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Small Business Asset Write-Off Changes – Get in Quick!

Posted on December 12, 2018

During the recent Federal Election campaign, the Coalition announced that if elected it would make the small business asset write-off rules less generous as follows:

P $6,500 Instant Asset Write-Off – will be reduced to its old rate of $1,000
P $5,000 Vehicle Write-Off which allows small business to claim a bonus $5,000 write-off in the year a vehicle is purchased, will be abolished altogether

This week the Government announced that the implementation date for these changes is 1 January 2014.

Small businesses currently qualifying for these concessions are generally entities with a turnover of less than $2m.

So, if you are contemplating low cost equipment or vehicle purchases, and your cash flow allows, you have until 31 December 2013 to buy the assets you need and use them or install them ready for use. Call us if you have any questions!

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Is Your Financial Planner Licensed?

Posted on December 12, 2018

We recently had a meeting with someone who has lost all of their retirement savings. Over the last few months the financial planner (a family friend) had invested all the funds in high risk leveraged derivatives and currency trades with catastrophic results. We have made enquiries on behalf of this person and established that the financial planner was not licenced nor was he an authorised representative of a licence holder. As a result this person has no claim against compensation schemes nor is the advisor insured to cover client claims. The only redress for our client is a civil claim against an advisor who apparently has no assets.

The big lesson for everybody – make sure that your financial advisor is appropriately licenced. If you require assistance you are welcome to contact us.

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Why Do Businesses Fail?

Posted on December 12, 2018

ASIC has just released interesting statistics on business failure over the 12 months to June 2013. Whether you are owner of a business, employed by a business or an investor you will be interested in this survey.
The top three causes of failure of businesses were:

P Poor strategic management of the business – 42%

P Inadequate Cash Flow or High Cash Use – 41%

P Trading Losses – 32%

82% of businesses that failed employed less than 20 people while 85% had less than $100,000 in assets. Of the businesses that failed 65% had a deficiency of less than $500,000

24% of the businesses that failed were in construction while another 10% were in retail.

We all hear and read in the media stories of the big failures. These statistics indicate that there is a lot of possibly unnecessary pain and failure in all levels of business (as well as lots of success stories).

The message from these numbers – no matter the size of the business it is critical to have a well-managed strategic plan for the business and to plan and manage cash flow and the profitability of the business.

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The Best of Times

Posted on December 12, 2018

“It was the best of times, it was the worst of times…it was the spring of hope, it was the winter of despair…”

The opening lines from Charles Dickens’ A Tale of Two Cities are, an appropriate descriptor for what’s been unfolding in businesses over the past few years.

Having experienced this same “two speed” economy with our clients in many types and sizes of business, what’s been fascinating is seeing how different people respond to what is around them. Our beliefs dictate our behaviours, which directly – and often unconsciously – dictate the choices we make. So, with apologies to Mr. Dickens, here is a live and actual ‘tale of two companies’ experiencing the best and worst of times…

2013.09 - Neswletter - half treeMeet Andrew and Steve.  Both run their own businesses. They are located at opposite ends of town.  Both companies manufacture similar products, service similar markets and use the same manufacturing process (both factories have pretty much the same gear). Turnover for both businesses has historically been similar.

Of late, Steve’s business is experiencing an upturn while Andrew’s is spiralling down.

Andrew believes the financial issues he is faced with are a result of a downturn in the economy and the blame rests with the government.  He is seriously considering “off-shoring” manufacturing to a less ‘compliance orientated’ country that can support cheap labour.

He has taken his focus off the core business and has a scatter-gun approach to new ideas and products.  He has incredibly great ideas but they never get to commercialisation stage. There are literally millions of dollars’ worth of ideas and opportunity lying around the factory floor.  He’s also decided to reign in his spending on the core business while he waits for things to improve.

With the ‘government,’ ‘economy’ and competition ruling his beliefs around his business, there is lots of drama and little energy left to invest on what matters most- getting his core assets working for him.  And like the character in Dr Seuss’ Oh The Places You’ll Go, he sits in “the Waiting Place” – a “most useless place,” waiting for something to happen. Andrew literally lives in the ‘worst of times.’2013.09 - Neswletter - sign

Across town, Steve is experiencing the ‘best of times.’  He has remained focused on his clients, service and core assets.  His belief – that investing in the future by leveraging the skills and knowledge held in the business – is paying off. Yes, the economy is what it is, and other environmental factors have an influence, but Steve stays focused on his strategy, and on how he invests his time, energy and money.

He has identified 1-2 product extensions that can take him into new markets across Australia.  He has attracted JV partners who are keen to partner in his growth, and who can add value to his new services. Steve is leveraging his skills, knowledge and relationships to build a robust business across the country.  He isn’t waiting for anyone or anything!

The differences between both owners is clear.  Andrew is unfocused and reacts to whatever goes on; choosing to blame others and abrogate his responsibility in order to delay and avoid the tough choices he needs to make.  Steve chooses to hear the ‘noise’ for what it is, preferring instead to focus on his plan and what really matters. He fundamentally understands that whatever choice he makes “starts with me.” He believes in himself and his team.  He is constantly investing and reinvesting in his business, his staff and his knowledge. With thanks to AtusQ (executive leadership and coaching company).

To see more from our September Newsletter click here

 

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The Top 5 Issues Holding Back Your Business

Posted on December 12, 2018

Overcoming the biggest problems in business often comes down to the simple things. Here are a few simple things you can do to capitalise on your opportunities and reduce your risks in 2013/2014.

“I didn’t get time to…” No more excuses

Most people simply don’t set aside the time to do the forward planning they know they need to do. Here’s a simple test: write down your goals for the business. Now ask yourself if you are doing somethin

2013.08 - Newsletter - Goal SMART

 Set a realistic budget

Financially mapping your business reduces your risk and removes some of the surprises that can occur. Your budget needs to be realistic – not just a percentage increase  on last year. Start with an operating budget and assess each line critically. Map your revenue to see where, how and when the money is coming in to create a reliable  estimate of your income for the coming year. Once you have your revenue expectations in place, look at what is required to generate that income. For example, what  advertising, marketing and resources will be required?

Once you are comfortable with your revenue, work up your expenditure budget. Be tough on costs. Don’t forget to allow for growth and the increases that are likely to flow  through.

Once your budget is complete and you have a good idea of your likely profit margins, do a couple of alternative estimates for your key revenue drivers so you understand  the impact of changes to your assumptions. Once you have all this in place, track and measure it throughout the year. Where possible, your management team should be a  part of this process and take responsibility for achieving the budget numbers they give you. When people don’t take the steps that they knew were required to achieve the  budget the gaps become obvious fairly quickly. Having a budget in place that you need to report on regularly makes you focus on what really needs to be done.

Map your cash

Even some very large businesses have failed because they ran out of cash. Understanding your cash flow needs is vital particularly for high growth business.

2013.08 - Newsletter - cash in bindUnderstanding your cash position is about understanding the timing differences: How long will it take for your customers to pay you? How much stock will you need to hold? And, what are the payment terms required by your suppliers? With your cash flow, don’t forget to allow for things like tax payments, loan repayments, dividends and any capital purchases that are planned. These can be ‘big ticket’ items and if you don’t allow for them then you will get caught out.

As part of your cash flow forecast identify your capital expenditure requirements. Don’t deal with these on a one-off basis as they arise, plan them in advance.

Expect the unexpected

2013.08 - Newsletter - Expect unexpectedGrowing to death is often the result of unplanned growth opportunities. It’s ironic that seizing a major sales contract or big new client can be your business’s ruin but its more common than you think. Many business operators are very good at what they do. Most have an excellent knowledge of the business they conduct and understand their products and services. Most also have an in depth knowledge of sales performance and revenue. Few however, have a high level of financial management expertise, so when a big new opportunity presents, critical financial questions are not part of the vocabulary. As a result, there can be a sudden and unintended impact on their financial position. A rush of sales might be a great thing but it is not always counterbalanced by a rush of income and profit. Free cash and liquidity are the victims.

For businesses without strong financial management and control, there is simply no way of understanding what impact the opportunity will have until they have experienced it. With no background history to rely on, the warning signs of impending financial crisis don’t appear.

Take all the tax advantages you can

For small business in particular there are a range of concessions and funding you can access. Many businesses simply don’t realise the opportunities available to them.

2013.08 - Newsletter - tree in coinsA simple example is trading stock valuations. Your trading stock is an asset that is recorded on your balance sheet. In most cases it should be tax neutral to you. The cost of purchasing stock is expensed in your profit and loss account and offset by the value of the stock asset, until you sell it. So, while the amount of stock you are carrying will impact on your cash position, because you have your funds tied up in it, there is no direct impact on your profits or taxable income until you sell that stock. However, if at June 30 some of your stock is worth less than its cost price, you have the option to value it at the lower figure and take the tax write off now, rather than wait until the stock is sold. This reduction in your stock value will produce a tax saving for you.

For tax purposes, there are a number of ways of valuing stock. Once you have done your stocktake (assuming you need to do one), you can choose what method to apply depending on the stock and your circumstances. The different ways of valuing stock can produce different results. Most businesses chose to value trading stock at cost – but you have the option of valuing your stock at the lower of cost, market or replacement value.2013.08 - Newsletter - blue up

For example, if you have stock that is about to become obsolete valuing it at cost price for tax purposes is not going to help you. In this situation you would be better off to value the stock at market value, particularly if it is a large quantity. Take the example of vitamins with a use by date that only has a month or two left on it. Leading up to and once the vitamins reach their use by date they are unsaleable. In this case, you would estimate how much of the stock you are likely to sell prior to the use by date and at what price.
Using previous sales as a guide, if you only expect to sell 15% of the stock prior to the use by date, you would use the market value of this 15%. Other than when you sell your stock, your tax return gives you a once a year opportunity to adjust your stock values and realise any losses.

Another classic way small businesses disadvantage themselves is not taking the Government concessions available to them. The R&D concessions and Export Market Development Grants are a classic case.

In the case of R&D concessions, if you develop new technologies or products, you might be eligible for a 45% refundable tax offset (equivalent to a 150% deduction). The Export Market Development Grant reimburses up to 50% of eligible export promotion expenses above $10,000 provided that the total expenses are at least $20,000 for existing and budding exporters. While it takes time to manage these grants and concessions, the outcome can be very rewarding.

To see more from our August 2013 Newsletter click here

 

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Insights
Hall Consulting Group