment plans if things become
very difficult.
These quick examples don’t include the basic goal of helping

you build a better, stronger business with which to help you enjoy
life with your family.
That’s the key – no question.
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There is, however, an elephant dinosaur lurking around the room

– how do you know if the attitude and methodology of your current
accountant is from the Jurassic era? Here are a number of quick-
hitting, dot-pointed warning signs that it’s time to change accountants.
1. Offers advice late or not at all.

2. Does only what you ask.
3. Basically just does tax.
4. Only sees you once or twice a year.
5. Charges you for a quick call or email.
6. Charges by the hour (or the minute).
7. Charges like a bull (aka super expensive).
8. Doesn’t try save you tax pre-EOFY.
9. Doesn’t visit/call.
10. Doesn’t follow up.
11. Doesn’t embrace cloud & tech.
12. Doesn’t run a great business him/herself.
13. Is quite frankly, boring…
14. Doesn’t explain things simply.
15. Doesn’t help with business advice.
16. Isn’t approachable.
17. Takes hours, days and even weeks to respond.
18. Is buried in paper.
19. Is about to retire.
20. Doesn’t give to charitable causes.
21. Passes you on to the junior accountant.
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22. Passes you on to a different accountant each year.

23. Communicates poorly.
24. Over-promises & under-delivers.
25. Let’s you know your BAS is due, on the day it’s due.
Accountants that do the opposite of the above are priceless

members of your advisory team. Keep them close and never
let them go.
Remember, your Obligations to the ATO – are limited to getting
your tax done i.e.
zz BAS
zz IAS
zz Tax Returns
zz Financial Statements
zz ASIC
zz Trust Distribution Resolutions
zz PAYG
zz GST
A good accountant should be helping you achieve the life you’re

striving for through your business.
Scorecard - Check Your Numbers

Do you feel like you have to push your accountant for responses
or ideas?
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Do you run a business performance dashboard that shows your

key performance indicators week to week?
Does your current accountant charge you for quick phone calls,
emails or meetings?
Do you use a cloud-based accounting system like Xero?
Do you (or your bookkeeper) keep your accounts up to date
each month?
Have you make a significant tax saving by planning it out in
advance with your accountant?
Are you up to date with all ATO payments and lodgements?
Check Your Numbers

Business owners who know their numbers have a tremendous
advantage over those who do not. Your financials tell a story - and
understanding the story behind your numbers can be one of the
most important ingredients for long-term success.
Why is this important? Or “more thought-

provoking but vital Q&A”
Do you feel like you have to push your accountant

for responses or ideas?
Your accountant is in the box seat to know your numbers and their
knowledge should be apparent. With this knowledge, they should be
proactively guiding you to make better financial decisions, without the
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need for prompting from you. If this is not your experience, it may be
time to change accountants.
Do you run a business performance dashboard that

shows your key performance indicators week to week?
You simply cannot effectively understand the performance, success or
direction of your business without tracking your measures of success –
ideally via some kind of dashboard. If you haven’t set up a dashboard
or even just set out a process around reviewing your performance vs.
your measures of success, it’s time to make a change.
Does your current accountant charge you for quick

phone calls, emails or meetings?
A ‘Cashed Up’ business will know and be confident in their numbers,
but they shouldn’t rely purely on their own manpower to deliver them.
Your accountant should know your numbers inside out and ensure that
as part of your contract, they are keeping you informed of the critical
things you need to know to maximise your success.
Do you use a cloud-based accounting system like Xero?

It might sound difficult and too advanced for you, but I can assure you,
accounting “in the cloud”, is easier and more efficient than doing it all
by hand. Cloud tech like Xero is not only more efficient and simple to
learn, it puts your numbers at your fingertips 24/7 – no matter where
you are.
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Do you (or your bookkeeper) keep your accounts

up to date each month?
Make sure you have a process or system for keeping your accounts
up to date. Whether following up your bookkeeper or making time to
do it yourself, when your accounts are reconciled you can read some
powerful and highly useful business performance reports. Be sure to
make time in your diary each month to sit down with someone and
review these reports monthly – maybe even at your local café.
Have you made a significant tax saving by planning it

out in advance with your accountant?
Good accountants and knowing how to use them will ensure they are a
profit centre that delivers ROI and not a business expense. That means
they save you many times more tax, or deliver you more financial
benefits than you invest in their services. If your accountant isn’t
putting $10,000+ a year back in your pocket in tax savings it might
be time to ask yourself why. It could be time for a change.
Are you up to date with all ATO payments and

lodgements?
A good accountant will negotiate a payment plan, and sometimes a
refund too, on tax and interest paid to the ATO. Worrying about the
tax man is something you shouldn’t have to do, ever, with a good
accountant. If you have had trouble with payments or lodgements, it’s
time to proactively address the situation with your accountant or to
find a new service provider.
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Ways to improve your score

Get a second opinion with Inspire. (http://inspireca.com/next_
stage/look-under-the-hood/) If we can’t find your $500 in tax
savings, it’s free. If your revenue is $200K+ we can usually save
you $5,000 in tax immediately.
Ask your accountant for your latest Profit and Loss report and
ask them to explain it to you – simply. It’s critical they can explain
the basics to you and that you understand them.
Make sure you know your business MAGIC NUMBER and track
it every day.
Bonus resources we think will make a huge

difference
See inspireca.com/book-resources
[Listen] How disrupting his industry saw Ben Walker

become an award winning entrepreneur - The DENT
podcast. [Watch] What old school accountants don’t want
you to know about how they charge *controversial* [Read]
Knowing your one number is one thing, but here’s how to hit
it. [Read] The Magic that makes a better lifestyle. [Watch]
Make the most of BAS time: How to turn a BAS Deadline
into a BIZ Lifeline.
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Check Your Numbers

Success - when you know your numbers, this is how you should
look – a picture of success:
You don’t have to push your accountant for responses or ideas.
You have a real-time business performance dashboard on your
phone.
You aren’t afraid to call your accountant for quick phone calls,
emails or meetings, out of fear of getting slapped with a bill.
You know your numbers.
You use Xero.
Your bookkeeper keeps your accounts perfectly up to date for
the previous month by the 8th of each new month.
You sit down with your accountant in April to June each year
to plan your significant tax saving (we’re talking tens of thousands
in tax savings each year).
You are 100% up to date with all of your ATO payments and
lodgements.
Maintaining Momentum
Be sure to set targets (budgets) for the next month/quarter/year.
Set Key Performance Indicators (KPI’s) against which you can
measure your performance, because unless you aim at something
you will keep hitting “nothing”!
Make sure you have the following in your plans and processes:
zz Profit Forecast
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zz Cash Flow Forecast

zz S.M.A.R.T. KPIs
zz Business Performance Report
Review Actual vs. Budget performance each month/quarter

and don’t be afraid to make immediate strategy changes where
required. In a dynamic environment, your business and strategy
need to be as, if not more dynamic in order to stay ahead.
Set time for monthly or quarterly board meetings, ideally chaired
by an external person (i.e. your Accountant) to maximise efficiency
and effectiveness of the sessions. Preparation will reinforce the
process and pre-set agenda will ensure that you regularly analyse
all aspects of your business performance and operations with key
stakeholders.
At the risk of overplaying the importance of knowing your
numbers (impossible!), let me reiterate that without knowing them,
you’re not running your business, it’s running you – and where’s
the value in that?
Let’s take another step towards getting Cashed Up.
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CHAPTER 7
Crank Business Value
Step 5 - Crank your Value
Y our business is your most valuable asset and it goes without

saying that you should always be on the lookout for ways to
increase its value. That way, you can take the option to get ‘Cashed
Up, by Cashing Out’ when it suits you best, but this doesn’t mean
you have to sell. It’s a great idea to always build your business
to sell, even if you have no immediate intention of doing so.
Ultimately, saleable businesses are both highly profitable and are
run with little reliance on the owner.
If your business was listed on the ASX, what would your shares
be worth? Consider the following formula:
Profit x Multiple = Business Value
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E.g. $100,000 Profit x 3 times Multiple = $300,000 estimated

business valuation.
With this formula in mind, you have 2 main strategies for
increasing the value of your business:
1. Increase Profit. (Usually referred to when valuing a business as

‘EBIT’ or Earnings Before Interest & Tax.) Higher profits mean
people will be prepared to pay more for your business.
2. Increase the Sale Multiple. You can increase the Sale Multiple
by decreasing any risks associated with your business, thereby
making the future cash generated by your business more certain.
A critical part of maximising the impact of these strategies

is establishing systems in your business that allow it to operate
efficiently and effectively without you. A higher business valuation
makes this even more important, as a higher value creates a wider
range of retirement options for you, when you do choose to sell.
High Priority Strategies

From managing your cash flow, to systems and resource
management, these are some strategies that should be implemented
immediately in order to start growing your business value.
Create and then manage a proper strategic plan for your
business. Planning for the future means having proper financial
targets in place, knowing why you are business and how you
will run it, as well as understanding where you want to be and
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CHAPTER 7: CRANK BUSINESS VALUE
when you expect to get there. This approach should give you the
milestones, signposts and processes you need to ensure you are
best positioned to outperform your competitors.
To mitigate future financial impacts on your business, you must
be sure manage your cash flow properly. Take time to review the
cash flow cycle for your business, carefully looking for ways to
reduce it. Once you have identified these, select the quickest and
easiest target areas to change to effect prompt change in your
cycle time. Ask us for our CASH FLOW CYCLE Worksheet, it will
guide you through this process.
Ensure your business offers, brand position and unique selling
proposition (USP) are clearly communicated to your potential and
existing clients/customers. With an uncertain economic climate
and increasingly competitive marketplace for most businesses, it
pays to ensure that your marketing and advertising help you to
stand out. Don’t be afraid to try some alternative tactics, such
as focusing on the opportunity cost of not using your business/
product, rather than simply focusing on its features and benefits.
Regular, scheduled progress checks are critical to ensure you don’t
drift too far from your planned course. Implement systems that help
you check each week if you are on track towards your annual targets.
The sooner you identify issues or areas for improvement, the sooner
action can be taken to address them, thus minimising any potential
impact on your business and achieving your goals.
Invest in your team, because people are potentially your most
valuable asset. Keep open lines of communication with them and
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run regular training sessions and meetings with them. These can
be a mix of technical training (industry/product related), customer
service training, even simple administrative training or an informal
catch up over lunch. Whatever you do, it’s critical to demonstrate
interest, support and investment in your team members.
Remember, our goal is to create a business that is worth selling.
Worth selling when you want to and that delivers the maximum
business value to your buyer and financial benefit to you. Ensure
this concept influences every business decision you make and use
it to keep you focused in strategy creation and execution. If you
can create a business that runs perfectly without your involvement,
it will have a much higher value.
Am I Maximising My Business Value?

Not sure where to start? Fair enough, let’s stop right here for a
moment and think about how a cash rich business creates value.
As someone wise once said, “If you don’t like the answer, change
the question.” That is to say, instead of focusing on discounting
your prices (and sabotaging your margin), work on ways to enhance
the value of your product or service.
Some business sectors call them upgrades, others – enhancements
and others still prefer to rebadge the evolution of their services or
products as “next gen”, “series x” or even tap into market segmentation
(e.g. value, mainstream and premium). Whatever the case may be,
thought and effort invested in increasing the perceived and/or actual
value of the product or service will pay off. Admittedly, it can go too
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far as is the case with some dashboard screens. They display attention-
grabbing warnings telling you that staring at your dashboard screen can
cause accidents. That said, the intent to add value is front and centre.
The consequences of a common mistake

As the owner of a small business who not only feels the weight
of family responsibilities but also accountability to employees
and the business, it’s all too easy to fall into a common trap.
Paying attention to noise like, “Desperate times call for desperate
measures” in your business, could influence you to:
zz Pay a company debt from your profit, share, wage or dividend.

zz Lower your price to match a low-cost competitor.
zz Devalue your product or service by advertising a sale for the
wrong reasons.
Sometimes, these measures are effective when used judiciously

and/or as part of a broader strategy. However, using them time and
time again sets and establishes a dangerous precedent because it:
zz Creates unhelpful expectations in your market.

zz Threatens your cash flow and literally.
zz Takes food off the family table and limits quality time with them.
Can things spiral out of control from there? They often do. So
treat margin squeezes like a cliff’s edge – don’t get too close.
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Develop a higher value product or service

When your business is running well, you the owner have a very
pleasant dilemma. Do you spend more time with the family and
develop more of your own hobbies or should you spend more time
with the family and invest a little time working “on” the business?
Well, of course the answer is, “all of the above”. However, with
systems in place and good people doing great work and freeing
you from the operations side of the business, you can think about
increasing the value of your business. Most business owners who
do not do this find that they can’t because they are bogged down
with everyday stuff. With so little time to come up for air, assess
the situation/market/business, there’s very little time to devote to
clear and innovative thought to adding value.
You got into this business as a means of providing a sustainable
lifestyle for your family and to work on something that excites you.
Focusing on value will do that while adding value to your life and
the lives of those around you.
Now, ask yourself these questions to get a fuller picture of
where you and your business are really at:
zz How much do you believe your business to be worth if you

were to sell it?
zz How do you expect to realise the value of your business?
zz Do you have a potential buyer in mind? Who is it?
zz If you were to sell the business today, what access would you
have to the Small Business Capital Gains Tax Concessions?
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zz Is the business totally reliant on the personal skills of you

and/or your business partner for its profits?
zz Without you, is there actually a business to sell?
zz If you were required to buy out your co-owner’s share, what
financial resource would you use?
zz Does your current life and key person insurance policy/s
cover the debts of the business?
zz If you passed away suddenly, what role would your spouse and/or
family want to play in the continuing operation of the business?
zz Do you have a legally binding agreement in place with your
co-owners that guarantees the fair and equitable treatment
of your spouse and/or family, regardless of which options
they choose?
zz If your business partner passed away suddenly, would you
want to work with the inheriting relatives of your co-owner?
zz At what age do you wish to retire?
zz What annual income do you require when you have retired?
Recommended Activities:
Endless seminars, text books, mentor meetings and the like will all
have confirmed the value of solid, level-headed strategic planning.
I’ll join that queue because it is vital. My firm belief is that a
Business On Track Plan - Business Valuation and 5 Year Projection
should be part of the planning process. Rather than the endpoint
of your plan culminating in “you still being in business, possibly
breaking even”, a seismic or at least notable increase in the value
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of the business will have a positive knock on effect on your family

life and livelihood as well.
So let’s continue to think hard about ramping up the value of
the business and how that’s derived.
Focus on Growing Value

Unfortunately, most business owners own a job and not just a
business. Once you have an idea of what your business is really
worth and you understand how to increase that valuation, it
becomes easier to make your profit grow. How can you be sure if
you are doing all you can to grow your value? Here is a scorecard
for you to consider:
Why is this important?
zz You have a current business plan that you and your team
review each quarter.
Some people say that business without a planned pathway
to profit is simply a hobby. When you base your business
value on how profitable you are, you need a game plan to
maximise your business profits.
zz You love working with every one of your clients / customers.
A prospective buyer will value strong and healthy established
relationships.
zz You don’t work with clients / customers you don’t enjoy
working with
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The ability to choose who you work with demonstrates a strong

business, as well as making the running of the business simpler
and more enjoyable.
zz You have thousands of dollars a month appear in your bank
account, seemingly magically, from recurring sources e.g.
monthly subscriptions.
A highly profitable business with strong cash flow is a cashed up
business. Recurring revenue streams are the business model of
choice for those seeking profitable businesses. They also make
them a pleasure to own and run.
zz You have a recent independent valuation for what your
business is worth.
If not, get one, regardless of your plans to sell. Knowing your
business’ numbers, includes your Business Value. This also
allows you to keep an eye on performance throughout the year
and over time.
zz You have low maintenance systems and procedures in place
for how things are done in your business.
The most valuable businesses are not ‘hands-on’ for the founder.
Quality systems will free you from the delivery of the day-to-day
and allow you to work on your business, to further build value.
zz No more than 20% of your revenue comes from just a few
key clients / customers.
Be sure to monitor how widely you spread the revenue sources
for your business, with the wider the better. The lower the
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distribution of the revenue sources, the greater the risk, thus

reducing the potential value of your business.
zz You have already said NO to an offer to buy your business.
If you are fending off acquisition offers, it’s a great position to be

in. This confirms your value, as well as highlighting potential buyers for
future consideration. If you’re a cashed up business, you never have to
sell, but you’re in a great position to do so!
Ways to Improve Your Score
zz Ask your accountant to give you an approximate business

valuation based on your Profit x Business Value Multiple.
zz Dream a new business valuation you’d like to achieve in 12
months. What is your strategy to achieve this?
zz Create a system for each of your key processes in your business
and take a holiday to test how well your business runs without you.

difference:
[Read] The Joys of Recurring Revenue
When push comes to sell

Okay, your score looks good and I can tell by the grin on your
face that your business is churning out regular, sustainable profits
for which you are being handsomely rewarded. Good for you (and
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yours). And now with other business people hovering, briefcases

in hand hoping to take the business off your hands for a healthy
sum, life is good. All you need to do is see your accountant about
Tax Planning on the Business Sale. They will step you through:
zz Tax implications
zz Small Business CGT Concessions
zz CGT planning
zz Structure implications (companies and trusts have different
tax implications)
zz Plan tax strategies to minimise tax on business sale
zz Superannuation strategies
But wait. How did we get here? Let’s go back half a step and take
deep dive into the internal and external factors that determine whether
your business is actually sales ready. And by sales ready, I mean it
will sell for a sum that will have major positive impacts on your life.
PART 1 – INTERNAL FACTORS
Size
What are the key things you can focus on to ensure your business
is valuable, attractive and most importantly, saleable? Is the size
of your business “right” for your industry and market, in order to
make it attractive and to maximise sale value?
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Simply put, ‘size does matter’ – there is much research that

supports the fact that businesses with a turnover of $5 million or more
nearly always sell at higher multiples than their smaller counterparts.
Whilst I am not in favour of growth for growth’s sake, designing your
business to grow to at least this level of turnover will maximise value.
This might include making acquisitions (of complementary
businesses/opportunities), opening offices in other states or buying
out baby boomer business owners “desperate” to exit and retire.
Interestingly research clearly shows that the top two outcomes
sought for a successful exit by Baby Boomers are not about dollars.
Rather they seek assurances that the business will continue to live
on after their exit (legacy) and that you will look after their staff.
Business Model
Are you and all your team clear on your business model? Does
every aspect of your business match the business model?
Whether your business is boutique or larger scale, it is critical that
every aspect of your business – customer service, online presence, the
people you employ, your pricing strategy, your office location/fit-out
and your marketing materials – is aligned with your model?
I met a financial adviser just last week who told me he looked
after high net wealth individual clients, was extremely good at
what he did and as a result charged a premium – he then gave me
a business card on very flimsy paper that looked like it had been
printed as cheaply as possible. It was a complete contradiction to
the position he was trying to communicate to clients.
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Revenue
Is your revenue easy or hard? Do you have annuity style income
based on long term contracts or do you have to continually make
new sales?
Recurring revenue is far more desirable and worth more, so
it is important to aim for clients who are on long-term retainers,
extended contracts or some type of residual income trail.
Businesses that need to strive to make sales continually, every
day, week and month are far less valuable than those with long
term guaranteed and/or recurring income.
Sales and Marketing

Are your sales driven by a marketing process/system/approach – or
are they based on a key salesperson’s skill and networks?
Your business needs to be able to generate new business, leads,
enquiries and ultimately sales without relying on either you or any
other individual’s skill and sales ability. All businesses need a well
informed and considered sales and marketing approach that runs
independently from individual employees.
Systems
Is your business systemised and documented?
Save yourself time, effort and money – not only are systemised
businesses far simpler to run, far less stressful and generally far
less risky but they are also more valuable. The chance of them
performing well is higher and the level of specialised skill to run
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them is reduced by systems and processes. Remember, lower risk

is always more valuable to potential buyers.
Employees
Are your employees engaged, motivated and incentivised to
perform and work with you to maximise business value?
Do you have an employee incentive plan whereby employees
are rewarded based on performance? This could be either a profit
share-based plan or an employee share ownership plan (ESOP)?
Highly motivated, happy and involved employees substantially
mitigate a key risk for buyers – that is, that your employees will
exit if/when you do. Performance based incentives also provide
a strong incentive for people, matching their financial well-being
(at least a part of it) to yours and that of the business. Significant
Business Value can be added when employees perceive the
business’ performance like business owners.
Corporate Governance and Compliance

Do you have your business’ risk management and compliance
under control?
All too often, corporate governance and compliance are ignored
by business owners – it’s either something purely for big business,
or too difficult and admin heavy. This is certainly not the case,
as it can add considerable value and the right type of buyers, by
significantly reducing risk. If not considered, deals can fall over
at the due diligence stage, when the buyer really investigates the
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substance behind the business and its processes. Those with poorly
prepared accounts, badly documented processes and little or no
governance structures often fail to clear this hurdle.
Owner Dependence
Ask yourself honestly, how reliant your business is upon you? What
would happen if you didn’t go into the office/factory/shop for six
weeks? How much would you be missed and what would/could
go wrong?
To maximise value, the business must be able to run independently
of your involvement. You should be able to leave for two months
on an overseas holiday, uncontactable by the office, your clients,
partners or suppliers, while the business maintains, continues
and even improves its performance in your absence. Some of the
items outlined above will help to reduce the dependence upon
you (or your family), but ultimately, it’s up to you to free yourself.
PART 2 – EXTERNAL FACTORS
What do you need to prepare in order to attract the right buyer,

who will pay the best price? What will convince them of your
Business Value and finally make sure they “sign the cheque” with
the amount you expected (or more)?
Having bought and sold several businesses over the last 15
years, several factors stand out for me:
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Strategic Purchase
How would you add significant value to your business as a buyer?
Who has complementary products or services or who already
serves your clients?
For every business there is a buyer who will pay more for your
business simply because strategically they believe they will benefit
more than other buyers – a common example being complementary
products and services. For a strategic sale it is not about a multiple
(financial sales of businesses are often based on a simple multiple
of profit), rather it is likely that the offered price will factor in future
value. For example, many sales involve technology or IP assets (unique,
well protected, hard or expensive to copy) and the buyer will have the
ability to leverage that acquisition, creating substantial value.
Information Memorandum (IM) Document

Is your business backed up by all of the appropriate documentation?
Do you have a strategic plan? Can you outline the key “valuable”
aspects of your business?
It is amazing to see the number of businesses that are otherwise
genuinely valuable, but who are prepared to sell their business on
the basis of a cheap, home-made “flyer” style document. A well-
prepared IM will be able to attract and influencece the right buyer
and is worth the effort to create. It should also be designed with
the ideal buyer in mind, highlighting the strategic opportunity and
extolling the value of the business to them.
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Tax Planning
If you sold your business today do you know how much Capital Gains
Tax (CGT) you would need to pay? Can you restructure to minimise
CGT by taking advantage of small business CGT concessions?
Every exit has several different elements of taxation, nearly always
CGT, often stamp duty and sometimes other taxes as well, so be sure
to understand them. Inadequate preparation and planning in this
area can cost you a large percentage of your eventual sale price in
taxation. Using a qualified financial planner experienced in this area is
critical, while the use of Self-Managed Super Fund (SMSF) strategies,
can also add substantially to the financial outcome for the seller.
Due Diligence and Documentation

If a buyer were to go through all of your documents and records –
would there be anything you would not want them to see?
Many transactions fall over when a business’s documentation
is reviewed in detail, but this process can be used in your favour,
improving the value of the business – but it will take some effort.
If all of your documentation is complete, accurate, and up-to-date
and demonstrates a well-managed business, it will support your value
proposition not detract from it. Make time to put filing processes and
systems in place, well in advance of any checks.Negotiation
If you were approached by a buyer today – what price would
get you to sell? Are you ready to negotiate?
While creating some competitive tension by attracting several of
the right buyers is a good start to any negotiation, the preparation for
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and conduct by which the negotiations and discussions are handled

before a sale are critical. Following the Global Financial Crisis (GFC),
the terms of sale are now a major factor, with many deals involving
a vendor finance aspect. Some deals require vendor involvement
for a period of time after the sale and can also involve warranties or
guarantees that may be linked to the final pricing. Getting these terms
wrong during your negotiation can see quite a good deal turn very sour.
Legal Agreements
Have you ever spoken to a lawyer about documenting your
succession plan or business sale?
Often business owners are concerned that the legal agreements
will ‘scare off the buyer’, however this is very rarely the case. More
importantly any legal agreements must be structured to protect you after
the sale, particularly around the key issues of any warranties, assurances
provided and also any events or finance included as part of the sale terms.
Corporate Advisers
Have you got experienced advisers who can assist in maximising
the value and ensuring a successful exit?
Business owners should not try to sell without the best advice
from the right people. Well represented businesses are generally
taken far more seriously and are perceived to be far more valuable.
A corporate adviser who has a reputation for selling good-quality
businesses can automatically add credibility and respectability to
your business in the eyes of a potential buyer.
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Paying little, less or no tax when you sell a

business or large investment
Broadly speaking you’re looking to make capital gains or a sale of
business assets or investment assets and just like any Australian,
your intention is not to pay any more taxes than is needed on the
gain on those when you do sell them.
There’s three main ways, or tax concessions, to pay little, less or no tax:
1. The General 50% CGT Discount;

2. paying 0% tax in your superannuation fund; and
3. the Small Business CGT concessions.
What is CGT?
‘CGT’ is ‘Capital Gains Tax’.
Basically, that’s the tax that you pay when you sell an asset like
a house, or business, or a portfolio of shares and you make a gain.
You buy a house for $500,000, you sell it for $600,000 – that
means you’ve made a ‘capital gain’ of $100,000.
Tax might be up to $47,000.
The tax you pay on that capital gain depends on who owned the
asset, and any concessions or exemptions you may be eligible for.
You pay CGT on gains you make on things like investment
properties, business sales, sale of shares, managed funds (there’s
more, but that’s an example).
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The “General 50% CGT discount”

There is a ‘general discount’ for Capital Gains Tax.
This is available if assets are owned by individuals (people) or
trusts (like family trusts, discretionary trusts or even Self-Managed
Super Funds, which are classed as a type of trust - although Super
Funds only get 33% discount, not 50%).
The general discount allows an individual or a trust a 50%
discount on the tax they pay on their capital gain, so long as they’ve
held an asset for more than 12 months.
You buy the same house above in January – then you sell in
February the following year (13 months later), still making the same
$100,000 capital gain.
The 50% discount means that you’ll only pay tax on 50% of the
gain, or only tax on $50,000.
Tax has now halved, and you may pay up to $23,500.
Good stuff!
Paying 0% on Capital Gains made in Super

In your superannuation fund, when you’re drawing a pension, the
ATO gives you a tax break.
If you’re over the age of 60 and drawing a pension from your
super balance (Note: not the transition to a retirement pension),
then that tax rate is currently 0% on any income including capital
gains. You need to be 60 years old, and your pension balance is
taxed at 0%. (There are also other requirements and maximum
balances too.)
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So, say for instance that today you were to buy a commercial
property that your business was renting. You do that through your
self-managed super fund, or SMSF.
Now, if you held onto that investment until you were 60 years
old, and you were drawing down a pension at the time, then any
gain on sale of that asset would be taxed at 0%. (This would be
assuming your SMSF was 100% pension in your name – or other
members also over 60 drawing a pension.)
Let’s put some numbers behind that.
Say you buy a commercial property worth 1 million dollars
today, then 30 years later you sell that for 3 million dollars. So
you’ve made a 2 million dollar capital gain.
Outside of super, if you purchased it in your own name you’d
be up for quite a bit of tax, rough numbers $470,000 in tax.
But if you held the property inside your self-managed super
fund, you’d pay 0% and $0 in tax. (Again assuming you were 60
years or more, drawing a pension.)
That transaction would save you hundreds of thousands of
dollars in tax by careful structuring.
That applies to other investments like a residential investment
property sale. Same with shares that you own in listed companies
or other people’s businesses. So it’s pretty significant.
It’s like you’re having your own legal tax haven in Australia.
That’s the superannuation pathway of paying no tax on sale
of assets.
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Small Business CGT Concessions

I mentioned at the start the small business capital gains tax
exemptions were the other option.
This one applies to capital gains made from selling all or part
of a business.
There’s also four concessions that are available for small
businesses – so they’re pretty powerful tax saving strategies!
The four concessions are:
1. 15 year exemption,
2. 50% active asset reduction,
3. Retirement exemption, and
4. Rollover.
The great thing about the concessions is that you can apply
multiple concessions on the same transaction or ‘sale’.
Eligibility for Small Business CGT

Concessions
First we need to make sure that you’re eligible for those exemptions,
and there’s three main tests that are looked at.
The first test is ‘does your business and any connected businesses
turn over in total less than 2 million dollars in sales?’. That would look
at any connected entities. So, if you’re into two businesses, you need
to make sure that turnover of total annual sales does not exceed 2
million dollars. If it does exceed that, all is not lost.
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The second test is that you hold an asset as an investment (like a

property), and it’s used in a ‘small business’ of a connected entity. Note:
this one is not available to property held by Self-Managed Super Funds.
The third test, and I would say the most heavily relied on, is
the ‘$6M net assets’ test. This says the business owner selling the
business has to have less than $6M in business and investment
assets, less any debt (and not including some assets such as the
family home or your superannuation).
So let’s say the business owner has $10M of assets – including
debt of $3M, superannuation of $1M and a family home of $1M.
Rough figures, the business owner would have $5M in net assets
under this test, and be eligible for the concessions.
Running the numbers on the concessions

Let’s assume for all four concessions that we have a business sale
of $1M. And you started it from scratch 16 years ago, so there was
no original cost for you buying the business.
That means you have a capital gain of $1M, and without the
concessions, assuming you held it through a trust or individually,
you’d pay upwards of $235,000 in tax on that sale. ($1M x 47%
tax rate x 50% general CGT discount.)
I might just mention as well those small business CGT
concessions are only for business assets, they’re not for passive
investment assets like listed shares or residential rental properties -
but it can include commercial property that was used in the running
of your business, unless held by an SMSF.
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Let’s look at the concessions now.
15 year exemption
The first of the four concessions is the ‘BIG KAHUNA’!
This exemption says if you have been running the business for
more that 15 years, and you’re over 55 years of age and are retiring,
you can disregard the capital gain COMPLETELY!
$1M gain.
$0 tax.
No tricks!
50% active asset reduction

Under this exemption, you get an additional 50% discount on top
of your first 50% general CGT discount.
So you’d pay upwards of $117,500 in tax. ($1M x 50% x 50%
= $250,000 x 47% tax)
Still a fair bit, but less than $235,000!
Retirement exemption
This allows you to disregard a capital gain of up to $500,000 in
value over your lifetime.
Now if you’re under 55 years old at the time, the money you
disregard has to be put into super.
If you’re over 55, there is no requirement to put it into super.
The good thing about this is that you can apply the other
reductions or concessions first.
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$1,000,000 gain x 50% general discount x 50% Active Asset

reduction = $250,000 gain.
If you’re under 55 years old and put the remaining $250,000
into your super fund, then you pay $0 in tax personally!
Rollover
Now, the next one is the rollover relief. I’ve actually used this
myself personally.
What it says is if you sell a business asset, then you can elect
to rollover the money that you received from that to buy another
asset, and you’ve got up to two years to do that.
So, if you receive $1,000,000 from a sale of a business, you
can apply the 50% general discount, then the 50% active asset
reduction. You’ve got $250,000 in capital gain left.
You can then buy a $250,000 replacement asset (must be a
business or an asset used in business) within two years and pay no tax!
Wrap up
That wraps up the three main things that come to mind when
you’re looking to pay the least amount of tax possible on business
and investment gains.
Keep in mind I’ve skimmed over reams of pages of legislation
here and wrote it based on today’s rules.
This is very general help and we always say get personalised
advice before planning or going through any big transactions like
this. If you mess these up, it may cost you hundreds of thousands
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of dollars in tax that you didn’t expect to pay. So don’t say I didn’t
warn you to get the advice!
In conclusion…
The consideration and correct implementation of the items outlined

above will help you to meet two key outcomes – maximising the value
of the business and successfully extracting that value upon exit!
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CHAPTER 8
Cover Assets
Step 6 - Cover Your Assets
I want to take you back to the very beginning because missteps

here, at the genesis of your soon-to-be blossoming business
empire, is where the seeds of dismay and regret are planted.
Sounds ominous doesn’t it. Well, feel free to consider tales of
inappropriate business structuring a modern gothic horror for
entrepreneurs and their families. Happily, there are a number of
principles around asset protection in business but just one mighty,
immoveable commandment…
Risks and Assets – you gotta keep ‘em separated

If you are planning to build, establish, grow and benefit from a small
business, protecting your assets should be one of your primary
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considerations. Too many times you hear about people that have
done brilliantly in business, only for something to go horribly
wrong. Then you’re shocked to find them and their families enduring
real financial hardship a little while later. How does this happen?
How can business owners suffer such a dramatic and complete
change of circumstances both commercially and personally?
Protection or lack of it would be one answer – and an all too
common one at that.
Certain things just don’t go together

Oil and water, cigarette lighters and petrol, your hard-earned
assets and commercial risks within or around your business. All of
these combinations have potentially explosive and very damaging
consequences. Lives can be altered forever, there can be a tonne
of damage to people and property. However, the separation and
safeguarding of assets from risks can be managed with the sound
advice of a good accountant.
They would tell you, as I am now, that if the point of owning a
small business is to help build a wonderful life for your family, then
once you’ve accrued assets, they should be protected. Protected
from economic peaks and troughs in world and local markets,
supply and demand fluctuations in your own or even poor decision
making by you or someone within your business.
One of the simplest ways to make sure that your family home,
vehicles, sports memorabilia and other assets aren’t brought into play
if your business hits trouble is by selecting the right business structure.
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CHAPTER 8: COVER ASSETS
If your business is set up as a sole trader, you are personally

liable for consequences that may not be of your own creation. A
disgruntled employee, a careless oversight or even just plain old
bad luck could put your personal assets directly in the punitive
firing line. The same can often be said for partnerships, which can
be trickier still because there will be at least two but often more
people making decisions that may well affect your assets.
Keep in mind, we’re not talking about the bonus you were
hoping to earn, dividends you wanted to distribute or even future
earning capacity. The potential tragedy lurking in the shadows of
these business structures is that owners and/or partners can lose
what they already own.
When we go into business, especially as we start doing well,
we can become a target to people wanting to sue us.
There are three main categories of risks I bring up when sharing
with business owners about asset protection:
1. The first one is fraud. So if the director commits fraud – but

fair enough.
2. Secondly, if they sign a director’s guarantee, which is very
common on leases or loans that are in the name of the business
- it’s actually guaranteed by the personal assets of the director
if the business doesn’t pay.
3. The third one, and the most common by the way, is insolvent
trading. Now, the definition of insolvent trading is not being
able to pay the bills of the business, as and when they fall due.
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This includes not being able to pay a BAS in full, or even paying
the rent a few days late. Technically, that’s not in full and on
time. So insolvent trading is actually quite common, and it may
be even an unknown to the business owner, but if you aren’t
paying your bills on time, then someone could come back and
argue that you’re trading insolvent.
Now I also say that asset protection is a continuum of how

comfortable you are with risk.
The following diagram will show you that:
zz Trading as a sole trader is on the left hand side when it

comes to asset protection, you get ‘nothing’ or no asset
protection.
zz Companies (triangles)/trusts (squares), if they are set
up correctly, get you about half way along the line. The
wall in between the two is ASIC’s ‘Corporate Veil’ – a
protection for Directors as a company is a separate legal
entity. (But keep in mind that fraud, insolvent trading,
directors guarantees and a few other things pierce that
Corporate Veil)
zz There’s the ultimate position with asset protection on the
far right of this line – it’s being worth literally $0 (on paper
anyway )… But you’ll need an ‘Asset Person’ for this - read
more about them below under the heading ‘Read this if
you’ve been asked to be an “Asset Person”’
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Protect what’s yours!

Ok ay, s o d u e d i l i g e n ce i s e x a c t l y t h a t – i t ’s a m u s t , i t ’s
something you have to do and this, by itself, will keep you
safe from a lot of the troubles that can beset businesses of
any size. But a great deal of help comes in the form of the in-
built protections offered by business structures such as Trusts
and Companies. Here you have structures that recognise you
(and your assets) and the risks associated with your business’s
commercial activities as almost mutually exclusive (with just a
few exceptions to muddy the waters). All in all, far safer than
betting the family home that you won’t ever put a foot wrong,
nor your associates and that no one will ever come after your
business with ill intentions.
At the end of the day, you have, or will have, worked very hard
for what your family enjoys. It’s worth protecting and can be, with
the right advice and decisive action.
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Rules of Asset Protection

First, let me say I love this topic and we at Inspire see opportunities
to talk about this as opportunities to offer some peace of mind
to our clients and others once their business is on the right track
and performing.
Once you learn these Rules, you’ll play your wealth and business
cards a lot differently.
Rule One - Separate Business Risks from

Personal Assets
“This rule is so underrated, keep your family [wealth] and business
completely separated” – Notorious BIG
zz Business risks should be kept separate from your family

wealth and assets as they build up over time.
zz When running a business, you have “risks” whenever you
enter into a business relationship (with customers, suppliers/
creditors, and employees – mentioned above).
zz You achieve this first rule by implementing a company or
trust set up correctly to run your business.
Rule Two - Choose a “Risk Taker” and an

“Asset Person”
zz Within a Family Group, you should choose one individual to be

a “Risk Taker” and another individual to be an “Asset Person ”.
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zz The Risk Taker should be the main person involved in your

business and therefore should be the director of any trading
companies (or trustee trading companies).
zz The Asset Person should not be, or act, or seen to be acting as, a
director of any trading companies. The Asset Holder should be “in
control” (as a director, trustee and shareholder) of any asset holding
companies and the appointor or principal of asset holding trusts.
zz Where possible, the Risk Taker should not own any assets in
their individual name. The Risk Taker should be an “unattractive”
target to take legal action against. In most cases, the family
home should be owned 100% by the Asset Holder.
zz If the Risk Taker owns assets, consider transferring these
to the Asset Person – but watch for stamp duty and Capital
Gains Tax before you do it.
zz Do not own the family home in joint names if you have an
Asset Person.
zz If the Risk Taker and Asset Person are spouses, then the
family court protects the asset person running off and taking
everything with them by classing assets held by the Asset
Person as marital assets.
Rule Three – Establish an Asset Trust
zz Establish an Asset Trust to hold your family investments.

zz The Asset Trust can also own and control your business
trading entity and business asset entity (see Rule Four).
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zz The Asset Trust can also be gifted equity in your family home – which
may be a great asset protection and estate planning strategy.
zz Any shares, property or other investments you want to invest
in are held in an asset trust, or across multiple asset trusts.
zz An Asset Trust NEVER runs a business or develops property.
Rule Four - Separate Business Risks from

Business Assets
zz Establish a business Asset Holding Entity (separate from your

personal Asset Trust) and transfer all intellectual property
(IP), trademarks, patents, logos, business names, vehicles,
plant and equipment etc. to this new entity.
zz Establish a license agreement to license the use of all IP from
the business Asset Holding Entity to the Trading Entity, and
a service agreement/rental agreement to record the lease/
rent of other business assets like vehicles or equipment.
zz The licence / service / rental agreements must be paid in
cash each week / month as agreed to make sure it is seen
as legitimate.
zz PPSR registrations should be taken out over all equipment
rented to the trading entity.
zz The business Asset Holding Entity should not have any other
relationships with other parties except for the Trading Entity.
zz If the Trading Entity fails, the assets in the business Asset
Holding Entity should be protected, and a new trading entity
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could then be established and new agreements could be

entered into to use the assets.
Rule Five - Different Businesses should

Operate from Separate Entities
zz Keep different businesses siloed from each other.

zz If you run a roofing business and want to start a painting
business – these have to be in separate business structures.
zz In the case of failure of one business venture it then shouldn’t
affect any other business ventures. Even different divisions
within a business can operate from separate business
entities. An example of this is a car yard - with car sales,
and the servicing side structured in two different entities.
Rule Six – Don’t store value in your Business

Entities
zz Ensure that income from your Trading Entity is shifted to

asset trusts or bucket companies that don’t run a business.
zz Any amounts that are loaned to your trading entities should
be secured from your asset entities on the PPSR and secured
loan agreement.
zz Achieve this through regular dividends and distributions.
zz Ensure that any Trading Entities have the minimum of assets
(small amount of cash, debtors and stock only), and that no
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loans remain owing from individuals or related entities to

the Trading Entity.
Rule Seven – Regularly Review your Asset

Protection Strategy
zz Review your asset protection at least once a year.

zz Ensure your estate planning, especially the estate planning
of the Asset Person, is always up to date.
zz Always seek advice before purchasing new businesses or
investments.
zz Update PPSR registrations, loan agreements, and service
agreements for any changes.
zz Ensure the money is getting paid for any loans or agreements
in place.
zz Update Gift & Loan Back strategies for any increase in equity.
zz The Risk Taker owns nothing and will own nothing.
Read this if you’ve been asked to be an

“Asset Person”
So you might be reading this because you’ve been asked to be an
“asset person”.
It’s likely your son, your daughter, or your spouse, maybe even
your brother or sister has just been taken through what we call a
‘Structures and Strategy Session’.
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Now, that structure is for their business, and the legal structure
they use to run it. The Structure and Strategy Session is looking to
achieve two things for them:
1. the first is to reduce the amount of income tax that they pay
on the business profit, and
2. the second thing is to protect their assets, especially as they pull
more profit out of their business, and invest them in creating wealth.
So why we’re talking to you, is that you’ve been earmarked as a

great “asset person”, to help with that second point: asset protection.
Now, the person who you’re helping, we refer to as the “risk taker”.
So just to recap, we’ve got the risk taker, and the asset person.
Three categories of risk

Now, why we’re talking about risk in the first place?
Well, unfortunately, when people go into business, they also
take on lots of different risks.
There are three main categories of these risks:
1. The first one is customers or clients. Basically people who pay

you money.
2. The second category is suppliers, so people you pay money to,
like landlords, or it might be your suppliers.
3. And the third category is your employees. Unfortunately, in
Australia, Human Resources or employee law, is definitely
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weighted in favour of the employees rather than the business

owner. And it can be up to a $65,000 fine, from FairWork, for
each breach of employee legislation that the business makes –
knowingly or unknowingly.
So that’s the sort of risks we’re worried about.

In the Structures and Strategies Session, we talk about
companies and trusts providing some form of asset protection.
We call the protection that a company gives the “Corporate Veil”,
and there are three things that this corporate veil doesn’t actually
protect against:
1. The first one is fraud. So if the director commits fraud – but

fair enough.
2. Secondly, if they sign a director’s guarantee, which is very
common on leases or loans that are in the name of the business
- it’s actually guaranteed by the personal assets of the director
if the business doesn’t pay.
3. The third one, and the most common by the way, is insolvent
trading. Now, the definition of insolvent trading is not being
able to pay the bills of the business, as and when they fall due.
This includes not being able to pay a BAS in full, or even paying
the rent a few days late. Technically, that’s not in full and on
time. So insolvent trading is actually quite common, and it may
be even an unknown to the business owner, but if you aren’t
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paying your bills on time, then someone could come back and
argue that you’re trading insolvent.
That’s the sort of risk we’re looking at. If those three things,
either fraud, insolvent trading, or director’s guarantees become
serious, then what can happen is the person suing the business
can actually come after the Director’s (risk taker’s) personal
assets.
You, as the asset person can help them - and the way they do
that is the ultimate form of asset protection, where the risk taker
is not worth anything on paper. Zero dollars. Literally nothing.
They don’t even own their family home. That could be in the
name of a spouse, it could be in the name of a parent, or a brother
or sister – but definitely not in the risk taker’s name.
Ideally, even if the business is sued and they come after the
assets of the risk taker/the director, they’ve got nothing to take
anyway. It’s very unlikely someone who’s suing is going to want
to push for bankruptcy and end up with nothing - because of
the huge legal expense involved with actually sending someone
bankrupt.
It’s a pretty freeing feeling for the risk taker!
So, that’s where you come in. The idea is for the asset person
to own or control all of the risk taker’s business assets, and even
investment or personal assets as well.
But, there’s a couple of questions that usually come up for the
potential ‘asset person’.
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Firstly, does that put you at risk? My answer to that is it doesn’t put
you at risk at all, and that’s because we’re very specific how we set up
our companies and trusts, so that they don’t put the asset person at risk.
Two roles of an Asset Person

In most cases, there are two roles that you’d take on.
The first one is the shareholder of the company, and the second one
is the appointor, or sometimes referred to as a principal of the trust.
Firstly with the shareholder - the shareholder is only liable for
the amount they have invested in the shares, and we set up the
companies that they’re only worth about $10 or $12 – so there’s
nothing to lose anyway.
Secondly, with trusts, the role of appointor, or principal, is not
actually assuming any risk. It’s the “trustee” of the trust that takes
on risk, and your role as the appointor, or principal, is to hire and
fire that trustee; you can basically kick them off as trustee, and
put yourself, or put another company on as the trustee, which is
the day to day controller of that trust.
So just to wrap up, you don’t put yourself at risk, because the
shareholding and the appointor or principal roles do not attract
any risk, and so you can successfully control and own the business
entities, without putting your own personal assets at risk.
This is especially important, if you’re a parent who’s worked all
their life, you might be retired, and you don’t want to expose your
personal assets to the risks of your son or daughter’s business. The
good news is that this is not the case.
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Confirm the Asset Person role won’t affect your

pension – (Important for parents of the risk taker)
The second thing we want to have a look at in the appointment
of you as the asset person is that it’s not going to affect any
government support, like Centrelink, or health care cards for you.
If you are an asset person, that means the control of the trust
may be said to be in your name. If that trust is making $200,000
a year, and you’re said to control the trust, then Centrelink might
say, ‘Well, you actually have a fairly decent asset in your own name’
and reduce or remove your pension.
We want to make sure when we do get your help with this, that
it’s not going to affect any Centrelink, or any entitlement like that.
And we can do that by just having a look at your circumstances
- if you’re a self-funded retiree, and you’ve got absolutely no
chance of getting Centrelink, that’s a good thing, right? You don’t
need support for retirement, and you’re free to be an asset person
without losing government support.
So being an asset person is perfect if you are a self-funded retiree.
Confirm the Asset Person role won’t affect

your benefits – (Important for brothers &
sisters of the risk taker)
You’re able to take on this asset person role if you are the brother
or sister of the risk taker, but you’ve got to consider if there are any
family tax benefits, or any childcare rebates that could potentially
be affected by your appointment as the asset person.
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These sorts of rebates are usually income tested, not asset

tested. So if you’re not receiving income from your brother or
sister’s business then you should be safe.
But best to do your homework or check in with the accountant
setting up these structures.
How involved in the business do you have to

be as the Asset Person?
Another question that pops up is how involved does the asset
person have to be with all of this?
Well, we do need a couple of signatures from you at the start,
and that’s to accept your appointment as the principal/appointer,
and also the shareholder, if that’s relevant.
But the good news is from then on the risk taker, or director of
the business, runs pretty much everything.
And you’re there, in the background, if something goes wrong.
That’s where you come in and save the day.
It could be that the business is getting sued, and maybe
the personal assets of the risk taker (although there should
be none) are coming into the law suit. That’s when you’re
SUPER valuable.
Having an Asset Person and divorce or

family breakdown
One last thing worth mentioning that always comes up as a
question – and that is, “What happens in the case of divorce?”.
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We’re recommending that you’ve got a risk taker who’s worth

zero dollars, and an asset person, even a spouse, worth everything,
(also keep this in mind that it could be other family members as
well). A spouse, a parent, or brother and sister, as the asset person,
that person literally owns, on paper, all of your assets.
Now, if you’re the risk taker and you’re worth zero dollars,
what happens if it’s husband and wife, and the wife is running
the business as the director and risk taker - the husband is worth
everything, and the husband just takes off!
Does that mean he gets to keep everything? Well, the advice
we’ve got from at least two family law practices is that the family
court is the only court in Australia who can look through all of
these company and trust structures, and the whole asset protection
that we’ve got in place to protect the family assets.
So a bit strange, but it’s actually a good thing that it protects
both spouses.
You can’t have the husband, in the case above, just running of
with everything, and leaving the wife with nothing. It’s actually
considered marital (combined) assets.
Unfortunately, there isn’t that protection from the family
court for parents, brothers or sisters – only spouses. So I say
to clients that you really need to trust your asset person with
your life – because they do control your financial life, now and
into the future.
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Estate Planning of the Asset Person

Unfortunately, most Australians die intestate (translation is that
they die without a will).
When you have a risk taker/asset person relationship, it’s
important that the assets are passed on when the asset person
dies, and we want to make sure:
1. The risk taker doesn’t end up with all of the assets; or

2. The assets that are controlled on behalf of the risk taker aren’t
caught up in a family dispute or passed on to other family
members instead of the risk taker’s replacement ‘asset person’.
Confusing – but it is worth considering how this is passed on

when the asset person eventually passes away.
I could write a book on this itself, but you should definitely have
an understanding of how this works with your structure.
Business structures that protect and

neglect your assets
Now, way back in chapters three and four, I covered steps one
and two respectively on cutting your tax and capturing your
profit. Business structures have a major bearing on these two
steps and how effectively you’re are able to benefit from
them. But we only looked at a couple of structures and even
then, just through the prism of tax and profit. As mentioned
though, none of this (owning a small business) is of any use if
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our assets and earnings could end up running through our hands
like beach sand.
Here at Inspire, we have a very strong view on which is
the best structure for small businesses in terms of protection.
It’s tempting to simply layout a very comprehensive guide to
structures with all their pros and cons but instead, I’ll simply
share the advantages and disadvantages. I will say that while
these pages may (and hopefully will) influence your decision
making, it is and will always be a good idea to contact us for a
chat about what might best suit your circumstances. Finally, if
you feel like you just want to skip to the conclusion and do the
reading at a later time, here’s the skinny:
Avoid operating as a sole trader or partnership, company’s offer
some protection but trusts do it better.
Should I Trade as a Sole Trader?

Establishing a business as a sole trader is the simplest form of
business structure. It is reatively easy and inexpensive to start
and maintain.
Many sole traders choose to trade under their own name but
this is not a requirement. A sole trader can register a business name
with the Australian Securities and Investments Commission (ASIC)
and trade using this name instead.
A sole trader is essentially just the individual in business
for themselves – they retain complete control of the business
operation. There is no division between business assets or personal
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assets, which includes any assets jointly owned with another

person (such as your house or car).
Your liability is unlimited which means that personal assets can
be used to pay business debts. The individual is also responsible
for remitting the tax on any business profits made at their marginal
income tax rates.
After your first year of business profits the Australian Taxation
Office will enter you into the pay as you go (PAYG) instalments
system. The PAYG system requires regular payments of preliminary
tax based on expected profits for the following year. Any excess
tax paid as a result of this will be refunded on lodgement of your
income tax return.
Advantages of Trading as a Sole Trader
zz Easy and inexpensive to establish and maintain.

zz Complete control of your assets and business decisions is
retained by individual.
zz Fewer reporting requirements.
zz Any losses incurred as a result of business activities may
be offset against other income earned (such as investment
income or wages), subject to satisfying certain conditions.
zz You are not considered an employee of your own business and
are free of any obligation to pay payroll tax, superannuation
contributions or workers’ compensation on income you draw
from the business.
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zz Relatively easy to change your legal structure if the business

grows, or if you wish to wind things up.
Disadvantages of Trading as a Sole Trader
zz Unlimited liability which means all your personal assets are

at risk if the business operation gets in trouble.
zz Little opportunity for tax planning – you can’t split business
profits or losses made with family members and you are
personally liable to pay tax on all the income derived.
zz Business debts and losses cannot be shared.
zz Requirements to pay preliminary tax on business income
which may not have been earned.
zz Limited access to additional capital for business growth.
A Word of Warning Against Trading as a

Sole Trader
At Inspire CA we strongly recommend business owners avoid
operating as a sole trader.
Even a business which is not generating sufficient income to
require a great deal of tax planning can still expose the owner’s
personal assets to significant risk.
Should I Trade as a Partnership?

A partnership is a common and relatively inexpensive way to set
up a business. It involves two or more co-owners (the partners)
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participating together in a business operation. In order for a

partnership to exist, the partners must have the intention of
making and sharing profits, as well as an understanding that they
will each act on behalf of the other in all business dealings.
When establishing a business under a partnership structure,
a formalised partnership agreement spelling out the rights,
responsibilities and obligations of each partner is a good idea,
although it is not necessary for the partnership to exist. In the absence
of a partnership agreement The Partnership Act of 1891 (http://www.
legislation.qld.gov.au/LEGISLTN/CURRENT/P/PartnerA1891.pdf) sets
out the various rules that govern the conduct of partners. The act
places joint liability on all partners for debts and obligations incurred
by the business during their involvement in the partnership. Partners
are obligated to keep their co-owners properly informed.
While a partnership is a separate business operation to the
partners involved, having its own Australian Business Number
(ABN) and Tax File Number (TFN), all the business profits are taxed
in the hands of the partners at their respective marginal tax rates.
Advantages of a Partnership
zz Easy and inexpensive to establish and maintain.

zz Fewer reporting requirements.
zz Any losses incurred by the business may be offset against
other income earned (such as investment income or wages)
subject to satisfying certain conditions.
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zz Partners are not considered an employee of their own

business and are free of any obligation to pay payroll tax,
superannuation contributions or workers’ compensation on
income drawn from the business.
zz Relatively easy to change your legal structure if the business
grows, or if you wish to wind things up.
Disadvantages of a Partnership
zz Unlimited liability which means all personal assets are at risk

if the business operation gets into trouble.
zz Some of the control of business assets and decisions is
relinquished.
zz Business debts and losses cannot be shared with anyone
except the partners.
zz Requirements to pay preliminary tax on business income
which may not have been earned.
zz Limited access to additional capital for business growth.
What do we think of Partnerships?

While a partnership can allow a business access to additional
capital and knowledge (if the partners are both individuals rather
than companies and trusts), each partner exposes their personal
assets to an unlimited level of business risk. We recommend
business owners avoid operating partnerships, especially involving
two or more individuals.
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Should I Trade as a Company?

Unlike a sole trader who essentially is the business, a company is
a separate legal entity with directors who run the business and
shareholders who own it. When business owners are interested in
restructuring their business operations, the most commonly considered
option is a company. This is usually because they believe they understand
the way this structure works. Business owners are generally aware
that a company owns the business assets and provides protection for
their personal assets against business risk. However, there is far more
to consider when picking a business structure than asset protection.
Advantages of a Company Structure
zz Companies can be owned and run by one person.

zz Shareholders are not responsible for company debts unless
they sign a personal guarantee.
zz Easier to attract capital because of limited liability.
zz Companies can operate globally and own properties.
zz Companies pay a flat 27.5% or 30% tax on every dollar of
profit regardless of how much money is earned.
Disadvantages of a Company Structure
zz Relatively expensive to establish and register.

zz Compliance costs are generally higher and record keeping
requirements are stricter.
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zz Shareholders may have difficulties in recovering their

investment because of limitations on who can buy shares.
zz Funds taken out of the company as a salary or wage attract
the usual PAYG withholding and superannuation obligations.
zz Companies that hold CGT assets do not receive the 12
month 50% CGT discount on disposal so usually aren’t the
best structure for investing.
Business owners who are considering operating through a

company structure must give due consideration to Division 7A
(http://www.ato.gov.au/Business/Division-7A/). Division 7A
essentially seeks to prevent directors and shareholders of private
companies from taking the company’s profits for personal use.
Individuals or entities that take ‘drawings’ from a private company
have until the lodgement date of the company’s income tax return
to either repay the funds in full or enter into a suitable loan
agreement with the company. Failure to do so will result in the
amounts being treated as an unfranked dividend which will need to
be included in the shareholder’s income tax return for the year. As
you can imagine, if the sum taken from the company is significant,
this can result in a substantial tax bill.
Considering Restructuring into a Company?

Business owners looking to shift their business operations from
a sole trader structure into a private company can experience
a number of benefits. However, there are also a number of key
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differences and potential issues that must be understood and

carefully managed. We strongly recommend anyone interested in
setting up a company seek professional advice before doing so.
Should I Trade as a Discretionary or Family Trust?

A trust is a structure wherein a Trustee (either an individual or
company) carries on the operations of the Trust on behalf of the
beneficiaries. The actions of the Trustee are governed by the Trust
Deed, which details the rights and obligations of all parties or the
‘rules of the trust’. Trusts are a common structure choice for family
businesses as it enables the various family members to become
beneficiaries of the Trust that is operating the business. While the
trust is not a separate legal entity, it is a separate entity for tax
purposes. The trustee must apply for a Tax File Number (TFN) for the
trust and lodge an annual income tax return.
If a company trustee is used, the trust offers all the same
asset protection benefits as using a company structure, along
with the additional benefits of using a trust. A trust that
has individuals acting as trustees exposes the trustees (the
individual, or individuals) to same levels of business risk as a
sole trader.
For businesses running as a trust, we only set up trusts with
company trustees here at Inspire.
Broadly speaking there are two common types of trusts that
you will encounter when making your business structuring decision:
Discretionary Trusts and Unit Trusts.
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Discretionary Trusts
A Discretionary Trust is the most flexible form of business structure
for a family. No single beneficiary has a fixed interest in the trust’s
property or the trust’s income. The trustee (usually a company
controlled by directors) has complete discretion in the distribution
of funds to each beneficiary. This makes the Discretionary Trust
(with a corporate trustee) a strong and flexible option for a family
business. The family members are protected from business risk and
the trustee has the discretion to distribute the income in the most
effective way possible.
It is important to remember that all of the benefits offered by
a discretionary trust for a family business make it a poor choice
for businesses where more than one family or group is involved,
as neither group of beneficiaries retains a fixed entitlement to
property or income. (But see below ‘Unit Trusts’ for multiple family
groups.)
Advantages of a Discretionary Trust
zz Flexibility with income and capital distribution.

zz Broader Tax planning opportunities.
zz Access to Small Business CGT concessions.
zz 50% 12 month CGT discount.
zz Asset protection (if a corporate trustee is used and set up
correctly).
zz Can pay salaries and wages as well as superannuation.
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Disadvantages of a Discretionary Trust
zz Distributions must be in accordance with the Trust Deed.

zz Risk of resettlement if changes are made to trust members
or trust property without giving consideration to the rules
outlined in the Trust Deed.
zz Losses cannot be distributed.
zz More of an investment to establish and maintain when
compared to sole traders or partnerships.
zz Trustees can be personally liable for some debts of the trust
(if individual trustees are used).
Unit Trusts
Unit Trusts are recommended when more than one family or group is
involved in the business operation. The interest in the trust is divided
into units, similar to shares in a company. This way you can have
different family groups or entities owning different fixed percentages
in the trust. The Trustee distributes income to the beneficiaries in
accordance with their respective holdings in the trust. This is the key
point of difference between Unit and Discretionary Trusts: the units
remove the Trustee’s discretion concerning the distribution of income.
Advantages of a Unit Trust
zz Unit Trusts provide protection where more than one family

or group is involved in the business.
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zz Asset protection (where a corporate trustee is used and set

up correctly).
zz Access to Small Business CGT concessions.
zz Access to 50% 12 month CGT discount.
zz Easy to raise capital by issuing additional units.
zz Can pay salaries and wages as well as superannuation.
Disadvantages of a Unit Trust
zz Sale of units can be a CGT event and attract stamp duty.

zz Not as flexible as a Discretionary Trust.
zz Trustees can be personally liable for some debts of the trust
(if an individual trustee is used).
Business owners looking to shift their business operations

into a trust structure can experience a number of benefits. We
strongly recommend anyone interested in setting up a trust to
seek professional advice before doing so. Given the additional
requirements of using a trust, we work closely with all clients that
use this structure to ensure all their obligations are satisfied and
it is used in the most efficient manner possible.
Self-Managed Superannuation Funds

A self-managed super fund, or ‘SMSF’ from now on, is a great tool
to help build your wealth and save tax at the same time.
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An SMSF is an alternative to industry or retail super funds.

An SMSF is where you set up a super fund for you and up to four
family members in total. You get to call the investment shots.
Now super funds pay tax at either 15% or 0%.
The 15%* tax is payable on ‘before tax’ contributions to
superannuation. Accountants call these ‘concessional contributions’.
(*Individuals who earn more than $250,000 in their personal
names in a financial year pay 30% tax on money they contribute
before tax into the super fund.)
There’s a limit on how much you can contribute before tax
in a financial year, before you’ll start paying 47% tax on the
contributions. That limit for the 2018 financial year is $25,000
regardless of your age.
15% tax is also payable on the income of the super fund when
the members are accumulating their superannuation balances
throughout their working lives.
Now - for the 0% tax rate - how does this happen?!
Is there a trick? Not really...
It’s a concession that the government has given self-funded
retirees when their super fund balances are paying them a pension.
There are minimum pension amounts that must be paid to super
fund members after a certain age, and when they’re drawing this
pension, any investment income that their super fund balance
earns is tax free.
The 15% tax rate applies to income to the super fund when
the members are drawing a Transition to Retirement Pension (also
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referred to as Transition to Retirement Income Stream or ‘TTRIS’).

It used to be 0% like normal pensions, but changed from the 2018
financial year onwards to be 15% tax.
Superannuation and Asset Protection

In terms of asset protection, your super balance is usually protected
from threats of bankruptcy, unless leading up to the threat, you had
an idea that trouble might be coming, and you contributed abnormal
amounts into your super fund. We understand the bankruptcy
courts can come and unwind these sorts of contributions.
Apart from that, the years and years of working it’s taken you
and your family to build your balances is fairly protected, and so
are the assets held within the fund.
Buying your Business Premises with your

Superannuation
Setting up an SMSF can also open up your flexibility of what you
invest in. You can buy a commercial property, for instance, in your
SMSF which can then be leased by your business outside of super,
so effectively you’re paying yourself rent.
If you don’t have enough money in your superannuation to
buy a building outright, you could combine your super with up to
3 other family members – and even borrow money from the bank
to make up the difference.
How cool?
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Lending to SMSFs
Just like your self-managed super fund can lend from the bank,
your self-managed super fund can also lend from a company or
trust which you control.
This is called a related party lending.
If you’ve got a company like a corporate beneficiary that has
a build-up of cash in its bank accounts, this can actually be lent
to your SMSF through a limited recourse borrowing arrangement
(sometimes called an ‘LRBA’) so that that SMSF can go and purchase
a property or a parcel of shares with this borrowed money.
This is a great alternative to leaving that cash in the company
bank account earning cash rate interest.
Business Insurance
Business Insurance can protect you in a number of ways not only
against events that impact on things you own or are responsible
for, but also against others who may be impacted on your actions
or advice you give.
Things like professional indemnity, public liability, theft and
building insurances are quite common.
For example, if an engineer misses something in the design of
a bridge, and it collapses, professional indemnity insurance should
cover the engineer for the value of the damage he’s likely going
to be sued for.
A new and emerging risk which has certainly had plenty of
media is Cyber Insurance, affecting not only large corporates, but
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every business relying on a mobile device or internet connection

to do business. Cyber events can include things like ransomware
(if someone holds your Dropbox or Google Drive for ransom and
asks you to pay for releasing it).
How much you pay will differ from industry to industry, and the
types and amounts of cover that you have.
In terms of some basics with regards to cover, you should check
the following:
zz Ensure the correct entity is listed for cover – seems obvious

but this is one that can cause you a lot of problems in the
event of a claim.
zz Make sure your occupation is listed appropriately on your
schedule of cover.
zz Check any exclusions to cover and how they may impact you.
The best way to do any of these is to speak to a qualified

Insurance Broker who can assist with looking at your particular
situation and place covers appropriate for your risks.
Personal Insurance
The last thing we’d like to run through, but certainly not least when
it comes to asset protection, is personal insurance.
Personal insurance protects you in the, hopefully rare, situation
where you can’t work for a short amount of time (or for the rest of
your life) – or the worst case, you pass away.
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This one thing can really make or break everything else we talk
about in this book to get you Cashed Up.
In fact, the reason for a big portion of business owners going
bankrupt is because of a personal illness, disability or death –
and there’s no, or not enough, cover in place for these sorts of
incidents.
No one wants their loved ones to inherit a property portfolio,
but also inherit a $10,000 per month debt repayment. Nor do you
want to have an unfortunate accident, not be able to work, and
also not be able to take care of yourself, paying medical bills and
providing for yourself and your family. A ‘double whammy’ – you
have to pay medical bills while you continue to feed your family,
but are not earning anything.
Life, TPD (Total & Permanent Disability), Trauma (sometimes
called Critical Illness) and Income Protection Insurance are a must
to consider.
Personally, we have insurance in place to pay out any debt we
have in full if we were to be totally and permanently disabled, or
to pass away.
If we can’t work in the business, our insurance replaces our
income within a couple of months of being able to work.
This means we and our families will be looked after if these
sorts of undesirable things happen.
Make sure you talk with a switched on Insurance Adviser to get
the most appropriate cover in place, and check in at least once a
year to make sure it’s still right for you and your family.
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Wills & Estate Planning - Passing on your

legacy to your family
Estate Planning involves much more than having an up to date will.
It is important to ensure that your assets are distributed in the
most effective manner and without the adverse tax consequences
for the people you’re passing them to.
Death may be one of the two certainties we have in life – the
other being taxes. Fancy both being talked about in the same book!
Sometimes we have a reluctance to deal with the inevitable
event of death.
But do you know how your loved ones will be cared for if
something happens to you? If the answer is ‘no’, then it’s time you
took steps to put your affairs in order.
I’m sure we may know a friend, family member or maybe it’s
even happened to us – where they’ve had a family member pass
away and it’s been an absolute nightmare to get everything sorted.
There are many good reasons for having an estate plan, these
are just the top three:
1. Not wanting to add to your family’s anxiety or hardships while

they are trying to deal with their loss;
2. Keeping your hard-earned assets from ending up in the wrong
hands or causing friction between those named in your will, simply
because your intentions weren’t properly documented; and
3. Preventing your beneficiaries from paying more tax on their
inheritance than they could have otherwise.
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That’s why proper estate planning, including having a will and

keeping it updated, is essential.
In Australia, if you die without a valid will, known as dying
‘intestate’, a court-appointed administrator could be charged
with distributing your assets and even deciding who looks after
your children if they are under 18. He or she may follow a pre-
determined formula that could lead to a very different outcome
to the one you wanted, which could cause delays in settling
your estate.
Studies show that 45 percent of Australians don’t have a will,
so if you don’t have one then it’s time to join the 55 percent!
Drawing up a will is far more complex than merely deciding
who you want to leave your assets to. An understanding of which
assets pass into your estate is required and this is why seeking
advice is important.
For business owners, throw into the mix the company and
trust structures we’ve spoken about, and it actually gets quite
complex.
For instance, not all the assets you own or control will be dealt
with by your will, including
zz Assets owned as a joint tenant;

zz Assets owned by a company or held in a trust; and
zz Superannuation death benefits or life insurance proceeds
that are paid directly to a beneficiary rather than your
estate.
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Joint tenancy and tenancy in common

Jointly owned assets or property can be held in one of two ways
– either as joint tenants or as tenants in common. If an asset is
held as joint tenants, on your death, the surviving joint tenant
automatically acquires ownership of your share of the asset (‘rule
of survivorship’). The asset won’t form part of your estate and
can’t be dealt with under your will. It’s very common for the
family home to be owned like this. (Hopefully not if you’re the
‘risk taker’ though!)
If an asset is held as tenants in common, your share of the asset
(i.e. 50%) will form part of your estate and can be specifically dealt
with under your will.
Assets owned by a company or held in trust

If you own assets via a company or trust, your estate plan needs to
address how control of that entity will be passed upon your death.
This will ensure the assets of the entity will pass in accordance
with your wishes.
In the case of a company, this will involve considering who will
be entitled to any shares you own in the company on your death. It
may also require an examination of any rights you may have under
the constitution of the company to appoint directors.
In the case of a trust, you will need to examine any rights you
may have under the trust deed to appoint a replacement trustee
and/or appointor (sometimes referred to as a principal) or to wind
up the trust and direct how its assets should be disposed of. If the
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trustee of the trust is a company, it will also involve considering

who would be entitled to any shares you own in that company.
Superannuation & Life Insurance death benefits

Assets held by a superannuation fund usually bypass the estate and
are paid to a dependent spouse or children, as are life insurance
benefits with binding nominations (where you specifically name
your beneficiaries). If there is no nomination or the nomination is
faulty, the payment of benefits may be subject to the super fund’s
rules, and this may not always be what you desired.
As part of your estate plan, you also need to consider the tax
implications of how your death benefit is dealt with. Lump sum
payments paid to dependants (as defined under income tax laws) are
tax free. Taxable components paid to non-dependants are subject
to tax. You don’t want the ATO ending up with a third of your super
legacy paid in tax if you can structure it a different way to avoid the tax.
Planning for your own future needs

You should also be planning for your own future requirements.
For example, there may come a time when you’re unable to make
decisions for yourself because of a loss of capacity. To assist here,
you need to nominate an enduring power of attorney. This trusted
person (or people) is someone you appoint to make financial and
property decisions on your behalf.
Nominating an enduring power of attorney before you get to
the ‘loss of capacity’ stage is important as you can’t nominate
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one after this happens. Remember that a regular power of

attorney becomes invalid upon your death or if you lose the
mental capacity to make your own decisions. An enduring power
of attorney, however, will allow your trusted person to act on
your behalf if this happens and you are no longer able to manage
your financial affairs.
You may also wish to nominate a medical power of attorney,
who can make medical decisions on your behalf.
Testamentary trusts
A testamentary trust is a trust established by someone’s will.
It comes into existence only when that person dies. Including
a testamentary trust in your will can be useful for making tax
effective distributions to beneficiaries under the age of 18,
caring for children or a dependant who is incapacitated, and
preventing beneficiaries from inappropriately spending their
inheritance.
Tax effective estate planning

The disposal of assets in accordance with your will may have
tax consequences, including CGT (Capital Gains Tax), that you
should consider when drafting your will and creating your estate
plan. There are many strategies you can use to help make your
estate plan as tax effective as possible for your dependants and
beneficiaries.
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Some of these strategies include:
zz ensuring the proceeds of an insurance policy paid from a

superannuation fund is paid to dependants as this would
be tax free;
zz distributing an asset (rather than the proceeds of the sale of
that asset) to a beneficiary to defer any CGT liability;
zz using discretionary trusts can help minimise the tax a
beneficiary pays on receipt of an inheritance; and
zz using testamentary trusts can be an effective way to provide
an inheritance to young children.
Tax
There are many tax time bombs found in estate planning. For
instance, an asset you leave one child may be subject to Capital
Gains Tax while an asset left to another may be exempt. This could
result in each child receiving very different inheritances when you
thought you were leaving them equal shares. Also, the tax payable
on some benefits may depend on each beneficiary’s personal
circumstances.
Asset ownership structures:

Different structures offer different benefits. For example, a
testamentary trust comes into effect at the time of your death and can
help protect your assets against any claims that arise if your children
become divorced or bankrupt. They can also be used to reduce tax
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and provide for young or disabled children. Other structures include

companies, self-managed super funds and family trusts.
Your wishes:
You may want to give additional direction to those you have given
powers of attorney. A memorandum of directions is not a legally binding,
but morally binding, letter to your family of additional things you might
want them to do after you pass away. You may also want to spell out
your desires regarding your funeral arrangements, rather than have your
family second guess what you would have wanted. Or detail what pieces
of jewellery go to certain children. Even where the kids go to school.
Estate planning can be complicated, but it’s important to do
things properly so that your family can avoid any potential legal or
tax issues, especially as regulations change over time.
At a time when your loved ones are coping with a loss, don’t
leave them with additional hurdles to overcome.
Our team at Inspire can help you coordinate your Estate Planning.
As your accountants, we work hand in hand with our expert Estate
Planning legal team to put together your Wills & Estate Plan.
Let’s go to the scorecard
Do you operate your business in a trust and/or company?

Trusts and companies provide great flexibility around how little tax
you pay and how safe your assets (like the family home and car)
are from legal proceedings.
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Has your accountant reviewed your business

structure to ensure tax efficiency and asset
protection in the last 12 months?
Circumstances change all the time and a proactive accountant can help
you take advantage of opportunities and mitigate the risks from threats.
Tax planning time (Apr - Jun) is a good time to review structures.
On paper are you, as the risk taker, worth very little - as

most assets are owned in separate entities or other
people’s name (like your spouse or other relatives)?
As you get more and more successful, the target on your back
gets bigger. To avoid being taken to the cleaners by a disgruntled
employee, customer or suppliers look at ownership of assets as a
way to run your business with little risk.
Do you know the differences between Companies,

Trusts & Sole Traders?
You don’t have to be an expert but being able to draw your
own business structure and explain how it works is a good test of
a business owner in control.
Do you know if you should pay yourself a salary, a

dividend, a distribution, a loan or something else?
Knowing HOW (and why!) to take money out of your business is
what all founders of Cashed Up businesses know. Knowledge is
power. Get your accountant to teach you not just tell you.
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Have you got business insurance in place, and

understand what it covers, and what it doesn’t?
Even though businesses have insurance in place, they might not
know the ins and outs of what it covers. Ask your broker for some
examples of the type of risks and events that you’re covered
against – and some you aren’t!
Have you spoken with a Personal Insurance

Adviser about the most appropriate cover for you
and your family and do you review this with them
at least once a year?
Don’t miss this critical, and often very affordable asset protector.
You don’t want years of hard work to unnecessarily go down the
tubes because you’ve overlooked insurance.
Have you got an up to date Estate Plan, which has

been reviewed in the past 12 months?
It’s a no-brainer and a ‘must’ to have Wills and an Estate Plan in
place. Make sure you review it regularly – and at major life events,
for instance the birth of a child, marriage, divorce, receiving a large
amount of money, serious illness etc.
Ways to improve your score -
zz Ask your accountant / advisor for a quick refresh on your current

business structure and know the best way to take money out of it.
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zz If you are a sole trader in business, get advice ASAP for

setting up a business structure.
zz Get advice on how to save tax before the end of the next
financial year.
zz Consider if setting up a self-managed super fund will be
better for your circumstances.
zz Review both your business and personal insurances with
your existing adviser or another one for a second opinion.
zz Get an Estate Plan and review it regularly.

difference – inspireca.com/book
zz [Read] Benefits of running a business in a family trust

[Watch] Where to store your excess profits so the tax man
doesn’t take half!
I feel like we’re only scratching the surface, possibilities-wise,

when it comes to asset protection and yeah, okay asset expansion
while we’re at it. Therein lay the benefits of having access to an
enthusiastic accountant or firm whose aim is focused on seeing
your business provide for your family - now and well into the future.
To that end, let’s talk about the future and what you could create…
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CHAPTER 9
Create Lifestyle
Step 7 - Create your Lifestyle
O ur overall wealth building philosophy for you can be summed

up in one sentence:
“Have one eye on now and one eye on the future.”
This means we want you to enjoy the benefits of your hard work
right now (drive a new car, enjoy regular holidays, eat out, drink that
nice bottle of wine, etc) while AT THE SAME TIME putting some of
your money away into good investments to provide for your future.
Imagine: Spending some of your money now absolutely GUILT
FREE while knowing that you’re also putting enough aside to give
you a beautiful future.
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This is what we can help you to do, starting today!
Freedom Days
“Wealth is measured in Time, not Dollars”

– Robert Kiyosaki, Author “Rich Dad Poor Dad”
Take two business owners both worth $100,000 each. By the

current measure of wealth, they are both as wealthy as each other.
But let’s say Entrepreneur A has a high cost of living that is
$1,000 a day. He leases the latest BMW and rents a 6-bedroom
home on the Brisbane river.
“Entrepreneur A” Freedom Days (Net Wealth/Cost of Living

per Day) is -
$100,000/$1,000 = 100 Freedom Days.
Entrepreneur B has a reasonably low cost of living that is just

$100 a day. He managed to pay off his family home and they live
a decent lifestyle within a healthy family budget.
“Entrepreneur B” Freedom Days (Net Wealth/Cost of Living

per Day) is -
$100,000/$100 = 1,000 Freedom Days.
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CHAPTER 9: CREATE LIFESTYLE
Two men. Both worth $100,000 each. But one has 100 Freedom
Days where the other has 1,000 Freedom Days. Who is richer?
A Freedom Day (calculated as Net Wealth/Cost of Living per
day) is a day where you can do what you want, when you want,
with whom you want.
Keep in mind there are two ways to increase the number of
Freedom Days in the formula, either:
zz Increase your Net Wealth, or

zz Decrease your Cost of Living.
Money isn’t the most important thing in the world but it can be
the key that unlocks one’s ability to put the family first, and make
a difference in the world.
Every piece of advice we give you will not only help you get
Cashed Up, but also build your Freedom Days.
We’re on a mission to deliver 10,000,000 Freedom Days™ by 2025.
A day where you can do what you want, when you want, with whom
you want. As a result, every piece of advice we give you will help you
either save tax, boost profits or accelerate cashflow. That is impact.
Next, we’re going to run through three powerful ways of
increasing your freedom days on autopilot that we haven’t touched
on yet throughout this book. They are
zz property,
zz shares, and
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zz finance.
Property
A lot of our clients use property investments to grow their wealth.
It could be residential (renting it out to other families) or
commercial (renting it out to businesses) – the goal is two-fold:
zz Earn income from the rent;

zz Benefit from the increase in market value of the property;
zz Leverage your initial investment with the bank’s money; and
zz Reduce your tax if negatively geared.
Some properties may even be ‘negatively geared’. This means

that they create a net tax loss each year, which the owner uses to
reduce their taxable income, and in effect reduces their tax.
Keep in mind if your property makes a rental gain after
expenses, you’ll need to pay tax on the profit each year. And if
you sell the investment property down the track, you also need to
consider Capital Gains Tax.
The family home – a tax free oasis

You can sell the home you live in without Capital Gains Tax
(‘CGT’). We call this the main residence exemption. (Note
that you may have some tax payable if you’ve used your main
residence to produce income, like renting it out or using it to
run a business.)
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Also read above in Chapter 3 (Cut Your Tax) where I give a

bonus tip on the 6-year rule – if you’ve ever rented out your house,
but still selling it CGT free.
The power of other peoples’ money

Something that really helps when investing in property is using the
power of other peoples’ money.
The ‘other people’ we’re referring to is money that the banks lend you.
You could have a deposit of $100,000 saved up, and the bank
might lend you $300,000 so you can buy a $400,000 property.
If five years later, that property is now worth $500,000, then it
looks like you’ve made 25% increase in value. At first pass, it might.
But here’s where it gets cool:
Say for instance you just pay interest on this property (and don’t
pay off any of the $300,000 debt over the five years). All you put
in was $100,000 (paid off the interest as you went), then sold it
later for $500,000. You would have $200,000 left after paying the
loan back.
So, you started with $100,000 five years ago, and you’ve
literally doubled your money!
(Keep in mind I was using general figures above to illustrate your
returns on your deposit and not the total growth of the property.
There are things I didn’t mention, like upkeep, rates, water, etc
on the property, or even tax depending on what the property was
used for so always do a detailed plan and get professional advice
before buying anything.)
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Also, the property industry is not highly regulated compared

with the accounting or financial planning industries. Unfortunately,
it’s home to lots of cowboys setting up shop to in effect ‘rip people
off’. Given this, we always recommend getting help or guidance
from a licenced financial planner – let us know if you need an
introduction to one.
Shares
Shares are another way that people commonly build their wealth.
Investing in shares of a company is actually you as the investor
owning a small part of it. If that company’s business valuation
increases, so does the value of your shares. This increase in value
or ‘capital gain’ doesn’t cost you any tax unless you sell the shares,
and it increases your overall wealth.
You’re also entitled to a percentage of profit if the company issues
the shareholders a dividend. This provides income to you which you
can either use to invest back into more shares or use the cash to
invest in something else. Some dividends also have a tax credit called
a franking credit. This means that some of the tax you’ll pay on those
dividends will be reduced by these franking credits.
In terms of investing in shares, you also have the option of
investing in index funds, which are pooled funds set up to buy a
spread of companies across a certain sector. For instance, an index
fund tracking the ASX200 would own shares in top 200 companies
on the Australian Stock Exchange – which spreads your risk across
multiple investments.
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Compared with property, you don’t need as much cash to get

started in shares which is a great thing for investors starting out.
You can invest in shares by either:
zz Setting up a share trading account yourself; or

zz Getting help from an adviser.
We always recommend getting at least initial help or guidance

from a licenced financial planner – let us know if you need an
introduction to a great one.
Getting the right finance

Many small business owners love to leverage the power of other
people’s money in the process of converting business profits into
business wealth.
As business owners, loans can be tricky, but getting the set up
right from the start, and regularly reviewing it can sky-rocket your
wealth – by not paying unnecessary tax or reducing the amount
of interest that you pay.
Loan reviews
One way our loan advice has saved tens of thousands of dollars
in interest each year for our clients, is to regularly review and
optimise any current loans.
It’s a great thing to continue reviewing your loans at least each
year, or before every asset purchase.
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The banks are always changing their rates, their conditions (or
policies) and the bank you’re with now for your home, might not
be the most competitive and flexible to purchase a commercial
property with.
We recommend getting assistance from a broker who can go to
a panel of lenders (much more than one) and avoid bank brokers as
they only have their suite of products to put you with.
For business owners, the process of going for a loan is a little
more tedious compared with if you’re an employee.
The reason for this is the banks want to make sure that you
have consistent income that you can repay the loan with.
For employees, they look at pay slips and payment summaries
to confirm this, and the length of time you’ve been at that employer
or in the industry, among other things.
For business owners, they usually want to see your business
financials, tax returns, personal tax returns, ATO records showing
debt and lodgement – basically a lot more.
Given business is full of ebbs and flows, they want to see some
sort of consistency before they lend you a heap of money.
Also, keep in mind there are plenty of things that the banks look
at when considering giving you new finance or even refinancing
existing debt, like:
zz Your income over recent months or years,

zz If your living expenses have increased or decreased (i.e.
having a child is a big one),
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zz The interest rates at the time,

zz What equity you have in your property(ies),
zz And many other factors.
Even if you started a loan on a higher interest rate because of

your conditions at the time, it may be easier to renegotiate to a
lower rate or better conditions in a year or two when you’re a ‘safer
bet’ to the banks.
The key here is to get a good broker to run their eyes over your
loans at least once a year.
For business owners, a great time to do this is when your
accountant has finished your tax for the year.
We just want to also mention three things about loans which
can impact a business owner’s ability to get Cashed Up:
zz Offset accounts for business owners

zz Fixed rate loans
zz High Loan to Value Ratios
Ben Walker is a licenced Credit Representative (No. 503406) of

BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence No. 391237).
Offset accounts for business owners

Business cash flow is full of ups and downs. During the month
or quarter, you might receive money that needs to be paid for
Superannuation, GST, PAYG tax or other purposes down the track.
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Some of our clients sit this ‘earmarked’ cash in their home

offset account, which offsets interest on their mortgage. For every
hundred dollars sitting in the offset account, you might be saving
say 4% of interest. Plus you normally can’t get any tax deductions
from your home mortgage.
Compare that with the cash sitting in a business savings
account, where you might be lucky if you get 2% interest (less
TAX) in our current environment.
So, if you had an average of $100,000 sitting in your offset
over the year, it might save you $4,000 in that year (using above
example).
Compared with, say, earning 2% less a low 30% tax (1.4% net)
you only earned $1,400 that year.
You’re up $2,600 in a year using the offset account strategy.
This advanced strategy comes with a word of warning though –
you need to ensure this ‘earmarked’ cash isn’t used for purposes it’s
not intended for. Don’t just see $100k sitting in the offset account
and buy a first-class world trip for your family. Make sure you pay
the BAS if that’s what it was meant for!
Fixed Rate Loans

Fixed rate loans can be tricky and are usually very inflexible.
Normally, the incentive for fixing your rate is to be sure of your
repayments. Sometimes this predictability is really welcomed for
business owners, although if you find yourself with excess profits
or cash, you may not be able to use it to pay down much or any of
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this loan, or even offset interest on your loan as mentioned in the

previous section.
So, just be careful when you’re going into a fixed loan,
you’ve got to think about what life looks like throughout the
whole term of the fixed period (some banks offer up to five
years fixed term).
If you double your income by the third year, would you still want
to be locked in to an inflexible loan?
It’s also expensive to refinance or change your loan if you’re
only part way into your fixed period. The bank can charge you for
the interest rate that they are no longer going to get. It’s fairly
tough if we’re doing a loan review, to consider debt that’s locked
into a fixed period.
For business owners, make sure you really consider if a fixed
loan is best for you given the flexibility that might come with other
alternatives. Or you can meet in the middle – and have part of your
loan as a fixed rate, and part variable and more flexible.
High Loan to Value Ratio

When you’ve purchased a property with a high loan balance
compared with the value of the property, you might pay Lenders’
Mortgage Insurance or ‘LMI’.
This Loan to Value Ratio (“LVR”) is calculated by the loan value,
divided by the bank’s valuation of the property.
For instance, a $400,000 loan on a $500,000 property value
is an 80% LVR.
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Generally, banks will charge the Lenders’ Mortgage Insurance on

LVRs above 80% (some will lend more than 80% without LMI, depending
on their policy, your income, your profession, etc. at the time).
Be careful before going into a loan where you’ll be charged this
LMI, because in a sense you pay an expense that doesn’t increase
the value of the property. It may not be a wise financial decision.
If the loan you go for will attract LMI, please speak to a good
financial planner to make sure it’s actually a wise move in the long run.
We hope this perspective on property, shares and finance have
given you some ideas or ‘to-dos’ to make sure you’re making the
most of the opportunities they bring.
Creating your lifestyle by controlling your

time and happiness
Now let’s take the focus off the numbers, and onto the more
intangible, but what we think is the more important, aspects of
creating your lifestyle.
The most precious thing we have in life are moments. Let´s make
the most of them before they disappear. Let´s see the world while we
still can and cherish those while they´re still here. Because when our
lives are almost over, it won’t matter how much money we made, or
hours we worked, times we got “employee of the month”. What we´ll
look back on are the memories we made, the hours we spent with
those we loved, and were we father of the month, mother of the year,
friend of a lifetime. - One of my favourite thoughts from Prince Ea.
See inspireca.com/book-resources for the full video.
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The Key
The key to success is to work hard, we’re told. But they’re only
telling us half the story. The often-quoted saying should be
amended to “The key to success is to work hard for a while and
enjoy the results.”
If you set sail on the dream of providing for your family through
small business ownership and all you packed was the ability to work
hard and keep working hard, you may be sailing towards frustrating
and stormy waters. And I say that because I don’t believe the
saying, “Hard work is its own reward” should apply to what we
do. A suitable reward for what we do is a decent amount of time
enjoying the fruits of our labour with our family in a home very
much like the one we always wanted. Put simply, you can’t feed
your family with compliments about how long you can “stick with
it”, how much toil you can endure, how much of your weekends
you are willing to sacrifice on a regular basis.
Your family has everything and nothing to

do with your business
We talk about the idea of owning a “Cashed Up Business” quite a
lot. But to be crystal clear, we’re not talking about trading the life
you should be living for cold hard cash. Your family time should
never form any part of a business transaction or requirement.
That’s yours, it’s sacrosanct and precious.
But sadly, it’s becoming easier to get caught up in various
versions of “work hard, play hard” and “I’ll sleep when I’m dead”.
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CASHED UP
After all, there are few better feelings than knowing you are working
tirelessly for your family and providing them a good life. Too often
though, it comes at the heavy, heavy price of togetherness and a
balanced lifestyle.
This may sound extreme and even out of reach for those already
living within a cycle of long hours during the week, weekend admin
tasks and very little sleep. But what’s the alternative? There has to
be one because “No one ever laid on their deathbed wishing they
had spent more time at the office.” No one!
Challenge yourself to chop your working

hours in half
And here’s a bold and confronting challenge that I also like because
attempting it will force a change of thinking. Cut your work time by
50%. What? Not possible? Take a long hard look at your work week
as it currently stands. While you’re visualising that, please seriously
consider the following questions and answer them honestly:
zz Are you busy doing tasks you could pay someone else to do
at a fraction of what your time is worth?
zz What percentage of your time are you spending working in your
business as opposed to “on” it? I know this gets thrown at you
a lot but I’m asking you to think about the actual percentage
split. 60/40? 70/30 in favour of operational tasks?
zz Are you able to fully “switch off” from work when you’re
back spending time with your family?
220
zz Do you have documented processes and procedures? This

enables your people to take over operations with no drop
off in customer/client service should you decide to take off
with the family for a few weeks.
Running a truly “Cashed Up Business” according to the

definition that we are comfortable with is all about enhancing the
lifestyle you currently have and bringing the dream closer to reality.
This can happen for you and we would love to talk with you about
the “how”.
How to make a memorable weekend

How many times has someone asked, “What’d you get up to on the
weekend?” and you struggled to think of something interesting to
say? Or maybe you answered with, “Nothing much – you?”.
It happens a lot because people, and especially small business
owners, are getting busier and busier. And while you are paying
the price, the silent victim is “the memorable weekend” – a dying
breed. When I talk about the memorable weekend, I‘m not talking
about an extravagant string of party boats and skydiving trips. I’m
talking about a weekend where you were able to take time out to
do more than simply recover and reload. The memorable weekend
should be something you can have with your family and friends
and feel good enough to not only have a good one, but a great one.
“Youth is wasted on the young” and “weekends are wasted on
the weary.” There’s an element of truth to these two ideas and as
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CASHED UP
far as I can tell, the common denominator is intent. Or at least the

two-sided coin that is intent. On the one hand you have some (not
all but some) younger people that get a little complacent because
“If I don’t do anything with this weekend, there’s always next
weekend or the weekend after.” Nutty – because life is short. On
the other hand, there are those that work hard (possibly too hard)
and find themselves too physically and/or mentally exhausted to
celebrate whatever successes their business has enjoyed. They end
up telling themselves that an annual relaxing, tropical island holiday
will fix them up however, that may only account for 10 days out of
approximately 253 workdays in any one year.
Like everything that you want to go well, there has to be
an element of planning and pre-planning to have a memorable
weekend. Can you really close up shop, log off and/or shut it down
at the end of a huge work week and expect to slide right into a
refreshing and yet exhilarating weekend without any forethought?
Plan to succeed even on the weekend

There are a number of tips that will help you get the memorable
weekend right:
1. Understand your numbers to the point that you know how many
hours you need to put in to achieve your monthly target. (Oh, if you
haven’t already, work with someone to find out what that target is.)
2. Remember why you got into running your own business – so
that you can have more time for you and yours.
222
3. Make family and social time over the weekend, an immovable

object in your calendar but also take care to add in prep time.
i.e. will you put in a couple of extra hours on Wednesday, so
you can take off a little earlier on Friday? How about booking
out a whole Tuesday afternoon to shop for the perfect gift for
your 4-year old’s birthday on the weekend because deep down,
you must know that a gift card just isn’t going to cut it.
And here’s one final quote to finish with just in case it didn’t
convince you earlier to take some time for you and your family this
weekend. “No one, laying on their deathbed, ever said, ‘I wish I had
spent more time in the office’.”
The Magic that makes a better lifestyle

Imagine it’s Friday and if the weekend hasn’t yet started for you
yet, it will very soon. Or will it?
Quite a number of people work through the weekend and take
a break on another day(s). However, a lot of people, particularly
those in small business tend to work their core hours, then put in
a few hours to take care of admin, then a little bit of designated
panic/worry time over what the next month may or may not bring,
then… Realistically though, everyone takes a break, be it a short
power-packed escape from the business, say every quarter or a
more leisurely exhale once every year (or so), and pay the price
later. But is this the best way to enjoy the fruits of your labour and
if not, are their alternatives?
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Alternative business lifestyles

I know a lot of people who work for someone or a company and
they turn up Monday through Friday. Their desk/cubicle/office is
their home from 9 to 5 (okay 8-6), five days a week, 48 weeks a
year. Some of them like it, some just shrug, some genuinely love it.
But what I find is that those that leave to start their own business,
weren’t loving what they were doing previously, for a variety of
reasons. They felt trapped, wanted to spend more time with family
and/or friends or just felt that there was something better out
there for them.
What a lot of them find though is that their new life is a
combination of what we just talked about: core hours of work,
stress, admin – a lot of work for less-than-anticipated reward.
There is another lifestyle that can be achieved and it’s probably
closer to the one that we all envisage when we get started. That’s
the one where, on a monthly basis, we:
zz feed our time energy and passion into the business,

zz take home an amount of pay that we’re happy with,
zz reward ourselves with a bonus if and when everything comes
together and we post some outstanding results,
zz enjoy more time than we thought possible with our loved
ones, doing things we love,
zz take care of the tax payments (only what you need to pay,
of course), and
zz service all expenses – overheads, subscriptions, debts.
224
Some of you are living this life already as opposed to thrashing

around in the ocean of small business, coming up for air when you
can and calling it a holiday. What you need is a little magic!
The secret behind the magic number

Like all good magic tricks, it looks baffling, impossible even. But
when you’re shown how it was done you say, “Wow, that was a lot
simpler than I thought it would be.”
If it feels like those six points are magic, it’s because they are.
These are the basics that make up the magic number that we talk
about so often and so passionately. You’ve heard the saying, “You
can’t hit what you can’t see?” In this case it’s true.
Tip: Go ahead and assign dollar values to each of those six
points above. When you add them all up, you will have the
magic number your business needs to come up with to live your
alternative lifestyle, the one you always wanted.
Create Your Lifestyle Scorecard

Never get so busy making a living that you forget to make a life.
Work a few days a week, take regular family holidays and give to
worthy causes, all while knowing your cash machine is building a
beautiful future.
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CASHED UP
Why is this important?
Outside of work and family, do you have hobbies

that you regularly participate in?
Hobbies are a great way to de-stress and keep the mind / body
active. The most successful founders we know have very active
pursuits outside of the business.
Do you typically work weekends or more than 10 hours

each day?
For the sake of your health and your family, aim to work cut your
work hours by 50%. Put in systems. Outsource. Get new team
members. You should be predominantly working ON the business,
not IN it.
Are you living in your dream home?

Would you like to? Having big goals for what you are going to do
with your profit can be the very motivation you need to actually
make one.
Do you regularly eat out at nice restaurants or go

on date nights?
Why not? You work hard enough. It’s the little pleasures along
the way that can keep you feeling rewarded and happy along the
business journey.
226
Can you fully switch off from work when you are at
home with the family?
Try to. It’s important not just for your mental health but also your
family. Cashed Up businesses have ample systems, resources
and talent within them to allow their founders to not be ‘ON’
24 x 7.
Can you take 8 weeks holiday each year without

your business suffering?
Taking holidays is great for your family and wellbeing as well as
your business. Putting a few thousand kilometres (and time zones)
between you and your business gives your team a chance to step
up, your systems a chance to be tested and the founder a chance
to think big picture.
Do you get more than 7 hours per night sleep?

If you’re going to be a Cashed Up business you need to regularly
make good business decisions and execute great strategy. This
starts with being a healthy, vital and energetic human being. That
starts (or finishes?) with a good night sleep.
Ways to improve your score -
zz Look at the next 12 months and block out time for all the
family holidays, sneaky long weekends, conferences and trips
you want to take.
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CASHED UP
zz Delete your social media and email apps and turn your phone
to do not disturb when you leave the office.
zz Go on a date night. This week!

difference -
zz [Read] Why business owners need to take holidays, 8 - 12

weeks per year! (https://www.facebook.com/notes/harvee-
pene/why-business-owners-need-to-take-holidays-8-to-12-
weeks-a-year-/1709322155995354)
zz [Read] Balancing Business and Family with Daniel Flynn,
Co-Founder of Thankyou (https://www.facebook.com/
InspireCA/videos/1527185057314785/)
Time out is time well spent

As we see it, and we’re certainly not alone, there are at least a
dozen compelling reasons to get away for an extended period of
time, let’s run with our top 6:
Trust
We trust our team, we trust our systems. We give ourselves a solid
5/10 for saying it and a bonus point for actually writing it down. That’s
good, but to be great you must actually demonstrate it. Leaving the
team to their own devices and our carefully calibrated systems ticks
that box – and they will be/are better for it. 10/10 – much more like it.
228
Efficacy
Knowing is better than guessing. Always has been, always will be.
The final step before giving any product, service or even “way of
working” is the old stress test or live test. This is where systems
are tested in a live or near live environment. They are pushed and
a number of different and sometimes unreasonable scenarios are
thrown at them, just to see if they’ll hold up. When they do and
all is well, you’re ready to (yes!) go on holiday. After all, when you
know you’ve worked hard and got something right, take advantage.
Perspective
This is an easy one. We’ve all heard about the dangers or at least the
disadvantages of operating down in the weeds for extended periods
of time. One of those is the inability to see the opportunities for
the issues. Time (right) away from the business allows you to think
about it more objectively. Solutions to issues and dilemmas that
you were just too close to back home, may now seem more clear-
cut, accessible. That’s perspective working in your favour.
Clarity
“I’ve just got to get away and clear my head”. You hear that so much
in movies nowadays that it’s almost a cliché. Funny thing about
that – clichés are usually based on an element of truth. Your mind
may well have a load limit and without taking time to “clear your
head”, you may not have room to manoeuvre around the big issues
and formulate solutions. Clarity, work for it and it will work for you.
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CASHED UP
Opportunity
Placing yourself outside your normal work environment is necessary
and useful but it can also open up new opportunities. We have to
be careful here because you’re on holiday to holiday, not to mine
for new business. That said, many a poolside conversation has
opened many a door and it’s not unusual for business introductions
to open with, “This is [insert name], we met last year in [insert
holiday destination].” Don’t go looking for it, enjoy your holiday. Yet
at the same time, understand that sometimes, opportunity knocks
on the door of your beachside cabin too.
You deserve it and so do they

Always, always, ALWAYS remember why you decided to own your
own small business. It’s a way to enjoy more time and happiness
with your family. Yes, money is the vehicle but the reason surely is
family first. You’ve worked hard, you approached your business the
right way and you’ve paid everyone that needs to be paid. Don’t
neglect yourself and your family at the bottom of that list.
There are other reasons too, but this should be enough to
persuade you to get online, scroll through some holiday packages
and make some plans.
Bon voyage!
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One last thing before I go and let you get on

with creating a beautiful lifestyle
Obviously, the most important people to me are my family and
like most of you, I’d do anything for them. After all, they are
our “why”. But there’s something else that I’m passionate about
and that’s not wasting opportunities to help make the world a
better place.
Living in “the lucky country”, Australia, for many of us, came
down to luck – we were born here or our parents were or they
brought us here. Not everyone is that lucky. Furthermore, if
you have the drive, the opportunity and the means to create an
enviable lifestyle for your family and yourself, you also have the
opportunity to do the same for others – if only for a while. For me,
that’s a bridge I can help build between a Cashed Up Business and
societies that richly deserve a helping hand.
At the beginning of this book, I said that this was not a “How
To…” book. I will admit that parts of it bear all the hallmarks of an
instructional but I want to be very clear that all of the how’s, the
references and regulations lining the path are there to guide you
towards achieving your “why”. Not just for you, but, as we always
say here at Inspire, for your family – a goal as close to our hearts
as your loved ones are to yours.
Oosh! I did warn you about the emotion.
Cheers
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About the Authors
Ben Walker
Ben Walker is a Chartered Accountant

with over a decade of experience, he
is the founder and CEO of Inspire and
co-author of Cashed Up: The 7 Step
Method for Pulling More Money, Time
and Happiness from Your Business. Ben
is the winner of the coveted Anthill
Online ‘30under30’ award for 2014 and was named finalist in the
Brisbane Young Entrepreneur of the Year award.
Inspire has a strong focus on what matters to its clients. They’ve
saved their clients over $3.5M in tax over the past two years alone. Ben
puts it this way: ‘We love to change lives. Knowing that we can change
the conversation around the dinner table for our clients from, “How are
we going to pay the rent next week?”, to “Where are we going on our
next family holiday?” is a continual driving force for us at Inspire.’
His motivation behind his success is to help business owners
get cashed up! Helping others prosper means they can then pull
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ABOUT THE AUTHORS
more money, time and happiness from their business to spend it

with their families. Ben knows that small changes have big impacts
and is dedicated to helping families take life-altering steps toward
their financial freedom. Ben is husband to beautiful wife Stevie,
and ‘parent’ to their two rescue greyhounds—Monkey and Willow.
They enjoy chilling out on Fraser Island in Queensland.
inspireca.com, benwalker.com
Harvee Pene
Harvee’s first business was at 12-years-

old, mowing neighbourhood lawns. Five
years later, at age 17, Harvee had saved
enough and bought his first investment
property. He started his second business
at 18 as a scaffolder, and five years later
built it into a large construction training
and labour hire company. Wanting to ‘get off the tools’, Harvee
started his next journey as a part-time intern in an accounting firm
while studying accounting at Queensland University of Technology.
Over the next five years, he helped build a change management
consulting firm which helped over 600 accounting firms around
Australia make positive impacts in their clients’ lives; this company
was later floated on the Australian Securities Exchange. That’s
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CASHED UP
where Harvee met Ben Walker – the founder of Inspire CA, and
together they joined forces and now lead the award-winning team
of life-changing accountants at Inspire.
Harvee is a TEDx speaker and has spoken on stage alongside
his business idol, Michael E Gerber. He is also the founder of
Accountants For Good – a global movement that disrupts a very
‘old school’ accounting industry. Co-author of Cashed Up: the 7 step
method to pull more money, time and happiness from your business,
and Ambassador for Thankyou Water and B1G1, Harvee’s passion
for spreading the good knows no bounds. Despite Harvee’s success,
it hasn’t all been smooth sailing for him. Blindsided by testicular
cancer, Harvee took this life-altering situation and with his typical
true grit and courage, miraculously reduced the tumour markers
by 80% in four weeks. As a numbers person, Harvee believes that
family is number one. His mission is to create a business that gives
him the freedom to always put family first and to help others do
the same. In doing this, his mission to make a difference in the
world will be accomplished.
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ABOUT INSPIRE: Life Changing Accountants vii

The Seven Smart

T his is not a “how to book”.

This book is not about a higher philosophy, empowerment,

Shall we get started?

as hard as we can like someone stuck in quicksand. This usually

On the subject of growth, let’s get a little bit personal and

Perhaps we got caught up in the “what” and the “why” and

zz Stressed out, overtired and on a collision course with

Pick your poison. The only antidote really though, is a solid

zz business structures that suit our businesses,

zz lifestyle parameters that enable you and your family to live

Strangely, the most impersonal thing in the world, cold hard

1. Cut Your Taxes

Ready? Good. Chapter 2 is waiting.

Introducing your business scoreboard

I have never known an important sporting event to be decided

The scoreboard should tell you more

I strongly recommend that small business owners establish and

Similarly, when forecasts indicate an upswing in sales based on

How do I read the scoreboard?

Scoreboards vary in complexity from sport to sport. Baseball and

I want you to focus on your outputs and results as opposed to

Shall we get in to it? Game on!

Saving tax is both essential and

assuming people aren’t doing it deliberately, it generally boils down

effectively learn a different language. Learn and adopt a different

zz business structures that protect your earnings, assets and

Again, my aim here is to help you make a positive impact

Structure your business so you don’t

When assessing if you’re in the right structure, there are three

1. How much tax does each entity pay?

At INSPIRE CA we NEVER recommend anyone go into business

Income Turnover Company Company

2016-17 $10m 27.5% 30.0%

2017-18 $25m 27.5% 30.0%

2018-19 to $50m 27.5% 30.0%

2024-25 $50m 27.0% 30.0%

2025-26 $50m 26.0% 30.0%

2026-27 $50m 25.0% 30.0%

}} turnover exceeding the turnover threshold, your rate is 30%.

– but cannot protect against things like fraud, insolvent

We’ve summed up a lot of information into a few dot points

zz Sole trader – don’t do it. At all.

FAQ’s: Business Structures

How do you know what’s right for you?

But what if I need to change structures?

How do you take money out of a company or a trust?

1. Salary (PAYGW & Super 9.5%)

1. Salary (PAYGW & Super 9.5%)

Taking money out of a Company

1. Salary (Super 9.5% & PAYGW)

superannuation at a minimum rate of 9.5% of their ordinary time

2. Loan (Div. 7A)

the companies lodgement date (end of financial year), it should be

3. Dividend (Prior year profits)

In other words, you cannot issue dividends from a company in

Taking Money out of a Trust