Starting and running an NDIS (National Disability Insurance Scheme) business can be challenging, especially when it comes to managing finances. In this guide, we summarize key tax and accounting tips to help you keep your NDIS business financially sound and compliant.
Know Your “Magic Number”
Before starting any business, especially in the NDIS space, you need to know your “magic number.” This number represents how much income you need to cover your basic living expenses, including food, housing, and a comfortable lifestyle. It’s essential because, unlike employees who live off wages, business owners live off profit. For example, if you make $10,000 in sales but your expenses are $8,000, you only have $2,000 to live on. Knowing this magic number helps you set realistic income goals and plan your services accordingly. This is what we call working backwards! Set the number and let’s get to work!
Choose the Right Business Structure
There are three main structures for NDIS businesses:
- Sole Trader: This is a simple structure where you run the business as an individual. While easy to set up and manage, it carries unlimited personal liability, meaning your assets are at risk if something goes wrong.
- Private Company: A company provides legal protection by separating personal and business liabilities. However, it comes with additional costs and administration, such as hiring a lawyer to handle legal documents.
- Not-for-Profit: This structure is common in the NDIS space. It offers tax advantages, such as income tax exemption, and allows you to offer salary sacrifice benefits to employees. This can increase staff take-home pay, making it easier to attract talent.
Understand NDIS and GST Rules
One major benefit for NDIS providers is that most services are GST-free because they are considered medical or care services. This means you don’t have to charge GST on your services. However, you can still claim GST credits on purchases like office supplies, vehicles, or equipment. We recommend always confirming whether your services qualify, as some like therapy might still attract GST.
Cash Flow is King
Managing cash flow is crucial for any business, but it’s especially important for NDIS providers. Payments are only made after services are delivered, which can lead to delays in receiving funds from plan managers or self-managed participants. We recommend keeping at least three months’ worth of your “magic number” in savings to cover any gaps in cash flow. Having this buffer ensures you can pay your staff and cover operational costs while waiting for invoices to be paid.
Invest in Bookkeeping and Accounting Tools
Proper bookkeeping is key to managing your NDIS business efficiently. We recommend using Xero, an accounting software that helps with tasks like invoicing, payroll, and reconciling accounts. Bookkeepers handle the day-to-day recording of financial transactions, while accountants use this information to provide high-level analysis and prepare tax returns. Outsourcing bookkeeping allows you to focus on delivering quality services rather than spending hours managing financial records. By keeping your books in order, you avoid costly errors and ensure compliance with tax laws. Reach out to us if you need any assistance!
Instant Asset Write-Off
The Instant Asset Write-Off is a tax incentive that allows businesses to claim immediate deductions on assets up to $20,000. This means if you buy a piece of equipment under $20,000, you can claim the full cost as a tax deduction in the year of purchase. While this threshold used to be higher, it’s now capped at $20,000. We advise NDIS providers to take advantage of this for items like vehicles, computers, or office equipment, which can significantly reduce taxable income and help with cash flow.
Plan for Growth
As your NDIS business grows, it’s important to plan your financial and operational strategies carefully. Growth may involve adding new services, hiring more staff, or expanding your service area. It’s essential to have a clear plan and a solid financial foundation before scaling. Make sure your cash flow, business structure, and compliance processes are robust enough to handle growth. Planning ahead also includes thinking about potential changes in NDIS pricing and how you’ll manage increased demand. If you need assistance with your NDIS strategy, book a free consultation with us and we’ll let one of our NDIS experts get in touch with you,
Common Mistakes to Avoid
One of the most common mistakes NDIS providers make is failing to plan their cash flow properly. While you might know how much revenue to expect, expenses can increase unexpectedly, and delayed payments can create gaps in cash flow. Another mistake is not keeping accurate records or not understanding the importance of regular financial reports. Without proper financial tracking, you might not notice issues like shrinking profit margins. It’s critical to work with advisors who understand the NDIS sector to avoid these pitfalls.
By following these tips, you can keep your NDIS business compliant and financially healthy. For personalized help, reach out to an accountant or financial expert familiar with the NDIS industry to ensure you’re on the right track.
Ready to Take Your NDIS Business to the Next Level?
Don’t let financial challenges hold you back. Partner with experts who understand the unique needs of NDIS providers. Whether you need help with bookkeeping, tax planning, or financial strategy, reach out today for a consultation and start building a stronger, more compliant business.