Beware The Cash Flow Grinch This Christmas
13/12/2013 by Dominique Schuh
The GFC and post-G FC era has, and will continue to claim victims. Most business owners accept the risk of failure as part of the 'game' but that knowledge doesn't ease the pain, suffering and stress when it actually happens. Unfortunately business failure can also have a domino effect and lead to relationship breakdowns,divorce, extreme financial hardship and division of families.
In many cases, the failure is a direct result of poor decision making or a lack of capital. Poor service, inferior products, small margins and high debt can all be business killers but the most common cause of business failure is inadequate cash flow. When the economy deteriorates, the business does not have the reserves to see through the tough times and when the banks lose confidence in the business the outcome is inevitable.
Banks certainly have their own issues to deal with at these times, but the inevitable consequence of a credit squeeze is that they will call in debt where they fear a deteriorating position. Banks often appear to lack the patience and foresight to see a business through a tough period but significant damage is done to the economy when a business is closed and its capital value and intellectual property is extinguished.
Make no mistake, poor cash flow can even bring a profitable business to its knees. Cash flow is not just a means of keeping a business afloat, it is also the foundation of your future growth plans.
With the Christmas trading season upon us here are 6 tips to improve your business cash flow.
1. Plan and Forecast Now
This is probably the most important part of managing your cash flow. You need to understand your businesses cash flow cycle and prepare a cash flow forecast that takes into account your best and worst case scenarios. This process is designed to establish if you have sufficient cash reserves to get you through the troughs and identify when and how much additional funding is required. They say, "forewarned is forearmed" and there is no point running to the bank when your overdraft is about to hit the limit. If your cash flow forecast identifies the need for additional funds, contact your financiers now because finance applications are viewed more favourably when they are lodged before you run out of cash. If you don't get a positive response from your existing financier, look elsewhere.
2. Debt Collection
In some cases your customers or clients are using you to fund their business (interest free) while you're possibly paying interest on your overdraft. Clearly outline your terms of trade from the outset to avoid any mis-understanding when you have to chase any outstanding debts. A clear system and process is required where customers stretch your trading terms and never extend credit to customers with a poor credit history.
3. Inventory Management
Remember, your stock is really your money tied up on your shelves. There is a fine line between having enough stock and having enough working capital to meet your ongoing financial obligations. Often, 80%of sales come from 20% of business' product line so knowing what stock items and what level of stock to carry is a vital management issue. Run down the level of slow moving stock in favour of your best selling items and consider a clearance sale to move some of your slow moving items to free up some cash.
4. Equipment Purchases
Where you need to acquire new equipment or capital items consider financing the equipment by lease or chattel mortgage rather than purchasing the item with your available cash reserves. This may have an impact on your profitability but it will free up cash that would otherwise be tied up in plant and equipment or motor vehicles. Most importantly, consult with us first regarding the finance options so you also understand the taxation and cash flow consequences.
5. Monthly not Annually
By simply rearranging annual payments for items like insurance into smaller monthly payments you can take the pressure off your cash flow. Sure, you might pay a small premium for the adjustment but you don't need to worry about paying lump sums during your slower months. If your insurer doesn't offer monthly payments you might need to shop around.
6. Use Surplus Cash
Understand your cash flow cycle so that short term cash surpluses are not seen as 'excess cash'.Where required, isolate these funds to support future cash requirements. Ideally, place the funds in an interest bearing account, an offset account or your overdraft that you can re-draw at a later period. Understanding your cash flow cycle and then implementing a cash management system can be critical. Cash is the lifeblood of your business and planning can mea n the d iff erence between just surviving a nd potentially thriving. Strategic business planning can prevent business failures and if you need any help with your cash flow projections or if you are looking to fund new plant and equipment call our office on 07 5482 2855 today.
Are Gifts To Employees At Christmas Tax Deductible?
12/12/2013 by David Schuh
Many employers want to be able to show their staff their appreciation with gifts at Christmas, but there are a few laws you need to be aware of.
If the gift to employees and family members is under $300 and is for non-entertainment items, e.g. gift certificates and hampers, you are able to claim a tax deduction and the GST with no Fringe Benefits Tax (FBT) being payable.
For entertainment expenses such as movie tickets and is under $300, then for employees you cannot claim a tax or GST deduction and no FBT is payable. If over $300 then you can claim a tax deduction and FBT applies. If your entertainment gift is for clients then you cannot claim a tax or GST deduction, however, neither is FBT payable.
Christmas Parties
If you are not claiming FBT under the 50/50 rule, which is the most common method then the following rules apply. If the party is under $300 per head then no FBT is payable. However, you are unable to claim GST or the expense as a tax deduction. If over $300 per head, then FBT is payable however you are able to claim a tax deduction.
As you can see the rules that apply in the Christmas season can be over complex. If you have any questions when it comes time to claim these expenses feel free to contact our office on 07 5482 2855 to discuss your situation.
Saving For Your Child's Education
11/12/2013 by Dominique Schuh
Finding the money to pay the soaring costs of education is a battle for many Australian families. With no relief in sight, it's time for some serious planning.
Raising a child in the new century looks is more costly than ever. A recent report indicates the basic cost of raising two children to the age of 21 now exceeds $500,000. Add private education fees and the figure soars. Make no mistake, alongside the mortgage, education is becoming a substantial and sobering cost for families.
Choice magazine regards the cost of education as one of the fastest growing life costs in the Australian community, growing at around 6 per cent a year. To put this into perspective, consider that $1,000 in today's dollars, will be close to $1,800 in 10 years time.
And it's not just for the growing number of children attending private schools.
Contrary to common belief, public education is not free. Increasingly, costs at government schools are being passed on to parents who can expect to pay around $800 to $1,200 per child each year on school levies, uniforms, books and excursions. And while the cost of non-government education varies enormously depending on which state and which
school, on today's figures, parents can expect to pay between $5,000 and $17,000 per child each year at secondary level.
Planning for future expense
Education is one cost that can be planned for a long time before children even step foot in the playground. Given the long lead times associated with bearing and raising children, the opportunity is there to plan ahead.
A regular investment plan is a good way to prepare for future education costs. It has the benefit of longterm investing and the simple but effective powers of compound interest. A family with a baby due later in the year, for example, might start a regular investment plan using any gifts of money intended for the baby, and then continue to contribute a
monthly amount. Over this sort of timeframe, using a cash management trust or managed fund can be better than putting the money into a traditional savings bank account - or the piggybank.
If you've already got children, it's not too late either. The power of compound interest simply warrants getting started as soon as possible.
Start small, now
There's a misconception that people have to start with a large amount when they're investing money. This is not the case. Even with a small amount, the key is to start now and not put it off, to benefit from long-term investing. A survey conducted by Newspoll discovered that about half of all parents use their general savings to pay for school fees. Of the other half, around a third use savings from a special education saving account, 28 per cent tap income from specific investments, while 21 per cent take a part-time job to pay the fees and 14 per cent use a personal loan or draw down on their flexible mortgage to meet the cost.
Only 40 per cent of parents are saving for education in advance but almost all admit that their savings fall short, with half of the savers putting aside less than $100 a month.
So like any long term goal, when saving to pay for your children's education it can be as simple as ensuring you start as early as possible.
As always, Dominique Schuh can assist you to devise an appropriate strategy to start saving for your children's education.