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.

4 red flags your small business needs help

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More than 60% of small businesses fail within the first three years of starting up. So, what are the four key red flags you need to be aware of to keep you on track and steering your business towards success?

1. Not planning for taxes

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Plan ahead and don’t damage your credit rating and reputation. Small businesses make up 65.2% ($13 billion) of all outstanding ATO tax debt. From 1 July 2017, all outstanding ATO debt greater than ten thousand dollars and at least ninety days overdue will be reported by the ATO to credit reporting agencies. This has the potential to damage your credit rating and reputation. If you are unable to meet your tax obligations then it is wise to engage an experienced adviser who will negotiate with the ATO on your behalf.

2. Limited access to funding

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The power of leverage to grow your business. A number of business owners are spreading their business across several banks to leverage more opportunities to borrow. To be able to access these funding opportunities it is a necessity to have up to date records. Cloud-based accounting systems are now making it easier for businesses to have reliable and up to date data available on the go. This allows for business owners to secure funding for growth and to be able to capitalise on low interest rates faster. Furthermore, this assists with negotiating better interest rates on existing funding.

3. Owner dependence and failure to delegate

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Small business owners who dedicate every minute and penny to their business may be limiting business growth and setting their own expiry date. The large majority of small business owners continually fail to delegate responsibilities and decision making, making it very difficult for their business to continue to grow and operate without their constant presence. To improve the value of your business you need to start delegating more control to your employees and partners. This can prove difficult for owners who have spent years tied to their business but in the long run you will unlock scope to grow and create more spare time.

4. Cash poor?

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There are a number of things to consider when managing cashflow effectively: do you have a large amount of capital tied up in stock and work-in progress?, do your customers pay on time?, do you pay your suppliers on time? A great way to analyse your cashflow is to start looking at your management reports on a weekly basis, including reviewing your debtors, creditors and stock turn over. Always remember that cashflow is the lifeblood of your business.

 

Easier GST reporting for food retailers

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Many small food retailers buy and sell products that are both taxable and GST-free. Depending on the point-of-sale equipment they use, identifying and recording these sales can be difficult.

To easily work out the amount of GST you need to pay at the end of each tax period, we have designed a series of simplified accounting methods (SAMs), including one to calculate GST credits for trading stock purchases. Known as the purchases snapshot method, you can use this method if you meet the following conditions:

  • you are registered for GST
  • you operate a restaurant, café or catering business
  • your GST turnover is not more than the small business turnover threshold (currently $2 million).

There are five SAMs to choose from. Check which method best suits your business and make accounting for GST an easier task.

Penalty rates cut a win for small business

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Great news for small businesses! The Fair Work Commission has decided to cut Sunday and public holiday penalty rates in the retail, fast food, hospitality and pharmacy sectors. However, Sunday wages will not be dropping to the same level as Saturday rates.

Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell says, “A reduction in Sunday and public holiday penalty rates in select industries will help ensure small business owners in these sectors can operate longer hours, offer their staff more work, and in doing so meet consumer expectations.”

She adds, “Today’s decision by the Fair Work Commission to reduce rates in the retail, hospitality and fast-food industries is a win for common sense that will ultimately boost jobs and stimulate growth across the economy. While it wasn’t quite to the extent proposed by some, it’s certainly a big step in the right direction; it will be important now for a transition period to be put in place to ensure employers and employees are fully across the changes.”

Small businesses have complained loudly about the high wage costs on weekends and holidays that they have no choice but to remain closed. However, for those who remain open, they are simply providing service for their regular clients who expect them to be open all the time.

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Carnell stresses, “This decision – backed by previous Productivity Commission findings – means small businesses will be able to trade longer, which means their staff will be given more hours, while communities will benefit from the increased economic activity it will generate; particularly in our rural and regional areas. Let’s not forget, the big players in this space – the supermarkets, the big fast-food chains – have already traded-away penalty rates in their Enterprise Bargaining Agreements (EBAs), so the only people who have been forced to pay the higher wages on Sundays are mum and dad small business owners.”

She adds, “I just don’t understand why some continue to argue against allowing small businesses the chance to grow, particularly given they’re doing more than their fair share of heavy lifting when it comes to creating jobs in this country.”

Latest figures illustrate the number of small businesses in Australia is increasing including the number of people they are employing. Carnell said, “If we want to see small businesses grow, they’ve got to be able to make a profit, and changing weekend wage settings in the retail, hospitality and fast-food sectors, will give them a fighting chance to do just that.”

Small Business Minister reveals a boost for small business

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During parliament this week, changes to GST collection online were introduced as the Government delivered another boost for small business, says Small Business Minister Michael McCormack.

“The Government understands that small business is the job creator in our economy,” Mr McCormack said.

Small businesses across Australia have brought up issues related to online GST retail. He said, “Australian small businesses have sought changes to level the playing field for some time. This legislation is another vital shot-in-the-arm for small businesses and will help Australian retailers to grow, expand and create more jobs for Australians”.

Mr McCormack stated that under this legislation, GST will be applied to low-value imported goods up to $1,000.

“The Government understands Australians are increasingly shopping online from overseas vendors who are able to offer items without tax. This means goods they provide can be cheaper than those offered by Australian businesses giving an unfair advantage to foreign businesses. For many Australian small businesses, this has an impact on competitiveness as consumers flock to purchase cheaper imports”.

The legislation insists on businesses, which take the form of overseas vendors, electronic distribution platforms and goods forwarders, with a turnover of $75,000 or more to register for, collect and mail GST for low-value goods supplied to consumers in Australia.

Mr McCormack adds that Australia is leading in taxing low-value goods. Australia will be the first country to apply GST to imported goods using a vendor collection model.

This is an alternative method for the Government to deliver more for small businesses and help support the economy and generate jobs.

This legislation will come into effect on 1st July 2017.

How to set up the option to renew your lease

If you’re leasing a commercial property and your business is flourishing, staying put is usually a good idea. Inserting an Option to Renew clause in your lease contract makes this easier.

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Today I’m going to answer all your questions about a lease option so you can be fully informed the next time you negotiate a commercial lease.

What is a lease option?

A lease option is a standard clause within a commercial or retail lease agreement that gives you a legal right to renew your lease for a set amount of time (depending on what is agreed upon and assuming you haven’t broken the terms of your current lease).

This means when your current lease is coming to an end, you can simply exercise your right to continue the lease, avoiding the need to change location, or negotiate a new lease agreement.

While options to renew are not a default requirement in commercial leasing, their inclusion is usually beneficial to both the landlord and tenant, so they are well worth including in your agreement.

Will an option be exactly the same as my old lease?

A continuation of a tenancy is known as a ‘further term’, ‘lease renewal’ or ‘option term’. However, you’ll actually be entering into a fresh lease agreement by exercising that option and more often than not, the new agreement will have an increased rental amount at the very least. (Usually an agreed, CPI or Market Value increase.)

What happens if I don’t have a lease option?

If you do not include an option clause in your lease, it means you won’t automatically have the right to renew your lease and the landlord will have no obligation to offer you a new one. Instead, you will have to go to the trouble of negotiating both a whole new lease agreement and rent amount.

The landlord is under no obligation to accept your request for a new lease, so if they decide they weren’t happy with the last agreement, you could end up paying much more rent than you were previously, or you could end up losing the lease altogether and having to move to a new location!

For how long should my lease option be?

This is a question that only you can answer, depending upon your needs. If you are very confident about your businesses longevity in the area, a long-term renewal is probably your best bet. If you’re not so sure, a short-term option is safest. Your landlord will likely want to negotiate based on their own needs, so if they feel the area you’re leasing is high-demand, they may request that you sign a short-term option. Agreements should take consideration of all involved though, and you should strive for a happy medium.

How is an option exercised?

You’ll need to review your lease to ensure you are completely familiar with the terms of your option clause and the date on which your current lease expires. This is because it’s your responsibility as a tenant to exercise the option – don’t rely on the landlord to remind you! 

In most cases, you’ll have a window of opportunity – which is usually around three to six months before the end of lease date – in which to notify the landlord of your intent to renew the lease.

The terms of your option clause will most likely require you to do this in writing, so make your request clear and unequivocal so that there’s no mistake about your intentions. This should be delivered by mail to the landlord’s business address and should include details such as the address of the leased property, your full name, business name, all relevant dates and your signature.

A new lease or deed of renewal should then be signed by all parties as soon as possible after the exercise of the option. This is very important because an option clause is only an agreement to renew the lease, so until ‘all the I’s are dotted and the T’s are crossed’ in accordance with the terms of the option to renew, you won’t have a safe ongoing tenure.

What changes can occur with rent?

As mentioned above, when an option is exercised, this usually results in a rent review – the formula of which will be set out in the lease terms. You’ll also always have the right to request a market rent review yourself, under Retail Leases legislation.

If a rent review amount hasn’t been determined before the option date comes into effect, then the option period may be extended by law (and this varies by state or territory) until you, the tenant, has been officially notified of the amount. Because of this, you are relieved of having to exercise your rights to an option if you’re not certain of being able to afford a higher rent incurred as the result of a review. If it turns out you can’t afford it, you can then just seek a new property to lease.

Remember …

A lease option is a great idea for many business owners and landlords alike, so remember to negotiate an option to renew in your lease contract if you’d like long-term security in the one location.

How to get customers paying quicker

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There’s nothing that staggers business growth and success quite like late paying customers.

Like a lot of small businesses, cash flow was the main challenge for LiveWorks, an independent experiential marketing and promotional staffing agency, established in 2004.

Director Robert Marson works hard to bring brands to life including an exciting campaign for Intel to demonstrate their latest tech. But more often than not, delivering campaigns for large clients has meant incurring significant costs along the way. Waiting on payments brings about 50 percent of the pressure and stress of any individual job, says Marson, and juggling finances to find the money to pay suppliers can be a difficult feat if not carefully managed.

Anthony Igra, General Manager of Contractors Debt Recovery, chatted to Marson about his business and offered valuable and actionable ways that they can turn this model around.

First he explains how to:

#1. Recondition your clients and change their perception

#2. Consider a milestone payment strategy (staged payments) so there is only a small amount outstanding at the end of the project

Don’t be scared to chase big businesses for money otherwise you’re their bank.

Know how well your business is performing

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What are key performance indicators (KPIs) and how can using them give you better business insight?

“’Key’ means main/important; ‘Performance’ – how are we doing?; ‘Indicators’ – as in a warning system. They’re very useful,” said Emma Warren, business development mentor.

KPIs should inform business decisions

KPIs help you measure the success of your business that way you know what’s going well and what needs improving. They are different for each business but the basic principle is the same – to understand the important aspects of your business so you can make effective, strategic and informed decisions and your business remains in good health.

Choosing what to measure and identifying key areas

KPIs are usually contained and calculated from your financial data, found within your accounting system.

Don’t overcomplicate things. These five KPIs will help you answer the question: how well is my business running?

Key area number 1: Cash flow

To get a clear view of your cash flow you need to start measuring things like: debtor days, average margins and net profit percentages.

Key area number 2: Repeat customers

It’s nice knowing you’ve got new customers coming in the door, but it’s even better know who’s coming back, how often and what they’re spending. This way you understand your ability to generate recurring revenue.

Key area number 3: Month on month growth rates

Having a dashboard with your monthly revenue allows you to calculate how well your business is growing.

Key area number 4: Website traffic

Improve your marketing strategy and reach by understanding your search rankings, keyword performance and traffic source of sales.

Key area number 5: Referrals

Customer referrals are probably the most important KPI you’re not measuring. This indicator is important for a number of reasons, especially given that customer referrals and social media sharing have become a major driver of revenue for online and offline brands.

Once you have set goals and selected KPIs, monitoring those indicators should become an everyday exercise.

Three ways to stop budget blowouts

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Small business owners are no strangers to cash flow problems. Even the most carefully prepared budget can end up a burden through unforeseen circumstances or, circumstances that you should of seen.

Create an early warning system
Getting a good handle on the finances is one of the most crucial jobs of a business owner and creating a financial plan is key to creating a safety net.

When creating a financial plan, business owners need to make projections for the coming months, forecasting income and expenses. These projections will act as an early warning system, helping businesses plan for cash flow dips, identify financing needs and help pinpoint the best timing for projects.

How technology can assist you
Mobile technology is transforming small businesses across the country, everyone from tradies to retail owners are using technology solutions to reduce time intensive manual processes.

One of the great advancements has been in cloud accounting software; business owners no longer need to spend hours trawling through paper invoices and spreadsheets. Cloud accounting automates complex tasks, saving money, increasing productivity and eliminating the manual processes that can cause errors.

Give yourself a contingency plan

Planning is one of the most important parts to minimising budget blowouts. A contingency plan will allow a business to respond effectively to an event or situation that might happen in the future. These risks can appear at any time and minimising them is an essential part of planning.

One of the simplest ways is to reserve some profits. If you spend profit as quickly as it comes in, when an unexpected event or loss hits the business you might find yourself suddenly in the red. Reserving some of your profits is one of the smartest things business owners can do.

5 must-know steps when selecting accounting software

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Balancing the books has come a long way in 20 years. Dusty leather-bound ledgers have been replaced by comprehensive accounting software that saves you time, gives you instant data, and improves cash flow. But where do you start with so many options available?

Finding the right accounting or bookkeeping software for your business can be difficult. How do you know which software will tick all the boxes now, while having the scalability to grow with your business into the future?

Choosing the right software takes time and some research. There is no clear winner out there, as every business and every industry is unique. Here, we set out five steps you should take whether you are choosing accounting software for the first time or re-evaluating your existing system.

1. Identify your needs and wants from accounting software

Before you start shopping for accounting or bookkeeping software, you should write a list of all the ‘needs’ for your new software system. Beyond the basics – like invoicing, accounts receivable and BAS reporting – these needs may include:

  • Do you have staff? Then it should include a payroll function.
  • Are you in retail? Inventory management is a must-have.
  • Are you often on the road or working remotely? Then it would be useful to keep data in the cloud.
  • Do you use a CRM, ERP or POS? Then you’ll need to make sure the systems talk to each other.

You should also think about how your new accounting software could help your business grow. These are your ‘wants’. In evaluating your wants, ask yourself questions like:

  • What processes currently swallow up excessive admin time, which could otherwise be spent on sales and marketing?
  • What business data – if it were available in real-time on a simple dashboard – would help you make more strategic decisions?
  • Do you plan overseas expansion or want to work with overseas suppliers, which would require a system capable of handling foreign currencies?

Together, these needs and wants form an invaluable shopping list, which you can then take to all your software vendors.

2. Develop a short-list of accounting software vendors

If you have the time or inclination, you could download a trial of every accounting software on the market and methodically work your way through each one to make sure it has everything you need. Yet running a small business is a massive job in itself, and most of us don’t have this luxury.

Instead, create a short-list. Speak to other business owners in your industry, chat to your accountant, take a look at vendors’ websites, read online reviews. It will soon become apparent that there are three or four options that could give you what you need.

“There is no clear winner out there, as every business and every industry is unique.”

3. Try before you buy

With these options in your shopping basket, now’s the time to try them out. All accounting software vendors should offer a free trial which you can download from the web. During your trial, consider things like:

  • Ease of use. Is it intuitive? Can you navigate your way around the software easily?
  • Does it generate the reports you need, from cashflow basics to year-on-year comparisons of your net position?
  • Your needs and wants. Make sure it ticks all the boxes from your shopping list above, including all of the things you think you may need in coming years.
  • For online accounting software, is the data stored locally or offshore? Check the credentials of the software company to ensure your data is safe.
  • Does the software come with live chat or other support? Does the vendor provide training to help you get the most from the software?

4. Weigh up cost vs benefit

Now that you have a good idea of the features and functionality of your chosen accounting packages, you can more accurately weigh up the cost vs benefit of each one.

The cost of each is a no-brainer, as it’s typically set in stone by the vendor (beware hidden costs like set-up fees or integration with other software). The benefits are less tangible and require a little thinking on your behalf. For example, you should try to quantify the admin time saved – if data entry becomes a breeze and you don’t have to re-type numbers across different systems, then you’ve potentially saved on admin fees. Or, you may find that a particular type or style of reporting is giving you new insights that help your business grow.

5. Sign on the dotted line

Having followed all the steps above, you should feel confident to sign up with a particular bookkeeping or accounting software. Take your time in setting up the software to fit the needs of your business – it pays to get the implementation right so you don’t need to go back and make changes down the track. Then, train any employees who will be using the software so that they, too, can extract maximum benefit from the new system. You’ll be up and running in no time, feeling confident that you’ve got the right accounting software for your business.