How to prepare for July 1 super changes

Now is the time to consider what action to take.

With the introduction of superannuation reforms, some of the rules around super contributions and the tax breaks available will change from 1 July 2017.

See what the changes could mean for you and what opportunities you could take advantage of before the end of financial year.

Here’s what’s changing:

Concessional contributions – before tax contributions or contributions for which a tax deduction was claimed.

  • The concessional contributions cap reducing to $25,000 for all individuals (currently $30,000 or $35,000 depending on individual’s age)
  • An additional 15% tax will apply to concessional contributions where individual’s income plus concessional contributions exceed $250,000 pa (currently $300,000 pa)
  • It will be possible to make personal tax deductible super contributions up to the cap regardless of employment status (currently subject to 10% test)
  • If the concessional contributions cap is not fully used, from 1 July 2018 it may be possible to accrue unused amounts for up to 5 years and make a larger contribution (certain eligibility criteria apply)

Non concessional contributions – after-tax contributions

  • The non-concessional contributions cap reducing from $180,000 per annum to $100,000 per annum or from $540,000 to $300,000 if bringing forward a total of 3 years’ contributions (certain eligibility criteria apply). Transitional rules apply in certain circumstances
  • Individuals with total superannuation balance (accumulation and pension) of $1.6 million will not be able to make non-concessional contributions

Super pension lifetime limit

  • A lifetime limit of $1.6 million (indexed) will apply to the amount of super that can be transferred to pension phase (no limit now)
  • People with existing pensions over $1.6 million will need to reduce their total pension balance to $1.6 million or less before 1 July to avoid penalties.
  • Capital gains tax relief may be available when commuting excess amounts back to accumulation account to meet the above requirement.

Transition to retirement pension – Tax paid on earnings from investments held in transition to retirement pensions will be increased from 0% to a maximum of 15% (capital gains tax relief may be available).

Spouse contributions –The annual cut-out income threshold for the tax offset for spouse contributions will be increased from $13,800 to $40,000. Certain eligibility criteria apply.

Small business shouldn’t be a ‘bank for big business’

The Australian Small Business and Family Enterprise Ombudsman today called on the Australian Government to legislate to set a maximum payment time for big businesses to pay their small business suppliers.

The ASBFEO today released findings from its Inquiry into Payment Times and Practices in Australia. The Inquiry found widespread evidence of a growing trend for Australian and multinational companies to delay and extend payments to their suppliers with typical payment times of 30 days moving out to 45, 60, 90 or 120 days.

The ASBFEO Kate Carnell said: “Extending payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance.”

“SOMETHING MUST BE DONE”

“Something must be done. Small business should never have to act as a bank for big business, helping to finance multinational companies.

“This growing trend for extended payment times impacts the economy by slowing down the flow of cash through supply chains, which limits growth of businesses because they have more capital tied up in financing their operations and it raises the costs for businesses financing longer trade credit to their suppliers.

“When a business experiencing extended payment times is also hit with late payments, it stresses the business further, which can easily put them out of business. Poor cash flow is the primary reason for insolvency in Australia.”

The key recommendations of the ASBFEO Payment Times and Practices Inquiry:

  • The Australian Government to introduce legislation to set a maximum payment time for business-to-business transactions. Terms greater than this can be agreed when it is not grossly unfair
  • The Australian Government to adopt a 15 business working day limit on payment terms from July 2018
  • The Australian Government to introduce legislation for large business to disclose publicly all of their payment terms and performance against those terms
  • The Australian Government to procure from businesses which have supply chain payment practices equal to or better than government terms.

Ms Carnell said the Australian Government needed to legislate a maximum payment time to set the standard on what was considered an appropriate upper limit on payment times for businesses operating in the Australian economy.

“Terms greater than this can be agreed by both parties to meet specific industry needs, however, where longer terms are called into dispute they may be considered to be an unfair contract term,” she said.

SMALL BUSINESS SHOULD NEVER BE A BANK FOR BIG BUSINESS!

Ms Carnell welcomed the proposal for a voluntary industry prompt payment code although overseas experience clearly showed that voluntary measures did not compel all businesses to change their practices on extended payment terms or late payments.

She said although voluntary codes had been shown not to be entirely effective, minimum best practice would require a code to define a maximum payment time and contain a mechanism to automatically apply late payment penalties either through interest measures of other forms of compensation.

Also, minimum best practice would require regular, independent and public reporting to determine its effectiveness.

The Payment Times and Practices Final Report also recommends that the Australian Government maximise its role to set the standard on faster payment times to suppliers.

The ASBFEO recommended that the Australian Government adopt a payment term limit of 15 business working days by July 2018 to set an example for faster payments to suppliers.

Ms Carnell said the standard government payment term was 30 days and a study in the United States had demonstrated that faster payments through supply chains had increased annual payroll by $6 billion and created more than 75,000 additional jobs over three years.

She said that despite government prompt payment policies some government entities paid their suppliers late and many suppliers did not seek a late payment penalty for fear of antagonising the government entity.

The State Small Business Commissioners will also progress discussions on the Report’s recommendations with their respective governments.

ALMOST 50% OF BUSINESSES ARE OWED MORE THAN $20,000

An ASBFEO survey conducted as part of the inquiry found:

  • Around one in two respondents reported more than 40 per cent of their invoices were paid late last financial year
  • Almost half of businesses have more than $20,000 owing to them from late payments and 14 per cent of businesses have more than $100,000 owing
  • More than half of respondents said that large/multinational businesses “always” or “frequently” make late payments. Twenty-one per cent of respondents said Australian Government departments and agencies “always” or “frequently” make late payments.

Ms Carnell said that behind the economic harm done to small-to-medium businesses from late payments there were adverse impacts on mental wellbeing through stress, anxiety and impacts on families.

Cashflow: Managing inventory

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For any business dealing with inventory, one of the biggest struggles is the challenge of effectively managing stock on an ongoing basis.

Inventory management is often one of the key ingredients to growing a successful business and businesses typically have a lot of cash tied up in stock – often resulting in cash flow challenges as well as barriers to expansion and investing in purchasing more inventory.

In fact, effective inventory and order management can be the difference between a business growing and a business failing. And, with 33 per cent of SMEs looking to grow their businesses in 2016 by adding new products of product categories, according to the 2016 SME Directions survey, having good inventory management makes good business sense.

Here are the five most common key reasons you may need to improve the way you manage your inventory to save time, make money and get deals out the door faster:

1. Cash flow improvement
Cash flow is small businesses is crucial. In fact, in the 2016 SME Directions Survey, 29 per cent of small businesses said that cash flow was their number one concern and 20 per cent said cash flow was restricting their ability to purchase inventory.

When a business holds optimal levels of stock, the impact on cash flow is significant. Working capital is freed up, handling costs are reduced and stock holding can be minimised. Plus, if the business is able to buy products just in time to supply customers, you can limit warehouse shelf time and reduce storage costs.

Overstocking can be a costly mistake. Tying cash up in large amounts of stock can be a risky move, especially if the demand is not there. If the product ends up expiring or becomes obsolete, the stock has to be written off, or significantly discounted, potentially costing the business thousands of dollars.

2. Have real-time visibility over stock levels
Real-time stock availability and sophisticated data analytics of historical purchases allows sales reps to proactively manage both upselling and cross selling opportunities. Sales reps can be alerted to other items a customer has purchased previously or items other customers have purchased when purchasing the same item.

In instances when sales orders are booked for items that need to go on “back order”, there is a high potential for the customer to cancel the order. With real-time access to inventory available at the time of making the order, sales reps can recommend a substitute.

3. Faster processing
The order fulfilment process can be made much more efficient by implementing a few changes within the business.

A good understanding of your inventory performance will allow you to reduce your fulfilment times and purchase products “just in time” to supply your customers, meaning warehouse storage time is lessened and turnover is much faster.

The last thing a small business owner wants is stock sitting around, ultimately costing the business money and impeding growth.

4. Reduce slow moving stock
If you have a clear picture of your inventory you have better visibility over which stock is moving quickly and which stock needs a shake-up to get it out the door. After all, the slow moving stock is what’s really costing you, causing reduced cash flow by tying up cash in stock that’s just sitting on shelves.

Being able to identify this stock means you can put sales strategies in place to move stock, improve ordering of inventory to better respond to customers’ purchase habits, and ultimately improve sales.

5. Manage suppliers better
When you start thinking about inventory, it’s natural to think about the other factors which impact your overall stock situation. For example, are your suppliers taking a week to deliver stock that flies out the door the next day due to popularity? Are they delivering on time and as promised, with complete shipments and without missing items or components?

It’s important to identify inefficiencies and drill down on these points. When you have robust inventory management, you have a better understanding about how your suppliers are impacting your inventory levels and also sales.

Let’s face it, for many businesses inventory is pivotal to your operation and if management practices aren’t up to scratch, it won’t take long before it takes a bite out of profitability and the sustainability of your business. By putting in place solid inventory management practices and tools, you can be sure your business is supported.

Cashflow: Step-by-step guide

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We have all heard the saying that cash is king. In business this couldn’t be more true. Walk through many major shopping centres and you will see a myriad of ‘for lease’ signs or closing down sales, with nearly 40 per cent of business failure caused by poor cash flow, according to the Australian Bureau of Statistics.

Given that 97 per cent of all businesses in Australia are classified as small businesses, closing down due to cash flow is alarming but often a position many business owners get themselves into without realising it. Business owners spend the first few days, months and sometimes years perfecting their product or service. Then you have to find your ideal client and really focus on them to build the business pushing cash flow management to the bottom of your to do list.

1. Manage outstanding accounts and debtors
The easiest way to improve cash flow is to actually get paid for the work that you have already completed. Have a procedure in place to chase up/follow up outstanding accounts/debtors on a regular basis. These can be as simple as a reminder alarm in your phone for a certain time of the week, leveraging from automatic invoice reminders if you are a Xero customer or implementing a plug-in into your accounting software such as Debtor Daddy.

2. Progress payments and deposits
If you have a large project in the pipeline or a customer that is a notoriously bad payer, and you are not in the position to refuse work with this customer, ask for a deposit or request progress payments. Not only will this give the business an initial cash injection, it will also minimise risk and financial stress at the end of the job.

3. Costs
Regularly monitor costs and closely look at all expenses including: subscriptions, telephone, electricity etc to see if you can decrease costs. A couple of dollars a week doesn’t seem like much in one transaction, but after a few months or years this can really add up to an unnecessary expense.

If looking at your financial reports is not something that you enjoy or understand, outsource this to an accountant or bookkeeper, they also have an unemotional attachment to your business and will often give you the cold hard facts.

4. Assets
Assets are a large cost for starting and running a business but sometimes they turn into a liability by not bringing in enough or any revenue. Selling any idle assets such as plant and equipment, motor vehicle or business assets you are not utilising in the business can help with cash and also allow you to focus on new ways to create revenue. Do you only use a piece of machinery a couple of times a year and therefore it is cheaper to rent.

5. Increase productivity of employees

Look at ways you may be able to increase the productivity of employees, including:

  • Improving how jobs are performed; and
  • Regularly monitoring staff performance.

Creating systems for each job role creates key performance indicators for easy management of staff. If you are still a solo-preneur, still create these staff manuals, this way you are prepared for when your business needs to hire the next member of staff or if you decide to sell the business.

Achieving positive cash flow will not only improve the internal running’s of the business but can also help you become more competitive in your industry and allow you to offer better prices or discounts to your customers.

Cashflow: Increasing cashflow

 

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One of the comments I often hear from my clients is that they want more exposure. They feel invisible, hidden amongst a sea of other business owners in their niche. Lost in the crowd. They are always looking for ways to stand out, increase their visibility and become known as the expert in their field, the “go-to” person in their niche. By doing this, they will attract more traffic, more followers, generate more interest, and therefore more clients, increase cashflow and, ultimately, have a more successful business.

So how can you get this credibility?
Well, I have a few simple tips that you can implement immediately, that will give you a real “bang for your buck” in terms of drastically boosting your credibility.

1. Testimonials
People place great store on the opinions and experiences of other people, particularly those that they know and trust. Or those high-profile people they admire and follow from afar.

Now, perhaps getting a celebrity endorsement may be a little out of your league right now, but do not underestimate its power!

For now, start with your current clients. It always surprises me how many people have no testimonials simply because they haven’t asked for them!  If you provide a great product or service that has been effective in solving your ideal client’s problems, then they are usually only too happy to sing your praises. By asking for the testimonial you are simply asking for a more concrete representation of the appreciation they have for your service. And by giving them clear guidelines about what a great testimonial entails, then you can make it very easy for them to provide one for you.

Remember too, that a testimonial is much more powerful if you can use the client’s name, and, if possible a photo too. Or a video testimonial.  This will cost you nothing but your time, and possibly some free samples of your products. But they are invaluable as a marketing and credibility tool.

Once you have these testimonials, you can use them everywhere. Put them on your website, on Facebook and other social media channels. On Facebook groups, in your newsletter, on your sales page, and of course in conversation with potential clients. The list and possibilities are endless.

2. Be visible
Being online is almost a necessity nowadays. You can reach a much larger audience, can scale your business, leverage your time and it is open 24/7. Be sure that you have a strong online presence. A website and a Facebook page are all you need. Choose a few key social media platforms and plan to be there regularly. Research Facebook groups where your ideal client hangs out, and post in there several times a day. Comment on other people’s posts and offer value and your expertise. But be very limited with any “salesy” activities. Your intention is to be seen as the expert. To gain trust and familiarity, to show some of your personality, so people find out more about you and what you do and stand for!

If your target market is in the business realm, then being on LinkedIn is a must. Posting regularly on your blog means that Google will treat you favourably, and will push you higher on the search engines.  Fresh content is smiled upon, so add it often.

Be everywhere. Consistently post videos on Youtube, perhaps some tips, product reviews, interviews with clients or other complementary experts in your field.

3. Get exposed
Free publicity is not as hard as it looks.  And the more places you are, the more people hear the name of either you or your company mentioned in different areas and channels, the more comfortable they will be, the more ready to trust you and want to use and pay for your expertise.

You can start local with your local newspaper. They are always keen to feature local residents. If you can present them with a quirky story with an edgy angle that will appeal to their readers, then you are in!

Radio, podcasts, and of course TV will give you huge credibility. If you can get interviewed, or can present a ready-made story that will interest them, you are in! Perhaps you can look at aligning your business with Valentine’s Day if you are in the dating game for example.

Write a book for the ultimate in credibility. Imagine how it sounds to your potential client to be able to list “author” among your other accomplishments.

So, there you go. Three very simple, yet also very effective ways to boost your credibility that you can implement immediately.

Tax relief on the way!

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We know small business owners are desperate for some serious tax relief and it looks like there is hope on the horizon. The whole country is set to gain from more than three million small businesses having a lower tax rate, allowing them to invest more, grow more and employ more, Small Business Minister Michael McCormack says.

“We know lower taxes means small businesses can grow, pursue new ideas and create more jobs,” says McCormack.

Tax relief on the way
The change was confirmed in an extended Senate session under a deal struck by the Government with the Nick Xenophon Team and will cost $5.2 billion over the next four years.

It will mean businesses with turnovers of up to $10 million will pay 27.5 per cent this financial year. From July 1, companies with turnovers up to $25 million will pay 27.5 per cent and, from 2018-19, the tax rate will apply to those with $50 million annual turnovers.

Global market place
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) complied a statistics report which brings together data and analysis from a range of sources including the ATO, ABS and Austrade, and has been released to mark the office’s one year anniversary.

“This report provides a unique insight into the sector; it ultimately reinforces the size and importance of the small businesses to the Australian economy, and outlines its growing diversity,” says Ombudsman Kate Carnell.

Carnell says the number of small business currently venturing into offshore markets is on the rise. While many small businesses are at the cutting edge of innovation, she has made it clear that she would like to see more small businesses go down this path.

“Encouragingly, ABS data shows more and more small businesses are entering export markets, with 44 per cent of goods-exporting firms classified as small business. Many are also entering the global market place at an early stage of their development, giving rise to the ‘born-global’ phenomenon,” she adds.

THIS VITAL TAX CUT IS A CONFIDENCE BOOST FOR HARDWORKING AUSSIES

Positive step forward
In 2016 a survey by MYOB revealed more than half (56 per cent) of small businesses believed that lowering the company tax rate to 27.5 per cent for businesses with up to $10 million in revenue would have a positive impact.

“It’s good that those barriers to growth have been removed. The old system discouraged SMEs to grow beyond $2 million in revenue because of the benefits they lost from being counted as a small business,” says McCormack.

“We hope the Government is able to secure support for its ongoing programme of company tax cuts. The simple fact is that lower corporate taxes across the board would have made Australian business more internationally competitive.

“For every dollar small business spend with big businesses, big businesses spend $2 with small businesses. This is the nature of the economic ecosystem we have – and we need the whole thing to be healthy.

“I know this vital tax cut is an important injection of confidence for the hardworking Australians in small business who contribute $380 billion to our gross domestic product,” says McCormack.

Categories: Tax