Will COVID and the Government incentives affect the tax I pay this year?

Will COVID and the Government incentives affect the tax I pay this year?

With the COVID lockdown hurting many businesses this year, we’re being asked this question quite a lot. But COIVD didn’t really start to bite until March / April and many clients had been having a good year up until then.

Then the various government incentives kicked in. However, different tax treatments apply to the different incentives.

So, to find out if you’ll be paying tax this year, we need to start by looking at this year’s trading results.

Then, from a tax perspective, there’s a few things to bear in mind around the various government incentives.

• Instant Asset Write Off. Have any assets been purchased to take advantage of the tax break? Check they have been written off properly in the Profit & Loss, not just sitting on the Balance Sheet.

• Luxury Car. Watch out if a new car has been purchased. If it was over the luxury car tax limit, only the amount up to the limit can be written off. Not the full amount.

• Jobkeeper payments. These payments are counted as income and will be taxable. Make sure they are included as income.

• Cashflow Boost. This is NOT income. Make sure this one is NOT included as income.

• State Government Grants. Check with each state government whether their grant is taxable. Given the data matching program the ATO undertakes, it will be important to show this correctly.

So, the starting point is to look at your Profit & Loss statement for the year to date. Then allow for the various tax incentives that may apply.

The good news is that if it looks like you are facing a tax bill, you still have time to take advantage of some tax planning opportunities.

Let me know if you need a hand

Peter

Do you buy products then add a flat fee to get your sale price?

Do you buy products then add a flat fee to get your sale price?

If so, you might be hurting your business. Consider this example.

Say you buy an item, like tyres for $55.00 each.
Then you simply add $70 on top.
Your sale price is now $125.00
This means your Gross Profit is $70 and your Margin is 56%

But say you buy a tyre for $200 and add your flat fee of $70 on top.
Your sale price is $270.
Your Gross Profit is still $70,
But your Margin has dropped through the floor and is now only 26%!

Your margin dropped so dramatically because your ‘mark-up’ (the amount you add on) is for a fixed amount, not a percentage of your sale price.

There may be times when this is a good idea. Such as:

• Convenience - fast and simple to work out

• Price pressure, or

• Maybe you just like it

But you’re hurting your business and likely not earning enough margin.

Take the time to work out your Margin on product costs as it can lead to some important insights into your business. It might allow you to revise your pricing, or highlight where you should be focusing your attention.

The 5 best things about the 30th June.

The 5 best things about the 30th June.

Even though it’s an arbitrary date to mark the end of the financial year, here are 5 excellent things about it.

1. The finish line. For most businesses, today marks the finish line, the end of the marathon for another year. Now, catch your breath, dust yourself off and get ready to do it all over again!

2. Day of Reckoning. The close of business today signals the proverbial ‘closing of the books’. It’s the chance to review your financial performance for the full financial year. To check if you made a profit or a loss. To see how you fared against your plans and budgets.

   Take a moment to reflect and see what could be improved, worked on or discarded.

3. Reset your plans for the coming year. Now things are settling down and many areas are reopening, this is a great time to review your plans and targets for the post COVID world.

4. No more “End of Financial Year” sales!

5. End of year celebrations. Most accountants only drink twice a year. Christmas and 30th June. So good luck trying to reach your accountant after 5.00 pm, because tonight’s the night!

And finally, remember to be nice to each other. The numbers only make up part of the story. Life is far more complex. So take a breath and smile, you made it through another year.  :-)

Let me know if you need a hand

Peter

Is doing a budget a waste of time?

Is doing a budget a waste of time?

A client once said to me, “Doing a stupid budget is a waste of time! How can I predict the future?!”

It’s a fair point and he’s correct. We can’t predict the future. And I’ve actually never seen a budget come true 100%.

So why even bother doing one? There are 3 main reasons:

1. It helps us plan what resources we need for a given level of sales revenue,

2. Many business costs are known in advance, so a budget lets us set a target to cover costs and shoot for a profit,

3. Having a target focuses our attention and gives us something to aim for.

But in uncertain times, there’s no doubt, a budget is tricky to put together.

So, we’ve found it’s best to prepare 3 scenario’s; Best Case, Worst Case and Most Likely.

Use last years figures as the starting point and work you way down the list of expenses.

Start with operating expenses first, because when you think about it, many of these are known in advance (such as rent, lease or finance payments, full time wages)

Then work on the variable costs. Those costs that change depending on your sales revenue.

If you have Cost of Goods Sold, hold this % the same as last year, at least for the first draft.

Contact us if you’d like the free PDF which covers these 3 scenario’s.

Click on the Contact Us button if you’d like a copy of the XL version, which you can customise to your own situation.

Let me know if you need a hand

Peter

Do you think you're insolvent?

Do you think you're insolvent?

The main test is being able to pay your bills. The law says you are insolvent if you can’t pay your debts, as and when they fall due. Trading while insolvent has significant penalties for directors.

But as part of their COVID rescue plan, the government provided temporary relief for directors from these penalties. This provided welcome relief for the short term, but has it just delayed the inevitable?

There are a number of indicators of insolvency, although any one on its own is not conclusive. But if you’re starting to tick off a number of them, then you should see someone.

1. Continuing trading losses

2. Poor liquidity ratio (below 1)

3. Overdue taxes and statutory obligations

4. Inability to borrow additional funds, no access to alternative finance

5. Being placed on ‘cash on delivery’ (COD) terms with suppliers

6. Creditors unpaid outside trading terms

7. Dishonoured payments

8. Payments to creditors of rounded sums, not reconcilable to specific invoices

9. Solicitors’ letters, summonses or judgements issued against the business

10. Inability to produce timely and accurate financial information to show the trading performance and financial position, and make reliable forecasts (per ASIC v Plymin (2003))

COVID-19 has placed enormous financial strain on many businesses. As the economy comes out of lockdown it is critical to stay on top of your financial position.

This means you need to review the following reports each month:

• Your Profit & Loss Statement

• A 13 week Cashflow Forecast

• Full Accounts Payables listing

These are unusual times for the economy. It will take careful and diligent management of your business to make it through.

Let me know if you need a hand navigating these troubling times.

Peter

Thinking of buying a laser clinic franchise?

Thinking of buying a laser clinic franchise?

Many skin care and beauty clinics were hit hard by the COVID 19 lockdowns across the country. Now, as restrictions are relaxed and clientele is returning, we are seeing increased enquiry for franchises in the laser treatment and beauty sector.

Who doesn’t want to stay looking good? The ‘repeat sale’ aspect of the beauty and laser industry is one of its top features. Once a client has had a good experience they become quite ‘sticky’ and loyal to a particular clinic. This strengthens the top line and adds to the value of the business.

But there are a number of factors to consider before you sign up:

• As the cost of equipment is quite high, we often see a joint venture model proposed. If this is the case, be clear on what proportions the JV will be.

• Check if there are management fees charged? If so, how much and what is included?

• What level are royalty fees and national marketing fund levies?

• Check what if any medical registrations are required

• What has the performance of other clinics been?

• Check the split of income from various treatments, to check for dependency on any one service

• What is the policy regarding ‘prepaid packs’ of services for client treatments

• What will the rent be and understand any rent reviews

• What marketing and promotional assistance is provided for the opening and launch?

• What local area marketing plans are recommended, based on proven track record?

• Is there a requirement to work in the business or does the model work for investors?

• What is the typical payback on the original investment (ROI?)

• Be sure you get a Pre purchase Review before you commit.

As you can see, there are quite a number of issues to deal with for a laser clinic. And the purchase price is usually quite significant, so consider this decision carefully.

Let me know if you need a hand

Peter

Gaining more sales revenue from existing clients

Your existing clients are where the gold is!

What offer can you make to your existing customers and clients to encourage (entice?) them to buy from you again?

You’ve already done the hard work. You’ve built a relationship, they’ve dealt with you before, you’ve established a level of trust. Invite them to deal with you again.

Do this in an organised way, not random and unprepared. Check your records:

• Who has bought from us in the last 12 months?

• What did they buy?

• What else COULD they buy?

• What else do we provide that could help them, or make them happier?

• What will our offer be to entice them?

This is more than upselling or cross selling, which typically happens at the moment of the sale.

This is about trawling through your customer and client list, and seeing who you can reinvigorate.

• Who haven’t you heard from in a while?

• Who used to be a great customer?

• If there was a falling out, can you fix it?

• What did you ‘used to do’ that was successful before?

Now more than ever it’s time to reach out to our client base. To work with them to help them through this. Whatever your market, whatever your product or service. People want to be seen, they want to be heard.

There’ll never be a better opportunity than now.

Let me know if you need a hand

Peter

#franchise #businesstips #salestips

Initial Set up of your back office systems

The first few weeks around the opening of a new business are exciting and often quite chaotic as the new owners get on top of what they have to do.

That’s why it’s so important to have strong systems in place to be sure the back of house (admin) is set up right from the start. The key areas we recommend include:

Pre Trading:
ATO Registrations, including:

• TFN, GST, BAS, PAYG and Single Touch Payroll

• Superannuation Default Fund
  

Business Systems setup, including:

• Xero / QBO file

• Chart of Accounts

• Establish Bank Feeds, Bank Rules if poss

• Set up of Hubdocs Data Capture Technology and internal Record Keeping systems

• Asset Register: Create Asset Register, record all asset purchases

Pre-opening set up of Accounting Systems
Establish supplier payment systems, including:

• Identify key suppliers, set up in Xero and Hubdoc

• Set up supplier and payments record keeping, accounts payable management, batch payments process.

Payroll compliance matters

Ensure employee payroll setup correctly

• Review Single Touch Payroll requirements

• Establish weekly payroll processes

• Establish Super payment practices, ensure comply with Superstream

• Register for Workers Compensation
  

Let us know if you’d like a hand setting these systems up

Cash boost.

Cash boost. “Now I’ve got the Cash Boost money, what do I do with it?” asked the client.

Whatever you do, don’t blow it..!

The intention behind the government assistance was to help business withstand the impact of the coronavirus and encourage an economic recovery into the future.

The government also introduced some decent tax incentives to help drive investment in assets.

So, think carefully about how you’re going to spend the Cash boost money. Don’t let it waste away. Or, as they say in the classics, “Don’t spend it on stupid stuff!”

And link it in with your tax planning at the same time. Consider:

• Refreshing your advertising, your brand and your marketing for the new norm

• Buying new assets that you need – take advantage of the Instant Asset Write Off, which will help reduce your tax bill at the same time

• Cleaning up and getting rid of all that junk that you’ve accumulated

• Upgrading your website and make it more relevant for the new way

• Improving your online capability and how to commercialise it

• Talking to your accountant about them doing more for you

• Getting smarter technology to boost productivity

• Setting a time and budget to review your cyber exposure

Make the most of this chance. Use the money you have wisely.

Let me know if you need a hand

Peter

How to get a tax deduction for donations

Have you made any tax deductible donations this financial year?

The recent bushfires have shown how generous many Australians can be. Throughout this financial year you might have given money to a charity, especially during the bushfires. And even though many donations were made without thinking of the tax deduction, you might as well see if you can claim it.

If you haven’t made any donations but would like to do so, there’s still time to get the tax deduction in this financial year.

But there are some important things to watch out for.

Firstly, the organisation you donate to must be a 'deductible gift recipient' (DGR). They are the only ones that can receive tax deductible gifts. This means you can only claim a tax deduction for gifts or donations to organisations that have DGR status.

Not all charities are deductible gift recipients. And that includes some of the organisations who received donations during the bushfires and droughts! So check carefully who you actually donated the money to.

To claim a deduction you must have:

• made the donation to a DGR;

• a record of your donation, such as a receipt or bank statement;

• made a donation of money or property; and

• comply with any relevant gift conditions.

The gift must truly be a gift or donation, with no expection of receiving a benefit in return

Bucket donations: If you made donations of $2 or more to “bucket collections” you can claim a tax deduction for gifts up to $10 without a receipt. To claim more than that you need a receipt.