Establish legal and risk management requirements of small business

Transcription

2nd Edition
Establish legal and risk
management requirements
of small business
BSBSMB401A
Student Workbook
Student Workbook
BSBSMB401A Establish legal and risk
management requirements of small business
2nd Edition 2010
Part of a suite of support materials for the
BSB07 Business Services Training Package
Acknowledgment
Innovation and Business Industry Skills Council (IBSA) would like to
acknowledge HASCOM Pty Ltd for their assistance with the development of this
resource.
Writer: Christopher G. Kelly
Industry Reviewer: Mark D’Aversa, Senior Consultant – Business & Hospitality
WPC Group.
Copyright and Trade Mark Statement
© 2010 Innovation and Business Industry Skills Council Ltd
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Care has been taken in the preparation of the material in this document, but, to the extent permitted by law, IBSA and
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Published by: Innovation and Business
First published: September 2009
Industry Skills Council Ltd
2nd edition version: 2
Level 11
Release date: June 2010
176 Wellington Pde
East Melbourne VIC 3002
Phone: +61 3 9815 7000
Fax: +61 3 9815 7001
email: [email protected]
www.ibsa.org.au
ISBN: 978-1-921788-22-2
Stock code: BSBSMB401A2D
Table of Contents
Introduction ............................................................................................................. 1
Features of the training program ..................................................................... 1
Structure of the training program .................................................................... 1
The regulatory environment and how it governs small business .................. 2
Compliance – what it is and why it matters .................................................... 2
Assessment Tasks ............................................................................................ 3
Recommended reading .................................................................................... 3
Section 1 – How to Set Up a Business .................................................................. 4
What skills will you need? ................................................................................ 4
Setting up a business ....................................................................................... 5
Business structures .......................................................................................... 9
Legal obligations of businesses ..................................................................... 15
Section summary ............................................................................................ 24
Further reading................................................................................................ 24
Section checklist ............................................................................................. 24
Section 2 – How Business Complies with Laws and Regulations ..................... 25
What skills will you need? .............................................................................. 25
Why business complies with laws and regulations....................................... 26
Laws and regulation compliance: Registration, OHS, environment and
planning ........................................................................................................... 30
Tax obligations of business ............................................................................ 36
How business enforces compliance .............................................................. 51
How a business controls risk ......................................................................... 55
Section summary ............................................................................................ 65
Further reading................................................................................................ 65
Section 3 – Contracts and How to Negotiate Them ........................................... 67
What skills will you need? .............................................................................. 67
Contracts and business .................................................................................. 68
How a business gets insurance cover ........................................................... 76
How a business gets a premise ..................................................................... 84
Section summary ............................................................................................ 90
Further reading................................................................................................ 90
Glossary ................................................................................................................. 91
Appendices ............................................................................................................ 93
Appendix 1 – Sample business plan 1 .......................................................... 93
Appendix 2 – Sample business plan 2 ....................................................... 105
Appendix 3 – Where to get forms ............................................................... 112
Appendix 4 – Commercial lease agreement .............................................. 114
Appendix 5 – Contract of sale for a new motor vehicle ............................ 121
Appendix 6 – Answers to select learning activities ................................... 127
Student Workbook
Introduction
Introduction
Features of the training program
The key features of this program are:
•
Student Workbook – Self-paced learning activities to help you to
understand key concepts and terms. The Student Workbook is broken
down into three sections.
•
Facilitator-led sessions – Challenging and interesting learning activities
that can be completed in the classroom or by distance learning that will
help you consolidate and apply what you have learned in the Student
Workbook.
•
Assessment Tasks – Summative assessments where you can apply your
new skills and knowledge to solve authentic workplace tasks and
problems.
Innovation & Business Skills Australia has licensed the use of over 200 video
vignettes from the Channel 9 television program, Your Business Success. The
videos have been carefully selected and embedded into relevant learning and
assessment resources in order to assist education providers and students in the
learning process.
Each video is accompanied by a learning activity. Videos can be found on IBSA’s
YouTube channel at <http://www.youtube.com/ibsachannel>.
Structure of the training program
This Training Program introduces you to the legal and regulatory knowledge and
skills to start a business. You are not expected to have any business experience.
When participating in facilitator-led learning activities, you should refer to the
relevant section in this guide.
Specifically, you will develop the skills and knowledge in the following topic areas:
1. How to Set up a Business – Section 1
2. How Business Complies with Laws and Regulations – Section 2
3. Contracts and How to Negotiate Them – Section 3
You facilitator may choose to combine or split sessions. For example, in some
cases, this Training Program may be delivered in three sessions, or in others, as
many as six or more sessions.
This training program helps you to develop your business skills and knowledge by
exploring how a business can satisfy its legal and administrative obligations.
Firstly, you will look at how to set up a business. The Workbook describes what to
do to register a business and how to decide which business structure to choose.
You will learn which legal obligations apply to a specific business structure.
BSBSMB401A Establish legal and risk management requirements of small business
Page 1 of 130
Introduction
Student Workbook
Next, you will look at what a business can do to ensure it meets its legal
obligations. The Workbook lists laws and rules your business has to satisfy. You
will also examine what a business must do to satisfy its tax obligations.
Later, the Workbook describes techniques your business can apply to manage the
risk of harm or damage. The Workbook uses Occupational Health and Safety
(OHS) as an example to demonstrate these techniques.
Finally, you will look at commonly used contracts and how to negotiate them. As a
preparation, you will learn how to buy insurance for your business and arrange a
property to start trading in.
The regulatory environment and how it governs small business
Before setting up a business, an aspiring business operator has to become
familiar with many rules that govern business activity, starting with government
legislation. Australia, as a federated nation, has three levels of government:
•
The Commonwealth of Australia, Australia’s federal government, creates
laws that apply nationwide. These describe what to do for business
registration, fair trade practices, employment conditions and taxation.
•
State and territory governments govern regions. With the exception of the
Australian Capital Territory, which has limited powers, the states and the
Northern Territory have laws that govern the environment, planning, antidiscrimination and consumer protection. They also control Occupational
Health and Safety regulation and the issuing of licences to practise in an
industry.
•
Cities and shires as local governments control local planning. Local
governments use by-laws to issue permits that control the location of
business activities in particular zones.
Other rules may also affect business. Before opening a business, an operator may
need to demonstrate they are qualified and a member of an industry or
professional association. Nearly all industries have an association with members
that agree to uphold a ‘code of practice’.
An individual business may decide to develop its own rules. For example, it could
decide to have its own ‘code of practice’ that allows an informal dress code, or
only purchase stock that is not made with child labour.
Compliance – what it is and why it matters
Compliance exists when an individual or thing satisfies the requirements of a
specification, code or legislation. A business that meets its obligations is termed
compliant. A business that does not meet its obligations (e.g. one that breaches
or breaks a law) is non-compliant.
Although the benefits of compliance are sometimes not obvious, what happens
when a business is non-compliant can be dramatic. Non-compliant plumbers or
builders could have their licences suspended or cancelled. Business operators
who engage in misleading or deceptive advertising may face a fine or jail.
The most common problem of non-compliance for a business is the possibility of
having to pay extra costs or getting a bad reputation that drives customers away.
Page 2 of 128
Student Workbook
Introduction
Assessment Tasks
There are two Assessment Tasks which you will complete throughout the unit.
These include:
•
research and identification of the key legislative and risk management
requirements of a small business and the actions necessary to comply with
these requirements
•
a portfolio of contracts associated with the needs of a small business.
These Assessment Tasks will need to relate to a business, however though this
refers preferably to your own business, it may refer to a business environment or
to a hypothetical business. Appendix 1 includes a sample business plan and a link
to other business plans that might assist you as a basis for completing the
activities and Assessment Tasks. All the Assessment Tasks need to relate to the
same business.
Please note: Throughout the workbook, wherever there is reference to use ‘your’
business in order to complete an Assessment Task or activity you may use either
an actual or hypothetical business.
These Assessment Tasks will be explained to you in more detail as you undertake
them and you will be provided with a marking sheet which will indicate your result
from the list of competencies you have demonstrated.
Recommended reading
Some recommended reading for this unit includes:
•
‘business.gov.au’, Australian Government, viewed June 2010,
<http://www.business.gov.au/>
•
‘Businesses – What do you want to do?’ Australian Tax Office, Australian
Government, viewed June 2010, <http://www.ato.gov.au/businesses/>.
Page 3 of 128
Section 1 – How to Set Up a Business
Student Workbook
This section explores how you identify and satisfy the legal requirements needed
to set up and operate a business.
Scenario: Register a new business – Ultra Performance Motors (UPM)
You and five motor enthusiast friends have done much market research in your
local city.
After talking to car dealers at the last motor show, you think there is room to set
up a prestige motorcar dealership in your local suburb.
Although your friends can change the oil in an engine and did come up with an
easy-to-remember business name – Ultra Performance Motors – they are not
sure what to do next. You decide to do some homework.
You decide to find out what has to be done to set up a business according to
law.
The hypothetical business, Ultra Performance Motors, will be used as case study
material throughout the workbook to provide you with the information to
complete many of the activities.
What skills will you need?
To operate a business effectively, you must be able to:
 communicate, create reports, keep records and consult with others
 apply literacy skills to interpret legal requirements, develop policies and
procedures as well as analyse compliance information
 use research skills to investigate legal structures as well as taxation and
insurance requirements.
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Student Workbook
Setting up a business
Whether you are starting a plumbing business, hairdressing salon, or a new
multinational corporation, the steps to setting up a business are the same.
Steps for setting up a business
•
You analyse your business objectives, which includes what you want to
provide.
•
You evaluate if your business has potential, which includes finding out if
there are enough clients to buy your product or service.
•
You choose a business structure: depending on your circumstances, you
could register as a sole trader, partnership or a company.
•
After selecting a business structure and calculating its related set up costs,
you then estimate the difference between future revenues and costs. This
is to assess the profitability of your business.
•
If it all looks promising, you would then register your business.
Commonly this entails registering a business name with a state or territory
government department. If your business is to be a company, you will have to
register details with the Australian Securities and Investments Commission (ASIC).
Although not compulsory, most businesses also register with the Australian Tax
Office to get an Australian Business Number (ABN).
Page 5 of 128
Student Workbook
Setting up a business: decisions I need to make
The first decision you have to make is to decide whether your activity is a business
or a hobby.
There are administrative costs in dollars and time in maintaining a business. The
costs of registering a business, preparing Business Activity Statements (BAS) and
lodging annual reports take effort. You may decide having a business is not for
you. Businesses do get benefits however.
Compared to personal income tax, companies pay less tax. Businesses can also
claim expenses as tax deductions. The risk of paying out a liability if a company
goes into liquidation is also spread across many shareholders who are officially
company owners.
Overall, you might decide operating a business is a good idea. Despite its running
costs, a business may help you keep more dollars in your pocket.
Once you decide to set up a business, you then have to choose a business
structure. You could register as a sole trader, partnership, company or even a
trust. These structures will be explained further in the following pages.
How you register depends on how much ownership and control you want to keep.
It also depends on who else you want to include in your business and if you can
manage and fund complex administrative procedures.
This could be a difficult decision. It affects the tax you pay individually and the
protection of your assets. It could also affect your ability to attract clients. For
example, corporate clients may have a preferred supplier list that only includes
companies.
Getting advice on what is the best structure for you is a good idea as there are
many elements of company and tax law to consider.
Sources of advice and support
For those wishing to make the leap from employee to business owner, there are
many sources of advice and support. Some offer professional advice for a fee
while others are free. When it comes to choosing business structures and finding
out which laws and regulations you have to comply with, it pays to get legal
advice. Among professional advisers, there are business advisers who specialise
in business 'start ups'. Financial planners can forecast your finances given
different scenarios. Besides giving tax advice, accountants and lawyers can help
with the process of registration and incorporation (company registration).
There are also free sources of advice. The Australian, state and territory
governments all have departments catering to businesses. All have websites that
offer supporting information. Many transactions can be done online (e.g. applying
to register a business name), as well as on a printed form that can be
downloaded.
Depending which industry or trade you see your business being part of, there is an
industry or trade association that can offer training as well as advice on licensing.
For example, if you were setting up a business in building construction, or as an
electrician or a plumber, you would look at the Housing Industry Association’s at the
following website:
•
Housing Industry Association, viewed June 2010, <http://hia.com.au/>.
Page 6 of 128
Student Workbook
Other advisers may be mentors you may already know. For example, you may
know someone who runs a business who may also be a member of your local
chamber of commerce.
Although you may want to start up a newsagency and your mentor may run a
tattoo and body art business, you could still benefit from their experience. This
could include knowing which by-laws and regulations you have to satisfy. Your
mentor might also tell you how to do it practically and cheaply.
Sources of advice with contact details and website addresses
Advice source
Contact
Accountants
•
•
Business advisers
and consultants
•
•
Financial planners
•
•
Government
agencies
•
•
•
•
•
•
•
CPA Australia (Certified Practising Accountants)
Australia, viewed June 2010,
<http://www.cpaaustralia.com.au>
Institute of Chartered Accountants in Australia (ICAA),
viewed June 2010,
<http://www.charteredaccountants.com.au>
Business Adviser directory, viewed June 2010,
<http://www.businessadviser.com/directory.htm>
Find ‘Business consultants’, at Yellow Pages, accessed
3/6/10, <http://www.yellowpages.com.au>.
Financial Planning Association of Australia Limited
(FPA), viewed June 2010,
<http://www.fpa.asn.au/FindaPlanner>
Association of Financial Advisers, viewed June 2010,
<http://www.afa.asn.au>.
‘business.gov.au’, Australian Government, viewed June
2010, <http://www.business.gov.au>
Small Business NSW, viewed June 2010,
<http://www.smallbiz.nsw.gov.au>
Business Victoria, viewed June 2010,
<http://www.business.vic.gov.au/homepage>
Queensland Government Business Development,
viewed June 2010, <http://www.business.qld.gov.au>
South Australia – Department of Trade & Economic
Development, viewed June 2010,
<http://www.southaustralia.biz>
‘Business’, Government of Western Australia, viewed
June 2010,
<http://wa.gov.au/governmentservices/business/>
‘Small Business Assistance’, Government of Tasmania,
viewed June 2010, <http://www.development.tas
.gov.au/business/business_development>
Page 7 of 128
•
•
Student Workbook
‘Department of Business and Employment’, Northern
Territory Government, viewed June 2010,
<http://www.nt.gov.au/dbe/>
‘Business and Industry Development’, ACT
Government, viewed June 2010,
<http://www.business.act.gov.au>.
Industry or trade
associations
•
‘business.gov.au’, Australian Government, viewed June
2010, <http://www.business.gov.au>
Mentors
•
Australian Chamber of Commerce and Industry, viewed
June 2010,
<http://www.acci.asn.au/MembersMain.htm>
Solicitors
•
Find Law Australia, viewed June 2010,
<http://www.findlaw.com.au/wld/QuickSearch.asp>
Learning activity: The Heat Group
Watch the video ‘BSBSMB401A: The Heat Group’ on IBSA’s YouTube channel at
<http://www.youtube.com/ibsachannel>.
Gillian Franklin of The Heat Group is a mentor of Kristina Karlsso, the founder of
kikki K stationary. What advice does Gillian provide and why?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Why was Gillian inspired by Kristina?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Page 8 of 128
Student Workbook
Learning activity: Find useful websites
There are a number of key websites that will have forms and
documents that you will need to establish as sources of advice for
your own, actual or hypothetical business.
Search the internet and find some of the following websites.
•
Commonwealth Government business
•
Australian Tax Office
•
Commonwealth of Australia Law
•
state and territory government websites for business (there are many)
•
industry or trade associations.
Business structures
Before registering a business, prospective business owners have to decide which
business structure to choose. What separates the different structures is how they
are owned and managed.
Small businesses register mostly as a:
•
sole trader – where an individual owns and operates a business
•
partnership – where a group of people own and operate a business
together but not as a company
•
company – where office holders of a legal entity run the business but it is
owned separately by shareholders
•
trust – where an entity holds property or income for the benefit of its
members.
Comparing business structures
The goals and circumstances of prospective business proprietors decide which
business structure to adopt. A proprietor will need to make decisions about what
type of business they want to build, what income they expect and how tax will
impact their business and personal income.
The proprietor needs to decide who owns the business and how rights and
obligations are shared. They need to consider how much responsibility to pay
debts (personal liability) they are willing to assume should their business fail. This
relates to how risky the activities of the business are.
A proprietor must also decide which assets would be protected from liquidators
should winding up their business be necessary.
Other factors to consider include whether there will be an increase in the value of
business assets. This means choosing a structure that minimises the amount of
capital gains tax that has to be paid.
Finally, whether the proprietor wants to use their own name for a business or a
trading name will also decide their choice of business structure.
The choice can be complicated, which is why seeking professional advice is useful.
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Student Workbook
Business structures and their features
Business structure
Sole trader
Features
• simple and cheap to set up
• one individual trades on their own
• may operate under their own name or a registered
business name
• controls and manages the business
• is responsible for all debts and liabilities.
Company
• complex and most expensive to register
• has tax benefits (lower tax rates)
• can do business in its own right as an independent
entity
• shareholders own the company
• directors run the company
• shareholders exposed to limited liability to pay debts
• directors and employees can be shareholders
• registered with ASIC
• must submit reports to ASIC.
Partnership
• formed when two or up to 20 people go into business
together
• created using a partnership agreement
• partners may operate under their own names or a
registered business name.
Trust
• run by a trustee
• trustee holds all property and earnings
• pays distributions to members
• commonly used by large property organisations.
Sole traders
A sole trader, also called a single proprietor, is the simplest form of business. One
person owns all of the assets and is responsible for all debts. Many businesses
such cafes, personal trainers and hair stylists operate as sole traders.
Partnerships
A partnership is an association of two or up to 20 persons who come together to
operate a business for profit. In standard partnerships, partners have to invest an
equal amount of time, effort and skill in their business. Limited partnerships
include passive investors who do not operate the business.
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Student Workbook
Each partner has an unlimited personal liability to the partnership’s creditors. This
means all partners are liable for wrongful acts and breaches of trust by any
partner. They are responsible for paying outstanding debts if other partners do not
pay.
Companies
A company (also commonly referred to as corporation) is the most complex
business structure. Business proprietors registering a company must register with
the Australian Securities and Investments Commission (ASIC). Companies must
also satisfy obligations set out in Corporations Act.
A company is a legal entity that has rights and liabilities separate from its
shareholders. Notably, ownership is separate from control.
Shareholders of a company are liable to pay debts of a company should it
liquidate but only in line with the number of shares they buy. Companies that limit
exposure to the risk of paying debts in this way are known as proprietary limited
(Pty Ltd) companies. Shareholders receive earnings paid as dividends for each
share they own.
A company must have a board of directors who are elected by shareholders at an
annual general meeting. The board sets policy and appoints officers to manage
the company on a day-to-day basis. Shareholders do not participate directly in
management decisions unless they are also directors or officers.
Unlike a sole trader or partnership that dissolves at the death of its proprietors, a
company can have an unlimited life.
Trusts
A trust has a trustee who holds and manages all property and earnings on behalf
of beneficiaries who are trust members. A trustee pays earnings to members as
distributions. Small businesses rarely use this structure. Larger property
development businesses often register as property trusts.
Learning activity: Choose the best business structure for UPM
You and a friend William ‘Billy’ McLaren, a former racing driver,
think the economy is about to improve. Billy says now is a great
time to begin a prestige motorcar dealership, which he wants to call
Ultra Performance Motors.
Both you and Billy do not have enough cash to buy the Bugatti Veyron or Aston
Martin convertibles you want to sell. However, you are a member of a sports car
club and know 20 others who would contribute investment finance, but do not
have the time to run a business.
Billy’s accountant mate Basil Weasley says being by yourselves, you would have
problems getting a loan from a bank. He also worries about what would happen
if either you or Billy could not work. On the positive side, Basil says there are tax
advantages to be gained if UMP was created with the right business structure.
With other potential board members (in a group with other learners) you have to
make a decision.
What business structure should UPM be – sole trader, partnership or company?
Page 11 of 128
Student Workbook
Why?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Registering a business
Once you have gathered your information and decided you are ready to create a
business, the next step is to register the business.
For most businesses, you register a:
•
business name
•
Australian Business Number (ABN)
•
Tax File Number (TFN)
•
company (if you have chosen this business structure).
Registering a business name
A business proprietor or owner has to register a business name with a state or
territory authority. First, they get an application to register a business name from
one of these authorities:
State
Office
Australian Capital Territory
ACT Office of Regulatory Services
New South Wales
NSW Office of Fair Trading
Northern Territory
Department of Justice
Queensland
Queensland Office of Fair Trading
South Australia
Office of Consumer and Business Affairs
Tasmania
Consumer Affairs and Fair Trading
Victoria
Consumer Affairs Victoria
Western Australia
Department of Commerce
Most states have application forms that you can download, while some allow you
to register details on a website.
Page 12 of 128
Student Workbook
Learn more: Register your business
Go to ‘business.gov.au’, Australian Government, viewed June 2010,
<http://www.business.gov.au>.
Select: Business Topics > Registration & licences > Register your
business or company > Register your business name in your state
or territory.
After a proprietor submits an application, a government official checks the name
to ensure another company does not already use it as a trademark. To do this,
officials check try to find the name in the Intellectual Property (IP) Australia
database found at the following link.
•
Intellectual Property (IP) Australia, viewed June 2010,
<http://www.ipaustralia.gov.au/>.
The official also confirms the proprietor and business details are correct. Once the
application is approved, the proprietor receives a registration certificate. Usually
this certificate is valid for three years before it has to be renewed.
Another way to confirm if your business is registered is to find it on the ASIC
National Names Index at the following link.
•
ASIC National Names Index, viewed June 2010,
<http://www.search.asic.gov.au/gns001.html>.
Registering an Australian Business Number (ABN)
An Australian Business Number (ABN) is a unique identifier of a business.
Although having an ABN is not compulsory, it has advantages:
•
you can claim goods and services tax (GST) credits
•
you can claim fuel tax credits
•
when trading with other businesses, if you do not have an ABN you may
receive smaller payments. This is because they may hold amounts due to
your business as pay as you go (PAYG) withholding for tax purposes.
•
an ABN on purchase orders and invoices verifies who you are, giving your
business more credibility.
Learn more: Register an ABN
To register for an ABN, you can apply online at the Australian
Business Register:
•
‘Australian Business Register’, Australian Government,
viewed June 2010, <http://www.abr.gov.au/>
Select: Home> Businesses > What do you want to do?> Apply for an ABN, TFN
or other registration> ABN, TGN, GST, PAYG withholding> ABN essentials>
Basic topics > Registration
Page 13 of 128
Student Workbook
You can also request a printed form from the Australian Tax Office.
•
Australian Tax Office, viewed June 2010, <http://www.ato.gov.au>.
The ATO posts a printed confirmation within 28 days of registration.
Registering a Tax File Number (TFN)
The Australian Tax Office issues a Tax File Number (TFN) to identify an individual
or organisation mainly for the purposes of tax collection. Partnerships, companies
and trusts must have their own TFN. Those applying for an ABN can apply for a
TFN at same time using the same form.
All businesses should have a TFN when:
•
reporting to investment institutions responsible for paying interest, share
dividends or unit trust distributions
•
communicating with government departments such as the ATO when
applying for an ABN, or lodging business activity statements and income
tax returns.
Learn more: Tax file number
To register for a TFN, you can apply online at the following link.
•
‘Australian Business Register’, Australian Government,
viewed June 2010, <http://www.abr.gov.au>.
You can also request a printed application directly from the ATO.
Registering a company
If you spoke to your advisers and researched which business structure is best for
your purposes, you might register as a company. This is called incorporation.
You register a company with the Australian Securities and Investments
Commission (ASIC). ASIC is a part of the Australian Government that administers
the Corporations Act.
As a company, you have exclusive rights to a company name throughout Australia
without having to register the same name in each state. Before registering, you
have to confirm your chosen company name is unique. The simplest way to
confirm this is to visit the ASIC website:
•
ASIC, viewed June 2010, <http://www.asic.gov.au>.
In the ‘Company and business names’ search box, enter your company name. If
the search locates a company, you will need a different name.
Note: ASIC does prohibit the use of some words, but it is rare that this issue
arises.
When it comes to registering the company, you have to fill out ‘Form 201 –
Application for registration as an Australian company’. You will have to name
officeholders (directors), an ABN, state whether it is a public or proprietary
(private) company and how shares will be owned.
Because the process is complex, accountants are often used to help fill out and
submit the registration form.
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Once ASIC registers your company, you will receive an ASIC Certificate of Company
Registration. You will also receive an Australian Company Number (ACN). This can
be searched for on the ASIC National Names Index website:
•
‘National Names Index’, ASIC, viewed June 2010,
<http://www.search.asic.gov.au/gns001.html>.
Learning activity: Complete registration forms
Complete forms to register a:
•
business name
•
Australian Business Number
•
Tax File Number
•
company.
Legal obligations of businesses
A business has to satisfy many rules and regulations. The Australian Government
(Commonwealth of Australia) as well as state and territory parliaments pass acts
that become legislation. Local governments authorise by-laws that govern the
issuing of planning permits to locate activities in authorised zones.
Depending which industry or trade you want your business to belong to, there are
also licensing and membership requirements you need to satisfy. For example, to
sell alcohol you need a Liquor Licence. To run a car dealership you would need an
LMCT – Licensed Motor Car Trader licence. Industry and trade organisations set
standards to get licences, although it is state and territory government
departments that actually issue these licences.
Industry and trade organisations often require that their members maintain a
code of practice. This lists standards such as the need to keep your skills and
knowledge current, as well as good business behaviour. For example, Master
Builders Australia, the industry association that represents building and
construction businesses, has a National Code of Practice. The MBA demands its
members to uphold business ethics, use best practice, and be accountable for
their work. The code also sets out methods that members should use to resolve
disputes.
Many businesses have their own code of practice. Although strictly not a legal
obligation, it sets out rules governing behaviour. For example, some cafes only
serve ‘fair trade’ coffee, and many fashion stores will not sell fur products.
Although the list of laws and regulations can be long, the following table
summarises those most likely to affect your business.
Note: Some laws apply only to companies.
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Regulation that governs business
Jurisdiction
Law or regulation
Comment
Commonwealth Corporations Act
Specifies:
company
registration
•
director obligations
•
mandatory reporting
Trade Practices Act
Competitive trading
practices
Fair Work Act
Employment conditions
Goods and Services Tax Act
GST
Fringe Benefits Tax Act
Fringe Benefit Tax
Income Assessment Tax Act
Income Tax
Various licences, for example:
Governs an industry’s:
Commonwealth
State or
territory
•
• Motor Car Traders Act (VIC)
• Second-Hand Dealers and
Pawnbrokers Act (ACT).
• licence and
registration
requirements
• offences for
breaches.
Consumer protection and fair
trading laws
For example, Fair Trading Act(WA)
Governs:
• fair treatment of
customers
• disclosure
requirements.
Occupational Health and Safety
Act
Requirements to protect
the health, safety and
welfare of people at
work.
Anti-discrimination Act
Fair and equitable
access for all to
employment conditions,
training and promotional
opportunities.
Equal Opportunity Employment
Acts (States and Commonwealth)
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Jurisdiction
Law or regulation
Comment
Planning and Environment Acts:
Lists environmental
controls to regulate land
use, development and
subdivision.
• Environmental Planning and
Assessment Act(NSW)
• Planning and Environment Act
(VIC)
Local
government
Payroll Tax Act
Tax on a wage bill
Planning permits to:
Specific to each local
government
• extend a business premises
• sell or serve alcohol
consumed on a premises
• install a sign or advertisement
• place items on a footpath
• register a food or health
business
• register a health-related
business such as a
hairdresser, beauty therapist
or body artist
• provide food at temporary
events.
Industry or
Professional
Association
Code of Practice or Code of Ethics
for:
Specific to each
association
• Motor Trade Association of
NSW
• Fitness Tasmania – Code of
Practice for Fitness Facilities
• Australian Retailers
Association – Code of
Practice.
Enterprise
Code of Practice or Code of
Conduct:
Workplace practices
• how to treat customers
• affirmative action
• family-friendly work practices
• use of plastic bags
• ethical trading.
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Business registration – business names
In starting up a business, your first obligation is to satisfy the requirements of the
Business Names Act in your state or territory.
The authorising state or territory authority will not register a business name if it:
•
could be mistaken for a business name that is already registered in the
same state
•
is registered or reserved for special usage by the Corporations Act
(and ASIC)
•
is the name of an incorporated association, building society, cooperative
company or cooperative in the same state
•
misleads with respect to the nature, objectives and purposes of the
business
•
is likely to offend members of the public
•
contains the following reserved words and phrases or their abbreviations
or other words or phrases or abbreviations that have their meaning:
o
building society
o
friendly society
o
chamber of commerce
o
guarantee
o
chamber of
manufactures
o
Institute of Advanced Education
o
Made in Australia
o
Oxfam
o
savings
o
stock exchange
o
trust
o
trustee
o
university.
o
chartered
o
College of Advanced
Education
o
consumer
o
cooperative
o
credit union
o
executor
•
suggests a connection with the Crown, the Government of the
Commonwealth of Australia or of a state or territory
•
includes the terms ‘Commonwealth’ or ‘Federal’
•
suggests a connection with the government of a foreign country
•
suggests a connection with a federal, state or local government
department, or authority
•
suggests a connection with ex-military service organisations when the
connection suggested does not exist.
After you submit the business name application and pay a registration fee, the
authority approves the registration. When the registration period expires, you will
have to renew it. Normally the renewal of the registration is required every three
years.
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Example: Business Name Registration – What not to do
For many businesses, their name is their trademark and they defend it
aggressively. For example, Coca Cola, McDonalds and Ferrari are brands as
much as business names.
Business Names Acts throughout Australia demand a name of one business
must not be mistaken for the identity of another. This could mean you have to
spend some time thinking what business name you choose.
Not all countries show as much care to avoid this confusion, however.
Below are examples, with their legal equivalents, you might find on product
labels at some discount shops:
•
Converse – Converse
•
Daiads – Adidas
•
Dole And Gabbana – Dolce & Gabbana
•
HiPhone – iPhone
•
Kelvin Klein – Calvin Klein
•
Mac Duck – McDonald's
•
Naik – Nike
•
Nokla – Nokia
•
Panasenic – Panasonic
•
Paradi – Prada
•
Pmua – Puma
•
Polystation – Playstation
•
Sonia – Sony
Under Australian law, these names would never be registered!
Page 19 of 128
Business registration – Company obligations
If you register as a company with ASIC, you have to satisfy requirements set out in
the Corporations Act. As these are complex, an accountant can provide much help
in satisfying these requirements, especially if you as a proprietor are also a director.
This includes ensuring directors:
•
are always honest and careful in all dealings
•
know what the company does
•
take extra care if handling other people’s money
•
can pay the company’s debts on time
•
ensure the company keeps proper financial records
•
act in the company’s best interests, despite not owning it, even though
they may have set up the company (for personal or taxation reasons)
•
use information they get through their position properly and in the best
interests of the company; avoid using information to gain a personal
advantage if they use it the wrong way or dishonestly.
Business registration – company record keeping
Of the records your company has to maintain, you need to keep:
•
cash records (for example, bank statements, deposit books, cheque butts
or petty cash records)
•
creditor and purchases records (for example, purchase orders, invoices
and statements received, paid and unpaid invoices; a list of all purchases,
and a list of all creditors with their balances)
•
debtor and sales records (for example, a list of debtors and their balances,
delivery dockets, invoices and statements issued and a list of all sales
transactions)
•
deeds, contracts and agreements
•
a general ledger for recording all the company’s transactions and balances
(for example, revenue, expenses, assets and liabilities) and summarising
transactions and balances listed in other records
•
inventory records
•
investment records (for example, contract notes, dividend or interest
notices, certificates)
•
a register of property, plant and equipment showing transactions and
balances in relation to individual items
•
tax returns and calculations (for example, income tax, group tax, fringe
benefits tax, GST returns and statements)
•
wage and superannuation records.
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Your company would also have to prepare monthly statements that includes a:
•
Statement of Financial Performance – showing your company’s revenue
and expenses and the profit or loss
•
Statement of Financial Position – a statement showing what your company
owns and the debts it has to pay
•
Statement of Cash Flows – a summary of cash in and outflows.
Each year your company would have to submit an annual statement (or report)
and pay a registration fee to ASIC. You would report your company’s details
including:
•
the names and addresses of its directors, company secretary,
•
the address of the registered office, principal place of business and any
ultimate holding company (if it exists)
•
its members and their share details
•
paying an annual registration fee to ASIC.
All businesses have to pay federal taxes, which includes income tax, capital gains
tax, fringe benefits tax as well as goods and services taxes (GST).
In addition, businesses are responsible for holding back some of the income paid
to employees. Businesses pay this to the ATO as income tax payments for their
employees.
Although not a tax, your business has to pay a percentage of your employees’
earnings into a recognised superannuation scheme.
There are also state payroll taxes and stamp duties that businesses must pay.
Occupational Health and Safety (OHS)
To satisfy the Occupational Health and Safety Act of your state or territory, your
business must ensure the health, safety and welfare of employees at work by:
•
keeping workplaces safe
•
ensuring entrances and exits are safe
•
ensuring the safe use, handling, storage and transport of plants and
substances
•
providing and maintaining safe systems of work
•
providing working environments with no risks to health
•
providing information, instruction, training and supervision to preserve the
health and safety of employees
•
providing facilities that support the welfare of employees.
The Student Workbook explores OHS obligations in detail in Section 2 – How
Business Complies with Laws and Regulations.
Page 21 of 128
Environmental and planning laws and regulations
Unlike other areas of legislation with a strict separation of federal, state and local
government responsibility, environmental laws and regulations can overlap.
For building and construction businesses, they will have obligations specified in
their state or territory’s Planning and Environment Act. This lists planning controls
aimed at preserving the environment when land is developed or subdivided. It
may assert that before a state or territory authority approves a development,
there must be an environmental assessment.
Planning and environment acts also describe different applications businesses
must submit to get permission to start their projects. These acts also explain how
authorities approve applications and what to do if an application is rejected.
Local governments also have planning by-laws and issue permits to limit business
activity in specific zoned areas. Businesses would need to contact their local city
or shire to confirm what these are.
Example: Legal obligations – what happens when you ignore them
In 2004 GlaxoSmithKline marketed its Ribena drink to consumers who saw it as
a nutritious alternative to other drinks. Mothers with young children were keen
buyers of the drink for this reason. The company’s claim, ‘the blackcurrants in
Ribena contain four times the Vitamin C of oranges’, reinforced this perception.
In 2007, two New Zealand schoolgirls, Anna Devathasan and Jenny Suo,
conducted a science experiment to measure the Vitamin C content of their
favourite drinks. When they tested Ribena, they found there was less Vitamin C
than what was advertised.They then discussed their findings with
GlaxoSmithKline.
Later, the New Zealand Commerce Commission took action against
GlaxoSmithKline suggesting it breached the Fair Trading Act by making false
and misleading advertising. Unlike the two schoolgirls, its response was far
more aggressive. The commission challenged the claim Ribena contained
blackcurrants.
The company admitted the blackcurrant content of the drink was small and
highly processed. As sugar and water were the main ingredient, the claim
probably misled consumers. In an Auckland court, GlaxoSmithKline eventually
pleaded guilty to 15 charges of making misleading claims about how much
Vitamin C was in its product. GlaxoSmithKline was then fined NZ$227,500
($200,000).
Unlike New Zealand, the company has faced no similar prosecution or fine in
Australia.
Source: K. Burke, 2007, ‘Sweet victory for students as Ribena claim draws fine’, The Sydney
Morning Herald, March 28, 2007.
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Learning activity: Relate a business to the legislation and regulations that
govern it
Record the legislation and regulations that you think would govern
the different types of businesses listed below. In order to
successfully complete this task you will need to refer to previous
pages of this section, including the table ‘Regulation that governs
business’.
1.
2.
3.
4.
5.
6.
7.
8.
Food Act (S,T)
Health Act (S, T)
Licences (S,T)
Certification (industry)
Payroll Tax (S,T)
OHS (S,T)
Environment, planning, zoning (local government)
Corporations Act: Company registration (C)
(S, T) = State or Territory legislation/regulation
(C) = Commonwealth legislation/regulation
Businesses
Laws and Regulations
a. Café Squisito, Antonio Visconti –
Owner-operator
b. World Property Construction Pty Ltd,
Huw Mungus – Director
c. Ultra Performance Motors Pty Ltd,
William McLaren – Director
d. Erinsborough Hairdressing & Body
Art, Sharon Ng and Kylie Azzopardi
– Owners
e. Personal Trainer, Brett Pitt
Page 23 of 128
Section summary
You should now understand how to identify and implement the legal requirements
needed to set up and operate a business.
In practice, you need to:
•
identify laws and regulations that apply
•
know what legal requirements you must satisfy.
Further reading
•
‘Australian Taxation Office – Businesses’, Australian Government, viewed
June 2010, <http://www.ato.gov.au/businesses>
•
‘Registration & licences, business.gov.au’, Australian Government, viewed
June 2010, <http://www.business.gov.au/BusinessTopics/
Registrationandlicences/Pages/default.aspx>
•
‘ABN registration for companies, partnerships, trusts and other
organisations’, Australian Taxation Office, viewed June 2010,
<http://www.ato.gov.au/businesses/content.asp?doc=/content/15773.h
tm&pc=001/003/021/001/004&mnu=610&mfp=001/003&st=&cy=1>
•
‘Tax file number application for companies, partnerships, trusts and other
organisations’, Australian Taxation Office, viewed June 2010,
<http://www.ato.gov.au/content/downloads/nat3799e.pdf>
•
‘Application for registration as an Australian company, Australian
Securities and Investments Commission’, Australian Government, viewed
June 2010, <http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/
201.pdf/$file/201.pdf>
•
Business Licence Information Service, viewed June 2010,
<http://www.bli.net.au/>.
•
‘Your company and the law, Australian Securities and Investments
Commission’, Australian Government, viewed June 2010,
<http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Your%20company%
20and%20the%20law>.
Section checklist
Before you proceed to the next section, make sure you are able to:
 describe the process of setting up a business
 compare business structures
 identify legal obligations of a business.
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Section 2 – How Business Complies with Laws and Regulations
Section 2 – How Business Complies with
Laws and Regulations
This section examines techniques you can use to make sure your business
satisfies the requirements of legislation, codes and regulations.
Scenario: Compliance program needed
Due to the early retirement of the managing director you have now become the
managing director of Ultra Performance Motors Pty Ltd.
Being a responsible business manager, you want to know how
UPM is performing.
You keep an eye on UPM’s accounts to confirm its cash flow
is in profit. It is easy to do because you use accounting
software.
What makes you nervous is that you want to be certain that
neither the business nor yourself will be prosecuted for some unforeseen legal
action.
As you naturally want to avoid fines, costs, suspensions and jail, you make an
executive decision.
You call the staff together.
As a director, you stand to your feet and ask: ‘Does anyone know anything about
compliance?’
In order to work effectively when ensuring a business complies with laws and
regulations, you must be able to:
insurance requirements
 employ time management skills to prioritise tasks and to meet key dates.
Page 25 of 128
Why business complies with laws and regulations
Section 1 showed there are many laws and regulations a business has to satisfy.
This adds up to a lot of regulation and expense for a business.
Regulations aim to make sure a business uses culturally appropriate practises
and trades in a way that respects the rights of consumers.
Cultural considerations refer broadly to issues generally pertaining to sex, gender,
age and ethnicity. A business that employs people from a culturally and
linguistically diverse background (CALD) needs to ensure that the communication
of OHS procedures and guidelines are understood by all their staff in order for the
business to comply with OHS legislation. For example, Food safety program
templates for food service and retail businesses on the Food Safety website have
been written in several different languages to ensure that all businesses
understand and comply with the Food Safety Program provided by the State
Government.
Cultural considerations may also be extended to encompass a range of other
groups of people, under-age drinkers or compulsive gamblers. For example,
compulsive gamblers can elect to ‘self-exclude’. Under Responsible Gaming
Legislation the hotel or gambling venue will be required to close the customer’s
account for a set period. If the hotel still continues to take bets from the client
then a compensation claim might be made against them.
A business needs to meet its registration obligations and operate with a ‘duty of
care’ to avoid negligence. A business that fails to comply with legislation can face
punishment that could come in many forms.
For example, a business placing job advertisements with a gender or a racial
requirement could find itself fined by government authorities under an antidiscrimination act.
Company directors could face a fine if they fail to provide key information about
their company’s finances to administrators, or do not update ASIC’s public
register with current company information. ASIC can also deregister a company if
it does not pay its registration fee, submit an annual report, or lodge a compliance
report if a company is requested to do so.
Businesses can suffer prosecution if they treat consumers poorly. If a business
does not present accurate and truthful information about a product or service to a
consumer, it could face prosecution from the Australian Competition and
Consumer Commission (ACCC) under the Trades Practices Act.
Deceptive and misleading advertising is also grounds for prosecution. ‘Bait
advertising’ that promises a low price on stock that is held in insufficient numbers
to meet customer expectations is also illegal.
‘Unconscionable Conduct’ breaks the conditions (or breaches) this act and can
attract fines. The ACCC considers businesses unconscionable when they do not
make key terms in a contract of sale understandable. This applies also if they
exploit low-income consumers by making false statements about the true cost of
a cheap loan.
Likewise, business proprietors can face a fine if they do not explain conditions in a
contract to a consumer they know does not speak English or has a learning
disability.
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Business proprietors may face compensation claims if they or their staff fail to
show a ‘duty of care’ to others who, in turn, suffer ‘injury’ because of actions the
business takes. In this situation, a business demonstrates ‘negligence’ if it does
not take steps to prevent ‘injury’. Legal practitioners call laws dealing with the
redress of injury in this context as the ‘Law of Torts’.
Tort law and the duty of care concept are intrinsically linked through the law of
negligence; tort law provides remedies for civil wrongs that occur outside any
contractual arrangement. Negligence has been defined as ‘the failure to apply
ordinary care’ to a situation or transaction through either an act or omission and
the law of negligence affects the way in which an organisation structures,
produces or delivers its services or products to clients. This translates into what is
known as the ‘duty of care’ requirement for an organisation. The duty of care
concept, as it applies to an organisation, sets standards for the services and
goods and the way services are delivered and the goods produced. Tort Law as it
relates to the duty of care requires only that people within an organisation act
reasonably and within the standards they have adopted for their organisation.
Where an organisation, or a member of that organisation, does not act reasonably
and within standards, and injury to another person is caused, the injured party
can seek redress using Tort Law. ‘Injury’ in this case does not necessarily mean a
physical injury. It can also mean things such as financial loss, loss of productivity
and damage to property or reputation.
Other consequences of non-compliance may include fines from cities or shires for
violations of by-laws. A professional or trade association can expel a member if
they ignore the association’s code of practice. In some cases, this could mean a
business could not trade and earn revenue.
Another reason why a business should comply with the law relates to maintaining
‘good will’. Notably, a business known not to use industry best practices and
standards will see its revenues shrink as they lose clients to competitors.
Costs and benefits of compliance
Besides avoiding prosecution, making sure a business meets conditions set out in
a law, regulation, code or standard creates benefits that can help a business.
There are costs of compliance that can shrink profits, but there are benefits and
gains. As a business operates sustainably to become a ‘going concern’, the
benefits of compliance eventually fund the set up costs.
The following table examines the most common costs and benefits of a
compliance program.
Page 27 of 128
LEGISLATION AND REGULATION COMPLIANCE
Costs
Benefits
More administration:
Avoid fines, prosecution (legal costs)
and jail for non-compliance
•
checking and filing compliance
reports.
Bigger training budget needed:
•
for OHS, EEO work practices,
courses and manuals.
Customers perceive meeting
standards as ‘quality’ and pay more
for it.
LEGISLATION AND REGULATION COMPLIANCE
Costs
Benefits
Greater capital expenses:
Avoid injury and death:
•
such as fire sprinklers, air
conditioning and accessibility
ramps.
Checking results in lengthened tasks:
•
inspections of plant, equipment
and processes take time.
•
you avoid ‘negligence’ claims
and pay lower WorkCover
premiums.
Less ‘down time’
•
reduces interruptions to
business – down time - when
your business cannot trade or
earn
Reduce the risk property damage:
•
from fires or burglary
As businesses have to obey the law, you could argue many costs of compliance
are unavoidable (also known as ‘sunk costs’).
For example, when a company submits an annual report to ASIC, it has to
purchase the services of an accountant to audit their report. To show a
commitment to equal employment opportunity (EEO), a business may have to
fund disabled toilets and ramps.
Even the act of having staff check and write up compliance reports is costly in
terms of labour and administration. For example, it takes time and effort when a
health and safety officer records whether cleaners disinfect toilets periodically.
Making sure a business is compliant does deliver advantages however. In time,
these offset the costs of compliance. These include avoiding the need to pay
Page 28 of 128
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fines, the costs of going to court and potentially prosecution that could lead to
paying compensation or jail. Publicising that your business satisfies industry
standards can attract customers who seek ‘quality’.
Complying with OHS legislation makes a workplace safer. This reduces the
possibility of injury and death, avoids negligence claims and leads to lower
WorkCover insurance premiums.
Reporting whether equipment or processes meet standards helps identify faults
early that staff can then fix. In this way, compliance checking reduces business
interruptions – ‘down time’ when your business cannot trade and earn.
Other compliance checking prevents costs. For example, testing if your fire and
burglar alarms work helps prevent the cost of property damage and theft.
Learning activity: List costs and benefits of compliance for UPM
For Ultra Performance Motors, list the costs and benefits of compliance.
Ultra Performance Motors
Legislation and regulation compliance
Costs
Benefits
Page 29 of 128
Laws and regulation compliance: Registration, OHS,
environment and planning
Previously, the Student Workbook identified many laws and regulations your
business has to abide by. Next, you will find out how to do so.
Given compliance means satisfying conditions, also called provisions, to start
with, you need to find out what these are.
When starting up your business, you have to identify the requirements of business
registration and those governing where you intend to trade. These include
Environment and Planning applications and Occupational Health and Safety.
The table on the following page lists legislation that specifies these requirements.
Laws and regulations with administering authorities
Activity
Law or regulation
Authority
Registration
(Business
Name)
Business Names Act 2002
(NSW)
NSW Office of Fair Trading
(VIC)
Consumer Affairs Victoria
(QLD)
Queensland Office of Fair
Trading
(SA)
Office of Consumer and
Business Affairs – South
Australia
(WA)
Department of Commerce –
Western Australia
(TAS)
Consumer Affairs and Fair
Trading – Tasmania
(NT)
Department of Justice –
Northern Territory
Business Names Regulation
2004 (NT)
Registration
(ABN, TFN)
(ACT)
ACT Office of Regulatory
Services
A New Tax System (Australia
Business Number) Act 1999
Australian Tax Office (ATO)
Income Tax Assessment Act
1936
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Activity
Law or regulation
Authority
Registration
(Company)
Corporations Act 2001
Australian Securities and
Investments Commission
(ASIC)
Occupational
Health and
Safety (main
legislation)
Occupational Health and
Safety Act 2000 (NSW)
WorkCover New South
Wales
Occupational
Health and
Safety (state
and territory
legislation)
Safety Act 2004 (VIC)
Work Safe Victoria
Workplace Health and Safety
Act 1995 (QLD)
Workplace Health and
Safety Queensland
Occupational Health, Safety
and Welfare Act 1986 (SA)
SafeWork SA
Occupational Health, Safety
and Welfare Regulations 1995
(SA)
Occupational Safety and
Health Act 1984 (WA)
WorkSafe Western Australia
Act 1995 (TAS)
WorkCover Tasmania
Act 2007 (NT)
NT WorkSafe
Safety Regulation 1991 (ACT)
ACT WorkCover
Safety Act 1989 (ACT)
Environment
and planning
Environmental Planning and
Assessment Act 1979 (NSW)
NSW Department of
Planning
Planning and Environment Act
1987 (VIC)
Department of Planning and
Community Development –
Victoria
Integrated Planning Act 1997
(QLD)
Environmental Protection
Agency – Queensland
South Australian Planning Act
1982 (SA)
Local Government – South
Australia
Planning and Development
Act 2005
WA Planning Commission
Page 31 of 128
Activity
Law or regulation
Authority
Land Use Planning and
Approvals Act 1993 (TAS)
Resource Planning and
Development Commission –
TAS
Northern Territory of Australia
Planning Act 1999 (NT)
Northern Territory
Infrastructure
Land (Planning and
Environment) Act 1991 (ACT)
ACT Planning and Land
Authority
Registration obligations
In Section 1 – How to Set Up a Business, you found out how to register a
business.
Once your business is registered, there are still ongoing obligations you have to
meet.
These include:
•
renewing your business name and paying a registration fee once a
registration has expired, normally after three years
•
office holders being honest, careful and acting in their company’s best
interest in all their dealings; also with records that show this and
demonstrate ‘due diligence’
•
producing reports that show your business pays its debts
•
keeping financial records
•
sending monthly statements to ASIC if you register as a company that
include a:
o Statement of Financial Performance
o Statement of Financial Position
o Statement of Cash Flows.
•
submitting an annual statement (or report) to ASIC
•
paying an annual registration fee to ASIC.
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OHS obligations
According to Occupational Health and Safety legislation, a business has to protect
and promote the health and safety of people at a workplace.
All states and territories have Occupational Health and Safety Acts and
regulations. Besides OHS Acts, other legislation also exists that governs safety in
a specific industry or trade. For example:
•
NSW businesses installing gas appliances are subject to a Dangerous
Goods (Gas Installations) Regulation 1998.
•
To work with potentially dangerous chemicals, a business has to have a
licence under the Environmentally Hazardous Chemicals Act 1985.
•
Café proprietors are subject to the Food Act that sets out how food should
be prepared and handled.
Each state and territory has similar laws you need to identify. Contacting your
local OHS authority helps to do this – see previous table.
OHS acts oblige you to take precautions and consult.
These require you as an employer to make sure:
•
premises where employees work are safe and without risks to health (this
includes access to or exit from premises you control)
•
any plant or substances you give to employees at work are safe and
without risks to their health when used properly
•
work processes and the work environment are safe and without risks to
the health of employees
•
you provide necessary information, instruction, training and supervision to
maintain employees’ health and safety at work
•
adequate facilities exist for the welfare of employees at work.
Besides complying with OHS legislation, your business needs to prove that it does.
Potentially at the request of a safety inspector or a court of law, you might have to
demonstrate you have records that show how you enforce compliance. Legal
practitioners call this demonstrating ‘due diligence’. The Workbook will look at
how to do this later, in the topic entitled ‘How business enforces compliance’.
Environmental and planning obligations
Although state and territory legislation sets out rules businesses have to comply
with, local councils administer environment and planning regulation.
Each council has a planning officer who administers rules governing land use.
If your business needs to use or develop of land, you will need a planning permit.
To get this, you need to submit an application.
For example, you would need planning permits to construct a building or carry out
works such as painting a shop. You would also need a permit to sub-divide a
warehouse into shops or apartments or install signs that were visible from a
street.
You get an application for a planning permit from your state or territory planning
authority or local council if you live in a rural area. Later, you would send this
application to the planning office of your local council.
Page 33 of 128
To make sure you comply with all legal environmental and planning obligations
when you fill in the application, you would:
•
decide which permit you need by talking to your council’s planning officer
•
identify planning schemes (whether local or state) that apply; get a
‘planning certificate’ from your state or territory planning authority to list
these zoning requirements
•
check if your council has a planning checklist that sets out other
requirements; for example, you might need to attach an environmental
impact statement with your application
•
state your land’s official address; get a land or property title from your
state or territory registry office to confirm this
•
explain your proposed land use or development
•
provide an estimate of your project’s cost to calculate an application fee
•
include an application fee
•
list how land is used now, for example, its current activities and buildings
•
identify ‘encumbrances’ on your land or property title; these are conditions
that restrict land use that include:
o restrictive covenants – restrictions on the ownership of land for the
benefit of others
o easements – rights to others such as access or the provision of a
service such as water rights
o building envelopes – the development boundaries of land
•
lodge the application for permit with your local council’s planning office.
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Student Workbook
Learning activity: List laws and regulations for UPM
For Ultra Performance Motors, list laws, regulations and codes of practice the
business has to comply with.
Ultra Performance Motors
Legislation and regulation compliance
Jurisdiction
Law or regulation
Commonwealth
State or Territory
Local government
Industry or Professional
Association
Enterprise
Page 35 of 128
Tax obligations of business
Tax and small business
When running a small business, you have to pay Commonwealth as well as state
or territory taxes. In most cases, if your business is a company, it pays lower tax.
There are also other tax-related obligations. For example, you must submit an
annual income tax return to the Australian Tax Office (ATO) for your business.
If you operate as a sole trader, you must quote your own tax file number (TFN)
when communicating with the Australian Tax Office. However, if you registered as
a partnership, trust or company, your business must have its own TFN.
Another requirement of businesses is to lodge a Business Activity Statement (BAS)
with the ATO each month or quarter, depending on the size of your business. Most
small businesses report every three months or quarterly. Failure to do so could
mean paying a penalty to the ATO.
To do this, you must register with the ATO to get an Australian Business Number
(ABN) as well as to collect Goods and Services Tax (GST).
The BAS lists business earnings and payments of various taxes. These include
Goods and Services Tax (GST), Pay As You Go (PAYG) instalments, PAYG
Withholding and Fringe Benefits Tax (FBT). Normally you pay your tax at the same
time as submitting or lodging a BAS with the ATO. Note your BAS must quote your
Australian Business Number (ABN).
In summary, your business has to pay:
•
income tax (Company Tax)
•
Goods and Services Tax (GST)
•
Pay As You Go (PAYG) withholding
•
Fringe Benefits Tax (FBT)
•
Capital Gains Tax (CGT)
•
super Contributions
•
stamp duty (state or territory)
•
payroll tax (state or territory).
The following table lists federal (Commonwealth) taxes you pay to the ATO as well
as contributions.
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Student Workbook
Commonwealth tax obligations and considerations
Tax or charge
Comment
Income Tax
(Company Tax)
Australia's company tax rate is 30% of a net or taxable
income. Taxable income is equal to gross income less
all deductions. Private income (non-business income) is
taxed using rates that apply to income thresholds listed
in tax rate tables on the ATO website.
The company tax you pay quarterly or monthly is called a
Pay As You Go (PAYG) instalment.
Goods and Services
Tax (GST)
GST is a 10% sales tax on the increase in the extra
value a business contributes to the selling price of a
good or service.
If you register for GST with the ATO, you can claim the
GST you pay on goods and services. This means you can
deduct the GST you pay from the GST you collect on
goods and services sold. This reduces the GST you pay
to the ATO. GST may be paid monthly, quarterly or
annually depending on the size of a business.
Pay As You Go
(PAYG) withholding
Employers have to withhold tax before paying their
employees. Employers then pay their employees’ tax to
the ATO. This held amount is the Pay As You Go (PAYG)
withholding.
This includes income tax (calculated using tax tables), a
1.5% Medicare levy and potentially the repayment of
student loans under the Higher Education Loan
Programme (HELP).
Fringe Benefits Tax
(FBT)
FBT is the tax paid on a benefit that a business pays to
an individual because they are an employee.
The ATO treats FBT separately from income tax.
FBT has its own tax rates.
Capital Gains Tax
(CGT)
The ATO treats CGT as part of income tax.
The income earned from selling an asset whose price
has increased less its cost, is added to the total income
of an individual or company. The capital gain is then
taxed according to income tax rates or company tax
rates.
Note a business has to hold an asset for more than one
year before it is subject to CGT.
Superannuation
Guarantee
Contributions
Employers must pay a minimum of 9% of an employee's
pay into a superannuation fund nominated by the
employee.
Page 37 of 128
Income Tax (Company Tax)
Sole traders and partnerships pay tax as individuals calculated using personal
income tax rates. Unlike individuals, they can reduce their taxable income by
deducting costs and losses from previous trading periods.
If you registered as a company, you pay a lower rate however. You only pay 30% of
your business’ taxable income as tax. You pay this with your GST and FBT.
Taxable income includes income from all sources less costs and other deductions.
These deductions include expenses such as 100% of the value of accounting
software or training and tax concessions.
These concessions include depreciation of 33.3% of the value of equipment
‘written off’ in a year. For example, you could deduct $300 from your income if
you bought a $900 table for your boardroom.
The income tax your business pays is called a Pay As You Go instalment. Sole
traders normally pay PAYG instalments once a year, while small companies pay
every quarter.
A Pay As You Go instalment is a business tax payment. This not the same as Pay
As You Go withholding that is the employee’s income tax paid by their employer.
Example: Company (Income) Tax
Britney Meers recently registered her fashion business ‘Swim Where? Pty Ltd’.
As it is cheap to do, she planned to sell her innovative swimwear to customers
over the internet. After extensive market research with her boyfriend Jayme and
his mates at the Boomdinyabba West Football Club, she
discovered there was a desperate need for padded men’s
swimwear. Britney soon developed her brand she
marketed as ‘Budgie Snugglers’ and priced at $50 each.
Her swimwear sold to thousands of customers.
Over the year, she sold 10,000 items. This is averaged to
2,500 a quarter (three months).
Britney submits her Business Activity Statement and pays tax quarterly. She
assessed her cash inflow and outflow for the first quarter (the March Quarter).
Her total income was 2,500 x $50, or $125,000.
Britney’s stock cost of $25,000 included all manufacturing and shipping costs
from Tashkent, Uzbekistan. To calculate how much tax Britney had to pay, she
worked out her assessable taxable income.
Her assessable taxable income was $125,000 less the $25,000 deductible
cost giving $100,000.
Having registered ‘Swim Where? Pty Ltd’ as a company, her business income is
taxed at a corporate tax rate.
The corporate tax rate according to the ATO is 30% (0.30).
The tax to pay was 30% of her net income of $100,000: $100,000 x 0.30 =
$30,000
Britney then lodged her BAS with the ATO and paid her Pay As You Go (PAYG)
instalment of $30,000.
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Student Workbook
Goods and Services Tax (GST)
The Goods and Services Tax (GST) is a 10% sales tax on the increase in the extra
value a business contributes to the selling price of a good or service.
To collect GST you have to register for GST with the ATO. Once registered, you can
claim the GST you pay on goods and services, which is called a ‘GST credit’. To do
this, you would need to record details on tax invoices from other businesses that
quote their ABN.
This means you deduct the GST you pay from the GST you collect on goods and
services sold. This reduces the GST you pay to the ATO. GST may be paid monthly,
quarterly or annually depending on the size of your business. Most small
businesses pay quarterly.
If you bought a good or service for your business and used it privately, you can
claim a GST credit for the amount it was used for business purposes. For
example, if you use a power drill 80% of the time for your business, you can claim
80% of the GST credit (80% of the 10% GST on the drill’s price).
Businesses pay their GST to the ATO when they lodge their Business Activity
Statement.
Example: GST
Outside of rural Nimbin, Helga Storviken raises llamas on her small farm to
supply fine wool to nearby craft businesses. These businesses knit and crochet
the fine wool into jumpers and legwarmers to sell to tourists.
After three months trading as Flying Llama Textiles, she had to pay her GST.
Helga first spent $40,000 to buy ten llamas.
She paid GST that came to 10% of the $40,000 she spent.
This $4,000 was her GST credit. This is the amount she
could claim off her total GST payment.
After selling bails of premium wool to her grateful
customers, she earned $50,000.
She then collected 10% of her $50,000 revenue, or
$5,000 as GST.
The amount Helga actually paid to the ATO was the
difference between the GST collected ($5,000) and the
GST credit she claimed back ($4,000).
Helga then sent a cheque of $1,000 to the ATO and with
her latest business activity statement (BAS).
Page 39 of 128
Pay As You Go (PAYG) withholding
According to the Taxation Administration Act 1953 Schedule 1, payers have to
withhold certain payments and transactions for income tax purposes.
As an employer, you withhold a percentage of payments to:
•
employees as salaries and wages
•
contractors or sub-contractors you hire under a voluntary agreement
•
labour hire workers
•
suppliers who do not provide an Australian business number (ABN)
•
investors in your business who do not quote their tax file number (TFN)
who are due to receive interest or dividends
•
investment distributions (profits) such as dividends, interest or royalties
you pay overseas.
You report and send these amounts to the ATO using the PAYG withholding
system. In short, you call this ‘withholding’.
Under ‘withholding’, an individual or business that makes a payment is a ‘payer’
while a ‘payee’ receives a payment.
If you operate a business or pay employees governed by PAYG withholding, you
must:
•
register for PAYG withholding with the ATO
•
confirm the status of your employees (for example, do they have an ABN)
•
know which types of payments and transactions you need to withhold tax
from
•
decide how much to withhold
•
report and pay withheld amounts to the ATO for a pay period (for example,
fortnightly)
•
send payment summaries (for example, BAS – NAT 7394 each quarter) to
the ATO
•
lodge an annual report with the ATO at the end of each financial year.
Note: The consequence for small business of not disclosing their ABN is severe.
If you supplied stock to a retail business and sent an invoice for $1,000 with no
ABN, you would receive only $515.This is because under ‘withholding’ an invoice
with no ABN has 48.5% of its total automatically taken out as tax and sent to the
ATO. Registering and displaying your ABN is therefore wise to do.
Example: PAYG Withholding
Shane Finkle has just finished his first three months running
his successful beauty parlour catering to dogs. It is April and
Shane has to lodge his quarterly BAS and pay all due tax to the
ATO.
His company ‘Doting Dogs’ only has one employee Zeki Turkul
who specialises in blow waves, teeth whitening and psychotherapy.
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Student Workbook
Zeki is a permanent employee on an annual salary of $40,000. Quarterly this is
$10,000 ($40,000 ÷ 4).
From the ATO website, Shane looked up the following tax rates to work out how
much tax he had to take out of Zeki’s earnings to pay the ATO. This is Zeki’s Pay
As You Go Withholding.
Tax rates 2008-09 (Australian Tax Office)
Taxable income
Tax on this income
$0–$6,000
Nil
$6,001–$34,000
15c for each $1 over $6,000
$34,001–$80,000
$4,200 plus 30c for each $1 over $34,000
$80,001–$180,000
$180,001 and over
Shane considered the following.
To calculate Zeki’s PAYG withholding:
•
her first $6,000 of earnings is not taxed
•
15% of the amount between her maximum income of $10,000 and the
threshold income of $6,001 is the PAYG withholding
•
($10,000–$6,001)0.15 = $599.85.
Shane then recorded Zeki’s PAYG withholding amount of $599.85 in his BAS.
He then posted his March BAS with a $599.85 tax cheque to the ATO.
Fringe Benefits Tax (FBT)
A fringe benefit is a benefit you provide to an individual or their associate because
they are an employee. Fringe Benefits Tax (FBT) is the tax paid on the value of a
fringe benefit.
If your business operates as a company or trust, your directors and company
secretaries may be employees.
You might provide a fringe benefit when you:
•
allow an employee to use a work car for private purposes
•
give an employee a low-interest loan
•
pay an employee’s private health insurance
•
provide cleaning services for an employee’s private residence
•
reimburse an expense incurred by an employee, for example, petrol
•
entertain employees by providing food, drink or recreation.
If you are likely to provide fringe benefits, you have to lodge a Fringe benefits tax
Application to register with the ATO – Form NAT 1055.
Page 41 of 128
FBT is separate from income tax and calculated using a separate rate. For
example, FBT is 46.5% of the taxable fringe benefit for a full FBT year. In 2009,
you would pay the tax after the end of the FBT year on 31 March.
When you have paid FBT to the ATO at the end of an FBT year, you must also
lodge a Fringe benefits tax (FBT) return – ATO form NAT 1067.
Example: Fringe Benefits Tax
Andy Beaurepaire runs a plumbing business called
‘Leakproof Australia’.
He employs two plumbers, Ryan Plugmore and his
apprentice River Leakey.
As the supervisor, Ryan drives the company van out to
customer calls. As Ryan is a trusted employee and
qualified plumbers are hard to keep, Andy allows Ryan to
drive the van on weekends for private use.
Andy’s accountant Cecil Peabody told him the ATO was not
happy with his last BAS statement and were going to audit his accounts.
Cecil advised Andy to show ‘due diligence’ and demonstrate the tax paid on
fringe benefits was not underpaid. Andy then went through his calculations with
some nervousness. His main concern was to calculate the value of the fringe
benefit for the company van that was taxable.
Andy had to consider a number of factors:
•
the van was bought less than three years ago for $50,000 (Cecil calls this
the ‘base value’)
•
it was driven more than 40,000 km over a full year
•
Ryan’s driver’s log showed he used the van for personal use on 104 days
•
Ryan paid nothing out of his own pocket to run the van.
Andy was able to get a formula from the ATO web page:
•
Fringe benefits tax for small business, Calculating the taxable value of a
car fringe benefit using the statutory formula method
He used the statutory formula with the following values:
(𝐴 × 𝐵 × 𝐶�𝐷 ) − 𝐸 = 𝑉
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Student Workbook
Values Description
Amount
A
Base value of the car
$50,000
B
Statutory percentage (determined by the total
kilometres travelled in an FBT year see below*)
C
Number of days in the FBT year when the car was
used or available for private use of employees
104
D
Number of days in the FBT year (ends March 31)
365
E
The employee contribution
V
Taxable value
7%
$0
$997.26
(50,000 × 0.07 × 104�365) − 0 = 997.26
Total kilometres travelled during the FBT year *
Statutory
percentage
Less than 15,000
26
15,000 to 24,999
20
25,000 to 40,000
11
Over 40,000
7
*‘Fringe benefits tax for small business’, ATO website,
Calculating the taxable value of a car fringe benefit using the statutory formula method
Andy worked out $997.26 was the value of the fringe benefit that could be
taxed.
According to the ATO, he has to pay 46.5% of the taxable fringe benefit as tax.
Notably $997.26 0.465 gave $463.73 that Andy had to pay.
Andy then completed and lodged an FBT Return with the ATO and sent a cheque
to the value of his FBT.
Page 43 of 128
Capital Gains Tax (CGT)
The tax you pay on any increase in the value of an asset above its original cost is
called Capital Gains Tax (CGT). Unlike FBT that is taxed separately, ‘net’ capital
gains are treated as a form of income. You add this to other business income
before calculating tax at either a marginal or a company rate.
To calculate your net capital gain, you:
•
add the increase in the value of your asset after a full year
•
subtract all capital losses including previous net capital losses
•
subtract any CGT discount (depreciation) and small business CGT
concessions.
If you sold an asset for more than what you paid – the cost base – you make a
capital gain. However, you make a capital loss if you earned less than the cost
base. When you have more capital losses than gains over a year, you get a net
capital loss. You can carry forward this net loss to later financial years and deduct
these from future capital gains. There are no time limits on how long you can carry
a net capital loss.
Special rules apply when you work out gains and losses from depreciating assets.
For example, the value of an asset may increase in line with inflation that is
known as indexation. Asset prices may shrink by a specific discount rate;
commonly you write off the value of office equipment after three years or 33.3%
each year. Elsewhere, the net capital gain is just the difference between the
capital proceeds and the cost base.
If you have a business asset of value you can depreciate, the ATO treats any
capital gain as income and capital losses as deductions however.
Example: Capital Gains Tax
Rosa Delizioso visits markets and swap meets in the hope
of finding unusual and hopefully cheap items. She then
sells these at her prestigious shop ‘Ephemera’ in Malvern,
Victoria.
On New Years Day 2008, Rosa took a quick trip to Sydney
and its Rocks Market. She spotted a rusty watch on a table next to a collection of
handmade gnomes.
After a little haggling, Rosa paid $1,000 to a seller who gave her the watch with a
receipt.
The seller thought he had made a fortune while getting rid of a useless watch.
At home, Rosa polished her latest purchase to reveal its golden brass. She can
now read the writing inscribed underneath. Earnshaw 1790.
After a little research, Rosa realised she had a rare chronometer, a clock used
to measure longitude at sea. Given the date, she also thought the explorer
Matthew Flinders owned it.
On Australia Day 2009, she sold the chronometer to a private buyer for
$51,000. Having kept the rare chronometer for over a year, she had to pay
capital gains tax.
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Student Workbook
Half (50%) of the value of a capital gain is taxable.
Rosa calculated this gain as the $51,000 she got from the sale less the $1,000
she paid.
Her capital gain was $50,000.
Fifty percent (50%) of this $50,000 is $25,000. This is the taxable amount.
She added this to her company income for the year and paid tax on the total.
Super contributions
Individuals who are employers have to pay a superannuation contribution to their
employee’s superannuation fund according to the Superannuation Guarantee
Administration Act 1992.
Usually this contribution equals 9% of the amount an employee earns from their
ordinary hours of work. Normally, you pay it every pay period, for example,
fortnightly.
You are an employer if you employ a full-time, part-time or casual worker using a
verbal or written employment contract.
In most circumstances, you pay super if your employees:
•
are between 18 and 70
•
are paid $450 (before tax) or more for a calendar month
•
work full-time, part-time or casually.
If you work for yourself, you do not have to pay into your own superannuation
fund. Most self-employed practitioners do however as they can deduct their super
contributions from their taxable income until the age of 75.
When you hire a contractors for their labour, you have to pay a superannuation
contribution into their super fund even if they even if they quote an ABN.
Employees may choose the super fund you pay into.
Once your employee starts their new job, they have 28 days to choose a super
fund and notify their selection using an ATO choice form – NAT 13080.
You then have two months to contact your employee’s super fund and enable
contributions to be paid.
As part of your obligations, you have to keep extensive records.
Your records must show:
•
the amount of super you pay each employee
•
how you calculate the level of super you pay
•
you offer a choice of super funds to your employees.
If you do not satisfy all your super obligations, you will be penalised. For example,
you would have to pay a super guarantee charge to the ATO.
Page 45 of 128
You pay this charge if you do not pay:
•
enough super contributions (at least 9%) for each eligible employee
•
super contributions by a cut-off (due) date for a payment
•
super to funds that were chosen by employees.
Example: Superannuation Contribution
Shane Finkle’s dog parlour ‘Doting Dogs’ was going so well.
As the demand was there, Shane decided to employ a fulltime receptionist Nanda Wok. Before doing this, he met with
Cecil Peabody his accountant to sort out what to do next.
At the meeting, Cecil told Shane under Commonwealth law as
an employer he had to pay 9% of Nanda’s ‘ordinary time
earnings’ into a superannuation fund of her choice.
Cecil explained ordinary time earnings included all over-award payments,
commissions, allowances and paid leave.
He said ‘Doting Dogs’ would pay into Nanda’s super fund every fortnight when
she got be paid. To do that, Shane would have to transmit Nanda’s details
including her Tax File Number as well as the paid amount.
Cecil suggested Shane work out her annual salary with all her benefits and then
scale it back to a fortnight.
Shane mentioned her total package was $40,000 a year or $769.23 a week.
Cecil said this was would be $1,538.46 income a fortnight.
Of this $1,538.46, 9% would go into Nanda’s superannuation fund CWISF –
Canine Workers Industry Super Fund.
Tapping his gold-plated calculator, Cecil worked out:
$1,538.46 x 0.09=$138.46
Cecil told Shane he would have to pay $138.46 as his Superannuation
Guarantee Contribution to Nanda’s fund every fortnight. As this was the price of
a couple of ‘poodle perms’, Shane said this was affordable and rang Nanda to
offer her the job.
State and territory taxes and charges
Besides federal or Commonwealth taxes, businesses also have to pay levies
imposed by state and territory governments such as duties and payroll tax.
Depending where you operate your business, the amounts you pay vary. Each
state and territory has its own income thresholds and tax rates used to calculate
the duties or taxes you pay. State and territory revenue offices and their web
pages have this information.
Stamp duty
Duties are state or territory taxes on transactions. A state or territory may call this
duty a stamp duty, transfer duty or a general duty. To calculate a duty, you
multiply the value of a transaction above the value of a tax-free threshold by a
stated percentage rate.
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Rates vary for each state and territory. State and territory revenue offices all have
web pages that list this information. In Victoria for example, the duty you pay on
buying insurance is 10% of the value of an insurance premium (or price). The duty
paid in Tasmania on the transfer of property is $6,550 plus $4 for every $100 for
a property worth more than $225,000.
Depending where your business is, you pay a duty when you:
•
register or transfer the ownership of a vehicle
•
pay a premium to buy insurance
•
sign a lease or takeout a mortgage
•
sign hire purchase agreement
•
transfer the ownership of a business, real estate or shares.
You do not pay duties on all transactions. Check with your state or territory
revenue office to confirm which apply to you.
Example: Motor Vehicle Duty (Victoria)
DeMayne Ramsbotham-Smyth recently retired from his
career as a profe ssional bungee jumper and decided he
needed a more stable profession.
Deciding to combine his love of Italian food with a new business, he identified a
gap in the market. He would sell pizzas but deliver them in a Rolls Royce to
customers in higher-income suburbs such as Toorak and Brighton in Victoria.
If the business worked, he would open franchise businesses in Sydney and
Hobart.
To start with, DeMayne considered buying a Rolls. To do this, he also had to pay
a duty to the state government – Victoria’s Motor Vehicle Duty in fact.
He went home and searched the internet on his Apple Mac.
He found he liked the Rolls-Royce Phantom – Drophead Coupe. It was a
convertible, had a 6.7litre V12 engine. As an automatic, he could drive while
holding a pizza box.
DeMayne considered $1,350,000 high for a Rolls but thought he could always
get a loan from his mum and dad.
After checking the Tax and Duty Rates web page of State Revenue Office
Victoria, he pulled out his deluxe solar calculator he bought for $2 and did his
sums.
The Rolls-Royce Phantom is:
•
new
•
has a market price over the $57,009 threshold
•
is a passenger vehicle.
According to the SROV website, for a new vehicle:
•
$5 is charged for every $200 of value (or 2.5%) of the first $57,009
•
$10 is charged for every $200 more than $57,009 or 5% of the excess.
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The total duty was the sum of two calculations:
$57,009 × 0.025 = $1,425.23
($1,350,000 × $57,009) × 0.05 = $64,649.55
This was $1,425.23 + $64,649.55 = $66,074.78 in duty to pay.
DeMayne then decided, maybe a Fiat 500 could do the job.
Payroll tax
Depending how much they spend in wages, employers have to forward payroll tax
to their state or territory revenue office.
If your total Australian wage bill is greater than a set tax-free threshold or
maximum deduction, you have to register and pay the tax.
Normally you send a pay roll return (a summary report) and pay the tax monthly.
Pay roll tax rates and minimum thresholds vary between the states and territories.
To confirm these details, you would contact your state or territory revenue office.
All offices display information on their own websites as well as advice on how to
register.
Example: Payroll Tax
Bruce Podbury is an electrician and proprietor of ‘Bright
Sparks Electrical Pty Ltd’.
Thanks to a government-funded project to build retirement
villages on top of shopping centres, Bruce and his ten
employees have been busy.
As his accountant Cecil Peabody prepared Bruce’s business
activity statement, he noticed Bruce now pays more than $550,000 a year in
salaries.
Cecil emailed Bruce saying that he had to register his business with the state
revenue office to pay payroll tax. This was because all his electrical work
happened in the same state and he had a wage bill of more than $550,000.
He explained the tax varied from state to state but normally it was a percentage
of a total wage bill above a certain threshold. For example, it was 4.95% above
a wage bill of $550,000 in Victoria while in Tasmania it was 6.1% above $1.01
million.
Cecil warned that once Bruce registered ‘Bright Sparks Electrical’, he would
have to lodge a return with the state revenue office and pay the tax every
month. He could do it online, however.
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At the end of the financial year, he would have to report all tax paid in an Annual
Reconciliation he would send to his state revenue office.
After calming down, Bruce did his sums:
•
he had a wage bill of $600,000 above the $550,000 threshold that is
also called a maximum deduction
•
monthly, his wage bill of $50,000 exceeded the $45,833 deduction he
found on the SRO web page (for example, Victoria’s)
•
all his ten electricians worked for a full year as employees
•
he had to pay 4.5% of his taxable monthly wage bill as payroll tax.
Using the calculator feature on his iPhone, Bruce performed the following:
He subtracted the monthly maximum deduction from his monthly wage bill:
•
$50,000–$45,833=$4,167
He then multiplied this difference by the payroll tax rate of 4.5%:
•
$4,1670.045=$187.52
Bruce then decided to register and pay his $187.52 payroll tax.
Learning activity: Calculate taxes and charges for UPM
For Ultra Performance Motors, calculate its taxes and charges.
Note: UPM employs 15 staff.
Tax or Charge
Calculate
Commonwealth (Australian Federal Government)
Goods and
Services Tax
(GST)
UPM buys 4 Volkswagen Passats at $50,000 each and sells
all of them at $60,000 each.
Super
Contribution
UPM employs a chief executive officer who is paid $100,000 a
year.
What is the GST Ultra Performance Motors pays to the ATO?
Calculate the quarterly Government Guarantee Super
contribution UPM must pay to the CEO’s superannuation fund.
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Pay As You Go
(PAYG)
withholding
UPM employs a chief executive officer who is paid $100,000 a
year. He gets no leave loading.
You have to calculate and report several amounts to the ATO
for the March Quarter (first three months).
Calculate the CEO’s PAYG withholding amount for the quarter.
Fringe Benefits
Tax (FBT)
Calculate the yearly value of the fringe benefit that is taxable
for the managing director’s company car.
•
car’s original or base value is $88,000
•
it was driven less than 15,000 km during the year
(hint: this sets a Statutory Percentage)
•
director’s log showed he used the car for private use
on 80 days.
•
director has paid nothing out of his own pocket to run
the company car.
Use the ATO’s statutory formula method.
Income Tax
(Company)
UPM sells 4 Volkswagen Passats at $60,000 each.
Capital Gains
Tax (CGT)
You buy an old MG convertible for $10,000 Despite needing
minor repairs you think it can sell because it is a ‘sports car’.
If UPM’s deductible costs are $200,000 for the year, what is
the company tax UPM has to pay?
After 13 months, it does sell to a motor enthusiast who pays
$32,000.
Calculate the value of capital gain that is taxable.
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State or Territory
Payroll Tax
UPM has a wage bill of $560,000.
All employees work a full year at UPM.
What is the annual payroll tax to be paid (assume a rate of
4.95%)?
Use the example from the presentation slide as a guide.
Duty (Stamp
Duty)
A new BMW 6 series convertible sells for $85,009 in Victoria.
What is the duty due?
How business enforces compliance
Compliance techniques
Among the other regulations your business has to satisfy are occupational health
and safety (OH&S) laws, regulations and codes of practice.
Broadly, you have to show a ‘duty of care’. In the Australian Capital Territory OHS
Act 1989, this means ‘an employer shall take all reasonably practicable steps to
protect the health, safety and welfare at work of the employer’s employees’.
A business that fails to comply with OHS regulations can receive fines or a
prohibition notice from a regulatory inspector that could shut down their operation.
In Australia, the states and territories administer OHS regulation. Depending
where you operate, you will communicate with a WorkCover, WorkSafe or
Workplace Health and Safety office.
You can use a number of techniques to make sure your business satisfies these
laws: see Table 8: Compliance techniques.
One of the benefits of knowing how to show your business complies with OHS is that
you can apply these techniques elsewhere. For example, manufacturers use routine
checking and monitoring of inspection reports to maintain quality control.
With respect to OHS in your workplace, you need to:
•
identify and satisfy the requirements of relevant OHS codes and laws
•
set up and maintain a system for managing OHS
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•
set up hazard management strategies; these assess and control risks that
come from workplace hazards, for example, you could distribute safe
operating procedures to your employees
•
keep OHS records as required by law
•
specify and explain OHS ‘duty of care’ responsibilities
•
register with your state or territory workers compensation office as
required.
Compliance techniques
Technique
Comment
1. Write a Health and
Safety Policy
The policy promotes cooperation between
employers about OHS at work.
It has reviewed procedures to check OHS policies
work.
Roles and responsibilities are specified.
2. Assign OHS
representatives
The number of representatives depends on the
size of your work force.
Representatives have powers under some OHS
acts to:
3. Identify codes of
practice
•
conduct inspections
•
accompany WorkCover inspectors
•
represent employees on OHS matters
•
investigate OHS complaints
•
access employer health and safety records.
Different codes govern safe practices for different
tasks and industries.
For example, manual handling and lifting,
labelling, operating industrial equipment, handling
biohazards, working with dangerous substances
and safety data reporting.
Requirements in a code of practice become items
to check in an OHS inspection report.
4. Maintain a safe amenity
(work environment)
Control noise, atmosphere and ventilation.
Ensure sufficient lighting, clean and safe surfaces
and prevent electrical accidents.
Make entry and exits accessible and signed.
Maintain first aid equipment and facilities.
5. Protect
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Install protective guardrails to prevent falls.
Provide protective clothing and head gear.
Student Workbook
6. Train
Train OHS representatives in OHS and first aid.
Train employees in OHS and emergency
procedures. Conduct evacuation simulations and
fire drills.
7. Monitor
Conduct inspections of OHS. Produce injury and
occurrence reports. Management evaluates
findings and respond.
Example: Occupational Health and Safety Compliance
Zeki Turkul at ‘Doting Dogs’ has not been well. Although her boss, Shane Finkle,
was delighted with the hundreds of canine customers she washed and blowwaved, Zeki herself was in pain.
Zeki went to her doctor Minnie Payne who examined her. Dr Payne worked out it
was her lifting of Irish Wolfhounds and Rottweilers that strained her back. When
Zeki showed bite marks on her arm, the doctor also told her to get a tetanus
booster. Zeki explained she got them when she brushed the teeth of
unneutered Pomeranians. The doctor demanded Zeki take time off work.
Later Zeki told Shane she wanted to take sick leave. He was then worried no
one was available to run the dog parlour. Having attended the WorkCover stand
at last year’s business expo, Shane thought there was a smarter solution to
what he saw as an occupational, health and safety problem.
Contacting the WorkCover Office, Shane got copies of two codes of practice: a
code for manual handling and another for health care workers. As these codes
listed good practices, Shane had a guide as to what was missing at ‘Doting
Dogs’.
Over the next week, he recorded the weights of his canine clients on an
inspection report. At the end of the week, Shane discussed his findings with
Zeki. He said work practices had to change. According to the health care code,
Zeki would have to wear thick rubber gloves when handling dogs. He said he
would put this requirement into a ‘Doting Dogs Employee Induction Guide’
The inspection report showed 20% of dogs were over the maximum weight for
safe lifting. Shane said this was unacceptable, however, he came up with an
innovative OHS solution. Rather than buy a small crane to lift larger dogs into
the hydro jet spa pool, he would install a raised wooden platform with a ramp.
Zeki would then lead a dog up the ramp and into the pool. There would be no
lifting.
Shane thought this was an elegant solution. It meant ‘Doting Dogs’ complied
with industry codes of practice and saved him money. He worked out he could
deduct the cost of the rubber gloves as a business expense. In addition, he
could depreciate a third of the cost of the platform and ramp as a capital loss
for this year.
Thinking like a business practitioner, Shane also calculated that if Zeki did not
take time off sick, his business could earn more and fund the platform in ten
days.
Shane said that in the end his OHS investment would put dollars in his pocket.
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Learning activity: Design a compliance manual
The director of Ultra Performance Motors commissions you as a
highly paid consultant to write an Occupational Health and Safety
Compliance Manual. You start with a table of contents.
•
Advise the director as to what should go into it.
•
Explain why it should be included.
Heading
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Comment
Student Workbook
How a business controls risk
Common risks governing small business
OHS regulations put responsibilities on businesses to reduce the risk of harm in a
workplace. Risk is the likelihood of a hazard causing harm. Hazards include any
thing or action in a workplace that could harm people; see the table on the
following page.
These could be objects such as equipment or chemicals.
How people do tasks can also be a hazard. For example, repeated manual lifting,
creating noise and tiredness are hazardous.
As a business proprietor, one of your roles is to be a risk manager.
Risks and hazards that threaten small business
Hazard
•
confined spaces
•
electricity
•
excessive heat and cold
•
explosive and corrosive substances: for example, petrol
•
heavy lifting
•
lack of protective clothing and gear, for example, for noise or radiation
•
no first aid or emergency training
•
no OHS manuals
•
no OHS officer
•
no OHS training
•
no operator guides or procedure manuals
•
no protective equipment, for example, scaffolding
•
no safety data reported or monitored
•
noise
•
poisons and biohazards, for example, asbestos or contaminated food
•
poor emergency signage
•
poor lighting
•
poor ventilation
•
repeated manual tasks
•
tired staff
•
unsanitary amenities (toilets)
•
untrained staff
•
wet surfaces and floors.
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How to manage risk – an overview
When businesses do not manage hazards, the risk of harm is high. As risk
increases however, so does the likelihood of paying out costs and penalties
related to injury.
To protect yourself and your business, you need to perform ‘risk management’:
see below.
Overview of risk management
1. Identify Hazards
2. Assess Risks
3. Eliminate and Control Risks
Successful risk management requires you to identify hazards, assess risks as well
as eliminate and control risks.
To identify a hazard, you need to ask is there anything or action that could cause
harm. For example, if your employee used caustic soda (sodium hydroxide) to
clean diesel oil from a car showroom floor, the hazard is a chemical. It could react
with moisture to damage the eyes of staff. Caustic soda also produces hydrogen
that could explode in unventilated spaces. You would report this.
Next, you need to assess the reported information and decide how likely it is that
a hazard will harm. You would balance the gains from performing a task with the
risk of harm. For example, you need to work out how many people could get hurt
and whether the layout of the workplace is dangerous.
Finally, having assessed the risk of danger and injury, you need to respond. You
would act to eliminate and control risk. For example, you might confine cleaning to
outside business hours and make sure cleaning staff wear protective clothing and
goggles.
In addition, you might open the showroom’s doors and windows during the
cleaning. You might specify in an OHS Management Policy that cleaners have to
use naturally based detergents that cannot corrode.
Before you can give it to employees though, you have to write the policy.
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Strategies to control risk: OHS
Before you write an Occupational Health and Safety Management Policy, you need
strategies to describe.
You might describe these as six steps. See the figure below.
Steps to create an OHS management system
Step 1: Identify those responsible
for health and safety
Step 2: Plan to work safely
Step 3: Involve employees
Step 4: Develop procedures
Step 5: Train staff in procedures
Step 6: Monitor, review and improve
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Steps to create an OHS Management System
Strategy
Step 1
Description
Identify those
responsible for
health and safety
Specify OHS requirements and responsibilities
of managers, supervisors and employees. Also
OHS officers if they exist.
List required procedures and personal
protective equipment (PPE).
Explain how to report safety problems, incidents
and injuries.
Step 2
Plan to work safely
Build OHS into your business practices.
Make OHS a requirement when directing
business activity. For example when:
• buying products free of specific
chemicals
• buying ergonomic tables and
workbenches
• changing lifting procedures using pulleys
• informing casual and contract workers
of OHS procedures
• recording and reporting hazards
• monitoring, fixing and preventing
incidents
• prepare for emergencies.
Step 3
Involve employees
Consult with employees when developing OHS
policy. As they perform work tasks, they can tell
you about specific hazards.
They can suggest safe work procedures.
Step 4
Develop procedures
Write action plans to specify:
• what to do
• in what order
• who will do it
• when.
Step 5
Train staff in
procedures
Specify OHS procedures taught to managers,
supervisors and employees.
State what has to happen to start training: for
example, when to provide training and
manuals.
Demand contractors get a safe work induction
before starting work.
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Strategy
Step 6
Description
Monitor, review and
improve
Evaluate the OHS Risk Management process.
Confirm it does reduce the risk of harm or
damage.
Make sure everyone applies procedures
properly.
Execute risk assessments.
Confirm:
• if a risk still exists
• if someone else was harmed from a risk
that was fixed
• whether there should be a change to the
work environment.
Learning activity: Nover’s OHS demonstration
Watch the video ‘BSBCMN311A: Demonstrating’ on IBSA’s YouTube channel at
What specific OH&S information is the instructor explaining and demonstrating
to the three employees?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
What is the importance of having this kind of on the job demonstration?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Page 59 of 128
Learning activity: Identify and control risks for OHS
1. Read the following scenario and identify the risk.
Scenario: An employee at Ultra Motors has used caustic soda
(sodium hydroxide) to clean diesel oil from a car showroom floor.
Caustic soda is a chemical that can react with moisture to damage
the eyes. Caustic soda also produces hydrogen that could explode in
unventilated spaces.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
2. As a manager at Ultra Motors, what are two of your main responsibilities in
this case?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
3. List strategies to control risk related to Occupational Health and Safety. Give
examples appropriate for Ultra Performance Motors generally as well as
considering the risk management required for the above scenario.
Strategy
Example
Step 1
Step 2
Step 3
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Strategy
Example
Step 4
Step 5
Step 6
Compliance – legal documents
Keeping good records is a legal requirement. The demands on your business will
inevitably increase in relation to the necessary compliance of your business with a
range of legislation, codes and regulatory requirements. You will become aware of
the need to establish a system for carefully maintaining and managing these.
Records may include matters pertaining to environmental planning, financial,
OHS, personnel and taxation. The legal documents required for compliance are
many and may range from appropriate software for financial records, certificate of
incorporation, constitution documents, franchise agreements and financial
documentation, partnership agreements to statutory books for companies.
It is important that you devise systems and procedures to maintain and update
relevant records to ensure their ongoing security and accessibility. In order to do
this you will need to adhere to the different record keeping, reporting and auditing
requirements of the various regulatory bodies that you will be dealing with. In
relation to taxation, you can access some important information relating to this
through the following document.
•
‘Record Keeping for Small Business’, Australian Taxation Office, viewed
June 2010, <http://www.ato.gov.au/content/downloads/
bus76494nat3029.pdf>.
There are benefits in keeping and maintaining records. The accounting process reliant on record keeping, takes financial transaction data and produces financial
reports that assist stakeholders in making informed decisions about the entity’s
financial performance and position. There are also considerable penalties for not
keeping records, for example, for not keeping business records for the required
five years. You will need to work out what system works best for you and your
business needs. You can record information electronically or manually.
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Electronic spreadsheet software has become a key tool used in the analysis of
financial data. One popular form of this software is Microsoft Excel which apart
from providing summations, additions, subtraction and percentage calculations
also has inbuilt financial functions as well. Electronic spreadsheets also allow for
easy creation of graphical displays that can convey a message to an audience in a
far more effective way than the rows and rows of numbers.
Even if you opt for electronic record management you will still collect paperwork
and you will need to establish a good manual filing system that is understandable
for you and others who need to access it. You may decide to consult with a
bookkeeper to help you manage your records initially.
Company records compliance
Meeting the records requirements of the corporations law is an important
consideration when advising clients of their obligations. Directors are made
personally responsible for keeping proper company records. These could be
grouped into financial records and company housekeeping records. Up-to-date
financial records must be kept so that they can:
•
correctly record and explain its financial transactions
•
explain the company’s financial position and performance.
All companies must have financial records so that:
•
the true and fair financial statements of the company can be prepared
if needed
•
financial statements can be conveniently and properly audited if necessary
•
the company can obey the tax laws.
A company would also normally prepare the following statements regularly:
•
Statement of Financial Performance — a statement showing the company’s
revenue and expenses and the profit or loss that results from these items
•
Statement of Financial Position — a statement showing the things of value
the company owns and the debts the company owes, and
•
Statement of Cash Flows — a statement summarising cash inflows and
outflows.
Financial records may be kept electronically, provided they are capable of being
converted into hard copy to anyone entitled to inspect them.
Note: ‘Small proprietary company’ (as defined in the Corporations Act) will
generally not have to prepare formal financial reports under that Act each year
and lodge them with ASIC. However, large proprietary companies, public
companies and non-profit public companies must prepare financial reports, have
them audited and lodge them with ASIC.
Security
Previously when considering risk management issues you have considered
security in terms of the staff or the premises of UPM, however security also needs
to be considered in relation to legal documents. In the event of fire or theft an
electronic record keeping system is a better option as back-ups of all files and
programs may be safely stored.
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It is important to identify a safe location, externally to your business and also to
develop a system and timeframe to regularly update the files and programs.
General information regarding security may be found on the Australia Taxation
Office website. The section below provides necessary information relating to
keeping electronic records secure:
You must be able to show the records kept on your computer system are secure
and accurate. This includes having:
•
control over access to your computer; for example, through the use of
passwords
•
control over incoming and outgoing information
•
control over processing of information
•
back-up copies of computer files and programs and the ability to recover
records if your computer system fails.
Learn more: Compliant records for UPM
As the director of Ultra Performance Motors you are now confident
that you are compliant with all the required legislation, codes and
regulatory requirements required to run your business. For
example, you now have an Occupational Health and Safety
Compliance Manual and all the associated paperwork. Also, you will have
collected a range of forms relating to finance including tax obligations as well as
company registration, insurance, a lease agreement, and a range of contracts.
However, due to the large amount of paperwork you have gathered you notice
that documents are becoming increasingly difficult to find and also you worry
that in the event of an audit, or for recurring reporting requirements you might
not be able to quickly access legal documents. You are also aware that in the
event of fire or theft important documents might be completely damaged. You
are experiencing considerable anxiety and you are wondering how you are going
to cope when the business does really well and you know it will get busier and
you will have less ‘down time’ to attend to maintaining and updating records.
Identify some steps that you will undertake to ensure the ongoing security and
accessibility of these important legal documents. Use the Record Keeping for
Small Business document at the following link as a general guide:
Source: ‘Australian Taxation Office’, Australian Government , viewed June 2010,
<http://www.ato.gov.au/content/downloads/bus76494nat3029.pdf>.
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Learning activity: Multiple choice quiz
Tick the correct answers.
Question 1: A company is a registered:
a. business operated by one person
b. business operated by two people
c. organisation with a trustee and unit holders
d. business with a director and shareholders.
Question 2: The Corporations Act specifies:
a. business registration and reporting requirements
b. occupational health and safety obligations
c. minimum employment conditions
d. taxes a business pays.
Question 3: A GST is 10% of:
a. the income of a company less its deductions
b. the selling price of a good or service
c. a capital gain
d. the value of a fringe benefit.
Question 4: (There are two correct answers)
According to law, a business can obtain trading premises by:
a. entering into a verbal arrangement with a friend or relative
b. signing a lease with a real estate agent
c. signing a rental agreement with a real estate agent
d. a barter agreement.
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Question 5: If an injured person who is NOT a customer or an employee sues
my business, what insurance cover pays out my costs?
a. Product liability insurance
b. Professional indemnity insurance
c.
WorkCover
d. Public liability insurance.
Question 6: If you were responsible for lowering accidents in your business
which of the following strategies would be incorrect?
a. Appoint a staff member to be responsible for health and
safety
b. Draft plans to work safely and ignore employees
c. Write safety procedures and train staff in these procedures
d. Monitor, review and improve these procedures.
Question 7: (There are three correct answers)
If you want legal advice for your business, you should contact
a. accountants
b. Commonwealth, State or Territory business departments
c. Mates
d. Solicitors.
Section summary
You should now understand how to make a business comply with the requirements
of legislation, codes and regulations.
Further reading
•
‘Business’, Australian Taxation Office, viewed June 2010,
<http://www.ato.gov.au/businesses/>
•
‘Motor Vehicle Duty Calculator’, State Revenue Office Victoria, Victorian
<http://www.sro.vic.gov.au/sro/SROWebSite.nsf/taxes_duties_motorvehi
cle.htm>
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•
‘Risk Management’, WorkCover Authority of New South Wales, NeW South
Wales Government, viewed June 2010,
<http://www.workcover.nsw.gov.au/Documents/Publications/OHS/Risk%
20Management/risk_management_at_work_guide_0425.pdf>
•
Below is a list of websites where you can research the requirements of
OHS legislation as it applies in your state. When faced with trying to come
up with a hazard control measure that will work in the situation as it exists
at your worksite it can be very beneficial to visit the sites of other states as
there are many tools and ideas that will assist enormously.
o Australasian Legal Information Institute, viewed June 2010,
<www.austlii.edu.au/>
o Safe Work Australia, viewed June 2010,
<http://safeworkaustralia.gov.au/>
o Comcare, Australian Government, viewed June 2010,
<http://www.comcare.gov.au/>
o ‘Workplace Health and Safety Queensland’, Queensland
<http://www.deir.qld.gov.au/workplace/>
o ‘NT Worksafe’, Northern Territory of Australia, viewed June
2010, <http://www.worksafe.nt.gov.au/>
o ‘SafeWork SA’, Government of South Australia, viewed June
2010, <http://www.safework.sa.gov.au/>
o ‘WorkSafe Victoria’, Victorian Government, viewed June 2010,
<http://www.worksafe.vic.gov.au/wps/wcm/connect/wsinterne
t/WorkSafe/Home/>
o ‘WorkCover SA’, Government of South Australia, viewed June
2010, <http://www.workcover.com>
o ‘Workplace Standards Tasmania’, Government of Tasmania,
viewed June 2010, <http://www.wst.tas.gov.au/>.
Section checklist
Before you proceed to the next section, make sure you are able to:
 explain why a business complies with laws and regulations
 identify laws and regulations that govern a business
 identify tax obligations of business
 explain how a business enforces compliance
 describe how a business controls risk.
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Section 3 – Contracts and How to Negotiate Them
Section 3 – Contracts and How to
Negotiate Them
This section explains how to negotiate and arrange contracts to operate a business.
Scenario: Secure a place to operate a business
Having incorporated Ultra Performance Motors Pty Ltd.,
you and your board of directors need a showroom with an
attached garage and office.
The board prefers to invest the company’s spare cash
into buying Bugatti Veyron Grand Sport vehicles for later
resale to the public. Buying a property is therefore not an
option.
As the general manager, you have to arrange the tenancy of a commercial
premise with a real estate agent.
UPM’s business plan states that the business will trade from a showroom for at
least five years.
To secure this tenancy, you have to enter into a contract using an agreement.
You are not sure which. The following section will assist you to:
•
identify which contract will apply to this scenario
•
evaluate the agreement required for the tenancy of a commercial
premise
•
understand how to negotiate and complete an application to lease the
car showroom.
To work effectively with contracts in a business, you must be able to:
 employ time management skills to prioritise tasks and to meet key dates.
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Contracts and business
Why a business makes contracts
When you run your business, you will be selling and buying goods and services as
well as formalising business relationships. For most transactions, you will write an
agreement between yourself and another individual or company. This will be a
contract between two parties.
Civil law enforces contracts. This means there are consequences for breaking or
breaching a contract where both parties do not agree to end a contract. If you
break a contract, the other party (or signatory) could sue you for damages or other
compensation.
When you sell a good to a customer, you will provide a contract such as a ‘bill of
sale’ that lists what you deliver. It also states the rights of the customer. When you
are the customer and you buy a good or a service, you will have a contract such as
a ‘contract of supply’. This sets outs what you pay for. It also lists your rights as a
purchaser. For example, a power company normally agrees to provide electricity
and compensate you if a power outage results in you having to shut down your
business.
Before you sign a contract, you need to understand what the document actually
contains. A contract can be binding for many years and you could pay a penalty if
you breach its conditions (known as provisions). To protect your rights, it pays to
know what to look for. For example, you need to identify the duties or obligations
of all signatories. You must find out what rights will be exchanged. For example, a
sale is a transfer of a property right from one individual to another. A lease is a
temporary transfer of a right to use and exclude. Copyright, is the right to copy a
created work. Before making an agreement, you might consider obtain legal
advice.
In all cases, you would not rush into making an agreement or signing a contract.
You would do your own ‘due diligence’. Notably, you check each provision to make
sure you understand what it says and how it affects your rights. You also only sign
a contract if you do so freely. This is because courts will invalidate contracts
where one party coerces another into signing a contract. Lawyers refer to these
individuals as being under ‘duress’.
Common contracts
As you operate your business, many transactions you perform will require some
form of contract. The following table lists those most businesses use.
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Contracts and agreements made by businesses
Contract or
agreement
Right to
acquire
Comment
Bill of Sale
or Contract
of Sale
Property
right
This document states a seller sells a specific item
of personal or real property they own to a buyer.
Normally it specifies a date, locality and a ‘value
received’.
This document provides evidence that a title to
personal property was transferred from a vendor
(seller) to a buyer (vendee).
Employment
or
Workplace
Agreement
Labour
It is an agreement between an employer and an
employee that specifies rights and obligations of
each party as well as conditions of employment.
Commercial
Lease or
Tenancy
Agreement
Tenancy of
premises
A lease or tenancy agreement is a contract
between a tenant and a property owner or real
estate agent. It states the amount of rent a tenant
pays, the method of payment and how long a
property will be rented. A lease also specifies the
value of a bond and other conditions and rules.
A lease or tenancy agreement can be a:
Copyright
Contract
Copyright
•
Fixed Term agreement for a period
•
Periodic agreement that is set weekly or
monthly.
Copyright includes the right to copy, publish,
communicate (for example to broadcast or publish
online) and perform publicly copyright material.
It includes designs, words, images and music.
It is aimed at preventing unauthorised
reproduction of the original form in which an idea
or information has been expressed by its creator.
Licensing
Agreement
Right to sell This agreement documents that one individual or
or produce company permits another to sell or produce a
product or service that it owns. A licensor grants a
license to a licensee in return for a fee or royalty
payment.
Franchise
Agreement
Business
Sets out obligations and liabilities of a franchisor
relationship and franchisee and a fee paid to the franchisor.
Dealership
Agreement
Right to
resell
goods
Sets out obligations and liabilities of a seller and
dealer (reseller) and payment amounts to the
seller.
Page 69 of 128
Contract or
agreement
Right to
acquire
Partnership
Agreement
Business
Sets out obligations and liabilities of partners.
relationship
Assignment
of
Trademark
Agreement
Trademark
use
Comment
This records that an individual or an Australian
registered company assigns their trademark to
another.
The aim is for the individual or company receiving
the use of the trademark to benefit from the
goodwill associated with the assigning individual or
company.
Learning activity: Identify contracts for UPM’s motor show
Read the following case study and identify and list
contracts required for UPM’s motor show. At least six
contracts will be required. Use the above table
‘Contracts and agreements made by businesses’ to
identify the required contracts.
After reading the local car magazine, Top Steer, William ‘Billy’ McLaren becomes
worried. He reads the demand for performance sports cars has shrunk a bit.
Given he is the marketing director for Ultra Performance Motors it is up to him
to drum up new business. He has a brain wave. UPM will combine the joy of
sports cars with low carbon polluting motoring. After an intense search on
Google, Billy discovers a model he thinks UPM could sell—the Tesla Roadster.
This sports convertible is light with a carbon fibre body and is fully electric. Billy
expects the Tesla will appeal to buyers who like things ‘green’ and fast.
At the next directors’ meeting Billy announces that UPM should become the
local dealer for Tesla Motors. As part of next year’s marketing strategy, he
suggests UPM launch the Tesla Roadster at the motor show. The managing
director, Snidely Grinblatt, thinks the idea is brilliant but there is a time
constraint. He says he is about to take a cruise along the coast of Kamchatka
and asks if there will there be any contracts he has to sign before he leaves.
Billy explains if UPM is to be an exclusive dealer of Tesla vehicles, it has to
create a dealership relationship with Tesla. He mentions he needs to book a
booth at the convention centre as well as rent tables and chairs.
For the show, Billy says he would like to hire promotional models rather than
use staff so the patrons will not be scared off. At the booth, the models will
distribute show bags containing Tesla tee shirts and brochures. To make the
vehicle appeal to local patrons, Billy says the brochures should show a Roadster
parked in front of Uluru.
Snidely assesses the situation as he works out which contracts he needs. He
announces his conclusions. At least seven contracts will need to be prepared.
Billy rings his local solicitor, Wally McBeal, and tells him has some work for him.
Wally says he could do with the work but first Billy needs to sign a service
agreement!
Page 70 of 128
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Learning activity: Identify contracts for UPM’s motor show
What are the required contracts?
1. ________________________________________________________________
__________________________________________________________________
__________________________________________________________________
2. ________________________________________________________________
__________________________________________________________________
__________________________________________________________________
3. ________________________________________________________________
__________________________________________________________________
__________________________________________________________________
4. ________________________________________________________________
__________________________________________________________________
__________________________________________________________________
5. ________________________________________________________________
__________________________________________________________________
__________________________________________________________________
6. ________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Sources of legal advice
Depending what you want your contract to deliver, you might pay for the services
of a lawyer or an accountant to write up a contract. Most lawyers specialise so
some may draft a contract of sale while others could draft an employment
agreement. Accountants can also help prepare standard tax documents.
Free advice does exist however. Government, industry and trade organisations
provide information in publications and on their websites with no charge to the
public.
The following table lists advice sources that may be useful to you.
Page 71 of 128
Contract advice sources
Sources
Specialisation
Accountants
Business
contracts, tax
documents
•
Certified Practising Accuntants Australia, accessed 3/6/10,
<http://www.cpaaustralia.com.au>
•
Institute of Chartered Accountants in Australia, accessed
3/6/10, <http://www.charteredaccountants.com.au>
•
Australian Competition and Consumer Commission,
Australian Government, accessed 3/6/10,
<http://www.accc.gov.au/content/index.phtml/
itemId/142>.
For advice to ensure contracts comply with competition, fair trading
and consumer protection laws.
Good trade
practices
Copyright
•
Australian Copyright Council, accessed 3/6/10,
<http://www.copyright.org.au/>
•
Fair Work Australia, Australian Government, accessed
3/6/10, <http://www.fwa.gov.au/>.
Employment
•
Business Licence Information Service, accessed 3/6/10,
<http://www.bli.net.au/>.
Licensing
Conveyancers, for real estate contracts of sale.
•
Australian Institute of Conveyancers, accessed 3/6/10,
<http://www.aicnational.com.au/index.htm>.
Lawyers:
Contracts
•
business and commercial law
•
employment and industrial
•
Lawyers. Com.au, accessed 3/6/10,
<http://www.lawyers.com.au/>.
•
‘Small Business’, AusIndustry, Australian Government,
accessed 3/6/10,
<http://www.ausindustry.gov.au/SmallBusiness/Pages/
home.aspx>.
Page 72 of 128
Property
acquisition
Contractual
obligations
Student Workbook
What you look for in a contract: rights to protect, liabilities and responsibilities
Although contracts can be complicated, a simple method to understand them is to
use a STOPS strategy. Identify the:
S
Scope of the requirement
T
Type of good or services provided
O
Other documents
P
Payments
S
Signatures
What to look for in a contract
Scope of the requirement
•
What are the supplier’s duties and obligations?
•
What are the liabilities of the supplier when supply fails?
•
What are the responsibilities of the client?
•
What are the client’s rights? For example, are there:
o cooling-off periods
o refunds
o warranties.
•
Detect specific requirements, for example a method of delivery.
•
Note exemptions and exclusions.
Type of good or services provided
•
Identify - what is to be provided?
•
How much is to be provided?
•
When – what delivery dates and what happens if a delivery is late?
0ther documents
•
Contract documents that are referred: these are documents parties are
assumed to have read before signing a contract (parties must read
these).
Page 73 of 128
Payments
•
How much?
•
When?
•
Methods of payment.
•
Extraordinary payments – partial payments for partial delivery, bonus
payments for early delivery; penalties for late delivery and refunds.
Signatures
•
Who (which parties) signs for the contract to be legal?
In reading commercial contracts, you may come across terms that reappear
frequently. Especially in sales contracts, you might come across the following
terms.
Common legal terms and principles
Term
Description
Cooling-off period
A period during which a buyer can cancel a sales contract.
If a buyer decides not to go ahead with the sale, they
return a good to a seller and get their deposit back.
Exclusions
A term that tries to exempt, limit or exclude the liability of
a party for a breach of contract or negligence. Exclusions
limit responsibility.
Liability
An obligation belonging to an individual or business that
results from past transactions. Settling a liability results in
the transfer or use of assets, provision of services or
paying an economic benefit in the future; for example,
paying interest on loans from investors.
Party
An individual who directly enters into an agreement or
contract.
Contracts have a first party and a second party.
Third parties are not part of an agreement or contract.
They may benefit from a contract signed by the other two
parties however.
Refund
Consumers are entitled to a refund, exchange or repair
from the place of purchase if goods are faulty. The refund
refers to a return of the amount a buyer pays for a good or
service.
Signatory
An individual who signs a contract or agreement. A
signatory can sign as an individual or for an organisation.
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Sunset clause
A provision or condition that sets a date after which an
agreement is no longer in effect. For example, a seller may
state when a buyer no longer receives an after-sales
service.
Warranty
An obligation or guarantee that a good or service sold to a
buyer is described factually by a seller.
As part of a warranty, the seller will repair or replace the
good or service if it falls short of the warranty.
All goods and services have a statutory warranty
determined by state and territory laws.
In addition, manufacturers often provide a manufacturer’s
warranty with their goods. Sometimes this warranty is
called an express warranty.
Learning activity: Identify contracts and rights
Identify contracts needed and principle rights to acquire for
different business requirements for your own business. You may
refer to your actual business or, if you don’t have one, use the
sample business that you have identified in previous sections.
Requirement
Contract or Agreement
Photos for a sales brochure
Sell a product to a client
Purchase products to sell
Page 75 of 128
Premises (a place to trade)
Employ staff
How a business gets insurance cover
Why a business needs insurance
Although you can do many things to reduce the risk of harm or damage that
threatens your livelihood, you cannot eliminate all risk.
Unfortunately, some circumstances are simply not in your control. For example, if
you ran a retail shop on a main shopping strip - the sewerage main under the road
could block and flood your premises. More likely, a storm could cut all power
leaving your workplace in the dark.
To protect themselves from rare but possible catastrophes, individuals pay a fee
called a premium to buy insurance cover. If a damaging event does happen to the
owner of the cover, called the insured, an insurance company pays out an amount
to the value of the cover. Recently, cruise ship companies have received
insurance payouts to cover losses due to piracy off East Africa. Regrettably, as the
problem gets worse, they will soon have to pay higher premiums.
Insurance companies offer many types of cover they call insurance products.
Broadly, these are labelled personal insurance, general insurance or credit
insurance.
Personal insurance relates to insuring against events that harm you as a person.
For example, insuring against death (Life Insurance), accident (Trauma),
sustained disablement (Total and Permanent Disability) and lost income (Income
Protection).
Credit insurance covers you if you cannot pay your mortgage, loan or credit card.
For small business, general insurance is relevant. The most important insurance
products in this category include:
•
property insurance
•
professional liability insurance
•
business interruption insurance.
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The following table summarises insurance you might buy to protect your business.
Insurance products and types of cover
Property Insurance
Provides compensation for lost or damaged property
belonging to your business
Building and
contents
This covers losses or damage to a building, contents and
stock due to various insured events. These include a fire,
earthquakes, lightning, storms, impacts, malicious
damage and explosions.
Burglary
Covers losses from stolen business assets. Business
owners who leave their workplaces unattended find this
useful.
Fidelity guarantee
This covers losses from employees who embezzle or steal
from their employer.
Motor vehicle
All businesses have to insure to cover losses or damages
by business vehicles to members of the public who are
not employees or customers. Called third party injury
liability insurance, insurers provide four types:
1. Compulsory third party (injury)
Covers your costs if you have to pay claims for
personal injuries and legal costs due to harm or
damage caused by your vehicle. You must buy this
when you register your vehicle.
2. Third party property damage
Covers the costs you pay for damage to another
person or to the property of others. It covers your
legal costs but excludes repairs to your vehicle if
you caused an accident.
3. Third party, fire and theft
Covers the costs you pay to third parties for harm
or damage to their property. It also covers the
costs of repairing or replacing a vehicle after a fire
or its theft.
4. Comprehensive
Covers costs paid for all the previous events plus
others. This includes the cost of repairing your own
vehicle due to damage you caused in an accident.
Finance companies insist you take this cover if you
borrowed from them to buy your vehicle.
Page 77 of 128
Revenue Protection
Provides compensation for lost or damaged revenue
earning capacity
Machinery
breakdown
This covers losses from your mechanical or electrical
plant or machinery not working.
Business
interruption
This covers losses from your business being unable to
trade because of property damage. The damage could be
due to a fire or other insured events. This insurance
ensures you have an emergency cash flow to pay your
bills and keep your business going.
Liability Insurance
Provides a payout to you if you compensate others for
harm or damages your business may cause
Public Liability
This insurance covers costs you pay to a third party for a
death or injury, loss or damage of property or an
economic loss caused by your negligence.
Professional
Indemnity
Professional indemnity covers compensation and legal
costs to clients who lost either financially or physically
because of your negligent advice.
Product Liability
This pays out costs to another business or individual due
to a damage or injury caused by a product you sell or a
failure of this product.
Workers
Compensation
Provides a payout to employees for a work related injury
or disease your business may cause
WorkCover
According to state and territory laws, you must provide
workplace accident and sickness insurance to cover your
employees. Called workers compensation, government
insurers such as WorkCover provides this insurance.
Learning activity: Insuring The Cavalry
Watch the video ‘BSBSMB401A: Insuring The Cavalry’ on IBSA’s YouTube
channel at <http://www.youtube.com/ibsachannel>.
Eamon Mackie from Allianz talks to the owners of The Cavalry, a small IT
business, about the importance of business insurance coverage.
Why does Eamon Mackie recommend obtaining business insurance cover?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
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List and briefly describe the four types of insurance recommended to The
Cavalry.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Enter the appropriate insurance cover for each of the following scenarios.
Scenario
Insurance type
The Cavalry has implemented a brand
new IT system for a client but after a
month the client reports that the system
keeps crashing, causing their business a
large amount of downtime.
Due to flash floods The Cavalry have to
spend money on temporary relocation to
another office whilst their building is
fixed.
One of the employees at The Cavalry has
developed a repetitive strain injury from
computer work and needs to take sick
leave.
The Cavalry has provided technical advice
to a client regarding the type of software
to install but the software turns out to be
incompatible with the business’ existing
IT system, and they will now need to
install a different version.
Page 79 of 128
How you get insurance
A business getting insurance cover broadly follows the same process. (See the
figure on the following page.)
Going on quote to get and evaluate insurance
How you get insurance – the process
(1) Identify risks of harm or damage
1. Identify risks of harm or damage
Depending on your business activity
and its location, you would have to
figure out what potentially could harm
or damage your business. The risks
you face may apply to all businesses.
For example, employees face
workplace risks that relate to a work
environment, equipment or processes.
Some risks relate to what you sell. For
example, if you deliver advice to clients
as either a dietician or a financial
adviser, clients could sue you if your
advice was negligent. Notably, it was
wrong and led to them losing their
health or finances.
Other risks could relate to your
location. For example, your workplace
could be in a town that is prone to
bushfires or floods. Industry
organisations are a good source of
advice as to what risks you might
experience as you conduct your
business.
(2) List required insurance cover
(3) Source insurance products
(4) Compare insurance products
(5) Choose insurance products
(6) Submit an insurance application
(7) Receive a (temporary) ‘Cover Note’
(8) Receive insurance cover
(9) Pay a premium
(10) Receive a ‘Certificate of Currency’
2. List required insurance cover
After working out which risks threaten your business, the risks suggest the
insurance cover you need. Some insurance will be compulsory. This includes
WorkCover, public liability insurance and motor vehicle insurance for your
commercial vehicles.
The law may not require other insurance, but your client might demand it. For
example, if you supply goods to a retailer, you may have to take out professional
indemnity insurance. This pays the costs of your client if one of their customers
claims costs for damages or losses caused by the goods you supplied.
Finally, personal factors and confidence may govern which insurance cover you
buy. For example, if you have family responsibilities, you might decide you cannot
risk your business not earning and take out business interruption insurance. If
your warehouse is not made of combustible materials, you might exempt fire as
an insurance event from your building and contents insurance.
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3. Source insurance products
Once you know what insurance cover you need, next you have to find out what
cover insurances companies provide. Some insurers are specialised and may sell
only one type of insurance such as travel or maritime insurance. Other companies
such as AMP, Allianz or CGU offer broad insurance as well as other financial
services.
Normally you would get a Product Disclosure Statement (PDS) that describes the
cover an insurer offers. This will be the insurance product or policy. Many insurers
have websites that have PDS documents you can download and print. If you want
further information about a PDS (e.g. whether different insurance cover can be
bundled together with a discount), you would talk to an insurance agent. This
agent represents a specific insurance company.
Business operators with little time but more cash may decide to delegate the task
of sourcing insurance to someone else. Many will pay a commission to an
insurance broker to research and evaluate any insurance products that best
satisfy the needs of the business operator.
Note: There is a difference between the insurance agent and an insurance broker. An insurance
agent represents an insurance company while an insurance broker is effectively your employee
and represents your interest.
4. Compare insurance products
After going ‘on quote’, you would assess at least three insurance products. You
would compare the following features for each insurance policy.
Evaluating insurance products – What to look for in a policy
•
Cost of insurance premiums.
•
No-claim bonuses.
•
Discounts, if available.
•
What is covered.
•
What is not covered (exclusions).
•
Are terms and definitions comprehended?
•
Is the cover too low - leaving you underinsured and exposed to risks?
•
Will you be paid only for a proportion of a total loss?
•
When protection starts: Immediately or after a set period?
•
Conditions of insurance: Are there specific exclusions such as ‘acts of God’?
•
Claims procedure: How to get paid.
•
Terms of replacement: Any limits on the amount an insurer will pay to
replace an item.
•
Renewal conditions: How the premium and the value of cover change
over time, e.g. do your assets depreciate or are they indexed according to
inflation (or increase with the Consumer Price Index)?
•
Reputation: Ensure insurer has a good track record and history.
•
Customer responsiveness: Does an insurance agent discuss your
insurance needs with you without coercing you with a ‘hard sell’?
Page 81 of 128
5. Choose insurance products
After assessing which insurance product or products gives you the most cover for
the premium you are willing to pay, you select the insurance you want to buy.
6. Submit an insurance application
Next, you fill out an insurance application and send it your insurance agent. Some
insurers allow you to do this on their webpage.
7. Receive a (temporary) ‘Cover Note’
Depending on the insurance, an insurer may give you immediate cover. In this
situation, the insurer sends you a cover note as evidence you are covered in the
short run.
8. Receive insurance cover
Later, after the insurer approves your application, the insurer informs you that
they will officially insure you.
9. Pay a premium
Next, you pay the premium that buys the insurance cover.
10. Receive a ‘Certificate of Currency’
To provide proof that confirms you are insured, the insurance company sends you
a ‘Certificate of Currency’. You use this to show you have insurance: for example,
if a client wants to know you have professional indemnity insurance.
Example: Getting Insured
Verity Moneypenny is an insurance broker who runs a
successful business in Perth. For her first appointment,
she welcomed a new client, Magnus Blade.
Magnus explained he has just gone into business as a
sword swallower and fire-breather. He reported that last
month he performed at the Fremantle Street Arts
Festival and the crowds were delighted. Not only did they
clap, they threw hundreds of dollar coins into a small
cart pulled by Delilah, his singing Kelpie.
Verity asked Magnus what he was after. He said he was
about to perform in Melbourne by the Yarra River. This in
itself was not a problem but there were risks that could threaten his ability to
earn. As it was colder, he could get a throat infection that could stop his sword
swallowing. Melbourne’s weather could also mean a sudden down pour would
extinguish his fire breathing.
Magnus complained that he did not have the time to talk to dozens of
insurance agents as he was preparing to drive his VW Microbus across the
Nullarbor. He admitted he did not know what cover to buy and it was giving him
a headache. Because of this, he needed to talk to an insurance broker in a
hurry.
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Verity said she would prepare a recommendation of three possible insurers
from which he could choose a policy. These insurers would provide the best
bundle of insurance coverage to protect Magnus from risks he is likely to face.
Also at premium he is willing to pay.
Verity explained what insurance cover Magnus should buy.
•
As he has assets such as a sword, costumes and a torch that help him
earn, he should take out contents and burglary insurance.
•
As Delilah is a dog and not an employee; Magnus will not have to pay
WorkCover. As an alternative, Verity suggested he take out pet insurance
that is a form of contents insurance.
•
Comprehensive motor vehicle insurance is also a good idea as his VW is
essential for getting him to his places of work.
•
In case he could not work because of factors outside of his control, he
should have business interruption insurance. This would be useful on
days of total fire ban.
•
As his fire breathing could scorch members of his audience, in case they
sued, Magnus should buy public liability insurance.
•
Finally, in case he was working for a festival organisation and members
of the public sued the festival, he should take professional indemnity
insurance.
Magnus said that was a lot of protection to pay for. Verity said he should not
worry. He could claim the premiums as tax deductions. The extra protection
would also help him sleep better.
Learning activity: Choose insurance
Identify which insurance protects Ultra Performance Motors for each scenario
below.
Scenario
Insurance product
1. A potential customer slips on a
recently cleaned floor in the
showroom and breaks her hip.
2. A van UPM sells to a pizza delivery
company has a fault causing the
delivery company to lose business.
3. A staff member slips on a recently
cleaned floor in the showroom and
breaks his hip.
Page 83 of 128
4. A lit cigarette butt causes the ladies
toilet to go up in flames
5. The general manager drives his
company car into the back of a
stationary Volvo
6. A possum jumping between
powerlines cuts power to the
showroom. Power is not restored for
two days.
7. The cleaner accidently pours cleaning
fluid on the cash register that melts
its keyboard.
8. The general manager drives his
company car into the showroom’s
front window.
How a business gets a premise
Ways to get a location for a business
Once you have satisfied all the legal obligations of setting up your business and
worked out the costs of protecting it with insurance, you will need a workplace.
What you intend to sell and its volume will decide where you conduct your
business. For example, if you sell or repair clothes, furniture or computers you
might consider a small shop off a main street.
Bakeries, food retailers and hairdressers might locate in shopping centres with a
higher volume of passing trade.
If you hire barbecues or tools, you could locate away from population centres but
you would need access to a car park.
Carpet cleaners and photographers, who work mainly at their clients’ venues, still
need space for an office to manage the business from, and to store their
equipment.
Clothing manufacturers do not need a shop to sell to retailers. They do need
space however, such as a factory warehouse to make and store their goods.
Some can run a home-based business; for example, they could convert a spare
room or garage into a workspace.
It might be the case that you will have to acquire a business premises by paying
for one. One option is to buy a business premise or location to conduct business.
Known as buying the freehold title, this is the most expensive and least flexible
but offers the most security as you own the property.
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For most small businesses on limited budgets, the most common method is to
rent directly from a property owner or a real estate agent. This could be for a fixed
period on an ongoing basis – for example, you could pay rent monthly. If you
wanted to do this, you would have to sign a commercial lease agreement.
This lease is a contract between a landowner, called a landlord or lessor, and an
occupier of land called the tenant or lessee. It lists premises, all parties to the
agreement with their rights and obligations: see below for parts of a Lease
Agreement.
Parts of a lease agreement
•
parties involved – lessor and lessee
•
premises’ location and facilities
•
rent value
•
duration of a tenancy
•
rental bond value
•
holding deposits if any – an initial deposit to confirm an agreement
•
payment of rent – when it is due
•
responses to the damage and repairs to the premises
•
alterations and the permitted use of premises
•
assignment or sub-letting – allows a lessee to rent space to a sub-lessee
•
landlord’s right of entry
•
•
grounds for termination of the lease.
An alternative to leasing a venue might be to rent part of a space already rented
to another business. Real estate agents call this sub-letting. In this situation, you
would have to sign a sub-lease agreement. Whether you can do this depends on
whether a landowner permits assignment or sub-letting in an original lease.
Where to get advice
Small business departments of each state and territory government advise what
to look for in a commercial lease agreement. They also recommend what
information you need before applying for one. All have websites with guides you
can download.
Guidance on commercial leasing is provided for members of Retail industry
associations such as:
•
National Retail Association
•
The Retailers Association
•
Shopping Centre Council of Australia
•
Property Council of Australia
Page 85 of 128
Other sources of advice include real estate agents as well as professional (paid)
advice from solicitors and lease lawyers.
Evaluating lease and rental agreements
In deciding whether a lease agreement is acceptable, you have to consider the:
•
space you need
•
rent you can pay
•
how long a lease is
•
how to renew it
•
zoning restrictions that limit your business practices
•
payment of ‘outgoings’ – for example, who pays council rates, water costs,
security, maintenance, legal fees and stamp duties
Evaluating a lease agreement
Rent
• Does rent include outgoing expenses; if so, do you pay
regularly or once a year?
• How and when does your rent increase?
• If the premises become unusable, or your use of it is
disrupted, do you keep paying rent?
• How can you get out of the lease?
• Can the landlord terminate the lease?
Other outgoings
(other expenses)
• Must you pay a security bond or deposit (normally you
pay three months rent as a bond)?
• What equipment or services are included?
• Who pays for repairs and maintenance; is it shared;
does the landlord pay for wear and tear and structural
repairs?
Other obligations
• What happens when the lease ends?
• Do you have to redecorate your workplace and what
standards are expected?
• Do general rules apply equally to all tenants in a
building or shopping centre?
• Must there be guarantees from individuals or a bank
to pay the landlord if you break the terms of the
lease?
• If the landlord claims you didn’t pay your rent, how
much notice do you get before the landlord terminates
the lease?
• Are you given the opportunity to pay the default rent?
Page 86 of 128
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Permitted use and
access
• Are there similar businesses in the same shopping
centre or location – does the lease state whether the
landlord promises not to allow competitors into the
same building?
• Must you hold specific licences to run your business?
• Does the local council impose zonings that restrict
your business activities?
• When can you enter the premises – does the landlord
or council restrict access or can you set your opening
hours?
• Does the permitted use allow for you to expand or sell
your business?
• Does the description of the premises describe exactly
the space you will occupy – does it set out your rights
to use common areas and facilities such as car
parking for you, your staff and visitors?
Location and
building layout
• Does the location and space satisfy your business
needs?
• Will the landlord have to change the building to enable
your business to operate or comply with the law; who
pays for this change and any ongoing maintenance?
• If you require a shop to be fitted-out (for example with
shelves and partitions), what is needed, who approves
it, maintains it and pays for it; and at the end of a
lease must you remove the fit-out?
Insurance
• Do you have to take out insurance; for example, public
liability or contents insurance to cover damage; do you
have to get consent from the landlord for changes or
activities that could affect his or her insurance cover?
• Do you have to pay part of the landlord’s insurance
premiums as well as your own?
Dispute resolution
• How do you resolve a disagreement if you are not
talking to the landlord or their representative (real
estate agent)?
Page 87 of 128
Example: Getting a showroom
Because the directors at Ultra
Performance Motors expect the
economy to pick up next year, the
directors voted at their last meeting to
set up a second dealership in the west
of the city.
The directors gave the task of establishing the new showroom to the marketing
manager, Billy McLaren, who in turn delegated the job to his assistant manager
Lucretia Thornquist.
In the filing cabinet, she found UPM’s existing commercial lease agreement
made with Bumpstead and Pratt Real Estate. Using the existing commercial
lease as an example, Lucretia questioned Billy to make sure he had sufficient
information to fill out a new lease. Eventually he would sign the lease.
Lucretia asked a number of questions. She noted Billy’s responses.
How much space does UPM need?
•
A ground floor display area of 520 square metres with an office of 100
square metres that can be on a first floor.
What rent can UPM can pay?
•
Roughly $108,000 a year or $9,000 a month.
How long should the lease be?
•
Starting off, 5 years with an option to renew.
What council-zoning permit is needed?
•
The zoning should at least be for mixed use: for example, to allow
residential and light industrial activity that permits a car dealership to
operate.
What outgoing expenses should the landlord pay?
•
UPM will pay water and security costs. The landlord can pay ongoing
maintenance. Legal fees and stamp duty are negotiable.
Does the real estate agent have to satisfy any other obligations?
•
Ask the real estate agent if other dealerships are setting up nearby.
•
Mention UPM has a bank guarantee to pay the landlord if it breaks the
lease although this is unlikely.
What usage and access does UPM need?
•
UPM will trade during business hours including on weekends.
•
Visitor car parking is needed; street parking would be useful.
Page 88 of 128
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Where should the showroom be located and what building is needed?
•
A visible location on a main road would be useful.
•
UPM will repaint interiors in the company colours and install office
fittings. The office does not have to be at ground level. The landlord must
be willing to approve these alterations that UPM will pay for.
What is the status of UPM’s insurance cover?
•
UPM will take out more contents insurance, public liability insurance and,
with more employees, WorkCover.
•
Mention UPM would like to install burglar alarms. Once installed, the
lower risk should enable the landlord to pay smaller insurance
premiums.
How do you want disputes resolved?
•
Confirm what happens if UPM disagrees with the implementation of the
lease: for example, if rents increase too frequently.
•
UPM is willing to accept mediation by others, for example, a government
commercial and consumer tribunal if it is needed.
After making appointments with several real estate agents, she headed west in
her sky blue Astin Martin convertible to check out possible showrooms.
She knew it was going to be a long day but at least she was prepared.
Learning activity: Fill out a lease
Fill out an application to lease a car showroom. See Appendix 3 –
Commercial Lease Agreement for the required application.
Page 89 of 128
Section summary
You should now understand how to negotiate and arrange contracts to
operate a business.
Further reading
•
Insurance provider websites catering to business:
o ‘Small Business Insurance’, Allianz, viewed June 2010,
<http://www.allianz.com.au/allianz/business+insurance.html>
o ‘Business Insurance’, AAMI, viewed June 2010,
<http://www.aami.com.au/business-insurance/about-our-businessinsurance/business-insurance.asp>
o ‘Products & Services – ANZ Commercial Insurance’, ANZ, viewed June
2010, <http://www.anz.com/small-business/productsservices/commercial-insurance/>.
•
‘Commercial property leasing’, Department of State and Regional
Development, New South Wales Government, viewed June
2010,<http://www.smallbiz.nsw.gov.au/run/operations/leasing/pages/c
ommercialpropertyleasing.aspx>.
•
‘Leasing a Retail Premises’, Business Victoria, Victorian Government,
viewed June 2010,
<http://www.business.vic.gov.au/BUSVIC/STANDARD
//pc=pc=pc=pc=PC_50064.html>.
•
‘Retail Lease Agreement Checklist’, Business Victoria, Victorian
<http://www.business.vic.gov.au/busvicwr/_assets/main/lib60208/sbv_
checklist_lease_agreements.pdf>.
Section checklist
Before you proceed to the assessments, make sure you can:
 explain where to get legal advice
 identify what to look at when evaluating a contract
 explain how a business makes contracts and why
 describe how a business gets insurance cover
 advise how a business acquires premises.
Page 90 of 128
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Glossary
Glossary
Term
Definition
Code of Practice
A documented set of recommended processes, actions or
organisational structures that members of a particular
trade or profession are expected to perform.
Cooling-off Period
A period during which a seller and buyer in an agreement or
contract can rethink their circumstances and cancel the
purchase without a penalty being paid.
Copyright
A collection of laws that regulate the use of the work of a
creator such as an artist or author. These govern the
distribution, changing and display of creative, literary and
other created works.
Due Diligence
Is the verification of information and its documentation
used to make a business decision, for example, the
purchase of stock that satisfies a standard.
Duty of Care
A legal obligation imposed on an individual that requires
that they apply a standard of reasonable care while
performing any act that could predictably harm others. A
breach of a duty of care could be considered negligence
and subject to civil action.
EEO
Equal Employment Opportunity
Going concern
Currently operating business that is expected to continue to
function as such and remain viable in the foreseeable
future.
Incorporation
Method by which individuals are voluntarily united into a
new entity through the creation of an artificial, intangible,
and legal ‘person’ called corporation.
Intellectual
Property
Any intangible asset composed of human knowledge and
ideas.
Liability
A legal obligation of an individual or company to pay a debt.
Liquidator(s)
Person appointed by the shareholders or unsecured
creditors, or on a court order, to manage the winding up of
a firm by selling off its assets
Page 91 of 128
Glossary
Term
Definition
Mentor
A person (often more senior or experienced) who takes an
interest in someone’s career and provides positive help,
support, advice and encouragement.
Officeholder
Director or secretary of a company
OHS
Occupational Health and Safety
Patent
A set of exclusive rights to an invention granted by the
government to an inventor.
Proprietor
A proprietor is an individual who exercises private
ownership over who controls or uses an item of property.
Provision
A clause, normally in a legal document, contract or
agreement that specifies a requirement of something
specific, for example, an obligation or condition.
Royalty
A payment to the holder of a patent, copyright or resource
for the right to use their property.
Third Party
An individual involved in an event, legal transaction or
agreement only by accident or indirectly.
Tort
A wrongful act, injury, or damage (not involving breaking a
contract) that an aggrieved party can seek compensation
for according to civil law.
Tort laws govern wrongful acts, other than breaches of a
contract, by one person against another or his or her
property.
Civil action such as suing for negligence can be made using
these laws.
Warranty
Page 92 of 128
A guarantee by a seller that sold goods or property are
represented as promised.
Student Workbook
Appendices
Appendices
Appendix 1 – Sample business plan 1
Example Business Plan
Note: This business plan example is supplied for information purposes only. View
the original version and further examples of other business plans:
•
‘Free Sample Business Plans’, Bplans.com, viewed June 2010,
<http://www.bplans.com/sample_business_plans.cfm>.
Bakery Business Plan
Jolly’s Java and Bakery.
Executive Summary
Introduction
Jolly’s Java and Bakery (JJB) is a start-up coffee and bakery retail establishment
located in southeast Melbourne. JJB expects to catch the interest of a regular
loyal customer base with its broad variety of coffee and pastry products. The
company plans to build a strong market position in the town, due to the partners’
industry experience and mild competitive climate in the area.
JJB aims to offer its products at a competitive price to meet the demand of the
middle-to higher-income local market area residents and tourists.
The Company
JJB is registered as a trading name in the state of Victoria. It is equally owned and
managed by its two partners.
Mr Austin Patterson has extensive experience in sales, marketing, and
management, and was vice president of marketing with both Jansonne &
Jansonne and Burper Foods. Mr. David Fields brings experience in the area of
finance and administration, including a period as chief financial officer with both
Flaxfield Roasters and the national coffee store chain, BuzzCups.
The company intends to hire two full-time pastry bakers and six part-time baristas
to handle customer service and day to day operations.
Products and Services
JJB offers a broad range of coffee and espresso products, all from high quality
Columbian grown imported coffee beans. JJB caters to all of its customers by
providing each customer coffee and espresso products made to suit the
customer, down to the smallest detail.
The bakery provides freshly prepared bakery and pastry products at all times
during business operations. Six to eight moderate batches of bakery and pastry
products are prepared during the day to assure fresh baked goods are always
available.
Page 93 of 128
Appendices
The Market
The retail coffee industry in Australia has recently experienced rapid growth. JJB
wants to establish a large regular customer base, and will therefore concentrate
its business and marketing on local residents, which will be the dominant target
market. This will establish a healthy, consistent revenue base to ensure stability
of the business. In addition, tourist traffic is expected to comprise approximately
35% of the revenues. High visibility and competitive products and service are
critical to capture this segment of the market.
Financial Considerations
JJB expects to raise $110,000 of its own capital, and to borrow $100,000
guaranteed by the SBA as a ten-year loan. This provides the bulk of the current
financing required.
JJB anticipates sales of about $491,000 in the first year, $567,000 in the second
year, and $655,000 in the third year of the plan. JJB should break even by the
fourth month of its operation as it steadily increases its sales. Profits for this time
period are expected to be approximately $13,000 in year 1, $36,000 by year 2,
and $46,000 by year 3. The company does not anticipate any cash flow problems.
Company Summary
JJB is a bakery and coffee shop managed by two partners. These partners
represent sales/management and finance/administration areas, respectively. The
partners will provide funding from their own savings, which will cover start-up
expenses and provide a financial cushion for the first months of operation. A tenyear Small Business Administration (SBA) loan will cover the rest of the required
financing. The company plans to build a strong market position in the town, due to
the partners’ industry experience and mild competitive climate in the area.
2.1 Company Ownership
JJB is registered as a partnership. It is equally owned by its two partners.
2.2 Company History
JJB is a start-up company. Financing will come from the partners’ capital and a
ten-year SBA loan. The following chart and table illustrate the company’s
projected initial start-up costs.
Page 94 of 128
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Appendices
Products
JJB offers a broad range of coffee and espresso products, all from high quality
Columbian grown imported coffee beans. JJB caters to all of its customers by
providing each customer coffee and espresso products made to suit the
customer, down to the smallest detail.
The bakery provides freshly prepared bakery and pastry products at all times
during business operations. Six to eight moderate batches of bakery and pastry
products are prepared during the day to assure fresh baked goods are always
available.
Market Analysis Summary
JJB's focus is on meeting the demand of a regular local resident customer base,
as well as a significant level of tourist traffic from nearby highways.
4.1 Market Segmentation
JJB focuses on the middle- and upper-income markets. These market segments
consume the majority of coffee and espresso products.
Local Residents
JJB wants to establish a large regular customer base. This will establish a healthy,
consistent revenue base to ensure stability of the business.
Tourists
Tourist traffic comprises approximately 35% of the revenues. High visibility and
competitive products and service are critical to capture this segment of the
market.
4.1.1 Market Analysis
The chart and table below outline the total market potential of the above
described customer segments.
4.2 Target Market Segment Strategy
The dominant target market for JJB is a regular stream of local residents. Personal
and expedient customer service at a competitive price is key to maintaining the
local market share of this target market.
4.2.1 Market Needs
Because Melbourne has a multi-cultural population, coffee products are very
much in demand. During the remaining warmer four months of the year, iced
coffee products are in significantly high demand, along with a slower but
consistent demand for hot coffee products. Much of the day’s activity occurs in
the morning hours before 10 am, with a relatively steady flow for the remainder of
the day.
4.3 Service Business Analysis
The retail coffee industry in the Australia has recently experienced rapid growth.
Despite low competition in the immediate area, JJB will position itself as a place
where customers can enjoy a cup of delicious coffee with a fresh pastry in a
relaxing environment.
Page 95 of 128
Appendices
4.3.1 Competition and Buying Patterns
Competition in the local area is somewhat sparse and does not provide nearly the
level of product quality and customer service as JJB. Local customers are looking
for a high quality product in a relaxing atmosphere. They desire a unique, classy
experience.
Leading competitors purchase and roast high quality, whole-bean coffees and,
along with Italian-style espresso beverages, cold-blended beverages, a variety of
pastries and confections, coffee-related accessories and equipment, and a line of
premium teas, sell these items primarily through company-operated retail stores.
In addition to sales through company-operated retail stores, leading competitors
sell coffee and tea products through other channels of distribution (specialty
operations).
Larger chains vary their product mix depending upon the size of each store and its
location. Larger stores carry a broad selection of whole bean coffees in various
sizes and types of packaging, as well as an assortment of coffee- and espressomaking equipment and accessories such as coffee grinders, coffee makers,
espresso machines, coffee filters, storage containers, travel tumblers and mugs.
Smaller stores and kiosks typically sell a full line of coffee beverages, a more
limited selection of whole-bean coffees, and a few accessories such as travel
tumblers and logo mugs.
During fiscal year 2000, industry retail sales mix by product type was
approximately 73% beverages, 14% food items, 8% whole-bean coffees, and 5%
coffee-making equipment and accessories.
Technologically savvy competitors make fresh coffee and coffee-related products
conveniently available via mail order and online. Additionally, mail order
catalogues offering coffees, certain food items, and select coffee-making
equipment and accessories, have been made available by a few larger
competitors. Websites offering online stores that allow customers to browse for
and purchase coffee, gifts, and other items via the Internet have become more
commonplace as well.
Strategy and Implementation Summary
JJB will succeed by offering consumers high quality coffee, espresso, and bakery
products with personal service at a competitive price.
5.1 Competitive Edge
JJB’s competitive edge is the relatively low level of competition in the local area in
this particular niche.
5.2 Sales Strategy
As the following charts and table show, JJB anticipates sales of about $491,000
in the first year, $567,000 in the second year, and $655,000 in the third year of
the plan.
Page 96 of 128
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Appendices
Sales Forecast
Unit Sales
2001
2002
2003
135,000
148,500
163,350
86,000
94,600
104,060
0
0
0
221,000
243,100
267,410
Unit Prices
2001
2002
2003
Espresso Drinks
$3.00
$3.15
$3.31
Pastry Items
$1.00
$1.05
$1.10
Other
$0.00
$0.00
$0.00
Sales
2001
2002
2003
Espresso Drinks
Pastry Items
Other
Total Unit Sales
Page 97 of 128
Appendices
Espresso Drinks
$405,000
$467,775
$540,280
$86,000
$99,330
$114,726
$0
$0
$0
$491,000
$567,105
$655,006
Direct Unit Costs
2001
2002
2003
Espresso Drinks
$0.25
$0.26
$0.28
Pastry Items
$0.50
$0.53
$0.55
Other
$0.00
$0.00
$0.00
Direct Cost of Sales
2001
2002
2003
Espresso Drinks
$33,750
$38,981
$45,023
Pastry Items
$43,000
$49,665
$57,363
$0
$0
$0
$76,750
$88,646
$102,386
Pastry Items
Other
Total Sales
Other
Subtotal Direct Cost of Sales
Management Summary
Austin Patterson has extensive experience in sales, marketing, and management,
and was vice president of marketing with both Jansonne & Jansonne and Burper
Foods. David Fields brings experience in the area of finance and administration,
including a stint as chief financial officer with both Flaxfield Roasters and the
national coffee store chain, BuzzCups.
6.1 Personnel Plan
As the personnel plan shows, JJB expects to make significant investments in
sales, sales support, and product development personnel.
Personnel Plan
2001
2002
2003
$100,000
$105,000
$110,250
$40,800
$42,840
$44,982
$120,000
$126,000
$132,300
Other
$0
$0
$0
Total People
10
10
10
Total Payroll
$260,800
$273,840
$287,532
Managers
Pastry Bakers
Baristas
Financial Plan
JJB expects to raise $110,000 of its own capital, and to borrow $100,000
guaranteed by the SBA as a ten-year loan. This provides the bulk of the current
financing required.
Page 98 of 128
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Appendices
7.1 Break-even Analysis
JJB’s Break-even Analysis is based on the average of the first-year figures for total
sales by units, and by operating expenses. These are presented as per-unit
revenue, per-unit cost, and fixed costs. These conservative assumptions make for
a more accurate estimate of real risk. JJB should break even by the fourth month
of its operation as it steadily increases its sales.
Break-even Analysis
Monthly Units Break-even
17,255
Monthly Revenue Break-even
$38,336
Assumptions:
Average Per-Unit Revenue
$2.22
Average Per-Unit Variable Cost
$0.35
Estimated Monthly Fixed Cost
$32,343
7.2 Projected Profit and Loss
As the Profit and Loss table shows, JJB expects to continue its steady growth in
profitability over the next three years of operations.
Pro Forma Profit and Loss
Sales
Other
Total Cost of Sales
2001
2002
2003
$491,000
$567,105
$655,006
$76,750
$88,646
$102,386
$0
$0
$0
$76,750
$88,646
$102,386
Page 99 of 128
Appendices
Gross Margin
$414,250
$478,459
$552,620
84.37%
84.37%
84.37%
$260,800
$273,840
$287,532
Sales and Marketing and Other
Expenses
$27,000
$35,200
$71,460
Depreciation
$60,000
$69,000
$79,350
$1,200
$1,260
$1,323
$39,120
$41,076
$43,130
$0
$0
$0
$388,120
$420,376
$482,795
Profit Before Interest and Taxes
$26,130
$58,083
$69,825
EBITDA
$86,130
$127,083
$149,175
Interest Expense
$10,000
$9,500
$8,250
$3,111
$12,146
$15,650
$13,019
$36,437
$45,925
2.65%
6.43%
7.01%
Gross Margin %
Expenses
Payroll
Utilities
Payroll Taxes
Other
Total Operating Expenses
Taxes Incurred
Net Profit
Net Profit/Sales
7.3 Projected Cash Flow
The cash flow projection shows that provisions for ongoing expenses are
adequate to meet JJB’s needs as the business generates cash flow sufficient to
support operations.
Page 100 of 128
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Appendices
Pro Forma Cash Flow
Cash Received
2001
2002
2003
Cash Sales
$491,000
$567,105
$655,006
Subtotal Cash from Operations
$491,000
$567,105
$655,006
Sales Tax, VAT, HST/GST Received
$0
$0
$0
New Current Borrowing
$0
$0
$0
New Other Liabilities (interest-free)
$0
$0
$0
New Long-term Liabilities
$0
$0
$0
Sales of Other Current Assets
$0
$0
$0
Sales of Long-term Assets
$0
$0
$0
New Investment Received
$0
$0
$0
$491,000
$567,105
$655,006
2001
2002
2003
Cash Spending
$260,800
$273,840
$287,532
Bill Payments
$143,607
$186,964
$237,731
Subtotal Spent on Operations
$404,407
$460,804
$525,263
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
Principal Repayment of Current
Borrowing
$0
$0
$0
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal
Repayment
$0
$10,000
$15,000
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$0
$20,000
$20,000
Dividends
$0
$0
$0
$404,407
$490,804
$560,263
Net Cash Flow
$86,593
$76,301
$94,744
Cash Balance
$156,593
$232,894
$327,637
Cash from Operations
Additional Cash Received
Subtotal Cash Received
Expenditures
Expenditures from Operations
Additional Cash Spent
Subtotal Cash Spent
Page 101 of 128
Appendices
7.4 Balance Sheet
The following is a projected Balance Sheet for JJB.
Pro Forma Balance Sheet
Assets
2001
2002
2003
$156,593
$232,894
$327,637
Other Current Assets
$12,000
$12,000
$12,000
Total Current Assets
$168,593
$244,894
$339,637
Long-term Assets
$65,000
$85,000
$105,000
Accumulated Depreciation
$60,000
$129,000
$208,350
$5,000
($44,000)
($103,350)
$173,593
$200,894
$236,287
2001
2002
2003
Accounts Payable
$14,574
$15,438
$19,907
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
$14,574
$15,438
$19,907
Long-term Liabilities
$100,000
$90,000
$75,000
Total Liabilities
$114,574
$105,438
$94,907
Paid-in Capital
$110,000
$110,000
$110,000
Retained Earnings
($64,000)
($50,981)
($14,544)
Earnings
$13,019
$36,437
$45,925
Total Capital
$59,019
$95,456
$141,381
$173,593
$200,894
$236,287
$59,019
$95,456
$141,381
Current Assets
Cash
Long-term Assets
Total Long-term Assets
Total Assets
Liabilities and Capital
Current Liabilities
Subtotal Current Liabilities
Total Liabilities and Capital
Net Worth
Page 102 of 128
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Appendices
7.5 Business Ratios
The following table represents key ratios for the retail bakery and coffee shop
industry. These ratios are determined by the Standard Industry Classification (SIC)
Index code 5812, Eating Places.
Ratio Analysis
2001
2002
2003
Industry
Profile
0.00%
15.50%
15.50%
7.60%
6.91%
5.97%
5.08%
35.60%
97.12%
121.90%
143.74%
43.70%
2.88%
-21.90%
-43.74%
56.30%
100.00%
100.00%
100.00%
100.00%
8.40%
7.68%
8.42%
32.70%
57.61%
44.80%
31.74%
28.50%
Total Liabilities
66.00%
52.48%
40.17%
61.20%
Net Worth
34.00%
47.52%
59.83%
38.80%
100.00%
100.00%
100.00%
100.00%
Gross Margin
84.37%
84.37%
84.37%
60.50%
Selling, General & Administrative
Expenses
74.74%
71.43%
71.39%
39.80%
Advertising Expenses
0.49%
1.76%
6.87%
3.20%
Profit Before Interest and Taxes
5.32%
10.24%
10.66%
0.70%
Current
11.57
15.86
17.06
0.98
Quick
11.57
15.86
17.06
0.65
Total Debt to Total Assets
66.00%
52.48%
40.17%
61.20%
Pre-tax Return on Net Worth
27.33%
50.90%
43.55%
1.70%
9.29%
24.18%
26.06%
4.30%
Additional Ratios
2001
2002
2003
Net Profit Margin
2.65%
6.43%
7.01%
n.a
Return on Equity
22.06%
38.17%
32.48%
n.a
10.79
12.17
12.17
n.a
27
29
27
n.a
Sales Growth
Percent of Total Assets
Long-term Assets
Total Assets
Current Liabilities
Percent of Sales
Sales
Main Ratios
Pre-tax Return on Assets
Activity Ratios
Accounts Payable Turnover
Payment Days
Page 103 of 128
Appendices
Total Asset Turnover
2.83
2.82
2.77
n.a
Debt to Net Worth
1.94
1.10
0.67
n.a
Current Liabilities to Liabilities.
0.13
0.15
0.21
n.a
$154,019 $229,456 $319,731
n.a
Debt Ratios
Liquidity Ratios
Net Working Capital
Interest Coverage
2.61
6.11
8.46
n.a
0.35
0.35
0.36
n.a
8%
8%
8%
n.a
11.57
15.86
17.06
n.a
Sales/Net Worth
8.32
5.94
4.63
n.a
Dividend Payout
0.00
0.00
0.00
n.a
Additional Ratios
Assets to Sales
Current Debt/Total Assets
Acid Test
Page 104 of 128
Student Workbook
Appendices
Appendix 2 – Sample business plan 2
Sales Forecast
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month
10
Month
11
Month 12
Unit Sales
Espresso Drinks
0%
5,000
7,500
10,000
12,500
12,500
12,500
12,500
12,500
12,500
12,500
12,500
12,500
Pastry Items
0%
2,000
3,000
6,000
8,333
8,333
8,333
8,333
8,333
8,333
8,333
8,333
8,333
Other
0%
0
0
0
0
0
0
0
0
0
0
0
0
7,000
10,500
16,000
20,833
20,833
20,833
20,833
20,833
20,833
20,833
20,833
20,833
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month
10
Month
11
Month 12
Espresso Drinks
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
Pastry Items
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
Other
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$15,000
$22,500
$30,000
$37,500
$37,500
$37,500
$37,500
$37,500
$37,500
$37,500
$37,500
$37,500
$2,000
$3,000
$6,000
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$17,000
$25,500
$36,000
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
Total Unit Sales
Unit Prices
Sales
Espresso Drinks
Pastry Items
Other
Total Sales
Page 105 of 128
Appendices
Student Workbook
Direct Unit Costs
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month
10
Month
11
Month 12
Espresso Drinks
0.00%
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
Pastry Items
0.00%
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
Other
0.00%
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Espresso Drinks
$1,250
$1,875
$2,500
$3,125
$3,125
$3,125
$3,125
$3,125
$3,125
$3,125
$3,125
$3,125
Pastry Items
$1,000
$1,500
$3,000
$4,167
$4,167
$4,167
$4,167
$4,167
$4,167
$4,167
$4,167
$4,167
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$2,250
$3,375
$5,500
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
Other
Subtotal Direct Cost of Sales
Personnel Plan
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Managers
0%
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
$8,333
Pastry Bakers
0%
$3,400
$3,400
$3,400
$3,400
$3,400
$3,400
$3,400
$3,400
$3,400
$3,400
$3,400
$3,400
Baristas
0%
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
$10,000
Other
0%
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Total People
10
10
10
10
10
10
10
10
10
10
10
10
Total Payroll
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
Page 106 of 128
Student Workbook
Appendices
General Assumptions
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month
12
1
2
3
4
5
6
7
8
9
10
11
12
Current Interest Rate
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
Long-term Interest Rate
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
Tax Rate
30.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
0
0
0
0
0
0
0
0
0
0
0
0
Plan Month
Other
Pro Forma Profit and Loss
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month
12
$17,000
$25,500
$36,000
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$2,250
$3,375
$5,500
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$2,250
$3,375
$5,500
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
$7,292
Gross Margin
$14,750
$22,125
$30,500
$38,542
$38,542
$38,542
$38,542
$38,542
$38,542
$38,542
$38,542
$38,542
Gross Margin %
86.76%
86.76%
84.72%
84.09%
84.09%
84.09%
84.09%
84.09%
84.09%
84.09%
84.09%
84.09%
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$2,250
$2,250
$2,250
$2,250
$2,250
$2,250
$2,250
$2,250
$2,250
$2,250
$2,250
$2,250
15%
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
5%
$100
$100
$100
$100
$100
$100
$100
$100
$100
$100
$100
$100
Sales
Other
Total Cost of Sales
Expenses
Payroll
Sales and Marketing and
Other Expenses
Depreciation
Utilities
Page 107 of 128
Appendices
Payroll Taxes
Student Workbook
15%
$3,260
$3,260
$3,260
$3,260
$3,260
$3,260
$3,260
$3,260
$3,260
$3,260
$3,260
$3,260
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$32,343
$32,343
$32,343
$32,343
$32,343
$32,343
$32,343
$32,343
$32,343
$32,343
$32,343
$32,343
Profit Before Interest and
Taxes
($17,593)
($10,218)
($1,843)
$6,198
$6,198
$6,198
$6,198
$6,198
$6,198
$6,198
$6,198
$6,198
EBITDA
($12,593)
($5,218)
$3,157
$11,198
$11,198
$11,198
$11,198
$11,198
$11,198
$11,198
$11,198
$11,198
$833
$833
$833
$833
$833
$833
$833
$833
$833
$833
$833
$833
($5,528)
($2,763)
($669)
$1,341
$1,341
$1,341
$1,341
$1,341
$1,341
$1,341
$1,341
$1,341
($12,899)
($8,289)
($2,007)
$4,024
$4,024
$4,024
$4,024
$4,024
$4,024
$4,024
$4,024
$4,024
-75.87%
-32.50%
-5.58%
8.78%
8.78%
8.78%
8.78%
8.78%
8.78%
8.78%
8.78%
8.78%
Other
Total Operating Expenses
Interest Expense
Taxes Incurred
Net Profit
Net Profit/Sales
Pro Forma Cash Flow
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Cash Sales
$17,000
$25,500
$36,000
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
Subtotal Cash from Operations
$17,000
$25,500
$36,000
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
New Current Borrowing
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
New Other Liabilities (interest-free)
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
New Long-term Liabilities
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Cash Received
Cash from Operations
Additional Cash Received
Sales Tax, VAT, HST/GST
Received
Page 108 of 128
0.00%
Student Workbook
Appendices
Sales of Other Current Assets
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Sales of Long-term Assets
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
New Investment Received
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Subtotal Cash Received
$17,000
$25,500
$36,000
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
$45,833
Expenditures
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$21,733
$1,106
$3,295
$7,196
$11,401
$15,076
$15,076
$15,076
$15,076
$15,076
$15,076
$15,076
$15,076
$22,839
$25,028
$28,929
$33,134
$36,810
$36,810
$36,810
$36,810
$36,810
$36,810
$36,810
$36,810
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Principal Repayment of Current
Borrowing
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Other Liabilities Principal
Repayment
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Long-term Liabilities Principal
Repayment
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Purchase Other Current Assets
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Purchase Long-term Assets
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Dividends
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Subtotal Cash Spent
$22,839
$25,028
$28,929
$33,134
$36,810
$36,810
$36,810
$36,810
$36,810
$36,810
$36,810
$36,810
Net Cash Flow
($5,839)
$472
$7,071
$12,699
$9,024
$9,024
$9,024
$9,024
$9,024
$9,024
$9,024
$9,024
Expenditures from Operations
Cash Spending
Bill Payments
Subtotal Spent on Operations
Additional Cash Spent
Page 109 of 128
Appendices
Student Workbook
Cash Balance
$64,161
$64,633
$71,703
$84,403
$93,426
$102,450
$111,474
$120,498
$129,521
$138,545
$147,569
$156,593
Pro Forma Balance Sheet
Assets
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Starting
Balances
Current Assets
Cash
$70,000
$64,161
$64,633
$71,703
$84,403
$93,426
$102,450
$111,474
$120,498
$129,521
$138,545
$147,569
$156,593
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$12,000
$82,000
$76,161
$76,633
$83,703
$96,403
$105,426
$114,450
$123,474
$132,498
$141,521
$150,545
$159,569
$168,593
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$65,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$60,000
$55,000
$50,000
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$147,000
$136,161
$131,633
$133,703
$141,403
$145,426
$149,450
$153,474
$157,498
$161,521
$165,545
$169,569
$173,593
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Long-term Assets
Long-term Assets
Accumulated Depreciation
Total Long-term Assets
Total Assets
Liabilities and Capital
Current Liabilities
Accounts Payable
$1,000
$3,060
$6,820
$10,898
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
Current Borrowing
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Other Current Liabilities
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$1,000
$3,060
$6,820
$10,898
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
$14,574
Subtotal Current Liabilities
Page 110 of 128
Student Workbook
Appendices
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
$100,000
Total Liabilities
$101,000
$103,060
$106,820
$110,898
$114,574
$114,574
$114,574
$114,574
$114,574
$114,574
$114,574
$114,574
$114,574
Paid-in Capital
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
$110,000
Retained Earnings
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
($64,000)
$0
($12,899)
($21,187)
($23,195)
($19,171)
($15,147)
($11,124)
($7,100)
($3,076)
$948
$4,971
$8,995
$13,019
$46,000
$33,101
$24,813
$22,805
$26,829
$30,853
$34,876
$38,900
$42,924
$46,948
$50,971
$54,995
$59,019
$147,000
$136,161
$131,633
$133,703
$141,403
$145,426
$149,450
$153,474
$157,498
$161,521
$165,545
$169,569
$173,593
$46,000
$33,101
$24,813
$22,805
$26,829
$30,853
$34,876
$38,900
$42,924
$46,948
$50,971
$54,995
$59,019
Earnings
Total Capital
Total Liabilities and Capital
Net Worth
Page 111 of 128
Appendices
Student Workbook
Appendix 3 – Where to get forms
Registration
Comment
Business Name
Navigate: business.gov.au <http://www.business.gov.au/>,
Business Topics > Registration & licences > Register your
business or company.
State and
Territory
business
departments
Select a state or territory link.
Use Tasmania as an example.
Under Tasmania, click application form,
Business Names > Application for Registration of a Business
Name
Website:
‘Application for Registration of a Business Name’,
Department of Justice, Tasmanian Government, viewed June
2010, <http://www.consumer.tas.gov.au/__data/assets/
pdf_file/0004/62059/busnames_application.pdf>.
Australian
Business
Number
Navigate: ATO website
Australian Tax
Office
Website:
Tax File
Number
Australian Tax
Office
Businesses > Tax topics – ABN essentials > Basic topics >
Registration, Under Overview beside instructions, form
‘Application for ABN registration’, Australian Government,
viewed June 2010,
<http://www.ato.gov.au/content/downloads/
nat2939e.pdf>.
Navigate: ATO website
Enter ‘Tax file number application for companies’ into ‘Search
for’ box, click link, ‘Tax file number application for companies
and other organisations’, form
Website:
‘Tax file number application’, Australian Government, viewed
June 2010, <http://www.ato.gov.au/content/downloads/
nat3799e.pdf>.
Page 112 of 128
Student Workbook
Appendices
Registration
Comment
Company
Navigate: ASIC website
ASIC
Download forms > select a form, 201 Register a Company >
Paper Lodgement – Download PDF
Website:
‘Application for registration as an Australian company’, ASIC,
viewed June 2010,
<http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName
/201.pdf/$file/201.pdf>.
Insurance
Application
Ansvar Insurance – Business Insurance Application
Ansvar
Insurance
‘Business Insurance Application’, Ansvar Insurance, viewed
June 2010,
<http://www.ansvarinsurance.com.au/Assets/Files/
Business%20proposal.pdf>.
Website:
Page 113 of 128
Appendices
Student Workbook
Appendix 4 – Commercial lease agreement
Commercial Lease Agreement
This Commercial Lease Agreement (Lease) is entered into on this _______ day
of____________, 20____, by and between:
______________________________________ (Landlord) and
______________________________________ (Tenant).
The Landlord is the owner of land and improvements whose address is:
__________________________________________________________________
The Landlord makes available for lease a portion of the Building designated as
___________________________________ (Leased Premises).
The Landlord desires to lease the Leased Premises to the Tenant, and the Tenant
desires to lease the Leased Premises from Landlord for the term, at the rental
and upon the provisions set forth herein.
THEREFORE, in consideration of the mutual promises contained herein, and for
other good and valuable consideration, it is agreed:
Term
The Initial Term of the Lease shall begin on the _____ day of_________ 20__,
and end on the _____ day of____________________, 20____.
The Landlord shall use its best efforts to put the Tenant in possession of the
Leased Premises on the beginning of the Lease term. If the Landlord is unable to
timely provide the Leased Premises, rent shall abate for the period of delay.
The Tenant shall make no other claim against the Landlord for any such delay.
The Tenant may renew the Lease for one extended term of________________.
The Tenant shall exercise such a renewal option, if at all, by providing written
notice to the Landlord not less than ninety (90) days prior to the expiration of the
Initial Term.
The renewal term shall be at the rental set forth below and otherwise upon the
same covenants, conditions and provisions as contained in this Lease.
Rent
The Tenant shall pay to the Landlord during the Initial Term rent of______ Dollars
($) per year, payable in instalments of__________ Dollars ($) per month.
Each instalment payment shall be due in advance on the first day of each
calendar month during the lease term to The Landlord at the following address:
The rental payment amount for any partial calendar months included in the lease
term shall be pro-rated on a daily basis.
The Tenant shall also pay to the Landlord a ‘Security Deposit’ in the amount
of____ Dollars ($). The rental for any renewal lease term, if created as permitted
under this Lease, shall be_____ Dollars ($) per year payable in instalments
of______ Dollars ($) per month.
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Appendices
Prohibited Uses
Notwithstanding the forgoing, the Tenant shall not use the Leased Premises for
the purposes of storing, manufacturing or selling any explosives, flammables or
other inherently dangerous substance, chemical, thing or device.
Sublease and Assignment
The Tenant shall have the right without the Landlord’s consent, to assign this
Lease to a business with which the Tenant may merge or consolidate, to any
subsidiary of the Tenant, to any corporation under common control with the
Tenant, or to a purchaser of substantially all of the Tenant’s assets.
Except as set forth above, the Tenant shall not sublease all or any part of the
Leased Premises, or assign this Lease in whole or in part without the Landlord’s
consent, such consent not to be unreasonably withheld or delayed.
Repairs
During the Lease term, the Tenant shall make, at the Tenant’s expense, all
necessary repairs to the Leased Premises. Repairs shall include such items as
routine repairs of floors, walls, ceilings, and other parts of the Leased Premises
damaged or worn through normal occupancy, except for major mechanical
systems or the roof, subject to the obligations of the parties otherwise set forth in
this Lease.
Alterations and Improvements
The Tenant, at the Tenant’s expense, shall have the right, upon obtaining the
Landlord’s consent, to remodel, redecorate, and make additions, improvements
and replacements of and to all or any part of the Leased Premises from time to
time as the Tenant may deem desirable, provided the same are made in a
workmanlike manner and utilising good quality materials.
The Tenant shall have the right to place and install personal property, trade
fixtures, equipment and other temporary installations in and upon the Leased
Premises, and fasten the same to the premises.
All personal property, equipment, machinery, trade fixtures and temporary
installations, whether acquired by the Tenant at the commencement of the Lease
term or placed or installed on the Leased Premises by the Tenant thereafter, shall
remain The Tenant’s property free and clear of any claim by The Landlord. The
Tenant shall have the right to remove the same at any time during the term of this
Lease provided that the Tenant shall repair, at the Tenant’s expense, all damage
to the Leased Premises caused by such removal.
Property Taxes
The Landlord shall pay, prior to delinquency, all general real estate taxes and
instalments of special assessments coming due during the Lease term on the
Leased Premises, and all personal property taxes with respect to the Landlord’s
personal property, if any, on the Leased Premises. The Tenant shall be
responsible for paying all personal property taxes with respect to the Tenant’s
personal property at the Leased Premises.
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Insurance
If the Leased Premises or any other part of the Building is damaged by fire or
other casualty resulting from any act of negligence by the Tenant or by any of the
Tenant’s agents, employees or invitees, rent shall not be diminished or abated
while such damages are under repair, and the Tenant shall be responsible for the
costs of repair not covered by insurance.
The Landlord shall maintain fire and extended coverage insurance on the Building
and the Leased Premises in such amount as the Landlord shall deem appropriate.
The Tenant shall be responsible, at its expense, for fire and extended coverage
insurance on all of its personal property, including removable trade fixtures,
located in the Leased Premises.
The Tenant and the Landlord shall, each at its own expense, maintain a policy or
policies of comprehensive general liability insurance with respect to the particular
activities of each in the Building with the premiums thereon fully paid on or before
due date. Such insurance policy shall be issued by and binding upon an insurance
company approved by the Landlord, and shall afford minimum protection of not
less than $1,000,000 combined single limit coverage of bodily injury, property
damage or combination thereof.
The Tenant shall provide The Landlord with current Certificates of Insurance
evidencing the Tenant’s compliance with this Paragraph.
Utilities
The Tenant shall pay all charges for water, sewer, gas, electricity, telephone and
other services and utilities used by the Tenant on the Leased Premises during the
term of this Lease unless otherwise expressly agreed in writing by The Landlord. In
the event that any utility or service provided to the Leased Premises is not
separately metered, the Landlord shall pay the amount due and separately
invoice the Tenant for the Tenant’s pro rata share of the charges.
The Tenant shall pay all such utility charges prior to the due date. The Tenant
acknowledges that the Leased Premises are designed to provide standard office
use electrical facilities and standard office lighting. The Tenant shall not use any
equipment or devices that utilises excessive electrical energy or which may, in The
Landlord’s reasonable opinion, over load the wiring or interfere with electrical
services to other Tenants.
Signs
Following The Landlord’s consent, the Tenant shall have the right to place on the
Leased Premises, at locations selected by the Tenant, any signs which are
permitted by applicable zoning ordinances and private restrictions.
The Landlord may refuse consent to any proposed signage that is in the
Landlord’s opinion too large, deceptive, unattractive or otherwise inconsistent
with or inappropriate to the Leased Premises or use of any other Tenant.
The Landlord shall assist and cooperate with the Tenant in obtaining any
necessary permission from governmental authorities or adjoining owners and
occupants for the Tenant to place or construct the foregoing signs. The Tenant
shall repair all damage to the Leased Premises resulting from the removal of
signs installed by the Tenant.
Page 116 of 128
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Appendices
Entry
The Landlord shall have the right to enter upon the Leased Premises at
reasonable hours to inspect the same, provided the Landlord shall not thereby
unreasonably interfere with the Tenant’s business on the Leased Premises.
Parking
During the term of this Lease, the Tenant shall have the non-exclusive use in
common with The Landlord, other Tenants of the Building, their guests and
invitees, of the non-reserved common automobile parking areas, driveways, and
footways, subject to rules and regulations for the use thereof as prescribed from
time to time by The Landlord.
The Landlord reserves the right to designate parking areas for the Tenant and the
Tenant’s agents and employees. The Tenant shall provide the Landlord with a list
of all licence numbers for the cars owned by the Tenant, its agents and
employees.
Building Rules
The Tenant will comply with the rules of the Building adopted and altered by The
Landlord from time to time and will cause all of its agents, employees, invitees
and visitors to do so; all changes to such rules will be sent by the Landlord to the
Tenant in writing.
The initial rules for the Building are attached hereto as Exhibit ‘A’ and
incorporated herein for all purposes.
Damage and Destruction
If the Leased Premises or any part thereof or any appurtenance thereto is so
damaged by fire, casualty or structural defects, such damage or defects not being
the result of any act of negligence by the Tenant or by any of the Tenant’s agents,
employees or invitees, that the same cannot be used for the Tenant’s purposes,
then the Tenant shall have the right within ninety (90) days following damage to
elect by notice to The Landlord to terminate this Lease as of the date of such
damage.
In the event of minor damage to any part of the Leased Premises, and if such
damage does not render the Leased Premises unusable for the Tenant’s
purposes, The Landlord shall promptly repair such damage at the cost of the
Landlord. In making the repairs called for in this paragraph, The Landlord shall not
be liable for any delays resulting from strikes, governmental restrictions, inability
to obtain necessary materials or labour or other matters that are beyond the
reasonable control of the Landlord.
The Tenant shall be relieved from paying rent and other charges during any
portion of the Lease term that the Leased Premises are inoperable or unfit for
occupancy, or use, in whole or in part, for The Tenant’s purposes. Rentals and
other charges paid in advance for any such periods shall be credited on the next
ensuing payments, if any, but if no further payments are to be made, any such
advance payments shall be refunded to the Tenant. The provisions of this
paragraph extend not only to the matters aforesaid, but also to any occurrence
that is beyond the Tenant’s reasonable control and which renders the Leased
Premises, or any appurtenance thereto, inoperable or unfit for occupancy or use,
in whole or in part, for the Tenant’s purposes.
Page 117 of 128
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Default
In the event of a default made by the Tenant in the payment of rent when due to
the Landlord, the Tenant shall have fifteen (15) days after receipt of written notice
thereof to cure such default. In the event of a default made by the Tenant in any
of the other covenants or conditions to be kept, observed and performed by the
Tenant, the Tenant shall have thirty (30) days after receipt of written notice
thereof to cure such default.
In the event that the Tenant shall fail to cure any default within the time allowed
under this paragraph, the Landlord may declare the term of this Lease ended and
terminated by giving the Tenant written notice of such intention, and if possession
of the Leased Premises is not surrendered, the Landlord may re-enter said
premises.
The Landlord shall have, in addition to the remedy above provided, any other right
or remedy available to The Landlord on account of any Tenant default, either in
law or equity. The Landlord shall use reasonable efforts to mitigate its damages.
Quiet Possession
The Landlord covenants and warrants that upon performance by the Tenant of its
obligations hereunder, The Landlord will keep and maintain the Tenant in
exclusive, quiet, peaceable and undisturbed and uninterrupted possession of the
Leased Premises during the term of this Lease.
Condemnation
If any legally, constituted authority condemns the Building or such part thereof
which shall make the Leased Premises unsuitable for leasing, this Lease shall
cease when the public authority takes possession, and the Landlord and Tenant
shall account for rental as of that date. Such termination shall be without
prejudice to the rights of either party to recover compensation from the
condemning authority for any loss or damage caused by the condemnation.
Neither party shall have any rights in or to any award made to the other by the
condemning authority.
Subordination
The Tenant accepts this Lease subject and subordinate to any mortgage, deed of
trust or other lien presently existing or hereafter arising upon the Leased
Premises, or upon the Building and to any renewals, refinancing and extensions
thereof, but the Tenant agrees that any such mortgagee shall have the right at
any time to subordinate such a mortgage, deed of trust or other lien to this Lease
on such terms and subject to such conditions as such mortgagee may deem
appropriate in its discretion.
The Landlord is hereby irrevocably vested with full power and authority to
subordinate this Lease to any mortgage, deed of trust or other lien now existing or
hereafter placed upon the Leased Premises of the Building. The Tenant agrees
that it will from time to time upon request by the Landlord execute and deliver to
such persons as the Landlord shall request a statement in recordable form
certifying that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as so modified),
stating the dates to which rent and other charges payable under this Lease have
been paid, stating that the Landlord is not in default hereunder (or if the Tenant
alleges a default stating the nature of such alleged default) and further stating
such other matters as the Landlord shall reasonably require.
Page 118 of 128
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Appendices
Security Deposit
The Landlord shall hold the Security Deposit without liability for interest and as
security for the performance by the Tenant of Tenant’s covenants and obligations
under this Lease, it being expressly understood that the Tenant shall not consider
the Security Deposit an advance payment of rent or a measure of the Landlord’s
damages in case of default. Unless otherwise provided by law or regulation,
The Landlord may commingle the Security Deposit with The Landlord’s other
funds. The Landlord may, from time to time, without prejudice to any other
remedy, use the Security Deposit to the extent necessary to make good any
arrearages of rent or to satisfy any other covenant or obligation of Tenant
hereunder.
Following any such application of the Security Deposit, the Tenant shall pay to the
Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. If the Tenant is not in default at the termination of
this Lease, the Landlord shall return the balance of the Security Deposit
remaining after any such application to the Tenant.
Notice
Any notice required or permitted under this Lease shall be deemed sufficiently
given or served if sent by United States certified mail, return receipt requested,
addressed as follows:
Landlord: ____________________________________________________________
Tenant: ______________________________________________________________
The Landlord and Tenant shall each have the right from time to time to change
the place notice is to be given under this paragraph by written notice thereof to
the other party.
Brokers
Tenant represents that the Tenant was not shown the Premises by any real estate
broker or agent and that Tenant has not otherwise engaged in, any activity which
could form the basis for a claim for real estate commission, brokerage fee,
finder’s fee or other similar charge, in connection with this Lease.
Waiver
No waiver of any default of the Landlord or Tenant hereunder shall be implied
from any omission to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect any default other than
the default specified in the express waiver and that only for the time and to the
extent therein stated. One or more waivers by the Landlord or Tenant shall not be
construed as a waiver of a subsequent breach of the same covenant, term or
condition.
Memorandum of Lease
The parties hereto contemplate that this Lease should not and shall not be filed
for record, but in lieu thereof, at the request of either party, the Landlord and the
Tenant shall execute a Memorandum of Lease to be recorded for the purpose of
giving record notice of the appropriate provisions of this Lease.
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Headings
The headings used in this Lease are for convenience of the parties only and shall
not be considered in interpreting the meaning of any provision of this Lease.
Successors
The provisions of this Lease shall extend to and be binding upon the Landlord and
the Tenant and their respective legal representatives, successors and assigns.
Consent
The Landlord shall not unreasonably withhold or delay its consent with respect to
any matter for which the Landlord’s consent is required or desirable under this
Lease.
Performance
If there is a default with respect to any of the Landlord’s covenants, warranties or
representations under this Lease, and if the default continues more than fifteen
(15) days after notice in writing from the Tenant to the Landlord specifying the
default, the Tenant may, at its option and without affecting any other remedy
hereunder, cure such default and deduct the cost thereof from the next accruing
instalment or instalments of rent payable hereunder until the Tenant shall have
been fully reimbursed for such expenditures, together with interest thereon at a
rate equal to the lesser of ________ Per Cent (%) per annum or the then highest
lawful rate.
If this Lease terminates prior to the Tenant’s receiving full reimbursement,
Landlord shall pay the un-reimbursed balance plus accrued interest to Tenant on
demand.
Compliance with Law
Tenant and Landlord each shall comply with all laws, orders, ordinances and other
public requirements now or hereafter affecting the Leased Premises.
Final Agreement
This Agreement terminates and supersedes all prior understandings or
agreements on the subject matter hereof. This Agreement may be modified only
by a further writing that is duly executed by both parties.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
Landlord
________________________
Tenant
____________________________
Source: ‘Commercial Lease Agreement’, AllLaw.com, viewed June 2010,
<http://www.alllaw.com/forms/Business/commercial_lease_agreement/printer.htm>.
Page 120 of 128
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Appendices
Appendix 5 – Contract of sale for a new motor vehicle
Seller’s Details
Seller’s name:
The Trader (Dealer):
Address
House, Street:
Suburb or Town:
Post Code:
LMCT Number:
Purchaser’s details
Individual
Drivers Licence Number:
Family Name:
Personal Name:
Middle Name:
Date of Birth:
Business
ABN:
Incorporated Entity
Name:
Residential Address
House, Street
Suburb or Town:
Postcode:
Telephone (Private):
Telephone (Mobile):
Telephone (Business):
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Purchaser’s details (continued)
Other Address:
House, Street
Suburb or Town:
Post Code:
Registered Owner
Family Name:
Personal Name:
Middle Name:
Owner Address (if different from residential address)
House, Street
Suburb or Town:
Postcode:
THE PURCHASER agrees to buy from THE TRADER.
THE TRADER agrees to sell to THE PURCHASER a new vehicle and any extras or
accessories at a price as stated according to the conditions in THIS CONTRACT.
Motor Vehicle Description
Make:
Model:
Stock Number:
Body Type:
Colour:
Trim:
Chassis Number,
Vehicle Identification
Number (VIN) or
Frame Number:
Engine Number:
Page 122 of 128
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Appendices
Motor Vehicle Price
Vehicle Price:
$
Extras and Accessories
$
$
$
$
$
$
$
$
Delivery Fee:
$
SUBTOTAL (with GST):
$
Stamp Duty:
$
Registration and
Transport Accident
Charge:
$
TOTAL PURCHASE PRICE:
$
Delivery Date
(Estimated):
______/______/______
Trade-in Vehicle Details
Make:
Model:
Body Type:
Built Date (if applicable):
______/______/______
Year First Registered:
Registration Number:
Registration Expiry Date:
______/______/______
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Chassis Number,
Vehicle Identification Number (VIN)
or Frame Number:
Engine Number:
Serial Number:
Distance on odometer at the signing of
the contract (Km):
Allowance total for the trade-in (with
GST):
$
Registered Owner
Family Name:
Personal Name:
Middle Name:
Trader’s Name:
Signature:
______/______/______
Date of Trade:
Allowance for Trade-in Motor Vehicle
Allowance value for the Trade-in
vehicle:
$
Allowance for other goods:
$
LESS
Payout to_______________:
$
TOTAL ALLOWANCE:
$
Terms of Settlement
Total Purchase Price:
$
LESS
Deposit:
$
Receipt Number:
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Appendices
LESS
Total Trade-in
allowance:
$
BALANCE OWING:
(Paid on delivery of
vehicle)
$
Receipt Number:
Cheque Number:
Finance
Complete if the purchaser needs finance approval to proceed with this contract.
Amount:
$
Approval Date:
______/______/______
Provider:
Type
Lease:  Hire Purchase:  Other: 
Warranty
The Trader will replace parts and provide service for three months or 5,000 km
travelled from the delivery date.
Added Conditions
THE PURCHASER agrees no other conditions apply that are not stated in THIS
CONTRACT.
Purchaser’s Signature:
THE PURCHASER agrees to be bound by the terms and conditions of this
contract and confirms these were read and understood.
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SIGNATURES
This contract binds the following parties:
Purchaser’s
Signature:
Seller’s
Signature:
Trader’s
Signature:
(or their
approved
representative)
Dated the _______ day of ________________, 20___
Under the Motor Car Traders Act 1958 (VIC), no cooling off period applies to
purchasing a new car.
Page 126 of 128
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Appendices
Appendix 6 – Answers to select learning activities
Learning activity: The Heat Group
Watch the video ‘BSBSMB401A: The Heat Group’ on IBSA’s YouTube channel at
Gillian Franklin of The Heat Group is a mentor of Kristina Karlsso, the founder of
kikki K stationary. What advice does Gillian provide and why?
Gillian advises Kristina that mentees have more than one mentor because it is
good to have different kinds of mentors as there are different kinds of
challenges.
Why was Gillian inspired by Kristina?
Because Gillian felt Kristina had a very good business idea, draft business plan
and was very tenacious in seeking to have Gillian as her business mentor.
Learning activity: Nover’s OHS demonstration
Watch the video ‘BSBCMN311A: Demonstrating’ on IBSA’s YouTube channel at
What specific OH&S information is the instructor explaining and demonstrating
to the three employees?
Example answer:
The instructor is explaining and demonstrating information about the safe use
and handling of the workplace forklift. She talks about the operator restraint
seat, safety seat design for back support, swing down bottle bracket to assist in
lifting, system of active stability and proper forklift usage.
What is the importance of having this kind of on the job demonstration?
Example answer:
It links the learning to the immediate job tasks at hand. It also provides the
learner with an active and visual experience where they can physically take part
in the demonstration which aids understanding.
Page 127 of 128
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Student Workbook
Learning activity: Insuring the cavalry
Watch the video ‘BSBSMB401A: Insuring The Cavalry’ on IBSA’s YouTube
channel at <http://www.youtube.com/ibsachannel>.
Eamon Mackie from Allianz talks to the owners of The Cavalry, a small IT
business, about the importance of business insurance coverage.
Why does Eamon Mackie recommend obtaining business insurance cover?
Setting up a business involves a large capital investment (time, money, effort)
and it is important to protect those assets.
List and briefly describe the four types of insurance recommended to The
Cavalry.
•
Property insurance – Covers against loss or damage to the property.
•
Business interruption – Provides emergency cash flow in the event of
property damage.
•
Workers compensation – Covers workers against work-related injury or
illness.
•
Professional indemnity – Covers client costs where the business has
offered negligent advice.
Enter the appropriate insurance cover for each of the following scenarios.
Scenario
Insurance type
The Cavalry has implemented a brand
new IT system for a client but after a
month the client reports that the system
keeps crashing, causing their business a
large amount of downtime.
Professional indemnity
Due to flash floods The Cavalry have to
spend money on temporary relocation to
another office whilst their building is
fixed.
Business interruption
One of the employees at The Cavalry has
developed a repetitive strain injury from
computer work and needs to take sick
leave.
Workers compensation
The Cavalry has provided technical
advice to a client regarding the type of
software to install but the software turns
out to be incompatible with the business’
existing IT system, and they will now
need to install a different version.
Professional indemnity
Page 128 of 128

Establish legal and risk management requirements of small business

Transcription

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