cash flow management

Cash Is King

by Advice

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.

131556385_m_normal_none

2023 Budget – What It Means For You and Small Businesses

by Advice

The 2023 Federal Budget was very underwhelming tax-wise with the primary focus being measures aimed at lowering the cost of living or improving welfare.

This budget is a first-term government setting the tone to win a second and third term.  It’s not a big spending budget and the government is banking a lot of the tax windfall it will receive over the next 4 years.  The numbers are a bit rubbery, but it is a good start to repair the budget.

There is little to no structural change to the tax system, and they have left the stage 3 tax cuts alone.  The government is doing everything it can to not break promises and to send a message about economic competence.  Short of a drastic change in economic circumstances, I think the stage 3 tax cuts are here to stay.

The Treasurer, Dr Chalmers, has indicated that more “difficult decisions” will need to be made to sustainably fix the budget, but I think they are looking to the next term of government.  Labor wants to bank some trust and goodwill with the electorate before it brings any major tax reform to the table. 

BUDGET OVERVIEW

The key measures of the Budget affecting small business and what it means for you.

1. Temporary Full Expensing is Ending

Currently, most businesses that purchase business assets can claim 100% of its price in full, in the year that it’s purchased and ready for use. This will finish on 30 June 2023.

Recommendation: If you need to purchase a business asset and have the cashflow to do so, we recommend you purchase it BEFORE 30 June 2023 to be able to claim 100% of its cost in the 2023 year.

2. Instant Asset Write Off – $20K

Replacing temporary full expensing is the Small Business Instant Asset Write-off.  Businesses with a turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 (incl GST).  Assets need to purchased and installed before 30 June 2024.

Assets that cost more than $20,000 will be added into a small business simplified depreciation pool and depreciated at 15% in the first year and 30% each year thereafter. Remember, this is a tax deduction, and it is not $20,000 cash back to you.

3. Low and Middle Income Tax Offset (LMITO) has ended

The temporary LMITO was introduced in the 2019 Budget and then extended during the COVID-19 pandemic.  It resulted in extra tax refunds of between $675 and $1,500 (depending on your level of income) for individuals. The Government didn’t extend the LMITO, so it has ended as at 30 June 2022.

Lower tax refund: Individuals who received an extra tax refund of up to $1,500 in 2022 will not receive it again this year in 2023.

4. Small business failure to lodge penalty amnesty

An amnesty has been announced for small businesses with a turnover of less than $10m, and have fallen behind on their tax returns.

A small business will not be charged failure-to-lodge penalties for outstanding tax lodgements that are lodged between 1 June 2023 and 31 December 2023 that were originally due between 1 December 2019 to 29 February 2022.

You’ve got 7 months to sort this one out and avoid some fines if you need to catch up.  Remember to reach out if you need a hand!

5. Super Stuff

The budget confirmed changes that were previously announced.  From July 2026 employers will have to pay super at the same time as wages, rather than quarterly.  This measure is designed to increase compliance with the legislation.

It won’t begin for 3 years but you will need to factor this into your future cashflow planning.

At the other end of the scale, very high superannuation balances will attract a higher rate of tax from 1 July 2025. Earnings on balances exceeding $3 million will pay tax on earnings at a rate of 30 per cent, 15% higher than the current rate of 15%. Earnings on balances below $3 million will continue to be taxed at the concessional rate of 15 per cent. Defined benefit interests will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests to ensure commensurate treatment.

If you have a balance of more than $3 million in your Superfund you should do a complete review of your arrangements to determine the best tax strategies going forward.

6. Family Support

From 1 July this year, Parental Leave Pay and Dad and Partner Pay will combine into a single 20-week payment. A new family income test of $350,000 per annum will see nearly 3,000 additional parents become eligible for the entitlement each year. The Government has also committed to increase Paid Parental Leave to 26 weeks by 2026.

7. Tax incentive for energy efficiency

The Small Business Energy Incentive provides an additional deduction of 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy.

Up to $100,000 of total expenditure will be eligible, with a maximum bonus deduction of $20,000.

While the full detail of what qualifies for the incentive is not yet available, it is expected to apply to a range of depreciating assets and upgrades to existing assets such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

Some exclusions will apply including electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.

8. Plan for higher PAYG instalments in 2024

Normally, PAYG instalments toward next year’s tax are adjusted using a GDP adjustment or uplift.

In 2022-23, the Government reduced this uplift factor to 2% instead of the 10% rate that would have applied. And now for 2023-24, the Government has set the uplift factor to 6% instead of the 12% rate that would have applied.

If you continue to make good business profits with tax to pay, you will need to budget for slightly higher PAYG instalments. 

OTHER STUFF FOR SMALL BUSINESS 

A few other “watch this space” announcements for supporting small businesses:

  • $23.4 million Investment in Cyber Security
  • $392.4 million Investment in an Industry Growth Program
  • $18.1 million Investment in Buy Australia Plan

These types of investments tend to filter down through state government grants so keep an eye out.

These are the main measures affecting small businesses from this budget.  Remember, these are subject to the measures passing through Parliament.  If you require further information on any of these announced measures, please do not hesitate to contact our office on (07) 3367 3366.

2022 budget

2022 Budget Brief

by Advice

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.

 

2021 budget

2021 Budget Overview

by Advice

The 2021 Federal Budget has been delivered, with the budget designed to keep the country out of recession through prolonged spending, with the goal to drive down unemployment.

From a pure tax perspective, it was a fairly uneventful budget.

There are a few key changes, however, and these are summarised below.

Extension of the Instant Asset Write-Off: An extension of this program out to June 2023 to allow businesses to immediately depreciate eligible assets, with no cap on the value of these assets. This not only directly benefits small businesses that invest but some of these assets will be purchased from or serviced by other small businesses.

Low & Middle Income Earner Tax Offsets Extended Another 12 Months:  The low and middle-income tax offset, which was due to end on June 30, will be extended for another 12 months. The offset is worth up to $1080 as a refund for about 10 million workers earning between $48,000 and $90,000 when they file their tax returns.

Loss Carry Back: Extended to 30 June 2023.  Losses incurred during the 2020 to 2023 years can be carried back to offset profits as far back as the 2019 year as a refundable tax offset.

Changes To Minimum Super Payments:  From 1 July 2022, the minimum threshold of $450 ordinary earnings before superannuation is payable will be removed. This ensures casual and part time workers are not penalised with less superannuation savings.

Super Contributions Limit for over 60’s: The access age to the “super downsizing scheme” will be reduced from 65 to 60 from 1 July 2022, allowing more people to boost their superannuation with the proceeds of the sale of their home. Contributions of up to $300,000 are allowed, but the home must have been owned for at least 10 years and the money must be paid into super within 90 days of receiving cash from the sale.

Superannuation – Removal of The Work Test: Work test rules for older Australians – which restrict contributions to super unless you are working a certain number of hours – will be scrapped.  This change means people who are between 67 and 74 who may have already retired, are doing volunteer work or who have more flexible work arrangements can continue to make voluntary contributions or salary sacrifice.

Self-Education Deductions – Removal Of $250 Adjustment: From 1 July 2022 the exclusion for the first $250 of deductions for self-education expenses will be removed from the first income year after Royal Assent.

Changes to Residency Rules: From 1 July 2022 they will replace the individual tax residency rules with new primary and secondary tests to determine residency.

– a primary ‘bright line’ test — under which a person who is physically present in Australia for 183 days or more in an income year will be an Australian resident for tax purposes;

– secondary tests depending on a combination of physical presence and measurable, objective criteria — for individuals who do not meet the primary test.

Tax Breaks for Aussie Patents: From 1 July 2022, companies that develop patents in Australia will receive tax reductions under an initiative to promote the manufacturing sector and innovations in the medical and biotech sectors.

Dubbed the “patent box”, the initiative will see corporate profits taxed at a concessional rate of 17 percent if the patents are developed in Australia. The scheme is expected to take effect on July 1.

Please contact Activ8 Accountants and Advisors if you have any questions about how the budget may affect you or your business.

Budget2020

Federal Budget 2020-21. What Does It Mean For You?

by Advice

“There is a monumental task ahead,” the Treasurer admitted in his budget speech on Tuesday night.  For once this does not seem like an overstatement.  The coronavirus pandemic has fundamentally changed the way we do business in this country.

The challenge for the Government in this Budget was to outline a plan to kickstart the economy by encouraging jobs, investment, and household spending.  To this end they have delivered one of the most stimulatory budgets we have ever seen, featuring tax breaks for individuals and businesses.

The Government’s road to recovery hinges on middle- and high-income earners and businesses spending big.  The Government’s task now is to encourage businesses and households to take advantage of the new programs to deliver stronger economic growth and more jobs.

The three pillars of the Budget, that will underpin jobs, investment and household spending are:

  • Significant personal income tax cuts
  • JobMaker Hiring Credit for businesses employing new staff under 35
  • Immediate write off for any business assets purchased from 7:30pm last night

Lower taxes for households

  • Tax relief for over 11 million individuals.
  • Low- and middle-income earners to receive tax relief of up to $2,745 for singles or up to $5,490 for dual income families in 2020–21 compared with 2017–18 settings

Empowering businesses to grow, invest and innovate

  • 12 month wage subsidies to hire new apprentices and people under 35 who are on JobSeeker.
  • Temporary full expensing available to around 3.5 million businesses on purchases of eligible depreciable assets. No asset limits.
  • Temporary loss carry‑back available to around 1 million companies. Companies can offset tax losses against previously taxed profits to generate a refund.
  • Investing an additional $2 billion through the R&D Tax Incentive.

Cutting red tape for businesses

  • Reducing record keeping requirements for fringe benefits tax.
  • Exempting employer‑provided retraining activities from fringe benefits tax to encourage reskilling.

Lower personal income taxes

The centerpiece of the Budget were the personal income tax cuts, including the continuation of the Low and Medium Income Tax Offset, which will flow to more than 11 million taxpayers. They have also backdated these tax cuts to start on 1 July 2020.  This should mean the extra money will be in bank accounts as soon as the legislation is passed and payroll software is updated.

Workers earning between $50,000 and $90,000 will receive an extra $1,080 in 2020-21 as an extension of the low and middle income tax offset that was introduced last year.

People earning more than $120,000, on the other hand, will receive the biggest benefit with a permanent tax cut of $2,565 in 2020-21 and beyond.

The government is also looking at removing the 37% tax rate, so anyone earning between $45,000 and $200,000 only pays 30% tax.

In addition, sole traders will also benefit from the unincorporated tax discount of $1000.

For those people who receive a range of government payments, including aged pension, carer payment and family tax benefit, they will receive two $250 cash payments paid in December and March 2021.

Business-related policies

Business measures in this year’s Federal Budget focused on jobs recovery, tax breaks and the expansion of the instant asset write-off.

Job creation announcements:

JobMaker Hiring Credit – a 12-month wage subsidy for businesses that hire 16 to 35-year-olds for at least 20 hours per week, who were on JobSeeker. It will be a $200/week subsidy for those under 30 and $100/week for those aged 30-35. It’s expected that employers will report JobMaker Hiring Credits using Single Touch Payroll.

Apprentice wage subsidy scheme – businesses that hire new apprentices will be eligible for a 50% wage subsidy. The $1.2 billion scheme will support 100,000 apprentices and be available to businesses of all sizes.

Business investment announcements:

Extension of the Instant Asset Write-Off – An extension of this program out to June 2022 to allow businesses to immediately depreciate eligible assets, with no cap on the value of these assets. This not only directly benefits small businesses that invest but some of these assets will be purchased from or serviced by other small businesses.

R&D tax incentive changes – For small companies (annual turnover of less than $20 million) the refundable R&D tax offset will be set at 18.5 percentage points above the claimant’s company tax rate and there will be no cap on annual cash refunds.

Loss carry-back provisions – Companies will be able to offset losses incurred to June 2022 against prior profits made in or after the 2018/19 financial year.

Digital adoption announcements:

JobMaker Digital Business Plan – $800m for a series of measures to help Australia become a leading digital economy by 2030 and to improve productivity, income growth and jobs by supporting the adoption of digital technologies by Australian businesses.

Cyber security program – $1.7B to improve cyber security within government agencies and increase the confidence of small businesses to engage in the digital economy.

As with the tax cuts, the key to the success of these business-based programs is that they are used. Businesses will need to have the confidence to take on new staff and buy new equipment if the economy is to feel the full benefit of these programs.

Infrastructure projects

The Budget is not leaving all the responsibility of economic recovery to businesses and households, there was also an additional $7.5 billion spending for new national-level infrastructure projects. This funding is in addition to the $100 billion infrastructure fund (over ten years) announced in previous Budgets. In addition, $3.5 billion has been allocated for upgrades to the NBN roll-out to deliver more Fibre to the Premises connections.

Small businesses are also likely to benefit from the additional $1 billion for the Local Roads and Community Infrastructure program. This is for smaller, local projects to help councils to deliver immediate upgrades of local roads, footpaths and street lighting.

Budget success depends on confidence to spend and invest

The success of this Budget in rebooting the economy largely depends on the public response. Households will need to be confident enough to spend the tax cuts and businesses will need to be willing to invest in their future and hire new staff. If the tax cuts sit in bank accounts, business hiring and investment programs go unused and infrastructure projects are delayed then the economic recovery is less likely to eventuate.

A surprise coming out of this Budget was not bringing forward the timing of “Stage 3” tax cuts (which the Opposition opposes) or permanently increasing the JobSeeker payment.   The government has stayed silent on where it expects the level of unemployment benefits will eventually land permanently when the JobSeeker supplement ends. However, we note that there is an allowance for spending decisions not yet announced worth more than $6 billion over four years.

The politics of this Budget lies in the hope for the Government that the strategy works, and that all the huge uncertainties in the domestic and global outlook fall its way, so that by the middle of next year it can contemplate going to an election with voters feeling it has protected them from the worst a pandemic has thrown at them.

Please contact Activ8 Business Advisors if you have any questions about how the budget may affect you or your business.