Essential tax planning and business growth tips for SMBs in 2022

The importance of tax planning goes hand-in-hand when scaling a business; especially for growing e-commerce brands where tax planning can look a little different to your “traditional” bricks and mortar or in-person services type businesses.

One of the first tips that come to mind for Pat when advising small businesses looking to scale is “how a business is structured”. Making sure the right structures are in place is something many new and budding entrepreneurs may not always consider in the first instance. 

With many businesses starting as a simple side-hustle and in a “sole trader” structure with an ABN, the question of the “right” business structure comes into play once the Proof-of-Concept is validated alongside market fit and - finally - when sales start rolling.

Growth mindset from the get-go

“Do I start a company?” “Should I have trust holdings for shares?” “How do I protect my assets or IP?” – These are all critical questions for entrepreneurs to consider even just as they are starting out.

Pat mentions how he’s seen it all and how he’s helped growth-focused businesses who need advice on what would work best for them, for their particular business, and where they sit in the market as a whole, “Don’t be one of those businesses that owe thousands in tax due to poor planning, mixing personal expenses with business expenses, or worse yet - one day realise you can’t raise equity capital or funding from Clearco as you’re a sole trader and don’t have shares or the required structure to engage with potential investors”.

Once a business progresses from the start-up phase into the growth phase, understanding whether the other types of business structures (whether it be a Partnership, Joint Venture, Trust or Company) are right for your business should be brought to the forefront as a “hobby” turns into something more serious.

All in all, getting the right business structure set up is a crucial factor for businesses shifting from just a side-hustle to getting serious about their growth.

Cash is still King

“Cash is king” is a saying that still holds true in today’s world, but it applies a little differently in the context of e-commerce brands. Pat regularly meets with e-commerce business owners to draw up and walk through a tax plan for the months and years ahead, “Whether it’s tax strategies for the current financial year, cash flow planning for the next year, better management of cash flows is something we as accountants and business advisers take care of.”

Having a clear view of your business’s financials will unlock great insights to enable growth effectively. Here are key financial strengths that businesses need to scale:

• Having the ability to manage working capital alongside operating cash flow.
• Project future sales accurately.
• Manage upcoming and future expenses (such as future taxes) without financial stress, as they fall due.
• Understanding how much actual cash is needed to not only keep the lights on but also re-invest into the business

Many of the above factors come as massive challenges for e-commerce businesses that hold stock, where cash flow is a major constraint considering the capital outlays required to purchase stock combined with the disadvantage of having stock on-hand before sales are generated.  

Understanding your tax obligations

It’s fair to say that most business owners would have a base understanding of their tax obligations. But once things link import duties for importing goods, tax on international sales, and dealing with different taxation regimes in overseas markets (especially for e-commerce businesses where the world is your oyster), things can get complicated.

The planning element is extremely critical for a business's success, which also holds true for planning on how to manage your tax obligations – “we help business owners develop a better understanding of the taxes which in turn, allows them to manage their cash flow better and not get caught out when debts and obligations to the tax office fall-due”.

Accountants as trusted business advisers (no longer just number crunchers)

Modern accountants (such as Pat and the Pop Business Team) also provide essential advisory services to small businesses looking to streamline their operations.

Streamlining and systemising your business by creating robust processes using tech for automation can be very cost-effective for e-commerce businesses, “having an inventory management system (i.e., knowing what’s in stock, what’s selling, what’s not selling and automated re-stocking) or off-shoring administrative tasks can be a more efficient and cheaper way (in the long run) to achieving better sales and better margins”.

How Funding Can Help

Pat has helped businesses scale and knows very well the challenges small businesses can face when trying to take their operations to the next level, “when scaling your business, it is important to look at sources for funding. This is where Clearco can come in.”

When a business is already generating a good Return on Advertising Spend (RoAS), a cash injection from an external source (such as Clearco) is something Pat regularly recommends to small and large businesses alike. “Even big businesses use Lines of Credit and other forms of credit; external funding sources shouldn’t be approached negatively – especially if used in the right way”.

Using external funding to purchase additional stock to meet sales demands or boost marketing to drive more customers to your e-commerce site are smart ways businesses can use the funding to grow.

Final Thoughts

Outside of typical capital raising or injecting more of your own hard-earned money, the funds to grow need to come from “somewhere” – Clearco provides an innovative, modern alternative for a successful e-commerce business to acquire funding to grow and scale quickly.

About Clearco

Co-founded as Clearbanc in 2015, Clearco offers the most founder-friendly capital solutions for e-commerce, mobile apps, and SaaS founders as well as a full suite of products and access to a powerful global network, insights and data, and recommendations. 

Clearco has financed over 7000 companies to date, including more than 500 in Australia - including brands such as Mr Consistent, Apero Label, Sans Drinks, UGG Originals, Ettitude and Vush.