Hi and welcome to this week's episode of Money with Alpha. Today I'm doing something totally new. We're doing a trio on the podcast today. I'm welcoming Nicola and Cassie. Hello.
Hi.
So we've, you've heard Cassie on here before talking about financing and now we've also got Nicola who is a tax accountant who's going to be talking to us about accounting things. So what I wanted to. We'll talk to each, each one of you lovely ladies individ. Um, but we're doing a workshop together on the 13th of May, so if you're in Brisbane, we'll put the link in the show notes.
We're going to be doing a practical money workshop for entrepreneurs. And it's primarily because we met at, through networking and we've gotten along quite well and we also can see the benefit of helping to educate our uh, clients. Um, and we're all very passionate about that. So I wanted to bring us together to sort of share some of these areas because a lot of them are interrelated as well.
You know, you get your, your money sorted, you can borrow more money, but then you've got to get your accounting and tax side of things right. And strategic, not just compliance. So there's, there's some elements to it. So today we're gonna, we're gonna touch on a bit about our own individual money journeys, but also the pitfalls that we often see, um, and the things that our clients don't understand and don't recognize that they can do as well.
So because I'm gonna start with, with um, with Nicola so we can um, hear from you and then I'll, I'll pass over to you, Cassie, but just give us a little bit of an intro about you, your background because you're probably one of the most passionate tax accountants or accountants I've ever met.
So. Which is not typically associated with that profession. So what has made you so passionate about what you do as well?
Hi guys. Um, ah, I've grown like I've grown up with a family of farmers and builders. So small business has been a huge passion of mine of helping my family, you know, grow their business and also just to, you know, make a good living for ourselves. Um, so I'm a tax accountant.
I've been on my own for about 12 months now working, um, with small businesses but also investors. And the biggest thing I love doing is teaching my clients about how do they read their financial statements, um, and understand what's actually happening in their business. Um, got to do the general compliance of tax returns, business, uh, activity statements, um, you know, fringe benefits, tax returns.
Got to do that. But also sitting down and going, okay, let's forward think, let's be that proactive accountant of going, okay, what do we need to do for our tax planning for this current year? What do we need to achieve to, you know, in the next five years to reach whatever goal you've got for your business in that time frame?
Um, so that's, that's a little bit about me.
Did you always want to be an accountant?
Oh, um, probably When I hit 15, yes.
Oh, wow.
I loved numbers back then. Um, did I think I'd go into being a tax accountant? No. Particularly first year university? Absolutely not. Um, was not my favorite subject at all. Give me financial reporting any day of the week back then. Um, but I sort of fell into a role where I was there, I've been there for 16 years and I got to work with clients.
And actually that's when I, you know, I fell in love with, okay, doing the tax work. But it's actually about. It was always the forward thinking for me. Um, so, yeah, that passion just grew.
Yeah, that's awesome because there's a lot of planning that goes with what Cassie does too. So do you want to, just for anyone who hasn't listened to our one on, um, one podcast, uh, interview, just tell us a little bit about your background as well and what it is that you do and why you love it?
Yeah, absolutely. Um, so I love helping people with big things that they want to do in their life. Um, and finance is an excellent way to help with most of the big things that, um, people, um, have goals around. So buying homes, buying investments, and also business often has lending attached to it as well.
So, um, money kind of makes the world go around and it's very powerful when you know how to use it the right way. Um, and we've spoken about that quite a lot, so I won't go into that too much, but I definitely have views on what's the right way to use money and what's the wrong way use money.
Um, but I think when you get comfortable with leverage, when you get comfortable with borrowing, when you get comfortable with borrowing money, um, your ability to, um, do things that you would never be able to do if you had to save every dollar to achieve that. So you had to save every dollar to buy a house.
You probably die before you had saved enough. So be comfortable being comfortable with that leverage piece, which is borrowing money, um, is really important, I think really Important. Um. And uh, what was the question again? Yeah, so, um, what was the question again?
How. Why are you passionate about it?
Oh, why? Well, that's, that's why.
Yeah, yeah, yeah, yeah. No, it's also match. It's interesting because, um, I've typically been quite debt averse but obviously when buying a house, had to go into debt, um, to do that and. Yeah. But then I'm at that point now I'm like, do I. Because I'm looking at developing some software.
I thought, well, in order to really like up level that I'm probably going to need to invest a bit more in it than I probably would from a cash perspective also. Because I can use my cash in other ways. Yeah, it's, it's a matter of like opportunity costs. Well, what do I put?
Where is it? What's right for me? So do you, you help people with that sort of thing, don't you?
Yeah, absolutely. And that's such a. It is like, it's, it is interesting because I have heard you say that before around your feelings, around it and I get where, I do get where that comes from. And it comes from, um, being around people and seeing, seeing what debt can.
Because debt can be a huge stressor in people's lives. Like obviously if you use debt the wrong way, it can cause you problems with your money but also with lots of other areas of your life. But I was really lucky, uh, quite early in my career to work in private banking and I saw the other side of it, which is the power of death who like to just like explode things.
So it's like any type of investment or any type of decision you make, it is a risk, it is a risk calculation and you've obviously got to be comfortable with the, the risk that you're taking on. There has to be a decision point there. But leverage does exponentially increase your ability to do things.
Yeah. And I think you can do it fast. I mean I've been pretty fortunate in that I've always worked, um, well, 20s, not so much, but when I hit my 30s, working in an industry where I got paid quite well, so. And I'm good at saving and invest, so I still like to invest.
Um, so that's always been a big way for me to duplicate. But I didn't want to borrow to invest in shares. Borrow to buy property. Yes. Because I somehow feel like that's more stable. I don't know. Is that a misconception?
I think, I think it just comes down to your risk tolerance.
Yeah, yeah, yeah. Because I remember the whole idea of like margin loans. And of course when the GFC happened and everything exploded, I was like, uh, ah, yeah. But again, it's a lack of understanding. So if you're going to invest in anything, you need to understand it. Which is why it's important to have advisors like you both to help people understand can their business afford to take on debt and then how, what sort of, so it's a, it's a really good sort of relationship.
So for instance, um, for yourself, Nick, if someone wants to grow their business to the point where they need to take on debt and you would say go, okay, well this is what you can and can't do. Here's where your money is. But then you'd also need to have a finance broker like Cassie kind of looking at the books as well.
Well, how would you two sort of work, sort of help a client together? Because that's, it's sort of, I think a lot of the times we look at all our financial and legal people very independently. But I think the power comes when you really kind of work together for the common benefit of your client.
How would that kind of play out?
I think for me it's like being able to have a relationship with, with the mortgage broker or banking manager, whoever it is, with that client. So with, with Cassie, it's a case of going, okay, Cassie, what does my client need to achieve this goal? What income do you need?
Um, do you need a reduction in other debt? Like if you've got ATO debt, let's try and get rid of that as soon as possible. Because that is a big thing that I know banks don't like to see. Um, so it's having that communication with that mortgage broker or finance broker, whoever it is, and just saying, what do you need from us?
So I can then help tailor, um, what the client needs to do and sort of then sit down and go put out the plan going, okay, you've got X, Y, Z debts already on the, on your books, let's clear them out quick, smart. Um, is there any operating expenses that we might need to try and reduce to bring our profit up higher?
So it's that detailed look of an overall perspective as well, not just a singular item.
Yeah, I would agree with that. I think the thing, um, it needs to be goal based. So it needs to come back to what does the client want to achieve and then what's the best way to get there. So for example, if you've got a client who wants to buy a premise for their business um obviously there's things that are going to happen when they do that like they're going to stop paying rent so it is about understanding that that's a goal that they have and then what do we need the business to be doing um with regards to profit like so that's probably one of the big misconceptions that I have a lot of clients that come in who are self employed they think their business revenue is what we can use for borrowing it really isn't it's often the profit that's remaining at the end of the day and um it's often quite counter counter counter like well what's that um it's opposite to what you generally are trying to do um at the end of the tax year with your income as a self employ person that's right early communication between both your broker or your lender plus your accountant to say hey this is a goal that I have and then making sure that when you do do your.
Um, your figure has been considered in it. And the other thing I find works really well is with those clients. Like I have clients that work and often are uh, on a quite a long, like a long journey and they have lots of goals and it is about sort of being proactive with regards to.
Well, maybe it's not right now, but let's make sure we're constantly looking at the financials as they're being done to make sure that that goal when you want to do it in two years time. We've got the background like often say with self employed clients, kind of got one time a year where you set your income which is like what we use for the next two years.
So you've got to kind of think ahead a little bit more than uh.
Uh, it's interesting because on, on the one hand you want to reduce your taxable income to reduce your tax but then you also need to have the income in order to get, you know, the loan too. So.
Yeah, yeah. And that's why I say to clients with me it's, you know, the forward thinking, it's, let's have, I want minimum one, maybe even two meetings a year to go. Well, how are we going and how are we going for the next 12 months again after that? Because at the end of the day tax is yes, one big thing that people want to reduce.
But like, like Cassie says, forward thinking. If your goal is to buy a premises or investment property or whatever. Well we need to start thinking ahead. We need to make sure we can track everything now for two, three years time. And having one to two meetings a year with me or your accountant, whoever it is, is going to help you achieve that goal.
Yeah.
And if they're not, like I often hear um, you know, stories where oh, they haven't seen their accountant in two years or they literally just see them to sign their tax return. But um, they have no idea what's going on. So that's, that's always a bit of a red flag.
Your, your professionals should be asking you to meet with you regularly. Um, and then. Yeah, but the clarity, that's probably one of the biggest things for me. So having even on the money management side, which is the space that I'm in, it's like well what do you want money for?
Because they're like I find it so hard to stick to a budget. I was like that's because everything's so willy nilly. Like if they had the clarity that they have the property they want to buy or the business they want to Buy or the business premises they want, you know, whatever that happens to be.
And even if they bought it already, maybe they could finance it better, like refinance or, you know, how are the, how's their spending going? Is their business paying them enough so they can afford to pay it all. Having that clarity makes it a lot easier to stay on track because otherwise, like, from your perspective, Cassie, be like, oh, it'd be good if you came to me if you wanted to do this next year.
You could have come to me two years ago.
Yeah, exactly right. Exactly right. We should be almost planning for it that far in advance often.
Yeah, yeah. And we're, we're always so short term focused, I find. Like it's, it's, um. And that's because we're not clear on what we want. So being able to kind of have a little bit of a vision of our lifestyle. And I get. Things change, you know, you have a child, your whole world changes, especially as a woman, because your sense of self changes.
You might go from, oh, I really want to go now. I was talking to somebody yesterday like, oh, I actually would really love to go live in the country with a block of land where I could have chickens and a cow and you know, have my own little dairy kind of thing.
I was going, well, that's. You might need more than one cow. But anyway, you know, so those are. Whereas in their 20s, they wanted to live in the city in the thick of it, you know, near their favorite cafes and restaurants. And then you have children and you just, you want space.
So it does, it does change. So you've mentioned a few pitfalls that you see, Cassie, from your perspective, Nick, what do you see that clients, either don't they misunderstand about what their accountant can do for them, or they don't understand some of the key elements of their business or of their finances that they need to focus on one of the big things.
And it's something the ATO is also looking into a, uh, lot at the moment is that whatever money is in your business, bank account, a lot of clients think it's their money. Well, no, it's not. It's that entity's money.
Ah.
Um, so what we have is what's called Division 7A. And that's basically where a director or a shareholder has taken out money willy nilly from the company bank account, personal spending, and it's create a loan that they actually have to pay back to.
The company within seven years, isn't it?
Within seven years?
Yeah, absolutely.
And it's Just that's been a really big pitfall. I'm seeing time and time again clients think the money is just theirs. Well, it's not. It's the entity's money. You either need to pay yourself, um, wages or if it's a trust doing a distribution at the year end to yourself to clear that, that phone out.
Um, and that's the big thing is, and then they end up having this massive tax debt later on in life that they go, where's it come from? Well it's because of this.
Yes.
Um, so having that conversation with your accountant when you set up your entity, whether you're a trust, whether you're a company or even a sole trader to say, okay, I've earned X amount of money, I need to put this amount of money aside to pay the tax on that income.
But also if it's a company or I need to make sure I can pay myself X amount, pay my super, uh, pay my withholding tax and then if I need to borrow a loan, I've got to repay it back. So just having that conversation about what are you allowed and what you're not allowed to do is key.
And it's missing, I think too many times.
Yeah, yeah. No, I think it's that like I hear that a lot. You know, people have these Division 7A loans that they don't even know what they are. They're like, what? I literally had that conversation with a, uh, client and her other accountant, not you. It would have been good, um, to try and explain what all this was.
So yes, that's often a challenge that one. But yeah, big pitfall, um, from your perspective, Cassie, like how long? Like because you hear the stories where oh, you need to have two years worth of pay slips or income from your business. Is that real or is there, is there other ways to look at it?
There's lots of options. I think the thing is there is lots of options. I think the main thing you come back to is you have to have the income basically. So, um, there are options for short term, um, self employed clients and um, they are um, they are good options.
Um, if, if you require it, you do pay a little bit more for it, but you still have to have the income. Like no one's going to lend you money that you can't repay. So if you have a uh, business, I think that's the main thing is depending on your personal situation.
The advice I would have is, is being GST registered quite early on is really important. If you are thinking that your business is going to be earning good money and you are going to be wanting to do any of those bigger things like bor borrowing money in the short term, um, making sure it's GST registered because then we can look at the BAS type options um, and also wages like so paying if your business is earning a good income, um, putting in those weight, those wages in place early on um gives you that personal income that if you do want to then go and buy a home, um, you have personal wages that we can utilize as well.
So there are options, there are options from like probably I'd say like you'd want to have at least probably, probably six months in uh, just so you do have a little bit of, of longevity there. Um but like for example I often see clients where they've been doing a job payg and they literally just move into the same job but in more of a, a like an ABN type.
Um so the income is actually very strong. It's just changed its structure and in that case we have good reasons to use it and there are options available.
Yeah, yeah I experienced that when I first started. I was into a contracting style role.
Yeah.
Being employed and. Yeah. And that was, it was interesting though because I didn't lodge a tax return because when you become you know have an ABN and you, you can push out, if you go through a tax agent especially you can push out your lodgment. So I um, ended up not having to pay tax for a fair while.
Um but that on the one hand that was good from a cash flow perspective because I have that money sitting in my bank account. But on the other hand if I wanted to get finance I don't really have anything to show for where I'm at. Um, except for pace while invoices actually.
Yeah.
And we can't really use him. I mean we can, I mean worst comes to us we can use bank state like business bank statements but that is much stronger. So if you, I would say get GST registered. Um, I think it's is it 70000 as a turnover and you have 75.
Yeah.
If you're earning less than 70,000 you're probably not going to be getting a home loan anyway. Um but being GCC registers really helps, helps with that.
And from. Do you have clients um where you have that you do their business tax return and their personal and you sort of see the difference in level of money management because that's, that's what I see a lot. You know on the business side they've got their accountant, they've got their accounting software.
They're a little bit more streamlined or at least there's a little bit more attention there. And then it all just kind of like falls apart. When you get to the personal sort of tax return side. The. Yeah. That you don't have deductions, so you don't probably see it as much.
Um, yeah, no, I don't see the. The cash flow change between the business and the individual too dramatically. The only time you really start to see. And you. You go. Or something's going on is if additional drawings are getting taken out of the business entity.
Yeah.
And then you turn up at your client's premises and you go, oh, okay, there's a new BMW. We've got a boat. Oh, we're going now. A motorbike or something. Some luxury items being purchased. And then we go, okay, that's. That's where the cash flow management is an issue there.
Yeah.
Um, but otherwise, when we just look at straight tax returns. No, you don't see the individual side essential than money management is.
Yeah. And that's where I find it so hard, because on. In a business, you have a P. L, you've got. Everything is very visible when it comes to the personal side. People could be completely struggling and you don't really notice it for a fair amount of time because it's all buried in credit cards, refinancing, all sorts of other things.
So it's. Yeah. Do you see this a lot, Cassie, where you get business owners who want to, like, consolidate their. Debt in you know, refinancing or does. Yeah. How do you see that?
I don't get too much, um, I don't get too much of that. I don't know if that's because of the way like the type of clients that I like to work with and the way that I obviously like to do um, finance for good. Not that. Okay, there is absolutely a place for debt consolidation and if it helps and I do, I will do it.
Um, but it, I mean I don't let you get away with it without like a solid conversation that goes along with, along with it. So make sure we're not needing to debt consolidated in another 12 months time. Um and I really am very big on like if we are going to consolidate some debts into say for example a home loan or ah, some type of longer facility, um, that we have a plan on not having that go over 30 years because that is not a good decision for anyone.
Um so I don't really see too much of it. Um, and I do think, I think the thing is when business owners are able to borrow they generally have a business that's doing okay. Um, I don't, I don't really play in the, the ah, cash flow lending part at all and I think you probably, if you were maybe a business lender who did cash flow lending you might see a bit more of that sort of stuff.
Yeah, yeah but it's quite like I think the thing with business and it's like anything like lending's not something you do to fix what shouldn't be something you do to fix a problem. Um, if you, if you've got a cash flow problem like it's like using a credit card because you've got a cash flow problem in your like personal finances.
Like you're maybe spending more than you earn. A credit card's going to solve that for maybe like depending on the limit maybe like six months and then you're going to have a bigger problem. So yeah, same with business. Um, cash flow lending will only solve the problem for a very short time unless you actually get to the underlying problem which is some type of timing situation.
Yeah, that's right. Yeah. It's an interesting space and there's complexities and then it's also quite simple at some point as well. I think from um, I think there's probably a lot of complexity in our tax law. So like Division 7A is something that's very difficult to understand. The POIG system which is when you're paying your tax installments, um, I Had a client, um, the other day who was confused between the pig she was paying on the wages and then the pig that her, uh, business was paying as well.
And she's like, but it's all m. It's all my money. It's all. I'm all paying it to the tax office. Like, why. Why am I getting another bill?
That's a common question. I get all the time about the difference.
Yeah.
And they. They brought in the PAYG on the business income to help people not get tax debts at the end of the year, didn't they?
Yes, yes. It's basically. It's just. It's prepaying your tax for the current year. So we just finished the March quarter. If you've got a line that says payg installment, you're basically prepaying a quarter of your tax for this current financial year.
Yeah.
As, um.
Because the ato, obviously for their end is their cash flow management, uh, as well. They don't want to be having someone pay, let's say, 50 grand in tax after the 30th of June, when they can sort of start having it prepaid already during the year.
Yeah. And there's a, There's a level of discipline because again, you're like, oh, I have all this money. Like, it's actually not your money. Like, you need to, like, carve it out and put it off to the side. And that's really hard to do because I see so many clients where they're like, oh, I just.
I'll just, like, dip into that account. It's like, it's not even real. Like, just get rid of. Pretend like it's not even there. Like, it's not really. If you get a refund out of it at the end of the tax year, that's. That's great. Um, but it's not real until the tax returns lodged and then you know where you.
Where you really stand. But you should have an indication at least as you go. Yeah, I do, like, little mini tax returns. Every time I do my baz, I was like, okay, I could. I treat it like a mini tax return. So at the end of the financial year, I just take the GST exclusive amount and just consolidate everything.
And I'm like, there we go. That's all known realistically of any business.
And Cassie, I'd, uh, say you'd think this as well. Always have two bank accounts. One's your trading bank account and one is your bank account that you put money aside for superannuation on wages. The withholding tax on wages, but also the tax you're going to pay on your income.
And that account you do not touch until it's bas time or end of the. Like when the tax return's been lodged.
Yeah, yeah. I like three accounts, actually. I like to have like a profit account as well. Oh, nice.
I haven't got it on my profit.
Um, I'm really big on, like, cash flow planning, so, um, sort of knowing what your base expenses are in your business every month. Obviously there is always a little bit of fluctuation, but, um, I think it's really. And I've, I've done this since I first started my business and it's worked really, really well for me.
I have to say. I've never really had cash flow issues in my business because I've got a really good understanding of what my base expenses are. And so then I basically, when I get paid, I'll always have like, enough in my trading account because I know what my base expenses are.
Uh, and then I'll obviously move over the GST and the PAYG super as it comes through and that goes into there. And then I have anything extra that goes into my profit account, which is kind of cool. And so then when I want to do like a bigger, uh, investment in my business or I want to do something that's like more ad hoc, not like the base stuff, then if it's in my profit account, I can, I can decide if that's something that I want to do or not.
Yeah, I, I split out the profit and the extra.
It's okay.
I. I have four. So I split out. Yeah. Yeah. So I do, I like to carve it out. But yes, I definitely want for tax, um, and, and anything that's got like the compliance obligations. But then I like to have one, like the profit one. I don't like to touch it.
So I split that out into like there's a, A growth one or like my. Yeah, business growth. So I have that sitting there for. If I want to, you know, take on a business coach or have that sitting in a separate account. So. Yeah. But I think that the concept is have it organized and planned.
So. Yeah, that's awesome.
Definitely. And I do think, like, looking at, um, I'm like, I like you ladies would be this. I mean, I think the thing is we've got three ladies on a call which all would love numbers. Like, numbers. I was talking to someone the other day and they were like, what do you do for fun?
I'm like, well, I do my bookkeeping.
But like looking at your profit and loss and then also looking at like. So I, I like to backwards look like what's it look like? But I then like I said, the cash flow planning is kind like um, I just, there's just so much value in that and I just find, I don't think many people do it like really properly do it.
And it's so powerful when you're then also not only looking at the money side of things but then starting to set some goals around what we actually need to bring in from a revenue perspective to hit the goals and then also looking at seasonality in your business. So for example, my business like I know that my, like December, January, February are like slower months.
Um, and so planning for that like ah, within the year, uh, is important. And I think when you're doing cash flow you start to look at those trends a bit more. Like you start to understand when you are thinking that you really need to make hay while the sun shines.
And then those months that are going to be a little bit more where you might have to dip into that cash reserve, uh, because they are slower months as well.
Yeah, yeah. That's where the past. I'm a big fan of trends and I mean you look at, there's so many trends and seasons in life and just in general, like you're not going to get many people buying swimsuits in June in Australia because it's winter. They'll buy ski. So the ski stuff at the Aldi sale, it goes off because that's um, the time.
And so, and they're not going to be selling, you know, fleece jackets or winter coats in October. They're going to be selling them in May, June. So it's. Yeah, you've got, you've got to understand. And that's why they can do that because they know when people are going to buy certain things because they've looked at their numbers.
So what time of year? Um, people's accountants aren't contacting them. What time of year should they start prodding if they haven't heard?
March.
March.
So if you hit March, start of April, that's for the current financial year. If you have not heard from your account to start talking about tax planning meetings. Particularly if you've got a trust, you must do it what we call a trust resolution minute, which must be signed by the 30th of June every year.
Um, you need to be on the phone and going, hey, what's happening? You know, we should be having a chat. That's When? Yeah, that's when you should be reaching out.
Okay, excellent. And we already know, Cassie, they need to talk to you two years before they're even thinking about doing anything finance related.
Oh yeah, Like, I think the earlier, the earlier the better. Like I do have clients that I'm. Or like I'm always looking at their financials and actually often I'll, like, if I get them really well trained, they'll send me their financials while they're still in draft, like status and then I'll run the numbers on that and then I'll tell them what it looks like from a borrowing capacity perspective.
If they want to change anything, then we can do it before they lodge them. Um, but yeah, I think that early planning piece, if, if, if borrowing money for either personal or even business is something that they think that they might need in the next little while, then it's good to have done the numbers on it.
Lovely. Oh, that's. That was quite a, quite a meaty episode. So I don't know if anyone wants to. You might need to listen to this again and take some notes or come along to our workshop if you're interested, on the 13th of May. This is the sort of thing that we're going to be going through and in a bit more detail and with the opportunity for Q and A as well.
So everyone can. And food and a little bit of networking to go with it. So it, so it's a good opportunity. So I want to thank you ladies so much. Um, we'll put your details in the show notes so people can find you in terms of like socials, websites, etc.
Um, however they can get in contact, especially if they've listened and gone, oh my goodness, I really need an accountant like Nick and I really need a finance my team like Cassie. Then you can get in touch and, and have that conversation. So thank you very, very much for coming to this week's episode.
Thank you. No worries having us.
Have a lovely week everyone, and I'll catch you next week.
