May 2019 Newsletter

How do you compare?

There are a number of ways to work out just how well your business is faring but an easy first step is to use the Australian Tax Office’s small business benchmarks.

This tool lets you compare your business with others in your industry using appropriate benchmarks such as turnover range and expenses.

If you are outside the benchmarks, whether above or below, then it may be worthwhile looking at such things as the rate you pay for inputs, the price you sell, the level of inventory you carry or whether you are reporting your expenses accurately.

If you are outside the benchmarks, whether above or below, then it may be worthwhile looking at such things as the rate you pay for inputs, the price you sell, the level of inventory you carry or whether you are reporting your expenses accurately.

Check your ratios

Financial ratios are another useful method to determine fitness. You can check your business’ liquidity, solvency, profitability, management and balance sheet through ratios.

For example, working out your solvency ratios shows how easily you can meet your debt obligations from sources other than cash flow. Management ratios can identify how quickly you can replace stock, how often you collect debts and how frequently you pay your suppliers

It might be good to talk with us about how to calculate and interpret these ratios for your future planning..

Key warning signs

Generally, there are five key warning signs that your business is not performing well and could be heading for trouble. These are an inability to pay debts, poor profitability, no access to finance, high staff turnover and inadequate financial records.

If any of these are occurring in your company, then we can help you make changes to rectify the situation.

For instance, if you are facing difficulty paying your bills, it may be time to improve your cash flow either by selling old stock at a discount, chasing outstanding debts or talking to your bank to alleviate your situation. Looking forward, you could prepare weekly cash flow forecasts so you control your outgoings and income.

If your profitability appears to be failing, take a look at what may have triggered this state of affairs. Perhaps you are failing to pass on cost increases sufficiently to your customers or maybe you are carrying more staff than your turnover can support.

If your issue is high staff turnover, then focus on the attributes you want in new employees and develop a recruitment plan. You might also consider ways to improve employee engagement, such as encouraging and rewarding them to put forward ideas to improve the business.

Managing risk

In a challenging business environment, all businesses can be at risk of failure. The key is to manage your risk.

Risks can come in many forms – strategic, compliance, financial, operational, environmental and reputational. Today’s businesses are also facing new challenges, from structural changes in their industry to cyber crime and the potential for disgruntled customers to damage your reputation in online forums.

By recognising the risks your business is exposed to and having a strategy, you can head off problems before they become critical. What’s more, you may be able to use your relative strength to take advantage of opportunities in the marketplace.

Even if you are confident your business is fundamentally sound, constant financial monitoring will ensure it stays that way.

If you would like assistance in determining how your business is shaping up, give us a call.

Source: https://www.business.vic.gov.au/money-profit-and-accounting/financial-processes-and-procedures/check-your-financial-health/

Historical legacy

Throughout history there have been many remarkable mentor relationships. Perhaps the most famous is the multigenerational legacy of Socrates, Plato and Aristotle who developed upon each other’s philosophies over the course of decades. For a modern example we need look no further than Steve Jobs and Mark Zuckerberg who reportedly used to take long walks together to discuss the future of tech. The lesson here is that no person is an island. Pioneers have always built upon the knowledge of others and received support to enable their own success.

Despite this historical legacy, according to a recent Deloitte review only a minority of Australian respondents reported having a mentor in spite of the proven professional benefits.iThese are not isolated to the individual however, companies can benefit enormously from supporting professional mentorship programs. Staff retention is one area. Those who do receive mentoring in-house are twice as likely to stay with a business for more than five years.i

So how can you benefit?

If you are looking to develop your career finding a mentor has two main benefits.

1. You can learn from the mistakes and successes of those who’ve done it all before.
2. You can leverage the networks they’ve taken years to build.

How to form a meaningful relationship with a mentor

Choosing the right mentor is the first and most important step. You need to think critically here. It’s not always best to choose your hero, so much as it is to find someone who will work well with you, who is generous with their time, a good listener and whose skill set fills the gaps in your own.

Once you’ve chosen your mentor, approach them for a coffee looking for some advice. Don’t ask flat out that you want to build a mentor relationship. It’s important to test the waters first and let the relationship develop organically. Further, if at any point it becomes clear either party isn’t benefiting from the situation, it’s best to leave it rather than waste each other’s time.

Be clear about what you want from the relationship. No doubt you have goals for your career or business, and you might have some obstacles you’re finding really hard to overcome. Understand what they are and get advice from your mentor that speaks directly to these.

One of the greatest benefits of having a mentor is that they can advocate for you amongst their network which opens you up to new opportunities.

Finally, resist the urge for this to become therapy. It’s about professional development, so endeavour to keep your attitude positive, proactive and goals-focused.

Paying it back

Often the mentor relationship can feel one-way, but if well managed it can be mutually beneficial. For one, mentors can learn a lot through the act of teaching. It brings you back to basics. And secondly, the social contract implies that if you have received this wisdom, down the track or even simultaneously you can pay it forward. Therefore, if you are in a position to, give up an hour or two from your week to help along a younger or less experience colleague. There is only so much we can learn in institutional settings; hands-on experience is so valuable to anyone trying to get a leg up in the workforce.

There are so many positives to having or being a mentor, both professionally and interpersonally. The benefits to both individuals and business is hard to deny. 

Home to work travel expenses

Employees generally can’t claim for the cost of travel from home to work as this is considered a private expense. It’s worth noting, however, that there are some circumstances where you may be entitled to a deduction.

You can claim the cost of work-related travel if you are travelling directly between two separate workplaces, such as if you have a second job at another location. Travel from your normal workplace to an alternative workplace (such as a client’s premises) and back to your normal workplace or directly home is also claimable.

You can also claim the travel cost of carrying bulky work tools or equipment that can’t be left at your workplace.

Claims for the cost of driving your car between work and home and completing a minor work related task like picking up the mail will not be accepted.

Staying overnight for work

If your work takes you away from home for one or more nights, the rules change slightly. For your travel expenses to be deductible, you need written evidence of all expenses, and if the trip is for six or more consecutive nights, you need to keep a travel diary.

Some employers pay a travel allowance to cover your travel costs rather than asking you to pay for your expenses and reimbursing you later.

Each year the ATO releases a list of ‘reasonable amounts’ for accommodation, meals and incidentals. Reasonable amounts are the maximum you can claim without written evidence of the expense and are not an automatic deduction – you must have actually incurred the expense.

Travelling for work and play

When you travel for work – especially overseas – it’s tempting to add a short holiday to the trip, but you need to be careful about what you claim.

You can only claim travel expenses where there is a direct connection between your employment and the expense. This means if you add a short holiday to a work trip, you can’t claim all your expenses for the entire time you are away from home.

The ATO accepts some elements of business travel will be private, but these must be incidental to the overall purpose of the trip, not its main purpose. For example, if the main reason for your trip is business and you spend a few hours visiting family, all the airfare can still be claimed. Travel costs like car hire or train fares on the days you are working can also be claimed.

If part of your trip is for private enjoyment, your travel expenses must be carefully apportioned between the private and business components. For example, if you stay in a hotel for four days, with three days spent in business-related activities and the final day on private enjoyment, you can only claim three-quarters of your expenses. In this situation you can still claim the full airfare, as the primary purpose of the trip was work-related.

If this situation is reversed, however, your business activities would be considered minor and incidental to the purpose of the trip, making it harder to claim your expenses.

Generally, costs incurred by your spouse or family members who accompany you are not deductible unless they are involved in the business activities in some way.

If you would like to know what travel-related expenses you should be claiming in your annual tax return, give us a call.