Posts Categorized: News

Unclaimed monies

In 2012, we sent out a warning e-mail to our clients in respect of the then new unclaimed monies regulations.

Since then, the balance of any bank account unused for more than 3 years is transferred to the government.

As it is not easy to reclaim one’s money as what one might think and as it’s coming up for 3 years since our reminder, we again remind you to either transact on any dormant account or close it. Please remember that charges debited or interest credited by a bank to your account do not keep an account active. You need to either make a payment from or deposit into an account for it to be considered active.

If you want to know more or undertake a search on a closed bank account, go to http://tinyurl.com/qjozgon

 

Salary packaging a car

It never ceases to amaze how many new business clients have their cars owned the wrong way.  Not that they should know – but their former accountant should have, but for some unknown reason, never bothered to advise their client!

So what is the best way to salary package a car?  There is no single answer that applies to all.  It is simply a matter of analysing a client’s situation to work out what is best for them.

If one is provided with a passenger car by one’s own business run through a company or trust, then Fringe Benefits Tax (FBT) tax rules apply.  There are two stages in determining the outcome – and two chances to maximise the outcome.

The first step is to choose which of the two methods to use to determine the value of the car fringe benefit.  The benefit can be valued under either the log book method or the statutory formula method.  I view the log book method as it is what it is.  The only advantage of having a car provided by one’s own business rather than in one’s name is that is that GST can be claimed back.  For many though, the statutory formula can be most generous.  All that matters is how many kilometres are travelled annually; the actual split between business and private doesn’t matter as an implied business use is assumed.  For those with a low percentage of work travel, they can effectively claim a much higher work percentage – and it is audit proof (provided the right declarations are completed).

The second step is to determine the best way to extinguish the fringe benefit value.  Paying FBT tax is rarely the best option as it equates to the highest marginal tax rate.

That said, we recently advised a client on how to salary package their next car.  They were looking at an expensive car and were in the top marginal tax rate.  By structuring the package in the most optimal way, we estimate the client will be $1,800 to $2,800 better off in each of the next 4 years.  So after 4 years, they will have had an average of $9,200 more in their pocket.  Quite a good result indeed.

We would welcome your call to see how we can make you better off.

What does your accountant cost you?

I just met with a new client on Thursday.  It staggers me what a poor level of service some accountants provide to their business clients as was the case here.

Some of the key issues were that:-

  • The client had not been told there was a big tax bill coming (and the accountant didn’t tell them as such, they just sent the client a letter telling them that they had a lot of tax to pay). The end profit and tax position should never come as a surprise and do so many months after year end.
  • Failed to undertake any sort of planning to legally minimise or defer tax where possible.
  • Provided no service other than preparing a Tax Return.
  • Presented financials in a meaningless way which did not report on the operations of the business.

This accountant’s focus was clearly limited to attending to meeting compliance obligations.  They live in the past and do not look forward as business owners must.

The accounting work was not expensive but what was the real cost of lost opportunities? 

The last two issues listed above I find particularly disappointing.

To begin with, the profit and loss clumped all expenses in together.  I identified at least 9 expenses which should have been shown separately in cost of goods sold.  By doing so, the business would know their gross margin and therefore what the true cost of making what they sell (you would be surprised that even those businesses with costings systems often still get it wrong as they don’t factor in wastage, re-working, under-capacity during quiet periods, etc.).

Furthermore, the client has never been shown:-

  • The key drivers in the business – and what the outcome would be from making changes like say increasing prices by 7% (together with a calculation of how many customers could one lose and still make the same profit).
  • Identify which costs are fixed and which are variable.
  • Which reports to run weekly, monthly and quarterly.
  • What solvency ratios to monitor to understand what the future cash flow will be like.
  • And this is just the generic matters without getting down to what is unique and particular to their industry and business.

So again I ask, what is the real cost of using that accountant?

The benefit is clearly identifiable – there was none other than the compliance work (which any accountant can do).

 

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

The best business book to read

I have read many business books.

I read the E-Myth many years ago and it changed the way I think about my clients and indeed my own business.

Good to Great by Jim Collins was a fascinating read (despite being about large American corporations, some of who have since failed).

Last year I read Simon’s Sinek’s Start With Why.  Boy did this change the way I think about our positioning and value proposition (most of which was good, but not expressed the right way).

I just re-read parts of it again over the weekend and want to share some of it with you.  You can click on the following You Tube version of Sinek’s Ted Talk on Start With Why.  It runs for only 18 minutes but encapsulates much of what the book addresses.

The examples given in this short video are fascinating as are the insights as to how the human mind works.

I reckon that after viewing this short video, the next thing you do will be to buy the book (which I strongly recommend you do).

So why do I do what I do (and why do I provide so many services in addition to normal accounting and tax services) – because I find reward and feel accomplishment when I have helped a client to maximise their income, protect that created wealth and help them plan to leave it to their beneficiaries in the most efficient manner.

https://youtu.be/sioZd3AxmnE

When industry benchmarks are useful

I have two problems when measuring against industry benchmarks:-

 

1/.        Are you really comparing apples with apples?

How many businesses make up the benchmark and just how comparable are they to each other and indeed to your own business?

Are they big & small, metropolitan &/or country based, new & old, running the same funding and operational structures and so on.

One can place faith in more common and the more identifiable businesses but otherwise, great care should be taken.  Data from well know franchises can reliably be compared against each other, but thereafter, beware.

 

2/.        I have found over the years that clients who focus on their industry benchmark fall for the trap of thinking that as they ahead or close to a benchmark, that all is OK.  Laziness and mediocrity tend to creep in (it reminds me of one of those great lines from Jim Collins seminal book Good to Great – good is the enemy of great).

More successful business owners however are more focused on improving any system and process in their business.  It’s amazing how often little changes have big results (see our blog from two weeks ago titled Greater profitability is closer than you may think).

 

So should you refer to industry benchmarks?  The answer is yes but a qualified one.  Just make sure you know what you are comparing yourself to and more importantly, place greater emphasis on improving the processes and systems within your own business.  In this regard, it is amazing how some businesses have come to dominate their industry by employing systems and processes from different industries.

 

The one benchmark though that you should not avoid is any applicable ATO’s small business industry benchmark.  Like many accountants, I question how they derive their numbers – for example, it is a blight upon my profession that many public accountants lazily declare cost of goods sold items within overheads so this must greatly distort the ATO’s gross profit margin numbers.  Questionable as these benchmarks are, they can’t be ignored as they are the ATO’s greatest business audit selection method and they target those businesses operating outside the ATO’s industry benchmarks.

What your accounting system should do for you

Sadly, for most small businesses, all that their accountant is interested in is their Tax Return and BAS’s.  As important as the past is, it is the future that is more important.

One of the many unfortunate consequences is that most small business owners (who aren’t accountants and would like help improving their business) run an accounting system of little use.  It will help the accountant prepare annual Tax Returns and generate BAS’s – but little else.

A proper accounting and reporting system will include such features as:-

  • Report on the true gross profit from your core business activity. It shames me that many of my fellow accountants let their clients exclude many of the production costs from their cost of goods sold. You have to know what you margins are!
  • Report on different segments of your business.
  • Have a system to report and monitor key numbers on a daily, weekly, monthly and quarterly basis.
  • Contain estimates for such things as depreciation and interest – the year end financials and tax should never be a surprise.
  • Monitoring of KPIs and key drivers.

Such a reporting system will enable a business owner to better understand their business and be able to focus on the matters, which if controlled, will improve the success of their business.

At MRS, we are able to build on this core need and provide further reports and coaching to help our clients towards greater success.

We invite you to look at our service offering as per the services tab of this web page.

More importantly, we welcome the opportunity to meet with you to gain an understanding of your business and determine the ways in which we can help you.  This initial meeting is free of charge.  We welcome your call.

 

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

Greater profitability is closer than you may realise

I say this as many business owners don’t realise what can result from making little changes to the main drivers within their business.

What do you reckon would be the effect of improving the following by just 1%:-

  • Increase price of $187 by 1%.
  • Reduce cost of goods sold of $117 by 1%.
  • Maintain overheads at $1,667,904 (they shouldn’t increase).
  • Improve customer acquisition and defection rates by 1%.
  • Increase transaction frequency by 1%

Would you believe by 52%!  Whilst not true for business with a low number of transactions of high value items, this is actually a common outcome.

Are you wondering what the possible outcomes are for your business? 

Why not ask us.

We use Principa’s Game Plan software which models this and performs many other calculations and analysis reports of your business.  So instead of continuing to working harder, let us help and guide you to working smarter.

 

As I said some weeks ago,

 What you can measure, you can manage …

                … and what you can manage, you can control …

                            … and what you can control gets done.

It will happen one day so you better plan for it

Not only did last week’s blog create some discussion but our estate planning seminar was booked out within a day!

The one certainty in life is that one day we will pass way.  The issue that many fail to address is to plan for that eventuality.

In my opinion this is the most important document in almost everyone’s life (yet sadly only half of Australians have one).

So how good is your estate planning?

To assist you, please consider the following 10 matters that too many people fail to address.  They are not in any order and the list is certainly not exhaustive as there are many other reasons as to why a lack of proper estate planning can lead to a disaster:-

  1. I’ll start with the most basic and common matter. Jointly owned assets (such as a family home) automatically go to the survivor. It doesn’t matter what is stated in the will; a will has no power to deal with jointly owned assets as they never become part of the estate.
  2. One’s superannuation is held in trust. In the absence of a binding death nomination, the responsibility of deciding who the super will go to is the responsibility of the trustees – and for a public fund, that is some faceless group of people who you do not know. With 1 in 2 marriages ending in divorce, there can be two or more parties that can claim an entitlement – it can only get ugly, costly and lengthy exercise.
  3. It is alarming how many times a binding death nomination is found to be ineffective.
  4. One good way of identifying whether you have a good estate planning lawyer or not is that they will have asked to see a copy of your self managed super fund deed –if they haven’t, terminate the arrangement and seek another lawyer. By engaging an experienced lawyer, matters such as (but not limited to) will be addressed – voting rights, reversionary pensions and payment of death benefits.
  5. The danger of wills written long ago is that the nominated executor or executrix may no longer be alive, mentally capable or even one’s best friend. Do you really want them to still administer and distribute your life’s wealth? What if your friend from school is now a drug addict?
  6. Unless there is an unpaid entitlement, the beneficiary of a discretionary (family) trust has no right to the assets of a trust.
  7. A lack of planning as to who will be a replacement trustee (either as an individual or director of a trustee company) of a discretionary trust. There is also the more critical issue of who will be the replacement appointor of a discretionary trust.
  8. If one is a member (and therefore trustee) of a self managed super fund, who will become the replacement trustee?
  9. Who will look after the kids if both parents pass away? Too many wills don’t address this; even less fail to address the associated funding.
  10. Not making or revising a will whilst one is still mentally capable and there are no doubts as to there being any disqualifying acts such as dementia and undue influence.

The above is not to be construed in any order of importance as any one of these could be the most important to you.  Nor is this list exhaustive – there are other many matters that need to be addressed depending on one’s own circumstances.

So will your wishes be carried out as you intend?

As next month’s estate planning seminar has been booked out, we will be re-running the seminar again later in the year.  Please ask Alex Stewart whether you wish to be added to the wait list.

 

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

The most important task

We all work hard.

We make sacrifices.

We think about work at night and on weekends.  It even keeps some of us awake at night.

We do this to build wealth and improve the quality of life of ourselves and our families.

We all have an opportunity to plan the efficient transfer of our accumulated wealth to our intended beneficiaries.  It is amazing though how many fail to create a will, or, equally as bad, have one that is ineffective.

Too many people don’t understand that the most common and valuable assets can’t be dealt with under a will, such as:-

  • Jointly owned assets.
  • Super (particularly that held within public funds).
  • Some life insurance policies.
  • Assets held within discretionary trusts.

It is not uncommon to encounter a will that does not address the distribution of more than 90% of one’s accumulated wealth.  It is not enjoyable explaining this to the beneficiaries.  It is what I hate most about a job that I love.

Worse still, others don’t understand the tax and dependency super laws.  Not planning around these can result in tax needlessly paid and unequal distributions.

Moreover, a lack of proper planning can result in family disputes.  Sadly, they often become rifts that never heal.

At Maggs Reid Stewart, our focus is to assist you our clients to:-
* generate income,
* protect wealth, and
* assist you to plan to leave it your intended beneficiaries in the most efficient manner.
We are not your typical accounting firm only interested in your past; Tax Returns are only part of what we do.

To assist you our clients, we are running an estate planning seminar in March.  Invitations will be distributed during the week.

When growth is bad (and running out of cash)

Last week I queried whether your plan will work and touched upon good and bad growth.

Increasing sales is not the answer to everything.  It is not uncommon to see a business solely concentrating on increasing sales fall part if they haven’t ensured the business has the right team and systems in place to support greater turnover.

Worse still, some businesses even fail as they run out of cash due to the increased revenue not being enough to fund greater expenses and the greater amount of money locked up in debtors and stock.

Consider this……

Take a business that doubles its sales from $1,000,000 to $2,000,000 and everything else doubles from:-

  • Cost of goods sold from $700,000
  • Overheads from $175,000
  • Net profit from $75,000 (average tax rate remains at 40%)
  • Debtors from $125,000
  • Stock from $160,000
  • Creditors from $75,000.

Sounds good?

Actually, it’s a disaster.

Why – because the working capital required has doubled from $210,000 to $420,000 whilst the doubling of profit after tax has only generated an extra $150,000 – of which $60,000 will go in tax.  What seems to be a new dawn will actually prove to be a nightmare.  The business owner in such a case might think they are going forward in the right direction but there is something coming awfully big and fast straight at them!

The problem here is that the owner has concentrated on sales and sales alone.  The outcome would be quite different if other key drives such as debtors, stock and creditors turnover were addressed (and for which we have many strategies from our many years of experience and supporting tools).

We are a member of the Principa accountants network (from which this example was generated).  Amongst many other valuable services, they provide us with cutting edge software that quickly models such scenarios – and does so in a way that you will readily understand.

Why not refer to our web page’s article on business improvement potential.  Or better yet, why not ring Alex Stewart and make a time to sit down and have an obligation free meeting to discuss how we can help your business.

So again I ask, will your plan work?