Happy new year and all the best for successful business operations throughout 2015!
Nothing like a few challenges to get the year started! Some of the challenges emerging for 2015, include:
Australian Economy – The Reserve Bank of Australia has lowered the official interest rate to 2.25%, the lowest for many years. This is not a decision to assist borrowers. Instead, this is a reflection of the poor performance of the Australian economy.
Turbulence in Politics – Continuous "disputes" in the Australian government doesn't help business confidence. The recent State election results in Queensland and Victoria highlight that electorates are becoming tougher to please. The uncertainty that is caused by the turbulence adds pressure to running businesses.
Chinese Market – Whilst the lower Australian dollar is welcome news for exporters to China, continuing uncertainty relative to the growth within the Chinese market, will cause ongoing concerns in Australia.
Currency Movements – The currency movements have been very good for exporters. However, this means higher prices for businesses that require imports for their business operations.
The economic forecasts for 2015 focus around the following:
· GDP growth – 3.2%
· Activity growth – 1.8% (this is down due to a lack of confidence and a reduction in resource prices, mainly because of less activity in China)
· CPI growth – approximately 2.7% (slipping back a little)
· Budget deficit - $35 billion (not the decrease the government was planning)
· Interest rates will probably remain at around 2.25% for some time (a great opportunity to lock in these rates)
· Exchange rates – will probably settle at approximately 77 cents US to an Australian dollar
Business operators need to be preparing their own forecasts for 2015 for revenue and costs, dissected into individual cost control centres, if possible, to gauge potential performance for this year.
Cashflow management continues to be very important. This includes the monitoring of debtors, work in progress, stock and capital expenditure.
If you would like to talk to us relative to preparing budgets and cashflow forecasts and preparing or updating your business plan for 2015, please don't hesitate to contact us.
Capital Gains Tax - Update
If you're planning to sell your business, capital gains tax is an important consideration. The Australian Tax Legislation includes some generous capital gains tax concessions. However, they are also complex.
The first test relates to income. If the business' income is less than $2 million per annum, irrespective of the value of assets owned by the business, then there may not be a liability for capital gains tax on the sale of your business.
The second area relates to the value of assets. Your assets can include net assets of family members in your overall calculation. The value of assets is determined at a particular time. It's what the assets are worth at that time. Some assets are not included in the assets test. The calculation is made on net assets and, therefore, all liabilities should be brought to account in the calculation of the net asset value. If the net market asset value doesn't exceed $6 million, then, capital gains tax may not be payable as you can access the small business CGT concession to reduce or eliminate any capital gains. The net market value of assets includes all of your business assets but excludes your family home, superannuation and personal use assets. Personal use assets could include a holiday home if you're not renting it out.
If you're selling a business, you can include in liabilities the commission for the sale of the business and any other expenses that are necessary to enable the sale of the business. It's important to consider all of the liabilities you have to ensure they're all included in this calculation.
The capital gains tax concessions are very attractive. However, there are traps and we recommend that, prior to finalising any business arrangements relative to the calculation of capital gains tax concessions for small business, you contact us for a discussion on your individual position.
Business Health Check - Ration Analysis
There are various ratios that can be prepared to enable a business to compare itself to its performance in previous accounting periods and to also benchmark the business' performance against other similar businesses. Some of the ratios include:
• Increase/Decrease in Sales Percentage – this is the percentage rate of increase of sales being compared to the previous year or accounting period.
• Break-Even Sales – this is the amount of sales that have to be made at the business' current gross profit margin, to cover the fixed and variable costs of running the business before any profit is earned.
• Stock Turnover – how many times does the stock turn over in the year? A higher turnover is normally considered better, as the business is not investing as much money in old stock.
• Debtors' Days Outstanding – this calculation gives the number of days the debtors are outstanding.
• Creditors' Ratio – measures the degree to which creditors are being used to finance the business.
• Gross Profit Percentage – is calculated by dividing gross profit by sales, multiplied by 100/1.
• Mark Up Percentage – is calculated by dividing gross profit by cost of sales, multiplied by 100/1.
• Net Profit Percentage – this is calculated by expressing the net trading profit as a percentage of sales.
• Net Profit Before Interest – this shows the net profit percentage if the business had no debt.
• Expense Ratios – this is the calculation of key expense percentages against sales, so that comparisons can be made against sales and percentage in previous accounting period, budgets, benchmarked against other businesses. Key expenses normally include wages and salary, employment on-costs, advertising and rent.
• Sales per Person – you need to calculate the number of equivalent full-time employees in the business. You do this by dividing the total hours worked by 38 to determine the number of full-time equivalent employees. The sales figure is then divided by the calculated full-time equivalent number of employees, to determine average sales. The calculated sales per person can be compared against other firms as part of a benchmarking review.
If you would like us to undertake a business health check of your business, please don't hesitate to contact us.