Things Are Choppy!
The second quarter of the 2012/13 financial year has begun with the Reserve Bank lowering the official cash rate by 0.25% to 3.25% in response to a slowing of economic activity in some parts of Australia.
The government obviously has some concerns with the slowing down of economic activity because it has brought forward its mid-year economic review and is reported to have embarked on a serious review of a wide range of government programs in an attempt to reduce expenditure or defer expenditure to a later time. Some of the more relevant points of the mid-year economic review include:
- Reducing the Baby Bonus for second and subsequent children to $3,000 from $5,000.
- Bringing forward pay-as-you-go (PAYG) instalments for large businesses to monthly from a quarterly basis. It remains unclear however what criteria would qualify an entity as a large business.
- Increasing the threshold for lost super member accounts from $200 to $2,000 providing that the account balances of inactive accounts or uncontactable members below this threshold be transferred to the ATO where there has been a period of inactivity of 12 months (previously 5 years).
- Amending the law from 1 July 2012 to allow the current pension assets tax exemption to continue following the death of a pension recipient until the death benefit has been paid.
The mining industry is facing changing economic activity with decreased economic conditions in China, contributing to lower prices for many mineral products.
Some economists are forecasting a significant improvement in economic activity by mid 2013, which could lead to interest rates rising again. Other economists have a contrary view in that they're not anticipating improved business conditions in the next 12 months.
Debtors' days outstanding (as advised by Dunn & Bradstreet
) is approximately 54 days and the Australian Tax Office has stated that approximately $9B is owed by small businesses on Business Activity Statements. These figures confirm that many segments of businesses are experiencing difficult cash flow situations.
Banks are closely monitoring loan performance by their customers.
All of this highlights the necessity for business operators to closely monitor their business operations including:
- Cashflow management with close attention to debtors, stock, work in progress.
- Calculating regularly the KPIs (Key Performance Indicators) applicable to your business as compared to Budgets.
- Preparing regular financial accounts to monitor actual performance.
It's probably a good time to think about the effect that changing interest rates might have on your business.
It's a good time to consider risk management strategies and the variables affecting your business including:
- debtors' days outstanding
- interest rates – variable or fixed?
- business performance
- bank covenant requirements
Government Grants For SMEs
Export Market Development Grant
: If you are an exporter and have spent an excess of $20,000 on export market activities during 2011/12, then you are probably eligible to apply for an Export Market Development Grant. Eligible expenditure includes:
- overseas representation (limits apply);
- marketing consultant (limits apply);
- overseas marketing visits;
- communication costs to export clients or potential export clients;
- product samples sent overseas;
- trade fair registration fees;
- promotional materials; and
- cost of bringing overseas buyers to Australia (limits apply).
Businesses that have spent in excess of $20,000 on these types of activities, for export market development purposes, can lodge an application to claim 50% of that expenditure, up to a maximum of $150,000. Export market development expenditure incurred for promotions in New Zealand, North Korea and Iran are not included in the calculation of eligible expenditure. Export Market Development Grant applications for the year ended 30th June 2012 must be lodged by the 30th November 2012. There are no extensions granted beyond that date.
If you wish to discuss an Export Market Development Grant application further, please contact us at the earliest opportunity.
Research And Development
If you undertook research and development activities during the year ended 30th June 2012, and the expenditure exceeded $20,000 (irrespective of the number of projects) and you operated your business through a company, then you could be eligible to register for the Research & Development Tax Incentive. Eligible businesses (with annual turnover of under $20M) are entitled to a rebate of 45% of eligible research and development expenditure paid to you by the Australian Taxation Office after you've lodged your income tax return for the year ended 30th June 2012.
To be eligible for the Research & Development Tax Incentive, you have to register with AusIndustry by the 30th April 2013 or the date of lodgement of your company's income tax return, whichever is the earlier. If you have qualified for Research & Development Tax Incentive, it would probably be in your best interest to contact us at your earliest convenience for the preparation of your company's financial accounts, income tax return and the registration with AusIndustry.
Living Away From Home Allowances Taxation Treatment Changed
The original reforms were going to remove LAFHA from the FBT regime completely and bring LAFHA into the Income Tax Regime, but a backflip has happened on this change. The end result is that the current regime will continue but with significant changes, which are to "benefit people who are legitimately maintaining a home in Australia away from their actual home for an initial period". The two major differences in LAFHA from 1st October 2012 are:
- The employee must maintain a home in Australia for their own use at which they usually reside.
- The concessional treatment is limited to a period of 12 months for an employee at a particular work location.
This will result in huge losses to non-resident employees, temporary residents and "457 Visa" employees in that a portion of their employment package cannot be paid to them under the hugely favourable LAFHA concessions. This essentially means that only Australian residents, who maintain their own residence and provide a declaration of this fact to their employer, will still be eligible for LAFHA for a period of 12 months at a particular work location. These changes do not apply to Fly-In/Fly-Out and Drive-In/Drive-Out employees.
How Well Do You Know Your Competitors?
Knowing your competitors is very important in planning a strategy to successfully operate the business. There is a lot of information freely available in the 'business community' in relation to your competitors. If you have not already done so, why not prepare a list of competitors, together with a strengths and weaknesses analysis on them, as compared to your business. You could conduct competitor research by:
- closely analysing their website;
- visiting their business premises;
- maintaining a file on any advertising material you receive, newspaper articles, etc., that features comments on a competitor;
- ask your customers who they think your competitors are and ask them to give you comments on their experiences with those competitors.
From this type of research, you should be able to develop a profile on each of your competitors listing their strengths, weaknesses, types of products and the services they provide. This will help you to identify the areas in which you don't directly compete with competitors together with other aspects of your business that needs improvement if you're going to effectively compete with those competitors.
This is all part of the process of identifying your 'unique competitive advantage'. Why not maintain the competitor files on an ongoing basis and allocate a couple of hours of your 'quality time' every three months to review your current business strategies as they relate to competitor activity.
Managing Risk Can Help Avoid Financial Problems
- Establish Key Performance Indicators (KPIs) for your business and use them.
- Calculate key figures:
- sales per unit
- production per person
- sales per person
- gross profit %
- overhead expense %
- net profit %
- Benchmark your business against similar businesses.
- Arrange to obtain benchmarking data from:
- industry associations
- your bank
- benchmarking businesses
- Insurance policies on key people:
- death and disablement policies
- Buy/Sell Agreements with shareholders/partners.
- Understand the covenants that your bank has specified for your finance facility.
- Keep your bank manager informed.
If you would like us to assist you in analysing the risks in your business, please contact us.
Business Management Tips
- Focus on the activities in your business, which you can control.
- Know your figures.
- Prepare a business plan.
- Communicate your vision to your team.
- Make sure that regular 'tool box' meetings are held with your team.
- Do the basics well:
- return emails and phone calls
- arrive on time to meetings
- supply great service
- Establish your 'unique competitive advantage' and make sure your team members know it.
- Talk to your customers.
- Employ enthusiastic team members.
- Motivate and lead your team.
- Talk to suppliers – can you negotiate better terms or get them to contribute more than just product?
- Monitor your website – is it up-to-date?
- Develop and utilise the services of a team of experienced and enthusiastic experts as if you were a large business:
- is your accountant offering more than taxation advice?
- Maintain a customer and prospects' database and send them interesting information on your business' products and services, thus emphasising your 'unique competitive advantage'.
- Think and plan an 'exit strategy' as if you are going to sell the business tomorrow.