How to improve your cash flow

Xero’s latest Business Insights reports that as of August, only 53.5% of businesses were cash flow positive.

That means that almost half of Australian businesses have more money going out the door than in. That is a lot of stress, sleepless nights and extra interest to fund.

Together with our years of experience, our businesses analysis dashboards can reveal where you’re at and what will be the impact of making changes to the business. More to the point, we can show you on a rolling basis what your cash flow will be like in the months ahead.

Sleep easier by giving us a call to discuss your situation and opportunities.

Super Guarantee

Friday 26th October is the end date for satisfying Super Guarantee (SG) super obligations for the September 2018 quarter.

Super guarantee is payable on most forms of remuneration including:-

  • Commissions.
  • Bonuses (but see below).
  • Directors’ fees and all other forms of remuneration to directors.
  • Allowances (except where fully expended).
  • Contractors paid mainly for their labour.

But super guarantee is not payable on the following items of remuneration:-

  • Overtime.
  • Reimbursements.
  • Unused annual leave on termination.
  • Remuneration of less than $450 in a month.
  • Bonuses that are only in respect of overtime.
  • Bonuses that are ex-gratia but have nothing to do with hours worked (harder to satisfy than what you might think).
  • In respect of employees younger than 18.
  • Employees carrying our duties of a private or domestic nature for less than 30 hours in a week (such as nannies).
  • On quarterly remuneration greater than $51,620.
  • Non-residents performing work for an Australian business outside Australia.

SGC super should never be paid late as late payments attract substantial interest and penalties.  Furthermore, and SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

The SGC rate remains at 9.50%.

Please ensure that you make your payment with sufficient time through your Super Stream gateway.  A SG commitment is only satisfied when the money is received by the fund; not when paid to the gateway.  Whilst some gateways pay into the respective super funds the next working days (such as the ATO’s free gateway), other gateways take up to 5 working days.

We welcome any question you might have.

Savings from a company tax rate cut?

So Scott Morrison has said that they wish to accelerate the company tax rate cuts for small business.  So what are the savings from a  company tax rate?

Not much if you intend to pay out profits as dividends.

In fact you might be worse off.

For more, read our previous blog at:-

What do the company tax cuts mean to you?

 

 

SMSF – minimum balances

ASIC is considering mandating a minimum balance for a self managed super fund (SMSF) to be opened.

Certainly there is good reason for this given reports as to how many SMSFs have unviable balances.

What is most important though is that one receives financial planning advice as to the appropriateness of opening a SMSF.

Home office expenses

You can claim home office expenses if you:-

  • Run a business from your home, or
  • Undertake work duties from home.

Substantiating a claim to the ATO’s satisfaction is paramount.

A classic case of running a business from home is a doctor. To one side of the house will be a shingle, an entrance, reception, waiting rooms and doctors’ rooms.  It may be run from home but it looks like a business.  In such cases, a claim for occupancy expenses can be claimed.  A claim can also be made for running expenses as can someone who simply undertakes some of their work at home.

 

What home office expenses can be claimed for a place of business?

  • Running costs of heat light & power.
  • Occupancy costs – such as rent, or mortgage interest, rates as insurance.
  • Other costs such as phone costs, depreciation of fittings.

If not separately metered, some of these costs will need to be apportioned. Apportionment can be made on a percentage area basis or by tracking business usage.

Where home is a place or work, travel from the work place for work purposes is deductible (whereas travelling from home to work is private).

 

A word of warning though

If home is a place of business, then the home will lose part of its capital gains tax exemption. Tax will only be payable when the home is sold (but note that Capital Gains Tax does not apply to assets bought before 19th September 1985).

That said, the gain may not be that significant. If the work area was say 20% of the home area and only used that way for 5 years out of the 30 years the home was owned, then the taxable gain would only be 3.33% of the total gain (before any loss is offset or 50% Capital Gains Tax discount applied).

 

The ATO outlines some of the basis in the following e-mail.

We would welcome the opportunity to discuss your situation with you.

We will examine running expenses in a future blog.

How we can add 137% to a client’s profit

How we can add 137% to a client’s profit

But first, let me address the process and why we are different.

Firstly, in our annual general meetings with business clients, we work through a series of high level performance analysis reports (some of those reports are used in conjunction with other tools for our more regular meetings).

Secondly, we have regular discussions with our clients (even if only briefly). With cloud accounting, we know what is happening now and can identify and address trends as they occur.  Analysis and meetings keep our clients moving towards their goals.

Thirdly, our focus is your long term success and your security. Our work and focus does not end with the preparation of an annual Tax Return.

So how did we work out how to add 137% to a client’s profit?

  • Firstly our analysis tools identified that small 1% changes in key areas would deliver a profit of 30%. What areas – whilst straight forward, that will be explored in another blog.A 1% change is not difficult to implement for most businesses. A 30% uplift in profit (with a corresponding improvement in cash flow) is a big reward for small effort.
  • We then identified that a 5% price increase on its own will add 68% to the bottom line. In our client’s case this should not be difficult as they haven’t reviewed their prices for a little while.
  • We then explored a 10% price increase. Our software revealed that a 10% price increase would increase the bottom line by 137%.
  • We then, and here is the key to all this, our software revealed what their fall back positon will be. Our software determined that they would have to lose more 24% of their existing customers to make less than under the existing price structure. Our client sells a unique and quality personal product that people buy on emotion and are guided more by outcomes & quality than they are on price. They might lose some customers, but they will not lose anything like one out of every four customers (which they will be tracking anyway).
  • Even if they lost 10% of their customers in response to a 10% price increase they would still improve their profit by 80%. 80% more for doing 10% less – sounds attractive doesn’t it?

Our modelling software takes the guess work out of decisions. Such big decisions can be taken confidently.  Our client can now review their prices confident of the outcome.  They will not be lying awake at night worrying nor will they procrastinate or not make any change at all.

And if that isn’t enough!

Based off a likely maintainable business profits multiplier, their business will be worth up to $240,000 more.

 

We welcome the opportunity to discuss with you how we can help you to improve your business. Our initial meeting is free of cost or obligation.  Call us now on 9899 7511.

 

Computer safety – insurance

Incidences of cyber crime are sharply on the rise.

What would happen to your business if you were subject to a hack or ransom?

Did you know you can take out cyber insurance?

Check with your insurance broker as it is now a normal add on to core business insurances.

Customers – not all your customers are profitable

Not all your customers are profitable.  You know who the ones are that give you the wrong specs, are difficult to deal with, rude to your team and probably add further insult by paying  you late.  There is a point of view that a business should cease acting for its lowest 5% of its customers.

Who are your worst 5% of your customers?

What extra profit would you make by not servicing such customers?

How would you and your team feel if they you know worked with them?

Please contact us if you would like help in devising a customer ranking tool.

Employment – WorkCover injury poster

It is compulsory in Victoria to have If you are injured at work poster displayed in your work place.

Please call us on 9899 7511 if you would like on of these posters.

Cash flow – include due date on your invoices

You will find your customers & clients pay you quicker if you state the actual due date (like 15th October 2018) rather than 15 days.