Posts Categorized: News
Positive cash flow is king
It’s not all about profit. Positive cash flow is king. There are many businesses that have failed which have been profitable and even had a great good or service. Yet that doesn’t translate to survival if cash flow is negative.
Various studies of small business failure all list poor or inadequate cash flow as the number reason for small business failure – and do so by a long way with most surveys attributing this as the main reason in anywhere from 70% to 90% of cases.
One should never go into business without understanding such things as:-
- How big is the market.
- Who is the competition.
- What are the direct costs of producing the good or service.
- What are the other costs of running the business.
- If you need staff, where are you going to find them and how are you going to train them.
- How much cash do you need to get started and then grow – and how long before you can repay yourself.
- If you need bank finance, what are the measures by which they are going to approve your loan application both initially and on-going.
This is where planning and budgeting are so important. You will be forced to address all these issues and more. You will need to assess priorities to various tasks and needs. Planning and budgeting provide clarity and removes foggy uncertainty and fear.
Too many small businesses either fail to undertake any of these tasks, or may be at best scratch out some kind of profit and loss statement. Sadly most people plan their holidays better than the very thing that will generate income, support their family and pre-occupy most of their waking hours. We have planning templates as well as specialised software which can generate not only a P&L but a cash flow, balance sheet and a funds statement (showing where money will come from and where it will go). We can then play with various high and low forecasts. We can then go and show you the measures by which a bank may finance you and assess you in their annual reviews (bankers love our reports). This includes giving you a dashboard to regularly check your progress and performance.
We welcome the opportunity to meet with you in a free one hour meeting to understand your business and to explain they ways we can help.
At MRS, we will spend today planning for your success tomorrow.
Why is planning so important?
Why is planning so important? No doubt you had numerous ideas over the summer break on ways you can improve your business in 2017. Don’t let that impetus and initiative slip away! The medium by which to bring those thoughts together and generate results is to bring everything together in a business plan.
Planning requires thought, analysis and decisions to be made in context of other factors and considerations (and not in isolation). Planning requires clear thinking, rather than knee-jerk reaction, and forces you to take a breath. It is no coincidence that those businesses that plan tend to be more successful. It is that focus that also ensures that key people work on the key tasks and aren’t consumed by dealing with what were really unimportant but neglected matters that have become urgent.
Some think it requires you to lock yourself away for days on end. It doesn’t. It will however take time as will the on-going reviews of performance. Planning gives you a roadmap and series of goals to measure yourself against. It also gives not clarity but also focus to your employees. Don’t lose those ideas you had! Set aside time to plan and put it into writing.
A good plan is like a road map: it shows the final destination and usually the best way to get there (H J Judd)
At MRS, we will spend today planning for your success tomorrow.
The new $1,600,000 pension cap
The new super rules first announced in this year’s Budget and passed by the Senate last month will include a new limit as to how much money one holds within pension mode. As from June 2017, there will be a $1,600,000 pension cap (which will be indexed in $100,000 lots).
The threshold will be calculated as the accumulated amounts one has commuted into pension mode less any commutations. Pension payments do not reduce your limit.
If Fred was to move part of his super accumulation balance into pension mode in June 2016 and do so with $1,600,000, he will not be able to move any further monies into pension mode until the threshold is indexed to $1,700,000. If that $1,600,000 grows to $3,200,000, he is entitled to keep that within pension mode. That’s great. On the flip side though, if it falls to $800,000, then that will be doubly unfortunate as Fred will not be able to top up.
Those in pension mode are going to have to think very seriously about what assets they put into pension mode and when they do so.
There is also another issue here in that if Fred only put $800,000 into pension mode in June 2017 and thereby only use half of his threshold, he can then only top up with $50,000 when the threshold increases to $1,700,000. It’s a strange system and careful planning is required.
At MRS, we will spend today planning for your success tomorrow.
Christmas and tax
Entertaining and providing gifts at Christmas time to staff, customers and suppliers is a cost of doing business. However, there are some important FBT, GST and income tax considerations and outcomes.
Under-pinning the implications are the following key points:-
Christmas parties, entertainment and gifts are all treated under entertainment tax rules.
- FBT applies to benefits given to employees.
- There are no FBT implications on entertainment and gifts given to customers, clients and suppliers.
- There are three methods under which an employer can quantify the taxable components of any entertainment expenditure – in fact there are 38 permutations depending on who is entertained where, how and with whom. We will largely address the actual method which the vast majority of clients use and which delivers more favourable outcomes. It is beyond the scope of this briefing to address 12 week log method and we will only touch upon the 50/50 method where relevant.
- Christmas comes but once a year and to the best of my knowledge and experience does so on 25th December. Nevertheless, the ATO treats Christmas parties and gifts as being what are called minor, infrequent and irregular benefits.
- Such minor benefits are FBT exempt where they cost less than $300 (including GST) provided the actual method is used to quantify entertainment.
The Christmas party
Where entertainment is calculated under the actual expenditure method:-
- If a Christmas party is held on-site on a work day, the whole cost for each employee will be an exempt fringe benefit. So too will the spouse’s cost provided the cost per spouse is less than $300. No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend. Taxi travel to or from the workplace (not both ways) will be exempt from FBT and not tax deductible.
- If a Christmas party is held off the work premises, then the whole cost will be exempt from FBT provided the party costs less than $300 per person (employees and their spouses). No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend.
- If an external Christmas party costs more than $300 per person then the total cost is subject to FBT.
- The cost of any entertainment provided during the party (whether that be at the work premises or outside) will be exempt if it costs less than $300 per head – for example DJ, musicians, clown and comedian.
- The cost of entertaining clients, customers and suppliers is not subject to FBT and is not tax deductible.
- If any exemption is exceeded then FBT is payable. Consequently, an FBT Tax Return must be lodged and FBT paid. Please keep this in mind when completing the 2015/16 FBT Questionnaire in early April 2016.
Where entertainment is calculated under the 50/50 method:-
- 50% of the cost will be subject to FBT and this portion will be tax deductible. The other 50% will not be subject to FBT and will not be tax deductible. An FBT Tax Return must be lodged and FBT paid.
- Only taxi travel from home to the venue will be FBT exempt and not deductible for tax.
Gifts
The following gifts are exempt from FBT and are tax deductible:-
- Hampers, bottles of wine, gift vouchers, a pen set costing less than $300 (inclusive of GST).
The following gifts are subject to FBT and are not tax deductible:-
- Tickets to a sporting event or theatre, holiday, accommodation, etc.
GST
- The GST component of any tax deductible portion can be claimed back.
- The GST component that relates to the non tax deductible portion can’t be claimed.
Please do not hesitate to call us should you have any queries.
At MRS, we will spend today planning for your success tomorrow.
New concessional contribution limit
The super changes first announced in this year’s Budget were passed by the Senate on Wednesday 23rd November. With that we will now have a much lower concessional (deductible) contribution limit from July next year.
The limit for the current 2016/17 financial year is $35,000 per annum for those aged 49 or older on 30th June 2016; $30,000 for those younger. The limit for everyone will fall to $25,000 as from the 2017/18 year. And with the non-concessional limit then also falling to $100,000 (subject to transitional and bring forward rules), many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire. Long gone are the days when one could rectify years of no planning for retirement by making concessional contributions of around $100,000 over a few years. Retirement planning need to now start at an earlier age.
Thankfully one of the positive changes ignore by the press is one that allows those that have been out of the work force for an extended period to make catch up on contributions in excess of the annual limit. They 10% employment income test will also be removed. It’s not all bad news.
At MRS, we will spend today planning for your success tomorrow.
New non-concessional contribution limits
The super changes first announced in this year’s Budget were passed by the Senate on Wednesday. With that we now have a much lower new non-concessional contribution limit; that being the after tax contributions one can make into their super fund which are not taxed when received by a super fund – that is those monies that go into a super fund tax free and which come out tax free.
The current limit is $180,000 per annum but that will fall to $100,000 from July 2017. And with the concessional limit then also falling to $25,000, many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire.
The bring forward rule will remain. That rule allows those under 65 to make three year’s worth of non-concessional contributions in one year whether that be from an inheritance, windfall or proceeds from an asset sale. In the future, this means that no more than $300,000 can be contributed in any one year. The limit to 30th June 2017 remains at $540,000 but is subject to what has already been described by some as an unusual and complicated transitional rule. Whilst the limit may remain at $540,000 for this financial year, it will be less for those who under contributed in 2015/16 or do so in 2016/17. Make sure you understand what your limit is before making any non-concessional contributions before 30th June 2017.
At MRS, we will spend today planning for your success tomorrow.
New super rules now law
Those largely unpleasant superannuation changes announced in this year’s Budget are now law. The Senate passed them yesterday.
As we explained to out clients in a seminar on Tuesday night, wile some of the changes are quite positive, many them will have substantial impacts upon how people can accumulate wealth for retirement. Indeed, with a new concessional (deductible) cap of only $25,000 from July 2017, it will become difficult for many to fund their retirement through super as their parents did. If it wasn’t already true enough, many people will be forced to address their retirement planning at a much earlier stage in life.
Ignorance and inaction rarely pay off and doing nothing will cost some a great deal. It is critical you understand what you need to do under the adverse changes and what you can do to make the most of the positive changes.
Single Touch Payroll is coming
Single Touch Payroll is coming. Single Touch Payroll (STP) will require all employers to report to the ATO at the time of every pay how much they are paying and to whom. No more advising the total of all wages at W1 and tax thereon at W2 on the following activity statement (with the detail only being provided to the ATO with the supply of the PAYG Payment Summaries after the end of the year).
A test program is underway. It will become optional from July 2017 and mandatory for all employers with 20 or more employees from July 2018. Once the systems is fully up and running the need for PAYG Payment Summaries (group certificates) will be dropped as the ATO will know exactly how much has been paid as of an employee’s last pay. Employees will be able go into their MyGov account and see these details – as well as the super that is to be paid.
STP will also allow employers to provide employers with TFN Declarations and Super Choice forms.
Thankfully it was announced in September that the proposed requirement for employers to pay the PAYG WH to the ATO at the time employers are paid has been dropped – exactly how cashed up did they think the typical small & medium sized business is?
So if you don’t have a complying and/or efficient payroll system, now is the time to explore your options. Speak to us about your options and what you need to do.
At MRS, we will spend today planning for your success tomorrow.
Unfair contract term protection
As of 12th November 2016, unfair contract term protection that apply to consumers will be extended to cover standard form small business contracts.
Standard form small business contracts are ones where one of the parties has limited or no opportunity to negotiate the terms therein. Small businesses are businesses that employee less than 20 people. Employees of related entities are not counted against this limit.
This new form of protection will apply to contracts entered into or varied on or after 12th November, 2016 for contracts of less than $300,000, or $1,000,000 if the contract is for more than 12 months.
Terms that can be found to be unfair include those that enable one party but not the other two:-
- Avoid or limit their obligations under the contract,
- Terminate the contract,
- Penalise one party for breaching or terminating the contract, or
- Unable one party to vary the terms of the contract.
However, the law does not provide relief from the upfront price payable under a contract.
So, as from yesterday, standard form contracts “forced” upon a small business can be found to be unfair by a court or tribunal. The effect is that that a term can be disregarded (but the balance of the contract remains in place).
We have all heard of cases or know of first hand situations where small business owners being unfairly treated by large businesses. This amendment to Australian Consumer Law is not only welcome, but long overdue. Too many businesses and indeed family lives have been ruined by conduct that can now be prevented.
Very few accountants provide their clients with anything like the free tips, education, seminars and literature that we do. Please let all your small business owner colleagues know of this welcome relief.
If you would like to know more about these new provisions, please refer to the frequently asked questions provided by the Australian Competition & Consumer Commission (ACCC) at:-
At MRS, we will spend today planning for your success tomorrow.
When cheap becomes costly
It never ceases to both sadden and amaze me how many people go for what is the cheapest offering – rather than what is right and best for them. The end result is that cheap becomes costly.
I was reminded of this in an article in the Sunday Age edition of October 30, 2016. In a letter to the editor within the financial section, the aggrieved consumer was complaining about being unable to claim for their full loss under their home insurance policy. Their mistakes were (1) to take out the cheapest policy and (2) to do so without understanding what was excluded.
The basic idea of insurance is, for the cost of a minor annual fee, to pass a risk on to someone else. It is therefore critical to ensure that you are appropriately covered, particularly for the most important items such as your home, your future income, trauma insurance and against temporary and permanent disability. Having the cheapest policy that provides incomplete cover is the most expensive.
There is also a lesson in that it is dangerous to do some things by yourself. The need to speak to a qualified insurance broker is as important as ever. Don’t be fooled by ads, price and “simple” online applications.
At MRS, we will spend today planning for your success tomorrow.