cash flow management

Cash Is King

In these times of seemingly ever-increasing costs, improving cash flow is crucial for the financial health of a business. Here are some strategies to help you do that:

  1. Invoice Promptly: Send out invoices as soon as goods or services are delivered. Consider offering early payment incentives to encourage faster payments.
  2. Follow up on Payments: Establish a system for following up on overdue payments. This might involve sending reminders, making phone calls, or even offering payment plans.
  3. Manage Expenses: Analyse your expenses and cut any unnecessary costs. Look for opportunities to negotiate better terms with suppliers.
  4. Inventory Management: Avoid overstocking inventory, as it ties up cash. Use just-in-time inventory practices when possible.
  5. Tighten Credit Policies: Be cautious with extending credit to customers. Screen new customers for creditworthiness and set clear credit terms.
  6. Reduce Operating Costs: Evaluate your fixed and variable costs. Look for ways to reduce expenses without sacrificing quality or service.
  7. Increase Sales: Focus on marketing and sales efforts to boost revenue. Consider diversifying your product or service offerings to attract more customers.
  8. Improve Cash Reserves: Build up cash reserves during periods of strong cash flow to cushion against lean times.
  9. Negotiate with Suppliers: Negotiate favourable payment terms with suppliers. Extended payment terms can provide some breathing room.
  10. Consider Financing: Explore financing options such as business loans or lines of credit to cover short-term cash flow gaps.
  11. Monitor Cash Flow: Keep a close eye on your cash flow through regular financial reporting. This will help you spot issues early and take corrective action.
  12. Forecast Cash Flow: Create cash flow forecasts to anticipate future needs and plan accordingly.
  13. Streamline Operations: Look for ways to make your business processes more efficient, which can reduce costs and improve cash flow.
  14. Offer Discounts for Early Payment: Consider offering discounts to customers who pay their invoices early to incentivise prompt payments.
  15. Debt Management: Manage your existing debt wisely, ensuring that interest payments and principal repayments fit comfortably within your cash flow.

A list like this can be a bit overwhelming so just pick one or two to start off with.  Focus on those for the next month or so and see how you go.  Then pick another strategy and build from there.

Remember that improving cash flow often requires a combination of strategies tailored to your specific business needs and circumstances. It’s essential to regularly review your financial statements and adjust your approach as needed to maintain healthy cash flow.

A crucial part of the equation is having accurate and up-to-date financials.  None of these will work if you are flying in the dark.  That’s where we come in.  Activ8 can do the number crunching so you can focus on your business.  No more losing sleep over the books.  Give us a call on (07) 3367 3366.

Family-leave

Paid Family & Domestic Violence Leave From August 1

Paid family and domestic violence leave (FDVL) kicked off for large employers on February 1. Now it’s time for small businesses to get on board.

Ten days’ paid family and domestic violence is a significant new entitlement for employees.

The obligation to provide paid family and domestic violence leave applies:

  • from 1 February 2023, for employees of businesses that are not small businesses (i.e. on 1 February 2023, the business employed 15 or more employees); and
  • from 1 August 2023, for employees of small businesses (i.e. on 1 February 2023, the business employed fewer than 15 employees).

What is Family and Domestic Violence leave?

Paid family or domestic violence leave will be available in the event that the employee needs to do something to deal with the impact of the family and domestic violence and it is impractical for them to do it outside their ordinary hours of work.

For example, making arrangements for their safety or the safety of a family member (including relocation), attending urgent court hearings, or accessing police services.

Family and domestic violence – What is it?

A family or domestic violence incident is defined as violent, threatening, or abusive behaviour directed at an employee by a former or current intimate partner, a household member, or a close relative in an effort to coerce or control them.

A close relative of an employee is considered the following:

  • Spouse or former spouse
  • Current or former de facto partner
  • Child
  • Parent/s
  • Grandparent
  • Grandchild
  • Sibling
  • Family members of an employee’s current or former partner, including siblings, children, parents, and grandparents
  • Individuals who are related to the employee according to Aboriginal or Torres Strait Islander kinship rules.

The following types of behaviour are examples of family and domestic violence:

  • Financial abuse
  • Stalking
  • Emotional abuse
  • Sexual assault
  • Physical violence
  • Controlling behaviour

When does Family and Domestic Violence Leave apply?

Employees (including part-time and casual employees) can take this paid leave if they need to do something to deal with the impact of family and domestic violence. For example:

  • Making arrangements for their safety or the safety of a close relative (including relocation)
  • Attending court hearings
  • Accessing police services
  • Attending counselling sessions, medical appointments, financial consultations, or legal consultations.

Who is entitled to Paid Family and Domestic Violence Leave?

Employees covered by the Fair Work System, including full-time, part-time, and casual employees, are entitled to ten days of paid leave for domestic and family violence. For every 12 months of employment, employees will receive ten days paid for family and domestic violence; the entitlement is provided up-front at the start of each 12-month period. The leave does not accumulate like annual leave.

Employees who started employment on or after 1 February 2023 are entitled to the full 10 days from their starting day.

How is pay calculated for Family and Domestic Violence Leave?

The type of employment determines the amount of pay for paid family and domestic violence leave.

Both part-time and full-time employees are entitled to receive full pay for the hours they would have worked if they did not need to take family or domestic violence leave.

Casual employees are paid their full pay rate for the hours they were scheduled to work if they need to take leave due to family or domestic violence.

Family and Domestic Violence Leave pay slip data and record keeping

The employer must ensure that any information regarding paid family and domestic violence leave balances or leave taken is not included in payslips. This safety measure aims to reduce any risk for employees that need to use their family and domestic violence leave.

Employers must keep a record of all employees’ leave balances and leave taken for Family and Domestic Violence.

What are the employee’s obligations when taking Paid Family and Domestic Violence Leave?

As soon as practicably possible, the employee should notify their employer they are taking family and domestic violence leave and how long they expect to be away from work. The notification can be after the employee has taken the leave.

Employers may request evidence that shows the leave taken was to deal with the impact of family or domestic violence and that it was not feasible to manage this outside of working hours. Evidence can be documentation issued by the police, a court of law, family support services or a statutory declaration.

The employer can only use the information provided to determine whether the employee is entitled to family and domestic violence leave.

Key takeaways:

The Paid Family and Domestic Violence Leave legislation key points:

  • On 1 February 2023, the new paid family and domestic violence leave is available to employees for businesses with at least 15 employees or over.
  • The start date for paid family and domestic violence leave for employers with less than 15 employees is 1 August 2023.
  • Over 12 months, full-time, part-time, and casual employees can take up to 10 days of paid family and domestic violence leave.
  • The leave is pro-rated for part-time or casual employees.
  • No matter how many hours employees work per week, they are entitled to 10 days of family and domestic violence leave.
  • Employees who started employment on or after 1 February 2023 are entitled to the full 10 days from their starting day.
  • The paid family and domestic violence leave renewal is on the employee’s start date anniversary, not on the 1 February every year.
  • The 10-day entitlement does not accumulate year after year, like annual leave.
  • An employee’s pay slip must not contain any information regarding paid family and domestic violence leave as of 1 February 2023.

For more information on paid family and domestic violence leave, visit fairwork.gov.au.

work from home deductions

Working-from-home Deduction Changes

The ATO has made some changes to how you can claim work-from-home expenses.

The ATO has scrapped the ‘shortcut method’ for claiming work-from-home expenses. This method allowed taxpayers to claim 80 cents per hour worked from home and was an all-inclusive rate so no other work-from-home related expenses could be claimed on top.

You still have the option of claiming on an hourly basis – but it is much less generous than previously.

There are two methods available to claim work-from-home expenses: (1) Fixed Rate Method, and (2) Actual Cost Method.

Fixed Rate Method

The ATO has updated the fixed rate method from 52 cents to 67 cents per hour. However, the new fixed rate now covers all ongoing expenses such as phone bills, internet and utility expenses while working from home.

The only additional expenses that can be claimed on top of the hourly rate are new equipment, office furniture and cleaning (if you have a dedicated home office).

The changes don’t stop there, the ATO has also introduced stronger record-keeping for at-home expenses. From 1 July 2022 to 28 February 2023 taxpayers can provide a four-week diary representing their hours worked from home. From March 2023 onwards, the ATO will require each hour worked from home to be recorded.

Actual Cost Method

The Actual Cost Method remains unchanged and allows you to claim a deduction for the actual expenses you incur. This method takes all of the at-home expenses and then proportions them for their work-related use. These include internet, phone, electricity, computer consumables, stationery, and cleaning (if you have a dedicated home office). A detailed diary is not required – a 4-week period that represents your work use can be used. You will need to keep copies of invoices and bills.

Which rate will be best for you will depend on your individual circumstances. Generally, we find that in most cases the actual cost method gives a greater deduction. When preparing your return, we will do an analysis to ensure you get the best deduction possible.

Please reach out to Activ8 for more information on what’s required to claim home office expenses and your eligibility to maximise your return.

improve your business

5 Tips For Using Your Financials To Improve Your Business

With preparation of year-end financials getting underway, it’s timely to explore where the opportunities for improving business results can be found in your financials.

Changing the outcomes of business results rarely happens by continuing to do what has been done in the past, but understanding what you have done, what that has achieved and how that can be changed will arm you well to make decisions for the future.

Here are 5 tips to apply when reviewing your financials which can lead to actions to improve your business.

1. Sales and Gross Profit

Your top-line sales figure for this year compared to last year gives you limited information, so drill down to explore the reasons for the change.  Have there been particular product or service lines that have performed stronger this year, what was the driver for that and did it really improve profitability? For example, your sales may have increased because you cut your prices, but if that didn’t generate sufficient volume increases you may be no better off.  Say your gross profit margin is 35 percent and you reduce your prices by 10 percent; your turnover has to increase by 40 percent just to maintain profit levels.

A simple yet effective profitability benchmark is your average dollar sale, to calculate that divide your total sales by the number of transactions. Compare this year’s average dollar sale with the results from a year ago to see some trends. To improve business year on year, set yourself a target, supported by a few initiatives, to increase this by 10 percent in a year’s time — it’ll do wonders for your profitability.

2. Breakeven point

The availability of your financials is an opportunity to update your breakeven point, which is a fundamental piece of information you need to know about your business.

If you know what cash you need to collect from your customers to cover your outgoings each month, it’s a truly motivating factor and a very early indicator of impending success or challenges on the horizon. We refer to outgoings rather than overheads or expenses because you need to factor in your drawings or tax as well as overheads when calculating your breakeven point.  This number can then be used to drive activities from salespeople and accounts staff to ensure the work is processed, invoiced and funds received month on month.

3. Solvency

Review your balance sheet with particular attention to your current assets and current liabilities, items in there include cash at bank, accounts receivable and short-term debt.  When classified as ‘current’ they are expected to be received or paid within 12 months and reviewing this comparison is a very good indicator of business solvency.

Can you pay your bills as they fall due, or are you dependent upon some extended trading terms of suppliers to continue to trade?  As directors of trading businesses, you have a legal duty not to take on liabilities you cannot repay and doing so puts yourself at risk of disqualification from directorship and severe financial consequences.  Identifying a solvency concern, determining the options available and taking action early is the best approach to ward off future issues.

 

 

4. Cash flow statement

It’s not unusual for business owners to look at a profit number only to ask “where has that profit gone?”. If your financials include a cash flow statement, use this to identify where all your profit has gone if it’s not sitting as cash at bank.  Alternatively, request a source and application of funds summary to be provided with your financials.

A cash flow statement or summary will show the sources of funds and how they have been applied over the period, which is essential because many of the outgoings of a business will not appear in the profit and loss account (for example, drawings, tax or loan repayments).  Use this Source and Application of Funds summary to understand where the profit from the last 12 months has gone and decide on future actions in light of this information.  Some common places you might find your profit sitting include the debtors, reduction of loan principal and tax payments.

5. Advance to and from directors/shareholders

How much money does the business owe you, or do you owe money back to the business? If the business owes you a substantial sum, it is good practice to consider each year if it is time to begin planning to draw this money down.

This could trigger a restructure of your finances if the business profitability is suitable and replace your advance account with a business loan. This will enable you to withdraw the money you are owed to build wealth outside the business or reduce personal debt.

If you owe money back to the business, keep this in check, reviewing it annually with a view to repaying it with priority.  Approach management of the advance account with full support from your Mazars adviser to plan for any tax consequences of these actions.

Good business operators take a keen interest in using annual financials as a means to understanding the financial well-being of their business.  There are no silly questions when it comes to clarifying elements within the financial statements and using the historical performance to set goals for the future.

At Activ8, we are focussed on supporting the development of efficient profitable businesses and can assist in identifying opportunities for improvement from your financials.  The preparation of monthly or even quarterly financial statements will provide more timely information, which will further allow for the identification of areas of improvement in your business.

Tax tips

8 Business Tax Tips

The best way to save tax in business is to consider and apply strategies prior to 30 June each year. After year end, the options available to improve your tax position are severely restricted. Activ8 are business tax specialists. In this article we share some of our best tax tips.

Tip 1. Maximise Your Super Contributions

Superannuation is a fantastic vehicle for tax effective investments. We recommend that every year you maximise the amounts you put into super. The maximum you can claim each year changes and you need to take into account contributions made by your employer, including your own business, and personal contributions. Remember to speak to your financial planner about how super fits into your personal financial plan. Our advice is purely focused on the tax benefits alone.

Tip 2. Take Advantage of the Instant Asset Write Off

The temporary full expensing of assets purchased for business use has been extended to 30 June 2023. This means that businesses can get an immediate tax deduction for the full amount of the asset’s cost in the year it is purchased.

Therefore if you are planning some equipment purchases, get them completed before 30 June to maximise the deduction in this financial year.

Note – cars are capped to a maximum claim of $60,733 for the 2022 year.

Tip 3. Do a Stocktake at 30 June

Does your business have trading stock? Do a stocktake at 30 June. This not only helps to get accurate profit figures, but you are eligible for a tax deduction for obsolete or worthless items still on the shelf.

Tip 4. Write Off Your Bad Debts

Subject to how you report income on your BAS, you have likely paid tax and GST on income you have invoiced but not yet collected. If you have deemed the debt to be uncollectible, you are entitled to a tax deduction as well as recouping the GST paid to the ATO.

Tip 5. Pay Your Employees’ Super on Time

If you pay super late, you will miss out on the tax deduction. In addition the ATO will impose interest and penalties for late super. We recommend that super is paid each pay cycle so you’ll never be late and you don’t get a big lump sum at the end of the quarter.

Another tip for super at year-end is to pay any June quarter before 30 June to get the tax deduction in the current year. Note – allow 7-10 days processing time to ensure the superfund processes the payment before 30 June.

Tip 6. Keep a Log Book For Your Business Cars

A compliant log book is essential to maximise your motor vehicle claim. Whilst they can be cumbersome to keep a log book, they are only required for 12 weeks and it remains valid for 5 years.

Tip 7. Defer Income to Next Year

If it makes sense to do so, deferring income until after 30 June means you pay tax on it next year, not this year. You can do this by holding off invoicing until 1 July, where appropriate.

Tip 8. Prepay Expenses

Cashflow permitting, you can prepay expenses like interest and rent up to 12 months in advance to boost the tax benefit in this financial year. This does not apply to stock purchases, but basically any other business expense can be paid before 30 June to allow the tax deduction in this year. This is particularly good where you have had a good year and have a bigger than usual impending tax bill.

We hope you find these tips insightful. There are plenty of other tax strategies you can put in place to minimise the tax you pay. It’s never too late to start taking advantage of tax benefits.

If you need any guidance or advice in relation to these tips, contact Activ8 Accountants & Advisors and we can guide you through them. Call us on 07 3367 3366.

 

superannuation changes

Superannuation Changes from July 2022

Several key superannuation contribution changes are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members, young and old, to grow their retirement savings.

WHAT ARE THE CHANGES?

Originally announced in the 2021 Federal Budget, the following changes apply from 1 July 2022:

  • Individuals of age 67- 74, will no longer need to meet a work test to make voluntary, non-deductible, contributions
  • Individuals up to the age of 75, with a total super balance under $1.7 million, will have the opportunity to make large non-concessional contributions (possibly up to three years’ worth) in a single year
  • The minimum age to make downsizer contributions will reduce to 60, allowing more individuals to use the proceeds from the sale of their home, to fund their retirement
  • The Superannuation Guarantee (SG) rate will increase to 10.5% p.a. for all and the $450 minimum income threshold for SG contributions, will be removed.

Superannuation rules can be very complex.  Should you require further assistance, please feel free to contact our office for further information on (07) 3367 3366.

 

2022 budget

2022 Budget Brief

The federal budgets for the past two years have had overwhelming stimulus measures designed to get businesses to spend their way out of the covid recession.  This year’s budget has relatively little for businesses with the main focus being on cost of living payments.

Coming out of the Omicron wave that hit us at the start of the year, we have been confronted with a prevalence of bad news.  From the war in Ukraine to natural disasters closer to home.  On top of this, we have inflation on the increase, concerns about the cost of living, and potentially higher interest rates.  It is no wonder that household confidence levels are at their lowest levels since September 2020 (Westpac Consumer Confidence Index).

The Budget seeks to ease some of these concerns and boost consumer confidence with several temporary measures.  There is also little doubt the forthcoming election played a big part in this Budget.

This brief summarises the key tax and superannuation announcements that we expect will most affect Activ8 individual and business clients.

INDIVIDUALS

The key announcements for individuals include:

  • Low and middle-income tax offset to be increased by $420
  • One-off $250 welfare payment to ease cost of living pressure
  • Work-related Covid-19 tests tax deductible from 1 July 2021
  • 50% temporary reduction on fuel excise
  • Paid parental leave scheme streamlined to 20 weeks
  • Medicare low-income threshold has increased
  • Increased support for affordable housing and home ownership with Home Guarantee Scheme places increased to 50,000
  • Income tax rates remain unchanged.

BUSINESSES

The key announcements for businesses include:

  • New tax incentives to help small businesses with turnover of less than $50 million/year, adopt digital technology and train and upskill employees.
    • Until June 2024 for every $100 a small business invests in external training courses for their employees they will get a $120 tax deduction (Skills and Training Boost).
    • Until June 2023 for every $100 a small business spends on new digitalising their business (for items such as cloud accounting, online security and eInvoicing software) they will get a $120 tax deduction up to $100,000/year (Technology Investment Boost).
  • Apprenticeship wage subsidy extended
  • Primary producers – Concessional tax treatment for carbon abatement and biodiversity stewardship income
  • Expanded access to unlisted company employee share schemes
  • PAYG income tax instalment system set for structural overhaul
  • Business registry fees to be streamlined
  • Indirect taxes – excise and customs duty reduction and concession
  • Various tax administration changes.

One long-standing policy that has been repeatedly extended is the instant asset depreciation program. This was not extended in the Budget and could end on 30 June 2023.

SUPERANNUATION

The only measure announced relating to superannuation was the extension of the temporary reduction in minimum drawdown rates.

Overall, this Budget is designed to provide relief from cost of living pressures and minimise ‘losers’ from any policy decisions. Attention will now turn to next week’s Reserve Bank Board meeting to understand how this Budget may impact the Bank’s thinking around interest rates. Then the focus will be firmly on the timing of the federal election.

Please note these are just announcements and cannot be regarded as law until legislated.  Whilst Labor has come out in support of many of the “proposed” announcements earlier in the week, some of the budget measures may not pass parliament if they win the election; the election must be announced within two weeks.

If you require further information on any of these announced measures, please do not hesitate to contact our office on (07) 3367 3366.

 

director ID

ID Requirement For Directors

From November 2021, company directors will need to verify their identity as part of a new director identification number (director ID) requirement.

A director ID is a 15 digit unique identifier that a director will apply for once and keep forever. This will apply to all company directors including if you’re a director of a corporate trustee of a self-managed super fund.

The aim is to help prevent the use of false or fraudulent director identities, and to make it easier to trace director relationships across companies.  In particular, they are seeking to identify and eliminate involvement in actions such as illegal phoenix activity.

There are transitional arrangements for when you must apply by.  Individuals who are currently a director or will be acting as a director in the future must apply for a Director ID based on the transitional arrangements specified in the table below:

director ID

Directors must apply for their director ID themselves because they will need to verify their identity. No one can apply on their behalf.

The new Australian Business Registry Services (ABRS) is responsible for the implementation and administration of director ID. ASIC will be responsible for the enforcement of associated offences.

When fully established, the ABRS will bring together the Australian Business Register and over 30 ASIC registers. This work is being delivered under the government’s Modernising Business Registers program. Visit the ABRS website for more information.

Please note – if you are a company director and Activ8 is your ASIC Agent, we will be in touch with instructions on how to obtain your Director ID in due course.

stapled super

Stapled Super Changes

Employers get ready – there’ll soon be an extra step involved when it comes to hiring new employees – if they don’t choose a super fund.

You may now need to request their ‘stapled super fund’ details from the ATO.  A stapled super fund is an existing super account of an employee that follows them as they change jobs. This change aims to stop your new employees paying extra account fees for unintended super accounts set up when they start a new job.

You may need to request stapled super fund details when:
•           your new employee starts on or after 1 November 2021
•           you need to make super guarantee payments for that employee, and
•           your employee is eligible to choose a super fund but doesn’t.

What you need to do from 1 November 2021

Step 1: Offer your eligible employees a choice of super fund

You need to give your eligible new employees a Super standard choice form and pay their super into the account they tell you on the form. Most employees are eligible to choose what fund their super goes into.

There is no change to this step of your super obligations.

Step 2: Request stapled super fund details

If your employee doesn’t choose a super fund, you may need to log into the ATO Online services and go to ‘Employee Super Accounts’ to request their stapled super fund details. If you don’t have online access then Activ8 can do this for you.

The ATO will provide your employee’s stapled super fund details after they have confirmed that you are their employer.

If the ATO provides a stapled super fund result for your employee, you must pay your employee’s super using the stapled super fund details they provide you.

In most cases, a request can be made after you’ve submitted a TFN declaration, or a Single Touch Payroll (STP) pay event linking the new employee to your business.  Responses will usually be received through the online portal in minutes.

Step 3: Pay super into a default fund

You can pay into a default fund, or another fund that meets the choice of fund obligations if:

  • your employee doesn’t choose a super fund, and
  • we have advised you that they don’t have a stapled super fund.

Remember, an employer cannot provide recommendations or advice about super to its employees, unless the business is licensed by the Australian Securities and Investments Commission (ASIC) to provide financial advice. Penalties may apply if your business fails to meet the “choice of super fund” obligations.

Full details can be found here on the ATO website.

campaign-creators-pypeCEaJeZY-unsplash

Taxation and Superannuation Updates for New Financial Year

As the new financial year commences, we’d like to provide some timely reminders, key dates and information ahead of finalising your tax affairs for 2020/21, and some things you need to be aware of over the next 12 months.

Key Dates for July

14 July – Single Touch Payroll finalised

21 July – Monthly BAS return for June due.

28 July – Make quarter 4 super guarantee contributions to funds by this date (if not paid earlier)

 

Three End Of Financial Year Payroll Tasks

1. Single Touch Payroll Finalisation

Due date is 14th July 2021

2. All Employers (including those with closely held employees) need to be using Single Touch Payroll (STP) Compliant software from 1 July 2021

​​For example if you operate your business through a company or trust structure which employs you, you will need to adopt STP compliant software into your business.  Most accounting software providers have a solution available, speak to your bookkeeper or accountant if you aren’t sure.

3. Reminder that the Superannuation Guarantee (SG) Rate increases from 9.5% to 10% from 1 July.  Look out for any communications from your payroll software provider

Super changes for 2021/22

 

  • SGC Rate: As mentioned above, the SGC rate increases to 10% for all wages paid from 1 July.
  • The concessional contributions cap has now increased to $27,500, up from $25,000.
  • The non-concessional contributions cap is now $110,000, up from $100,000.

 

Claiming Work-Related Deductions

When you do your tax do you just claim “what you claimed last year”?

Technically that is not allowed. You need to be able to substantiate your deductions and circumstances may change so you need to be considering that.

For example, if you are working from home more, then your travel and laundry expenses will be substantially different.

The ATO is data matching everything this year and checking if people are claiming the same as last year.

As the pandemic forced swathes of the workforce to work from home, work-related expenses are expected to spike for the 2021 income year. However, the ATO also expects some expenses, like travel, will decrease compared to prior years.  In general, the ATO expects to see a downward trend in expense claims related to clothing & laundry, self-education, car and travel.