We had a meeting with a new client during the last week. We discussed tax matters of course.  But what was of much greater importance and interest was the performance of the business.

Like most business owners, the owner wasn’t an accountant. Nor had they been trained in the features of their accounting software.  Their previous accountant hadn’t discussed this with them.  As it turns out, things that the new client wondered about were just a click away.

The three major software providers (MYOB, Reckon and Xero) are all remarkably cheap software for what they do. However, some have features the others don’t.  In this case they already had the software that best reported on the segments/divisions within their business.

We have shown and will now train them on how to segment and report on the different sections of their business. We also went on to discuss the most appropriate way to allocate proportional overheads to each section so we can begin to understand the real return from each segment of the business.

Does your software report on what is important to your business? Are you using the features within the software that can better assist you to run your business?  Or does you system only work for your accountant’s compliance needs and those of the Tax Office.

And are you using the best software for you?

At MRS, preparing a Tax Return is just part of what we do. It is not the end product.  Our focus is helping you run a more successful business (and to protect yourself).  We would welcome the opportunity to discuss how we can assist you in an obligation free one hour meeting.  Give us a call – you have nothing to lose and a lot to gain.

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

The Federal Government today released its Innovation Statement.  Part of the overall package includes some attractive tax announcements.

There have been few favourable tax announcements over the last 7 years so I relish the opportunity to pass on these attractive and common sense intended reforms with you.

Of the announcements, there were 4 that would most likely apply to our collective client base:-

1. The existing same business test will be relaxed. This test applies to companies who are trying to offset current year profits against past tax losses. The existing law is mean and unrealistic as it punishes a company from undertaking any form of new activity; at times it even punishes those companies barely tweaking their existing business model. It was announced today that companies will be able to enter into new business activities and transactions and do so without jeopardising the ability to offset past tax losses.
2. Newly formed companies (not trusts) will be able to attract investors with a non-refundable 20% tax offset. The investors will be able to reduce their personal tax liability by the amount of this tax offset. And there are steak knives with this – there will also be a 10 year CGT exemption for investments held for at least 3 years.
3. The existing insolvency laws will be relaxed for “risky projects.” Directors will be able to obtain a safe harbour from personal liability by appointing a “professional restructuring officer” who develops a plan to turn around a company in financial difficulty.
4. The existing default bankruptcy period of 3years will be reduced to 12 months.

Please remember though that there are only announcements.

We await the fine print which will appear in bills to be put before parliament some time in 2016.  We particularly await to see what if any announcements relate to those who are or would otherwise structure their operations through a discretionary or unit trust.

We welcome the opportunity to advise our clients as to how they may be able to utilise one or more of these announcements.

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

Most business owners are.

It always amazes how many clients happily pay increased prices to their suppliers and give wage increases to their staff, yet either don’t pass on the full increase, do so in arrears or worse still, not at all.  So they end up making less – and often working harder to make up the loss of profits.

We have some software that, amongst its other fabulous features, will calculate how many customers one would have to lose for a particular price rise and yet still make the same profit as before.  Now it remains unknown just how many customers will be lost – but with this software, I can tell a client what the magic number is at which the business makes less than before.

There have been three common outcomes from using this software with clients:-

1. They don’t lose as many clients as they first feared.
2. They lose few if any of their better customers.
3. The business performs a whole lot better, they worry less and they sleep better.

There is of course a process put in place to advise customers why prices are increasing.  On occasions, it has even been initially tested on a group of customers.

One of the initial such sessions in which I used this with a client started with them saying they would lose half their customers if they increased their prices by 10% (their prices had been the same for 2 years).  The calculated number was 42%.  Less than 30 seconds after saying he would lose 50% of his customers, upon seeing that tolerable customer loss rate was 42%, he said categorically that he would lose nowhere near 42% of his customers.  This is what replacing fear with probable fact does to the decision making process.

And what happened you ask – he lost barely any (and they were his worst customers anyway).  And the result – the bottom line (after allowing for salaries, super and fringe benefits to the owners) tripled.

This is one of the many ways we help our clients to understand what can become of changing the key drivers in their business.

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

I bought some fuel today and picked up a drink in the process.  As I did so, I saw one of those usual attractive deals – only an extra $2 for a drink (costing around $3.25) when buying a sandwich for $5.  The service station will have worked out this all out but it reminded how often small business owners get it wrong when discounting.

Take the situation of a firm which sells 10 items a day at $10.  Their costs of sale are $50 (so their gross margin is 50%) and their overheads are $30.  They make $20 profit a day.

Let’s say they offer a 20% discount.  Their cost of sale will remain at $50 (unless they can arrange a better deal) so they are now breaking even as their gross/trading profit is the same as their overheads.

Many clients get this but not all do.  However, what many clients fail to understand is how many more items they need to sell to make the same profit as before.  The answer in this example is a 66.67% increase sales – they now need to sell 16.67 units a day up from 10.  Or to put it more simply, if they sold 3 before, they now have to sell 5 just to hold their ground.  Is that possible?  May be it is, may be it isn’t.

The outcome of reducing prices in your business and the required increase in the number of transactions to make the same profit will depend on your margin, your cost structure and the level of discount.  We can show you this number simply.  With that knowledge, you can then make an informed decision.  All too often, people don’t know the result of making such a change and walk into what was an avoidable disaster.  Let us help you make an informed decision – in situations like this as well as many other scenarios whether they be quoting for work or responding to a customer’s’ request for a discount.  You have everything to gain and nothing to lose as we don’t bill possible clients for their first meeting.

At times it is appropriate to discount such as with getting rid of dead stock.  However, discounts are often a path to ruin.  If you are going to discount, make sure you do so understanding the variables at hand and therefore the likely outcome.

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