If you're self-employed, like most small business owners, you know how to make money but perhaps you're not so great at managing it. Usually this is because you're so busy running (and building) your business to keep on top of the latest money advice for self-employed borrowers.
So, to help you better understand how to manage your money here are a few quick and easy tips to help you get started.
1. Paying less tax isn't always the smartest move for small business owners
No one likes paying more tax than they have too, but sometimes it pays to pay the tax man. Declaring an income of $80K for instance, instead of $100K might save you about $7K in tax for that financial year. But if it stops you from buying a better performing investment property one that could make you five times that amount each year then it simply doesn't make sense to pay less tax.
2. Know what you are paying yourself before the end of the financial year
We get it, sometimes it's hard for small business owners to know exactly what your end income will be. But, in the last couple of months of each financial year, it makes sense to sit down with your accountant and understand what your income will be and what sort of income you will need if you are looking to borrow money in the next 12 months.
3. Make sure your accountant and lending consultant are on the same page
If you're in small business, it's crucial for your lending consultant and accountant to be on the same page to ensure both your tax minimisation and borrowing objectives can be met.
4. Set aside money for tax as you go
In the same way that you pay yourself, put your tax into a separate account such as a high interest account. This could be directly into your home loan, or an offset account attached to your home loan. Why? Because if you are faced with having to borrow to pay an unexpected tax bill most lenders will knock you back. Many banks believe this is not an acceptable purpose for lending.
5. How to use equity in your home for small business purposes
If you are going to use equity in your home to fund your business, you can either take out a business loan using your home as security, or the loan facility may be just taken out in your name. If it's in your name, make sure you discuss this with your accountant and have the necessary structure in place so that you can claim this interest.
6. Why planning matters
Most lenders will want to see two years' worth of tax returns from any self-employed borrower. So, if you are a small business owner in the wealth building phase of your life, it helps to have two strong years leading up to any planned property purchase. Remember, these returns are good for up to 18 months after the end date.
If you are self-employed and a small business owner and would like to find out how much you can borrow for your next residential, business or investment loan book a 10-minute chat with a FinancePath lending specialist today.
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