Don t Leave Profit on the Table

Transcription

1 22-24 Bourke Street Tamworth NSW 2340 Ph: n Derby Street Walcha NSW 2354 Ph: Don t Leave Profit on the Table The vast majority of businesses owners in this country work hard, very hard. However, despite their best efforts, a lot of businesses never reach their full profit poten al. There s no doubt, to create a successful business you need to do research and planning plus you need to take risks. There are very few shortcuts to success and no amount of enthusiasm, passion, talent or hard work can guarantee business success. While there are a mul tude of reasons why a business can fail, there are even more reasons why a business underperforms. The wrong product, incorrect pricing, a poor loca on and a lack of marke ng can all drag down your bo om line profit. Bad ming and simply not minding your own business by maintaining quality financial records can also impact on your profit. Of course, some of these issues a business owner can control while others are out of your control including economic condi ons, new technology or natural disasters. Profit is how we keep the score in business and it is also a consequence of decisions made by management. The mission is to maximise your profit and when you sell your business, the valua on might also be a mul ple of your profit so it s important to con nually grow your profits. Fundamentally there are only four ways to grow your business and your profit: 1. Increase the Number of (Ideal) Customers 2. Get the Customers to Buy More O en 3. Increase the Average Sale Value 4. Improve Your Systems & Processes It doesn t ma er if you run a physiotherapy, plumbing or pain ng business, the first step in growing your business is to iden fy these 3 key numbers: a) Your number of customers b) How many mes each year those customers transact with you c) The average customer sale value or transac on amount To illustrate the point, let s assume you run a hairdressing salon and your metrics are as follow: Number of Customers Average Transac on Value Avg. Transac ons per Annum Equals Turnover 250 $125 6 $187,500 It s basic mathema cs to arrive at the turnover figure of $187,500. They say you can only manage what you measure so it s important that you know these three numbers in your business. If the business has rent of $50,000 plus wages of $45,000 and other costs of say $15,000 (including rates, insurance, repairs and consumable products) then the business profit would be $77,500. Assuming your business was valued at 2 mes your profit (before interest and tax) it would be worth $155,000. The greatest compliment we receive from our clients is the referral of their friends, family PKF s On The Money June 2018 Page and business colleagues. Thank you for your support and trust.

2 Don t Leave Profit on the Table Now, let s look at the profit improvement poten al in the business by increasing some of these key performance indicators. The simplest example is increase your average sale price by 10% so it goes from $125 to $ That might be as simple as pu ng your prices up or alterna vely you start up-selling so each customer buys some hair product on leaving the salon. Mul plying the numbers through, your turnover goes from $187,500 to $206,250. The $18,750 increase in revenue goes almost en rely to your bo om line profit. Let s now look at what happens if we can get an increase in more than one of your key performance indicators. If you could increase your number of customers by 10%, increase your prices by 10% and get your customers to come in for a haircut 7 mes a year (instead of the current 6 mes) what impact would that have on your business turnover and profit? As you ll see below, the business turnover rises by an incredible 41% to $264,688. The compounding effect is massive! Number of Customers Average Transac on Value Avg. Transac ons per Annum Equals Turnover 275 $ $264,688 With the extra number of haircuts, you might have to employ a part me hairdresser, so we will allow an extra $15,000 for wages and hair product you might consume delivering these services. The business profit increases by $46,021 (59.38%) from $77,500 to $123,521. Not only that, because of the profit improvement, the value of the business has increased by $138,063 from $232,500 to $370,563. A 10% increase in price combined with a 10% increase in the number of customers plus ge ng customers to come and buy one extra me per year is probably achievable for any hairdresser, but what can your business achieve? Can you iden fy the 3 key performance indicators in your business? Financial modelling will help to iden fy the profit improvement poten al in your business and let you set some financial targets for the next financial year. Think about how you are going to a ract more customers, get exis ng customers to spend more with you and buy from you more o en. As your accountant, we don t want you leaving any poten al profit on the table. Talk to us today on ways to improve the profitability of your business. PKF s On The Money June 2018 Page 2

3 Looking For More Traffic To Your Website? A lot of small business websites are like billboards in the desert. They are a rac ve and flashy but with no passing traffic they don t generate new customers or sales. The business and marke ng landscape has changed and the 2018 Telstra Small Business Intelligence Report suggests that 47% of customers under the age of 40 use a search engine to find or research a small business at least once a day. As such, the first touch point with a prospec ve new customer, client or pa ent is probably going to be your website. Even people referred to you will check out your website before they call. An amateurish website makes a bad first impression and could be cos ng you sales. if your website is an electronic brochure that simply lists the who, what and where of the business then it s me for an upgrade, makeover or replacement. Tradi onal marke ng methods like print, radio and television have lost their marke ng mojo and are being replaced by online marke ng tac cs including Google searches, content marke ng, marke ng and social media. Your website is your primary marke ng engine so let s look at how to drive more traffic to your website. SEARCH ENGINE OPTIMISATION (SEO) SEO is the process of improving your website s page rankings on Google and the other search engines. Google search results are determined by an algorithm or computerised set of formulas and they constantly change. Search engine op misa on describes a series of techniques you can use to improve the relevance and ranking of your website pages. The end goal is to get your website to appear on the first page of the search results for your primary keywords or phrases because sta s cally, most people don t look beyond those results. SEO relies heavily on your content and keywords. ❶ Content Marke ng I m sure you re familiar with the expression, content is king. From an SEO point of view, your content is cri cal because Google wants to give its users the most accurate and relevant search results. Your content is the primary material that Google uses to produce their results. The good news is, Google provides a level playing field so if your content is original, fresh and relevant to the search phrase, you can outrank your larger compe tors. Of course, your fresh, new content can posi on you as an expert in your field and also integrate with other marke ng channels like your social media to increase exposure and engagement with your target markets. The ul mate outcome is to create more leads, increase conversions and generate more customers. If you are crea ng your own content it will only cost your me and don t forget, your content is more than just a web page and includes video, blogs, newsle ers, e-books, checklists and templates. ❷ Social Media Facebook is a very powerful marke ng tool that provides two dis nct marke ng op ons - organic content and paid ads. Organic content is the content you post on your business Facebook page and there is no cost associated with this op on. You simply need a Facebook account and the purpose is to post relevant content that engages with your target market and build a rela onship with your community of followers. Organic social media posts serve to posi on you as an expert in your field, a thought leader in your industry plus provide a touch point with your customers or clients to keep you in their thoughts. Social media is an effec ve way to distribute your valuable content and can spread organically across your en re network and beyond if people share your content with their network. It s a compounding effect but if your organic content isn't delivering the results you want you can look to paid adver sing methods to boost the results. Facebook adver sing is a whole new world that lets you create a marke ng campaign that targets your ideal type of customer of client. Facebook provides a variety of ad types that are designed to a ract more traffic to your website, win more sales or get more social engagement. Facebook adver sing also lets you re-target your previous customers to increase reten on and improve your sales. PKF s On The Money June 2018 Page 3

4 ATO Audits A Blitz on Cash-Based Businesses The Australian Taxa on Office (ATO) has launched a highly successful neighbourhood-by-neighbourhood blitz on areas with high concentra ons of cash-only businesses, already ne ng $200 million and the programme s success guarantees further strikes on other neighbourhoods to follow. As an example, the ATO staff visited 131 small businesses in the suburb of Box Hill in the Eastern Suburbs of Melbourne and audited 31 of them to find around $8 million in unreported payments. To date, $1.8 million has been paid back in taxes and penal es. Over the last year, 11,000 cash business audits have been conducted with seven out of ten having to increase their tax paid, yielding $197 million in tax liabili es. The key areas targeted so far include: Canberra, Perth and Gold Coast CBDs. Sunnnybank in Brisbane. Adelaide CBD and Glenelg in South Australia. Haymarket, Cabrama a and Liverpool in Sydney. Box Hill, Glen Waverley and Werribee in Melbourne. According to the Tax Commissioner, Chris Jordan, these suburbs have been targeted because they had been iden fied as having high cash economy risk behaviours. This includes cash only signs, lack of business and industry educa on and poor record keeping. He said businesses that dealt only in cash were more easily able to avoid tax and their superannuaon obliga ons. The industries heavily targeted as part of the audit blitz included: Restaurants Cafes Pubs Food and Clothing Retail Hairdressers Beauty Salons The Commissioner also said the Tax Office would con nue to target these cash-based industries who are characterised by low use of merchant banking facili es. The most common concerns of the ATO were employers paying cash in hand to staff, under-reported income, failure to report withholding tax from wages and not paying the correct amount of staff superannua on. Mr Jordan has previously warned cash-heavy businesses that they are in the firing line. He cited a number of common breaches that they are on the lookout for including cash registers that don t have ll tapes, transac on records that show a large number of no sale or voided transac ons and the use of a wallet as a cash drawer. Jordan also said visits to businesses throughout 2017 revealed many operators who were running businesses despite not having proper ABN or GST registra ons. Mr Jordan revealed that the sneak a ack on the black economy is his own personal ini a ve and it has revealed some interes ng trends. Some suburbs have a predominance of cash-only businesses, forcing other local businesses to also only deal in cash-only or lose business. The ATO is also inves ga ng links between high immigrant popula ons, high cash-only businesses and a high distribu on of $100 notes. The black economy taskforce is inves ga ng installa on of hi-tech chips on $100 notes or including an expira on date. The ATO believes there is around 1.6 million small businesses opera ng within the cash and hidden economy across 234 high cash volume industries. PKF s On The Money June 2018 Page 4

5 When Can You Access Your Super? It s a very common ques on and superannua on laws constantly change. You ve worked hard to build up a nest egg and everyone wants to re re sooner rather than later. You might also have grand plans and to make it all happen you need to know when you can tap into your superannua on. As you would be aware, the government puts restric ons on when you can draw down and access your superannua on so that you use your superannua on savings for re rement purposes. You can generally only access your super: When you turn 65 (regardless of whether you con nue working or not). When you reach your preserva on age and permanently re re. When you reach your preserva on age and start a Transi on to Re rement Income Stream. If you become permanently disabled or terminally ill. In some special circumstances including compassionate grounds and severe financial hardship. What is Your Preserva on Age? Your preserva on age is the age at which you are generally first allowed to access your super. It s up to you to decide the right me to draw down your superannua on savings. You need to examine how the ming of reaching your preserva on age fits in with your projected financial situa on and personal circumstances. For example, you may pay tax if you withdraw your super before you turn 60, either via an income stream or as a lump sum, although some of it might be tax-free (Tax may s ll apply to withdrawals a er age 60 from untaxed funds such as some of the public sector funds, and, as of 1st July 2017, certain recipients of private and public defined benefit pensions which may exceed the $1.6 million transfer balance cap). Calcula ng your preserva on age depends on your date of birth. When you turn 65, you can generally access your superannuaon regardless of whether you re re or not. Accessing Your Superannua on through a Transi on to Re rement Income Stream (TRIS) When you reach your preserva on age, you may be able to reduce your working hours without reducing your income by accessing your super as a Transi on to Re rement Income Stream. TRIS strategies can be implemented whether working full me or part me. Your Birthday Your Preservation Age Before 1 July July June July June July June July June From 1 July Work full me while your employer con nues to make contribu ons into your superannua on account. You may also salary sacrifice into your superannua on. The amount you sacrifice is then supplemented by a Transi on to Re rement Pension drawn from your super. This op on has become less a rac ve because as of 1 st July 2017, earnings on TRIS assets are no longer tax exempt and a ract 15% earnings tax. It is s ll possible for some income earners that the TRIS payments may be taxed at a lower tax rate than the salary they have replaced. OR Cut down your working hours and draw on your super through a Transi on to Re rement Income Stream to supplement your lost income. Transi oning to Re rement Income Streams have become less a rac ve since the removal of the tax exemp on on pension asset earnings for TRISs (effec ve 1 st July 2017) along with the cut in concessional contribu ons cap to $25,000 as of the same date. We strongly recommend you seek financial planning advice from a financial planner to help you decide if it s the right choice for you and your par cular circumstances. PKF s On The Money June 2018 Page 5

6 2018 Tax Return Client Checklist June Individual Tax Returns Income Gross salary, wages, allowances, benefits, earnings, ps, Directors Fees and Insurance for lost wages. Income from business ac vi es. PAYG Payment Summaries. Details of any non-cash benefits received including discount(s) on employee shares or rights. Lump sum and termina on payments. All documenta on should be provided including an ETP Payment Summary from the employer or fund. Government Social Security payments, including pensions, unemployment and sickness benefits. Details of any CGT asset sales (e.g. shares, business and real estate). Please include dates of, and costs associated with, acquisi on and disposal (You can save tax if you qualify for the variety of CGT concessions). Annui es, including allocated pensions or superannua on income streams. Income from trusts and partnerships. Statements of distribu on should be provided where appropriate. Rental income. Interest and dividends received from any source including life insurance or friendly society bonuses and any tax deducted. Include details of franked dividends (i.e. imputa on credits). Foreign source (employment and pension) income and details of any foreign tax credits, assets or property. Deduc ons Investment and property expenses (carefully detail interest and repair claims), supply statements. Work-related subscrip ons or memberships (not including spor ng or social clubs). Employment related expenditure such as self-educa on, protec ve clothing, tools, union fees, uniform and laundry expenses. Motor vehicle expenses, car finance lease statements (include petrol, repairs, parking and maintain a Motor Vehicle Log Book where necessary). Dona ons of $2 and over. Income Protec on Insurance Premiums. For Self-Employed persons, details of any Superannua on Contribu ons made. Home office expenses where employment requires use of your computer, phone or other device. Tax Agent Fees and other accoun ng/tax audit fees. Special deduc ons (Australian films, investment shelters and agribusiness-type schemes). Unrecouped prior year losses. New Clients Last year s No ce of Assessment and Tax Return (if available) Rebates Private health insurance annual statement. Details of superannua on contribu ons where no tax deduc on can be claimed. Any changes in dependants, children s details, DOB and any Centrelink benefits applicable (income of spouse should also be provided). Details of any income received in a lump sum which was accrued in earlier income years (e.g. assessable pensions). Details of any remote work performed for 183 days or more. Note: The net family medical expenses tax offset is being phased out and for 2017/18 & 2018/19 is restricted to net eligible expenses for disability aids, a endant care or aged care and will cease 1st July 2019 altogether. HECS-HELP Debt details. 8 Most Common Errors in Income Tax Returns 1. Omi ng Interest Income 2. Incorrect or Omi ed Dividends Imputa on Credits 3. Capital Gains/Losses are Incorrect or Omi ed 4. Understa ng Income 5. Home Office Expenses 6. Deprecia on on Rental Property Fixtures and Fi ngs 7. Deprecia on on Income Producing Buildings 8. Borrowing Costs associated with Nega ve Gearing

7 Companies, Partnerships, Trusts and Other Businesses Income Trading Income. Other Income (e.g. Rent, Interest, Royal es). Stock on Hand at June 30, 2018 (and basis of valua on) note any obsolete stock. Work-in-Progress at June 30, 2018 Primary Producer subsidies (if assessable). Details of CGT assets (e.g. shares and real estate) sold, including dates of, and costs associated with acquisi on and disposal. Dividends, including details of franking credits. Income from foreign sources including details of any foreign taxes paid. Deduc ons Repairs and maintenance. Salaries, including fringe benefits. Fringe benefits tax paid. Rates, land taxes and insurance premiums. Adver sing expenses. Interest on borrowed monies. Deduc ons rela ng to foreignsource income. Prepaid expenses (subject to transi onal rules). Re rement payments and golden handshakes. Bad debts actually wri en off during the year. Dona ons of $2 and over depending on the recipient. Commissions. Legal expenses. Lease or Cha el Mortgage payments on motor vehicles and equipment. Losses of previous years (or intra-group transfers). Superannua on contribu ons. Subscrip ons. Car expenses (remember to include petrol, repairs and parking and maintain a log book where necessary). Tax agent s fees and other accoun ng and tax audit fees. Royal es paid. Details of the des na on and purpose of any interstate or overseas trip. Expenses must be fully documented where travel involves at least one night away from home. Travel diaries should be included where travel exceeds five nights. Research and development expenditure. Bank fees (where the credit or deposit represents assessable income). Liabili es New loans taken out during the year and their purpose, including any new lease or cha el mortgage agreements on vehicles, equipment or machinery. Statements from the lending authority detailing the opening and closing balances of exis ng loans during the financial year. Provisions for long service and annual leave. Creditors at June 30, Details of loan accounts to directors, shareholders, beneficiaries and partners. Accrued expenses (e.g. audit fees, interest payments). Commercial debts forgiven. Assets Details of depreciable assets acquired and/or disposed of during this income year, including: type of asset; date of acquisi on; considera on received/paid. Lease commitments. Debtors at June 30, Commercial debts forgiven. Addi onal Informa on Required Franking account details/ movements. Overseas transac ons, exchange gains/losses. Private companies remunera on or loans to directors, shareholders and their rela ves. Changes to the capital of the company. Whether family trust elec ons have been made in rela on to trusts. Note: To ensure that you obtain the maximum deduc ons to which you are en tled and in considera on of the penalty provisions, FULL DETAILS of any claim should be provided and suppor ng documenta on made available. For employee taxpayers and for travel and motor vehicle claims by self-employed taxpayers, documenta on must be a receipt, tax invoice or similar document which contains certain details. For other taxpayers, documenta on may comprise receipts, dockets, diary nota ons or reasonable and suppor ng es mates. IMPORTANT DISCLAIMER: This document contains general advice only and is prepared without taking into account your par cular objec ves, financial circumstances and needs. The informa on provided is not a subs tute for legal, tax and financial product advice. Before making any decision based on this informa on, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances. While the firm believes the informa on is accurate, no warranty is given as to its accuracy and persons who rely on this informa on do so at their own risk. The informa on provided in this bulle n is not considered financial product advice for the purposes of the Corpora ons Act 2001.