All Posts by Renae Pitargue

Proving your ongoing business viability through 5 financial reports

Whether you’re applying for government subsidies, taking out a business loan or seeking investor support, you need to be able to demonstrate your ongoing viability as a business.

To prove this viability, it’s important to have the right financial information at your fingertips. This information is also just as important for your own internal planning and decision-making.

So, where do you start and what are the reports that you’ll need?

The numbers that prove you’re a business with a future

Any lender or government body wants to know that your business has a future.

As the owner, you may believe in the destiny of your company, but you also need the numbers to reinforce this argument. Banks, lenders and investors are taking a risk in backing you. Because of this, they want to know that you’re capable of making the agreed repayments, and that the business is in a financial position to deliver profits and payouts for investors.

Before investing in your business, organisations will want to see:

• Evidence of a healthy sales pipeline and sales revenue
• Manageable debt that’s not eating into your capital
• A positive cashflow position that covers your main costs
• Forecasts that show stability or growth in your revenues
• A meaningful business strategy for the next two to five years of growth

The data you need to plan your future

You can’t run a business on a wing and a prayer. With so many different ways to track and record your business data, there’s no excuse for not being up to speed with your performance, your targets and your forecasted sales, cashflow, debt and profits.

This information isn’t just useful when approaching investors and lenders. It’s also vital for your own strategic thinking, your business planning and your internal decision-making

Crucial management information to know will include:

• Your targets and budgets for the upcoming period
• Your sales and financial performance against these targets
• Your basic financial position and health
• Your forecasts for future sales, cashflow and end profits

The 5 key reports that define your company’s growth

Today’s cloud accounting software makes it a breeze to produce detailed and informative financial statements. These are the main statements and reports to focus on:

Business plan

Your business plan is a written document that outlines the company's goals, strategies and financial projections for future success. It’s your route map for the business journey that lies ahead, and a crucial document when approaching investors.

Sales reports and forecasts

Sales reports give a historic summary of your past sales data, so you can track how you’re performing. Sales forecasts project this data forward in time to show future sales trends and potential sales growth you may achieve.

Revenue forecasts

A revenue forecast is a projection of your expected income or revenue for a specific period. Being able to track and forecast your revenue position is vital information when carrying out financial planning and decision-making.

Cashflow forecast 

A cashflow forecast is an estimate of your expected inflows and outflows of cash over a specific period. By forecasting these cash inflows/outflows you can aim to keep the business in a ‘positive cashflow position (more cash coming in than cash going out).

Financial statements

The main financial statements to keep your eye on will be your:

• Cashflow statement – shows your current cashflow position, so you can make the most informed decisions about spending and cost management.
• Balance sheet – shows your present assets, liabilities, and equity. It’s a snapshot that reflects the company’s financial position at a specific point in time
• Profit and loss statement (P&L) – a breakdown of the income coming into the business, and the expenditure going out. Crucial for managing your profitability.
• Aged debts – categorises and analyses your outstanding customer invoices, based on when they should have been paid. Keeping on top of this helps to speed up payment and improve your cashflow position.

Talk to us about proving your business viability

Having the data and evidence to prove you’re a viable and stable enterprise is crucial. It’s these numbers that will help you plan your growth and access the investment you need to scale.

We’ll help you create a detailed business plan, revise your strategy and produce all the financial and non-financial statements you’ll need to make informed business decisions.

Get in touch to talk about your financial reporting.

Providing Accurate Source Documents to Your Bookkeeper

Did you know that the accuracy of your bookkeeping is only as good as the accuracy of the source documents?

Source documents are any documents that provide evidence of a financial transaction. This could include:

•  Invoices
• Receipts
• Bank statements
• Credit card statements
• Payroll records
• and more. 

Providing accurate and original source documents means that your financial records are more likely to be accurate and compliant.

Benefits of having accurate source documents

There are several benefits to making sure you are providing accurate source documents to your bookkeeper.

Accuracy

Making sure you are providing the correct source documents means that your financial records are more accurate. 

And this is important for a number of reasons:

• Making sure that you are paying the correct amount of taxes
• Avoiding financial penalties
• Getting accurate financial reports
• Making informed business decisions

Compliance

Accurate source documents help keep your business compliant with all applicable laws and regulations. 

This is important because non-compliance can lead to fines, penalties, and in the worse-case scenario, legal action.

Time & financial savings

When you provide accurate source documents to your bookkeeper, they can save time by not having to track down missing or incomplete information. And this can save you money in the long run.

Managing your source documents

There are a number of platforms that can help you to manage your source documents and make it easier to provide them to your bookkeeper. 

Platforms that we recommend include Dext, Xero, Hubdoc, and Lightyear.

Dext is a cloud-based document management system that allows you to scan, store, and organise your source documents. Dext also has integrations with a number of accounting software platforms, like Xero, making it easy to reconcile your accounts.

Xero is an online accounting software platform that allows you to track your finances, invoice your customers, and pay your bills. Xero also has a document management system that allows you to upload and store your source documents.

At the end of the day, using a digital platform to manage your source documents helps improve the accuracy and efficiency of your bookkeeping and helps keep your financial records accurate, compliant, and up-to-date.

Here are some additional tips for providing accurate source documents to your bookkeeper:

• Scan or photo your source documents and upload them to Dext or Xero as soon as possible after the transaction occurs. This will help to prevent them from being lost or damaged.
• If taking a photo - always photograph the original source document. Don’t take a photo of a photo or a screenshot of a document or receipt. 
• Make sure that the scan or photo’s of your source documents are clear and legible.
• Label each document with the date, amount, and description of the transaction.
• Keep your source documents in a safe and organised place. This is where using platforms such as Dext or Xero is highly beneficial.
• Provide your bookkeeper with access to your digital document management system.

By following these tips, you can help to ensure that as your bookkeeper, we have the information we need to keep your financial records accurate and compliant.

Avoid ATO’S increased tax penalties

As the ATO directs its attention towards taxpayers grappling with unresolved tax lodgements and debts, it's crucial to understand how to steer clear of facing heightened penalty rates in the upcoming fiscal year of 2023–24. 

In this article, we explore strategies to help you manage your financial compliance and minimise the impact of these changes on your obligations.

Increased Scrutiny on High-Value Outstanding Debts

The ATO (Australian Taxation Office) has received increased funding to intensify its scrutiny on taxpayers with high-value outstanding debts and aged debts. If you're among the following categories, it's time to take note:

• Public and multinational groups with an aggregate turnover surpassing $10 million.
• Privately owned groups or individuals controlling a net wealth exceeding $5 million.

The goal is to ensure that outstanding debts over $100,000 and aged debts older than two years are properly addressed. 

Rising Penalty Rates: What You Need to Know

As of 1 July 2023, the Commonwealth penalty unit rate has seen another increase, now resting at $313 per unit. This change follows a previous increase in January 2023 from $222 to $275.

What does this mean for you? 

If you fall behind on your tax lodgements, expect more substantial financial penalties.

These penalties may apply to late lodgements of various returns and reports, including but not limited to:

• activity statements
• income tax returns
• FBT returns
• PAYG withholding annual reports
• single touch payroll reports
• annual GST returns and information reports
• taxable payment annual reports.

For small businesses, these penalty rates translate to base penalties ranging from $313 (1 penalty unit) to $1,565 (5 penalty units) for every 28 days a lodgement is overdue.

Lodgement Penalty Amnesty for Small Businesses

There is some good news for small businesses facing overdue income tax returns, fringe benefits tax returns, or business activity statements. 

The ATO is extending a helping hand through a lodgement amnesty, valid until 31 December 2023.

Announced as part of the 2023–24 Budget, this amnesty covers tax obligations originally due between 1 December 2019 and 28 February 2022. 

Eligibility is granted to small businesses with an aggregated turnover of less than $10 million at the time the original lodgement was due.

Navigating the Changes: Your Next Steps

To avoid the pitfalls of revised, higher penalty rates, it's crucial to ensure you provide us with all necessary information well before the lodgement due date. This will ensure your lodgements are completed on time, safeguarding you from unnecessary penalties.

Should you anticipate any delays, we recommend engaging with the ATO and communicating your situation. We're here to assist you in requesting lodgement due date extensions, applying for remissions, or even establishing payment plans to manage your tax debts effectively.

Small businesses have the opportunity to benefit from the lodgement penalty amnesty, allowing you to submit eligible overdue forms before 31 December 2023. The ATO will automatically remit any associated failure-to-lodge penalties.

At First Class Accounts Ovens and Murray, we're here to guide you through these changes.  Should you have any questions please contact us.

The cost of a new employee

When you’re calculating pay rises, it’s important to think about more than just how much you can afford. You also need to consider the true cost of replacing that employee.

Low pay rises can be unexpectedly expensive

It’s surprisingly common for businesses to offer low pay rises, only for workers to feel undervalued and resign. The employer is left with all the upfront costs of replacing them, plus paying the salary, plus training the new employee and lost productivity as they learn the ropes.

Some estimates put the cost of a new employee at around 40% of their salary and a 2021 Australasian survey put the price at an average of $23,860 per worker.

Overall, that low pay rise could cost your business a lot more than you bargained for.

Not paying enough might just cost you an employee

If you run the numbers you’ll see the impact that an insufficient pay rise can have.

Let’s say you employ Ashley, an office manager who is paid $60,000. You offer Ashley a 4% pay rise, which will cost you around $2,400 more each year. With inflation running at over 7%, Ashley feels this isn’t enough and finds a job paying $68,000 almost immediately.

If you had provided Ashley with a 10% pay rise, it would have cost you around $6,000 more each year and you would still have your employee. Finding a new employee could cost you $20,000 or more.

Running the numbers

Make sure you understand salaries in your industry, and think about inflation, when you calculate pay rises.

Also consider how easy it would be to replace the person and how much value they bring to your business.

And think about extra benefits you could offer a valuable team member: do they want more flexibility or a four-day week?

We can run the numbers for you before your remuneration reviews or if you are looking to hire. 

If you have any questions about pay rises or hiring this year, get in touch – we’d love to hear from you.

Take care of yourself, not just your business

Ways to nurture your wellbeing as an entrepreneur

Don't overwork yourself

Schedule time for non-work-related activities

Take up an activity that promotes wellbeing

Talk about your worries, concerns and anxiety

Get Your Business Records Ready for Your Tax Return 2023

Organising your documents now will mean you can work with your Tax Agent to get your tax return completed earlier and access any refunds due or start planning for tax payments.

Getting your business records up to date and accurate will allow us to work with you and your Tax Agent proactively to plan for the coming year.

What Records do you Need to Have Ready for the Tax Agent?

• Have you bought or sold assets? If so, you need full details of acquisitions and disposals.
• Have you taken out a new loan or other finance? You must have details of the finance arrangements and statements of monies owing at 30 June.
• Check that any bonds or deposits paid or received have been allocated correctly.
• Have you prepaid for insurance or other large business expenses that need to be apportioned to the following financial year? Make note of the portion applicable to the current financial year.
• Do you carry stock? If so, you need to perform a full stocktake at 30 June (unless you qualify for the simplified trading stock rules).
  List any doubtful or bad debts to be written off.
• Review your debtors and creditors (accounts payable and receivable). Is the list current and correct?
• Do you have loans with related entities? Reconcile the loans to and from each entity to ensure the same value is reported in the accounts of both entities.
• Ensure that all payments to company directors have been correctly captured.
• Provide records of any government grants received during the year.
• Contact details of business owners and key personnel if any have changed.

We will let you know if there are other matters to discuss with your Tax Agent before completing your tax return, such as cryptocurrency transactions, capital gains, vehicle usage, private usage apportionment or superannuation. There may also be new elements to discuss if you have received grants, refunds, credits or deferrals of business expenses and liabilities.

Remember you need to keep all your business records for seven years, so store everything securely and where possible electronically for safety and ease. We recommend integrating Apps, such as Dext, into your cloud accounting. Talk to us about integrating Dext into your business.

Once you have all your records for the 2023 financial year, make an appointment with your Tax Agent to schedule in your tax return for prompt lodgement.

Which business expenses can you claim against tax?

Incurring expenses is an unavoidable fact of running a business. But which expenses can you claim tax deductions against and which don’t meet the tax-free criteria?

Here’s our lowdown on which expenses you can claim against tax.

Which business expenses can you claim deductions against?

If your business expense is directly related to earning your assessable income then you should be able to claim a tax deduction against this particular cost.

For example, everyday business expenses that you may be eligible include:

• Your day-to-day operating expenses
• The purchases of products or services you’ve made for your business
• Certain capital expenses, such as the cost of depreciating assets like machinery and equipment used in your business.

The amount of a deduction (and when you can claim it) will vary, based on the type of expenses you’re claiming. You can find out more on the Australian Tax Office (ATO) website here.

There are three basic rules for checking the your expense claim is a valid business deduction – and that it won’t be challenged by the ATO.

1. The expense must have been for your business, available as an allowable deduction and not for private use.
2. If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.
   You must have records to prove that the expense was incurred.

Which business expenses can you NOT claim?

As we’ve explained, you can claim a deduction against most business expenses that are incurred as part of your day-to-day revenue-generation activities. But there are some business expenses you cannot claim against tax.

These non-tax-deductible expenses include:

• traffic fines you receive
• private or domestic expenses, such as childcare fees or clothes for your family
• expenses relating to earning income that is not assessable
• Non-compliant payments – payments for which you have not met your PAYG withholding or reporting obligations -
  the GST component of a purchase if you can claim it as a GST credit on your business activity statement.
• Generally you cannot claim a deduction for the cost of capital assets that are dealt with under the capital gains tax rules, although there are some exceptions.
• Your deductions may be limited for expenses incurred in relation to personal services income (PSI) if the PSI rules apply to that income.

This isn’t an exhaustive list of tax-deductible expenses. There will be various ways to claim your operational expenses against the relevant reliefs and incentives offered by the ATO. It's best to seek professional advice from your accountant to understand your options. 

If you’re looking to cut back your costs we can help. Talk to us about your regular operational expenses and we’ll work with you to find the important reliefs, incentives and allowances that can be claimed.

Get in touch to start reducing your expenses.

5 Business Challenges and How to Beat Them

Founding, building and growing your own small business is a hugely rewarding experience for many people. But the road ahead isn't always smooth.

There are common challenges that crop up and ongoing issues that need to be factored into your business plan, your strategy and your own personal thinking.

So, what can you do to beat these challenges and make the journey as frictionless as possible?

5 proactive ways to overcome your business challenges

We’d all love to know what lies around the corner when it comes to the future path of your business. The truth is that every business journey is unique. But there are common challenges that every owner-manager or CEO will be faced with – and being prepared for these hurdles is the best way to leap over them and take each challenge in your stride.

We’ve highlighted five common challenges and the simple ways to overcome them:

Uncertainty 

No-one has a crystal ball to know exactly what's coming around the corner. But there are ways to be prepared for some unknown circumstances. You can't fully predict the main external threats like government policy, economic conditions or freak weather conditions. But you CAN use forecasting and scenario-planning tools to build up contingency plans so you have a Plan A, Plan B and even a Plan C. With forecasts of your business data, finances and industry trends, you can be ready to react, pivot and take positive action.

Competition

Small businesses often face stiff competition from larger, more established companies. To stay ahead of the curve, it's important to be nimble and agile. It's also vital to find your niche and to know precisely why your customers value your offering. By ploughing a unique furrow and keeping your customers happy, you can give yourself an edge over larger, slower-moving corporate-size competitors.

Access to capital

It can be a struggle to secure funding as a startup, particularly if you have limited financial resources or a poor credit history. Having a detailed funding strategy is a crucial way to overcome this problem. Keep your finances in order and make sure you have in-depth financial reports to show banks, lenders and investors. It's also helpful to focus on paying suppliers on time, keeping debt levels under control and ensuring your cashflow is in a positive position. These are all excellent ways to improve your business credit rating and show you're a stable, risk-free prospect for lenders.

Hiring and retaining employees

Attracting and retaining talented employees is difficult, especially during the ongoing talent shortage. Offering competitive salaries or benefits packages can be one way to attract people. But it's also important to think about your brand reputation, your sustainability credentials and your CSR policy – all things that Millenial and Gen Z workers value alongside decent pay and benefits packages. Employees want to be proud of where they work, so make your company a progressive, satisfying and rewarding place to work.

Keeping up with technology

Business technology is evolving at a rapid pace. It can be daunting keeping up with all the available apps, tools and software solutions that are aimed at your business. The trick is to be informed but selective about the apps you use.

Start with the operational and financial needs of the business and look for apps that can automate, improve efficiency or provide improved data and management information. Talk to us about implementing the essential apps are in your industry. And do your research and homework before you choose any software solution to add to your app stack.

Talk to us about being an agile small business

Looking to the horizon for the upcoming pitfalls is essential as an ambitious and informed business owner. We can help you generate the most informative management information, to keep you agile and ready for what lies around the corner.

We’re also on hand to discuss your ongoing strategy, how to react to upcoming risks and the best ways to access capital and manage your company’s finances.

Arrange a meeting and let’s see what the future may bring for your business.

Preparing for finalising Single Touch Payroll

It’s nearly time to make a finalisation declaration for Single Touch Payroll. There is no need to issue payment summaries to employees you have reported through STP.

Employers must complete the finalisation declaration by 14 July for employees. Employers with a mixture of employees and closely held payees have until 30 September to make the declaration.

Small employers (fewer than 19 employees) that only pay closely held payees have until the payee’s income tax return due date. Employers will need to liaise with the individual payee about the exact tax return due date.

You may have some payees who have not been reported through STP, so you still need to issue a payment summary for anyone not reported through STP. You will also need to submit a payment summary annual report (PSAR) for any payments outside the STP system.

Once the STP finalisation has been sent to the ATO, the employee’s information will be released in their myGov account and listed as ‘tax ready’.

STP Payroll Checklist

Be efficient and prepare as much as you can now so that you are able to finalise your data by 14 July.

• Check that your business details, including ABN, registered name and address and authorised contact person are correct in your software.
• You should already have necessary details for all employees, both current and any who have terminated throughout the year if you are using STP. The essential information is full name, date of birth, address and tax file number.
• Review any terminated employees. Is the correct termination date recorded in your software? Are Employment Termination Payments (ETPs) coded correctly?
• Review salary sacrifice payments to superannuation for Reportable Employer Superannuation Contributions (RESC) amounts.
• Check with us for any Reportable Fringe Benefit Tax (RFBT) amounts that should be included.
• Check that all payroll categories are assigned to the correct ATO reporting category. This includes all ordinary earnings, loadings and penalties, allowances, commissions, bonuses, leave payments and termination payments.
• You may have other unusual payments such as those made under a voluntary agreement for contractors or labour-hire arrangements—check that you have reported them correctly.

Finalising Single Touch Payroll

It’s important to verify payroll figures before finalising, in order to minimise the chance of errors and having to re-issue at a later date.The finalisation process is the same whether you are using STP Phase 1 reporting or Phase 2.

Once the payroll year is completed at 30 June, you can then analyse the payroll amounts for each employee and cross-check against the numbers in your profit and loss accounts.

Talk to us today if you would like us to make the STP end of year process easier by reviewing and validating your payroll figures prior to finalising the data and lodging with the ATO. The end of the payroll year will be here sooner than you think.