Commercial leases

A retail or commercial lease is a legally binding contract between a landlord and a tenant of a retail shop that allows the tenant to use the landlord’s asset (property) in return for rental payments.

While leases can be complex and difficult to understand, it is essential for both parties to have a thorough understanding of the terms and conditions before making a commitment.

It is equally as important that both parties understand their rights and obligations in relation to the lease to be able to deal with any disputes that may arise.

Unfortunately, disputes can arise between tenants and landlords. To resolve these disputes cost-effectively and with as little damage to the relationship as possible, those involved must be logical and clear about the facts.

In many cases, having a well-written lease or other associated documents can set out what both parties agreed to, and help determine the correct action to be taken.

It may be in both parties’ best interests to seek financial and/or legal advice before making a commitment to buy, lease, or incur other obligations, signing an offer to lease, making a payment of any deposit or occupying the leased premises.

What happens to your business if something happens to you?

For many entrepreneurs, their business is their most valuable asset. Yet they’ve done little to make sure its value is sustained if they’re out of commission. Even if you’re unavailable for a relatively short period of time, can your business keep going without you?

On the most basic level, you want to make certain your business can continue if you’re merely indisposed. You don’t want to lose money just because no one has the authority to pay a bill or has the password to access your email.

Ideally, it would be best if you don’t lose customers while you’re out of pocket, and there are ways to find back-ups even if you work alone. Here are some of the things you can address to handle short-term difficulties:

Minor expenses
To make it easy to handle day-to-day purchases, get a credit card (with a low credit limit) for the person who’s going to handle your administrative matters.

Passwords
Can anyone else access the information in your email, computer documents, bank accounts, or manage your website? Make sure someone trustworthy knows where to find your passwords.

Basic knowledge of business affairs
If you don’t have an administrative employee, does anyone in your family know how to locate your tax records, find your accounts receivable or use your software program? Do they know who your attorney or accountant are? Make a list of such details and show a family member.

Employment termination payments

An employment termination payment (ETP) is a lump sum payment an employer makes to employees when their employment is terminated.

Depending on the age of the employee, and the length of their employment, the amount of an ETP may be taxed at a different rate. An ETP may encompass a tax-free portion, a concessionally taxed portion and a taxed portion.

To be eligible for concessions and to qualify for a lower rate of tax, employers must make an ETP to an employee within 12 months of their termination. Otherwise, the entire amount will be included in the employee’s assessable income and taxed at marginal rates.

An ETP may include:

• compensation for loss of job

• payment instead of notice

• a gratuity or “golden handshake”

• payments for redundancy or under an early retirement scheme

• compensation for wrongful dismissal

• unused sick leave

• unused rostered days off

An ETP does not include:

• payments for unused annual leave, long service leave or leave loading

• salary, wages, allowances, bonuses and incentives the employer owes the employee for work done or leave already taken

• payment for a restraint of trade

• compensation for personal injury

• employee share scheme payments

• foreign termination payments

• an advance or loan

When to get a business partner

Starting and running a business can be a lot more fun when you’re working with someone you like and respect. With a partner, you have someone to share the excitement and risks of running a company; someone to bounce ideas off of; to help shoulder the financial and work-load burden.

But partnerships have perils. Over time, partners are likely to have disagreements, resentments, changing goals and lifestyle choices. Partners may also have conflicts about how to spend money, who to hire, which direction to take the company. When partners don’t get along, the business inevitably suffers.

Before you get into a partnership, be sure to:

Have an in-depth conversation with your partner
Some issues you should thoroughly discuss include:

• What is the ownership division and who owns what percent?

• What jobs/responsibilities does each partner have?

• How will serious disputes be resolved?

Draw up written partnership agreement
Once you’ve discussed all the key issues, approach an attorney to draw up a legally binding contract, spelling out the terms of your partnership. If you’re already working with a partner, you still need to do this! If one partner doesn’t want to do this, that’s a big red flag.

Consider a buy/sell agreement
A “Buy/Sell” agreement spells out the terms by which one partner can buy the other out. In the event of a dispute or differing goals, a buy/sell agreement can enable the company to survive. Discuss ways, such as purchasing life insurance, to buy out a partner’s heirs in the event of death or disability. You may not want to run the business with your partner’s spouse or children.

Partnerships can be terrific, but when things go wrong between the partners, it can often mean the demise of the whole company.

How negative gearing works

Negative gearing is a popular tax strategy that gives investment property owners the ability to offset the cost of owning a property against their assessable income.

Negative gearing involves generating short to medium term tax losses, which arise from tax-deductible costs that are higher than investment income, and leveraging this to increase exposure to potential gains and losses.

It is a popular strategy due to its ability to reduce an investor’s taxable income through their tax losses, resulting in a lower annual income tax bill.

For example, if the rent of a property was $350 per week, and the property was fully tenanted for a full financial year, the rental income would be $18,200. If the deductible expenses for that year were $30,000, the net rental loss would be $11,800. The $11,800 loss can then be applied to reduce the property owner’s taxable income.

Under Australian income tax law, property owners can claim a tax deduction for any cost they incur if it is sufficiently connected to their investment property. Non-cash expenses, such as depreciation, can also be deducted. General tax deductions relating to rental income include:

• Borrowing costs

• Council rates and water fees

• Depreciation on assets

• Property inspections

• Repairs and maintenance

While negative gearing carries many benefits to property owners, the strategy isn’t without pitfalls. Negatively geared property results in a loss, so before committing to the strategy, it is worth considering aspects like what will happen if you cannot fill your rental property at any one time, or if there is a dramatic turn down in property values and your investment fails to increase in value.

Analysing the competition

Many business owners spend too much time and energy worrying about what the competition is doing, instead of listening and responding to customers needs.

But focusing on customers does not mean that you can just ignore the competition. From time-to-time, a review of who is doing what in your market segment can be a worthwhile exercise.

Here are some easy ways to kick off your competitor analysis, all from the comfort of your computer. All you need to do is jump on the Internet.

Competitors’ websites
Don’t stop at the home page. Read the “About Us” section and review descriptions of their products or services. Here are some other things to pay attention to when reviewing your competitors’ websites:

• descriptions of products/services

• strategic alliances

• pricing

• customer lists or testimonials

• recent contracts won

• staff

• how often the site is updated

Local competition
On the Google home page, search the names of your competitors and the generic description of your product/service category and location (if appropriate). Try alternative phrases as well. In other words, if you want to find out who’s competing with you in the catering industry in Sampletownnes, also try phrases like “catering” and Sampletown. Don’t limit the search to Google, try the other search engines like Yahoo as well.

Industry associations
If you target specific industries, review the websites of those industry associations. Information such as memberships and exhibitors lists at recent trade shows or conventions may reveal whether your competitors are actively marketing to the same industry.

Despite what information you gather, the fact you have competition should help you to constantly revise your strategy and improve your products and services.

Hiring graduates

Hiring recent university graduates is a great way to bring fresh ideas and energy to your business. Other advantages include the potential to shape their work habits to suit your company and the possibility that they will have some exciting technical skills to offer. Graduates also have far lower salary expectations, meaning that they can be an affordable source of talent.

Here are some tips for recruiting top tier graduates:

Show them what the role involves
Throughout the recruitment process, you should be aiming to show potential recruits why working for you is in their best interests. Being able to give them a crystal clear understanding of what the role will entail will go a long way in boosting your credentials.

Hold group interviews early on
Group interviews are a time efficient way to assess the interpersonal skills that are so crucial to a successful professional life. You will quickly be able to get a feel for their natural aptitude, communication abilities and capacity to work as a team.

Clearly demonstrate the potential for career progression
The number one thing that graduates are looking for in their first job is an opportunity for career progression. You should explain what the different options for them within the company would be, and also aim to demonstrate why experience with you will look great on their future CV.

Making tax-deductible super contributions

There are two types of super contributions individuals can make: non-concessional (after-tax) and concessional (before-tax).

From 1 July 2015 to 30 June 2016, eligible individuals can make concessional contributions of up to $30,000 per year if they are 48 years of age or under on 30 June 2015. Eligible individuals who are 49 years of age or over on 30 June 2015 can make concessional contributions of up to $35,000 for the year.

Those who are self-employed or not employed can claim a tax deduction for their super contributions as they are treated as concessional contributions.

Individuals who are under the age of 18 can only claim a tax deduction for super contributions when their income comes from gainful employment, such as carrying on a business.

In most circumstances, those who are classified as employees cannot claim a tax deduction for making a super contribution. However, they can receive a similar tax benefit through salary sacrifice contributions.

Although the rules for claiming tax deductions on super contributions can be complex depending on the type of work an individual does, generally speaking, an individual can claim a tax deduction for super contributions if they:

• are self-employed and not working under a contract principally for your labour.

• are not employed

• can satisfy the 10% income test rule. To satisfy this test, individuals need to prove that they receive part of their income as an employee but less than 10% per cent of their assessable income (including salary sacrifice contributions and reportable fringe benefits) are attributable to employment as an employee.

Improving your elevator pitch

An elevator pitch is the short description you can give about your business in the time it takes to ride an elevator. Your elevator pitch must be brief. It must say enough about what you do so people can easily understand and remember you. And, ideally, you want your elevator pitch to make a positive impression.

It is not easy to develop an elevator pitch. It takes quite a bit of thinking to decide which aspects of your business to mention. Even more frustrating, you have to decide which parts of your company to leave out. Often these can be the things you’re most excited about – a new technology, a great location, the fact you get to go to Europe on buying trips. But if they’re not central to the core of your business, then they don’t belong in an elevator pitch.

Your elevator pitch must not only be short, it must be clear. Unless you’re in a highly technical field, your neighbor or grandmother should be able to understand your business well enough to be able to describe it to someone else.

Your elevator pitch should touch – very briefly – on the products or services you sell, what market you serve, and your competitive advantage. It is often a good idea to use an analogy as part of your elevator pitch, especially if you’re in a new or difficult-to-grasp field. If you’re in an easy-to-understand business, your elevator pitch theoretically could be very short. But you still want it long enough to distinguish you from your competitors.

So go out and find a four-story building with an elevator, ride up and down and practice your “elevator pitch.” That way you’ll be completely prepared the next time someone asks you, “What do you do?”

Rolling over your CGT

A capital gain or capital loss is the difference between the cost of an asset and the profit or loss made when it is disposed of.  In certain circumstances, a capital gain from a CGT event can be deferred, or ‘rolled over’, until another CGT event happens which involves an asset in the following events:

Marriage or relationship breakdown
If an asset, or a share of an asset, is transferred from one spouse to another upon their marriage or relationship breaking down, any CGT is usually deferred until another CGT event takes place i.e. one spouse sells the asset to someone else.

Loss, destruction or compulsory acquisition
Individuals can defer a capital gain when their CGT asset is lost, destroyed or compulsorily acquired.

Mining lease
Those who dispose of their land to an entity who holds a compulsory mining lease over it that would significantly affect the use of the land can defer a capital gain.

Scrip for scrip
Individuals can defer a capital gain if they dispose of their shares in a company or interest in a trust as a result of a takeover.

Demergers
Individuals can defer a capital gain or capital loss if a CGT event happens to their shares in a company or their interest in a trust as a result of a demerger.