Have You Changed Your Business Purpose?

Many businesses will have been through a tough and transformative period through 2020 and into 2021. In some cases, companies have had to update, change and pivot just to survive – and this means having to rethink the core mission behind your enterprise.

Journeying through the pandemic, your business is faced with a new kind of business reality. It’s a world where buying habits have changed, consumer expectations have evolved, online shopping has boomed and e-commerce is now a far more dominant force.

To cope with these changes it’s likely that your business has had to evolve. But do you know where you’re going and how it’s impacted on your underlying business mission?

Embracing the need to evolve and change

Being able to react to changing circumstances and to evolve your business is one of the key capabilities you need as an entrepreneur, business owner or CEO.

The ability to articulate your new business objective is a fundamental need. And having a clear outline of how you’re pivoting and why will help you to understand the evolution of your business and where you’re likely to go next.

Some key questions:

  • Have you changed your business purpose? Did your company change direction and pivot to move into new markets or new products? If so, do you have a robust plan for pivoting and continuing this evolution? Do you have the resources needed to back up this change in direction?
  • What is your new purpose as a business? What is your updated vision for the business and what do you want to achieve? Do you have this formalised in an updated mission statement or business plan? If not, you need to get this written down and communicated to your executive board, your team and all other stakeholders.
  • Who are your new customer audience? If you’ve pivoted, it may be that your target customers have also changed. If your sales, business development and marketing activity is now focused on a new customer demographic you need to update this in your sales and marketing strategy. Think about who you’re selling to, what their needs may be and how you can service these needs.
  • Are any operational changes needed? Can you successfully pivot to this new purpose using your current systems, processes and resources, or do these resources need to be updated? If you’ve increased your e-commerce footprint, then your production, logistics and delivery operations need to scale up to cope with this increased demand.
  • Do you have the right team on board? Do you need new staff to help you meet your goals? Or are some employees no longer required? If your purpose has changed, it’s likely that your talent needs have also changed. Reassess your key human resourcing requirements and think about the people you need on board for this next chapter.
  • Do you have enough funding? Do you have enough working capital behind you? If changes in equipment, plant or premises are part of your pivot strategy, it’s likely that you’ll need additional finance to fund these changes. Think about approaching your bank manager, business adviser or funding provider of choice. NOTE: Talk to us about government-backed recovery funding.

Talk to us about planning your new business direction

Nothing stands still in business, so there’s always value in taking the time to step back and reassess your business direction. However you’re fairing in the Covid market, taking the time to review your business purpose and planning is time well spent.

Talk to us and we’ll help you to update your mission statement, amend your business plan and get all the operational and financial elements in line for the next stage in your success story.

Six Reasons To Look at Your Financial Reports

Making time to look over your financial reports each month is an important task for any business owner. If you are not taking the time to do this, either because you’re too busy or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are six reasons we recommend that you should start to.

  1. Understand your business better – by looking at your Profit and Loss (“P&L”) report monthly you will get a good picture of how your business is performing month by month and it will provide a better understanding of what makes up your profit.  Looking at revenue and expenses clearly on one page in a monthly P&L or comparing periods, this will help to identify trends in your data and may also help to highlight anomalies in coding/categorising.
  2. Accurate information for lending purposes – if you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.
  3. Get paid quicker and reduce bad debts – by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this.
  4. Better relationships with your suppliers – assuming you are entering your supplier bills into your accounting software (recommended for most businesses to get an accurate profitability figure) your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.
  5. Better cashflow – having an accurate understanding of how much money the business is owed and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.
  6. Better business decision making – your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability.

Depending on the complexity of your business, at a bare minimum you should be looking at the following reports:

  • The Statement of Financial Performance, also known as the Profit and Loss report (P&L) or the Income Statement.  As the name suggests, it’s how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
  • The Statement of Financial Position, also known as the Balance Sheet.  This shows the value of the business’s Assets, Liabilities and Equity.
    • Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
    • Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances
    • Equity is the difference between your Assets and Liabilities and includes Retained Earnings and Owner Funds Introduced
  • Accounts Receivable Ageing report (Aged Receivables) shows how much money is still owed to the business as at a certain date in time, and is usually segmented as to how overdue they are or sometimes by how far past the invoice date they are. Generally you will have Current, 30, 60 and 90 days columns.
  • Accounts Payable Ageing Report (Aged Payables) shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.

So why bother?

If you would like to know which reports are relevant to your business and you want to better understand what’s going on in your business, then get in touch so we can make a time to go through them with you.

Your business success is important to us and we are here to help you.

Tax Tips for Property Investors

If you have income from investment properties, now is the time to start gathering your records and reviewing your expenses for the 2021 financial year.

Income to Declare

All income earned from each property must be declared. If you have multiple properties, keep the records for each property separate to make the tax return more efficient.

  • Rent received, whether paid directly to you or through an agent or through an online management platform. Rent includes recurring regular amounts as well as any lump sum amounts paid in advance.
  • Rental bonds returned (eg. if the tenant caused damage or defaulted on rent payment).
  • Insurance payouts received as compensation.
  • Expenses reimbursed by the tenant (eg. if they have caused damage and you have paid for the cost of fixing the damages, or if they have reimbursed you for water).
  • Extra fees received (eg. letting or booking fees).
  • Government rebates (eg. installation of solar utilities).

You will need statements or recipient created tax invoices from agents or management platforms and documents for all other payments received.

Tax Deductions

Deductible expenses for property are different for residential and commercial properties. Not all expenses related to owning a property are allowed as deductions, so it’s important to check what you can claim.

  • Advertising for tenants
  • Body corporate fees
  • Council rates
  • Water supply charges
  • Land tax
  • Cleaning, gardening, pest control and property maintenance
  • Insurance
  • Agent fees
  • Repairs and maintenance
  • Some legal expenses
  • Loan interest

Other Expenses

There are some expenses which need to be claimed over a longer period such as several years or decades. These can include borrowing expenses, capital expenditure, depreciation, initial repairs and capital works.

Some expenses cannot be claimed for. These include stamp duty, loans and repayments, some legal expenses and some insurance premiums.

Get Help to Simplify Your Property Records

Tax matters for property investors can be complex. The ATO keeps a close eye on tax returns that involve property investment, as it’s easy to make mistakes. There are other matters to consider such as the period of rental availability, private use of the property, capital gains tax, legal contracts and positive or negative gearing.

The 10 Ways To Lift Your Margin

Improvements can always be made at the margin. Small tweaks to your processes or systems can make a massive difference to the end result. It’s the same with your business margin – a 1% increase in your gross margin on $500,000 of sales is an extra $5,000 on your bottom line.

The best part about improving your margin is that you increase your profit without needing to lift your sales.

Here are 10 strategies to lift your margin:

1. Negotiate better prices with your suppliers.
As they say, ‘the squeaky wheel gets the oil’, so if you don’t ask, you won’t get.

2. Update your pricing model.
Make sure you’re using the most recent supplier prices and that all costs are included in your price.

3. Back cost jobs regularly.
Review exactly what you spent on 2-3 jobs each month and compare the actual cost to what you anticipated the cost would be when you quoted the job.

4. Get rid of slow-moving items or work that has a poor return.
Selling old stock at cost will drop your margin, but if you replace those items or jobs with higher-margin items, you’ll achieve a higher return in the long run.

5. Set budgets and targets with your team.
Give your team something to aim for. Celebrate success when the targets are achieved.

6. Report your results on a cloud-based, real-time system.
You can’t manage what you don’t measure! Regularly monitor your most important Key Performance Indicators on your dashboard.

7. Reduce wastage and re-work.
What processes need to be updated to help reduce wastage and re-work? Or, if the processes are correctly documented, what training do you need to provide to your team to ensure the processes are being followed to reduce wastage and re-work?

8. Review your sales process.
Does your sales team know which produces or services have the highest margin? Do they know how to upsell to those higher-margin products or services? Identify the sales skills gaps in your team and implement training.

9. Make a plan.
There are plenty of areas for improvement in your business. Unless you write them down, you’re unlikely to bring the correct focus to them. Make a plan to improve one area at a time.

10. Involve your accountant.
Not only to help you with idea generation and building a plan, but also to hold you accountable to do the things you need to do.

We can help you lift your margin – contact us today!

“To improve is to change; to be perfect is to change often.” – Winston Churchill

Super Guarantee Rate is Set to Rise from July – Are You Prepared?

The superannuation guarantee statutory rate has remained at 9.5% since July 2014. However, plans have been in place for some years now to increase the rate to 12% incrementally.

In July 2021, the rate will rise to 10%. From then on the rate will increase by 0.5% each year until July 2025 when it will reach the legislated 12%.

Prior to the delayed 2020 federal budget there was discussion about the possibility of deferring the rate rise because of COVID-19. However, the rate rise had been postponed from 2018 to 2021, so the plans to start increasing the rate each year remain in place – at least for now.

Prepare Now for the July Rate Rise

  • Review your current superannuation costs for all employees, both hourly and salaried.
  • Review any salary packaging arrangements. Is the agreement inclusive of superannuation or is super paid on top of the agreed salary?
  • For salary packages inclusive of super, you will need to check the contract’s wording to make sure you apply the changes correctly. This change may also impact annualised salary arrangements.
  • Calculate your revised payroll costs from July, showing the current wages and superannuation expense compared to the new rate from July 2021. Highlight the increased amount per month or quarter, so you know precisely what the impact will be.
  • Discuss the super rate increase with your employees now. Let them know that this is the first year since 2014 that the rate has risen and that unless the law changes, there will be an increase of 0.5% each year from now until July 2025 when the statutory rate will reach 12%.
  • Remember – short payment or late payment of super can incur hefty penalties – plan now for higher payroll expenses from July, so you don’t get caught short.

If you’d like help reviewing payroll costs and employee agreements, talk to us now, and we’ll make sure you have accurate reports to make planning for the rate rise easy. Getting organised now means that you’ll be well prepared for your business’s increased costs when the first payment is due later this year.

Can Your Business Claim the Loss Carry Back Tax Offset?

As part of the Federal Budget 2020-21 the government announced a loss carry back measure to encourage new investment and work with the temporary asset expensing measures also announced at the budget.

The new law started on 1 January 2021.

Eligible corporate entities that previously had an income tax liability in a relevant year and have subsequent losses can claim a refundable tax offset up to the amount of their previous liability.

The measure allows significant tax losses which may then be carried back to generate cash refunds for eligible businesses.

Who is Eligible?

  • Your business must be a company, corporate limited partnership or a public trading trust in the income year you want to claim the offset.
  • The business must have had an aggregated turnover of less than $5 billion.
  • The entity had an income tax liability for financial years 2019, 2020 or 2021.
  • The entity subsequently made a loss in financial years 2020, 2021 or 2022.
  • Your business is up to date with tax return lodgement obligations for the last five years.

There are specific guidelines about eligibility, integrity and tax offset calculation. We can talk to you about whether you can use the loss carry back measure to benefit your business.

You can only claim the tax loss once in either the 2021 or 2022 financial year so it’s important to get advice about how and when to apply this measure for your business. To claim the tax offset the ATO must be notified before lodging the company tax return that year.

Update Your ABN Details To Ensure Notifications In An Emergency

Emergency logo in white and red

Did you know that government agencies use Australian Business Number (ABN) details to identify individuals and businesses in communities affected by emergencies or natural disasters?

This can happen any time and any season, so we encourage you to keep your Australian Business Register (ABR) details up-to-date. This enables immediate emergency services assistance and ensures affected businesses are contacted in the event of crisis.

Details to Update

  • Check that your recorded names are correct – If you have legally changed your name, you should update that with the ATO so that the correct legal name is linked to your ABN.
  • Email address – This should be one that you can easily access from your phone or other means during an emergency.
  • ANZSIC code – It’s a good idea to check that this is correct for your business type in case your business services have changed since you registered your ABN.
  • Business address – This is essential to update, so that if an emergency or natural disaster affects your area you are contacted.
  • Telephone number
  • Postal address
  • Additional business locations – You can add multiple locations if your business operates from more than one premises.
  • Authorised contacts for the business – Consider adding more than one contact for the business.

Business, Individual and Company Names

Name changes can’t be updated on the Australian Business Register. If you need to update a business name, a legal individual name or a legal company name talk to us about liaising with the ATO or ASIC on your behalf to update your details.

Update Your ABN Details Now

Changes made to the ABR reflect immediately. It is always important to keep ABN details up to date, but for businesses in disaster prone areas, it is especially crucial as this can make all the difference with getting help quickly. Emergency services can access contact details from the ABR, which means affected businesses can get important updates and assistance from emergency services without delay.

Visit ABR to update your ABN Details or let us submit these details on your behalf.

Christmas Parties and Presents – and Tax!

Christmas gathering

Christmas is a great time to acknowledge and reward your employees and other associates by celebrating and giving gifts. But don’t get caught out by entertainment rules! Claiming entertainment and gifts as business expenses is not always straight-forward, as there are implications for GST, income tax and fringe benefits tax (FBT).

Is it Entertainment?

Entertainment is generally not a deductible business expense. Entertainment rules can be tricky, but in general, the more lavish the meal or event, the more costly, the later in the day and if alcohol is involved then it will generally be called entertainment.

Fringe benefits tax may apply to entertainment benefits provided to employees, and if an event or gift is considered to be entertainment then you cannot claim a business deduction or GST.

A Christmas party for employees, spouses, suppliers and customers may or may not be classed as entertainment. Check with us to see if any of the party costs can be claimed.

Keep it Free From FBT

  • If you give gifts to your employees keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
  • Give gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
  • Give gift cards or vouchers up to the value of $300. (Vouchers are not considered to be entertainment).
  • Avoid giving ‘entertainment’ gifts over $300, such as membership to clubs, tickets to events or travel.
  • Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.

Enjoy the Party

Talk to us when planning your Christmas gifts and events to check how much may be claimed as business expenses. Once you know the costs of throwing a party and giving gifts and bonuses, you can put your feet up and enjoy your own party!

Top Eight Things To Outsource In Your Business

A man is pointing his finger on the word outsource

If you’re looking to scale your business, you’ll need to spend more time working on it than in it. Finding ways to leverage your time is critical, and outsourcing your least favourite tasks is a great way to do this.

Things you should consider outsourcing in your business:

  1. Digital marketing.
    From your content strategy to your social media accounts, if this is not a strength of yours, outsource it! There are many freelancers who have multiple clients at this level, who’ll likely be more knowledgeable regarding SEO and much more effective and efficient in general.
  2. Graphic design.
    Your brand is a key reflection of your product offering. If you don’t have the skill, software and time to do this well, you’ll potentially damage your brand.
  3. Scheduling and administrative tasks.
    A Virtual Assistant can help you manage anything from your appointments to flights, emails and beyond (virtually anything admin). At a lower level, consider adopting software that’ll automate or minimise processes, such as self-booking appointment apps where your clients can schedule a meeting with you, e.g. Calendly.
  4. Customer feedback.
    Many businesses miss this valuable opportunity to connect with customers and improve their experience. A Virtual Assistant can help, but there are also apps (such as Ask Nicely) that automate the process of asking for feedback; directing happy responses to leave you Google reviews and negative responses back to you to quickly resolve!
  5. Inventory management.
    Too much stock can cause cashflow issues and affect sales price (due to resulting discounting), but not enough equals lost sales. Outsourcing inventory management can help you minimise stock-carrying costs and allow you to focus on more important things.
  6. Payroll.
    This task is best left to the professionals. Outsourcing payroll will minimise the risk of inadvertently getting it wrong, while saving you time and, most likely, reducing the cost of this task. Utilising a payroll product is another great option.
  7. Bookkeeping.
    Do bookkeeping tasks often infiltrate your evenings or weekends? Does the stress of these tasks piling up occupy your mind? Outsourcing these tasks (and the stress) to someone else can be liberating and cost-effective.
  8. Virtual CFO.
    If you find budgeting and forecasting a struggle, a virtual CFO can wear this important hat for you. They’ll monitor the financial health of your business and provide a fresh perspective which will help you make better strategic decisions and improve your results.

Tempted to start outsourcing some of your tasks to free up your time? We can help by taking the last three roles off your hands! We work with a number of our clients in this way, allowing them to focus on what they do best.

While outsourcing takes a little bit of setting up, it’s worth the short-lived pain for massive gain. We don’t have to be jacks of all trades. In fact, this thinking often leads to begrudgingly doing many things poorly rather than doing a few things really well – and enjoying doing them.

Work to your strengths, outsource the rest! Need help? Get in touch.

Demystifying Your Balance Sheet

The concept of balance sheet written on a blackboard

Do you understand the story your Balance Sheet tells about your business? It’s important you understand the components of your Balance Sheet and the key ratios that measure the health of your business.

1. It measures the net worth of your business.
Your Balance Sheet is made up of all of your assets and liabilities; your net worth is your total assets less total liabilities.

  • Current assets are assets which are expected to be converted into cash within 12 months; current liabilities are expected to be paid within 12 months
  • Non-current assets aren’t expected to be converted into cash in the short-term; non-current liabilities are long-term liabilities which aren’t expected to be paid within 12 months
    Your net worth is the owners’ interest in the business. In other words, if your business was to be wound up this is how much you’d be left with as the owner of the business.

2. It tells you if your business is solvent.
Solvency is the acid test for survival. If your business is insolvent, without immediate action to remedy this, it’s unlikely to survive for long. There are two components to solvency:

  • Current ratio greater than 1 (current assets / current liabilities)
  • Positive net assets (total assets – total liabilities)
    If your business is insolvent, you’ll struggle to pay bills on time and you may be personally at risk. It’s imperative you seek help immediately if your business is insolvent.

3. It allows you track the strength of your business.
By comparing your Balance Sheet to previous periods, you can track whether your net worth is increasing or decreasing. The stronger your Balance Sheet, the easier it will be for your business to survive a downturn. For example, if your retained earnings are diminishing over time, it’s clear that you need to take action to strengthen your Balance Sheet to ensure you’ll receive value upon the wind up or sale of your business.

4. You can calculate key ratios.
Key ratios not only allow you to compare your results year on year or to industry benchmarks, they also highlight areas for improvement.

For example, calculating your debtor days may show that it takes on average 35 days for customers to pay you. If your payment terms are within 7 days of invoice, it’s clear that your debtor processes need to be strengthened.

Perhaps you calculate how long it takes inventory to sell and see it’s taking twice as long to sell this year than it did last year. Or, maybe a specific product is taking a lot longer to sell than others, which may indicate you should discontinue it. Key ratios calculated using your Balance Sheet can tell a us a multitude of things.

Every business owner should be able to read their Balance Sheet and understand what it’s telling them. If you need help demystifying your Balance Sheet and identifying key areas for improvement, get in touch now!

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