Working out your best assets
Starting up may mean launching your own venture. But it can also involve buying another business. However, be aware that the latter option isn’t hassle-free.
If you are looking for quick growth or you need scale quickly then buying a business can make a lot of sense. The hard work is to find the right business, making sure that it stacks up and then agreeing on the price.
Get past this and the hard part of the acquisition should just about be there. But there may be one more important step – agreeing the apportionment of the price across the different assets that make up the business.
Sometimes the buyer and the seller have different ideas about how to apportion the sale price. You’ll need to make a call on this because it will be required for the contract.
So does it really matter? Does it make a significant difference?
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Christmas in July? The ups and downs of Christmas marketing
The Christmas decorations started going up in shops just after Father’s Day in September. If it gets any earlier we’ll be experiencing Christmas in July.
As many client focussed businesses know, Christmas has a psychology of its own. Christmas, and the embedded message of gift giving (code for ‘spending’), is stretching well beyond the traditional Christmas months.
For retailers, the earlier they can get consumers into the Christmas spirit the more likely it is that they will ‘spend up’ in preparation – both in gifts and fixing up the home ready for entertaining. Sales and packaging also help impulse buying because “it was on sale.”
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Buying a business: More than just the sale price
If you thought reaching an agreement on price was difficult, wait until you get to the fine details of buying or selling a business.
So you’ve reached an agreement on price. But, there are differences between the parties on how the sale price should be apportioned across different assets.
A solution that’s sometimes proposed is to simply show the sale price on the contract and let both sides manage their own apportionment but this depends on what assets you are buying. Try and avoid this trap.
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Are you entitled to a GST refund?
If your customers prepay you for your services and are not entitled to a refund if they ultimately don’t take up the service, then a new court case opens the way for a potential GST benefit.
A large number of businesses, particularly those in the services sector, receive prepayments from customers for future services – in some cases these are deposits and in others, part or full payment for the anticipated service. Often the contract terms provide that there is no refund of the prepayment if, ultimately, the customer does not take up the service.
If the customer does not ultimately take up the service, what is the GST position on the prepayment?
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Property and SMSFs: loosening the rules
If your SMSF has borrowed money (or thinking of borrowing money) to acquire ‘bricks and mortar’ property then there are a few things you need to know.
A new ATO ruling released last month helps to clarify what you can and can’t do with property that is under a limited recourse borrowing arrangement (LRBA).
The ruling addresses three key areas:
- Under the borrowing rules in the Superannuation Industry and Supervision (SIS) Act, the borrowing must be used to acquire a “single acquirable asset.” The ruling seeks to define what constitutes a single asset.
- The borrowing rules allow an asset that is held under a borrowing arrangement to be improved, however, the trustees cannot use borrowed funds to make the improvements. There is a fine line between what is a repair or improvement and the ruling attempts to clarify how the ATO assess the difference between these terms.
- Also, if you do improve the property, any improvement must not result in the asset becoming a different asset. The ruling looks at the factors the ATO considers, and what your SMSF auditor needs to consider, when they assess whether a property has been changed to such an extent that it is no longer the same asset.
If a fund falls outside of these rules, the fund must sell the asset. Imagine having to sell a property your fund recently acquired, leaving your fund with the stamp duty, legal and agent’s fees (or perhaps making a loss because the market conditions were not as good as they were when you purchased the property).
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