Buy or Lease Business Assets?

There are certain items of equipment, machinery and hardware that are essential to the operation of your business – whether it’s the delivery van you use to run your home-delivery food service, or the high-end digital printer you use to run your print business.

But when a critical business asset is required, should you buy this item outright or should you lease the item and pay for it in handy monthly instalments?

To buy or to lease?

Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it’s important to weigh up the pros and cons of buying or opting for a leasing option.

First of all, let’s look at why you might decide to buy the item…

Buying: the pros and cons:

  • Pro: It’s a tangible asset – when you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes.
  • Pro: It’s yours for the life of the asset – once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up regular lease payments, and if your financial circumstances change then you can sell the asset to free up the capital.
  • Con: It’s an expensive outlay – paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment.
  • Con: You may require extra funding – if you don’t have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet.

Leasing: the pros and cons:

  • Pro: Leasing has a cheaper entry point – if the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For startups and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business.
  • Pro: You can spread the cost – there is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, grow and bring in more customers and revenue.
  • Con: You don’t own the asset – there are different types of leasing agreement. Under a capital lease, you do own the asset (once you’ve paid if off). But if you opt for an operating lease, this is a more short-term lease and you won’t own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required) so it’s important to consider what kind of leasing agreement you’re entering into and what the advantages/disadvantages may be.
  • Con: You may pay more in the long run – most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value.
  • Con: You may lose the use of the asset – if you can’t keep up your lease payments (due to poor cashflow for example) then the owner of the lease agreement may recall the asset. If this item is crucial to your business model, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is a more risky prospect, but also an easier option for businesses with less cash to splash.

Talk to us about whether buying or leasing is the best way forward

Whether you opt to buy or lease your equipment isn’t always a straightforward decision to make – so it’s a good idea to consult with your accountant early on in the decision-making process.

We’ll help you review your current financial position, assess your available cashflow and look at your regular cost base to decide whether buying or leasing is the right thing for the business.

When Should You Offer Casual Employees A Permanent Position?

Recent court cases involving casual workers have increased attention on casual worker classification, which means your workers may be more aware of the ability to convert to a permanent position.

The law has not changed; however, these cases are good reminders for employers to be aware of the rules around converting casual employees to permanent positions.

What Makes an Employee Casual?

  • No expectation or commitment about duration of employment.
  • No guaranteed hours of work.
  • Usually works irregular hours.
  • Is not entitled to paid leave.
  • Can usually end employment without notice.

Note that there is such a thing as a long-term casual employee. Long-term casuals may be eligible for flexible working arrangements, parental leave and long service leave, even though they don’t have guaranteed hours of work or expectation of ongoing work.

When Does a Casual Employee Become Permanent?

This is addressed in most modern awards in a casual conversion clause. Employers should check the relevant award provisions to see if there is an obligation to offer a part-time or full-time position, then follow the directions about offering permanent positions.

Example of Casual Conversion Rules

Each award must be checked for details, however there are similar guiding principles.

  • Casual employees are entitled to ask to change to full-time or part-time employment when they have worked a regular pattern of hours over a set period (usually 6 to 12 months) and could reasonably expect to continue to work those hours as a full-time or part-time employee without significant changes.
  • Employers must specifically notify casual employees about this entitlement within 12 months of the casual start date.
  • Casual employees that do not receive notification of this entitlement are still entitled to request a change to full-time or part-time employment.
  • An employer can only refuse the request if there are ‘reasonable grounds’ such as the employee not working regular hours or there are other significant changes to the current work patterns.

There are more provisions and details in each award’s casual conversion clause – employers need to check the applicable award to make sure they comply with the casual conversion requirements.

Visit the Fair Work Ombudsman Casual Employees webpage for more detail.

Talk to us if we can help with payroll management and assessing the classification of your workers.

Understanding Your Revenue Drivers

For your business to make money, you need to generate revenue.

You produce revenue through your usual business activity, by making sales, getting your invoices paid or taking cash from paying customers. So, the better you are at selling your products/services and bringing money into the business, the higher your revenue levels will be.

But what actually drives these revenue levels? And how do you get in control of these drivers?

Knowing where your cash is coming from is more crucial than ever

As a trading company, you face the multiple challenges of a global recession, an increase in online consumer buying and a ‘new normal’ when it comes to trading, markets and buying expectations. The better you can understand the nature of your revenue and its drivers, the more you can flex, manage and control your ability to generate this income.

This helps your medium to long-term strategic thinking and your decision-making, allowing you to be confident that you’re focusing on the business areas that deliver maximum revenue.

Import areas to consider will include:

  • Revenue channels – where does your revenue actually come from? Do you create income from online sales and ecommerce, through retail sales in bricks and mortar stores or through wholesales to other businesses? You may focus on just one of these channels, or it could be that you use a mixture of two, three or more.
  • Revenue streams – your total revenue will be made up of a number of different ‘streams’ So, you might be a coffee shop, whose revenue streams include coffee sales, cake and pastry sales and lunch sales. Knowing which revenue streams you rely on, which are most productive and what return they are delivering allows you to make decisions. If 80% of your income comes from 20% of your products, perhaps you need to tighten up your product range and ditch some of the poor sellers. If you’re selling more services to one particular industry, perhaps you should focus more marketing in this specific niche, or downscale your sales activity in less profitable niches.
  • Product/service split – Do you know which products/services are the most profitable in the business? Which products/services have been resilient to market changes (giving you some revenue stability) and which have adapted well to change? The more you can dive into your metrics and find the most productive and adaptable products and services, the greater your ability is to provide constant and evolving revenue for the business.
  • Value vs volume – Is your revenue based on selling a high volume of products/services at low margin, or low volume at a high margin? Based on this, can you move your margin down to create a more attractive price point (and more value for customers)? Or are their ways to push volume up, shifting more units and boosting total revenue? By diversifying into new channels, new streams or new products/services you can aim to balance value and volume to create brand new sales – and higher revenue levels.

Talk to us about exploring your revenue drivers

If you want to boost revenue and increase your overall profitability, come and talk to us. We’ll review the numbers in your business, help you to understand your revenue drivers and will give you proactive advice on enhancing your total revenue as a company.

Get in touch to kickstart your revenue generation.

Efficiency Through Automation

Automation

Lockdown forced us to rethink the way we operate our business. The barrier of procrastination has been removed and we’ve had to adopt new technology and automate our processes.

Technology exists to increase efficiency, but it can be a double-edged sword. When you apply automation to an efficient operation, it will magnify the efficiency. However, if you automate an inefficient operation, it will magnify the inefficiency. In other words, we must first ensure our systems and processes are efficient before introducing automation.

Review all of your existing technology, processes and systems to determine any that are obsolete. For example, texting for business is now the norm; instead of calling customers to remind them of an appointment, first send an automated text message asking them to reply ‘yes’ to confirm attendance. This will reduce time spent on follow ups and no-shows.

There are many benefits of improved systemisation and technology adoption:

1. Leverage. Getting more done with less effort (e.g. automated monthly management reporting systems).
2. Consistency. Guaranteeing output quality (e.g. a templated proposal or pricing tool).
3. Efficiency. Automating manual tasks using technology (e.g. auto-coding of transactions using Xero).
4. Risk management. Removing the risk of human error (e.g. an automated bank reconciliation).
5. Scalability. Systemising processes to enable growth without increasing your workload (e.g. a point of sale cashbook system).
6. Saleability. Increasing the value of your business by automating as much as possible.
7. Induction and training. Minimising hands-on training by having robust systems for new team members to follow.

The cost (and disruption) of any new technology or automation must be clearly outweighed by the benefit or time saving. Don’t adopt shiny new technology for the sake of it.

In order to achieve these benefits and avoid systems or processes which serve no useful purpose, it’s important to complete a full technology review. We recommend you do this as part of your Business Recovery Plan which reviews all business improvement opportunities, including in the technology department. Call us for more information.

How To Create A Cash Flow Forecast For Your Business

A cash flow forecast is an important tool for business planning. And right now, understanding the cash coming in and going out of your business is vital.

A cash flow forecast will show you how long your business can continue to survive on current sales levels, by showing you how much money you’ll have in the bank at the end of a period.

It will give you an understanding of what the revenue drivers are in your business and give you visibility of your expenses and the things you can control. Having this information in a forecast will also allow you to plan for different scenarios, work out your priorities and understand the outcomes of different options such as diversification.

A cash flow plan can give you a proactive tool to deal with uncertainty. If you are seeking funding in the form of a loan, applying for business support or just establishing your long term survival, you’ll need a cash flow plan.

What information do you need?

We can help you to create a plan for your business. The plan is only as good as the data you have. So here’s what you’ll need to get started:

Understanding where your cash is coming from

Start with revenue from sales – break your sales figures up by product line and across channels. This will show you where the cash is coming from. For example:

  • Does 80% of your revenue come from only 20% of your products?
  • Do you sell to different markets and does one deliver more revenue than others?
  • Are some of your products high value but low volume or low value at high volume?

The data you collect will enable you to ask questions, such as can you reduce margin to lift sales, can you push volume up or are there other channels to sell through?

Make sure you include all other revenue streams, such as grants, tax refunds or investment in your cash inflows.

Understanding expenses – where is the cash going to?

This will include all the costs associated with your business, including rent, wages, supply materials, bank loan fees and charges, tax bills and electricity.

If you have a bank loan, include the details such as the length of the term and the monthly payments.

Your cash flow plan should also include tax payments when they are due and any capital expenditures.

Some of your variable expenses will directly relate to revenue such as freight or materials. When your sales stop, these will drop too, so your cash flow plan should reflect this relationship in order for you to scenario plan.

Controlling expenses – what costs are fixed and what are the variable costs that you can control? You may not be able to stop fixed expenses like rent, power and internet, but you could reduce the cash going out on petrol and travel, cleaning and even directors’ drawings.

Making informed decisions in your business

A good cash flow forecast will collate all the data from your business in one place. It will allow you to plan and work out how long your business can weather a storm. It will also help you make decisions around staffing, purchasing inventory, ordering supply materials or investing in growth.

It’s worth remembering that a cash flow plan is a different tool to a budget. Here’s one example: a budget will show sales but a cash flow plan will show the cash benefit of those sales. If you offer credit to customers, your sales may not result in immediate cash flow.

Want to get a handle on cash flow in your business?

If you’re not certain of how to get this information from your accounting software, talk to us about which reports to run. You may need a combination of accounting software reports and projected figures.

Use the information above to source the data you’ll need and get in touch. We can help you build a plan that gives you cash flow projections to assist your decision making.

What Can You Do To Prepare Now, For A Return To Business?

Next Steps

In the context of the Covid-19 outbreak, the duty to remove or minimise health and safety risks in your business has become harder. When lockdown measures ease, businesses will need to have a plan on how they will manage risks and protect workers and customers before they start operations.

Many businesses are still unable to operate or are required to work from home. If you are one of the businesses that are able to return to work, you will need to think about the following safety measures:

Keeping your workplace and the people you work with safe

  • Strict hygiene measures – disinfecting surfaces and allowing people to have easy access to soap and water and/or sanitiser so they can maintain high levels of hygiene. Reminding staff with posters about how to reduce risk will be important too.
  • Social distancing for employees – the goal is to limit the interaction between people. Can you set up split-shifts for staff or ensure that only essential workers come to the workplace in order to reduce interactions?
  • Social distancing for customers and suppliers – offering online purchase and contactless delivery. If people come into the business, have a plan for a managed entry system, with space for people to maintain a safe distance from others.
  • Contact tracing – you may need to record who is working together and any other people such as suppliers, customers or a tradesperson who you have contact with.
  • Providing protective equipment, if it is required – you may not need PPE equipment but if it is necessary, you’ll need to be able to supply workers with the items they need.
  • Have a plan to respond to suspected infection – make sure everyone can identify symptoms (fever, cough, sore throat and shortness of breath). Unwell people should stay home.
  • Employee engagement – work together to discuss and agree the new working arrangements.
  • Have a plan for managing employee absences – who is essential to your business operation? Have a plan in place if staff are unable to work.
  • Communication with customers – you’ll need to consider how you will communicate with customers.

Your workplace will need to operate consistently with public health guidance. For more information on workplace health and safety visit the Safe Work Australia Website.

State Government websites have up-to-date information on which businesses can operate and how to comply.

How To keep Your Business Running During An Emergency

Emergency Planning

‘Business continuity’ is the process of planning out how your company can continue trading – when disaster hits. In essence, it’s your Plan B for how to set up a means of trading, when you don’t have access to your usual offices, workspaces or equipment. Right now businesses are having to put ‘Plan B’ into action.

10 key elements to include for your ongoing business continuity plan

Digital communication and cloud technology have given us the ability to access company information, applications and communication channels. For many businesses this will allow you to keep at least some of your usual day-to-day operations ticking over.

However, there are a host of important business areas that you need to consider when developing your company strategy to deal with an emergency situation.

Here are 10 important elements to factor into your business continuity plan:

  1. Location and workspace – Does everyone in the business have a good internet connection for remote working? Make sure you agree on the guidelines for maintaining workflow. Schedule regular online catch ups to check in and agree on the priorities.
  2. Key products or services – which products and/or services will you be able to offer? For the business to continue trading, you need to identify a core set of products/services. Review which product/services will bring in the required revenue and cashflow, and which activities in the business should therefore be classed as essential.
  3. Key staff and resources – who are the core people you need for the company to operate? Based on your decisions regarding essential activities, identify who your key management and staff members are. Think about how much resource is needed to trade, how you’ll get approvals and sign-off and what critical knowledge needs to be shared within the team.
  4. Key contacts and connections – who are your main stakeholders outside the business? And which of these are vital to the running of your business? Make a list of your key suppliers, service providers, property contacts and customers and ensure you can have open communication with all these connections. Also, look at alternative suppliers so you can minimise any disruption to your operations.
  5. IT equipment, data and infrastructure – what equipment, tools and software do you need to continue working? Essential hardware and software will include laptops, tablets or smartphones for your staff, paired with cloud services, video conferencing, communication apps and effective, secure access to your customer and business data.
  6. Plant and manufacturing equipment for essential businesses – if you’re a bricks and mortar business, or a product-based manufacturing business, what equipment do you need to carry on your operations? This will include any machinery, hardware equipment and vehicles needed to manage the essential operations you’ve identified for the business.
  7. Financial management – how will you access your key financial numbers during any outage? It’s sensible to move to a cloud-based accounting system NOW, so you have continuous, uninterrupted access to your financials. A platform like Xero online accounting allows you and your advisers to see those all-important figures.
  8. Cashflow management – how are you going to ensure you maintain a positive cashflow position? We can help put a process in place to run regular cashflow statements. Use forecasting to project your cashflow position forward in time – so you can take proactive action to avoid any cash gaps in the near future.
  9. Insurance – does your current business insurance policy cover you for all emergency situations? Review all your existing insurance policies so you understand what your policy covers. Securing the business in all scenarios should be your focus here.
  10. Leadership – who could take over if you (the owner/MD/CEO), is left unable to run the business? Having a nominated deputy, with a clearly defined chain of command, means you can be confident that the company will be in safe hands, even if you’re indisposed.

Scott Morrison Unveils Additional Stimulus and Support Measures

Money

Prime Minister Scott Morrison has announced an additional stimulus package, taking the value of the total support to $189 billion.

Acknowledging that the coronavirus pandemic may continue for some time and have long lasting impact on the livelihoods of Australians, the PM announced a raft of new support measures.

Details of the new package:

Support for businesses – eligible businesses and not-for-profits, with a turnover of under $50 millions and who are employers, will receive up to $100,000 (with a minimum of $20,000). This is an extension to the ‘boosting cashflow for employers measure’ which aims to keep employees in work. Employers will receive a tax free payment equal to 100% of wages or salary withheld (increased from 50%). This will be available from April 28th.

Temporary relief for financially distressed businesses – by temporarily providing higher thresholds and more time to respond to demands from creditors and providing temporary relief from directors’ personal insolvent trading liability.

Increasing the instant asset write-off – the Government has already announced that they are raising the threshold to $150,000 (from $30,000) — and making more businesses eligible to use it up to a turnover of $500 million.

Backing business investment – by accelerating depreciation deductions.

Supporting apprentices and trainees – through wage assistance to help small businesses.

Coronavirus SME guarantee scheme – a loan guarantee arrangement between the Government and participating banks to assist with the immediate cash flow needs of small businesses.

Increasing the benefit – the Government is temporarily expanding eligibility to income support payments with a new, time-limited coronavirus supplement of $550 per fortnight. The payment will go to existing and new recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit for the next six months.

Early access to superannuation – eligible individuals and sole traders will be able to access up to $10,000 in 2019-20, and a further $10,000 in 2020-21. Withdrawals will be tax-free. Applications are through the myGov site online by July 1. There will also be a temporary reduction of minimum super drawdown rates.

Support for airlines and airports – up to $715 million relief from a range of taxes and Government charges.

For more on the new package, the Treasury has fact sheets on each measure at https://treasury.gov.au/coronavirus.

Talk to us, we are here to help you and your business.

Gift Cards and Vouchers Now Have Three Year Expiry

Gift vouchers can be a great way to attract customers, maximise marketing campaigns and increase sales – so long as you don’t get caught out by the new rules.

Does your business offer gift cards or vouchers? If so, new laws came into effect on 1 November 2019, which you’ll need to adopt. Gift cards and vouchers issued on or after 1 November 2019 must meet the new requirements of the Australian Consumer Law (ACL).

New Gift Card Laws

  • Mandatory minimum expiry period of three years from the date of issue.
  • The actual expiry date must be listed on the card; alternatively, the supply date and expiry period, for example, “Valid for 3 years from 11/02/2020”.
  • Post-purchase fees are no longer allowed. Payment processing fees may be allowed, however activation, top-up, account keeping or balance enquiry fees are not.

There are some situations in which the new requirements don’t apply, for example if the card can be topped up, if it is part of a temporary marketing promotion or if it is donated free of charge for promotions. Visit ACL New Gift Card Laws webpage for full details.

If you have not met the new requirements on vouchers issued since 1 November, the new laws will still apply even if the actual voucher does not. Customers will be able to redeem the voucher within the three-year expiry regardless of what is stated on the voucher. Gift cards and vouchers issued before 1 November 2019 have the same expiry period and conditions of purchase as at the time of purchase.

What Next?

  1. Review your gift voucher terms and conditions.
  2. Update your printed and online vouchers and related marketing material.
  3. Check the information published on your website and social media.
  4. Make sure your internal processes and point-of-sale systems are brought up to date and remember to tell your staff of the changes.

Need help?

Talk to us about how the changes affect your business operations and cashflow, or how to implement gift cards in your business.

Start Your Year Off In The Performance Zone

Getting back into work after a break can be hard.

You might be struggling to get back into your routine and engage your brain in work. Or, perhaps you spent time setting your goals and planning your year and you’re full speed raring to go. There is however, an optimum approach somewhere between these two scenarios – we call this hitting the ‘Performance Zone’.

The ‘Performance Zone’ sits between the ‘Comfort Zone’ and the ‘Danger Zone’.

It’s easy to hang out in your Comfort Zone. We just keep doing what we’ve always done because so far it’s worked… and there’s no motivation to change. However, sitting comfortable in times of such rapid change can leave you exposed. Your competitors, those working in the Performance Zone, setting goals and making incremental changes and improvements, could squeeze you out.

Working in The Performance Zone enables you to break bad habits and form good ones, achieve your goals and improve the value of your business. When working in your Performance Zone, you’ll be engaged in your work and adopt new learnings, processes and technology to streamline your business and make it more efficient.

Be wary of putting the full throttle down though. If you stretch too far out of your Comfort Zone, past the Performance Zone, you may find yourself in the Danger Zone. Committing to a massive amount of change all at once can lead to volatility, burnout, mistakes resulting re-work, the loss of a key team member and cause you to work even longer hours for no gain (apart from stress gain).

The aim is to set goals and implement changes to move beyond your Comfort Zone into your Performance Zone. If you do find yourself hitting the Danger Zone, it’s ok. Retreat back into your Performance Zone… not back to your Comfort Zone. You’re here to improve your business performance, that won’t happen from your Comfort Zone.

This concept applies to your entire team.

Motivate them to work in their Performance Zone instead of their Comfort Zone but have processes in place to prevent their burn out. If you notice someone coming in early, staying late and visibly stressed, find out why. Speak to them about the Performance Zone and offer support to help them manage their workload, prioritise work and reduce their stress levels.

Want help reaching your Performance Zone? Get in touch to find out how we can help!

Scroll to top