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Business tips: Getting in control of your spending

Keeping the business in a positive cashflow position is vital. But you can only do this if your cash inflows (sales revenues and other income) outweigh your cash outflows (overheads, supplier costs and other liabilities like tax costs or loan repayments).

One way to re-balance the cashflow scales is to get in better control of your spending. This process of ‘spend management’ is all about reviewing your expenses, negotiating better deals with suppliers and getting a razor-sharp focus on reducing your cash outflows.

Review your current suppliers

Once you have a reliable supply chain set up, it’s very easy to fall back on using the same suppliers time and time again. But the reality is that there’s real value in reviewing the suppliers you’re using, so you don’t miss out on any better deals.

Prices will go up and down in the marketplace and new suppliers will appear in the market. So it’s worth regularly checking for alternative providers that can offer cheaper rates, better value prices or longer payment terms etc.

Negotiate better prices with your trusted suppliers

You may be happy with the supplier relationships you have, but still want to cut down on your spending. In this scenario, it’s well worth negotiating. Very few suppliers will want to lose a valued customer, especially if you’re a long-term client who’s bringing in reliable revenues. If the relationship is strong enough they’ll be open to negotiating a deal that works for both of you.

See if you can push the prices down, or get discounts for buying in bulk etc. And, if possible, see if you can get them to agree to a trade credit agreement, where you can pay for the goods and services over a longer period of time, to boost your cashflow.

Rein in your expenses

It may sound obvious, but one of the easiest ways to cut your overall expenditure is to be a bit more frugal with your overall spending. Don’t overspend on stock, raw materials or services. Just buy what you need to stay operational, and keep a close eye on when new orders will be needed, rather than overspending and using up your available cash.

Where day-to-day spending has got out of hand, you can make a big difference to your expenditure by making small changes to your outgoings. If you look at your spending with a fine-tooth comb, you’ll soon find costs and expenses that can be cut back or stopped entirely. Other cash-saving options could include putting a limit on staff expense cards or canceling unnecessary software and magazine subscriptions etc.

Use a purchase order number system

A purchase order number system makes it easier to keep track of your spending. In essence, any purchase made by the business needs a purchase order (PO) number assigned to it, prior to a member of staff buying anything. This allows you to allocate a budget and track the spending against this particular purchase or project.

Having a PO number also makes it easier to track incoming invoices. Suppliers can quote the PO number on their invoice, so you can match the bill to the allocated job and budget.

Use tech to get in control of the numbers

In an ideal world, you want as much oversight over your spending as possible. And with today’s cloud accounting software, expenses apps and inventory tools, it’s easier than ever to manage your expenses and stay in control of the main numbers.

You can use an expense management system, like Pleo, Soldo or DiviPay, to get better oversight of spending and put yourself back in the expenses driving seat.

If you want to streamline your spending, come and talk to us. We’ll help you spot the areas where costs can be cut and use the latest tech to manage the numbers.

Coping with the skyrocketing cost of living

Household living costs are skyrocketing and seem set to keep rising throughout the year. Here are our 12 top tips for coping with the rapidly increasing cost of living – ways to earn more, spend less, and invest in your future.

Whether it’s refilling your petrol tank or paying at the supermarket checkout, the higher cost of living is hitting every household hard.

Across the world, everyday essentials are surging in price, up 7.2% year on year across the OECD. Unfortunately, experts predict that prices will keep rising for at least the rest of the year.

What can you do to try to keep up with the increasing cost of living? Here are our 12 top tips:

Look for ways to earn more

  • Grow your business’s profitability (talk to us about improving your profits) or ask for a pay rise.
  • Take in a boarder or flatmate.
  • Sell your unwanted items online.

Cut back where you can

  • Prepare more meals at home and spend less at cafés and restaurants.
  • Create a budget and keep your spending under control.
  • Reduce the amount of meat you buy.
  • Find ways to use your car less.
  • Cancel your credit cards and your buy now pay later accounts.
  • Review all your ongoing expenses like utilities, insurance and subscriptions – cancel, switch providers or get better deals.

Invest in your future

  • Think about investing in ways that are likely to outperform inflation – both shares and the property market have historically provided returns higher than inflation.
  • Start a new business, launch a new product or service, or try a side hustle.
  • Teach yourself about money and finances using free tools online and books from the library. Better money management will help you make the most of what you’ve got.

If prices rise by 7% this year, it won’t be easy to increase your income by the same amount. But if you can increase your income by 5%, then make up the rest through savings, while also investing for the future, you can still come out on top once inflation settles down and prices stabilise.

Worried about money? Talk to us. We have years of experience through many economic cycles, including previous periods of high inflation – and we’re always here to help.

Single Touch Payroll Phase 2 Starts in 2022

All employers have to report payments made to employees and closely held payees to the ATO using Single Touch Payroll reporting from July 2021.

Single Touch Payroll (STP) Phase 2 was initially planned for 1 July 2021 to align with the mandatory reporting for all employers, but it has been postponed to 1 January 2022. The ATO will allow employers until 31 March 2022 to start reporting if they don’t have an STP reporting solution in place yet. Some payroll software providers already have deferrals in place to allow a longer time for the transition to Phase 2 reporting.

The planned STP expansion has been extended because of COVID-19 impacts on business and accounting and payroll software providers.

STP Phase 2 will require additional information to be reported with each STP pay event.

Accounting and payroll software products will be upgraded to include broader reporting parameters and categories in line with the ATO requirements for Phase 2.

The Phase 2 expansion will allow employers to report information to multiple government agencies in the STP report. Standardised categorisation of income components will make it easier for employees to interact with Services Australia.

The changes will also include detailed income types, lump-sum payments, itemised allowances, child support and the ability to lodge tax file number declarations from within STP reporting. Employment separation certificates upon the termination of employment will no longer be needed, as Phase 2 reporting will include the reason an employee ceased employment.

If you’d like to review your payroll software and systems before STP Phase 2 starts, talk to us today.

Otherwise, there is nothing you need to change right now – we’ll keep you updated when the implementation is closer.

How to Claim for Working from Home Expenses

Working from home is becoming the norm for many businesses, either due to lockdowns or greater employee flexibility. It’s important to think about the deductible expenses that you may be able to claim when working from home and make sure you include them in your tax return.

There are three ways of calculating your working from home expenses.

ATO Shortcut Method for Working from Home Expenses

For part of the 2020 financial year and all of the 2021 and 2022 financial years, there is a shortcut calculation for people who have had to work from home due to COVID-19 temporarily. This allows for a flat rate of 80 cents per hour for employed working time. The shortcut simplifies the calculation but doesn’t allow for any additional expense claims.

To use the shortcut method, you must keep a record of actual hours worked from home. The hours should align with timesheet records submitted to an employer. You don’t need to keep records of actual expenses for things like power or the internet.

To continue to claim deductions for working from home expenses in future financial years, you will need to use one of the established ATO methods of either fixed rate or actual costs.

ATO Home Office Fixed Rate Method

To use the fixed rate, you must have a dedicated work area or separate room used as an office and incur extra costs due to working from home. You will also need records of other expenses not covered by the fixed rate and the number of hours spent working for the whole financial year.

The fixed rate is 52 cents per working hour and includes running expenses for the decline in value of office furniture, electricity and gas, and cleaning. You can claim on top of the fixed rate for other work-related costs such as telephone, internet and office equipment.

You must keep records of hours worked and work-related expenses and a diary to show work usage for the internet and assets. You’ll also need to work out the percentage of floor space for your office against the entire dwelling.

ATO Home Office Actual Cost Method

To use the actual cost method, you must incur extra costs as a result of working from home and have records to prove work-related use of expenses and assets. As with the other methods, you’ll need to record the number of hours worked from home. You’ll also need bills showing actual amounts paid for expenses.

ATO Home Office Online Calculator

Use the ATO home office expenses calculator to check the allowable deductions. The online calculator allows you to choose either the fixed cost or the actual cost method. Once you have the deduction amount from the calculator, enter this on your tax return or give it to us to include. Keep the printout of the calculator result and remember to keep documents for all expenses.

Talk to us to make sure you’re claiming all the allowable working from home deductions to maximise your tax return.

Do You Have Direct Debits and Online Payments Set Up for Your Business?

Do you have direct debits and online payments set up for your business? Making it easy for your customers to pay you is vital to business success. Getting direct debits and alternative payment methods linked to your business is so easy these days there’s no excuse not to give your customers multiple ways of making payment.

Many service-based businesses choose direct debit arrangements with their clients to avoid late payment. If you’re often chasing overdue payments, consider implementing direct debit arrangements to reduce your administration time.

If you’re already using online accounting software, check the add-on solutions and choose one that integrates with your accounts. This means that the payment platform information feeds directly into your accounting software to be easily matched to customer transactions.

Make it Easy

You probably already have bank transfer information set up, but adding several other methods such as PayPal, debit cards and credit cards allows customers to choose the method most convenient for them at the time. Many customers appreciate the automation and simplicity of direct debits. Make sure your payment terms and conditions are clear on your website and invoices and don’t forget to include all your chosen payment methods for customers.

Worried About Costly Fees?

You have the option to choose whether you will absorb the cost of the payment gateway processing fees or whether you will add the cost to your invoice and charge the clients extra. Your accounting software will then allocate the funds accordingly to invoice payment and fees received.

Better Transaction Recording

When you integrate direct debits and online payment methods with your accounting system, you dramatically reduce errors in recording customer payments – which means less time spent on your accounts.

Not Sure Where to Start?

If you’d like to make it easier for customers to pay you, talk to us about which solutions are best for your business. We can discuss which platforms have the best and most secure integrations with the accounting software you use. We’ll help streamline your payment systems.

Understanding the Basics of Capital Gains Tax

A capital gain (or loss) occurs when an asset is sold. The difference between the purchase price and the sale price is the gain or loss. Capital gains tax (CGT) applies to money you have made from selling an eligible asset.

Capital gains tax events occur when an asset is sold or other triggers arise, such as the loss, theft or destruction of an asset or creating contractual or other rights to an asset.

Not all assets are subject to CGT. Common exemptions include the main residence or family home, granny flats, cars and motorcycles, personal use assets such as boats, furniture, household items or loans to family and friends. Many types of lump sum payments are also not subject to CGT, and business sales may also be exempt depending on the circumstances.

Most property is subject to CGT including land, commercial premises, rental properties, holiday houses and hobby farms. CGT also applies to shares, investments, cryptocurrency, many collectables, foreign currency and intangible assets.

Visit the ATO for a list of CGT assets and exemptions here.

There are special rules for some specific situations, for example, inheriting assets, relationship breakdown, foreign residents, insurance or compensation payments.

How is the Tax Calculated?

Tax is calculated on the net gain of an asset sale. Tax is payable on the difference between the purchase price and sale price, less any discount allowed.

The type of CGT event affects how and when capital gains tax is calculated. For example, if an asset is destroyed in an accident, the CGT event occurs when the insurance payout is received.

Good record keeping is key to working out capital gains tax accurately. Make sure you keep all documents related to asset purchases, including contracts, expenses valuations and disposal.

CGT is calculated at the time of completing your individual, business or self-managed super fund tax return and is included in the income tax assessment.

Talk to us to ensure you’re claiming all you’re entitled to and not paying more tax than you should. We’ll make sure you’re receiving any exemptions, discounts or small business concessions allowed.

Wellbeing In The Workplace

Supporting and promoting health and wellbeing in the workplace is important for staff and business owners alike. Providing a physically and mentally healthy workplace is beneficial for all who work there, as it reduces staff absenteeism, increases productivity and makes the workplace more enjoyable.

If you are an employer, workplace health and safety laws require you to look after your workers’ mental health just as you would physical health.

This includes minimising risks to workers’ mental health, preventing discrimination based on mental health, protecting privacy and not taking unfair action against workers because of a mental health condition.

Workplace Mental Health and Wellbeing Resources

There are many excellent apps available, both free and paid, to assist with all aspects of physical and mental wellbeing in the workplace that you can offer to staff – or use yourself as a business owner.

Creating a Healthy Workplace

Creating wellbeing in the workplace doesn’t have to take a lot of time and resources. Small activities carried out regularly accumulate over time into good habits and everyday practice.

Encourage conversations about health and wellbeing, check in with staff about stress they may be experiencing, offer team activities that promote wellbeing, and provide access to tools like the apps listed above to assist employees in managing their mental health and wellbeing.

Many other apps provide education about mental health and practical tools to change mental and emotional states. Consider offering your employees paid subscriptions to an app of their choice to foster wellbeing. Check out Unwinding AnxietyHeadspaceWaking UpCalmTen Percent Happier and Productive for starters.

HeadsUp has a great guide to promoting health and wellbeing in your business. Find out more about workplace stress, rights and responsibilities, risk factors and how to develop an action plan.

Making Time for Planning

Business planning constantly gets bumped to the bottom of the to-do list. It never feels urgent, especially when sales are strong and you’re dealing with challenges like finding new staff or product shortages.

However, business plans are an important decision-making tool to help you get your priorities in order. What do you really want from your business in the short to long term and how can you achieve that?

Setting goals takes a lot of thinking

Pared back to its essentials a business plan identifies:

  1. Your goals – what you want and when you want it by
  2. How you plan to achieve those goals

Don’t be fooled by how simple this looks.

It can be pretty soul-searching to work out what your goals are as a business owner, because they’re not simply related to growth and market share. They’re also about your personal goals; do you want more money or more time? Do you want to step up or step back? From a business perspective you need to think about whether to expand your products or services, or become more profitable within your existing specialty area.

If you don’t manage to do any other business planning, simply thinking about your goals and jotting down a few on paper can crystallise your ideas, giving you valuable insights into which direction to take next.

A plan for achievement

Once you have goals in place, figuring out how to achieve these usually requires a multi-faceted approach. It will include some or all of the following:

  • Reviewing current and potential products and services
  • Pricing, target market and competitor comparisons
  • Sales and marketing
  • Assets and equipment
  • Systems, automation and outsourcing
  • Financial forecasts
  • Cash flow forecasts
  • Possible funding for investment
  • Your team

Give us a call

We love talking to business owners about how to achieve their goals – seeing our clients succeed is one of the most rewarding parts of this job. We can run the numbers on various scenarios, do cost-benefit analysis, cashflow forecasts and ideas for growth.

Give us a call, we can help.

What is Personal Services Income?

Personal services income (“PSI”) is income received as payment for individual personal efforts and skills. It applies to many contractors who provide services as their means of earning an income. PSI rules can apply to individual sole traders and other types of business entities, but not employees. If PSI rules apply, the entity is called a personal services entity (PSE).

The PSI rules ensure the income is attributed to the individual who performed the services and not apportioned across other entities.

There are several tests to work out if your income is PSI or if you are instead conducting a personal services business (PSB), which means the PSI rules don’t apply. If a personal services entity qualifies as a PSB, the ordinary tax rules apply for that financial year.

At least one of these four tests must be satisfied for an entity to be classified as a PSB.

  • Results test: the individual must be paid to produce a result, is required to supply their own equipment and tools to produce that result and is liable for the cost of rectifying defects in the work.
  • Unrelated clients test: the sole trader or entity must be engaged by unrelated clients and services must be advertised to the public.
  • Employment test: in general, a sole trader or other entity must engage one or more entities to perform at least 20% of the sole trader’s principal work. Entities other than individuals must not be associated with the sole trader.
  • Business premises test: the entity must maintain and use business premises to conduct personal services. The business premises must be exclusively used by the PSE and physically separate from private premises and customers.

If more than 80% of income in a financial year is derived from one customer, the PSE must satisfy the results test to be classified as a PSB.

If none of the four tests are met, the income is classified as personal services income, and the PSI taxation rules apply. PSI rules restrict the type of allowable tax deductions made in relation to personal services income-earning activities.

If you’d like to know more about PSI, talk to us to see if the services you provide meet the tests for conducting a personal services business. We’ll make sure you are claiming the maximum allowable deductions and being taxed correctly.

What Value Can Automation Bring To Your Business?

Automation has the capacity to revolutionise your efficiency and productivity. But how many of the automation features that are available to you are actually being used? And could you be getting more value by building automated processes into your operational framework?

Removing the manual workload to streamline your processes

There’s a very simple mantra when it comes to making the most of automation: if there’s a manual task in your business that’s taking up time, automate it now!

The more time you and your team spend on low-level administration, data-entry and form-filling, the less time you have available for actually running the business. With your software tools maximised, your automated processes can be chugging along in the background, doing the heavy lifting and freeing up your time to focus on client service, sales and strategy etc.

So, which elements of your everyday operations could you be automating? And which apps and software solutions can help you to achieve your automation goals?

Here are some areas where automation and smart systems can really help to add value:

  • Automated bookkeeping and digitisation of paperwork – apps like Dext and Auto Entry offer you the opportunity to automate your bookkeeping and record-keeping. These solutions let you snap a photo of a receipt or invoice, digitise the contents and then automatically create an expense claim or bill in your accounting system. There’s no keying in and the whole process is synced with your choice of cloud accounting platform.
  • Automated employee expenses – apps like DiviPay, Soldo and Pleo give you automated control over your employee expenses. Using either virtual or physical credit cards, your staff can pay for expenses and payments are then automatically synced with your main accounting platform. That means no late expenses claims, no need for petty cash and no wasted time keying in the receipts. All employee expenses can be tracked, measured and paid, with the whole expenses process automated from start to finish.
  • Automated payment collection from your customers – with payment gateways like PayPal, Stripe and GoCardless you can automate your cash collection. By using a modern payment gateway, you make it easier for clients to pay their bills. But you also automate the actual cash collection and bank reconciliation process too. Money can be instantly paid to your main business account and all the transactional data pulled across to your accounting platform. That means less admin, and faster payments too.
  • Automated POS, stock management and inventory – running a retail or hospitality outlet comes with a lot of operational admin. Apps like Vend or Shopify POS give you an all-in-one point-of-sale (POS), stock and inventory management system, automating your till sales and syncin g everything with your choice of accounting platform. The inventory system will also be automatically updated when an item is sold, keeping your records and stock listings completely up to date.
  • Automated marketing and social media posts – digital marketing is key to finding customers and growing your business. With tools like Hubspot Marketing Automation or ActiveCampaign you can automate a large chunk of your marketing work. These solutions let you create automated email cadences, target specific customer audiences and track your return on investment (ROI) in forensic detail.
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