November, 2015

How to enjoy a stress free Christmas break in Perth

Stress Free Christmas Break in Perth

As a business owner, it’s important that you take time away from work to relax, recharge the batteries and enjoy time with your loved ones.  However, when you run your own business this can be easier said than done!  At the end of the day you are still responsible for how your business performs, so you can find yourself worrying about whether staff are meeting deadlines and suppliers are happy, which unfortunately translates to more stress and less time enjoying the festivities.

With a little planning and careful communication with staff, you can avoid worrying that your business won’t be able to cope in your absence.

Plan ahead to minimise potential issues

Before you go away it’s a good idea to back up all your important data and store it in a secure place off site.  It also makes sense to take this one step further and check that you can restore your data from your back up.

Arrange for someone responsible to keep an eye on your business premises.  Alternatively, install security monitoring systems if you haven’t already.

It’s also a good idea to ensure you have appropriate insurance cover in place and that your policies haven’t lapsed.

Trusting your staff is a great way to empower them

Leaving your staff to run your business in your absence involves a lot of trust and faith, but if everyone is clear about what is expected of them, it is highly likely that they’ll manage just fine without you.

Delegating and putting good systems in place are key factors.  You should:

  • Plan for contingencies.  What should be done if any staff fall ill?  Who should be contacted if there are any unexpected calamities?
  • Discuss these issues and any concerns with your staff.
  • Inform your staff of your expectations.  This is critical as you’ll be relying on them while you are away.
  • Make sure everyone is familiar with the contingency plans – discuss, revise and practise them before your departure.

 Set clear expectations

While you are away other staff members will have the opportunity to prove their worth, so be sure they know their responsibilities.  You should also establish who will contact you and how often (do you just want to be contacted if there is a problem?).

Check in remotely

If you’re not able to let go entirely, then advances in technology mean that you can work remotely and manage things from a distance – perhaps even from the beach!  All you need is the ability to communicate via wireless or wired access to the Internet, plus a good mobile connection.

If you need to buy new technology for this purpose, don’t leave the purchase until the last minute.  You’ll want to be comfortable with the gadgets you are using and have the opportunity to set them up, test them thoroughly and know what they can do.

Ideally, you’ll have the ability to access and review business documents and ongoing project work through a server-based system that stores all company data centrally or in the cloud.

If you are looking for a business accountant to help you improve your business in 2016, then call BSN & Co today for an obligation free meeting to discuss your needs.

Should you lease or buy equipment?

Should you lease or buy equipment. It’s a question we are often asked?

As a small business owner, you may wonder whether it’s better to lease or buy equipment.  Your options regarding leasing or buying depend upon the nature of your particular business, but there are a few guidelines you can follow to help you decide what you should do.

If you have the money available and the item you need is really necessary for your business, then it will usually benefit you to buy the item outright.  If there is no way you can raise the finance, then you will have to lease it. This sounds like a simple rule as to whether you should lease or buy equipment but, you should consider the following also.

A caution

Don’t buy an item that will put you at risk of not being able to pay your bills in the next month or so.  Only use surplus cash — and then only if it really is ‘surplus’, not just temporarily in the bank account.  You should consider this in terms of your cashflow forecast and your forthcoming liabilities.

If the options are not so clear cut, then you have some thinking to do.  Ask these questions:

  • How often will you use the item?

If the item is only going to be used every now and then, there is no real point in buying it.  It will lie around for most of the year unused and is therefore a waste of your resources.  So lease or hire the equipment when you require it.

  • What else could you do with the money?

Could you earn a better rate of return on the capital required for the item if you invested it in your business?  Your business might be at the stage where a few thousand ploughed back in as working capital will give you a far better rate of return than tying up the money in equipment.  For example, would the money be better spent on marketing?  In this case, it might pay you to lease. So, should you lease or buy equipment is starting to become a bit more complicated!

The effect on net profit

The bottom line is always:  How will your decision to buy or lease affect net profit?

Let’s take a simple example and calculate the net profit results for both options.  Suppose you decide the business needs a machine worth $2,000 (we’ll ignore GST).  You can either buy the machine outright or lease it.

  • Option One

If you lease, the machine will cost you around $100 per month or $1,200 for the year.  This can be added to your business expenses.

  • Option Two

If you buy the machine, the total cost of $2,000 cannot be deducted from the net profit, as it will now be regarded as an asset.  Suppose you can depreciate the machine at 33% a year.  This means you can claim $660 as an expense for the year ($2,000 x 33%).

Comparative costs

  • Option One

You’ve spent $1,200 in cash on the machine and can claim it as a business expense, so you’ll pay less tax (as opposed to not having the machine at all) of $288 (assuming a tax rate of 24%).  Therefore, you could say that you’ve spent $1,200 and ‘saved’ $288, giving a net cash out for the business of $912 for the tax year.

  • Option Two

You spend $2,000 in cash and claim $660 as a depreciation expense, which gives you a tax ‘saving’ of $158 (24% of $660), so your net cash out is $1,842. Therefore, in the first year it would have been better for the business, as far as cashflow is concerned, to have leased the machine.  But what about year two? In Option One you’d still have to pay $1,200 in rent for that second year, and the net cash out is still $912.

But in Option Two, you have no further cash to pay and can still claim depreciation of $442 (33% of the asset’s now depreciated book value of $1340), which gives you a ‘saving’ of $106.

This comparison shows that, whilst you might have gained a slightly better cashflow situation in year one, the lease option becomes far less attractive in subsequent years.

So, as a rule of thumb, if you lease equipment you will make a cash saving in the first year or two, and this is a viable alternative if you do not have the cash (especially for equipment that may cost thousands of dollars or items you do not use regularly).  However, in the long term, it’s much better to buy equipment outright, provided you can safely ride out the initial heavy cash commitment.

High-tech equipment

One additional factor is worth considering, though.  When it comes to equipment that is strongly technology based (such as computers or photocopiers), then people often choose to lease with terms that allow them to upgrade to new technology as it becomes available.

In this way, you avoid being stuck with outdated equipment that has little resale value or no longer serves your needs.  This is often very much a judgement call that you can only make after speaking to the salesperson concerned.

It’s a constant juggling act with the question of should you lease or buy equipment between maintaining competitive advantage with your equipment and processes and ensuring you have a strong cashflow for your business’ survival.  At BSN & Co we understand this struggle and can help you plan what’s best for your business.  After all, there is no “one size fits all” rule for purchasing equipment.  We will work with you to assess your needs and determine whether you should lease or buy equipment.

Fringe Benefits Tax at Christmas – how it can affect you.

Christmas parties, staff gifts and the Fringe Benefits Tax at Christmas – what are the tax implications?

With Christmas a matter of weeks away, many businesses will be organising their staff Christmas parties or wondering whether they should buy gifts for their staff, clients or suppliers. Will the Fringe Benefits Tax at Christmas affect you?

You want to thank your staff for all their hard work and dedication throughout the year, but did you know that a staff Christmas party may not be tax deductible?  It all depends upon who attends, where it’s held and the cost per head.

Subject to the value of the staff Christmas party held off the premises being less than $300 per head, the benefit for each staff member is exempt from Fringe Benefits Tax.

This sounds complicated, doesn’t it?  Well, read on and we will explain what it means so you can make a more informed decision on how you want to reward your staff, clients and suppliers this Christmas.

Regardless of whether Christmas parties for staff and their families are held on or off the premises, employers are generally liable to pay FBT on the cost of food and drink, described as “meal entertainment”.  Fortunately, the minor benefit exemption allows employers to escape the FBT liability if the cost per head is under $300.  The ATO’s view as to the application of the exemption is that it may be applied to each person individually rather than to the total cost of the party.

Apart from the amount of a minor benefit, the benefit would need to be provided on an irregular and infrequent basis and, although Christmas is a regular occurrence, it is probable the minor benefit provided at Christmas would satisfy the requirements for exemption (assuming employers were not holding, say, monthly staff parties.  WOW!  What an employer that would be!).

The expense of a Christmas party for staff and their families under $300 would not be tax deductible to the employer, being meal entertainment without the FBT liability, nor would any goods and services tax be claimable.

Employers can choose from two methods when considering the tax implications of a Christmas party or Christmas gift to their staff:  The 50/50 method or the actual method.  It may sound confusing, but we can explain further and are always here to help you if you are lost!  Simply  CONTACT US.

The Actual Method

Under this method, where a Christmas party is held at the business premises on a working day and food and drink is supplied to staff only, you will be exempt from FBT and no tax deduction is available.

Any food and drink supplied to clients or suppliers is exempt from FBT and no tax deduction is available.

If staff and families attend and the cost per head exceeds $299, FBT will be applied and a tax deduction is available.  Again, any food or drink supplied to clients or suppliers is exempt from FBT and no tax deduction is available.

Therefore, in simple terms, if the cost per head of staff and family members is less than $300, no FBT will apply and no tax deduction will be available.  In all situations neither FBT nor tax deductions apply to any food or drink supplied to a client or supplier.

The 50/50 Method

Using this method means that 50% of the total cost for food and drink for staff, families, clients or suppliers will be subject to FBT and is tax deductible.  This method will also apply to any costs of hiring a venue for entertainment and also meal entertainment.

Christmas gifts for staff

The tax treatment of gifts for staff depends on whether the gifts are entertainment or non-entertainment.  Entertainment gifts would include tickets for sporting events or functions, movies, holidays etc.  These would attract FBT and the expense would be tax deductible, except where the minor benefits exemption applies, in which case there is no FBT liability and the expense would not be deductible.

In the case of non-entertainment gifts such as hampers, bottles of spirits, wine, flowers, perfume, gift vouchers etc, a tax deduction is allowed and FBT would be payable unless the minor benefits exemption applies, in which case the gifts would nevertheless be tax deductible.

Christmas gifts for clients or suppliers

No FBT is payable and the expense is tax deductible where non-entertainment gifts are provided, but in the case of entertainment gifts provided there is, of course, no FBT and the expense is not tax deductible.

So what should you give your staff for Christmas?

Well, the most tax effective thing to do is keep the cost below $300 per staff member, making sure that the gift is non-entertainment, and therefore fully tax deductible and exempt from FBT.

Don’t forget though, rewarding loyal and productive staff with a social occasion shows them that you appreciate their efforts and contributions throughout the year.  The trick is not to go mad… like anything in life, everything in moderation!

Example:  Christmas party held on business premises

A Christmas party provided for current staff on business premises or worksite on a working day may be an exempt benefit.  The cost of associates (people other than employees, clients, contractors or suppliers) attending the party is not exempt unless it is a minor benefit.

Say a small manufacturing company decides to have a party on its business premises on a working day before Christmas.  The company provides food, beer and wine.  The implications for the employer in this situation would be as follows:

If… Then…
Current employees only attend There are no FBT implications as it is an exempt property benefit.
Current employees and their associates attend at a cost of $180 per head
  • for employees – there are no FBT implications as it is an exempt property benefit, and the minor benefit exemption could also apply*
  • for associates – there are no FBT implications as the minor benefit exemption applies.*
Current employees, their associates and some clients attend at a cost of $365 per head
  • for employees – there are no FBT implications as it is an exempt property benefit
  • for associates – a taxable fringe benefit will arise as the value is equal to or more than $300
  • for clients – there is no FBT payable and is not tax deductible.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Example:  Christmas party held off business premises

 Another company decides to hold its Christmas party at a restaurant on a working day before Christmas and provides meals, drinks and entertainment. The implications for the employer in this situation would be as follows.

If… Then…
Current employees only attend at a cost of $195 per head There are no FBT implications as the minor benefits exemption applies.*
Current employees and their associates attend at a cost of $180 per head There are no FBT implications as the minor benefits exemption applies.*
Current employees, their associates and clients attend at a cost of $365 per head
  • for employees and associates – a taxable fringe benefit will arise
  • for clients – there is no FBT payable and the cost of providing the entertainment is not tax deductible.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

The above advice is of a general nature and should not be your only source of information.  We will be happy to advise you further.

Combat interest rate rises in three easy ways

With interest rates being the lowest they have been for years, many people are happy to borrow money at the moment.  Unfortunately, with rates this low there is really only one way they can go and that’s up.  So, whether you have personal or business loans, check out these three easy ways to combat interest rate rises.

Deposit payments straight away

Get into the habit of depositing payments you receive into your bank account quickly to minimise your overdraft or pay off a loan.  Payments waiting to be deposited or money left sitting in your cash register aren’t working for your business.  You could also save time and money by encouraging electronic transfers directly into your bank account.

When in your bank account, these amounts can either reduce your overdraft and save you interest charges or add to your bank balance and earn you interest.

Improve your debt collection

Follow up on debtors as soon as their payments fall due.  A friendly follow-up call should reduce the amount of time you wait to be paid.  It will also lessen the period you effectively provide interest-free loans to your customers while paying interest on the money you’ve borrowed.

Another way to encourage prompt payment is to present customers with an early settlement discount.  Offering a 5% discount for payment within 30 days or a 10% discount for payment on delivery can speed up your debt collection.

Manage your purchases and payments

Like many other small businesses, you may have a lot of money tied up in stock.  If you’re able to moderate this by managing your purchases better, you can decrease the amount of money you borrow and the interest charges you’ll have to pay.

A manufacturer can reduce stock levels by ensuring raw materials are delivered a few days before they’re needed, rather than months before – known as “just-in-time” ordering.  A retailer can use a similar approach by cutting stock levels and drawing on a supplier’s reserves after each sale.

Talk to your suppliers about your requirements and help them to anticipate your stock needs.  They should be able to provide you with an efficient stock servicing solution which will allow you to reduce your stock levels, the amount you’ve borrowed to pay for the stock and the interest you’ll pay.

You can also use your suppliers’ terms of payment to your advantage.  If you have credit terms with them, you have access to non-interest bearing credit.  Use this as much as possible and ask for favourable terms to reduce the amount of interest-bearing money you’ll need to borrow plus the amount of interest you’ll need to pay.

The amount you’ll be able to save by introducing these small changes to your business could add up to significant savings over a year or two.  If you want to protect your business from rising interest rates speak to us today.  BSN & Co are experienced business accountants who can help you look at your business cash flow and turnover and help you to plan for the future.

How to become a better investor

If you want to maximize your wealth then it’s important not to leave your hard earned cash simply sitting in a savings account.  Even those accounts with the best interest rates may not provide you with a return that is higher than the rate of inflation.  Investing your money can generate significant returns, however you need to get it right.  Everyone would like to become a better investor but they sometimes get into a twist!  Here are a few simple suggestions to avoid this.

Stop watching the market and start watching your stocks

Just because the market is frothy (i.e. an excess of optimism and investment speculation), this doesn’t mean your stocks are growing in real value.  Just because the market is sinking, this doesn’t mean your stocks will lose value. Unless you look at your company and how it’s priced, you really can’t make an informed decision about whether to sell.  Falling prices often cause investors to panic and sell everything, and rising prices may make them think that almost every investment is a sure thing.

Be alert to misinformation about your investments

It may sound counter-intuitive, but spending too much time listening to so called “experts” can send your portfolio straight downhill.  These “experts” are everywhere and most of them can be very persuasive.  They all claim to know what the market will do next and whether your stock is headed up or down.  If you listen to them you may panic and sell too soon or buy stocks you shouldn’t buy.  Instead, listen to the well known and reputable analysts, read company annual reports and quarterly earnings reports and skip most of the “opinions.”  This will help you become a better investor.

Get the buy right and don’t worry about the sell

Buy shares in solid dividend paying companies when they’re on sale and hold them until there is a major change.  In some cases, this may mean you’ll hold them for a lifetime.  Don’t underestimate this method; it proves itself time and again.

Ignore market noise

Any “expert” can tell you why the market goes up or down.  If the reasons provided sound flimsy, it’s because they often are.  In the short term, the market makes very little sense and fluctuations can happen for a variety of reasons.  In the longer term, good companies reward their shareholders and their prices reflect this.

Diversify your portfolio

Don’t buy housing stock when the housing market starts to decline.  Wait to see if it drops any further and hold out for any bargains to diversify your portfolio.  As time goes on and you take advantage of these economic cycles, you’ll still end up with a diversified portfolio, but it will be composed of stocks you purchased at bargain prices and this makes you a better investor.

Balance profits and losses

Sooner or later, you’ll need to raise cash and will want to sell some stock.  Be careful how you do it as some investors only want to sell dud shares, while others will only sell those that make a profit.  The former may have you selling stocks that are just about to turn around, while the latter will leave you with a stack of duds and a big capital gains tax bill.  It’s always better to balance winners against losers, which minimises your tax exposure, cleans the junk out of your portfolio and allows you to take some profits.

Don’t confuse a great company with great stock

Just because a company is making tons of money and has low debt and great management does not mean its stock is a good buy.  Some great companies have share prices that have been bid up to unsustainable levels.  If you like the company, wait for a temporary drop in the share price.  Sooner or later, you’ll usually get one.

Take a basic accounting class

It may mean a little more work, but learning to understand a profit and loss statement will make you a better investor and other fundamentals of business accounting will give you a huge advantage in understanding whether the shares you’re buying are financially healthy.

By taking the time to understand how the markets work and how companies are valued, you can relax in the knowledge that your long-term results will almost certainly beat any fixed-income investment you can find.

Remember that any returns you get on your investments must be reported as part of your overall income when you complete your tax return.  However, with some careful planning there are a number of ways you can minimise your tax bill and become a better investor.  Talk to the team at BSN & Co today - let’s see how we can help.