Or call: 131 546
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Every year, we remind clients that February is traditionally the ‘cash flow crisis’ month. This February, depending on your industry, it could be even worse.
Personal debt is at record highs, the cost of living has gone up and another interest rate rise is coming. On top of this, February is BAS month for all quarterly reporting entities. While most businesses appreciate the extra time to complete their December accounts and pay their quarterly BAS, it coincides with what is often a poor cash flow month for business, leaving many struggling to pay.
The February cash squeeze will affect almost every business. Those with reasonable levels of liquidity and cash reserves will manage it without too much pressure; but these businesses represent no more than 20 percent of the SME population. For the rest, the impact of the squeeze will range from going through a period of cash distress and in the worst cases, liquidation.
All of this means that your debtors are picking and choosing who they are going to pay. Managing this cash crunch should be a three part strategy.
1. Planning
Have a look at your short term cash flow commitments. By now you should know how much your BAS commitment is and what other major payments will be due before month end. You also need to complete a realistic assessment of what funds you expect to collect during the month. With this information you can calculate how close to the line you will be.
2. Collect your debtors as soon as possible
As the month progresses collections will become tougher as business conserves cash to meet the end of month tax commitment. For businesses under cash flow pressure, they are more likely to pay the creditors who are chasing them than the ones who are silent.
The first step in debtor management is to have a documented credit policy. The credit policy should include trading terms and a follow up procedure when payment has not been received within agreed trading terms. A simple rule is to have some form of follow up every 7 days. If your trading terms are 14 days from the end of the month then the follow up procedure starts at 21 days after the end of the month.
3. Manage your expenditure
Don’t over commit for the month, manage your stock levels and only use working capital for larger capital expenditure items if you are certain that you can manage all of your working capital demands.
Managing cash flow problems is primarily about knowing the rules and ensuring that you have discipline within your business to stay within these rules.
If we can assist you with your cashflow planning, or if you are experiencing difficulty, contact us today.
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Shareholder Loan Accounts (companies only)
If you have a debit loan account this can be deemed an unfranked dividend in the hands of the shareholder. A debit loan account can be caused where the company makes payments on behalf of the shareholder or advances funds to them.
Where an unfranked dividend occurs, the dividend is declared as income on the shareholder's personal tax return and taxed at their marginal tax rate (no imputation credit is available). The company's franking account balance is also reduced.
If you have an outstanding debit loan with your company, you need to decide how you will manage this. You may need to have a loan agreement put in place. If you already have an existing loan agreement then make sure that you make the minimum loan repayments before June 30. The rules surrounding shareholder loan accounts are complex and if this situation applies to your company, it is important to talk to us as soon as possible to manage your company's requirements.
PAYG Payment summaries due
Don't forget to provide all of your staff with their PAYG Payment Summary on or before 14 July 2007. This includes any staff that left your employment during the 2006/07 financial year. Your annual PAYG Payment Summary Statement for the year ending 30 June 2007 needs to be lodged with the ATO on or before 14 August 2007. However, if we prepare your Payment Summary for you and you only employ family members in your business (closely held employees) you may be eligible for an extension.
Where you have provided Fringe Benefits to your employees in excess of $1,000, you need to report the FBT grossed up amount on their PAYG Payment Summary. This is referred to as a `Reportable Fringe Benefit' (RFB) amount and you'll notice that a label has been included on the PAYG Payment Summary for this purpose.
Where an employee has a RFB amount then that amount must be reported in their personal income tax return for the year ended 30 June 2007.
7 last minute ways to minimise your tax
Write off bad debts.
To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors' ledger by 30 June. If you don't maintain a debtors ledger a directors minute confirming the write off is a good idea.
Trading Stock.
Write off any stock that is damaged or obsolete. Complete a stock take and remember that stock can be valued at the lower of cost, replacement or net realisable value. You can use different methods for different stock items.
Review your asset register and scrap any obsolete plant.
Check to see if obsolete plant and equipment is sitting on your depreciation schedule year in and year out. Rather than a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June.
Repairs, Consumables (office stationery etc), Trade Gifts or Donations.
To claim a deduction for the 2006/07 financial year consider paying for any required repairs, replenishing consumable supplies, trade gifts or donations before 30 June.
Pay June quarter employee super contributions if you want to claim a tax deduction in the current year.
Directors' fees and bonuses.
Declare them before June 30 and providing the company is absolutely committed to them, you are entitled to the deduction even if they have not been paid. Again a director's minute is a good idea.
For Simplified Tax System taxpayers:
Pay for any depreciable assets, including software, costing less than $1,100 (GST incl) before 30 June and claim an immediate tax deduction. If you're not registered for GST, the limit is $1,000.
For all other assets, STS taxpayers are entitled to '6 months of depreciation' in year 1 regardless of when the item was purchased. It's tax effective to make your purchase prior to 30 June, to ensure the first '6 months of depreciation' commences in the year ending 30 June 2007.
Prepay any subscriptions, insurances, rent or lease payments.
An immediate deduction is available for a prepayment if the period to which it relates does NOT exceed 12 months and ends no later than the last day of the year (30 June 2008) after the year (30 June 2007) the payment of the expense was made. There is no dollar limit on the deductions available for prepayments.
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More changes to individual tax rates
As announced in the recent Federal Budget, new individual tax rates and thresholds apply from 1 July 2007.
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$0 - $6,000 (0% tax)
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$6,001 - $30,000 (15% tax)
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$30,001 - $75,000 (30% tax)
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$75,001 - $150,000 (40% tax)
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$150,001 + (45% tax)
If you use a payroll software package to calculate the amount to withhold from salary and wages, please ensure your tax rates are updated to reflect the changes.
With the changes to the income tax thresholds, it's worth reviewing salary package arrangements to see if they are still worth the administrative effort.
GST & PAYG changes
As you know, to claim an input tax credit you need to have a valid tax invoice for purchases over $50. From 1 July 2007, this threshold amount increases to $75 (not including GST).
On the flip side of this is the need for businesses to withhold tax when a supplier does not provide a valid ABN. The threshold change also applies to the 'no-ABN withholding' arrangements. So, unless the amount is $75 and above, you will not need to withhold tax from a payment to a supplier where an ABN has not been provided.
Excise obligations eased for SMEs
From 2008, small businesses with excise obligations will be able to settle these on a monthly, rather than weekly, basis.
Superannuation
Under the new superannuation system, employers now have to pass the employee's tax file number (TFN) to the employee's nominated superannuation fund within 14 days of the employee quoting it or before the next contribution is made.
With the new contribution limit of $50,000 per person per annum for deductible contributions ($100,000 per annum until 30 June 2012 for those aged 50 and over), it's a good time to review salary package arrangements to ensure that they do not breach this limit. If contributions are made above the $50,000 limit, the excess amount of the contribution is taxed at a further 31.5% in the employee's hands, on top of the 15% tax paid on entry to the fund. In addition, the excess counts towards their undeducted contribution limit.
From 1 July, employers can claim a full deduction for contributions made on behalf of their employees under the age of 75 (an employer's obligation to pay the superannuation guarantee ceases at age 70. If superannuation is paid, it is by agreement not by obligation).
The self employed can also claim a full deduction for the contributions they make to superannuation until age 75. This replaces the old rules where a full tax deduction applied to the first $5,000 contributed and 75% thereafter.
Be aware however that if you are a contractor, you might not be able to access a tax deduction for your superannuation contributions. Under the superannuation guarantee laws, if you are paid for your personal labour or skills, perform the work personally (not delegated), and you are not paid to achieve a result (for example, the contract is based on your time), you are considered to be an employee not a business. As a result, any contributions you make are not deductible as the hirer should be making a superannuation guarantee contribution on your behalf.
From 1 July, reasonable benefit limits (RBLs) will be abolished and you will no longer have to report payments made after 1 July 2007 for RBL purposes.
Some of the super terminology will also change with eligible termination payments now called employment termination payments.
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The Top 8 Reasons Why Staff Leave
Australia is facing a shortage of skilled labour. When the supply of staff dry up the focus often turns to retention. But the first step is to understand why people you want to stay, choose to move on.
Very few people will reveal the whole truth about why they leave an employer. Partly they don’t want their previous employer to think badly of them, they don’t want to hurt anyone’s feelings, and for others, it’s just not worth getting into it. However, there is almost always a catalyst for change. It might not always be the employer but it is very rare that it is “just time”.
1. Change in leadership
Leadership vacuum or concern about the impact of the change.
2. Work not challenging
This is the classic reason for leaving that is behind the “its just time” comment. The employee feels as if the company has nothing left to offer.
3. Conflict with a supervisor
Your company can have the best retention policies and strategies in place but a conflict between Manager and subordinate is immediate and damaging.
4. Change in company dynamics
Each company is generally made up of smaller sub groups. These might be based on age, gender, professional status or cultural identity. The loss of a popular team member from one of these groups will be more deeply felt by their subgroup.
5. Unfavourable change in responsibilities
Changes in team structures, reallocation of resources or taking on new assignments that are not within the skills set or comfort level of the employee.
6. Life work balance issues
Retention is about mutual respect for priorities. The employer respecting their employees personal responsibilities and employees recognising that they have corporate responsibilities. Both need to be fulfilled.
7. Poor recruitment
Professional or cultural misfits. Ever hired Mr Right Now rather than Mr Right?
8. Lack of recognition for perceived value
Overlooked for or opportunities held out but not delivered.
Sometimes, it’s not all bad
We’ve all had them; that employee who is the cultural and professional misfit. Decisive action when there is a poor fit can improve team morale.
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An Interview With John Birse
Introduction
John Birse is CEO and National Divisional Franchisor of the Jim’s Bookkeeping Group, and a Director of the Institute of Certified Bookkeepers. John has been an accounting teacher in secondary schools, project manager of school accounting software, computer services marketer, and owner of a commercial training facility.
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A popular image of a bookkeeper is that of a middle-aged back room, or work-from-home numbers cruncher. Fact or fiction?
Fiction – with the introduction of the GST in 2000 all small business owners came to the realisation that they had to get their financial records in some order to lodge their BAS. This elevated many to the roll of bookkeeper even though they may have wished to work more on their business than in it. Over the last few years we have seen the growth of professional bookkeepers who recognise they can add considerable value to a small business by efficiently organising and processing their financial information not just for tax compliance but more importantly for performance information that can be used by the business owners to better manage their business. This new breed of professional bookkeepers are exactly who I am targeting as franchisees wanting to present themselves as dynamic, self confident contributors able to market themselves to small business clients. Although a recent ATO survey1 showed a majority of bookkeepers to be over 40 and female our bookkeepers are fairly well divided between male and female with the average age around 45. About half the work is done at the client’s site and half done at our home office. It is a fact that bookkeepers have to be good with numbers – you can get away with the odd spelling mistake but you cannot transpose numbers without causing great damage.
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What changes have you seen in the bookkeeping marketplace over the past few years that concern and excite you?
The Income Tax Assessment Act (ITAA) contains a Section 251L that prohibits bookkeepers from charging for the preparation of a BAS for a client. This issue has been hotly debated by representatives of the bookkeeping industry via the Bookkeeping Advisory Group set-up by the ATO. Unfortunately this has meant a focus on the GST, which is the tail wagging the dog. A more fundamental issue is assisting bookkeepers in helping small business owners better manage the performance of their business. To this end some of bookkeeping associations have focused on assisting bookkeepers comply with Section 251L, but this inevitably will mean only a small percentage able to undertake Certificate 4 studies and not address the majority of bookkeepers who just want to show they are competent in the areas of their bookkeeping operations. The Institute of Certified Bookkeepers (ICB) has taken this broader view being part of an international bookkeeping support structure with over 140,000 members. The ICB caters for three levels of bookkeeping practice - Level I covers record keeping and processing; Level II takes in GST, debtors/creditors and banking; and Level III covers a wide range of more advanced bookkeeping requirements. It may take a few years to settle down but in the end the ATO, accountants and small business owners will recognise the important role played by properly trained bookkeepers not just getting the GST right.
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In late 2005 the ATO highlighted the need for a greater degree of professionalism in the bookkeeping industry. Did that surprise you?
I think that bookkeepers have been a convenient scape goat for the many complex issues surrounding the way small business owners have tried to deal with the GST. The fact that 93.5% of businesses in Australia2 have less than 20 employees (and therefore probably no internal accountant) has meant that accountants have been swamped by compliance issues as well as dealing with many shoe boxes of disorganised financial records. The bookkeeping industry has been largely unorganised and not adequately represented on various Government Committees compared to our well organised accountant colleagues. As mentioned earlier a number of bookkeeping associations such as the ICB have now appeared in Australia and I think bookkeepers will find that proper industry representation will occur and create a recognised standard that was only available previously through software providers. It is also a fact that every business needs a bookkeeper and often this job has been thrust on wives/husbands, girlfriends/boyfriends or mothers/fathers. Professional bookkeepers are now showing that the proper management of a businesses accounting system requires an expertise and discipline and that it is not as easy as loading software onto a computer. Once small business owners see the strategic advantage associated with using a professional bookkeeper then the status and importance of bookkeeping will be understood and businesses will prefer to outsource bookkeeping rather than try to do it themselves.
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How is Jim’s Bookkeeping rising to the challenge?
I believe Franchising provides an excellent vehicle to provide the necessary support and training through proven operation and marketing methods to help bookkeepers reach a level of business success so they can invest in their future. Our steady growth should see us pass 100 active franchisees sometime in 2007. Our bookkeepers continue to make a big difference to their client’s business operations and besides offering software competence I hope to assist small business owners identify their business performance through a better understanding of their financial reports. Being a national network, Jim's Bookkeeping can also offer a standardised service to other Franchise groups and nation wide businesses which provide a benchmark of performance data to assist management.
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Everyone these days, talks about the superiority of their “brand”. What makes a great brand and how do you go about building it?
I’m just reading the book by Stephen Covey – “The speed of trust” and the importance that trust can have to any relationship cannot be ignored. I see a brand or logo as the graphical representation of the business and the trust that consumers attach to that brand will be reflected in their buying habits and how they rate that brand to other competitors. It takes considerable time to build a brand (some say up to 10 years) so having a brand such as Jim’s that can be identified with one of Australia’s small business success stories is a powerful asset. Jim’s has come to represent customer service through Jim Penman’s ethos and is reinforced by over 2,500 franchisees displaying the brand on their trailers, vehicles, stationery and uniforms. You build a brand through the collective experiences of countless consumers of the product or service that eventually brings an awareness and association of that brand with a particular product or service. You also need to protect the brand’s integrity by maintaining standards through style guides and training and acting on complaints. Media can promote a brand but customer experience will confirm a brand’s promise.
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Why is franchising a better alternative than operating as an independent?
Research done by Edith Cowan University in Western Australia shows that franchisees are 2.5 times less likely to fail than independent small businesses. This is because of the training and selection process that accompanies the purchase of a franchise as well as the on-going support and review of the franchisees business. Michael Gerber in his E Myth also highlights the problem with people following their area of technical competence by starting their own business but find themselves lacking the entrepreneurial and administration skills essential to running a business. A franchise brings with it the systems and support based on the experience of a successful operator in that industry. There are however examples where franchisees have found the systems and support lacking and that is why in Australia we have regulations such as the Franchise Code of Conduct3 and the ACCC acting as a watchdog over franchise developments. As a Jim’s Bookkeeper a franchisee gains the benefit of the Jim’s Brand and the buying power that comes with being a part of one of Australia’s largest Franchises. As the Divisional Franchisor I have also established strategic relationships with software companies, insurance underwriters, uniform suppliers, marketers and other industry representatives that have translated into deals that would not have been available to an independent bookkeeper. It can also be very lonely running an independent bookkeeping business, and at the end of the day you cannot sell your business as it revolves around you running it. As a franchisee you are part of a regional group that meets regularly as well as having State and National Conferences and Jim’s Bookkeeping franchises have experienced capital growth of 400% since the first one was sold in 2000.
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We know how tough is it to find people with the right blend of technical skills and business nous, and who’ll fit well with our firm’s culture. What makes a great franchisee great?
The big challenge is to realise you have bought a business and not a job. The franchise model provides you with all the necessary resources and advice you will need but you still have to find and keep your clients. Presenting the brand in the best possible way is achieved by being passionate and competent in the service provided but making sure you listen to the clients needs and exceed their expectations. Franchisees need to work closely with their Franchisor but have the desire to learn the lessons and put these into practice to achieve your goals. A franchisee must recognise the need for on-going professional development and the opportunity to build their business to achieve capital gains from splits and resales of territories.
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Marketing seems to be a real struggle for most professional services workers, including bookkeepers. How do you get technically minded people who aren’t trained for it and who are by nature timid about selling themselves, to become effective self-promoters?
There are clear stages in the growth of a bookkeeping business, and while the initial marketing will be on getting new clients ultimately most new clients will come from referrals from happy clients. In Jim’s Bookkeeping we have refined our initial marketing to pencil drops and business roadworthys. By using a buddy system (often with the Franchisor accompanying the Franchisee) a level of confidence in delivering an audio logo and learning to listen to the client’s needs is built. We have also been fortunate in having Peter Linton from Meridian design a marketing manual that takes a new franchisee through the fundamentals of “selling” themselves to small business owners and accountants in their territory.
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There are a hell of a lot of hungry bookkeepers and accountants out there vying for the same pie. Why do you think standing out from the crowd and getting regular work is such a hard slog for some?
Many bookkeepers have not had the opportunity to reflect on the collective experiences I have gained over the last 30 years working in different aspects of human activity and culminating in a solution that combines education, technology and systems. When this is combined with the action research from our successes and failures you have a knowledge base for success. For example we know the trap of quoting an hourly rate as opposed to a fee for service completed. We know that clients are prepared to pay an extra 15% for the comfort that comes from a professional bookkeeper with a known brand. We know that a profit and loss cannot reveal cash flow and that a bank statement cannot reveal profitability. We also know that competing on price is futile and that people will pay a higher rate if they can see that it contributes to a higher return in their business performance. We now have clients, accountants and strategic partners seeking out Jim’s Bookkeepers because they have experienced the benefits of our service and seen the reliability of its delivery.
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(Apart from joining a franchise family) what is the best piece of advice you could offer anyone trying to build a successful bookkeeping business?
Small Business owners will invite you into their business and pay for your services if you are able to add value by saving them time or money. To do this you must have gained proficiency in bookkeeping and accounting theory and practice as well as knowing your way around a computer and the accounting software programs. You will also need a solid methodology to protect yourself from making errors and prevent others from blaming you for things that were not of your making. Become a member of the ICB to affirm your professionalism and stay informed about issues in the bookkeeping industry. Do your homework and be honest about your strengths and weaknesses before deciding whether employment, self employment or franchising is the best fit for you. Show initiative, take control of your life and become proactive rather than reactive.
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Looking into your crystal ball, how do you see the future of the profession?
I’m fairly upbeat about the potential of the bookkeeping industry. Technology has made it easier for us to process financial information and there is a great need to educate business owners about managing their business based on information about their businesses performance. Bookkeepers are in the perfect position to deliver these new services as traditional accountants have become focused on compliance and have priced themselves out of the area where than can provide on-going and personalised support at a price small business can afford. The challenge is for bookkeepers to become professionals who invest in on-going training belong to a bookkeeping association and present themselves in the right way. Gone are the days when bookkeepers could operate as a back-yard business without regard for the complexities associated with running a modern business. The time has come for bookkeepers to step up as the new professionals who can guide small business through the difficult journey of capturing, recording and analysing their financial transactions.
John Birse can be reached on… 0418 364 658 or johnb@jimsbookkeeping.com.au or call 131 JIM
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SMEs and the risk of fraud
According to Alan Green of Hayes Knight Accountants and Business Advisors approximately 35 per cent of small to medium sized enterprises (SMEs) will be victims of fraud. This may range from credit card fraud through to cyber crime. Green suggests the exact number may be understated because organisations are too embarrassed to admit it has happened to them, fearing suppliers and customers will look unfavourably upon them if it is known they were a victim of fraud.
While fraud is most prevalent in companies with more than 100 employees, the effects of fraud are often magnified within SMEs.
The average loss for smaller organisations often exceeds the losses of those considerably larger. Accordingly, the effects of fraud can be devastating to both staff morale and the company’s finances.
SMEs are often susceptible to fraud because there is less separation of roles – employees are required to multi-task due to the sheer lack of numbers. It can also be risky making the accounting function the responsibility of just one person.
Online fraud
Many small business operators leave themselves wide open to online fraud simply because they have limited IT skills. Allan Bell of MacAfee, the antivirus software company, says many small businesses falsely assume they are too small to be a target.
‘Hackers look for vulnerable businesses and people, they don't care about size, they just care that you are vulnerable’, says Mr Bell.
A recent Government study showed 32 per cent of businesses operating online have been victims of fraud. Banks lose $2 million a month to online fraud.
Monetary loss is not the only worry for SMEs with an online presence. ‘One of the nightmares for small business is losing their customer data -- if their customers' credit card details or other personal details were to appear online, that could mean the end for their business’, according to Mr Bell.
Avoid being a victim
Fraud may seem daunting for a small enterprise. Most business owners truly believe they know all their employees quite well. For the most part this is true, however according to David Van Homrigh, head of KPMG Forensic there are measures business owners can take to improve their chances and avoid being a victim of fraud:
- Implement internal controls such as effective management oversight, regular bank reconciliations, separation of responsibility for cash and debtors from the accounting function, and periodic stock and cash counts.
- Don't ignore red flags such as employees who don't take holidays or delegate work; stocktake discrepancies; non-banking of takings; unexplained falling cash flows; accounts that don't reconcile; and employees who appear to be living beyond their means.
- Be vigilant and watch for ‘red flags’.
- Instigate pre-employment screening procedures – check references and look for odd ‘gaps’ in an employee’s employment history.
- Ensure, as far as possible, that accounting work is shared among individuals and is not the sole responsibility of one person.
- Establish the ground rules for acceptable work behaviour and ensure that an appropriate ‘tone’ is set.
- Set clear guidelines on the personal use of assets such as computers.
- Ensure regular conciliation of accounts.
- Check amounts on invoices that are signed off.
- Limit staff access to petty cash.
To protect against online fraud:
- Install a brand name security product, which includes
anti-virus, anti-spyware and anti-spam protection, as well as a firewall.
- Keep computer systems patched and up to date with the latest updates.
- Restrict access to computer codes and passwords.
- Change passwords regularly.
By taking these steps outlined above business owners can better manage their risk of fraud.
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ATO matching activities
The Australian Taxation Office (ATO) utilises an Information matching system (IMS) as part of its compliance program. The ATO looks at a range of information including payroll information on quarterly business activity statements, pay as you go tax, business tax returns and eligible termination payments to identify taxpayers that fail to report income. This year the ATO’s audit activities are being increased, with the latest program concentrating on employer obligations.
Last year approximately 36 million records were matched raising additional revenue of $176 million from some 320,000 taxpayers who had failed to report income. The ATO expects to match 40 million records this year.
The ATO matches information from a variety of sources. For example in 2005 the ATO matched withholding amounts claimed by employees in their tax returns against withholding amounts reported in employers’ activity statements. This matching alone raised an additional $21 million in revenue.
In addition to using its own information holdings as part of the IMS, the ATO also sources information from external parties.
Legislation requires employers, financial institutions, private health funds, other businesses and government agencies to report details of income, tax withheld, and other information to the Tax Office. The information is then matched up and verified with details in the tax returns of individuals.
The data matching work does not stop at Australian borders. The ATO can match foreign sourced dividends and interest supplied as part of its international exchange of information agreements.
Ad hoc bulk data-matching exercises using external data are subject to strict privacy guidelines covering issues such as public notification and retention periods.
Data matching has proven an effective way to ensure people who profited from the recent property market boom correctly disclose any capital gains on the sale of investment properties. For example the ATO gathered data from land titles offices and state revenue agencies, to identify purchase and sales data.
In 2005 the ATO matched data from more than 24,000 income tax returns with external real estate information. Using that information it conducted over 3,300 audits and raised an extra $30 million where people had not reported a capital gain.
According to the ATO the majority of omitted income found in tax returns relate to investment income, salary and wages (including allowances) and taxable welfare benefits.
Data matching is an efficient and effective way to help ensure the integrity of the Government’s revenue system. The ATO continues to explore ways to improve its data matching capability.
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