What the budget means for Small Business

The biggie for the headlines

- A $5000 up-front tax break for motor vehicle purchase made by companies with less than $2 million in turnover plus instant deductions for assets costing less than $5000 in 2012-13

Funded by

- Scrapping of the Entrepreneur’s Tax Offset.

Simplified FBT and cars (just one rate) but…

- A reduction in fringe benefit tax breaks for company cars, which will save the Government more than $950 million.

Common Sense for SMSF trustees

- A relaxation of penalties for excess superannuation contributions for first-time breaches.

This will impact on family investors and business owners with children and trusts

- Minors will be prevented from accessing the Low Income Tax Offset for non-work income (like trust distributions)

None of us will argue with this

- More than $150 million for the ATO to crack down on phoenix companies, tax refund fraud and grants fraud.

Keep the mining boom rolling

- A new $34 million program to help Australian suppliers get involved in the Australia’s major resources projects.

Lets assume it will not be another home insulation style debacle

- Increased funding of $60 million for venture capital for renewable energy.

Workforce participation continues to grow but to remain the smart country

- A $3 billion package to increase skills and workforce participation. The centrepiece of this is a $558 million Workforce Development Fund, which will allow companies to bid for funding to train current and prospective workers.

Timing effect only (a headline grabber?)

- A change to the way quarterly income tax payments are made that will reduce payments made by small businesses in 2011-12 by $700 million. The payments will be made up over 2012-13.

Lets just hope it is investing for the future, not investing for votes

- More than $4 billion for regional investment – as promised to the independent MPs when the Government took power last year.

Engaging my team

As a business owner, I have been guilty of taking OUR team for granted. Guys, if you are reading this I am sorry, and have learned the hard way that you are the most valuable asset of OUR business.

Yes, I know that it is our clients who provide the revenue, but without OUR team, the value we could provide would be a fraction of what WE TOGETHER can, and do, provide.

So I will continue to engage the team in helping our clients achieve even more in their business, and the best way for me to do that is to provide the resources they need, but even more importantly, ensure THEY also understand that TEAM really does stand for Together Everyone Achieves More.

I look forward to your comments on how you work with your team to make your business rock.

What are your businesses Key Performance Actions?

Every business produces something, sells something, or does something.

These are all actions.

If you want to grow your business, the simple step is to work out the key actions your business undertakes the POWER YOUR BUSINESS RESULTS.

These are what we call the Key Performance Actions.

If you identify these actions, and then focus your energy on these, then logically your results will improve even more.

I love working with our clients on identifying these key actions, then helping them put a plan in place to focus on these actions, moving them from today’s results to the results they want for the future.

Great outcome for the client.  Great environment to be working in.

Part of why I love what I do.

Another thing I would love is to hear what your businesses Key Performance Actions are, so feel free to either comment below, or email me direct at adam@mbrgroup.com.au

Weekend Fun, Weekday Profit. Your business deserves both!

As a believer in the axiom “Your Business is  Reflection of YOU”, I embrace the importance of varying experiences. The headline above refers to weekend fun, but it need not be limited to weekends.

You could have your business in a position where you are not required in it day to day, meaning you could devote any day to fun.

Or your business may generate the bulk of its income over the weekend, meaning you need to be busy at work Saturday and Sunday.

OR, even better, you may have an environment where FUN is part of your workplace every day.

Happy team members produce more, and as a business owner you need to devote at least some time during the week to fun, simply so you know what it feels like and the impact is has.

Once you devote the weekends to it, then you can appreciate the great way it makes you feel, and then you can turn your thoughts to how to include fun in your workplace.

At MBR Group & 10X Moreland, we have celebrations for team members birthdays, as corny as it might be (and as bad as my singing is), and we have our winter Footy Tipping (we are based in Melbourne after all), our end of month mini celebrations (read “drinks”), and others.

But taking all these into account, and then considering how much time our team spends together, one goal I have for the coming months, is to build more fun into our workplace.  And the goal is not to increase productivity from it.

The goal is simply to have more fun.

Stay tuned for updates, or add your comments below.

Why working with your bank pays off!

As business owners, we are all familiar with the saying “Cashflow is King”, but if we are challenged by business performance, or a new opportunity presents itself, having a great working relationship with our financiers can be the difference between success and opportunity lost.

So, this becomes a relationship like any other in your business, and you need to nurture this relationship to ensure you will receive support when needed.

Increasingly credit departments are impacting on approvals, but by building and maintaining a positive relationship with you bank / financier, you will understand how to work with the bank to produce a positive outcome.

At MBR Group, we work with our clients to maximise their funding opportunities. If you would like to discuss how we can help you, call us today on (03) 9385 7700 or email adam@mbrgroup.com.au

In the meantime, we have reproduced our checklist regarding providing reports and projections to your financier.

Importantly, this checklist is not to be feared! Using it as a tool can help you build your relationship with your financier.

Forecasting checklist

Detailed below are some prompts to assist businesses in meeting bank needs when preparing a forecast. A good forecast will present a conservative and yet exciting view into the future for a bank and also demonstrating the strength of management. Always provide detail assumptions.

Structure

• Banks will prefer the forecast to be a 3-way – that is: Profit and Loss, Balance Sheet and Cash Flow Forecast.
• Banks want 3 Forecasts
• Best case scenario shows how the business will fund high revenue growth
• Actual case is the performance that you will be measured against so this needs to be conservative
• Worst case demonstrates to the bank that even if the unexpected occurs that the business will cope
• Provide a summary page which details the bank the difference between last year and this year

Revenue

When banks review revenue they are looking to be convinced that the business is expecting a level of sales that relates to their historical performance. They will always discount your expressions to stress test the assumptions so your worst case scenario should consider performance with approx 10% less sales than your likely scenario.

• Is the business expecting revenue growth in the next 12 months?
• If yes, ensure that the growth rate is realistic – banks are suspicious of aggressive growth targets
• If no, then explanation needs to convince a bank not to worry and show the strategic intent
• How are environmental impacts accounted for – ie commodity market fluctuations, global supply and demand and regulatory changes?
• In light of FX risk exposure (ie hedging strategies) what is the worst case scenarios?
• Are there any Competitor or Substitute threats that may impact on price?
• If revenue growth is simply last year plus a percentage, what are you doing to achieve this? Eg 5% increase = 2 sales per day per staff member, backed by new sales training imitative

COGS (Cost of Goods Sold)

Banks want to see continuous improvement in Gross Profit (ie COGs Reduction) as a percentage of Sale income however strategies to achieve this must be detailed to be believable (ie remove sales agent and purchase directly from manufacturer or purchase packaging machine to reduce outsourcing costs)

• How will external factors influence costs?
• How are foreign exchange impacts on purchasing being controlled?
• What strategies are in place to maintain or improve Gross Margin?
• Present COGs / Gross Margin as a percentage of sales to identify movements.

Operating Expenses

Variation from previous year actuals need to be detailed in the assumptions as the past year is seen as achievable.

• What percentage of Operating Expenses are Fixed vs Variable?
• How will fixed costs be impacted by increased sales volume
• Separate Depreciation and Interest costs to allow the bank to identify EBIT and EBITDA
• Interest costs take into account expected rate increases and any increase in loan facilities

Working Capital

Banks use working capital management as a key indicator of management ability, as well as being an imperative for establishing debt servicing capacity. Negative trends for Debtors, Inventory and Payables, measured in Days, will indicate to the bank that the management are not skill financial managers.

• Does the forecast demonstrate positive cash flow (that is, management of cash, inventory, debtors and payables to reduce debt)?
• Does Working Capital % exceed Gross Margin % – if not, then is this harming availability of cash?

Capital Expenditure (CAPEX)

The business needs to demonstrate how it will fund capital investment without adversely impacting the business’ ability to service its principal and interest commitments.

• What CAPEX investment is required in the ensuing period – ie shop refits, cars, premises?
• Does the cash flow forecast include all capital expenditure required to maintain and grow revenue?
• Is CAPEX to be financed or paid in cash? If financed, then include new facilities in the Balance Sheet.

Other Balance Sheet/Cash Flow Forecast considerations

• Does the cash balance remain within the limits of existing facilities (overdraft, debtor finance)?
• Do loan facility balances show scheduled principal reductions?
• Is the business demonstrating that it will meet loan covenants set by the bank?
• If not then explanation need to provide the lender with comfort when this will occur and why they should be worried
• Does the balance sheet display a positive Current Ratio – ie Current Assets / Current Liabilities is >1?
• Is the equity balance greater than 50% of the Debt Insurance? If not then what are the plans to get to this?

Overall Analysis

• Does the forecast sufficiently balance conservatism with presentation of an exciting future?
• *Does the forecast demonstrate that the business will meet all banking covenants?
• Does the forecast balance with Accounts previously produced (especially Equity Balances)?

*Covenants are actively monitored and reported on by financiers, making it important that all business owners understand their covenants and how their monthly operations impact on them.

Why you should care about Fringe Benefits Tax in your business

The ATO has yet again increased it’s audit focus on FBT. Their recent audit activity has raised $659 million dollars in revenue, and consequently they now have further funding to expand heir audit activities for the 2011 FBT year.

Why are we telling you this?

If you are in business and not registered for FBT, we believe you may be an audit target for the ATO for 2011.

You may not even be aware that you are providing Fringe Benefits.

So if you are not registered for FBT, this year is time to make sure you comply.

This may or may not result in you having to pay Fringe Benefit tax, which is tax deductible.

Importantly you need to make sure you have the necessary records and documentation to support any benefits you may be providing.

Questions you need to answer:

Do you provide Motor Vehicle Benefits from your business?

Do you pay for entertainment for your employees?

Do you pay for expenses for your employees?

If you answered YES to any of these, we recommend you complete our checklist as it is a guide to determine whether you need to do anything further in order to meet your FBT obligations.

To receive a complimentary copy of our questionnaire, simply email  kathryn@mbrgroup.com.au

Or, if you are not sure if FBT applies to you, call Kathryn on (03) 9385-7700 for straighforward guidance.

ATO pulls 15 cash economy benchmarks

Cash sales benchmarks withdrawn

The ATO’s cash sales benchmarks, for the 2009 year, released in November 2010 have been withdrawn from use.

The cash sales benchmarks, covering fifteen industries (see table below), are a small part of our comprehensive suite of small business benchmarks across 107 industries that the ATO uses to identify and deter activities in the cash economy.

Cash sales benchmarks identify the expected ratio of cash sales to total sales and are based on credit and debit card sales data provided by financial institutions, as well as information provided by small businesses on activity statements.

A review of the data used to calculate the cash sales benchmarks has identified inconsistencies in the way in which cash-outs paid by businesses to their customers were recorded. (An example of cash-out is when a customer requests additional cash when purchasing goods or services.) Accordingly, the ATO believes it is appropriate to withdraw the cash sales benchmarks at this stage.

The ATO is refreshing the data used to calculate these benchmarks and will release updated cash sales benchmarks for 2010 later this year.

The cash sales benchmark is just one tool used in the course of compliance activities with the key focus remaining on evidence of businesses declaring all income through appropriate record keeping. The ATO only raise assessments based on cash sales benchmarks when there are inadequate or no records to substantiate their declared income.

The current audit work involving these benchmarks will be limited to a review of taxpayers’ records and where appropriate we will provide taxpayers with advice on areas where these records can be improved. The ATO will continue to monitor their performance against benchmarks in future years.

If you would like to discuss how this impacts your business and your record keeping, call (03) 9385-7700 today.

Businesses can continue to use the published performance and input benchmarks with confidence to compare their performance to similar business in the same industry. The ATO continue to use these benchmarks to identify businesses that may not be paying their fair share of tax.

The 15 industries covered