Cashing Out Annual Leave

Are your staff asking to cash out annual leave? 

There are some important rules to remember before paying out annual leave.

Firstly, you must review the employee’s modern award to check that cashing out leave is explicitly allowed.

Most awards do allow for excess annual leave to be paid out, and we give you the general rules here – but you need to check the relevant award for special regulations before agreeing to cash out leave.

Common Rules for Cashing Out Leave

• The leave must be paid at the same rate as if the employee takes the leave. That means you must pay leave loading if it applies, and super is always payable on cashed out annual leave.
• The employee must have at least four weeks of leave left available after paying out any excess amount.
• You can’t pay out more than two weeks of leave per year.
• While leave accrues as usual when an employee takes leave, you don’t need to accrue leave on cashed out leave.
• You need to have a written agreement with the employee, stating the number of hours being paid, the total amount and when you will pay it.
• Remember to check the employee’s award first and keep all records and calculations!

You Can Direct Employees to Take Excess Leave

You can't force an employee to cash out leave, but you can ask an employee to take leave in some circumstances. If you have employees accruing a lot of leave, check the award for guidance. For example, some awards allow an employer to direct an employee to take one week or more of leave if they have more than eight weeks accrued, give at least six weeks’ notice, and leave at least six weeks of leave available.

Need Help?

Remember, annual leave is paid out when an employee leaves your business, so it’s good to keep an eye on how much is owing and not let too much accrue.

Also, employees should be taking leave regularly for their health and wellbeing.

If you need help, talk to us, and we can review your payroll, leave accruals and modern awards to help manage employees’ annual leave.

The benefits of engaging a BAS Agent for your business

Do you spend too much time on your accounts? It could be time to engage the services of a BAS agent to help you with bookkeeping and ATO reporting.

Working with a BAS agent can benefit your business more than you may realise! We’d love to talk about how we can help save you time and money.

Many business owners starting out try to save on costs by doing their own bookkeeping, but this is one of the first tasks you can outsource to give yourself time and save money. If you can work on your business to generate more sales, why spend that valuable time on administration and accounts management?

A BAS agent is a registered tax professional who can provide a greater variety of services than a bookkeeper. BAS agents are trained in the complexities of GST and other laws – meaning you don't have to become an expert in areas that are not your passion or skillset.

What a BAS Agent can do for your business

Once the agent has become familiar with your business operations, they can not only take care of the transactional recording, financial reporting and compliance requirements, but they can assist you in better understanding your day-to-day business performance. A

BAS agent can become a trusted member of your management team along with your tax agent, providing accurate and timely financial advice and insights to help you make better business decisions and plan for long-term success.

BAS Services

A BAS agent can ascertain and advise the business owner on correct liability amounts and submit statutory reports to the ATO and other agencies on behalf of the owner.

BAS provisions include determining GST liabilities, PAYG withholding obligations, employee superannuation contributions, and submitting taxable payments reports and Single Touch Payroll.

What makes a great BAS Agent?

Professional BAS agents keep up with ongoing education and development, use industry best practices, take the time to ask questions and understand your organisation, and do their best to assist and advise your business.

They will work proactively to support the business by ensuring the integrity of the accounts and providing accurate financial reports. They will be able to discuss your business’s financial health, assess operations and systems, and give you valuable advice.

If you think it’s time to engage a professional BAS agent, get in touch and let’s talk about how this can benefit your business and save you time and money.

ATO Line of credit ending

As new reporting powers come into play, businesses are being warned against using the ATO as an alternative line of credit.

Debt Reporting Powers

In 2019, the ATO was afforded new debt reporting powers. While this took a backseat to the Covid-19 pandemic, the ATO is now cracking down on outstanding tax debt. 

Businesses without a payment plan, that are more than 90 days in arrears, and who owe more than $100,000 in tax are more likely to be reported to credit agencies by the ATO.

Impact on credit rating

In the past, business owners have sometimes used the ATO like a ‘line of credit’ by not paying their ATO commitments on time.

Taking this road is much more likely to have an adverse impact on your credit ratings and credit insurance limits. This, in turn, makes it more difficult to maintain or extend credit terms with suppliers.

Therefore, it's important to maintain a high level of communication with your creditors. 

Staying on the front foot

As business owners, if you owe tax, it's vital that you stay on the front foot with this ATO crackdown. We suggest you seek the advice of your BAS agent.

First Class Accounts Ovens and Murray, as your BAS Agent, are able to advocate on your behalf to deal with the ATO.

As Busy01 Consulting, we can also to assist with:

• preparing a business plan
• management advice
• cash-flow planning and projection
• systems development
• business expansion
• budget development
• trading-structure planning.

Get in touch to discuss which options are best for your business. 

Direct Debits and Online Payments

Do You Have Direct Debits and Online Payments Set Up for Your Business?

Making it easy for your customers to pay you is vital to business success. Getting direct debits and alternative payment methods linked to your business is so easy these days there's no excuse not to give your customers multiple ways of making payment.

Many service-based businesses choose direct debit arrangements with their clients to avoid late payment. If you’re often chasing overdue payments, consider implementing direct debit arrangements to reduce your administration time.

If you’re already using online accounting software, check the add-on solutions and choose one that integrates with your accounts. This means that the payment platform information feeds directly into your accounting software to be easily matched to customer transactions.

Make it Easy

You probably already have bank transfer information set up, but adding several other methods such as PayPal, debit cards, and credit cards allows customers to choose the method most convenient for them at the time. Many customers appreciate the automation and simplicity of direct debits.

Make sure your payment terms and conditions are clear on your website and invoices and don't forget to include all your chosen payment methods for customers!

Worried About Costly Fees?

You have the option to choose whether you will absorb the cost of the payment gateway processing fees or whether you will add the cost to your invoice and charge the clients extra. Your accounting software will then allocate the funds accordingly to invoice payment and fees received.

Better Transaction Recording

When you integrate direct debits and online payment methods with your accounting system, you dramatically reduce errors in recording customer payments – which means less time spent on your accounts!

Not Sure Where to Start?

If you’d like to make it easier for customers to pay you, talk to us about which solutions are best for your business. We can discuss which platforms have the best and most secure integrations with the accounting software you use.

We’ll help streamline your payment systems.

Keeping debt low

Credit control: Having a large amount of debt in your business is bad for cashflow, weakens your overall financial health and brings down your credit score as a business.

So when customers don’t pay on time, that ‘aged debt’ is bad news for your finances. Aged debt can begin to stack up, adding to your liabilities and reducing the health of your overall balance sheet. So, it’s important to tackle late payment head on.

Get effective with your credit control

Being proactive with your debt management helps you speed up payment, reduce your debtor days and rein in your overall debt as a business

To improve the efficiency of your credit control:

• Make your payment terms clear – state your payment terms on all invoices and create a policy that’s part of the terms & conditions that customers sign up to.
• Run regular debtor reports – check your list of late invoices to see which customers are the late payers, and where the big debts are that need to be collected.
• Be proactive in chasing late payment – don’t be shy about asking a customer to pay their bill. Set up notifications and schedules to remind yourself to chase late-payers.
• Automate your credit control tasks – cloud accounting platforms have built-in tools or automated credit control integrations that can automatically chase your late-paying customers as soon as an invoice is overdue.

Talk to us about enhancing your credit control

If late payment and aged debt is weighing heavily on your balance sheet, we’ll help you set up the debtor reports and credit control processes needed to reduce this debt.

Get in touch to improve your credit control.

Cost of Sales Affecting Gross Profit

Do you know how much it costs you to produce each product or service in your range?

The better you can understand this cost of sales – or cost of goods sold (COGS), as it’s more commonly known – the more ability you have to control your company’s profitability. When you know your COGS, you can set the right price point, control your profit margins and ensure that you’re maximising your gross profit.

But to do this, you need to understand COGS and how it impacts on your financial management.

Understanding your Cost of Sales

To take one of your company’s products or services from inception to delivery, you will incur a number of costs.

For example, if you’re a manufacturing business, these costs might include buying in raw materials, direct labour costs, the overheads for running the machinery in your factory, the costs of delivering the products and the sales and marketing expenses needed to sell the product to your target customers.

For you to manufacture a finished product and to generate a sale, all these costs are a necessary part of the process. They’re the direct costs of producing your goods for sale.

You calculate your COGS number for the period by looking at the value of your opening stock (or inventory), adding the cost you’ve incurred to produce the goods and then subtracting the value of the closing stock balance.

The COGS formula looks like this:

Opening Stock + Purchases - Closing Stock = COGS

So, if you started with an inventory of $10,000, this is how you’d calculate your COGS:

• Opening Stock: $10,000
• Purchases: $25,000
• Closing Stock: $8,000
• COGS: $27,000

Reducing your COGS to boost gross profits

The more sales you make at a given price, the higher your revenue (income) will be. Deducting your COGS number from your revenue figure gives you your gross profit – and gross profit is a key metric for tracking the health and profitability of your business.

A high COGS number reduces the size of your profit margin. And, in turn, a small margin will start to have a negative impact on your gross profit. Being able to control and manage your COGS, and its impact on your gross profit, is a vital skill for any product-based business.

Here are some ideas for improving the profit impact of your COGS:

Reduce your supplier costs

If you can reduce the size of the purchases made to produce your goods, that means less expenditure and less impact on your profit margins. Try shopping around for cheaper suppliers, or negotiating better prices with your existing suppliers to bring down costs.

Streamline your production process

The more complex your production process is, the more overheads and production expenses there will be. Taking a lean approach helps you to continually evolve your processes and remove the extraneous elements – cutting costs while still delivering a quality product.

Increase your prices to boost your margins

If your COGS number is eating into your profit margin, one way to resolve this is to increase your price point. This will help to increase income and boost your margin but does require caution. If prices get too high, this can damage existing customer relationships and make you uncompetitive in the market – so think carefully about any price increases before taking action.

Talk to us about improving your gross profit.

If you want to boost your gross profit and get COGS under control, come and have a chat with us. We’ll look over your expenses and overheads, and will look for the opportunities to reduce your goods-related purchases and push for a better profit margin on your products.

What’s the Difference Between PAYGW and PAYGI?

Many people running a business and employing people are unsure about the difference between PAYGW and PAYGI.

They are not the same thing!

PAYG stands for ‘pay as you go’. This is the means the ATO uses to obtain tax payments from both employees and business owners.

Paying tax ‘as you go’ throughout the year means you don’t have to pay it all in one lump sum at the end of the tax year.

PAYG Withholding for Employees Income Tax

PAYG withholding refers to the income tax an employer withholds from employees’ gross wages to meet their personal income tax liabilities.

Employers are required to remit the employees’ withheld tax to the ATO each month or quarter, with the business activity statement (BAS) or the monthly instalment activity statement (IAS).

PAYG withholding applies to payments employers make to employees, directors, office holders and labour-hire workers.

PAYG can also be withheld from non-employees: contractors with a voluntary withholding agreement, some payments to foreign residents and payments to suppliers where an ABN has not been quoted.

PAYG Instalments for Business Income Tax

If you run your own business, you'll need to plan for income tax payments once you make more than the taxable threshold.

PAYG instalments allow you to pay an amount towards an expected tax bill. Amounts are based on business or investment income from the previous tax year.

Once you complete your tax return, the amounts already paid are offset against the total amount of tax due. You will then receive either a bill for extra tax or if you have paid too much, you will receive a refund.

Usually, when you start in business, you don't pay any tax instalments until you have completed the first year’s tax return.

However, if you’re new to business, you can voluntarily enter into the PAYG instalment system to start contributing towards your next tax bill. This is worth considering if you have done better than expected in your first year!

You can pay PAYG instalments by using the ATO determined amount based on information in the last tax return (instalment amount) or using the ATO defined percentage rate applied to your income (instalment rate).

The first method is the simplest; however, if your income varies a lot from one quarter to another, it may be better to use the instalment rate so you know you have put aside the correct amount based on your actual income.

PAYG Planning for Cash Flow

If you’re in business or considering employing people soon, you’ll need to plan for PAYG instalments and possibly PAYG withholding so you can meet your ATO tax reporting and paying obligations. 

Planning ahead means you’ll never be caught short with cash flow difficulties.

Talk to us to learn more about income tax responsibilities as an employer and business owner

Do you have a business plan?

As we continue to face challenging times, to make a success of your business you’re going to need a robust business plan.

With a one-page business plan behind you, your company has a real sense of strategic direction and a set of core goals to refer to and track against.

But what are the key elements to include in your one-pager business plan?

We’ve listed some of the foundational areas to cover, so there’s real purpose behind your business.

What to include in your business plan

Lots of online resources will suggest that a business plan is an easy document to create, but a good plan will take time and plenty of thinking to get right.

As business advisers, we’ll help you put together a plan that gives you a clear strategy for the next six months and beyond, with measurable goals to include in your plan. The resulting document will help give you clarity on your direction, and where to invest time and money.

A business plan will also be an essential document if you are looking for investors or external funding. Any loan providers or private investors will want to assess the risk in your business, your cashflow position and the underlying profitability of the enterprise – so bear this all in mind when outlining the financial details of your plan.

If you haven't written a plan before, a template is useful.

Start with the following headings:

Business description

Your business description should include a mission statement, your key goals and your objectives as an enterprise. A good mission statement explains:

1. what you do
2. why you do it
3. who you do it for.

It should be short and to the point and be used to inspire your marketing and drive the everyday internal running, ethos and tactics of your business operations and team thinking.

Business profile

A profile section tells me how long you’ve been in business, the specialty products or service niches that you focus on, and the key strengths of the company. It will also outline your business strategy and how you aim to achieve your targets, increase your customer base and grow the business over time.

Business environment

This section sets out the environment that you trade in as a business. So you should outline things like the key trends in your industry, your close competitors in the market, and the size of your current customer base. You can also include any research or market research you’ve compiled regarding your intended market, industries and customers, to give your plan some factual foundations.

Business strategy

A SWOT analysis demonstrates the strengths, opportunities, weaknesses and threats in the business, allowing you to refine your business strategy and maximise your success. Identifying your key strengths and opportunities helps you to focus your efforts and resources in the most productive areas. And knowing your weaknesses and threats helps you look for areas of improvement, and where you may need to safeguard the company against specific risks, threats and competitors.

Financials

Your financials section sets out the basic financial drivers of the business idea. For new businesses, this will mean outlining your projected expenses, budgets, sales targets and profitability projections etc. For existing businesses, you can include your profit and loss, balance sheet, sales trends and projected budgets etc. Cashflow and revenue forecasts will also be essential if you’re approaching lenders.

Talk to us about creating your one-page business plan

We’ll help you create a tailored business plan, to guide you through the threats and opportunities that lie ahead, with solid financial management for the next stage in your growth.