To business or not too business
Read the full transcript below.
Jenni Walke: Oh, I think we are.
Mark Schofield: Brilliant.
Jenni Walke: Apologies. Are we going live? I think it’s taking a moment. And that’s resetting. I’m so sorry about this guys. Oh, I think we might be on live. Yeah, we are. Okay. Awesome. I think we are streaming live on Facebook. That is kind of cool. Hello to everyone who is watching this one, Elephant in the Room.
Jenni Walke: Today we have David Cowling from Roberts & Cowling Accountants here in Brisbane. We have Cara Coles, Mark Schofield, Robert and Michelle. So lovely to have you all here today. And Kimberly, this is going to be so much fun. Today, like we always do, is it’s about simple strategies to help your business succeed. And every week or every other week, we do a little tip that’s going to help you kind of move your business forward. And it’s about taking small actions every week to be able to do that. We’re going to start off with a little bit of a preso, and then we’re going to get into a Q&A with David very shortly.
Jenni Walke: If everyone can see the screen now. Just checking that everyone can see my screen. I don’t know if you can.
David Cowling: Yes.
Jenni Walke: Beautiful. And it’s Simple Strategies? Is all we’re seeing? Can we all see that? What screen are we looking at?
David Cowling: It just says Creative Mess. So just your-
Jenni Walke: That’s my life video. There. Here we go. Here we go. There we go. So we should be able to see Webinar six: To business or not to business.
David Cowling: Yep.
Jenni Walke: Beautiful. Today we’re talking about choosing the right structure for your business. And so a lot of us, particularly like myself, I’m an accidental business owner is how I like to describe myself, which means I spent 25 years working for other people and then realized that it was no longer my passion or joy and decided to jump out of a plane to become a business owner. And I did that without really knowing what it meant to become a business owner. I got some advice at the time. Some of it was great advice, some of it wasn’t great advice, but I didn’t know any different at the time. And I think a lot of us are like that.
Jenni Walke: The business journey that we go on from this idea of, I have a cool idea, I want to sell some stuff, is often like a roller coaster. And we go up and down and in and out and forward and back. And we don’t really know where we are. I call it the tangled mess of business.
Jenni Walke: These strategies that we talk about every week and when we get advice from people like Mark, who are here on the call as well, and David, it’s actually about us making these ebbs and flows a little bit smoother, so you feel like you’re on a nice highway or mountain road rather than a roller coaster, enjoying the ride.
Jenni Walke: We’re all starting a business. Whether you are in business, looking at starting a hobby business, looking to move a hobby business into a full-time business, part-time, whatever it looks like, there are a number of questions we always start with. And over the last couple of weeks, we’ve really been focusing on those core questions around who we are, that clarity piece.
Jenni Walke: And we often start with this, the market and the product questions. What am I selling? Why am I selling it? Who’s going to buy it? And so these questions, what problem am I solving, who is my market, who else offers what I’m offering, what value do I have that’s different, and what makes me different in the market are questions we often start with. And most people decide to start a business because they have a cool idea and they think they can make it. They go, “Yep, let’s do this and let’s go forward.” But then they think, “Hang on, how do I actually run this as a business?”
Jenni Walke: We start with those product questions and we’ve been doing that for the last couple of weeks. And if you haven’t seen those questions we’ve asked, you can go back and see the recordings. But for the business questions, it’s around, what do I need to get started? And this is where we start to get a little bit deeper. Is it feasible? Am I able to produce a car every weekend? Probably not. Am I able to produce a little widget that I can sell it a local market? Sure. But do I want to do that every day consistently for the rest of my life as a business owner? Maybe not. Do you want to do it instantly and am I going to be able to repeat it so my clients retain, maintain and continue to come back to me? Can I actually monetize it? Will anybody just come and buy the product that I sell? There are so many great products out there that just haven’t been positioned well enough that they can’t be monetized.
Jenni Walke: These are the questions that we want to start asking about the business. What is the chance of it being successful? What are the risks and what will it cost me? Now, if you’re a serial entrepreneur, these are questions that you deal with every day about trial and testing, and let’s just see how it goes. And if it fails, we just start again and we keep iterating and move forward.
Jenni Walke: For a lot of people who find the idea of business a little bit scary and the unknown, these questions can be a make or break way of starting your company. And the other question that we always want to ask is, do I actually want to do this? And is this who I want to become? Do I want to be a business owner? Do I want to be an entrepreneur? Am I actually really that type of person?
Jenni Walke: When we start our company, these are all the questions we ask. But there are often a few questions we don’t think about asking before we start, and this is the how will it work questions. And this is why we have David here today, is to talk about the how will it work questions. Questions like, what will my business structure be? Am I a sole trader? Am I a partnership? Am I a trust? Am I a company? Isn’t really a hobby that needs an ABN that I need to register for JST? What the heck is JST? Am I a company or a business? What’s the registration? What does that look like? What are my tax obligations? All these questions becoming incredibly overwhelming. And I know they did for me because I didn’t know what it was to become a business. But I learned along the way and I got advice.
Jenni Walke: Today, I wanted to ask an expert. So have him and our expert today, David, to share with us his ideas and his tips on the questions that you might want to ask and the things to consider before we start a business. This is our expert, David Cowling. David is an incredible man. I met him through the mental for growth program here in Brisbane about six weeks ago. David, was it?
David Cowling: Yeah, I think so. Yeah.
Jenni Walke: Yeah. We were actually about to do a mental for growth panel for a business that was one of my favorite businesses. And unfortunately they weren’t able to make it. We ended up having a conversation or a chat for about 20 minutes, I think, while everyone just sat and watched us. And what was great about that is we found a real synergy in the way that we actually manage and think about our businesses, and thinking about how businesses run.
Jenni Walke: Now, I’m not an accountant, I’m not a lawyer, so the advice that I can provide is more my suggestions and in my experience. But David has an incredible amount of experience, and I’m going to read through it to make sure I get it right. He’s a partner at Roberts & Cowling in Brisbane. He’s a chartered accountant with over 19 years experience. And he’s a winning Queensland partner via an SMSF Advisor Excellence award in 2018. And his vision is that clients are free from the stress of enterprise so they can live in… I love this, they live with wealth, prosperity and perpetuate that into their tribes. And I love that because that’s all about abundance and living in that true sense of abundance, David, which is what I love about that description.
Jenni Walke: He does some really cool things like play touch football, travel, scuba diving, and snowboarding, which I haven’t done for about 20 years. But I’m so jealous that you still do that. And I’m so excited that he is here today to join us. If you need to connect with him, his details are on the screen. He has the best Facebook URL that an accountant could possibly have @accountantsbrisbane. So you cannot miss him. But I’m going to stop sharing the screen and we’re going to have a chat, David. Let us do that because I’m excited and I want you to introduce yourself a little bit more. David, welcome.
David Cowling: Thank you. You did a remarkable job there. I think you covered most aspects pretty well. I think the most important thing for me is that we live to our purpose. And so mine is really around small and medium business and really making sure that… It can be a lonely place, it can be a place of high stress if you’re either a sole trader or you’ve got team members that you’re really either in one hand, you’re quite on your own, and on the other hand, you’re thinking about how you’ve got to find the money week in and week out to pay these people that [inaudible 00:08:39] on you.
David Cowling: The stress and negative thought patterns that tend to come up from time to time in business owners I think is really, really important to acknowledge and work with. We can do that by helping to grow a business that’s sustainable, that doesn’t necessarily require people to be there all the time to make it work.
Jenni Walke: And I love that because it’s really about that, how do I create it so I can step away and move from being that business owner, or a business operator into a business owner where it can operate without me. I saw a great discussion, and to be honest, I can’t remember who did it, who talked about the levels of business. We’re either going to be in the business where we have to be there day to day on the grind, then you can do the second level of business where we have to be there most of the time, but we can go on holiday and it’s okay. But then the one that we all strive for is that third level of business where the business just operates without us, and we know that we’ve set up that clarity, the structure, and the processes well enough that it can do that without us being in the minutia and the detail every day. Unless of course we want to.
David Cowling: And what that third level gives you is choice. It allows you to choose the type of clients you want to work with, or customers you want to work with, the type of work you do when you want to be on the tools. Some people are made to be on the tools, and that’s what their passion is. And that’s okay. It doesn’t mean you can’t be an entrepreneur or entrepreneurial, it just means that you have a particular passion set that we need to design your business around.
Jenni Walke: That’s true. And so talking about that business, when somebody decides they want to start a business, so I’m thinking about myself three years ago when I literally was sitting in a café in Barcelona and went, “I don’t want a job, I’m going to become a business owner, because that’s what you do.”
David Cowling: That’s a really good place to have that thought.
Jenni Walke: It is a great place to have that thought. When I was thinking about that, I immediately thought of company, because I was thinking about longterm success of my business rather than that kind of hobby. And in my mind, a sole trader or not being incorporated was too much risk. What type of things do you ask? What are the types of questions you ask clients when they come to you to ask that question about what structure should I have?
David Cowling: There’s probably a few questions in it. It’s like a matrix, if you can visualize a matrix. When I’m asking these questions, I’m really sort of putting the dot points together and saying, “Well, that would fit this box, that would fit that box. And on the balance of probabilities, this is what you should have.” There’s no one size fits all, and it’s never a great idea if you’ve got a cookie cutter approach to these things.
David Cowling: The major questions I think are, what’s the potential business owner wanting to get out of the business? Is it just a hobby on the side that they probably won’t quit their day job, they’ll… It’s not something that’s going to take up a great deal of their life.
David Cowling: Other questions include, even what their budget is to start with. Because sometimes if we’re starting on a very lean budget, there’s probably more important things to get done like productizing or commercialization than necessarily starting with an expensive structure. But at the same time, that’s one of the lower end issues. The next one is around, what assets have you got to protect? Are you a homeowner now? What sort of equity or assets have you got in your own name that should you have a failure or should you be sued for doing your own thing, what’s the consequence of that and what do we need to protect?
David Cowling: Once you get a bit of a picture of these sort of issues, you get an idea of what people are trying to achieve. And I think then you can make the right call on what the right structure is.
Jenni Walke: And I love that question that you’re asking, is really is what you want to get out of it? Because we often don’t think about that at the start. When I was thinking about the types of questions I was going to ask you today, and I was going, “What are the questions that I ask people from a business advisor or a business strategist perspective?” And that’s always the first thing we start with is, what is your goal for the business? How long do you want to be doing this for? Is this short term or long term? Because that really does impact the way that you structure and run the business.
David Cowling: Because if the answer is, “Look, I’d just like another $25,000 a year to take a holiday annually.” Then it doesn’t make sense to get into an expensive structure with [inaudible 00:13:16] rigmarole, [inaudible 00:13:17] of administration and clients to deal with that will cost you sort of more than half that money is the deal with.
David Cowling: But then on the other hand, a great deal of clients will say, “Look, I don’t have a set ceiling.” A lot will tell you they don’t really know. And then it becomes a process of really flushing that out until they do know, because why start something without an end goal in mind?
Jenni Walke: And that was actually one of the comments that I was going to make, is that one of the questions that we always suggest instead of before someone comes to see you is ask that question about, what are you doing it for, and why are you here? Because that would certainly help you decide particularly around that corporate structure and the arms’ length discussion of sole trader versus company. Because that’s the reason I did it at the time, is I was thinking as I grow and become more successful and the business grows, there needs to be some protection of not only my assets I have now, but my future assets. So by having the company structure, it gave me that arms length, whereas as a sole trader, everything is at risk. Is that the key difference between those different structures?
David Cowling: It’s certainly the key difference that you’d want to tell the ATO. No, it’s one of them. There’s primarily two, one is tax minimization and the other is asset protection. Asset protection [inaudible 00:14:43] in the beginning. Generally speaking, it’s going to be our primary driver.
David Cowling: Now, if you haven’t got any assets or very few assets to protect, then there is a mechanism later to come around and restructure, if you want to start out as a sole trader and process up. But I don’t know that it’s the best option in terms of there’s different factors. If I want to go out and sell computers, who’s taking me seriously as a business owner if I’m getting around as David Cowling, Sole Trader ABN. Whereas if I sell the best computers, PTY LTD, all of a sudden there’s just an element of your serious business, a little bit of credibility starts to creep in.
Jenni Walke: Sorry, just on that point, that’s a really interesting thing. At the moment, particularly when we’re getting to financial year, Queensland seems to be waking up at the moment, and there are so many tender opportunities coming through from the government and the state, local and federal level. And they really do look at that, don’t they? In terms of the risk associated with a sole trader or a company.
David Cowling: Yeah. You want to think about what the longterm benefit is. If I’m going to be a sole trader and start adding a million dollars, then this is where the tax aspects also starts to come into it. Because if I say, “Well, I’m going to earn a million dollars.” Well, A, my risk level at that point is through the roof because I’m dealing with many, many customers, doing many, many things, and eventually I’m going to make a mistake, because we’re all human. Risk levels are through the roof.
David Cowling: And if you’re growing particularly fast, then your cash issues start to become… With growth, tends to have a cash lag. It’s often a profitable business that will fall over because of cashflow issues. Just because you’ve got a profitable business, doesn’t make it necessarily successful.
Jenni Walke: Sustainable. Yeah.
David Cowling: If you’re a sole trader, you’re putting yourself at risk, you’re putting yourself and your bank… Whether you become bankrupt yourself and your own personal solvency at risk.
David Cowling: Then to talk about tax on that. If you are jumping away to earn a million dollars, then the tax implication is massive, because of your own marginal tax rights, which are significantly higher than say a corporation which has a flat rate of 27.5%. But an individual earning over 190,000… And let’s be frank about it, if you’re going to be in a serious business, if you’re going to take less than 190,000 in the long run, then go and get a job in the long run. Day one, day two, year five, probably fine. But if the worldview is that probably a hundred to 150,000 is an acceptable business profit for a business owner, then I feel like you’re not being rewarded for the risk you take on a daily basis.
Jenni Walke: That’s a really interesting question. I’ve actually not heard it put like that before. And that’s a really clear kind of guideline. Though I hadn’t thought about that, that as I… And I’m just thinking about my journey as to my decisions that I’ve made over the last three years, is that putting that fear on it to decide to determine not only personal risk, but also that risk reward matrix that we’re talking about in terms of why you would become one versus the other.
David Cowling: Yeah. There’s lots of reasons why people do things. Some is personal reasons. I’d say that it’s commendable if you want to do good in the world, and I think that there’s definitely places for that, right? There’s definitely reasons that you want to go out and serve the community. I’m a huge believer in a business purpose, and it’s why. And if you’re a student of Simon Sinek at all, Simon Sinek talks about purpose and it should be to serve others. Okay. And I agree with that wholeheartedly. If you listen to my why, it’s about serving others. Except for the fact that if in the long run I’m only going to earn what I could have earned as an employee, I could have served people as an employee without taking the risk in the same way.
David Cowling: And so there has to be an element. If there is risk, there should be reward. And we need to be working on getting to that reward. Now, what you do with your money, and if whether you decide to donate that back to causes that make you feel good or do good in the world, that’s great. But you are taking significant risk, and we do need to acknowledge that risk should have reward. It’s not something that happens in the first five years for most businesses, but does need to start to creep up as you go on if you’re going to be seriously commercial.
Jenni Walke: I think that’s the point though, isn’t it? And I take Kali’s point, because Kali is a very hot set in business, and she’s very much focused on giving back. And she does everything that she does. But we’re talking that long term plan. We’re not talking zero to five years. You’re talking that five to 20 year plan for your business to longterm sustainability. And at that point, you’ve got skin in the game, you’ve got asset in the game, you’ve got reputational risk and all those other things, so that’s where you were really talking about, making sure that you balance that out over time.
David Cowling: Personally, I’ve been in business since I was 19. The same business since I was 19. Until I was 30, I didn’t know what I was doing. Made a lot of mistakes. Didn’t earn much liquid. My ex wife was the breadwinner, which is cool. And she made a lot of sacrifices to get to where we were.
David Cowling: It took 10 years. It took 10 years for us to figure out how to run a business. And after that we realized that charity begins on your own backyard. And I think what we were talking about this earlier that getting [inaudible 00:21:06]. But coming back to probably the topic, I suppose, it then makes sense about what structure you need to choose. If you want to choose to be a sole trader and pay a lot more tax, well that money is going into the government and they get to choose how you spend your money. Instead of you getting to choose it. I would say then at that point, we’d be looking at the right structure. And building flexibility. Structures should build flexibility in terms of both asset protection and tax minimization.
Jenni Walke: And I think that was a decision. And I remember calling the conversation I had because it was a similar type of cannon before I met you many years ago, around asking those questions about, what do I want the business to be, where do I want it to go? And they said, “How many clients do you have?” And I’m like, “I think I have one.” “So you want to do this?” I’m like, “Yes.” I jumped in because I was like, “I’m going to get this. I’m going to build my foundations right from day one.” But also for me it was an aspirational thing, is by having that company structure set up from day one, it positioned me personally and mentally to be, “That’s where I’m going.” It wasn’t just, “Well, it’s a sole trader, if it fails, it doesn’t matter.” I was all in when I started.
David Cowling: … failing on its own, it depends on how big the debt is and all that sort of stuff.
Jenni Walke: Of course, yeah.
David Cowling: But it could be personally more devastating to be going down the sole trader route, probably it is more personally devastating in many respects. What I would say is that there’s no right or wrong answer about the structures you choose, there are better options than others. But at the end of the day, you need to look at the legal risks you’re taking.
David Cowling: Now, some businesses are, if you’re crocheting little potholders that you send out on Etsy, then it probably doesn’t require anything more than to be a sole trader. Because at the end of the day, someone’s not going to lose a limb theoretically over what you’re selling.
David Cowling: But if you’re fixing machinery, that may have a life or death consequence. There’s business risk, there’s the risk of being in business itself, and then there’s the tax aspect. I believe in flexibility. Generally speaking, a business that’s got a longterm view that wants to grow and have team members and protect the assets of the owners, I would be advocating strongly for a company, 27.5% tax rate, some separation of your own assets. But then there’s a discussion about who the shareholder needs to be.
Jenni Walke: That was going to be my next question, because at the moment, for me, there’s me and my partner, the shareholders of my company. But what does that look like in terms of the broader implications as I grow?
David Cowling: Yeah. The broader implications as you grow is that there’s minimal tax flexibility there. You can be paid a wage for your efforts, and for the ATO’s perspective, if you’re being paid a wage, they need to be effort-based, theoretically. But then if you want to distribute money or profits that you had otherwise retained in the company, then you got to do that via dividend in a company.
David Cowling: If you’ve got fixed shareholding, like that where you and your partner say 50% each, then if I’m passing a dividend throw, I’m passing it through at that. That’s what happens. It goes fixed to those points, which can create some negative outcomes in terms of say… I’ve got clients where say the husband works in the business but the wife is a lawyer and earns a few hundred thousand dollars as a lawyer. If I want to distribute money out and I have to send it to the wife at 200,000, and she’s already got $200,000 of income, it’s inefficient.
Jenni Walke: Yeah. Because then she gets taxed at the 400,000 instead of-
David Cowling: He’s getting back to the full right. Yes, there’s franking credits involved. We won’t go into that discussion today. But things like that. You lack flexibility, you lack choice. Now, there’s different stages, but we tend to advocate that a trust is a great vehicle to own investments. Trusts aren’t a great vehicle to run businesses out of because trusts require the profits to be distributed every year. And that can create a bit of a mess because, “All right, Mr. Client, you profited $100,000.” And the client says, “Well, I don’t have $100,000 dollars in the bank, how did that work?” Well, it’s because we’ve got cash cycles, it’s because we’ve got debt on the balance sheet. There’s lots of reasons and there’s lots of places where money goes that [inaudible 00:26:10] necessarily left in the bank account.
David Cowling: When trusts have to distribute their profits, and if I’m trying to do that in a tax effective way, if I was trying to… If I flipped the chart, so to speak, and said, “Well, the trust is running the business with the company at the bottom as a beneficiary.” I create issues on the lines of directors’ loans and what’s called Division 7A. And they can have difficult tax consequences.
David Cowling: Coming back full circle, trusts are great for investments, holding shares, dividends passing down, and then giving us choice about where our money goes.
Jenni Walke: And that’s an interesting thing, because I don’t think I’ve actually ever had that conversation, even with my own accountant, to be honest, about that choice, about understanding your structure and the flexibility it’s going to give you at the backend. I would only ever thought about that front-end base of arms length discussion, how do I build equity, how do I build a strong foundation for my business so that I can bid for large tenders and they see me with some foundation and some grounding, rather than someone who may not be doing with an ABN?
Jenni Walke: But I hadn’t thought about that flexibility, the other end. And I’m not sure whether that’s a question that’s often asked, to be honest, [crosstalk 00:27:30] how you distribute it. It’s such an important thing to consider when you’re looking at what profit you want to make from your business and where you want your money to go.
David Cowling: Correct. And there’s three times to really make that decision. You can make that decision at the onset or you can make it much further down the track. And both are equally good. Immediately, if you did it immediately, you get the benefit of being able to make these choices along the way and save lots of tax theoretically on the way. But if you make it later, then you’ve got some opportunities around how you retire capital out of your business. There’s no right or wrong one with that, but I am in favor of building flexibility for most businesses because I think it gives us opportunities on a year in year out basis that we wouldn’t otherwise get.
Jenni Walke: And for me, when I think of the statement in the background and when we’ve talked before, we talked about abundance earlier on and that kind of generation of abundance. And to me, abundance, and one of the key things in our business, abundance doesn’t have to necessarily be in terms of financial profit. It’s also about that flexibility because abundance is the opportunity to do what you want when you want and how you want to at whatever level that looks like for you and your family and your business. By providing that flexibility, and asking the question I guess is what you’re advocating here, is it doesn’t matter what the answer is, it’s just simply asking the question, isn’t it?
David Cowling: Ask the question and making informed decisions. If you go into an accountant and you say, “Look, I’d like a company.” And they say, “Yeah, here’s one off the shelf.” Then are they taking your best interests at heart? Have they looked at your family group? Have they understood really what you do want to achieve? Because that may have been what the advice you got from around the barbecue, but may not be right for you and your situation. That’s cookie cutter.
David Cowling: And our business is based on relationships. 100% based on relationships. Accountants should be building very, very strong relationships with their clients, especially now. Now is the time. If they didn’t get it already, now’s the time to be building strong, strong relationships with their clients, because their clients need them.
Jenni Walke: With regard to that, because we’ve just come out of probably one of the most difficult periods, subject to JFC and previous kind of major downturns. But from a social and economic perspective and access to clients and access to everything in the world essentially, we’re coming out of the back of that. What are the types of questions that you’re asking your clients now that you’re asking them to think about in terms of as they [bulge 00:30:19] into 2021?
David Cowling: Yeah. We’ve probably just finished our tax planning season. It’s my New Year’s Eve today, everybody.
Jenni Walke: You’re seeing [Matt 00:30:30] on the town tonight?
David Cowling: Yeah. Probably not. There is no town to be out on. Now is the time to be thinking about what new to you looks like, so what’s a forecast budget? Forecast, even just revenue budget to start with. Now’s the time to be having those discussions. Having the discussions around what the key performance indicators are going to look like.
David Cowling: And they should be simple and they should be measurable and they should be achievable. But they should be things that drive activity in your business. So how many sales meetings? What you call a sales meeting or whether it be a cold call or whether it be meeting with existing customers, how many of those sort of things you’re going to do, how many activities that drive business in your business are you going to do to generate what you are targeting?
Jenni Walke: I love that. I know Mark and I talk with a lot of our clients about those individual metrics, those push metrics, or the ones that are actually driving the business, not the lag metrics where you say, “Well, how many sales did I make?” Is what effort you put in. It’s interesting that you’re asking those questions too.
David Cowling: Well, yeah. Accountants have traditionally looked in the past. Some clients are still only getting their 2019 work to us now, and we’re just finishing that. What’s the value in that? Because I’m looking to a year ago now, a full year ago. And if I look back to July 2018, I’m looking nearly two years ago. Where’s the value in that conversation? And I think with the advent of Xero and other online [inaudible 00:32:16] and things like that, accountants should be talking and business advisors like yourself should be talking about, well, you’ve got these targets for revenue, if you do nothing, if you change nothing, a Laissez-Faire about how you go about them, you’ll get what you’ve always got, then we need to drive the drivers and measure the drivers of the revenue. Every business has slightly different drivers, but what are they for you and what activities do you need to generate that?
David Cowling: That doesn’t change much, and that’s a conversation that we’re having all year round. A lot of conversations also around, well, what goals have they got throughout the next 12 months? And we tend to look at longer term goals as well, but some clients have been looking, “Well, I’d like to buy a house.” That tells us a lot, because we now need to position not necessarily for tax minimization, but we needed to position to make their business not artificially look good, but not artificially look bad.
David Cowling: Working to say, “Well, don’t spend that money now, we can spend it later. Because you might as well leave the profit there because it’ll make you look much better when you go and get a loan.” These are the types of decisions and thinking that we need to be having in advance. It’s why we, as an accounting firm, don’t charge clients to call us, [inaudible 00:33:42] on the clock. Because if you’re afraid to call us, then you won’t. And then that’s when bad decisions, or not necessarily bad ones, but the wrong ones sometimes get made because good conversations aren’t happening.
Jenni Walke: I like that. I think they’re really good points. The key things when I’m listening to you talk, and the takeaway for me, is around that piece of, we have to think about what we’re doing as a business. It’s not just about what we need to… From a mindset perspective, always work in the moment and be present and all those great conversations to keep us sane through this joint journey, we also need to be thinking, why are we doing it? What are we trying to achieve? And what are the steps we’re going to need to take in order to do that?
Jenni Walke: Now, we talk about that goal setting all the time from an individual and a leadership coaching and a personal coaching perspective, but they’re essentially the same questions you’re asking as an accountant, to make sure that business turns over from a financial perspective too.
David Cowling: Yeah. We probably call it milestone. Well, I call it milestoning. [inaudible 00:34:40] of the milestones that we need to be ticking off to hit the next level of pass through the next barrier. I think that those are the most valuable conversations and they turn into profitability. And then that’s when we can turn around and say, “Well, now we have a profit problem. Now we have a tax problem.” Tax problems are happy to have. I welcome anyone to go and pay a million dollars in tax because you’ve made a lot of money.
Jenni Walke: Yeah, that’s right. And also that’s when you get the opportunity to actually do what you want to do with that money and serve, and as you said, it comes about looking at your house first and keeping your house clean. And when you’re at that level and in that position, it gives you an opportunity whether you’re not for profit or social enterprise or profit for purpose business, or a fully for profit business, you then have an opportunity to decide what you want to do with the money that you have.
David Cowling: 100%. 100%. You can’t make choices in life around your purpose if there’s red on the balance sheet.
Jenni Walke: It’s hard to do. It’s very hard to do. And it’s not sustainable, is it? That’s what we’re talking about. We’re talking about building sustainable business, not short term businesses. So for sustainability, you need to have that as the longterm plan.
David Cowling: Yeah. Correct.
Jenni Walke: Do you mind if we open it up for some questions? Sorry, I just cut you off.
David Cowling: No, go for it.
Jenni Walke: Anyone wants to join and ask some questions?
Mark Schofield: One of the things that I suppose I find difficult with some businesses is actually, as you say, a lot of accountants look backwards, they don’t look forward. But when is the best time for business to really approach an accountant? Is it at the halfway point during the year? Is it the end of the third quarter? So you put some strategy to minimize your tax or maximize your output, whatever. What’s your advice there?
David Cowling: My advice would be determined on its head. If your client is finding that they have to go to the accountant, then they’re probably got the wrong accountant. I would say to you, our philosophy is to make contact with our clients quarterly. Free, free call, free meeting, something. Because that’s about opening conversation, building relationships and saying, well, what they don’t… The question, I think, and something that is said to me often is, “I don’t know what I don’t know.”
David Cowling: The problem with that is, I don’t know what you don’t know. But if we build relationships and we talk more often, then I start to learn what you don’t know and I start to learn what I can tell you and what guidance I can give you. I think the answer to the question is there’s probably some key points, so I would be getting your tax done in the first half of the financial year. It’s more relevant data at that point in time. I’d even say in the first quarter, if you can. But there’s a lot on the plate for a lot of accountants at that point in time, so we won’t dive ourselves in too much for that.
David Cowling: The second major point is tax planning. If you’ve got profit, then tax planning is now almost required because with the advent of single touch payroll and things like that, we’ve lost some opportunities to make decisions after 30 June, that we always just could. Now, we really do need to be making these decisions before 30 June. And Trust Minutes and things like that, are all at this point in time. I would say in that April, May period, after you’ve reconciled to the end of March, would be the next key point. But otherwise, I’ll be advocating accountants and clients should be talking quarterly at a minimum.
Mark Schofield: Thank you, Donald.
Jenni Walke: Any other questions? It’s such a complex topic. I mean, Mark and I are in a similar business in terms of business advisory. We have often these conversations with clients about what they’re doing and how they should structure. And they come to us and ask, “So what should I do next? And where’s the plan?”
Jenni Walke: And really what the big change I think I’ve seen in the last three, five years, and probably longer, but that I’ve personally seen with accountants, is that move towards that advisory position instead of just being someone who crunches the numbers on a quarterly or monthly basis for you. Particularly with the rise of bookkeepers becoming far more, and Xero, you can do your bookkeeping through Xero. The accountants are really becoming a strategic partner in the business rather than just an operational line in the business.
David Cowling: Yeah. I think there’s spots for really great consultants like yourself and I’m sure Mark, to be coming in and looking at the things that accountants are not good at. Accountants are not good with anything that’s not black and white. The things that can’t be measured. If it’s sort of a little bit gray and touchy feely, then accountants probably are not usually playing in that space. We like debits and credits and things that can be measured. But then there’s some very good people that can deal with those sort of issues too.
David Cowling: I think the key here is that there’s so much account… Good accountants have got so much experience. They run their own business, but then they see 300 others and they see the trials and tribulations, and good ones are having good conversations. And why wouldn’t you lean on that experience?
Jenni Walke: I think that’s the key, it’s that perspective and a different lens that you’re looking at our business, we are looking at it as business owners and advisors. And all of us that I think on this call particularly are coming from a very heart-centered, value-centered approach of, we want to do good for our clients, we want to do good for the board, we want to leave a legacy of some form, whether that’s financial legacy for us, our families, or for the community more broadly. That’s a personal mission of us. But you’re looking at it from a lens of, how can I help you do that for the longest term you can possibly do that? And how can you make the biggest bang for that time that you’re given?
David Cowling: 100%. What are the financial strategies that I can help you with that put you in the best position to do what you do well?
Jenni Walke: Yeah. And one of the questions actually, just reminded me one of the questions that I wanted to ask, because I know there are a couple of people on the call who write funding and grant applications for a lot of people. And particularly are working to do large grants applications in the next kind of three to six months. Can you just talk a little bit about the implications? Because I hadn’t thought about it until we talked this morning, about those implications around grants and funding on the business operations and the way that you kind of manage your finances.
David Cowling: Yeah. I think there’s probably two major things that we should be considering. One is sometimes funding for funding’s sake is not necessarily the right way to go. Money is good and getting it from the government’s always even better. But sometimes that comes with doing things in a certain way or doing things in a way that may not meet your why or your purpose, or it may require you to restructure completely in terms of your personnel or whatever.
David Cowling: We’re probably not talking a $10,000 grant here, it’s just about a one off project. We’re talking about bigger, biggest to all things. The other implication is that you become… Unless your business is truly that way, in that you are happy with just government funding, and I don’t know that we should be relying upon that because governments come and go. I’ve got a few clients who do… Maybe in the RTO space for instance.
David Cowling: If we get a Labor government, the funding tends to switch from RTO back to TAFE, because that’s philosophically what they prefer. And so you come around to election times and they’re very anxious about what the next government looks like. And so becoming reliant upon those grants creates complacency or sometimes creates complacency and creates… We’ll go back to what we’re talking about earlier, activity. The right activity is driving business growth that isn’t reliant on one or two sources.
David Cowling: Remembering that we’re all human, if we make a mistake and you burn one or two sources of income, you’re losing a big chunk. I would say to people, grants are great, they can get you off the ground or they can sustain you, and they can give you that, I know money’s coming in, but additional sources of revenue where you can take the reliance off the table is definitely something that every business should look at.
Jenni Walke: So going back to that essentially minimum viable product, what are we selling at the baseline? What are we offering at the baseline that’s going to keep us churning and using those grants and funding to help us boost and push to the next level that allows us then to then reset and reestablish ourselves at that level, and then keep moving on that way rather than using it as a sort of general [crosstalk 00:44:28]?
David Cowling: [Allan Wise 00:44:29] calls it the Watertight Doors. Making sure that the things… I don’t know. I saw it on Facebook the other day, this woman who wants to trade up from a [Bobby Pin 00:44:41] to a house. I think by the time I got to her, she was out of DSLR camera. So she’d gone from a Bobby Pin to a really expensive DSLR camera. I think business can be the same way. You start very small with a small bunch of clients who traditionally you’d go, “Oh, gee, if I had a dream about my type of client, I wouldn’t have dealt with these people. I need them because I’m starting out.”
David Cowling: And you try it out. Eventually you get a better quality client and then you get a better quality client, and those refer better quality clients and then on and so forth. And like you were saying there about stepping up, changing minimum viable product, and then going further than that, the watertight doors are saying, well, once I get here, and once this is what I have chosen my business to be and look like, my chosen customer base, the people I serve. Then not necessarily going back backwards, believing in that abundance mentality and really saying, “Well, this is my niche. This is what I do. I don’t do these other things.”
Jenni Walke: Yeah. That’s awesome. Thank you so very much. If there’s no other questions, please feel free to reach out to David if you need to. Any questions, I’m sure he’d be happy to answer any questions. I think the key tip from this though, is when you’re looking to start a business, it’s about creating a structure that’s going to serve your needs at the time you are now, or looking forward to talking about. Yeah, that’s great. Yeah, me too, Kali, about moving more towards a dream client is where we all want to go. But that idea of, okay, what are we doing now, where are we at, and what is the structure that’s going to serve us best now? But also what is it going to look like in the future, and are we building inflexibility and agility in our company and our practices to allow us to make not our own personal needs, but our client needs as well?
David Cowling: Yep. Totally.
Jenni Walke: And also doing those things about tax minimization. I know, to be honest, that’s why I did it. I joined as a company because I was looking at future growth. And when the options were either, I’m going to draw personal tax rate or company tax rate, well, then it’s a very clear option as to which one you want to do when you’re doing this as a longterm plan. And then structuring.
Jenni Walke: And then also one of the other things that I noticed, and we haven’t touched on it, particularly at the moment, but in the incidence of COVID recently, there’s been such a big conversation about how ABN holders or hobbyists essentially, or sole traders, were treated versus companies. And the different impact and the different benefits that you’re going to get that that status brings. So being mindful of how the status that you have as a company will impact your access to things like government activity and grants in a situation like we’ve had.
David Cowling: Yeah. And I think that’s absolutely true because you look back on it, we’ve all probably got half a dozen clients where we look back and go, “Damn, if they had done this or done that, they would have been able to access that.” There’s no point in beating ourselves or the clients beating anyone up over those things, because you couldn’t know A, that we were going to get coronavirus, and B that you were going to get the stimulus in the way the stimulus was brought out. [inaudible 00:47:51] unpredictable.
David Cowling: But in saying all that, you can see a pattern of who they look after first. And they look after the employers, the people that employ, they look after them first. And they did look after sole traders and sole director companies. They did do that. But they weren’t first cab off the rank and they didn’t also get cashflow boost and things like that. The government’s aim is to keep as many people employed as they possibly can. I’m not saying people should employ just for that reason, they shouldn’t. Certainly if you see a company is a great… Probably the primary objective of most of these stimulus.
Jenni Walke: And Robert, do you have a question? I saw you come off mute.
Robert: Yeah. Sorry, I was typing it, but I may as well just ask it now in person. Cool. I mean a little bit about my background. I help in the tech startup scene. I help tech startups get their idea off the ground, that kind of stuff. And I’m also going through the process of working through an idea. One of my questions is, let’s say inevitably down the track I’ll need to get a co-founder to help me through my process. Now, logically speaking, once I get a co-founder on board, is that the right time to talk to an accountant about the company structure and the allocation of equity and all that kind of stuff?
David Cowling: Yeah. If you’ve already got a company, then if you plan on bringing somebody else on board than an accountant, you only need to speak to an accountant. You can probably get away with a lawyer too, but I know which one’s cheaper. I would say an accountant’s a great person to speak to. If you’re trading in something other than a company beforehand, not to say that that’s wrong, but you may want to have that discussion as well, just to double check that that structure is still right for you. Especially in the tech space. Look, if you’re looking at a co-founder and wanting to change your shareholdings, then definitely that’ll be a time to speak to your accountant.
Robert: Yeah, of course. And also on the topic of tech startups, would you suggest approaching… One accountant will be better well-versed in the tech startup scene compared to maybe like a brick and mortar business, so like SaaS to brick and mortar.
David Cowling: Yeah. I would say that there’s lots of different answers to that question. You’re probably looking for an accountant that understands the tech world definitely. I’m sure there are accountants who only deal in or predominantly deal in that. I think the answer to your question is, go and see a few [inaudible 00:51:03] the one where you can build a rapport and relationship.
Robert: Yeah, that’s a good idea.
David Cowling: You’ve hit it off, they seem to speak your language, they seem to understand what you’re saying, they seem to be genuinely interested in you as a business owner, then I would say that’s half the battle.
Robert: Yeah. Okay. Brilliant. Thank you.
Jenni Walke: Just on that point, and Robert I’m going to hijack your question a little bit before we finish up. It’s a really good question because as Robert is going through the process and looking to bring on a founder, because those conversations can often be difficult, particularly if you have a well-established founder and a well-established finance who’s got their own ideas of what the business should look like. What I’m kind of taking from what you said then, David, is that it’s really worthwhile for Robert to start those conversations as he’s thinking about moving to that space so he has a better idea of what his options are. So when he does have the co-founder, in the conversations with the co-founder, he can be better prepared about what structure that would look like, what that arrangement might look like, and what flexibility that could be built into that discussion. Is that worthwhile?
David Cowling: Yeah, 100%. Let’s say you’re talking about, well, I wanted to give away 50% of my… Not give away, but I wanted to transfer 50% of my business to a co-founder. Well, what are the implications of that? Well, the implications are that you may not necessarily have control of your business anymore. What are the implications around dispute resolution and how does a dispute get resolved at that level? What are you willing to do to resolve disputes? Those are some of the conversations that you need to start to have when you want to bring in somebody else.
David Cowling: Well, I’ve been blessed. I’ve had the same business partner for 17 years. But I’ve also seen a heck of a lot of businesses come and go in terms of I’ve probably dealt with more business divorces than I have personal divorces. And they’re just as traumatic. Getting that conversation right and being educated early before you start the conversation with somebody else is really key. Otherwise, you’re going to end up not necessarily understanding the implications, or you may end up not understanding the implications of things you agree to.
Robert: Of course, yeah. That probably comes down to the point of, when’s the right time to perhaps get your potential co-founder to do a psychometric test or something like that. See if they’re going to screw you down the path.
Jenni Walke: Now you’re speaking my language, Robert.
David Cowling: Yeah. Again, there’s that touchy feely part that probably we’re not good at, but I think… The world works on relationships. I think we have to realize that, and whether they be good or bad.
Robert: Yeah. Yeah. Okay. Thanks, David.
David Cowling: My pleasure.
Jenni Walke: Thank you so much. I really appreciate everyone joining us today. David, thank you very much. I appreciate the candor and the openness of which you’ve talked about the business. I think it’s key for us to remember that regardless of the reason we’re in business, ultimately we need to make a profit to sustain in business, and how we manage that is the most important thing. Whether it’s a heart-centered, valued-centered, profit-centered business, it doesn’t actually matter, we need to be sustainable for the long term. And we need to make sure our systems and structures and our relationships and partnerships we have with people like our accountants and our lawyers are strong enough to help us through, and appropriate enough to help us through that process.
David Cowling: Yeah, 100%.
Jenni Walke: Thank you very, very much. Normally, I would go through the backend of the slide deck, which I’m not going to worry about. Everyone will get a copy of that after. I really do appreciate it. It’s been a bit fun going to Facebook live, and we’ll see what happens after this. But I really appreciate everyone joining us. Robert, Cara, Michelle, Kylie, Mark, thank you so very much. And I look forward to seeing you again in a fortnight. David, amazing work. Accountant’s Brisbane. He’s @accountantsbrisbane, is the best Facebook URL you’re going to find for an account in Brisbane. Reach out to him at any time if you do have any questions after this.
David Cowling: It’s the best one in San Francisco.
Jenni Walke: Thank you so very much. Say again?
David Cowling: It’s the best one in San Francisco too.
Jenni Walke: I love it. That’s awesome. You take care. Thanks so much.
David Cowling: Bye.
Jenni Walke: Bye everyone.