The difficult trading conditions in most areas of Australia have obviously continued in the last month and are expected to continue for, at least, a few more months. Some commentators believe that there will be a strong recovery in 2013, irrespective of the ongoing problems in Europe. Part of the rationale of expecting stronger growth in 2013 is that many larger businesses have deferred equipment replacement decisions and there is an expectation that these replacements will need to be made in 2013.
If you believe that the economy is likely to recover in 2013 then now is the time to ensure you are ready for future growth.
Ask yourself these questions:
- Is your business as efficient as possible - do you have systems & procedures in place and are they expandable for growth.
- Do you have the right people and enough capacity in place to deal with growth? Are they well trained & motivated to go?
- When the economy turns it is often a good time to launch a new product or service. Have you been innovative during the slower times so you can be a market leader when recovery starts?
- Have you done strong analysis of your most profitable products/services and ceased those services that are not producing positive results for your business?
- Do you have your financial reporting up to date? More importantly are you monitoring lead indicators so you get early warning signs of what is and isn't working?
- Are you ready to break habits - you will be amazed at the number of bad habits you and your staff have picked up whilst things are quiet - break them now before it is too late.
Now is the time to get your business prepared. When the economy finally turns you don't want to be the one caught napping.
There are, at least, four phases in any small/medium enterprise. These include:
- Start up
As businesses pass through the first three phases, the difficult question is do you continue to expand? The problem is that, if you do not continue to expand, you're probably going to lose market traction as the market grows and your competitors start outperforming you. One of the key ways to ensure that your business can continue to expand is to conduct business reviews, on an annual basis, to ensure that all segments of your business are performing satisfactorily and continuing to expand. This requires an examination of the processes within your business which could include:
- Inventory control
- Succession planning at shareholder, senior management and team member levels
Questions to be asked could include:
- What can be improved?
- What new knowledge do we need to obtain?
- Are we continuing to rely on internal knowledge?
- Should we be importing new skills and knowledge to enable the business to continue to expand?
- What strategies should the business be setting for achievement over the next 12 to 36 months?
- Has a recent business valuation been prepared?
- How does this valuation compare to your expectations as to what your business might be worth?
- How much is the gap between your valuation and the valuation prepared by an external adviser?
- Have you developed strategies to bridge the valuation gap over the next 12 to 36 months?
These are some of the issues that businesses need to consider as they progress through the phases in business. We have the knowledge and tools to help you ensure you continue to improve your business. Please contact your harris black team member if you would like to discuss this further.
Last month we focussed on Debtors as a way to improve cashflow. This month we focus on 3 other important areas. Below are some items to consider implementing and improving:
- Stock review:
- Examination of procedures for stock turn calculation
- Written procedures for effective control of the business' investment in stock?
- Does your business utilise a "stock matrix" to assist your staff in identifying the "Star" stock items?
- Work In Progress:
- Review of Work in Progress System to identify whether you have procedures to monitor the investment in Work in Progress
- Is there regular monitoring of the profit/loss for each completed job?
- Has your business prepared a detailed schedule of your bank's covenants (i.e. conditions) for each loan, hire purchase agreement, leasing agreement or debtors' financing facility (in other words, what does the bank require from you; either on a monthly, quarterly or annual basis and upon what financial parameters [KPIs] is the continuation of the bank loan/facility conditional).
Debtors, stock, work in progress, are the key areas of the "lock up". A business should monitor its lock up monthly and determine ways to tighten it up The amount of "lock up" for your business will depend on:
- The negotiations that your business has had with suppliers of stock, etc;
- When invoices have to be paid;
- The frequency of payment of wages – weekly, fortnightly or monthly;
- The period of time that the product will remain in Work in Progress; and
- The average time that debtors take to pay.
If you would like to have a discussion with us in relation to a cashflow management system operating for your business, please do not hesitate to contact your harris black team member.
"Legendary customer service" will set you apart from your competitors. One of the key aspects of "legendary customer service" is to offer consistency. The key issue is that your customers should know what they can expect from your business - a "consistent outstanding service
Management has a very important role to play in the development of the cultural environment within the business, whereby legendary customer service will be offered. The senior people in the business need to behave how they want the frontline staff to behave and how they want their customers to be treated. Management and sales people need to get closer to customers in order to understand their needs.
Recruitment is a very important aspect of offering "legendary customer service". Businesses need to choose people with the right attitude. Attitude is more important than skills as skills can be taught, whilst it is very difficult to teach attitude. Businesses need to clearly identify the ideal service they want to supply to customers which will meet the customers' needs. You then need to develop the right culture within your organisation to ensure that an outstanding level of service is supplied every day
. All team members need to be attentive to customers' needs and focus on the customers' requirements. This will set your business apart.
A good way to check whether your business is offering "legendary customer service" is for senior management to act as a "phantom" customer.
- Why not phone your business with a product enquiry?
- Review your business' website as if you are a customer. Does the website supply all the information a customer needs?
- Is your business communicating to customers the products and services you're offering and not just relying on recording all of this information on the website? Word of mouth communication is very important.
The Fair Business Ombudsman, appointed under the Fair Work Act, has conducted thousands of audits. Many prosecutions have eventuated from allegations of employers not complying with the Fair Work Australia Regulations.
The Fair Business Ombudsman can impose the following fines for an offence:
- Individuals - $6,000
- Businesses - $30,000
Some of the areas with which a number of small businesses have not been fully complying include:
- Not calculating personal day leave based on 10 days per annum with the balance accruing from year to year (this replaced the previous sick leave regulations of 8 days per annum, which did not accrue)
- Not providing employees with a pay slip within one day of an employee being paid.
Some commentators have indicated that approximately 70% of businesses are not fully compliant with the Fair Work Australia Regulations. We can recommend ways to reduce the burden of Human Resource Compliance. Please contact your harris black team member to discuss.
The Government intends to introduce a company loss carry-back regime and has released draft legislation for public consultation.
Under the proposal, which will have effect from 1 July 2012, companies will be able to carry back up to $1 million worth of losses to obtain a refund of tax paid in the previous year. From 1 July 2013, companies will be able to carry back up to $1 million worth of losses against tax paid up to two years earlier.
The regime is proposed to be available only to "corporate tax entities" as currently defined under the tax law. The Government has said that restricting loss carry-back to those companies that have recently paid tax would target the measure to companies that have had a history of being profitable, and would improve companies' cash flow by allowing access to losses in a more timely manner.
The ATO has launched a public online resource that spells out its tax compliance approach to small businesses and wealthy individuals. The new resource is available on the ATO website at www.ato.gov.au/smecompliance.
This online resource contains information on how the ATO conducts itself in compliance activities and the tax risks that may attract its attention. It also explains that the ATO can, through powerful data-mining techniques, obtain an indicative view of a "private group" of entities that is under the control of an individual and their associates.
Key tax risks that may attract ATO attention include:
- Tax performance that varies substantially from business performance;
- Inconsistencies in activity statements or spikes in refund claims;
- Large, one-off or unusual transactions;
- Tax and economic performance that varies significantly from similar businesses in the same industry;
- Unexplained losses;
- Tax outcomes inconsistent with the intent of tax law;
- Lifestyles not supported by after-tax income;
- Treating private assets as business assets;
- Not disclosing offshore dealings with overseas entities, especially low-tax jurisdictions and tax havens that allow banking secrecy;
- Using complex structures and intra-group transactions to minimise tax;
- Poor governance and risk-management systems;
- Distortions and inconsistencies in market valuations and apportionments; and
- Business performance that falls outside small business benchmarks (for businesses with turnover of up to $15 million).
TIP: The ATO's main tool for detecting non-compliance is matching information reported to it by taxpayers and third parties, such as financial institutions both in Australia and overseas. The ATO says its matching capabilities have grown strongly over the years. This financial year, the ATO expects to match over 600 million transactions.
In a recent decision, the Administrative Appeals Tribunal (AAT) affirmed an amended assessment issued to a bakery business for undeclared income and incorrectly calculated GST.
Among the factors considered by the AAT was the fact that the taxpayer's costs were 58% of reported sales income, which was considerably higher than the 32% to 40% range identified by the Commissioner of Taxation as the benchmark for costs in bakeries and hot bread shops.
TIP: The ATO publishes small business performance benchmarks that it uses to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. There are benchmarks for over 900,000 small businesses in over 100 industries.
The ATO says approximately 90% of businesses in benchmarked industries fall within a benchmark range. This means around 800,000 businesses are likely to be competing on a level playing field with their peers. Reporting greater net income than industry peers could be a sign that a business has forgotten to claim a relevant business deduction. However, reporting significantly lower income than industry peers would attract ATO attention.
The AAT has recently heard two cases relating to whether the individual taxpayers involved, men who worked in the oil and gas industry in the Middle East, were Australian residents for tax purposes.
In both cases, the AAT affirmed that they were Australian residents, and foreign sourced income derived by the men was therefore included as assessable income for Australian tax purposes. The men had argued that they were not Australian residents during the 2009 income year.
TIP: Taxpayers classified as residents of Australia pay Australian tax on their worldwide income, whether derived in or outside of Australia, subject to certain exceptions. In respect of foreign sourced income, a resident pays tax in Australia on that income but receives a foreign income tax offset for any overseas tax they are personally liable to pay on that foreign income.
TIP: Foreign sourced income derived by Australian residents remains a key ATO compliance focus area. The ATO increasingly obtains information from financial institutions and other organisations, both in Australia and overseas, that may identify employment-related income.
A taxpayer has been successful in convincing the AAT that there were "special circumstances" that warranted the setting aside of his excess contributions tax assessment. As a result, the AAT ordered that superannuation contributions paid by the taxpayer's employer in early July 2009 be reallocated to the previous financial year.
The AAT was satisfied that there were "special circumstances" in this case. Among various factors noted by the AAT was an agreement between the taxpayer and his employer, requiring the employer to cease making contributions to a particular fund from 1 July 2009. The AAT was of the view that payments made by the employer into that fund in July 2009 were in fact intended for the 2008–2009 financial year.
TIP: The Commissioner may only exercise his discretion to reallocate or disregard excess contributions if "special circumstances" exist and the making of such a determination is consistent with the objective of the superannuation regime, ie that individuals build their superannuation gradually over their lifetimes.
TIP: The Government has recently amended the law to allow a limited, once-only refund option for excess concessional contributions of up to $10,000. The new refund option is only available for excess concessional contributions in respect of the 2011–2012 or later years, and only for the first year. The refund option provides some relief, but is not without conditions and limitations.
The ATO has updated the amounts that the Commissioner will accept for 2011–2012 as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries.
For example, for a restaurant/cafe (licensed) the Commissioner will accept $4,300 (excluding GST) for each adult or child over 16 years of age. Note that the ATO intends to adjust these values annually.
Renee and her husband Scott Bettenay welcomed Hayden Ross into the world on Monday 15th October, little brother to Jackson. Everyone is very excited and doing well. Congratulations to the Bettenay's.
The walk was on Sunday, and all went well (providing you can count being sore and stiff, but no blisters as being a good outcome). We were lucky with a beautiful day and watching the sunrise along the Brisbane River was worth starting so early. Things were strangely quite towards the end as the conversation stopped flowing and people were eyeing off the finish line.
A huge thank you to everyone who has donated, people have been very generous. Team Harris Black has raised over $16,000, just shy of our target of $20,000 being the sponsorship of 2 children in the program for a year. The total amount raised for AEIOU has just clicked over $150,000.
Any support you can give will change the future of the children in the AEIOU Foundations program. Our fundraising website is http://aeiou.org.au/hiker-profile/team-harris-black-283. Please give as generously as possible, but nothing is too little.