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.
Australia’s small businesses are the power behind our economy. Small businesses (employing less than 20 people) added nearly $590 billion of value in 2022, making up around a third of all Australian gross domestic product (GDP) for the period.
But keeping on top of your financial management, accounting and tax planning can be a major challenge for some owners.
With this in mind, the ATO has set up a new advice portal for small business owners, giving you tips and advice on everything you need to know about your finances and business taxes. Strengthen Your Small Business
Essentials to strengthen your small business.
The ATO’s Essentials to Strengthen your Small Business portal is your first stop for business advice. There are helpful tips covering everything from having your first business idea, through to founding a startup, growing a business and even help on exiting the business.
From a tax perspective, there are several courses to help you keep your tax on track:
Starting a business – this course helps you set up your first business, with advice on common business structures and the registrations you need to run a small business.
Using your business money and assets – this course gives an overview on paying yourself, with advice on the different options and the records you must keep.
Record-keeping – advice on using technology to help your mandatory record-keeping, and on overview of the tax and super records you’ll be required to keep.
Claiming small business tax deductions – this course covers expenses you can deduct immediately, expenses you can deduct over time and expenses you can never deduct, as well as motor vehicle expense deductions.
Growing your small business – This course helps you plan the growth of your business, alongside other considerations like GST and capital gains tax (CGT).
Goods & Services Tax (GST) – an overview of who must register for GST, how to calculate GST on sales and purchases, as well as other requirements such as invoicing, record-keeping, and reporting GST to the ATO.
The ATO’s online resources are incredibly helpful when you’re starting out as a business owner. But if you need deeper advice on mandatory record-keeping and tax, come and speak to us.
We’ll be glad to take you through all elements of your tax requirements and record-keeping.
The new financial year is already in full swing, meaning most of you are still finalising your general ledger accounts in order to get the necessary information to us to prepare your final 2024 accounts and tax returns. Others have already got us your information and are looking ahead.
Either way, it can be a time when we forget our current tax obligations, due in relation to the beginning of the 2025 financial year.
In order for you to be across your tax obligations, below are the key compliance dates that are coming up. Make sure these lodgments are up to date to avoid any interest or penalties.
KEY TAX DATES – SEPTEMBER/OCTOBER 2024
21 September 2024 – GST – Monthly Activity Statement and payment for August 2024
21 September 2024 – PAYG withheld – Monthly activity statement and payment for August 2024
21 September 2024 – PAYG instalment – Activity Statement and payment for monthly reporters for August 2024
30 September 2024 – TFN withholding report – Annual TFN withholding report for closely held trusts where a trustee has been required to withhold amounts from payments to beneficiaries during the 2024 income year
30 September 2024 – PAYG withholding payment summary – 2024 income year annual report due if lodged by us
21 October 2024 – GST – Monthly Activity Statement and payment for September 2024
21 October 2024 – PAYG withheld – Monthly activity statement and payment for September 2024
21 October 2024 – PAYG instalment – Activity Statement and payment for monthly reporters for September 2024
21 October 2024 – Annual PAYG instalment – Payment of annual PAYG instalment for 2023–24. Lodge only if instalment amount varied or the rate method to calculate the instalment is used
28 October 2024 – GST – Quarterly Activity Statement and payment for the July to September 2024 quarter if you do not lodge with us
28 October 2024 – PAYG withheld, FBT instalment and PAYG instalment – Quarterly Activity Statement and payment for the July to September 2024 quarter if you do not lodge with us
28 October 2024 – Superannuation guarantee – Due date for superannuation guarantee contributions for July to September 2024
31 October 2024 – Income tax – Due date for lodgment of 2023–24 income tax return for individuals, trusts and partnerships if you do not lodge with us
31 October 2024 – GST – Lodgment of annual 2023–24 GST return for instalment payers who are required to lodge tax returns by 31 October 2024
31 October 2024 – Companies – To provide distribution statements to shareholders for 2023–24 for most companies
31 October 2024 – Income tax – Due date for lodgment of 2023–24 income tax return for an entity that has one or more prior year tax returns outstanding as at 30 June 2024
31 October 2024 – SMSFs – Annual return for new registrant SMSF if the ATO has provided this due date
We’re here to help if you’re facing operational issues, tackling people challenges, or have health and safety questions, give us a call, email us or text us.
