How fit are your finances?
As a PT, you are also a business owner. You need to get comfortable with money and organising your cash so it suits your needs in the future, as well as today.
To have excellent control in this area, it makes sense to work with an accountant.
Yes, you can try to handle the money side of your business yourself, but it will take up a lot of time and any mistakes you make may be costly. For example, failing to file your taxes on time could result in a fine. You may also not realise how to fairly reduce the amount of tax you pay. Everybody has to pay taxes but there are ways to (legally) avoid paying too much and an accountant can help you keep track of this.
Here is a quick rundown of the ‘need to know’ elements when it comes to the financial side of your business. Be familiar with these and you will be able to ask your accountant more relevant questions.
Define your business
We’re not talking branding and niche audience here, but structure. The four most common types of business structures in Australia are:
Sole trader – the simplest structure, gives you full control but also personal liability
Company – more complex, limits your liability because it’s a separate legal entity
Partnership – made up of two or more people who distribute income or losses
Trust – where a trustee is responsible for business operations
Follow the link below for the business.gov explanations of each type. You will need to be familiar with these before you discuss them with your accountant/advisor.
Link: https://www.business.gov.au/planning/business-structures-and-types/business-structures/
Dealing with tax
The saying goes that the only certainties in life are death and taxes.
But while nobody particularly enjoys paying tax and you should always be aware of how to avoid paying too much, the fact you have to pay it is an indication that you are making money.
Paying tax is also important when it comes to building and protecting your wealth (more on that soon).
Most personal trainers don’t really understand taxes. This means most personal trainers cost themselves thousands of dollars a year and are unnecessarily rejected from finance applications that an employee on the same income would be approved for.
To effectively manage your business and your wealth, you need to know how tax works.
An example of the most common mistake made by small business owners is the “I can claim it” concept to validate any expense.
eg. “I want to buy a $1000 standing desk.”
“It’s fine, I can claim it as a business expense.”
Here’s how it really works.
Money comes in = assessable income… you claim deductions (expenses and other items you can take off your assessable income)… you then end up with your taxable income.
So, you bring in $50,000 (assessable income)
You “claim” your desk as a deduction = - $1000
Making your taxable income = $49,000
Your tax rate is 35% (ish - the rate you are taxed changes depending on how much you earn)
35% of 50,000 = 17,500
35% of 49,000 = 17,150
= $350 less tax paid
What the f does all this mean?
It means your desk still cost you $650 net.
This is similar logic to “It was on sale. I’d be losing money if I didn’t buy it”.
You do still have to pay for the item, no matter how much you save.
Now, imagine you want to apply for a car/home loan.
For every $1000 you spend in your business, you pay $350 less in annual tax. The problem is, you’ve reduced your taxable income (the one the bank uses to determine your eligibility for finance) by $1000.
As a result, the bank will lend you slightly less.
The other catch is income protection insurance. There is always a risk you will hurt yourself or be unable to work because you fall ill. Your insurance payments will be based on the income you declare to the tax office. If you aren’t open about what you earn, you could end up in a tricky financial situation.
This trade-off of knowing what to spend on your business and how much income to declare requires awareness. Based on your account/advisor’s advice you may at times make the choice to show the highest possible taxable income. Other times you may want to favour the highest amount of deductions possible.
Talk to your accountant/advisor about your personal finance goals and ensure your spending and financial management strategy aligns with those outcomes.
Financial terms to be aware of
Knowing how to make money as a personal trainer is one thing. You also need to know how to ‘speak money’.
It’s time for some reading. Make yourself familiar with the terms that are explained in the link below - read through at least:
Assessable income
Deductions
Concessions, offsets, and rebates
Workout taxable income
Link: https://www.ato.gov.au/Business/Income-and-deductions-for-business/
Once you have a thorough understanding of the terms above, speak to your accountant about the best approach for your personal circumstances.
Balancing the books
Book-keeping means keeping track of your business income and spending. An accountant/advisor who is worth their salt should provide you with either software or a system of doing this efficiently and effectively.
As a blanket rule, we recommend using spreadsheets to track the money you are earning and spending if you are making less than 50k. This should require less than 1 hours’ input per month.
Switch to an online accounting platform like Xero once you exceed what will equate to a $50k annual income. You can connect this software to your bank account and categorise every transaction for easier reference in the future.
Link: https://www.xero.com/au/
Your next step is to hire a book-keeper to handle it all for you. This professional can work for you a few hours a week or month to keep everything in order. However, you should always be aware of what’s going on with your money and take personal responsibility for it.
What to ask your accountant
The two things you want to mention to your accountant/advisor are:
Work cover: do I need it? Should I get it?
Should I sign up for private health? (There are tax breaks depending on age and income)
Some more discussion topics include:
Paying yourself superannuation
What you can expect your next tax bill to look like
When to register for GST
Budgeting
Your financial health and thus the longevity of your business will come down to your ability to manage a budget.
To get started, take a look at The Barefoot Investor: The Only Money Guide You'll Ever Need by Scott Pape.
Want some homework? Contact your accountant and run through the above factors. Take some time to ensure the financial side of your business is set up so you can achieve your goals.
