Tough Going Early In 2012
Already there have been some shocks for small/medium enterprises in the first couple of months in 2012. How are these events affecting your business?
- Decision by the Reserve Bank of Australia, not to decrease interest rates in February and March.
- Political uncertainty affecting businesses conditions.
- Carbon tax - commences on the 1st July 2012. Whilst it is not expected that any SMEs will be directly involved in incurring direct costs for carbon tax, your business will be affected by an expected increase in the costs of electricity (5-7% increase expected) and other energy prices which are also expected to increase.
- In the Transport Industry the diesel and excise rebate will be sliced back. This will probably lead to increased freight and transport charges for most small business.
- There are many other business activities that could be affected by the introduction of the carbon tax. We recommend that you do some calculations now as to the effect on your business and ensure that the extra costs are factored into your pricing calculations applicable from the 1st July 2012.
- Many economists expect there to be a surge later in 2012/2013. This could then lead to some interest rate increases. Now would be a good time to lock in better deals for customers and develop new long-term customer relationships, so that you are able to benefit from the expected upturn in 2013.
Business Health Check Review
If you haven't already done so, now is a good time to re-visit your business health check. Just as you go to your doctor for a periodic health check, it's a good idea to subject your business to a business health check at least annually. There are many questions to be asked. Cashflow management is undoubtedly one of the biggest single issues affecting the business' health. There are other items that are part of a business health check. These include:-
- Are your marketing activities generating sales?
- Are you planning for the future?
- Have you introduced systems that will give you continued feedback on the current status of the key performance indicators, so that the business is able to continue moving forward?
- What is the next great product/services that you are producing?
- Are you getting input from everyone in the firm, from management to the most junior employee?
- Do your products/services need revamping or re-working?
- Can you get feedback from your customers/clients on what they think about your business?
- Are you suffering from cancelled contracts?
- Are your business decisions based on a firm foundation?
- Have you reviewed your business strategies? Are they adequate for the expected trading conditions throughout 2012?
- How did the business become successful in the first place? Can you replicate those strategies?
These are some of the items that should be considered as part of a business health check review of your business. If you would like a discussion with us, please contact us.
Effective Cashflow Management Is The Life Blood Of A Business
Cashflow management is going to be extremely important to all small/medium enterprises during 2012. The continuing problems in Europe, which resulted in the tightening up of lending practises by Australian banks and the actions of the Australian Taxation Office in trying to recover a large amount of tax, primarily GST owing on Business Activity Statements, highlights the necessity for small business to be very diligent in the management of cashflow.
The management of debtors commences well before the first credit sale is made. Businesses should implement an effective debtors' system which includes a written system covering matters such as:-
- credit application form to be completed by the prospective customer before any sales are made;
- internal procedure for checking the credit application, contacting the referees and then making a decision as to whether a debtor's account is to be opened;
- credit limit and the terms of the payment;
- a "welcome to a new customer" letter confirming the decision to approve a debtor's account, advising of the credit limit, terms of payment and any other requirements;
- notification to the sales team and office staff of the new customer details including any additional information that the client requires to be submitted with the tax invoice;
- periodic checking with the client to make sure all information has been supplied as required, so as to speed up the payment process;
- a system to require Directors of private companies to submit Directors' Guarantees;
- an internal procedure to ensure that Directors' Guarantees are appropriately filed;
- an internal procedure on the registration requirements under the Personal Property Registration Act;
- preparation of debtors' aged analysis promptly at the end of the month;
- follow up of outstanding debtors;
- calculation of debtors' days outstanding;
- preparation of a list of debtors to be followed up.
- Does your business have to supply stock?
- Has an appropriate system been introduced to safeguard all aspect of stock from:
- the time the order has been placed?
- checking the goods when they arrive?
- checking the tax invoice?
- Is the storage of stock adequate to safeguard it from theft, pilferage and deterioration?
- Is stock being regularly "turned" so that the older stock is sold first?
- Is the stock "turn" being calculated, on a regular basis, both on an overall basis and for an individual or section of stock?
Work in Progress:
- Is there a monthly review to ensure that progress claims are being raised promptly?
- Is there a review at the end of each month, to ensure that, if a job is completed, it is finalised and invoiced so it can be removed from the work in progress system to ensure that any profit/loss on that job is calculated and reviewed by management?
- Does the business calculate creditors' days outstanding?
- Is a check made to ensure that the business is trading with creditors as negotiated?
- Are payments being made too early? For example, if management has negotiated payment terms of 40 days with major suppliers, are payments being made at an earlier date, say 15 days, because the bookkeeper wants to pay bills earlier? This defeats the purpose of negotiating a delayed payment arrangement.
- Is the business trading well beyond the negotiated terms with creditors?
- What would happen if major supplier creditors demanded that their accounts were brought back into the stipulated trading terms within the next month? Would the business be able to find the money to reduce the amount owed to the supplier?
- Is the business operating within the negotiated bank overdraft limits?
- Is the business paying loan repayments as negotiated with the bank?
- Is the business abiding by any covenants included in the bank loan agreement?
- Is the business able to pay all debts owing to the Australian Taxation Office as they fall due?
This is a summary of some of matters that can affect cashflow management. If you would like to have a discussion with us relevant to a review of the cashflow management systems in your business, please contact us.
Thinking of Purchase a New Vehicle?
If you are a small business (turnover less than $2m) and contemplating the purchase of a new vehicle prior to 1 July 2012 you may wish to reconsider. Tax law changes effective 1 July 2012 will allow the small businesses to claim an immediate write off of $5,000 for motor vehicles acquired. The remainder of the vehicle value will be pooled, along with other small business assets, which can be depreciated at 15 per cent in the first year and then 30 per cent thereafter. Another change effective 1 July 2012 is that small businesses will receive an immediate write off for most assets costing up to $6,500.
Research And Development
If you haven't already registered for research and development expenditure, incurred by your company for the year ended 30th June 2011, you have until the 30th April 2012 to do so. Please contact us if you need any assistance.
Fringe Benefits Tax
The fringe benefits tax year ends on the 31st March 2012. On that date you should record the odometer reading for all motor vehicles and assemble your information relevant to the preparation of your fringe benefit tax return. If you wish to have discussions with us on any aspect of the preparation of your records for fringe benefit tax purposes, please do not hesitate to contact us.
Government Grants for SMEs
Commercialisation Australia has grant funds available to assist companies with turnovers under $10 million, who have developed a new product or service, who wish to bring it to market and require assistance to do so.
Commercialisation Australia has funding available for the development of:-
- business plans;
- market research;
- development of a marketing plan;
- development of an export strategy;
- commissioning an intellectual property landscape report;
- developing intellectual property strategy;
- developing intellectual property licence agreements;
- developing budgets and cashflow forecasts;
- business valuation; and
- assistance in capital raising.
Funding is up $50,000, on an 80% grant basis, meaning professional services costing up to $64,000 can be undertaken, with the small business only having to contribute $14,000. If you are interested in obtaining additional information on the operation of the Commercialisation Australia Skills and Knowledge – Specialist Advice and Services Programme, please contact us.