Small business benchmarks are financial ratios developed to help you compare your performance against similar businesses in your industry. The benchmarks provide guidance on what figures we would normally expect a business in a particular industry to report.

We use benchmarks to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. To do that, we use the benchmark, called the key benchmark ratio, considered to be the most accurate predictor of business turnover for each industry. We may also use that key benchmark to quantify income that has not been reported. We clearly highlight this benchmark for each industry on our website to help businesses and tax practitioners.

Benchmarks are published for businesses with different turnover ranges across more than 100 industries. The benchmarks are published as a range, to recognise the variations that occur between businesses. These ranges are representative of returns and activity statements of the industry; for example, they allow for variations between businesses in different regions and with different business circumstances.

For some industries motor vehicle expenses may be published as a single percentage figure rather than as a range as the variation in this benchmark is minimal.

By publishing benchmarks for small businesses we are making it clear what we expect from businesses in a particular industry. In doing so we are making it fairer for everyone.

Businesses reporting outside the benchmarks may attract our attention. There may be reasons for this difference, such as higher costs or lower selling prices than others in the industry, but it may also be an indication that the business is not recording and paying tax on all transactions, especially cash transactions.

If you find you are outside the benchmarks for your industry, you should check that you have correctly recorded and reported income and deductions for your business. To do this you should review your record-keeping practices to ensure they meet the legal requirements.

Source: Australia Taxation Office

We can provide monthly or quarterly reports that will highlight benchmarks and ratios that are both important to your business and under the ATO’s radar. For more information on what reports we can provide and the ratios that are important to your business please call us on 02 4353 0569 or contact us here.

To discuss how business benchmarks affect your business please call us on 02 4353 0569.

This is the ATO’s answer:

What does all that mean in plain English?

If you don’t pay your employees super, or pay it late, you will have to spend hours filling out ATO forms (1 per employee per quarter late/unpaid) and then pay $20 per employee per quarter plus 10% interest on their contributions. Apart from having unpaid super the employees may well prefer this return on their super, but as you can see, creates a significant expense for your business.

We work with business of all sizes to efficiently work through this formidable process and then help you to know exactly how much super is due when.

If you are dealing with unpaid super then please give us a call on 02 4353 0569 and we would be happy to help.

As an ATO officer once said “It’s just easier to pay your super on time!”.

“The primary objective of a manufacturing business [or any other business] is to produce, and if that objective is always kept, finance becomes a wholly secondary matter that has largely to do with bookkeeping.”

Henry Ford, 1922

This 90 year old advice is still relevant today and is the basis of how Close Financial Group empowers you around your finances. With our experienced team taking care of the finance and bookkeeping side of your business, you will have the time and information to ensure your business produces the goods or services that will turn into revenue and then profits.

Contact us today for more information.

J Douglas Edwards (US Sales Trainer) taught:

I must do the most productive thing possible at any given moment

What is te most productive thing for the small/medium business owner? It is simply to ensure that money is coming in and money going out is controlled. How does a business owner acheive this? By doing the most productive thing at any given moment for the business. Now this does not mean that business owners should neglect their health or their families, quite the contrary.

It means business owners need to be focused on those tasks that will generate the most efficient income by their core business. We have seen over the years many business owners lose focus because either they don’t have the right information or they are too busy trying to extract the information they need from their business they lose sight of actually making the money they are trying to measure.

A professional bookkeeping firm should empower business owners around their finances. Why? Because that is what they are good at. The if the business owner is empowered they can keep their focus on their goals and ambitions. They will lead a more productive and fulfilled life.

We know this because we have seen it with the clients we service.

To find out more about how we empower businesses around their finances call us on 02 4353 0569 or contact us here

Gobbledygook or gobbledegook (sometimes gobbledegoo) is any text containing jargon or especially convoluted English that results in it being excessively hard to understand or even incomprehensible. “Bureaucratese” is one form of gobbledygook. There are two distinct and opposite cases. One is that incomprehensible material is actual gibberish. In the other some abstruse material is either ineptly presented or is subjectively perceived to be gibberish due to a lack of preparation. The SMOG statistic for gobbledygook for example yields an index in terms of years of required education.

Source: Wikipedia

While there is plenty of this in the accounting profession but we try to keep it simple and in plain English so you know exactly what’s going on and what it means for your business. We are more than happy to explain accounting terms and ATO acronyms.

Business can be complex, but it doesn’t have to be. Call us today for a conversation with one of our professional interpreters.

In some cases businesses struggle through, in others they fall over in the growth phase.

Cash flow optimisation is important in the short term. You need to understand:

• your cash flow cycle
• the demands of extra trading stock
• the impact of increasing debtors; and
• the effect and timing of your basic operating costs.

Good cash flow forecasting is essential for any well run business. You need a realistic forecast that has been worked up from the operations and budget projections of your business.

This should then be accompanied by some sensitivity analysis, which is simply alternate forecasts that assess the effect if your basic assumptions are out by 10%, 20% or 30%.

However, cash flow management is not enough. Unless your cash flow forecasts are accompanied by a capital management plan you aren’t in control of your business.

Capital management starts by identifying how much capital the business needs and how much is being provided by the owners. The reality is that your business is only funded from capital, debt, and retained profits. In the early days of the business, there are no retained profits so it comes down to capital and debt.

From the start there is a continuing requirement for capital management. This is about understanding:

• the initial requirements or establishment costs of the business
• additional capital that will be required to fund growth
• the timing and amount required to replace or upgrade capital equipment
• funding required to repay loans and retire debt
• taxation requirements
• the expectations of the shareholders for access to profits

None of these items appear in the operating budgets of your business, yet each of these suck cash from the business. You could have a profitable business and be cash flow positive from operations, yet be under significant cash flow pressure.

If you want to grow your business successfully, then a capital management plan must be regularly reviewed and a capital expenditure budget should be prepared each year.

A capital expenditure budget details the amount of money needed to spend on capital items or fixed assets such as land, buildings, roads, equipment, etc. that are projected to generate income in the future. The capital budgeted should include replacement, acquisition, or construction of plants and major equipment, both generally and for individual capital expenditure projects.

Major causes of cashflow stress:

• working capital growing faster than revenue
• management “buying” sales at the expense of margin
• loss of a key customer
• general industry downturn or consolidation

Major warning signs of cashflow stress:

• difficulty in obtaining finance
• increase in staff turnover
• increasing creditor pressure
• inability to pay tax and superannuation liabilities
• impending banking covenant breaches

It is critical for management not to leave it too late so contact us for help. Many businesses that end up in receivership could have been saved if they had heeded early warning signs and sought advice at the appropriate time.

Source: Small Business NSW

The ‘break-even point’ of any business is the dollar value of sales the business must achieve to cover its fixed costs or overheads and so achieve a profit of $0. Knowing the breakeven point is helpful in deciding prices, setting sales budgets and preparing a business plan.

The break-even point has important strategic implications as well. The more certain a business is of reaching the breakeven point (due to, say, regular customers, guaranteed or contracted income), the lower the level of business risk. In other words, it is the minimum level of sales the business needs to avoid losing money.

Calculating the break-even point

Break-even (unit sales)* =

Total fixed costs $
______________

Selling price (per unit) – Variable cost (per unit)

* The number of units of goods you need to sell to break even

Break-even ($ sales revenue)**  =

Break-even (unit sales)   X   Selling price (per unit)

** The total value of sales needed to break even

Example of Break-even point

XY Company has:

Selling price (per unit)               $10

Variable cost (per unit)             $4

Total fixed costs                      $1,500

Break-even (unit sales)  =

$1,500 / $10 – $4 = 250 units

Any change that reduces selling prices or increases the cost of goods sold or increases fixed costs will increase the breakeven point, so the business needs to make more sales before it will start making a profit.

Conversely, increasing selling prices or reducing fixed costs will reduce the breakeven point, so the business needs to sell less before it makes a profit.

Source: Small Business NSW

Are you a spender or a hoarder?

Do you shun money like a monk or spend inordinate amounts of time fixated on it?

Your business is a reflection of you, the owner. Your attitude about money forms the financial foundation of your company.

There is so much truth to be found in your financial statements, yet most owners don’t realize this truth because they have never explored their attitude toward money.

Consider how you hold money. Are you tight with it, or loose?  Do you spend carelessly or quite carefully? What is most important to you when you make a purchase: prestige, value, or price? Do you like a nice cash cushion in the bank, or  do you prefer to use that extra cash to grow your business faster?  Or, do you simply wish that you could get to the point where either one of those choices were available to you?

You are not likely to consider questions like these unless you have a coach, attend an honest seminar on money, or have an especially brave accountant.

However, as a business owner, you should be asking yourself these questions.

Understanding Is Foundational

Recently, my client Dave, an IT consultant, confessed that he had no financial systems except to bill for his work and collect on his invoices.

“If you were flying from San Francisco to New York,” I asked him, “would you rather the pilot have a full instrument panel with all the relevant data, or  just a couple of simple gauges?”

“So you see me like a pilot flying without any gauges?” He asked.

“Yes Dave,” I said, “that’s pretty much how I see it. It can be a treacherous journey if you don’t have strong financial systems in place to be certain you’re pricing correctly, making a profit, and able to plan ahead enough to make mid-course corrections.”

“But I just don’t get how to put it all together,” he complained.

Lack of understanding is the typical excuse. Don’t buy into it.

It is completely within your grasp to understand basic accounting and have enough financial acumen to run your business.

But first, examine your attitudes. Remember?

If you think it’s going to be hard, then it is likely to live up to your expectations. It’s not so very difficult.  Seek out the basic foundational understanding through books, on-line courses, or seminars. Talk to your accountant. See if there is a savvy financial resource on your staff.

Admit what you don’t know, learn it, and then start putting that understanding into practice.

Routine is King

Regardless of who performs the tactical part of financial management, the numbers have to be input accurately.

Most small business owners probably begin by trying to keep their own books or having someone close to them do it.  This is not necessarily a bad thing, but as you grow you’ll need to start delegating the bookkeeping and working with your bookkeeper to generate regular financial reports.

Then, dedicate some time every month to review those financial reports in your role as the Chief Financial Officer (CFO).

Routine is crucial. Do this every month.  Hold it sacred. Make it a habit.

Sit with your completed Income Statement, Balance Sheet and Cash Statement.

I can guess your next question: “What do I do with them?”

The simple answer is to go line by line and ask yourself what each one means. Every number tells a story and every line on your financial reports relates to something that happens in your business. Make it your business to make the connection and know what they mean.

Get yourself a basic glossary of financial and accounting terms and keep it at your side.  Gross Profit?  Net Revenue?  Owner’s Equity?  Variable Expenses? EBITA?  Look it up. Then, when you’ve forgotten – look it up again!

Make an appointment with your accountant, or sit with your bookkeeper, and ask them to clarify the terms and walk you through each line item.

For the first few months, do nothing else but look at the numbers and get familiar with them. Line up four or five months in order and notice what may have changed from month to month. What’s the story behind that change? Ask yourself: “What was the decision I made that caused that to happen?”

Familiarity through repeated, regular exposure brings increased comfort and confidence.

Don’t Settle for the Rear View Mirror

You wouldn’t drive from Boston to Los Angeles looking only in the rear view mirror. You rely on the view through the windshield. The business equivalent is your Budget and Cash Plan.

After three to six months of faithfully meeting with yourself as CFO, you will be ready to start this truly exciting and powerful part of money management: proactive planning.

If you feel you should somehow get a free pass on these, check your attitude towards money again. Every single successful business has these forward-looking financial systems in place.

Deeper Flows of Systemic Fortune

So, now you are routinely reviewing your key financial reports, budgeting regularly, and are on top of your cash.

This is the time to dig deep within your financial “intelligence reports” and see if there are any veins of cash not being properly utilized or expenses you can reduce.

Once your controls are in place and you are forecasting the future, it’s the perfect time to start exploring how your money center systemically connects with your marketing and management centers.

It’s in the confluence of these three strategic centers that you discover the new opportunities to bring more value to your customers and increase cultural and operational efficiencies that further satisfy those customers.

But for any of that to occur, you truly must have your fingers on the pulse of your financial controls and indicators.

There is no excuse for not having great financial systems in your business.

You can do this. It’s much easier and less painful than you may believe.

And please share with us your own experience of overcoming your resistance to“knowing the numbers.”

Source: E-Myth Worldwide

The top government red tape offenders with medium to high levels of red tape are:

1. Australian Tax Office (57.0%)
2. Local Councils (55.5%)
3. NSW Department of Planning and Infrastructure (51.7%)
4. Australian Quarantine and Inspection Service (50.0%)
5. Fair Work Australia (49.7%)

Over the past two years, six out of ten businesses in NSW have experienced an increase in the cost (62.7%) and time (63.5%) it takes to comply with government red tape. Less than 1% (0.2%) of businesses surveyed said it had decreased.

Disturbingly, more than one in every ten (12.7%) businesses surveyed is spending over 20 hours a week on red tape. A further one in five (18.2%) is spending between six to ten hours.

“For all the rhetoric from every level of government about reducing regulatory burdens, the experience of businesses in NSW is one of increasing compliance costs and a mountain of red tape,” said Stephen Cartwright, CEO of NSW Business Chamber.

“Many of these government organisations and departments appearing on the Top 5 list will come as no surprise to business owners who have to deal with their reporting and regulatory requirements day in, day out.

“The ATO demonstrated during the GFC that it could be a supportive and flexible partner with the business community. That support was greatly appreciated by business operators during that tough period but sadly it appears the ATO has reverted to form.

“The message coming out loud and clear from this survey is that while the complexity of regulations themselves creates difficulty for business owners, the problem in a lot of cases is the fundamental operation of the government agency itself.

Mr Cartwright said complaints about government agencies included difficulty speaking to a representative and then getting accurate information, complex and unfriendly websites, inflexibility and unrealistic timeframes.

“There is a growing disconnect between expectations of government agencies and the realities of operating a business. Government agencies need to have a stronger customer focus just like the businesses they regulate.”

“The business environment is becoming more heavily regulated and that stifles creativity and innovation. Red tape is an impediment to growth and impacts costs, profits and employment.”

“Local council regulation and decision-making continues to be a cumbersome nightmare for business. Business wants certainty and timely decision making from local government – even if the answer is no – business owners want to know where they stand.”

Mr Cartwright said he was concerned by the response that half (50%) of businesses surveyed said red tape was having some impact on the growth of their business.

“We need strategies to remove the burden of red tape which prevents businesses from investing in the future growth of their enterprise. The effects of this are decreased employment opportunities and a weaker economy generating less revenue for government to invest in essential services and infrastructure.

“All this red tape acts as disincentive for the next generation of Australian entrepreneurs to take on the challenge of running their own business.”

Mr Cartwright said the NSW Business Chamber has been encouraged by the actions of the O’Farrell Government to date in prioritising red tape reduction, and in particular the fact that the Government has announced policy initiatives consistent with each of the primary recommendations set out in the Chamber’s Red Tape Action Plan.

The NSW Government has committed to:

Having all agencies pay their bills within 30 days or pay penalty interest.
Introducing a Standard Cost Model (SCM) for measuring the costs of regulation.
Implementing a “One On, Two Off‟ rule for new regulations. All departments and agencies seeking to introduce new regulation must identify two existing pieces of regulation to be removed.
Appointing a cross-border commissioner to help resolve some of the administrative and regulatory issues between NSW and the bordering states of Victoria, Queensland, South Australia and the Australian Capital Territory.
Achieving a 20 per cent reduction in red tape within its first term (5 per cent per annum).
“Business has enthusiastically welcomed the appointment of Yasmin King as NSW’s first Small Business Commissioner. The NSW Business Chamber will be collaborating with Ms King to reduce the red tape burden on the NSW business community.”

NSW Business Chamber undertook its annual Red Tape Survey of 581 businesses during November 2011.

Source: NSW Business Chamber

The GST property tool is designed to help you determine the GST implications for property-related transactions you make. This product is an interactive decision making tool based on questions and answers. It will assist you to correctly treat and report GST on property sales and other transactions.

The topics covered within the tool include:

• sale, lease or purchase of real property, including
  • residential premises
  • commercial residential premises
  • commercial premises
  • vacant land
• claiming GST credits
• margin scheme eligibility
• GST-free supplies of real property.

For more information check out the ATO Website or contact us.