New year, New ambitions. Are you thinking of starting a business this year?
Here are the basic finance details as far as compliance is concerned
1) I started the business using my money. How do I record that in the business books and how do I identify the funds?
– an obvious fact is that a business is an entity that is built by an individual out of nothing that belongs or owns by it. Thus it is bound to expect funding from various factors for it to start operating and be functional. It may be from funding institutions or from the founder.
The money that belong to the business owner we call it Capital. And it is recorded on the balance sheet section of the financial reports. You are simply indicating to the next person reading your financial reports that as much as the business has certain amount of funds a portion of it belongs to the owner therefore the business is obligated to pay that money back to the owner or shareholders.
Be careful not to capture the funds as an income. Yes the cash injected into the business will definitely have an effect on the business bank account but can never be categorized as income. Should this misallocation happen there will be few errors detected. You will over pay on your taxes, and that is eating on the business profit.
2) Some income from customers are paid into the business account and some into my personal account. Is that practice correct?
– definitely not correct but it is neither illegal. As soon as you decide to start a business and register it you need to make sure that all the transactions that have everything to do with business must reflect into the business bank account.
In the case where the funds are spreading across other accounts it simply mean they will be accounted under your personal tax number. There is no way we can consolidate the two entities even if you try to dig for reasons why such is done. Over and above that, as a finance professional we know that consolidating transactions that do not belong to the same entity is unlawful. Whatever you do, be mindful of these techniques.
4) How do I pay myself a salary as a business owner?
– a business that is started by a qualified, experienced and skilfull individual will not afford you at a go! Thus the concept of market related compensation is almost impossible. You need to make a compromise. You also don’t want to over burden the business cashflow because you want to draw a market related salary from a new small business.
My advice will be that you break down all your personal expenses enough to cover your monthly expenses. As the business progress and grow you can either choose to increase your salary if necessary. In conclusion – your personal expenses will be used to calculate the affordable salary.
5) Which line items are non-taxable in business?
– the business cannot operate without incurring operational expenses. Business overheads are deducted from the gross income. Example of such expenses are rates and taxes, fuel, bank charges, wages and salaries, etc.
Business is taxed based on the profit made, which it is called taxable income.
You cannot be taxed based on only the gross income hence you need to prepare the income statement prior you make the income tax return submission.
Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd
If you need a consultation with us with regards to your business, any type of business – please reach out to us on email PA@matsobanemetja.co.za
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Cathy Engelbert
“Our goal is to set the gold standard when it comes to compliance.”
Matsobanemetja Business Consulting Pty Ltd 