Monthly Archives: March 2016

3 questions to address increasing profitability

Three questions that address increasing profitability which are often ignored are:-

  1. What makes your business succeed?
  2. What are the key metrics (KPI’s) that reveal how well your business is performing?
  3. Are those metrics part of your regular reporting process?

The reality is that these key numbers aren’t produced by the typical accounting system. Your accounting system tells you what happened in your business in terms of things such as profit and money in the bank.

An accounting system won’t tell you how you got there – just what the results are. An accounting system also won’t report on what would be the result of making changes to your business’ key drivers.  You need to augment your reporting function to report on these critical numbers.

We had an interesting case during the week. We have a client who runs a consulting business.  As such, there aren’t many moving parts to it.  There is no stock and there aren’t any creditors.  There also aren’t any employees other than himself; but that will change shortly.  In this case, the key metrics are all in respect of customers – retention of existing customers, conversion rate of good (not any) prospects and increasing average transaction value.  Measuring and following these metrics will involve many activities including such as:-

  • Setting up a process of checking in with existing customers to see if they require repeat or new services.
  • Asking for testimonials from existing customers.
  • Asking for referrals from existing customers.
  • Targeting new customers of the type they want to deal with.
  • Being aware of any opportunity to sell a complimentary or even new service.
  • Focused marketing activities concentrating on key offerings the business wishes to sell more of.

Our advanced modelling software has revealed that minimal change to these drivers will more than double the profit. As the change required to the key drivers are so small the outcome of increased profitability is highly achievable.

And rather than working hard on everything as most business owners do, he will be working hard on the matters that matter most in his business. I will let you know what ensues.

At MRS, we will spend today planning for your success tomorrow.

 

Should I close my SMSF?

Should I close my SMSF?  This is an often ignored question.

Whilst there is plenty of comment from ASIC and the ATO on whether it is appropriate to open a self managed super fund (SMSF), there is comparatively little commentary on when it is appropriate to close a SMSF.

One or more of the following is an indicator that a client should close down their SMSF (and either pay out the balance or roll it over to a public fund):-

  • The assets are too low – and to use ASIC’s benchmark, less than $200,000.
  • The trustees of the fund no longer have the mental capability. This is particularly important in light of the trustee penalty regime that has applied since July 2014 (refer to earlier newsletters for further information).
  • The funds are locked up in one asset (such as a property) that is not generating enough income to fund the required minimum pension payment.
  • The death of a trustee, particularly the one who attended to all the paperwork.
  • Trustees are not good at attending to paperwork. Also read this in light of the new trustee penalty regime.
  • The trustees are not making good investment decisions.
  • The trustees are otherwise not running the fund properly and therefore at risk of being fined anywhere up to $18,000 each for one or more breaches under the trustee penalty regime.

It is also important to note that as from July 2016, the current Accountants Exemption under which accountants can give limited advice such as opening or closing a SMSF and making extra contributions will be removed.  This will not be a problem if your accountant is also licenced as a financial planner.

At MRS, we will spend today planning for your success tomorrow.

What does good business growth look like?

I had an interesting follow up meeting with a client during the week.

They have built their business to a point where they can pick and choose who they work with, and, after a few hiccups outside work, can now fully focus on growth.

Critically, they have sought and found a quality employee that they can reliably build their business around.

But the question remains, what does good business growth look like?

We are working and will continue to work with them on such things as:-

  • Understand what the typical revenue looks like in the three segments of their business.
  • Identify what costs directly relate to each segment.
  • Modify their accounting system so they know the profit being generated from each of these segment.
  • Identify which segment is more profitable – and what the more profitable areas are within each section.
  • Discuss ways in which they can generate more leads in each segment.
  • Work out the hours required to support each segment as well as the general running of the business.
  • Started to create budgets (which will be entered into their accounting system so they can track the performance against budget).
  • Started to set KPI’s for the drivers in each segment. As Peter Drucker once wisely said, there is nothing more futile than doing well what does not need to be done at all.  One needs to identify and work on the key drivers of a business.

We find a lot of business owners as new clients are gunnas. They are gunna do this and they guunna do that.  The problem is that whilst they work really hard, they don’t stop to plan and think.  And they also don’t check their ideas with anyone, particularly in respect of the financial considerations and outcomes.  And to make matters even worse, they aren’t accountable to anyone – so things just drift along the same old way in any direction the wind is blowing.

We have some cutting edge software that can show you the outcome of any decision you can make in respect of your business.   We use this with our clients that we have regular monthly and quarterly meetings to identify what can be done, what the outcome will look like and to instigate planning around financial and human resources that will be required to meet the desired outcome.

Does your accountant help you like this? If now, why not meet with us in a free meeting so we can explain the ways in which we can help improve your business.  Call us – you have nothing to loose and everything to gain.

At MRS, we will spend today planning for your success tomorrow.

Don’t miss out on your car claim

Our 2015 Federal Budget briefing paper highlighted important changes in the way individuals can now claim car expenses.

Up until the 2014/15 year, one could use one of the four following methods to claim the work use of their car:-

  1. Log book method,
  2. Cents per kilometre method,
  3. 12% of cost method, and
  4. 33.3% default log book method.

The latter two could be used where one travelled more than 5,000 work related kilometres. The 12% of cost method was ideal where a client hadn’t kept the necessary receipts.  The 1/3rd method was what I used to call a “go forward three spaces” method.  It was a gift to clients who travelled more than 5,000kms for work but had a log book that revealed less than 1/3rd work travel.

These last two methods are no longer available as from 1st July 2015. 

So you either have a car log book and keep all receipts or you claim under the cents per kilometre method.

The cents pkm method will be OK for some but not for others. You don’t have to have a log book to justify your claim under the cents pkm method but one needs to be able to make a reliable estimate.  This will be easy for say a receptionist who goes to the post office every day and the bank every second day.  It is not however a suitable method for say an accountant who irregularly drives to clients situated all over Melbourne.  In this case, the accountant would have to record every trip for the year and do so every year.

The real problem though for many that haven’t kept a log within the last five years is that the maximum claim under the cents pkm method is only $3,300. There used to be one of three rates depending on the size of car.  Now there is only one – 66 cents pkm.  It’s not a lot for a big and/or expensive car.

So if you use your car for work a lot and haven’t kept a log book within the last five years or your pattern of travel has changed by more than 10% since you last kept one, then you better start keeping one now. 

To ensure you don’t miss out on a much larger tax claim, you need to have a log book that runs for 12 weeks – say three months really. If you don’t start keeping one now, then you need to start one dare I say it by April Fools’ Day.

At MRS, we will spend today planning for your success tomorrow.