David Henderson, CEO of ROCG Asia Pacific believes that the promise of a
new financial year is the best time of year to make new resolutions, especially
for small to medium sized enterprises.
According to David Henderson, chief executive of accountancy group ROCG
Asia Pacific and founder of CashMaxforecaster.com, many SMEs are in set and
forget mode when it comes to cash flow management. He believes it’s never too
early to start planning for the end of the financial year, preparing for June
30 being a year-round job.
SMEs are often surprised by the special requirements of June 30, though
they are required to do the same things on an annual basis. Henderson says cash
flow can become one of the biggest problems for this segment at the end of each
financial year, resulting from a downtime in trade for stocktake, slashing of
profits margins due to seasonal sales, settling of debts, chasing of creditors,
and a binge of last minute budget-balancing spending.
He warns that lack of planning can lead to tax time obligations depleting
current cash flow reserves, resulting in a negative impact on the following
While SMEs have the advantage over big business in their ability to more
readily adapt to the changing environment in which they operate, some still fail
to do this and pay heavily. For instance, some SMEs have been known to
rigidly stick to inefficient ways of doing things, while ignoring the small
warning signs that start to trigger major alarms. Many SMEs also claim they are
too busy running the business to worry about things such as cash flow.
Henderson believes managing cash flow is critical to the success of any
business of any size, and a bit of advance planning might be all that is needed
to free up liquid assets and ensure ongoing profitability.
Resolutions EOFY for SMEs:
Cash flow can be impacted by several factors including unsettled
markets, fickle clients, different suppliers and staff, changes in operational
procedures, refurbishments, capital asset shifts, different taxes, and legislative
compliance as well as mortgage, children, travel and retirement plans, any of
which can cause those cash assets to be repurposed or diminished.
Resolve to not only embrace change each and every financial year, but to
adjust accounting and management practices to accommodate this change. The same
old way of doing things could limit growth, productivity and profit.
Leverage low interest rates
Returns are low on cash reserves but low interest rates can be made to
work in an SME’s favour. For instance, they could consider investing in capital
equipment and paying off debts while keeping lines of credit open.
Resolve to leverage low interest rates but budget now for higher rates
over the next few years.
Cash up front and in advance
It might seem counterintuitive to pay for some services and utilities
including insurance and phone plans upfront when such outgoings can be managed
on a monthly basis. An SME operation can save up to 10 per cent by shopping
around and making a one-off advance payment, especially for certain premiums
such as health insurance that rise annually. Such savings can be much higher
than current interest returns on cash deposits.
Resolve to shop around or negotiate savings on fixed costs.
Direct debit, not direct debt
Cash flow can be improved by setting up direct debit accounts when
discounts for this payment method are offered. Direct debit can lead to savings
of around 4 per cent on fixed costs, but this will be more than wiped out if
there are insufficient funds and the supplier and bank impose heavy penalties. This
style of auto debt can also damage a good credit rating.
Resolve to manually check that there is no danger of the autopilot
Dance with the dollar
A rising or falling Australian dollar impacts consumer confidence and
influences buyer decision to go offshore for a better deal, even if it is to
buy everyday items online from an offshore outlet.
Resolve to keep an eye on the Aussie dollar.
Time the annual return
If the tax office owes the business money, try and get it back as soon
as possible after June 30. The refund might also beat the rush and take
less time to process. Small companies lodging their own returns have until late
February 2016 or October this year if there is a history of late reporting. An
accountant will advise on the due date as will the ATO.
Resolve to get that cash back as quickly as possible or avoid paying it
out for as long as possible.
Choose the best GST option
Compulsory collection of the goods and services tax can artificially
inflate cash assets by 10 per cent. Refunding the collected amount to the ATO
as a one-off payment can blow a big hole in any business budget. To help
maximise cash flow, choose a GST payment option carefully.
Resolve to choose the best
option for GST payments.
1 July changes
This is the day when various tax changes take effect. For instance, in
2015 there will a reduction in the company tax rate from 30 per cent to 28.5
per cent. This could be offset by an additional levy for businesses with a
taxable income of more than $5 million. Changes to personal tax such as a
freeze on income thresholds for private health insurance and the Medicare levy
as well as changes to family benefits taxes could indirectly impact business
cash flow as household expenditure changes.
Resolve to know how 1 July changes will affect the business.
Off peak rates
The best time to consult someone for financial and legal advice is
during off peak times when an adviser might be better focussed or more
appointments are readily available, though accounting and legal fees may stay
the same throughout the year. It also means end of year planning can start as
soon as possible.
Resolve to consult a financial adviser at an opportune time, and not at the
same time as everyone else.
Depreciation, deductions and
To make the most of a favourable depreciation deal, buy in July. Grab
all cheaper directly deductible bargains right up
until midnight on June 30. A deduction is a deduction based on
its purchase date, not whether it was used.
Be aware that charitable donations and gifts can
offset tax liability. To claim a tax deduction, first check that the organisation
has DGR or ‘deductible gift recipient’ status.