Jerry Lame has finally decided to go into business for himself. He has had a lifetime of experience working in the corporate sector and has bought a home and brought up a family and now wants to be his own boss – his own man.

He has decided that he has the skills, the experience and the capital to start his own business and take care of his own work life balance.

Jerrys starts multiple businesses

What he finds is a world of opportunity and a world of possibility. He realises he can do anything and everything and as a result he does a lot of different things.

Jerry is typical of many small business owners who don’t start out with a detailed and complex plan but rather wants to just get into it and get started. This case study is his journey into starting a small business and taking advantage of opportunities that arise.

Jerry buys an online business

Jerry buys an online business so he can earn money no matter where he lives. He sees people all around him ordering products and services online and wants to be involved and have an extra source of income – a side hustle.

He gets a bit bored waiting for online sales to come along and looks at investing in a real estate. He explores buying a house that can have a granny flat built in the backyard so he can earn a good income from the property. While he’s doing his research he meets many people in the building and real estate industries and he wants to work with them.

Jerry doesn’t have a lot of practical experience in building or renovating but he loves talking to people and he loves the idea of being a sales person for some of the building industry people he’s met.

Jerry becomes an agent

Jerry looks at real estate agents and learns about how they represent people who are scared of selling their own home themselves and thinks that there are lots of small business owners who don’t like sales and marketing. Jerry LOVES marketing and sales and wants to earn a commission helping them get clients.

Jerry speaks with a local asbestos removal and demolition business owner and shares his thoughts about the sales agency concept – they both agree to give it a go.

Jerry starts using his online marketing skills and finds clients for the Asbestos removal guy and as a result he earns a commission for each sale he makes. Jerry has to go to the clients site, see what needs to be done and provides them with an estimate.

If the client goes ahead he gets paid his commission, if the client doesn’t then he’s done all that work for nothing.

Jerry loves digital marketing

Jerry loves the fact that he is an online business owner and tells his friends when he’s at a party. He loves being ahead of the curve when it comes to having a website and using Google Ads and Facebook to promote his online business. He also loves learning about new ways of promoting himself online and gets to know a little more about project bidding websites to get more enquiries.

Jerry starts using hipages.com.au to promote the asbestos remove services that he is an agent for and pays them a lead fee for each lead that he hopes to convert to a client.

He loves having a WordPress website with landing pages, a conversion and lead capture funnel and a sales and marketing pipeline.

Jerry makes capital purchases

Jerry realises very early that he is using his phone, laptop and car for his business and realises that this means that he can pay for these things using his business and claim them as an expense. He realises that he only pays tax on the income he earns after he has deducted his expenses but that not all expenses are treated the same.

His mobile and laptop purchases can be expensed immediately but he realises that bigger expenses have to be depreciated over time. He only learns about the benefits of this in the future!

Tricky transactions

Jerry realises that some expenses include GST while other ones have no GST. He then learns that other transactions have a component that includes GST while another component doesn’t. These partial GST transactions baffle him and he starts thinking about just getting a bookkeeper to do this work for him!

Jerry pays for lunches and gifts and prizes and all sorts of things when meeting with people so he can win their business and he claims them all as expenses.

When he speaks to some other business colleagues he realises that he might need to pay Fringe Benefits Tax (FBT).

Jerry pays himself a wage, but not as you know it

Jerry doesn’t earn a constant income so he doesn’t pay himself a wage every week. Instead he pays himself adhoc amounts as a reward for getting sales and bringing money into his business. Jerry understands that he needs to pay taxes and superannuation but doesn’t really understand how that works so his bookkeeper gives him a spreadsheet to help him work it out.

Jerry learns that he can pay himself in several different ways, including directors drawings, director loans or as PAYG wages.

Jerry uses the pay tables provided by the ATO to work out how much tax and super he owes based on how much he has paid himself at the end of the quarter.

You, as his bookkeeper will make these calculations and enter them as journal entries to ensure all liabilities and expenses are recorded accurately.

First Quarter is messy

Jerry has been so busy doing marketing, talking to people and sales work that he doesn’t realise that 3 months has passed by and he hasn’t done his bookkeeping!

Not only hasn’t he reconciled each month but his quarterly BAS is now due and he has some catchup bookkeeping to do. All of this is very overwhelming for Jerry so he gets you to do his catchup bookkeeping for him.

Summary of steps

Here are some of the tasks, steps and issues that Jerry faces.

• He puts a cash deposit into his new business bank account
• Starts paying some expenses with his new business credit card
• Transfers money from his personal savings account
• Starts earning an income for his online ecommerce website
• Pays for some Google Ads and Facebook social media advertising
• Pays himself as PAYG wages but explores directors drawings
• Uses an online contractor hire website for cheap graphic design and office admin tasks
• Comes across some international transaction fees for overseas purchases using his business credit card
• Tries some advertising using Microsoft’s online advertising platform
• Starts seeing some automatic debits coming from his account
• Buys a vehicle for his business
• Buys a laptop for his business
• Pays a supplier that completed a project for him
• His PAYG is entered as journal entries
• Running the BAS Activity Statement
• He gets a refund at the end of the quarter with his BAS lodgement
• Gets his Profit and Loss report
• Compares income and expenses month by month
• Gets a Balance Sheet report
• Sees a profit but negative equity
• Explore Business Management decisions for the next quarter

 

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