Effectively managing your expenses is crucial for sustaining growth and ensuring profitability of your business, while ensuring you have a smoother journey along the way. Whether you’re a start-up or an established enterprise, maintaining control over your finances can be the difference between success and failure. Here are eight strategies to help you better manage your business expenses and keep your finances and operations running smoothly.
1. Establish a Comprehensive Budget
Creating a detailed budget is the foundation of effective expense management. A budget shouldn’t just be a one-time task but a dynamic tool that adapts as your business grows. Start by identifying your fixed and variable costs, and use historical data to forecast future expenses. Regularly review and adjust your budget to reflect changes in your business environment, ensuring it remains relevant and accurate.
2. Monitor Cash Flow Diligently
Cash flow is the lifeblood of any business. Keeping a close eye on your inflows and outflows will help you avoid cash shortages. Implement a system to monitor your cash flow in real time — this could be through accounting software that alerts you to discrepancies or potential problems. Regular cash flow analysis enables you to identify trends and make informed financial decisions promptly.
3. Separate Personal and Business Finances
Mixing personal and business finances can lead to confusion, making it difficult to track business expenses accurately. Open dedicated business banking accounts and ensure only business transactions are conducted through them. This separation not only aids in clear financial analysis but also simplifies tax preparation and legal obligations.
4. Implement Expense Tracking Tools
Technology offers numerous solutions to streamline expense management. Consider using expense tracking software or apps that allow you to photograph receipts and automate entries. These tools can generate comprehensive reports, providing insights into spending patterns and helping you identify areas for cost reductions.
5. Review and Reduce Unnecessary Expenses
Regularly review your expenses to identify non-essential costs. This could include subscriptions, services, or supplies that are rarely used or that don’t add significant value to your operations. Make sure expenses are worthwhile, and approach vendors for better rates or seek alternative suppliers.
6. Foster a Cost-Conscious Culture
Encourage your team to be mindful of spending by promoting a culture that prioritizes cost efficiency. Educate employees about the impact of expenses on your business bottom line, and empower them to suggest improvements. When everyone is aware of financial goals, they are more likely to contribute to cost-saving initiatives.
7. Plan for Taxes Early
Taxes can be a significant expense, so it’s crucial to plan for them well in advance. Work with a tax professional to ensure compliance with all tax obligations, and take advantage of any deductions or credits available to your business. Setting aside money for taxes up front helps prevent cash flow issues at tax time.
8. Regular Financial Audits
Conduct periodic audits of your financial statements. This doesn’t necessarily mean hiring an outside firm; instead, engage a team member or business partner to review the records. These audits can help you discover discrepancies, unexpected expenses or even fraudulent activities early, allowing for timely correction.
Conclusion
Effective expense management is not a one-time task but an ongoing process that requires vigilance and adaptation. By establishing a robust budget, employing the right tools, and fostering a cost-conscious company culture, you can ensure your business maintains financial health. Implement these strategies to transform your expenses from a potential pitfall into a pillar of your business strategy, driving growth and sustainable success.
Need assistance with managing your business finances? Contact us today to learn how we can help streamline your expenses and improve your cashflow and profits.
Opting for a self-managed superannuation fund (SMSF) may give you more control over your investment strategy and allow you to be more agile as a fund in the market. But are you fully aware of the governance and compliance responsibilities of running an SMSF?
Let’s take a look at the main areas you should be focusing on as a fund trustee.
Five key areas when managing your SMSF
The members of your SMSF run the super fund themselves, as the name suggests. So, it’s vital that you’re on top of the responsibilities of managing the fund.
This means having a good overview of:
Compliance and governance
You’ll need to understand and fulfill your responsibilities as trustees, ensure the fund meets the sole purpose test, maintain up-to-date trust deeds and an investment strategy.
You must also comply with all ATO administrative and reporting requirements and arrange annual independent audits.
Investment strategy and performance
You must develop and regularly review a comprehensive investment strategy for the fund and ensure your investments align with the fund’s objectives and risk profile. You’ll also need to diversify your investments appropriately and monitor and evaluate investment performance, as well as remaining within the in-house asset limits (generally 5% of total fund assets).
Contributions and Benefits
It’s vital that you understand and adhere to contribution caps (both concessional and non-concessional) and manage the timing and amount of contributions strategically. You also need to ensure that all contributions are properly recorded and reported, that you understand the preservation rules and conditions of release, and that you manage benefit payments in compliance with the regulations.
Record Keeping and Reporting
It’s important to maintain accurate and detailed records of all transactions and keep minutes of all investment decisions and trustee meetings. You’ll need to prepare and lodge annual tax returns and member contributions statements and value the funds assets regularly. All relevant documents must be kept for the required period (usually 5-10 years).
Separation of business and SMSF assets – a key part of your responsibilities is to maintain clear separation between personal, business and SMSF assets. All transactions between the business and SMSF must be made at arm’s length and you should be cautious when considering using the SMSF to purchase business property.
Talk to us about your SMSF concerns
If you’re thinking of setting up an SMSF, or are already managing one, it’s best to get regular professional advice throughout the life of the superannuation fund.
We can advise you on record-keeping, accounting and the tax implications. And we can connect you with superannuation experts and financial advisers when you have questions about your investment strategy, or deeper questions regarding the management of the SMSF.
It takes guts to start a business. It also takes a strategic mindset to succeed.
Business owners are no strangers to weighing risk and navigating uncertainty, but the recent economic climate has dialled everything up. Many business owners face the uncomfortable position of having to remap carefully thought-out succession plans and exit strategies and to consider selling their business before they’re ready and, possibly, for less than it’s worth.
Transition may be a better option
Rob Young, Managing Director of Platform 1, works with business owners on ensuring they get the best possible return when selling their business. Rob’s advice is to start by thinking about what options you have first.
There are five different ways to sell:
Close the business down and sell the assets
Sell to a family member
Sell to an employee
Just a straight sale to an outside party
Gradual buy-out – The Platform 1 model.
The Platform 1 model is a gradual buy-out program. It involves finding a manager to take the reins early on. Gradual buy-out a process that involves:
figuring out what kind of individual would be right to run the business; finding that person, and developing them.
Creating a plan where the new manager buys in gradually over 3 to 6 years. The objective is to get the owner out of the business physically as quickly as possible by transferring relationships and processes to the incoming person, so the owner becomes more of an investor rather than a manager.
Preparing for sale – what’s important
Get your house in order – Ensure you have systems and processes in place so the business isn’t reliant on you, but can run as a standalone entity.
Maximise your profit – Make sure that you are not taking decisions to minimise your tax liability – because what you’re trying to do is create a profitable business.
Don’t put off your succession plan – even if you are not ready to sell
It’s a good idea to think about this long before you need to sell so that you maximise the value of the business and achieve a better outcome. It’s also worth remembering that retirement doesn’t need to be doing nothing. If your business can run as an asset without your involvement, you don’t have to sell it completely, so not selling down 100% of the business is a viable option.
Talk to us today about your succession plan
If you don’t already have a succession plan in place, we can help so that you have options when you need them.
When you’re running a business, it’s easy to get caught up in the day-to-day activity and lose sight of the big picture. Taking stock of the health of your business is important. Knowing where you are allows for more effective planning, early warning about any issues, and the chance to better chart a course for success.
There are some quick ratios that will help you to gauge the health of your business. We can help you to assess your business health and show you how to calculate these vital checks.
Liquidity Ratios
Liquidity ratios are about how quickly you can turn your business assets into cash – which helps you assess whether you’ll be able to pay the bills if cashflow gets tight.
High ratios are better, as this means you’ve got more assets than liabilities.
Current ratio
Current ratio = Total current assets / Total current liabilities
As a general guideline, 2:1 is a good current ratio, but this does depend on the kind of industry you’re in, and the nature of the assets and liabilities.
Quick ratio
Quick ratio = (Current assets – stock on hand) / Current liabilities
This measure excludes your existing stock, which you may not be able to quickly turn into cash, and is seen as a more realistic quick snapshot of your position.
Solvency ratios
Solvency ratios look at sources other than cash flow to see whether your business will be able to settle debts.
Leverage ratio
Leverage ratio = Total liabilities / Equity
This is a measure of whether your business is reliant on debt financing or equity to fund your assets. A higher ratio can make it harder to borrow money.
Debt to assets
Debt to assets = Total liabilities / Total assets
This tells you what percentage of assets is being financed by liabilities.
Profitability ratios
Profitability ratios will let you know how efficient your business operations are. Where possible, it’s good to measure your business against others in your industry.
Gross margin ratio
Gross margin ratio = Gross profit / Total sales
This ratio tells you whether you can cover the necessary business overheads from your sales.
Net margin ratio
Net margin ratio = Net profit / Total sales
This measure tells you the percentage of sales dollars left after you’ve settled your expenses, except for your income taxes.
Checking in on your business health is a great habit to get into. Using these ratios helps you to understand your current business health and allows you to plan. Talk to us about how to calculate the factors in these ratios in order to keep your business on the right track.
Treasury has provided draft legislation on a May 2023 Federal Budget measure to extend your businesses 2-year amendment period to 4 years for income tax returns.
Small and medium business entities
You are a small or medium business entity for an income year if you:
carry on a business during the income year, and
one or both of the following applies:
the aggregated turnover of your business in the previous income year was less than $50 million, and/or
your business’s aggregated turnover for the current year is likely to be less than $50 million.
Current amendment period
The period during which the Australian Taxation Office (ATO) may amend an assessment for businesses your size is 2 years. The amendment period applies from the day on which the ATO gives you a notice of assessment.
Proposed amendment period
The draft legislation proposes an amendment to allow the ATO to amend the tax return for your business, upon your request, within 4 years after the day on which the ATO gave you a notice of assessment. The application for an amendment must be in the approved form and given to the ATO before the expiry of the 4-year period.
The additional time is intended to reduce the administrative burden on your business if you need to amend your tax return, as well as on the ATO. The current 2-year period is considered too short, as outside of this window you would otherwise have to engage in costly and lengthy objections and appeals processes with the Commissioner of Taxation.
Note that the Commissioner may only amend your assessment to give effect to the decision on your application. As such, the provisions will not allow the Commissioner to amend your assessment about other items not included in the application. This is to ensure that sufficient certainty is still afforded to you, as the 4-year period only applies in respect of those particulars mentioned in your amendment application.
What doesn’t change
Despite this proposed change in legislation, there is no change to the length of time you are required to keep records for your business. You need to keep records for your business in case the ATO wants to audit your tax return.
For instances such as fraud and tax evasion, the Commissioner of Taxation may amend your return at any time. Generally, records are required to be maintained for 5 years from the date on which the record was prepared or obtained, or from the time the relevant transaction or act was completed, whichever is the latter.
Contact us
Please note this draft measure will be required to receive parliamentary approval before it comes into effect. In the interim, please do not hesitate to contact our office should you have any queries.
