Bookkeeping

Boost Your SMEs Growth: Essential Bookkeeping Services for Small Business

Shelley Zalbergs profile image

Shelley Zalbergs

Director

“Making good judgements when one has complete data, facts and knowledge is not leadership – it’s bookkeeping.” – Dee Hock, Founder of Visa

Dee Hock’s insights capture the essence of bookkeeping brilliantly.

The foundation of effective bookkeeping services for small businesses lies in making well-informed decisions. Such decisions can be informed through access to complete and accurate data, facts, and comprehensive knowledge.

More than just counting numbers, a professional bookkeeper leverages their specialised knowledge to:

  • Assist business owners with strategic decision-making in a timely manner.
  • Enhance internal processes within a company.
  • Serve as a reliable advisor aiding businesses in managing financial complexities.
  • Support informed decision-making that can boost profitability and cashflow.

When businesses implement solid bookkeeping practices, they stand to reap these substantial benefits.

Key Takeaways

  • Effective bookkeeping is crucial for strategic decision-making in business. It aids in process improvements and acts as a trusted financial tool to maximise profitability and growth.
  • Bookkeeping services, especially when customised and backed by technology like cloud accounting, can significantly reduce errors, ensure regulatory compliance, and allow business owners to focus on core operations for enhanced growth.
  • In today’s fast-paced world of change, getting timely information on your business is critical. If supply shocks increase your costs, having access to the true cost drivers allows you to act quickly and prevent serious profit drain.
  • Professional bookkeeping not only streamlines complex tasks such as payroll but also provides critical financial reports. This enables informed decisions, bolsters risk management, and contributes to a business’s resilience against economic uncertainties.

Boost Your Business Bottom Line: What Professional Bookkeeping Can Do

A business owner in a pink blouse stands in a clothes store

A professional bookkeeper acts as your financial navigator, offering a comprehensive and real-time snapshot of your business’s financial health by keeping a detailed record of every dollar that comes in and goes out.

This isn’t just about watching your bank balance grow (although that is a clear benefit!). Think of it as the GPS for your business journey, guiding you to make smart money moves.

Here’s what a professional bookkeeper can accomplish for your business:

  • Track Every Transaction: Like keeping score in a game, recording every sale and expense is critical to good bookkeeping. This helps you understand where you’re making money and where you might be overspending.
  • Supports You in Making Informed Business Decisions: Use your records to spot trends and make choices that increase your profits, like investing in best-sellers or cutting back on underperforming services.
  • Keep an Eye on Cash Flow: Knowing when money is coming in and going out helps you plan for the future so you’re never caught short.
  • Plan for Tax Time: A professional bookkeeper will help you allocate funds for tax obligations, making tax time less daunting and more manageable.

Understanding Bookkeeping Services for SMEs

Bookkeeping services involve a wide range of activities, such as ensuring precise record-keeping, simplifying payroll procedures, and making the bookkeeping process more transparent.

The Backbone of Financial Health: Maintaining Accurate Records

A man in a suit checks off items on a data report

Keeping good financial records is extremely important for any business. It’s more than just typing numbers into a computer.

It’s about really getting the big picture of what’s going on with the money—what you own, what you owe, and making sure everything adds up correctly. Doing this helps you stay out of trouble with the rules and keeps your business looking good.

You’ve got to keep up with the latest tax rules and pay attention to the details to make sure your books are spot on.

Streamlining Payroll: A Task for the Experts

A man hands over documents to a payroll officer

Handling payroll involves more than just paying your staff.

It’s about accurately calculating wages and deductions, which can get complex. That’s why many businesses opt for professional payroll services, to ensure everything is done right.

Here’s what you gain when you have access to an expert:

  • Time savings, especially as your team grows or payroll becomes more intricate.
  • A reduction in errors, which can be common when things get complicated.

Choosing the Right Bookkeeping Service Provider

Every small business must make the crucial choice of selecting a bookkeeping service provider that:

  • Delivers tailored solutions designed to meet the specific demands of the business.
  • Utilises cutting-edge technology, like cloud accounting systems.
  • Offers an exceptional degree of professional competence in bookkeeping and accounting.

Customised Solutions for Unique Business Needs

Online bookkeeping services provide tailored solutions, incorporating bookkeeping software that addresses the distinct requirements of various businesses to enhance financial management and support informed decision-making. These online bookkeeping offerings are structured with customisation in mind, guaranteeing a perfect fit for each small business’ immediate needs.

At Bishop Collins, our expertise lies in modifying our bookkeeping services to suit the scope and intricacies of diverse businesses while focusing on small to medium-sized enterprises.

Technology at the Forefront: Leveraging Cloud Accounting

A business person uses a smartphone and tablet with cloud accounting technology icons in the foreground

In today’s digital landscape, businesses must adopt technological solutions to maintain a competitive edge.

For small business owners, cloud accounting represents a significant advancement that has transformed the realm of bookkeeping by providing immediate insights into financial data.

This access is critical as it supports sound decision-making regarding expenditures and savings even while on the move.

Accounting programs based in the cloud bolster security around sensitive information and improve operational efficiencies by automatically downloading bank and credit card transactions.

Services such as Xero and MYOB offer integration with other software providers, allowing for additional capabilities, including customer relationship management (CRM), inventory management, and job costing—all instrumental components for nurturing overall business development.

Case Study: Bella’s Boutique – Financial Transformation

Background: Bella’s Boutique, started by Bella Nguyen in 2015, faced financial management challenges despite its popularity. With a design background rather than an accounting background, Bella struggled with cash flow, payroll, managing tax commitments to the ATO and financial reporting.

Solution: In 2020, Bella enlisted professional bookkeeping tailored to small and medium businesses. The services included record-keeping, payroll, and financial insights.

Results: The partnership led to notable improvements:

  • Profitability: An increase in profitability within the first year through identified cost-saving and investment opportunities.
  • Efficiency: Automated processes saved Bella 15 hours weekly, allowing her to focus on business growth.

Conclusion: Professional bookkeeping transformed Bella’s Boutique from struggling with financial tasks to a flourishing business, showcasing the value of expert financial management.

Investing in Growth: How Bookkeeping Services Can Save Money and Time

When business owners delegate bookkeeping tasks to specialists, they free up their own time to concentrate on fundamental aspects of their enterprise.

Handing over financial management responsibilities to seasoned professionals, including the reporting of revenue and expenditures, allows entrepreneurs to hone in on vital segments such as sales growth, developing marketing tactics and product innovation.

Using external bookkeeping services can lead to cost savings by eliminating the need for resources and infrastructure that would support an internal team.

CFO Services – The Bishop Collins Advantage

Understanding the numbers and how your business is performing is crucial for the vitality of small businesses.

Our professional bookkeepers employ sophisticated tools geared toward budgeting, forecasting, and financial modelling, which assist businesses in improving resource allocation and strategic development.

Our CFO services, offered as a distinct advantage, provide clarity on financial indicators through essential documents like profit and loss statements, balance sheets, cash flow statements and reporting on key performance indicators

These insights allow you to grasp your business’s financial health at any moment.

Regularly preparing and discussing these comprehensive financial reports with a CFO advisor, will ensure you can make informed decisions to help your business thrive.

Tax Advisory and Accounting – Complementary Services

Alongside our expert bookkeeping, Bishop Collins offers separate and additional tax advisory and accounting services, forming a comprehensive approach to financial management.

This distinct integration ensures smooth navigation through tax seasons, maintaining compliance, avoiding penalties, and keeping financial records current.

Our dedicated tax advisory ensures that your business adheres to all relevant tax laws and regulations, keeping you compliant and safeguarding against legal issues.

Engage with Bishop Collins for Specialised Financial Expertise

For entrepreneurs and SMEs targeting growth, engaging with Bishop Collins gives you access to bespoke bookkeeping services aligned with your business goals.

Beyond bookkeeping, we provide specialised tax advisory, accounting, and CFO services, each designed to support the unique needs of SMEs and high-net-worth individuals, emphasising strategic financial planning and tax optimisation.

Proficient bookkeeping lays the groundwork for business success, supporting strategic decision-making and operational efficiency.

At Bishop Collins, we offer a suite of distinct financial services designed to cover all your needs comprehensively. Connect with us to explore how our tailored services can propel your business forward.

Frequently Asked Questions

Is it possible to do your own bookkeeping?

Certainly, managing your bookkeeping is feasible. It demands monthly time investment and carries with it various advantages and disadvantages.

Do small businesses need bookkeeping?

Yes, for small businesses to maintain precise financial documentation, manage bills punctually, handle taxes efficiently, and achieve organisational effectiveness overall, bookkeeping is essential.

Effective bookkeeping practices are vital in overseeing daily financial activities such as transactions and invoices, as well as managing payroll for these businesses.

What are some of the benefits of professional bookkeeping services?

Enlisting the expertise of professional bookkeeping services can be incredibly advantageous for your business. It not only streamlines your time management, but also minimises mistakes, guarantees adherence to regulatory standards, and provides real-time financial analysis which aids in more informed decision-making.

These benefits are particularly valuable for small businesses that stand to gain significantly from such services. Small business owners have to do everything in the business and have limited time. They will often leave the financial recording to the last minute as they are focused on getting more business.

How can bookkeeping services contribute to business growth?

Business owners can concentrate on pivotal aspects like sales, marketing and product development to foster growth and efficiency by delegating bookkeeping services.

Asset Protection

Choosing the Right Asset Ownership Structure: A Comprehensive Guide

A man pushing over a line of dominoes tiles

Juston Jirwander

Juston Jirwander

Director

The structure of asset ownership is a cornerstone of financial management. It is crucial for protecting wealth, optimising tax liabilities, and ensuring assets can transition according to your wishes.

Asset ownership impacts everything from tax planning and asset protection to business operations and succession planning.

Understanding Asset Ownership

Asset structure determines the legal owner and management of assets. It’s responsible for protecting the owner from legal risks, optimising tax obligations, and managing business operations efficiently.

Asset ownership is vital for:

  1. Asset Protection: By choosing the right ownership structure, individuals and businesses can protect their assets from potential legal claims, creditors, or litigations. It helps to segregate risky assets from safer ones, thereby safeguarding personal or business wealth.
  2. Tax Optimisation: Different structures offer varied tax implications, including income tax, capital gains tax, and inheritance tax. A well-planned structure can enable efficient tax planning.
  3. Succession Planning: It facilitates the potential for a smoother transfer of assets to beneficiaries or successors, reducing potential disputes and ensuring that assets are distributed according to the owner’s wishes. This is particularly important for family-owned businesses or individuals with significant personal assets.
  4. Operational Efficiency: For businesses, the right ownership structure can impact decision-making processes, control, and management. It defines the legal responsibilities and rights of different parties involved in the business, contributing to its overall efficiency and governance.

When To Consider Asset Ownership Structure

Asset ownership structure becomes necessary:

  • When starting a new business or venture.
  • During the acquisition or investment in assets, especially significant ones such as real estate or intellectual property.
  • In the process of estate or succession planning.
  • When seeking to dispose of any major asset, especially a business asset.
  • When taking on a new investor or partner or joint venture which can signal a period of change in income.

A man and woman in a workshop with boxes and packing materials in the background

Who Can Benefit From An Asset Ownership Strategy?

  • Business Owners: Whether running a small family business or a large corporation, determining the right business asset structure is essential for protection, efficiency, and growth.
  • Investors: Individuals or entities investing in various asset classes, such as real estate, stocks, or bonds, can benefit from strategic ownership structures to maximise returns and minimise risks.
  • Families: Those looking to preserve wealth across generations, provide for dependents, or manage family businesses
  • Entrepreneurs: Start-ups and new ventures require clear ownership structures to attract investment, manage risks, and ensure the business’s longevity.

Types of Asset Ownership Structures

Various structures can cater to different needs, including sole proprietorships, partnerships, trusts, companies, and joint ventures. Each has its pros and cons:

  • Sole Proprietorships – offer simplicity but lack asset protection.
  • Partnerships – allow for shared responsibility but come with joint liability.
  • Trusts – provide excellent asset protection and tax benefits but are complex to set up and have some additional costs.
  • Companies – limited liability but are subject to more rigorous regulation and reporting requirements.
  • Joint Ventures are ideal for specific projects but may complicate ownership and profit sharing.

Choosing the right structure requires a deep understanding of each option’s implications for asset protection, taxation, and succession planning. No two situations are the same so it requires a thorough understanding of the goals, risks, intentions and costs associated in each situation.

Tax Implications of Asset Ownership Structures:

The tax consequences tied to different asset ownership structures can significantly influence your choice. These implications affect how much tax you pay and how you report income, and can even determine your eligibility for certain tax deductions or benefits. For example:

  • Trusts might enable income splitting among beneficiaries, potentially reducing the overall tax burden on investment income and capital gains. However, a trust is unable to distribute a loss.
  • Companies are subject to corporate tax rates, which might be higher than individual rates, but offer benefits for reinvested profits and payment to shareholders with Franking credits attached.
  • Sole proprietorships and partnerships often have more straightforward tax reporting requirements but can result in personal income being taxed at higher individual rates.

Understanding the nuances of each structure’s tax implications is crucial for optimising your tax position. Considerations should include:

  • Income Tax: How the structure affects the taxation of income generated by the asset.
  • Capital Gains Tax (CGT): The impact on CGT when selling or transferring assets, especially noting concessions or exemptions available.
  • Estate Planning: How your assets will be treated for tax purposes upon succession or inheritance.

For comprehensive advice tailored to specific circumstances, consulting with tax professionals like those at Bishop Collins is invaluable. Our expertise can guide you through the ATO’s regulations, helping to structure your assets in a way that minimises tax liabilities while meeting your strategic financial objectives.

Common Mistakes to Avoid In Asset Ownership

A hand catching a falling domino with asset papers underneath

Understanding common mistakes and how to prepare for or resolve them is crucial for asset protection, tax efficiency, and succession planning.

Here are some insights into common errors and how to address them:

  1. Failing to Plan for Succession:
    • Mistake: Many overlook the importance of having a clear plan for transferring assets upon retirement, incapacity, or death. This oversight can lead to disputes, assets being tied up in probate, or not being distributed as intended.
    • Resolution: Start succession planning early. Utilise trusts, wills, and buy-sell agreements as part of your structure to ensure a smooth transition. Consult with legal and financial advisors to create a comprehensive plan that reflects your wishes and provides for your heirs.
  2. Underestimating the Importance of Asset Protection:
    • Mistake: Business owners and investors sometimes choose structures that expose their assets to unnecessary risks, such as lawsuits or creditor claims, by not adequately separating personal and business assets. This is usually because when setting up a business the owners are in a growth mindset or a protection mindset.
    • Resolution: Consider structures that offer liability protection, such as corporations or trusts. These structures can help shield personal assets from business liabilities and vice versa. Regularly review and adjust your asset protection strategies in line with changes in your asset portfolio and risk profile.
  3. Neglecting Tax Implications:
    • Mistake: An oversight in understanding the tax consequences of your ownership structure can result in higher taxes or missed opportunities for tax savings. This mistake often occurs when businesses fail to consider how different structures are taxed.
    • Resolution: Work with tax professionals to analyse the tax implications of each structure option. This analysis should include income tax, capital gains tax, and potential estate taxes. Structuring or restructuring your assets with tax efficiency in mind can significantly reduce tax liabilities and enhance asset growth.

Your Expert Partner In Asset Ownership – Bishop Collins

Review your current asset ownership structures and consider whether they align with your financial goals and offer adequate protection and tax benefits.

Bishop Collins is here to support you in making informed decisions about your asset management strategy, ensuring you choose the best structure for your unique situation. Let us help you protect what matters most.

Speak with our team today about organising your asset ownership structures and arrangements.

Succession Plan

6 Steps To Creating Your Business Succession Plan

Small business owners planning for their retirement

Juston Jirwander

Juston Jirwander

Director

“Good fortune is what happens when opportunity meets planning” – Thomas Edison

Thomas Edison hit the nail on the head when he linked good fortune with planning. In the context of succession planning, it means more than just keeping the business going. It’s about setting up future leaders for success and making sure your business remains strong for years to come.

Understanding Succession Planning

A tree with branches curving around different succession planning steps in a graphic

Effective succession planning means dealing with tax issues that can come up when a business changes hands. It’s about making sure the handover is smooth and doesn’t cause big tax problems.

The goal is to figure out what taxes will be due soon and find ways to lessen them. This helps increase the financial benefits for both the current owner and the next.

Establishing the correct strategy that meets your goals is essential for effectively navigating issues related to taxes. This necessitates grasping the effects of Capital Gains Tax (CGT) when transferring business assets and understanding potential liabilities tied to other indirect taxes such as GST, Stamp Duty and Land Tax.

Given that this process can be complex and may take substantial time, consulting with a professional tax advisor is recommended. Doing so will help secure appropriate management of taxation matters and protect against possible fines or penalties.

Step 1: Define Your Succession Objectives

A business man delivering a presentation about succession planning to his colleagues

Initiating the succession planning process begins with establishing your goals, which can vary widely depending on personal circumstances, business goals, and unforeseen events.

  • Are you looking to retire comfortably on the proceeds of your business? This is a common reason for many business owners to initiate a succession plan. Ensuring a comfortable retirement requires a strategy for extracting value from the business in a tax-efficient manner.
  • Perhaps you’re considering transferring ownership to family, selling it to staff members, or finding an external purchaser. In cases involving family members, the plan may include training and mentoring to prepare them for future leadership roles. Selling to staff members might involve setting up employee stock ownership plans (ESOPs), while selling to an external party may necessitate a different approach to valuation and negotiation.
  • Are you seeking to exit the business due to health concerns or a desire for a lifestyle change? If a business owner faces health issues, they may need to expedite the transition to ensure the business continues to operate smoothly.
  • The sudden loss of a key executive or owner can thrust a company into crisis. Succession planning in anticipation of such events can help ensure the business remains stable and the transition of responsibilities is seamless.
  • Legal and financial changes, such as divorce or partnership dissolutions, can also necessitate a succession plan to determine how the business will be divided or managed moving forward.

Each of these scenarios requires a tailored approach to planning that aligns with the specific objectives and circumstances of the business owner. This will also influence which tax strategies are most suitable for achieving these aims.

Example 1: Disposing Of Your Business

When you are looking to divest from your business, it’s essential to consider several critical elements.

At the top of the list is getting a grasp on the tax repercussions that come with such a move.

How you orchestrate the transaction could make you subject to taxes like Capital Gains Tax (CGT).

Timing plays an imperative role when shedding ownership of your business, especially if retirement is on the horizon. It’s crucial to ensure that proceeds from selling off your enterprise will support your transition to retirement.

When considering the value you wish to receive for the sale of any business or major asset you must only think of the market value for that asset. Be careful not to fall into the trap of saying “I need this much to fund my retirement”. A buyer is not there to support your retirement. Adopting this perspective will help you become more realistic and plan more effectively.

In addition you will be required to know what financial support you’ll need once you retire as well as setting clear goals for post-retirement life—making sure there’s harmony between those objectives and how/when you choose to hand over control of your business operations.

Example 2: Closing Your Business

Closing your business involves many important details. It’s similar to selling your business, and you’ll need to consider taxes like Capital Gains Tax (CGT) and GST. Before you close up shop, you’ll have to take care of final tasks like paying any remaining business taxes and cancelling your GST registration.

Apart from dealing with taxes, you’ll also have to think about your responsibilities to your employees, the people you owe money to, and others involved with your business. Before you close your company, pay off any business debts, take care of your employees’ benefits, and handle the remaining business assets properly. A well-planned exit strategy will help you close your business smoothly and avoid legal problems.

If the business is operated through a company structure and you have excess cash after realising all assets and liabilities, you may not want to take the money out in one period but over several periods to effectively manage your tax.

Example 3: Transitioning to Family: A Delicate Dance

Passing your business to family members is a sensitive task that involves more than just signing over the title. It’s a complicated dance of managing family dynamics and ensuring fairness in the distribution of roles and benefits.

This process also comes with legal and tax challenges. For example, giving your business or assets to family could lead to significant tax costs, like CGT.

Example 4: Understanding Buy-Sell Agreements

Succession planning keeps your business going strong, even when owners change. Buy-sell agreements are key. They’re contracts that set rules for what happens if an owner dies, gets sick, leaves, or has to be kicked out.

These agreements keep the business stable by making sure only the right people can take over. They set a price for the owner’s share ahead of time, so there’s no arguing later.

Buy-sell agreements help the business keep running smoothly by letting the right people buy into the company little by little. They prevent fights by having clear rules for who can make big decisions for the business.

Step 2: Business Valuation

A giant hourglass on a table surrounded by business workers with a chessboard in the background

Understanding your business’s value is key to planning for its future. It’s important to know what your business is worth today and how to make it more valuable when you’re ready to pass it on. Different ways of calculating your business’s worth can give you different insights, so it’s smart to get professional help to ensure you’re getting a true picture of what your business is worth.

Determining Your Business’s Worth

Knowing what your business is worth is a big part of planning for its future. Getting a professional to value your business helps you avoid guessing its worth incorrectly, which is important for making a smart succession plan. This valuation shows you the real market price of your business and points out areas that might need improvement.

A variety of techniques are available to appraise the market value of a business, each with its unique approach:

  • The Times Revenue Method – This method calculates the value based on the company’s revenue streams. It multiplies the current revenue figures by an industry-specific multiplier to estimate the company’s worth.
  • Future Maintainable Earnings Multiplier – Instead of revenue, this method looks at the company’s earnings, applying a multiplier to the profits. The multiplier reflects the industry’s current economic climate and the business’s growth potential.
  • Discounted Cash Flow (DCF) – A more complex valuation method, DCF forecasts the business’s future cash flows and discounts them back to their present value. This approach considers the time value of money, offering a present-day valuation based on future earnings potential.
  • Net Tangible Asset Value – This technique is based on the company’s balance sheet. It calculates the value by looking at the company’s total assets minus its total liabilities, representing the net equity of the business.
  • Liquidation Value – This method determines the value by estimating the amount of money that would be left if all assets were sold and liabilities paid off. It’s a worst-case scenario valuation that assumes the business is being liquidated.

Enhancing the valuation of your business not only strengthens its succession plan, but also improves retirement prospects for proprietors who intend to sell their stakes in the company.

Step 3: Simplifying Tax

When you’re planning who will take over your business, it’s important to understand taxes. Start planning early to avoid big tax bills and keep more money in your pocket.

Each step of handing over your business, like selling it or giving it to someone else, has different tax rules. It’s a good idea to talk to a tax expert to make sure you’re making smart choices that save you money on taxes.

  • Capital Gains Tax (CGT) Considerations: Understanding Capital Gains Tax (CGT) is a big piece of the succession planning puzzle. When you sell business property or pass it on, you might make a profit or a loss. This can lead to a tax bill, so it’s good to know about special breaks for small businesses that could lower or even wipe out that tax.
  • Small Business CGT Concessions: These can be a huge help, but you have to meet certain rules to get them. It’s really smart to talk to a tax expert to make sure you get all the tax savings you can when you’re planning for the future sale of your business.
  • Stamp Duty: Changing who owns your business can bring up different tax costs, like stamp duty if you’re passing it to a family member. It’s really important to get advice from a tax expert as they can help you figure out all the taxes you might have to pay and show you ways to pay less. For example an intergenerational transfer of rural land can be exempt from Transfer / Stamp Duty in some states
  • Planning for Retirement with a Self-Managed Super Fund (SMSF): When you’re ready to stop working, you need to make sure you have enough money to enjoy your retirement. One way to prepare is by using a self-managed super fund (SMSF). An SMSF lets you be in charge of your retirement savings and can help cut down on taxes. However, managing an SMSF comes with a bunch of rules. It’s a good idea to talk to a financial advisor to make sure you’re on the right track and not breaking any laws.
  • Making Ownership Transfer Simpler: Changing who owns your business can be tricky. There are different ways to do it, and each one has its own tax and legal rules. Sometimes, special trusts can help make the transfer smoother. It’s important to use the correct legal documents to avoid extra taxes or fees. A will can pass on your business after you pass away, but it’s not enough by itself, especially for businesses held in trusts.

Step 4: Develop a Comprehensive Succession Plan

Having succession plans for who will take over your business is crucial. This plan outlines who will step into key roles, sets a timeline for the transition and explains how it will affect the business’s finances. To be sure that you and the next owners get the most financial benefit, the plan should also include ways to handle taxes smartly.

Your plan should be flexible, changing as needed when there are new developments in your business, changes in your family, or new tax laws. Using a template for your succession plans can make updating it simpler. With a well-prepared plan, you can feel confident that your business will keep running smoothly with the new leaders in charge.

Step 5: Implement Estate Planning Strategies

The process of succession planning makes sure your business keeps going after you’re gone, and estate planning decides who gets your personal and business stuff when you pass away. Combining the two helps pass on your assets easily and can save on taxes.

Estate planning includes making a will, setting up trusts, and planning for taxes you might owe. For business owners, this could mean giving the business to someone else or selling it for the best price.

Step 6: Seek Professional Advice

When you’re changing who’s in charge of your business or getting it ready for new owners, there are a lot of rules and tax issues to think about.

That’s why it’s so important to get help from experts like business advisors, accountants, and lawyers. They know the rules and can help you make a plan that works.

With their help, you can figure out what your business is really worth and find the best ways to handle taxes. This makes sure you don’t run into any legal or money problems later on.

Your Partner In Transitioning Your Business

Bishop Collins helps you plan who will take over your business. We make it easier by:

  • Explaining the tricky parts of planning for the future
  • Giving clear advice to move forward with confidence
  • Making tax stuff less complicated
  • Ensuring a hassle-free change in your business leadership

We’re experts at picking the right people for important jobs, like who will lead your team. And we’re here to support you every step of the way.

Remember, you’re not alone when it comes to business. Get in touch with us today to kickstart your succession planning the right way.

Asset Protection

A Guide For Small Business Owners Planning Their Transition To Retirement

Small business owners planning for their retirement

Juston Jirwander

Juston Jirwander

Director

“Retirement is not the end of the road. It is the beginning of the open highway.” – Unknown

For small business owners, the journey to retirement involves meticulous planning and strategic decisions that not only ensure personal financial security but also secure the future of the business you’ve built.

At Bishop Collins, we understand the complexity of this transition and are here to guide you every step of the way. This guide delves into actionable strategies, including a detailed look at leveraging the small business CGT retirement concession, to prepare you for a successful transition to retirement.

1. Financial Readiness: Crafting a Secure Future

For many business owners, retirement isn’t just about stepping away from the workforce; it’s a transition into a new life chapter requiring careful planning. Start by setting clear retirement goals and assessing your current financial situation.

Assessing Your Financial Landscape

  • Budgeting your retirement lifestyle: Do you dream of travelling, pursuing hobbies, or maybe relocating? Planning for these aspirations requires a detailed budgeting exercise. Factor in the costs of your activities, potential relocation, and daily living expenses. This not only helps in setting savings goals but also ensures your retirement planning aligns with the lifestyle you desire.
  • Review Your Personal Finances: Begin with a comprehensive review of your savings, investments, and expected retirement lifestyle costs. Tools like the Australian Tax Office’s (ATO) superannuation calculators can offer insights into how prepared you are.
  • Maximise Your Superannuation: Contribute more to your super through concessional (pre-tax) or non-concessional (after-tax) contributions to boost your retirement savings. The current caps on these contributions are subject to change, so refer to the ATO website for the latest figures.

2. Business Valuation and Succession Planning

  • Get a Professional Valuation: Understand the true worth of your business through a professional valuation. This will be the cornerstone for negotiating a sale or transferring ownership.
  • Draft a Succession Plan: Decide on the future of your business – be it passing it on to a family member or selling. Detail the process in your succession plan, including timelines and training for the successor.

Additionally, consider your business’s legal and financial structure and how it will affect the transition. A well-thought-out plan eases the transfer of responsibilities, ensuring the business’s longevity.

WORD OF WARNING – Do not think that this process will only take a few months. An effective succession plan can take between 18 months to 3 years.

3. Tax Strategies: Capitalising on Concessions

On the path to retirement, it’s important to leverage available tools and strategies to maximise your capital – like the Small Business CGT Retirement Concession. Looking at eligibility criteria can help you to ensure you can make the most of your small business in the lead up to retirement.

Small Business Capital Gains Tax (CGT) Retirement Concession

One of the most potent tools at your disposal is the small business CGT retirement concession, which can significantly reduce or even eliminate the capital gains tax from the sale of your business assets, under certain conditions.

Eligibility Criteria For The Small Business Retirement Exemption

There are many criteria and conditions that must be satisfied before you can claim CGT concessions however below are some of the basic eligibility conditions:

  • Your business must have an aggregated turnover of less than $2 million, or the total net value of CGT assets you or any affiliates or entities connected to you hold must not exceed $6 million.
  • The assets being sold need to have been actively used in the business.
  • For some exemptions you must have owned the assets for a minimum of 15 years and be over 55 and retiring, or otherwise, you’ll need to contribute the proceeds into your super fund to offset against any CGT.

Steps to Leverage the Concession:

  1. Determine Eligibility: Consult with a tax advisor like those at Bishop Collins to verify your eligibility for the concession based on the ATO’s criteria.
  2. Restructure if Necessary: If your current business structure does not qualify, consider restructuring. This might involve changing from a sole proprietorship to a company or trust, but it requires careful planning to avoid triggering other tax liabilities. A restructure may also affect the timing of any planned retirement or succession plan.
  3. Implement the Concession: If selling, ensure that the sale process aligns with the ATO’s requirements to apply the CGT concession. If retiring without selling, consider the most appropriate way to have your business assist you in your transition to retirement.

4. Embracing SMSF: A Strategic Move for Business Owners

For business owners navigating the path to retirement, managing financial security is paramount. An SMSF, or Self-Managed Super Fund, offers a level of control and flexibility that’s particularly aligned with the entrepreneurial spirit that drove your business success. Here’s why it may make sense:

  • Control Over Investment Choices: As someone accustomed to steering a business, an SMSF allows you to apply your acumen to managing your retirement funds. You can decide how to invest, with the option to include business property and a broader range of assets not typically available in public super funds. If you wish to invest in physical property the only method of doing this is through a SMSF.
  • Estate Planning Advantages: SMSFs offer significant estate planning flexibility, allowing you to tailor how your assets are distributed to your beneficiaries in a tax-effective manner. This aligns with the desire of many business owners to secure their family’s future financial well-being.
  • Taxation Benefits: The ability to manage your tax position through strategic investment decisions and pension payments can be especially beneficial for business owners looking to maximise their financial legacy. SMSFs can offer tax advantages, such as reduced income tax on investment earnings and potential CGT concessions.

Bishop Collins can assist in setting up an SMSF and the ongoing management of an SMSF, however, we do recommend that a financial advisor be engaged to ensure your financial strategy is met by an SMSF.

Setting up an SMSF as part of your financial retirement strategy can offer you the control, flexibility, and tax efficiency you’re accustomed to as a business owner.

5. Implementing Your Transition Plan

  • Conduct Regular Financial Health Checks: Your financial status can change, impacting your retirement readiness. Regularly review your finances and adjust your plans accordingly.
  • Stay Informed: Tax laws and superannuation regulations evolve. Keep abreast of changes to ensure your retirement plan remains effective and compliant.
  • Seek Professional Advice: Navigating the complexities of retirement planning, especially around tax concessions and business restructuring, requires expert guidance. Engage with professionals who specialise in small business retirement planning.

Your Next Steps

Embarking on retirement as a small business owner is a significant transition that requires careful planning and strategic decision-making. By assessing your financial readiness, understanding the value and future of your business, and effectively utilising tax strategies like the small business CGT retirement concession, you can secure a prosperous and stable retirement.

At Bishop Collins, we’re dedicated to supporting you through this transition. With our expertise in taxation, business services, and wealth management, we can help you navigate the complexities of retirement planning. You’re not alone in this journey.

Ready to plan your business assets toward retirement? Reach out to us for personalised guidance and support. Let’s ensure your retirement marks the beginning of a rewarding new chapter.

Asset Protection

Shielding Your Business: Strategies for Asset Protection

Illuminated shield with lock being protected by a light ring. It depicts shielding business assets for a Bishop Collins blog.

Juston Jirwander

Juston Jirwander

Director

In the ever-evolving business landscape, asset protection is a crucial aspect of financial planning – especially for business owners.

This guide is designed to help business owners and investors learn strategies for safeguarding their assets against legal and financial threats. We’ll explore how the right combination of legal structures and tax strategies can serve as a shield for your business assets.

Key Takeaways

  1. Effective Legal and Tax Strategies: Gain insights into selecting the right legal structures, like a proprietary limited company or a discretionary trusts, for robust asset protection, and understand how strategic tax planning can mitigate liabilities and safeguard personal and business assets.
  2. Navigating Personal Liability: Learn the importance of managing personal guarantees and their impact on personal assets, and explore risk management techniques to protect against personal liability in business ventures.
  3. Comprehensive Protection Approach: Discover a multi-faceted approach to asset protection, encompassing legal, insurance, and tax planning strategies, tailored to secure your investment properties and business assets against legal threats and financial uncertainties.

property, house, real estate - asset protection strategies from Bishop Collins Accountants

Understanding the Importance of Asset Protection

Asset protection is the strategic defence of your business assets from potential threats like lawsuits, bankruptcies, physical damage and tax liabilities. It’s a crucial step in ensuring the long-term security and growth of your business. For instance, if you run a manufacturing business, protecting the machinery and intellectual property is essential for operational continuity.

Key Strategies for Business Asset Protection

Effective asset protection for businesses involves a multi-faceted approach, including the use of legal structures, insurance policies, and tax planning.

  1. Legal Structures for Protection: Different business structures offer varying levels of asset protection. For instance, forming a company can provide a separation between personal and business assets, reducing personal risk in case of business liabilities.
  2. Insurance as a Defence Tool: Insurance policies can act as a first line of defence for your business assets. Comprehensive coverage can protect against a range of risks, from property damage to liability claims.
  3. Tax Planning and Compliance: Strategic tax planning can significantly impact asset protection. It’s about understanding and leveraging tax laws to safeguard assets while optimising tax liabilities.

Choosing the Right Business Structure

The choice of business structure plays a pivotal role in asset protection.

Each structure, from sole proprietorships to corporations, has its implications for how assets are protected and taxed.

For example, while a sole proprietorship offers simplicity, it may expose personal assets to business risks. In contrast, a corporation can offer stronger protection of business and personal assets but with different tax implications.

Using Trusts for Business Asset Protection

Trusts can be an effective way to protect business assets. By placing assets in a trust, they are legally owned by the trust, not by the business or business owner, providing a layer of protection against creditors and lawsuits. However, setting up and managing trusts requires careful legal and tax consideration.

Navigating Tax Implications in Asset Protection Strategies

Tax considerations are integral to crafting an asset protection strategy for any business owner. Effective tax planning can help minimise exposure to liabilities while maximising the benefits of asset protection structures.

Understanding the nuances of tax laws related to business assets is key to developing a robust asset protection strategy.

Balancing Asset Protection with Capital Gains Tax Considerations

Understanding the implications of asset protection for capital gains tax is crucial for any investor or business owner.

When assets, particularly investment properties, increase in value, selling them can lead to significant capital gains tax liabilities.

Effective asset protection strategies in this case often involve the use of legal structures such as trusts or companies, which not only shield assets from potential legal and creditor threats but can also influence the amount of capital gains tax owed.

For instance, holding an investment property in a discretionary trust may allow for a more flexible distribution of capital gains and potentially reduce tax liabilities through strategic planning. However, if the investment property makes a loss it cannot be passed on to the beneficiaries. It is important to navigate these strategies within the framework of tax laws to ensure compliance and optimise tax outcomes for the individual taxpayers situation.

Each asset protection decision can have profound tax implications, emphasising the need for careful consideration and planning to balance protection objectives with efficient tax management.

Personal Guarantees and Risk Management

Personal guarantees often come into play in business financing and can pose a risk to personal assets. Risk management strategies, such as limiting the scope of guarantees and ensuring proper legal advice, are essential in protecting personal assets from business risk.

Try to avoid providing Personal Guarantees. Instead, it’s recommended to provide a greater security deposit, shorter payment periods, or company guarantees.

Implementing Effective Asset Protection Strategies

To effectively shield your business assets, it’s crucial to:

  1. Conduct a Risk Assessment: Regularly assess the potential risks to your business assets and update your protection strategies accordingly.
  2. Stay Informed and Compliant: Keep abreast of legal and tax changes that could affect your asset protection strategies. Ensure compliance with all relevant laws and regulations.
  3. Seek Professional Advice: Consulting with legal and financial experts can provide valuable insights into the best practices for protecting your assets in line with your specific business needs.

outdoor dining, restaurant, bar - an example of how important asset protection and transferring assets is to protect assets

Storytime: An Example of the Importance of Asset Protection Strategies

Jared’s journey as the owner of a burgeoning restaurant is a compelling lesson in the importance of asset protection.

Initially operating as a sole proprietor, Jared’s personal and business assets were dangerously entwined. Jared sought the guidance of a Chartered Accountant. Together, they transformed the business into a Pty Ltd company, a move that crucially separated his personal assets from business risk.

Additionally, a discretionary trust was set up for further protection and tax benefits, complemented by a comprehensive insurance plan tailored to cover unforeseen events.

The restructure paid immediate benefits when a kitchen fire led to a hefty lawsuit.

This strategic restructuring was a challenging but enlightening journey for Jared.

The lawsuit was settled as the company did not pose a valuable target for a legal liability claim, and the restaurant emerged stronger and more resilient.

Jared’s experience is a powerful testament to the necessity of proactive asset protection. It exemplifies how business success brings not just rewards but significant risks, underscoring the need for strategic foresight in safeguarding one’s hard-earned assets.

Secure Your Assets With Bishop Collins

Asset protection is not just about safeguarding wealth; it’s about ensuring the stability and growth of your business in the face of uncertainties.

By understanding and implementing effective strategies to protect your assets, you can create a secure environment for your business assets.

From choosing the right legal structures and understanding tax implications to managing personal guarantees and regular risk assessments, each aspect plays a critical role in building a robust shield for your business assets.

Remember, asset protection is an ongoing process that requires vigilance and adaptation to changing business landscapes.

Whether through trusts, appropriate business structures, or strategic tax planning, the goal is to secure your business assets today for a prosperous and stable tomorrow.

Fraud Prevention

Recognising the Red Flags: Signs of Employee Embezzlement

Man holding piggy bank behind his bank

In our complex and sophisticated business environment, fraud is an ongoing risk and concern for businesses. New scams and patterns emerge as new opportunities present themselves and fraudsters find ways around detection and prevention measures.

However, there are known fraud schemes that occur again and again, across different geographies, business types, and industry sectors. These schemes are often simple, but the impact on your business can be significant. Sadly, these fraud schemes are most often perpetrated internally by the organisation. These cases are known as internal fraud, the most common type of which is embezzlement.

At Bishop Collins, we specialise in audit and assurance services designed to protect your business against internal and external fraud. This guide will explore what embezzlement entails, red flags to watch out for, and strategies you can use to help combat internal fraud in your organisation.

Internal vs External Fraud

Business fraud can occur internally and externally in an organisation. Internal fraud is any criminal act committed by someone associated with a business. This could be a staff member, a member of management or a member of governance. For example, an employee making deposits into their account or paying personal expenses on the corporate account.

External fraud is committed against an organisation from the outside. This might be technological threats courtesy of hackers, suppliers who lie about the work they did or services provided, and sadly, customers who attempt to return imitated or stolen products.

Point of sale fraud by an employee

Types of Internal Fraud

Internal, or occupational, fraud generally falls into three categories:

  • Asset misappropriation: Involves an employee stealing or misusing the employer’s resources.
  • Financial statement fraud schemes: Where the perpetrator intentionally causes a material misstatement or omission in the organisation’s financial statements.
  • Corruption: This includes offences such as bribery, conflicts of interest, and extortion.

In this article, we’ll focus on the widespread issue of embezzlement as a main type of asset misappropriation fraud. This type of internal fraud is also known as occupational fraud.

Asset Misappropriation Fraud: The Prevalence of Embezzlement

Embezzlement is among the most damaging types of asset misappropriation fraud businesses face. Employees can exploit their position within a company to commit acts of theft which, in many cases, goes undetected for long periods.

Embezzlement usually falls within two distinct categories: physical cash (including receipts or disbursements) and inventory or other assets.

Physical Cash, such as petty cash, can be simply taken by a perpetrator. Cash receipts fraud includes taking amounts received from customers which should, ordinarily, be banked. This includes schemes such as ‘skimming’ and cash larceny.

Disbursement fraud is becoming more commonplace in our technologically connected and complex business environment. This includes billing schemes, payroll schemes, expense reimbursement schemes, payment tampering, and register (or point-of-sale) disbursements.

Inventory and other assets frauds involve the misuse of employer assets as well as larceny. Larceny of other assets includes asset requisitions and transfers, fabricated sales and shipping, and purchasing and receiving schemes.

Embezzlement vs Larceny

Interestingly, there are subtle legal differences between embezzlement and larceny. These differences depend on the jurisdiction of the offence that occurred (as well as the specific circumstances).

In broad terms, the main difference is based on who had possession of the asset when it was taken. If the property was in the possession of the perpetrator, then it would be treated as embezzlement. If the asset was taken when in possession of the employer, however, then the matter will potentially be treated as larceny.

Who is at Risk of Internal Fraud?

All organisations have a susceptibility to internal and external fraud. Businesses with fewer than 100 employees are at much higher risk for employee fraud and embezzlement than larger corporations are.

Moreover, organisations with the fewest employees have a higher median loss in employee fraud cases. Small businesses also struggle more heavily to recover from these losses compared with larger businesses.

Fraud arising from dishonest behaviour not only undermines profits, operating efficiencies and reliability, but it can also severely damage an organisation’s reputation.

Employee reviewing financial documents

How Does Internal Fraud Occur?

In nearly 50% of internal fraud that occurs, the opportunity for fraud to be perpetrated was a result of either inadequate internal controls or internal controls simply being bypassed.

Interestingly, there is an inverse relationship between the internal control weakness and the character of the perpetrator. For example, employees perpetrating fraud do so through a lack of internal control or override of existing controls.

In contrast, executives largely override existing controls or there is an inadequate ethical culture (i.e. ‘tone at the top’) rather than there being a lack of internal control. For executives, it’s often their level of influence, authority and access within an organisation that affects how they can perpetrate fraud in this manner.

Unsurprisingly, the frequency of embezzlements committed by executives was less than by employees; although the financial loss incurred was markedly greater by about six times.

The Red Flags of Embezzlement

When a person is engaged in internal fraud, particularly embezzlement, that person will often display certain behavioural traits that tend to be associated with fraudulent conduct. It’s important to watch out for these red flags in efforts to identify, manage, and ultimately prevent employee fraud from occurring at your workplace.

Organisations with potentially greater exposure to internal fraud might have employees exhibiting the following characteristics, at least one of which has been exhibited by over 80% of reported fraudsters:

  • Unwilling to share duties, or avoid having others assist or relieve them.
  • Work long hours, including returning to work after hours and days off (including weekends).
  • Resist taking annual, long service or sick leave.
  • Resign or leave suddenly.
  • Have a large number of void transactions, or conversely, have a low number of transactions.
  • Replacing existing suppliers with suppliers that they have a close connection with.
  • Refusal to implement, or adhere to, internal controls (e.g. skipping approvals, failing to keep appropriate or accurate records or receipts).
  • Are unusually or overly inquisitive about the company’s payment system, or seek access to areas which they should not be able to access.
  • Exhibiting financial hardship, such as always appearing unable to meet financial liabilities, or seeking loans and pay advances.
  • Having past legal and/or compliance problems.

In addition, employees engaging in embezzlement may start to exhibit other unusual behaviours or attitudes. Look out for people who seem to live a lifestyle above their means, or who start to lavish expensive gifts on their colleagues.

You might also see bullying of other employees, a fraudster being affected by significant personal stress, displaying a strong sense of entitlement, or simply being openly unhappy with their employer (such as complaints about pay or leave entitlements).

Human Resources conducting a staff check-in meeting

How You Can Combat Embezzlement

As we often say at Bishop Collins about issues like fraud, prevention is always better than a cure. Every process, especially those involving cash and assets, should have checks and balances in place to identify and prevent fraud.

Our experts offer practical tips on how to reduce the risk of internal fraud within your business, which can go a long way in safeguarding your assets, finances, and reputation.

Promote an Ethical Culture in Your Entity

This is often referred to as the ‘tone at the top’. A good ethical culture also includes having clear policies and protocols relating to fraud prevention and detection, embezzlement awareness training (including refresher training), conflicts of interest, related party transactions and secondary employment.

Establish Strong Human Resource Management

This includes employee screening, implementing an equitable remuneration system, and providing job descriptions that segregate duties. It can also be beneficial to provide adequate training and education for your employees in the areas of fraud detection and management.

It’s important to effectively communicate policies and expectations of compliance to your team so they understand the far-reaching negative effects of embezzlement, which goes a long way in deterring unwanted behaviours. Finally, ensure your company understands things like audit regimes and the consequences of non-compliance.

Separate Duties and Delegations

As the old saying goes, be wary of putting all your eggs in one basket. Having only one or two employees responsible for key areas of finances and reporting can be risky.

Instead, delegate various tasks to more people within the business to ensure an even, safer spread of responsibilities. This includes appropriate and independent management oversight as well as restricted thresholds for transaction processing.

Review and Update IT Accesses and Transaction Processing

Access privileges should be assigned with care and due diligence and make a note of who controls what. This is also referred to as access on a need-to-know basis.

You may also want to consider restricting access to transaction processing or placing dollar value limits on transactions. This can help to keep larger processing amounts away from potential fraudsters, reducing the risk of fraud temptation and occurrence.

Invest in Strong Security Measures

Oftentimes, embezzlement and internal fraud can be caught at the very first instance (or even, ideally, prevented due to recognising red flags) thanks to good quality security measures within a workplace.

Invest in physical security like safes, CCTV, and physical access restrictions to ensure the safety of your business assets.

It’s also a good idea to actively and regularly test existing internal controls and fraud countermeasures, which may involve security and other measures you implement in your organisation. Watch for gaps, failures, or anything that doesn’t have the desired effect, and make changes where necessary.

Actively Monitor Employee Functions and Leave

No company wants to be overbearing, but there is a way to actively and supportively monitor your employees’ movements without being ‘that boss’. Ensure you’re up to date with your staff members’ functions and leave balances by taking an active approach to management.

Consider regularly rotating staff in high-risk positions and establishing requirements for staff to take annual leave regularly. Check in with your team via routine meetings and progress reports, and take a vested interest in their wellbeing. This not only allows you to stay close to goings-on in the business but also positions you as an attentive boss – one who cares, and one who won’t miss potential embezzlement attempts.

Regularly Audit Your Business

Regular accounts auditing is one of the most effective ways to spot anomalies that could signal fraud is taking place. External audits are mandatorily required by many businesses, but others elect to undertake these voluntarily. An internal audit can also help identify anomalies and irregularities.

At Bishop Collins, we specialise in conducting audits for a wide range of organisations. If you require assistance with your audit, get in touch with our team.

Team members doing fraud awareness training

The Bottom Line: Develop a Fraud Risk Management Framework

A fraud risk management framework, encompassing internal and external audits, offers greater protection for a business against fraud. This kind of comprehensive fraud risk management encompasses awareness, prevention, and detection, making it a crucial prevention strategy to understand and recognise red flags.

The secret to creating a good fraud risk management framework lies in investing in regular fraud awareness education for your employees. These training sessions help educate your employees on what constitutes internal fraud, corruption, and employee misconduct, as well as the common red flags that are exhibited by those committing fraud.

Early detection, and encouraging employees to speak up and report concerns, allow your business to limit your losses due to internal fraud.

Protect Yourself Against Fraud With Bishop Collins

Internal fraud and embezzlement can come at a serious cost to your business, both financially and in terms of reputation. It’s something that can get out of hand very quickly if the proper safeguards are not in place.

Internal fraud management can seem daunting – with so many moving pieces and important strategy aspects to consider, it can feel like a full-time job. This is where the team at Bishop Collins can help.

We can chat through your concerns and pinpoint areas of improvement within your business, as well as conduct thorough audits and training to ensure you’re protected against embezzlement.

If you’re interested in learning more about internal and external audit, fraud risk management, and awareness training, get in touch with us for an obligation-free chat or simply call us on (02) 4353 2333.

Fraud Prevention

Unmasking the Culprits: Types of Fraudsters Your Audit Should Identify

handcuff resting on the word fraud printed on paper

The threat of fraud in a complex and sophisticated business environment is real. Financial systems become more complex over time to fulfil the quest for information from their owners.

Accordingly, opportunities are inherently created for fraudsters to thrive. For this reason, fraud is constantly evolving: new scams and patterns evolve as new opportunities emerge and fraudsters find ways around detection and prevention measures.

Still, many types of fraud and schemes occur again and again, across different geographies, business types, and industry sectors. In this blog, we’ll cover:

  • Internal fraud, including embezzlement and fraudulent payments, and
  • External fraud, such as hackers, supplier fraud, and customer fraud.

Let’s delve a little deeper into the most common types of fraudsters and how best to respond to them with internal or external audits to help protect you and your business.

Fraudsters From Within

Internal fraud is any criminal act committed by someone associated with a business. This could be a staff member, a member of management, or a member of governance. Also known as occupational fraud, this could look like an employee making deposits into their account, or paying personal expenses on the corporate account.

This type of internal fraud is also referred to as ‘occupational fraud’. It’s among the most damaging types of fraud businesses face since employees can exploit their position within a company to commit acts of theft and embezzlement. In many cases, this kind of fraud goes undetected for long periods.

To better understand internal fraud, we can categorise it into four distinct types.

newspaper with the headline white collar crooks

Embezzlement

Embezzlement is when someone connected to a business steals funds, typically money or amounts in the corporate bank account.

Importantly, embezzlement is not as straightforward as theft. This is because there is usually a manner in which the fraud is concealed in order to avoid detection.

Fraudulent Payments

Fraudulent payments fraud is when someone connected to a business establishes a payment to themselves or a third party.

Typically, this type of fraud takes three forms:

  • Invoice fraud: When an employee sets up fake invoices to pay themselves or a third party from the company’s accounts.
  • Wage fraud: When an employee creates ‘ghost employees’ on a company’s payroll, listing them as offering ‘third-party services’ when in reality they’re fake and the employee can access the monies paid.
  • Expenses fraud: When an employee manipulates expense documents, forging declarations and signatures to receive reimbursement for fabricated expense requests.

As you might expect, fraudulent payments are difficult to detect since they’re often carefully masterminded and concealed in genuine payment and invoice requests.

Data Violations

Data is one of the most valuable assets of a business, and data fraud is quickly becoming one of the biggest threats to modern companies. Certain major Australian companies may spring to mind when thinking about recent data breaches, some of which were nationwide, affecting millions of people and businesses.

Data theft by staff can potentially be on-sold or used as leverage, for instance, in a bribery scenario. Businesses face the risk of severe reputational damage when their data and assets are improperly used by current or outgoing employees.

In efforts to keep track of data breaches and respond to them swiftly, the Notifiable Data Breach (NDB) scheme was instated in 2018. The scheme dictates that data breaches occurring to Australian companies with an annual turnover of $3 million or more report such breaches to the Australian Information Commissioner (OAIC).

Financial Statement Fraud Schemes

Financial statement fraud schemes involve intentional actions by individuals to cause material misstatements or omissions in an organisation’s financial statements. These schemes are a form of white-collar crime where the perpetrating party manipulates financial records for personal gain or to deceive stakeholders.

The motives behind financial statement fraud can vary, ranging from inflating profits to meet financial targets, concealing poor performance, or attempting to boost stock prices. Perpetrators may employ various techniques, such as inflating revenues, understating expenses, or manipulating accounting entries to present a false financial picture.

This type of fraud can have severe consequences for investors, creditors, and other stakeholders, eroding trust and damaging the financial health of the affected organisation.

Responding to Internal Fraud

When it comes to internal fraud, prevention is better than cure. At Bishop Collins, we offer clients practical tips on how to reduce their risk of internal fraud – check them out below:

Segregation of Duties

It’s rarely a good idea to leave one person in charge of your business’ accounting and finances. Instead, split management between two or more parties to improve accountability and make things more difficult for would-be fraudsters.

We also recommend segregating the initiation, review, approval, recording, and disbursement functions between different roles to not only promote transparency and accountability but also to lessen the likelihood of collusion.

Review and Update Access Controls

Who has access to what systems and platforms within your business? Access privileges should be assigned with care and due diligence and make a note of who controls what. This is also referred to as access on a need-to-know basis.

Regularly Audit Your Accounts

Regular accounts auditing is one of the most effective ways to spot anomalies that could signal fraud is taking place.

External audits are mandatorily required by many businesses, but others elect to undertake these voluntarily. Importantly, an internal audit can also help identify anomalies and irregularities.

At Bishop Collins, we specialise in conducting industry-customised company audits to help you identify pain points and safeguard your company.

Screen Your Employees

Business owners need to vet all prospective employees to reduce the risk of falling victim to internal fraud. That means always following through on references, conducting background checks, reviewing social media, and a comprehensive interview process.

External Fraudsters

External fraud is when a business is the victim of someone outside of its organisation. We commonly hear of hackers sending phishing emails, suppliers who lie about the work they did or services provided, and sadly, customers who attempt to return imitated or stolen products.

We can categorise external fraudsters into three main types.

phone with a lock icon in front of computer code

Hackers

Unless you’ve been living under a rock, you will not need an introduction to hackers and the effect they have on businesses. Hackers target not only large, listed entities but also smaller enterprises and government agencies.

Recent examples include an Australian personal loan and financial service provider, affected by a data breach that impacted 14 million customers in Australia and New Zealand. The data breach was initiated after the credentials of an employee were stolen.

Similarly, a large telecommunications company and health insurance company fell victim to hackers through ineffective credential management of users and multi-factor authentication.

In both of these cases, the hackers sought a ransom from the companies that fell victim to the theft of customer data. For this reason, keeping up with strict and active cybersecurity efforts is paramount.

Supplier Fraud

Another type of fraudster from outside the business can be in the form of a supplier (vendor) to the business. This applies to new and existing suppliers of the business.

Vendor fraud is a type of malpractice used by fraudsters to scam a company’s accounts payable department into paying a vendor, or sometimes multiple vendors, for amounts not rightfully earned.

Sometimes, the fraudulent activity is orchestrated by a vendor acting alone. Other times, sadly, it is carried out with the assistance of an employee.

Supplier fraud takes many forms, some of the most common including:

  • Fictitious supplier: In this arrangement, an employee submits a payment request from a non-existent supplier or an actual supplier that never delivered any goods or services.
  • Duplicate invoice payments: This happens when an employee duplicates invoices from a legitimate vendor, with the plan of diverting payments to an account under their control.
  • Over-billing: An over-billing fraud scheme occurs when a vendor inflates the price or quantity of items on an invoice by adding items they never delivered or higher prices of delivered goods.
  • Bid-rigging: Bid rigging is a fraud scheme that involves a supplier offering compensation (or financial benefit) to an employee with a strong influence to secure a contract and supplier payment.
  • Price-fixing: Price-fixing happens when two or more vendors conspire to fix the cost of a contract at a price higher than normal. The business is left with no choice but to work with an inflated cost.

Customer Fraud

One of the most common types of fraudsters, and one you may have seen in day-to-day life, are customer fraudsters. When a customer returns an item to a business to get a refund or credit, this is referred to as return fraud.

Return fraud encompasses a variety of fraudulent return practices, such as wardrobing or renting, counterfeit returns, price tag flipping, and returning stolen goods.

  • When a buyer buys something with the idea of using it just once and then returning it for a refund, this is known as wardrobing or renting.
  • Exchanging price tags is considered as returning counterfeit goods while returning fake products falls under the returning counterfeit commodities category.
  • Returning items that have been stolen from a retailer is referred to as returning stolen goods.

These frauds have a significant financial cost to businesses, particularly those in the retail sector. While customer fraud can often be easier to catch or detect than other types of fraud, it’s still a sticky situation when dealing with Australian Consumer Law and the old adage of ‘the customer is always right’!

Responding to External Fraud

Concerning external fraud, the emphasis lies on proactive prevention rather than reactive solutions – the same as internal fraud. Luckily, we have several actionable insights to minimise your susceptibility to external fraudulent activities.

Supplier Management

Implement a supplier management platform or protocol. Supplier management is the process of supporting and empowering vendors through establishing and nurturing long-term relationships.

This includes finding and choosing the right vendor for the company’s needs, controlling the costs and supplier risks, and paying for the services and goods consumed.

Delegate Duties

We said it before, and we’ll say it again – it’s rarely a good idea to leave one person in charge of your business’ internal controls. Segregate the initiation, review, approval, recording, and disbursement functions between different roles.

Importantly, implementing supplier matching protocols reduces the likelihood of fraud. This is achieved by matching supplier invoices to other documents such as purchase orders, payment receipts, inspection slips, delivery dockets, and so on. This is also referred to as ‘the three-way match’.

Screen Employees and Conduct Employee Training

It’s important to run background checks to identify relationships between employers and suppliers. Similarly, businesses should ensure employees are aware of policies, procedures, and protocols.

Ensuring documentation is produced and reviewed and not entering into transactions with incomplete or inconsistent information. This applies to both working with suppliers and serving clients and customers.

staff members conducting an audit

Protect Your Business Against Fraud

Fraud arising from dishonest behaviour not only undermines profits, operating efficiencies and reliability, but it can also severely damage an organisation’s reputation. Fraud may be on the increase, but with the right management and approach, you can reduce the likelihood of your business falling prey to fraudsters.

An external or internal audit certainly helps deter fraudsters. Used in conjunction with a carefully designed and effectively operating internal control environment offers greater protection for a business against fraud.

For an obligation-free chat, get in touch with the Bishop Collins team. We can assist you with audit and assurance services, during which our experts will provide advice and guidance on how to protect your business against fraud, or how to deal with any fraudulent activity you suspect.

Remember, prevention is key – don’t wait to safeguard your company until it’s too late!

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