How an accountant can be your buoy in a storm

Small business owners are passionate about what they do. They are determined to achieve their vision for their business which can mean that dealing with finances, taxes and reporting is often seen as an unpleasant afterthought or interruption to precious family time.

Most small businesses recognise that accountants are trained and skilled at financial record keeping, tax returns and annual accounts.  Using an accountant provides both time and administrative savings to small businesses, freeing up small business owners to concentrate on what they love – their business and family.

However Scottish Pacific research shows that accountants are often not used to assist small businesses with cash flow management, staff hiring decisions, major acquisitions or the sale of business assets.  Yet, particularly in these times of financial uncertainty, this is the help and information that small businesses need the most.

A range of financial assistance is available at Federal, State/Territory and Local Government levels.  Chartered Accountants Australia and New Zealand (CA ANZ) is a professional body that provides continuing professional development, helps members navigate changes in the accounting and financial landscape and advocates in the public interest.

This continual learning ensures Chartered Accountants know how to help you understand the cash flow impacts of the current COVID-19 crisis and can help business owners undertake scenario planning.

Many of the immediate steps that you can take to assist your business requires you to work with your accountant to obtain them.  For example, if you are having trouble working out how you can fund current year tax payments, your accountant can help you vary your pay-as-you-go-instalment to zero to reduce your current and future income tax liabilities and help you obtain a tax refund for tax that you have already paid in relation to this year.

Accountants can also ask for a 4-month deferral for of tax payments that are payable due to a Business Activity Statement (BAS), Fringe Benefit Tax or income tax assessment or excise obligations.

If cash flow issues are affecting your ability to pay existing tax debts then your accountant can help you negotiate, or re-negotiate, payment plans with the Australian Taxation Office.

For employers, the Government has announced that many small to medium sized businesses may qualify for a tax-free benefit equal to 100% of the amount withheld from employees’ salary and wages.  But you need to lodge your BAS to access this benefit – which your accountant can help you do.

The Government has also passed legislation that allows employers and self-employed people that have experienced a 30% reduction in turnover to access a $1,500 fortnightly JobKeeper payment for each eligible employee to help subsidise the cost of wages.  GST concepts are used to determine turnover and there are a number of rules regarding who is an eligible employee along with regular reporting requirements that your accountant can help you understand.

The State/Territory Governments have introduced a variety of measures to assist businesses retain employees, such as temporarily waiving payroll obligations, increasing payroll tax threshold, introducing apprenticeship rebates and providing interest free payroll tax deferrals.  Your accountant will be on top of these changes and can advise you on what needs to be done to obtain such benefits.

If your business is busily acquiring assets to assist its employees work remotely, then your accountant can help you determine whether you can qualify for an instant asset write-off which provides for a 100% deduction for the asset when it is installed ready for use or the “backing business investment” deduction which provides for a 50% deduction for an asset.

If you are at the other end of the business cycle and are looking to exit your business, then talking to your accountant could be financially lucrative.  There are a number of capital gains tax (CGT) concessions for small business which are looking at selling business assets.  Most businesses which utilise the small business CGT concessions received benefits of up to $250,000.  These concessions are complex but are worth exploring, especially if you are looking to top up your superannuation.

Bottom line is – talking to you accountant is essential first step for any business to take to ensure that you weather the storm in these difficult times.

By Susan Franks*

*Susan Franks is Senior Tax Advocate at Chartered Accountants Australia and New Zealand. Find a Chartered Accountant to help your business here

7 Considerations To Minimising The Impact Of Covid-19 On Your Business

Australia has seen some significant hardships in recent times. From the lingering drought, to a raging fire season, recent flooding and now the spread of COVID-19, there has been a true test of resilience on the spirits of many.

Now as businesses brace for the impact of the coronavirus the most critical action that can be taken is immediately plan ahead and design practical activities to prepare for a rapid slowdown in operations. That plan will necessitate honest conversations with stakeholders.

Here are some suggestions on how to get started.

1. Cashflow Forecast and Working Capital:
Construct a new rolling 13 week cashflow forecast based on conservative assumptions.
What working capital do you have at your disposal, it might be time to consider an invoice finance facility?

2. Clients/Debtors:
You should be talking to every one of your clients and confirm your ability to continue service to them and seek their commitment to payment of every invoice on time. Perhaps even seek early payment at a discount as a once off. This is the time to review your client database and look to develop marketing to attract new business from old business to broaden the current client base.

3. Suppliers:
You should be talking to your suppliers about their ongoing supply to you and the amounts owing to them. Negotiation of payment of their invoices for a longer period could be possible and alternative channels of supply should be investigated as a contingency.

4. Creditors:
Businesses with equipment finance in place should be talking to the financiers about a moratorium of payments for a short term of say 3 months (or interest only). Finance companies fear having to liquidate assets under contract as the returns are often at a loss and showing faith to customers can pay big dividends to them when the client comes back to them in the future.

5. Employees:
Depending on the size of your workforce, a high level conversation about plans to be put in place with the team would be ideal. You will be relying on the team to deliver through some tight times. In small business, the team sees and feels when things are going wrong and they may become fearful for their jobs. Leave without pay may be appropriate so too may be working at 50% capacity.

6. Tax Office:
The tax office is open to discuss proposals for repayment of tax debt and has recently provided extended periods for lodgements due to the recent fires in certain regions and would likely be sympathetic to requests. The tax office may require you to produce financial statements and have an understanding of what you can afford to pay if you need instalment payments to be agreed.

7. Bank:
You may need to approach your bank about your financial situation at some point particularly if you consider an extension of lending.

Summary:
There will be nuance to each of the above conversations however the best result for you is to receive payments when due and extend payments to be made to you in the short term. There is likely to be a mixture of results which you input into your cashflow forecast.

In the longer term, new clients, different supply chains and new sources of working capital may turn disruption into opportunity.

These conditions are when a turnaround strategy and/or safe harbour protection are critical, advice from a specialist is recommended.

Should you be interested in how your business shapes up right now, our partners at 888x have developed an obligation free Business Review of financial and non-financial data which takes 30 minutes to complete and you will receive a comprehensive report with metrics and dashboard performance ratings with commentary.

To complete your Business Review today, visit: www.888x.com.au/bhc/ or reach out to .

Alternatively, if you would like to chat about working capital management within your business, get in touch with ScotPac today.

How Asset Finance Works: A Basic Guide to Getting the Most From Your Business Assets

Having the right equipment is vital to the success and longevity of any business. It helps increase efficiency, maximise productivity and maintain a competitive edge.

However, funding the purchase of major equipment is often easier said than done, and buying it outright may not always be feasible for all SMEs. That’s where asset finance comes in.

 

WHAT IS ASSET FINANCE?

This is where the financier can provide funding for major assets like vehicles, machinery and equipment.

Here are some examples:

  • Vehicles – Trucks, tractors or excavators
  • Machinery – Lathes, milling machines, CNC or drilling machines
  • Equipment – Forklifts, access equipment or telehandler

This kind of finance allows you to borrow up to 100% of the value of an asset and offers a fixed term and rate. You’ll make periodic payments until the equipment is paid off.

The amount of the loan you qualify for will depend upon the asset value and serves as collateral for the financing solution. Saves the need to rely on property and real estate security, or deal with the expensive nature of unsecured loans.

You definitely need to be confident that you’ll earn enough money with your business in the near future to repay the loan, as this is crucial for this type of financing to be successful. But as long as you can do that comfortably, equipment finance is a smart move.

 

AN EXAMPLE

Say you’re looking to increase the efficiency of your warehouse. Your goal is to expedite the time it takes to place inventory in shelving and retrieve it when fulfilling customer orders. Maybe you’re currently using basic equipment like pallet jacks, but it’s just not efficient enough to keep up with demand. So you want to purchase a forklift.

According to CostOwl, a standard capacity forklift typically costs $22,000 – $36,000 AUD in 2019, and a 4,535 kg forklift can cost as much $66,000. This makes it a significant investment, and many SMEs simply don’t have the money laying around to purchase a forklift upfront.

With equipment finance, you could borrow up to 100% of the value of the forklift and pay it off over time making periodic payments. Rather than paying in one lump sum, you can stretch it out over a longer period, which makes it possible to make a large capital purchase like this. Once you’ve completed your payments, you own the forklift outright and it’s yours.

 

WHAT ARE SOME SPECIFIC BENEFITS OF ASSET AND EQUIPMENT FINANCE?

There are three main reasons why business owners go this route. First, it offers flexible repayment options including interest-only periods.

Let’s face it. Running a business is expensive. The exact costs will vary depending upon the industry and size of a company, but business writer Gretchen Schmid says the initial startup costs for equipment usually range from $14,600 AUD on the low end to over $183,200 on the high end. And of course, most companies will end up making further investments in equipment as they grow and expand.

Equipment finance offers a framework that allows you to raise the necessary capital to get your business off the ground and keep adding or replacing equipment as needed. Rather than having to pay for a major expense like a forklift upfront, you can space it out over time, while having agreeable payment terms. And if you have interest-only periods, it can provide you with some additional financial breathing room.

Second, equipment finance loans tend to be easier to qualify for than many other types of loans. You’ll find that many lenders aren’t overly stringent with their qualifications, which makes it ideal for business owners who have less than stellar credit. The application process is fairly straightforward, with many lenders providing approval within 48 hours. So, if you need to purchase equipment quickly, this is definitely a strategy to consider.

Third, it can give you a competitive advantage as well. By having access to key pieces of equipment, you can increase your efficiency and raise productivity levels in a way that would be impossible otherwise. You can boost your output, while reducing stress for your team members. Over time, this can have a dramatic impact on your bottom line and give you a competitive edge over others in you industry.

 

BANKS VS. NON-BANK LENDERS

“There are several options available in the marketplace for obtaining equipment financing,” explains ValuePenguin. “Equipment loans can be obtained from sources ranging from traditional national lenders to smaller specialized online lenders.” But at the end of the day, you have two main choices — a bank or a non-bank lender.

Going with a traditional lender like a major bank often comes with lower interest rates. However, they tend to be more strict with their credit standards. While this option may be suitable for well-established business owners with great credit, it’s not usually viable for less established SMEs with finances that aren’t in great shape.

Opting for a non-bank lender, on the other hand, usually means higher interest rates, but they’re a lot more flexible with their credit requirements. They’re also usually quicker with their loan application process. That’s why many business owners gravitate towards smaller, non-bank lenders — especially those who have struggled with their credit score.

 

HOW MUCH MONEY CAN YOU GET?

The amount of money you borrow with an equity finance loan can vary significantly. But generally speaking, you can get as little as a few thousand dollars and as much as several hundred thousand. A few lenders will let you borrow up to a couple million, but most will top out at around $733,000 AUD.

There’s a lot of flexibility with this type of facility, and your average loan should be sufficient for most SMEs to purchase the equipment they need. It’s just a matter of searching for a facility that meets your exact needs and reading through the details.

 

WHAT ARE THE TYPICAL INTEREST RATES AND REPAYMENT TERMS?

Finally, what exactly can you expect to pay for interest rates?

According to ValuePenguin, fixed interest rates typically range anywhere from 4.00% – 12.75%. However, some can be higher at around 20%.

As for the length of repayment terms, some equipment finance loans can be as short as several months, while longer ones can be as long as 10 years. Again, this will largely be determined by how much you borrow.

 

FUELING GROWTH WITH EQUIPMENT FINANCE

Being able to obtain key equipment is a vital ingredient to the success of SMEs. After all, it’s hard to take the next step and move forward if you don’t have the right equipment.

Fortunately, modern business owners have plenty of options, with equipment finance being one of the best. Taking the time to become familiar with how the process works and learn about the benefits should help you determine if it’s a smart move for your company.

For more information on equipment finance and to learn how you can use it to propel your business, please fill out an online enquiry.