First published in Business First Magazine’s June/July 2016 edition.
Now could be the time for a financial reboot that is going to make the future smoother by following 3 key criteria to improve your bottom line and bank balance. Here are 3 key things for you to consider.
- Cash flow planning is paramount!
Regardless of size, cash flow management can be a challenge for business owners. Tips to help improve your cash position include:
- Have a cash flow forecast for the coming year. This will help you better understand the ins and outs over the next 12 months.
- Make sure you track your cash flow forecast against your actual cash in and out the door at least monthly.
- Don’t use the cash in the business like a personal bank account! Break this habit if you are. Work out an amount you need each month and stick to it.
- Be on top of your debtors and creditors. Understand what your collection days look like. Are you in line with industry average?
- Making the most of Technology
If you’re looking for the opportunity to save time, money and hassles consider turning to cloud-based software solutions. Whether you’re a fan of cloud accounting or not, current technology gives businesses opportunities, such as:
- Access to valuable information in real time about business performance and benchmarks;
- Save money by eliminating the purchase of software programs and servers to host the traditional accounting packages;
- Allow seamless workflow amongst business teams and advisers by having data available to all authorised users at all times.
Now is the best time to talk to your advisers. Don’t just have the conversation about performance and results once a year – do it regularly and ask them how you can improve your business.
- Year-end tax planning
There are still opportunities for businesses to reduce an overall tax liability. Here are a few noteworthy items to have on your checklists:
- Bring forward any creditors you know will come due in July or spending the money in June instead of deferring it until July;
- Conduct a stocktake before year end to work out what stock can be written off;
- Consider maximising the concessional superannuation contributions for key individuals. Don’t forget that you don’t get a tax deduction for super contributions until it has been paid into the fund;
- Make sure you have met your superannuation guarantee obligations (9.5% for 2016) for all employees;
- Review your debtors list and write off any bad debts;
- Review your FBT costs and determine if it’s possible to reduce this cost;
- Maximise work related car expense deductions. With changes applying from 1 July 2016 to limit the methods under which you can claim car expenses, it may be worth considering keeping a log book and record of expenses. Otherwise the maximum (under the only other available method) is 66 cents per business kilometre.
Understanding Small Business Entities
The big winners in terms of accessing various new and existing tax concessions are small business entities – businesses with an aggregated turnover less than $2m. While in the Federal Budget the government announced a change to the definition of a small business entity, for the purposes of accessing a number of tax concessions, the current definition remains:
Reduction in company tax rate
The income tax rate payable by a company carrying on business has been reduced for the year ending 30 June 2016 by 1.5% to 28.5%.
Small Business Tax Offset
If you are an individual carrying on a business via a trust, partnership or sole trader and your taxable income includes assessable business income, then for the year ending 30 June 2016 you may be eligible to a maximum tax offset of $1,000.
Immediate Deduction for New Assets
One of the concessions for all small business is the ability to get an immediate deduction for depreciating assets that cost less than $20K (generally $1k). You must ensure that the asset is first used or installed and ready for use by 30 June 2017. Note that the government did announce in the Federal Budget to extend this date further.
If you a small business operating via a trust and keen to access the lower company tax rate, changes to tax rules from 1 July 2016 will significantly broaden the landscape for small business owners to restructure with generally no immediate tax consequences.
Roll-over relief will be available where a small business entity transfers a business asset including goodwill to another small business entity that is part of the same family group under a “genuine business restructure”.
Together with the existing capital gains tax concessions for small business, the new concessions provide small business entities a significant opportunity to restructure for genuine commercial reasons such as asset protection, estate and succession planning.
There could also be the added benefit of tax savings that arise from a restructure so speak with your adviser about the options for your business.