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Two tax mistakes that can break a start-up

Monday, 24 February 2014 | By Rose Powell

Every Tuesday, Ryan Tietjens from Interactive Accounting does free consulting hours at Inspire9.


He says there are two main tax errors many start-ups make that can quash their chances of making it big.


“Many start-ups only start thinking about tax when something has gone wrong or they need to file a return. But Australian compliance is ridiculously complex and the ATO’s attitude is the same to start-ups as it is to 10-year-old businesses.


So if you’re late filing you will be treated the same way,” Tietjens says.


He shared the two biggest issues he deals with as an accountant and how to avoid them with StartupSmart.


Setting up with the wrong structure


Many start-ups begin their business as a sole trader or a trust, but neither structure is optimal for most start-ups, especially those hoping to get big.


“Many start-ups only realise they’ve picked the wrong structure when they seek the research and develop credit, but this is only available to companies,” Tietjens says.


The R&D tax credit is 45 cents for every dollar for companies investing significant capital in exploring new technologies.


“You need to make sure you’re picking the best structure, so it’s worth seeking professional help about the right shaped business for your great idea before you get going,” he says.


Failing to keep clear records


Tax is an afterthought for many first time business owners, but it’s also unavoidable.


Tietjens says accounting software is critical for start-ups, even though standard accounting tools don’t always work for very new businesses, which are often run on credit.


“Profit and loss can mean nothing to a start-up so it can be hard to keep track of where you’re up to. There’s usually money going out before it comes in so you need to keep track of what’s going on,” he says.


Not only is keeping clear financial records best practice, it’s also particularly important for start-ups planning global empires.


“A lot of start-ups go from Australia to the UK or US very quickly, so if you’re not looking after your cash flow, you will run out money fast and end up in trouble,” Tietjens says. “And no venture capital or angel investor in the US will look at you if your finances aren’t in order.”