Being your own boss can be rewarding, but it’s also incredibly challenging. That’s why it’s important to future-proof your hard work by taking steps today that will prepare your business for tomorrow.

When you’re running your own business, it’s demanding enough to keep up with the day-to-day, which means it’s easy to lose sight on the big picture. But without careful planning, your business might not be prepared for whatever the future holds.

Here are five essentials that every small business owner should factor into their business plan.

1. Give it structure

Make sure you structure your finances, so your personal assets and business assets are kept separate. As a minimum, you should have a separate business bank account and credit card and pay yourself a salary. By untangling your personal finances from your business bookkeeping, you may even save time on administration.

2. Be prepared for the unexpected

If anything were to happen to your staff, your equipment or your intellectual property, it could have disastrous results for your business. The concept of business insurance is a veritable smorgasbord of safeguards against unexpected events, with options ranging from vehicle and key person insurance to public liability and professional indemnity cover. No matter what type of business you have, your financial adviser can help make sure it’s protected.

3. Have an exit strategy

One day you (hopefully) intend to retire – and a time may even come when you decide to leave the business earlier than expected. Regardless of when you eventually exit, it’s important to plan ahead so it can be done smoothly, with as little financial impact to the business as possible. Start thinking about succession management sooner rather than later – it’s a good opportunity to evaluate your business and identify its future leader.

4. Plan beyond yourself

Even with a retirement succession plan in place, there’s always a chance your business could be faced with involuntary succession – for example, if you die unexpectedly. So, as well as insuring your business, make sure you’re personally covered against death, disability and serious illness. You can also set up a legally binding buy-sell agreement that sets out how ownership of the business will be transferred in the case of involuntary succession. And to be certain your assets will be distributed to your chosen beneficiaries according to your wishes if you pass away, make sure you have a comprehensive, up-to-date estate plan.

5. Work to live, not the other way around

Your business is a big part of your life, but it’s important to remember that there’s also life beyond work. Many small business owners find it hard to separate work life and home life, which can cause tension with their loved ones. So, if you’re looking to secure your business’s finances, your financial adviser can give you the guidance you need to remove some of the stress of business ownership.

Disclaimer
Information in this web page is based on regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.
This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

The idea of insuring against loss of income is one that has clear value. But many neglect to insure their most valuable asset. Income protection could be the answer – so how does it work?

We happily insure our homes, our vehicles, even our smartphones. But have you considered how your family’s lifestyle would be impacted if the main breadwinner was suddenly unable to earn an income due to injury or illness?

According to Lifewise, a body coordinated by the Financial Services Council, 83% of Australians insure their cars but only 31% insure their ability to earn an income. One obvious solution is income protection insurance – here’s how it works.

In a nutshell, income protection insurance can provide a percentage of your income for an agreed time if you have to stop work or you can only work in a reduced capacity due to injury or illness.

Income protection typically covers up to 75% of your salary earnings (or, if you’re self-employed, generally up to 75% of the business profits you’ve generated) until you can work again.

Policies typically don’t only offer cover for a specified list of conditions, as trauma insurance might. This means the cover is broader and can protect you against a wide range of health problems – from back injuries and serious illnesses to stress and other psychological issues.

If you make a successful claim, the income stream from your policy kicks in after an agreed waiting period. Typically, this is 30 to 90 days after the event. You may choose a longer waiting period – for instance, if you know that your first few months will be covered by annual leave and sick leave entitlements. A longer waiting period generally means you pay lower premiums. Shorter waiting periods are possible but may attract higher premiums.

Similarly, the income stream lasts for an agreed maximum period – perhaps 12 months, two years, or until you turn 65. Shorter periods will generally attract lower premiums. This is one of the reasons why income protection policies are so useful, because they can be customised to your specific needs.

Also, your income protection premiums are usually tax deductible, unless you’ve taken out cover through your super fund (in which case they are generally tax-deductible to your fund). However, if you make a claim, your benefit payments will generally be taxed at your marginal tax rate.

So, is income protection insurance right for you? That question is often answered by asking another one – how would your life be affected if you had no income? Imagine the result, six months from now, if today your income suddenly and unexpectedly dried up. Then imagine the difference if instead, after one month, an insurance provider started regularly paying 75% of your income into your bank account.

For many Australians, income protection insurance is one of the essential ingredients of a solid financial plan. Talk to your financial adviser if you’d like to know more.

Case study

Wendy is a single mother who works in an office. She relies on her fortnightly paycheque to pay her mortgage, support her young son and invest for the future. After a discussion with her financial adviser she decides to take out an income protection policy offering the highest level of cover available – 75% of her current income until the age of 65.

To help reduce her premium costs, Wendy’s financial adviser recommends that she investigate how much leave she’s accrued. This adds up to two weeks of annual leave, plus another 10 days of sick leave. Wendy also has an emergency savings fund that could cover her living costs for up to two months.

By stretching her waiting period from 30 days to 90 days, Wendy’s income protection premiums are reduced.

1 http://www.lifewise.org.au/facts-research

Disclaimer
Information in this web page is based on regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.
This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

Setting up a business at home can be extremely rewarding, especially if it gives you more time to spend with family. But without the financial safety net an employer can provide, it’s vital that you have the right types of insurance in place to cover all eventualities.

Running a business out of your home certainly has its perks. As well as the flexible working hours, think of the time and money you can save on commuting. And don’t forget the comfort and convenience of being able to work in your pyjamas.

But what happens if someone gets injured in your home office? Or if a burglar steals your work laptop? Are you financially covered in the same way you’d be if these things happened at an external workplace?

If you or someone else in your household is running a home business, it’s a good idea to make sure you’re protected against the unexpected. Here are some worthwhile insurance options to consider.

Protecting your business

While your contents insurance might protect the valuable items in your home, it may not cover specialised work items like tools or IT equipment. These can be expensive to repair or replace, and your work can really be held up if you don’t have the cash to fix them. So, you might want to consider specific insurance that can cover the costs of getting your equipment back up and running.

And when your home is also your workplace, you’re responsible for anyone who comes on site for business reasons. Public liability insurance protects you if a customer or supplier gets injured or has their property damaged while at your home.

If your business sells physical goods to customers, then you’ll want to consider product insurance as well. This is to cover the costs of compensation if someone gets injured from using one of your products. Litigation can be expensive, so make sure you’re adequately protected against the risk of being sued.

Protecting your staff

If you’re running your business with someone else, including a spouse or family member, then you need to think about what would happen if one of you became seriously ill or injured – or even passed away. Unfortunately, when a small business loses a staff member, it can often signal the end of the whole organisation.

Key person insurance enables you to take out life cover for a partner or employee, with the business named as the beneficiary. This means the business receives a payout if that person dies or becomes incapacitated. The money can then be used to compensate for the loss and keep things running until a replacement person can be found.

And don’t forget, if you have any employees – whether they’re employed on a full-time, part-time or casual basis – then it’s compulsory to take out a worker’s compensation policy that covers them. This insurance goes towards the costs of benefit payments and medical expenses if a staff member suffers a work-related injury or illness.

Protecting your loved ones

If you’re self-employed, you need to think carefully about how you and your loved ones would be impacted financially if you were unable to work for a while.

That’s where income protection insurance comes in. If you get sick or injured and can’t work for an extended period, this insurance will provide regular payments to cover your loss of earnings until you get back on your feet.

And if you’re starting up a business, what better time to review your life insurance arrangements? By making sure you have the right level of cover, you’ll have comfort in knowing your loved ones will be financially secure if you’re no longer around to take care of them.

Remember, your financial adviser is the best person to guide you through your options and make sure you have the right types of cover for your business and your family.

Disclaimer
Information in this web page is based on regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.
This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

Ever wondered why your tax bill was higher than you expected? It could be because of the Medicare Levy. So, what does the levy pay for – and how is it calculated?

What is the Medicare Levy?

Medicare is Australia’s publicly funded national healthcare system. The federal government partially funds the system by charging taxpayers a levy on top of their annual income tax. Thanks to this levy, all Australians can enjoy access to quality health care.

What does it cover?

Medicare provides access to a wide range of health care and hospital services, including:

• free or subsidised treatment when you visit a medical professional such as a doctor, optometrist or specialist
• free treatment and accommodation when you’re a public patient in a public hospital
• 75% of your treatment and procedure costs when you’re a private patient in a public or private hospital (not including accommodation fees and other costs)
• reduced costs for prescription medications in some cases.

How much is it?

For most eligible taxpayers, the Medicare Levy is currently charged at 2% of their taxable income. While the government had previously proposed to increase this rate to 2.5%, it was confirmed in the 2018 Federal Budget that the levy will remain at 2% for now.

Also, if you don’t have private hospital insurance, you may have to pay the Medicare Levy surcharge (MLS) depending on your income amount for MLS purposes. The MLS can be as high as 1.5% depending on your family and personal income amounts.

When do you pay it?

If you’re required to pay the Medicare Levy, it’s automatically calculated against your taxable income when you lodge your yearly tax return.

You can use the Medical Levy Calculator on the Australian Taxation Office (ATO) website to work out how much you can expect to pay.

If you receive regular income throughout the financial year that is subject to pay as you go (PAYG) withholding (for example salary or wages), an estimate of the income tax and Medicare Levy liability relating to that income is withheld and paid to the ATO throughout the year. This prepaid tax and Medicare Levy is then taken into account when working out your tax bill when you do your tax return.

Is anyone exempt?

If your taxable income is below a certain level, you don’t need to pay the Medicare Levy. Different thresholds apply for individuals, couples, sole parents, pensioners and seniors.

The government has proposed to increase these low-income thresholds, which means more Australians will be exempt from paying the levy. If legislated, these changes will apply from the 2017–18 tax year onwards.

You may also be exempt if:

• you suffer certain medical conditions
• you’re a foreign resident for tax purposes
• you’re not entitled to Medicare benefits – for instance, you’re an Australian citizen or permanent resident but have been residing overseas for more than certain timeframes.

Keep in mind that there are specific requirements for each category, so you may need to check whether you’re eligible for an exemption.

Are some people charged a different rate?

There are instances when some people will only be charged a partial Medicare Levy. For instance, you’ll pay a reduce rate if you’re single without dependants and your taxable income for the 2016-17 financial year was above the exemption threshold but less than $27,069 (or $42,806 for single seniors and pensioners entitled to the seniors and pensioners tax offset).

Families (not eligible for the seniors and pensioners tax offset) may be charged a partial Medicare Levy if their household taxable income is below $45,677 (plus $4,195 for each dependent child).

To be eligible for a reduction, you also need to meet certain conditions.

What is the Medicare Levy Surcharge?

If you don’t have the appropriate level of private hospital insurance, you may be charged an extra amount on top of the 2% levy. This is the Medical Levy Surcharge (MLS) and only applies if your ‘income for surcharge purposes’ is over $90,000 for singles or $180,000 for families.

The MLS can range from an additional 1% to 1.5% depending on your income level. You can see a full breakdown of thresholds and rates on the ATO website.

What if you have private cover?

If you have an acceptable level of private hospital insurance, you won’t be charged the MLS. But first, you’ll need to provide information about your private health cover payments on your tax return.

Disclaimer
Information in this web page is based on regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.
This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.