Posts Categorized: General

If only – part 1

We have just finished the 2015 financials for a client. They have had a good year.  They know their industry well, move with change and make good decisions.  But with our cutting edge analysis software, we have identified that:-

  • For each day they reduce their stock turnover (i.e. days stock held before sell it), they will untie $959 of cash. So, if they reduce the days stock is held before it is sold by 10 days, then they will add $9,593 to the bank balance.  $10,000 may not sound like much to most businesses but it is very important to a manufacturer who sells custom made product and which has high wages and rent to pay on time every time.
  • Net profit increased but their gross margin fell. If they had obtained the best margin from the last 5 years then they would have made an extra $21,360 of net profit. I’m aware of one good and acceptable reason as to why their gross margin fell but isn’t it interesting to know things such as this so that proper informed decisions can be made – which traditional accounting systems nor most accountants don’t tell you.
  • As they have grown, so too have their costs.  Consequently, their break-even sales have risen.  Moreover, we will tell them what their margin of safety has become (being how much their sales can fall at their current cost structure until they fall to a break-even situation). Interestingly, for a successful business, they can now only afford for their sales to fall by 15.8% before they start to lose money.

As I said, most accounting systems and accountants don’t tell you these important things.  Now wonder most small and medium business owners scratch their head when trying to figure out what their cash and profit figures are what they are.

We will discuss those three matters (as well as many other matters) at our upcoming meeting with our client. Does your accountant help you measure and understand such things about your business?  If not, the best decision you can make is to speak to us.  Your first meeting is free so it won’t cost you anything.  Your greatest cost may be stay with your existing accountant.

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

 

WorkCover injury poster

There are a number of obligations under WorkCover.

One of the fundamental ones is to display the If you are injured at work poster which you can access at http://www.rrp.com.au/safety-blog/workplace-noticeboard-requirements

If you are visited by a Victorian WorkCover official then they will most likely ask to see it – and you will be fined if you don’t have it displayed.

If you employ workers (and some types of contractors) interstate then you will also need to comply with that state or territory’s obligations (which can also be checked at the above web page link.

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

Part 2 – your break even point

Two weeks ago, I wrote a blog on the need for business owners to understand their break-even point. Gordon Ramsay thinks it is critical to know; I couldn’t agree more.

The blog generated a fair bit of discussion and on the back of those conversations, I would like to explore one aspect in greater detail.

I stated that the break-even point to monitor is not the point at which one starts to make a profit but one which also includes a fair return for the effort, time, finance and risk that an owner invests in a business.  This means that the expenses used in the break-even calculation should include the following items:-

  1. A market salary for the skills and time worked in the business. In this regard, we find that small and medium sized business owners don’t allow enough for the hours they work (being significantly more than a 40 hours week). We often find with new clients that they are earning a good income but working 20 more hours a week to do so.
  2. Interest on any loan account balance for monies owed by the business at say home loan rates. If you put money in a bank account, you would want to earn interest on it. If you lent it to someone you would want to earn interest on that loan. The real return on a business should therefore also include a fair return on the money loaned and invested in the business.
  3. Being in business carries risk. Some businesses carry low risks, others are quite significant including such thing as risk of bankruptcy and fines for non-compliance measured (often in the tens of thousands of dollars). If you invested in a risky investment, you would want a higher return. Likewise, your desired return from your business should reflect the risks taken.

The common problem is that what most businesses record as owner’s remuneration doesn’t reflect this real break-even number. This is because business owners pay what they can pay, sometimes underpay themselves and/or the results are skewed by tax decisions.

We have advanced software that will adjust the real numbers to either increase or decrease owner’s remuneration so that the business reports on its real numbers. And from that knowledge, proper decisions can be made.  Why not talk to us about what your real break-even point is and the actions you can take to improve your situation.

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

Which PAYG Instalment method is best for you?

PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals.  In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions.  It is not assessed on wages or capital gains.

With respect to PAYG Instalments, we usually prefer that clients use the instalment amount method.  In the majority of cases, it will not result in an over-payment that can so often arise under the instalment rate method.

In some cases though, the % rate method may enable one to pay a lesser amount.  If the instalment income is nil or negligible in the first couple of quarters or much less than the year before, then no or little tax will be paid.  A significant payment will only be required at such time as income is received.

It is critical with PAYG Instalments (and indeed GST Instalments) that any downwards or indeed upwards variation be made cautiously.  If a variation results in the instalments paid being 15% less than the actual liability then the ATO will issue a fine.

Please do not hesitate to call us should you wish to discuss your own situation.

 

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

Why you should use the GST instalment method

Being the start of another activity statement year, one can exercise the choice as to the method to be used to calculate GST and pay GST for the 2015/16 year.

We recommend that Option 3 GST Instalments be selected in most cases for those that lodge a quarterly BAS.

Option 3 (which is only offered to small businesses with turnover of less than $2,000,000) is far and away the best option in the majority of cases as:-

  • It reduces our fees by our not having to prepare BAS’s or amend those prepared by clients (at the risk of being misunderstood, there are matters that only come to light when preparing annual financial statements and which require past BAS’s to be amended).
  • One doesn’t have to amend BAS’s for where a tax invoice is not held by the time a BAS is lodged.
  • If profits are increasing, then one’s GST net liability will also be increasing.  The instalment will represent an under payment as the ATO advised instalment is based off the prior year’s lodged activity statements.  In most cases, the shortfall is not payable until May of the following year so one receives an interest free loan from the ATO to pay any GST shortfall.
  • If the instalment is too high, then it can be varied downwards (but best left until at least the second and preferably the third or fourth quarter when the year’s position becomes clearer).

Please contact us if the ATO have marked on your BAS that Option 3 is not available.  This is often simply an ATO error and one that we can easily have rectified.

If Option 3 is adopted, then the ATO will issue an Annual GST Return at the end of the financial year.  This form is used to net off the actual liability against the instalments paid.  The form is required to be lodged by the time the Tax Return is lodged and by which time a shortfall is to be paid or a refund will be generated.

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

Deadlines for Sep 15 quarter

For those of you who are employers, Wednesday 28th October is the end date for satisfying your SGC super obligation for the September quarter.  Late payments will attract substantial interest and penalties.  Consequently, SGC super should never be paid late.  In the past, payments made even a day late had to be paid directly to the ATO.  Now payments up to a month late can still be made to employees’ super funds.  Payments made more than one month in arrears must be paid to the ATO.  BAS’s and SGC liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

As per earlier reminders, the SGC rate increased from 9.25% to 9.50% as from 1st July 2014.  Please ensure that your system is calculating the SGC at this slightly higher new rate as we have found some clients have still been using the previous rate.

For those who lodge a quarterly BAS, your September quarter BAS is due for lodgement by Wednesday 28th October.  However, you will have to Wednesday 11th November if you are a registered user of the Tax Office’s Taxpayer Portal.  As per our June 2014 edition of Tips & Traps, we encourage you to register for the ATO Taxpayer Portal if you have not done so already; particularly as no further paper activity statements will be issued when an activity statement has been lodged electronically after 30th June 2014.

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

Don’t be misled

Front page headlines on Tuesday and to that night’s TV news were how the share market had dropped $60 billion by day’s end. It was a big number.

Some mentioned the % fall; most didn’t. The “billions wiped out” bit was the big message, with the headline often being in red and/or pictures of unhappy people.

So what has actually happened? On Tuesday. the share market index value which opened at 5,070 fell to 4,918.

It made up half of those gains within the next 24 hours. Now, at the close of trading on Thursday, only 48 hours later, it sits at 5,110 – i.e. 40 points higher than when it started on Tuesday.

But does this recovery and indeed increase above Tuesday’s “wipe-out” lead the news? Most certainly not. There probably won’t be a single heading anywhere except in the business section. So unless you read the business pages you would be left thinking that the market had suffered some kind of permanent loss.

So who won out of this – these that that took the chance to buy shares at a reduced price.

So who has lost out of this – those that panicked and sold shares at a lower value. It’s funny how many of these people then buy back in at inflated prices.

The clear lesson from these often recurring episodes is to be very careful of what you read and hear. The market might well fall further. But do not confuse sensationalised headlines with facts and fundamentals. Short term minor corrections, no matter how the press portray them, should not cause you to make snap and emotional decisions.

An unpleasant conversation

We have a client’s whose business model no longer works.

To make matters worse, the couple who have run the business have separated. So now they have to pay market wages within an industry where employees don’t work as hard nor are as productive as their owners (isn’t that usually the case?)

So the ugly question to be confronted was can the business continue to work, particularly as it requires a large outlay in the form of its re-licencing.

Yes, I could have done a whole lot of calculations using Excel, calculator, back of an envelope, or combinations thereof. However, someone has almost always built a better mouse trap and using cutting edge software, I was able to present within minutes a number of scenarios that would be required for the business to continue to be viable. These scenarios included:-

  • How much prices would need to be increased to generate the required profit/wages.
  • Adjusted to work out how many customers could afford to be lost.
  • How many more customers would have to be obtained.
  • How many more times a customer would have to return.
  • An examination the impact of increasing the average transaction value (do you want fries with that?).
  • Made adjustments for the cost of the re-financing.

All of this required proper recording of the clients cost of sales as well as understanding of which costs are fixed, which are variable and which ones may increase in steps. Our clients know these things, break-even points and more – do you know or more importantly, does your accountant ensure you know such things within your business.

I’d rather be talking to clients about how they can increase the profit of their business and therefore its end selling value. Whilst the topic was unpleasant, it was a rewarding one as the client clearly understood from this analysis that the business was no longer viable. I repeat, this was made clear to them. Without such an analysis, they could have made an ill-informed decision to continue or to close the business (and wondered whether it was the right decision).

So why not speak to us and make the right decisions in your business.  Our initial meetings with new clients are free of cost or obligation.

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

The 10 benefits of cloud accounting

One seemingly today can’t spend five minutes without hearing about cloud services and, in particular, cloud accounting packages.

However, we believe that there are now compelling reasons as to why most businesses should upgrade to a cloud-based solution if they have not done so already (please note the use of the words solution rather than version and most but not all clients).

Here are our top 10 benefits of using cloud accounting:-

  1. You can access your numbers anytime from anywhere and do so easily. So can we.  So can your bookkeeper.  So can someone else in another store.  So can anyone else that you need or wish to give access to.  Access can be granted with differing rights to access certain areas and perform various functions (such as access payroll records and generate a profit and loss).
  2. You can issue invoices from anywhere at anytime, even from a tablet or mobile.  No more waiting until you get back to the office.  You might even be able to speed up your cash flow by taking payments on the go.
  3. The three big players in this space, Xero, MYOB and Reckon Hosted (QuickBooks), all include the option to automatically upload bank transactions.  You don’t have to, but it does save time.  The first time a payee name appears in a data feed, you assign an account to it – so, for example, the first time Maggs Reid Stewart appears, you link our name to accounting fees.  Thereafter, Maggs Reid Stewart is automatically posted to accounting fees unless you otherwise edit the transaction.  As you can imagine, data entry progressively takes less and less time and it is for this reason that there are a lot of good bookkeepers out there scratching for work.  The fees for these bank transaction data feeds are now very reasonable.  So the benefit to you is that you either pay your bookkeeper less or spend less time yourself bent over the keyboard.
  4. With automatic bank feeds, it becomes much easier to keep your numbers up-to-date.  Remember that old saying – what you can measure you can manage (and by extension, what you can manage you can control and what you can control gets done).  You will have the power to know what is happening in your business at all times.  The days of business owners being in the dark as to their true situation until a Tax Return is prepared some time after 30th June should, finally, be a thing of the past.
  5. As multiple people can access the same file, gone will be the common problem of the client, the bookkeeper and the accountant all wanting to work on the file at the same time yet only one having the current file at any one time.  No more re-entering invoices, no more incorrect restores, no more avoidable time wasting, no more wasted and costly time in delivering or collecting a back-up of a desktop file and other such annoying problems.
  6. It is sometimes months after year end before we finalise a client’s financials (we only have two arms so we can’t finalise them all in July).  Cloud accounting packages allow us to access a client file at all times.  The closer we are to the time of each transaction, the greater value we can be to our clients.
  7. You don’t have to load upgrades to the software – it is done for you.
  8. No more version control problems between a client and their accountant.
  9. We have for some years used programs such as LogMeIn to access clients’ computers remotely whether that be to obtain reports, fix problems, etc.  Those remote access programs are comparatively cumbersome.  With cloud based programs, we can just login once you have set us up as a user.  We can then answer your queries far more quickly and efficiently.
  10. When up and running and used properly, cloud accounting should reduce accounting fees and, more importantly, enable us to provide a better service.

Is cloud accounting the way to go for your business.  And if so, which program will better suit your needs?  Call us fro a free initial meeting to discuss your business and its needs.

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

Pay tax and earn frequent flyer points

In our September edition of Tips & Traps (*) we explored the ability to maximise your frequent flyer points from using a credit card (wisely).

Another way to maximise your points is to pay your business or personal tax debts by credit card. Whilst the ATO do charge credit card payment fees, they are the same that they are charged by the various card providers. As such, the rates charged are very low.

You can pay by credit card by:-

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

 

(*)        Tips and Traps is a free quarterly newsletter issued to our business clients full of, as the name suggests, tips and traps. Please call Alex Stewart if you would like to be added to the mailing list.