Many of us spend more money than we earn.  With finance and credit readily available, it’s easy to do because we can have everything we want now without considering whether we can afford it.

It starts with small amounts which add up quickly and, before you know it, you’re in a negative cash flow situation because you are paying off things you have bought on credit.  If you want to avoid this endless cycle, you need to stop spending more than you earn.

Cash flow basics

To get ahead, consider this:  WEALTH = WHAT YOU EARN – WHAT YOU SPEND

This tells us two things:

• If you spend more than you earn, you are losing wealth — you have a negative cash flow.
• If you spend less than you earn, you are accumulating wealth — you have a positive cash flow.

The greater the gap between earning and spending, the faster you lose or accumulate wealth.  There are only three things you can do to increase your cash flow:  spend less or earn more or both!  It’s really that simple.  Everything else — e.g. saving ten percent of what you earn, building a nest egg and/or emergency fund etc — supports this basic principle.

How to improve your cash flow

Most people can improve their cash flow right now with minimal effort simply by spending less.  If you’re looking to make a change, practice frugality:  buy used instead of new items, make the things you own last longer by repairing them instead of discarding them and recycle worn out goods.  Shop around for cheaper options on the things you buy on a regular basis.

It’s useful to change your mindset to focus on needs, not wants.  Many of the things that we’ve come to view as necessities are actually luxuries – e.g. you don’t need 180 cable channels or a Netflix subscription.  It’s possible to live without them.

Recurring payments associated with long-term contracts and instalment plans often contribute heavily to negative cash flow.  If you truly need to make a major purchase, save the money to pay in full.  Don’t buy things you cannot afford.

Unless you can decrease your spending, then you’ll need to find ways to increase your earning.  If your current job doesn’t pay well, try making a case for a promotion or a pay rise.  Also, can you find ways to make money from your hobbies or sell things you no longer want or need?

A budget is an important tool that enables you to track every cent you spend so that you know where savings can be made, allowing you to take control of your finances.

At first you might have just a little extra cash each month, but you will soon see a big improvement in your financial situation.

Let us help you significantly improve your personal finances – call us today on 9204 3733.

Tips to keep business finances in order

If you’re like most small business owners, you spend the majority of your time managing daily operations, keeping customers happy and looking for new ways to grow.  Spreadsheets, cash flow analysis and financial projections are probably not your first passion, but they keep your small business finances in order.  However, measuring profitability, creating realistic budgets and planning ahead for the future are crucial to your success.  Follow these tips and take control of your business finances.

Make the switch to cloud-based accounting

How much of your time do you spend hunting down financial documents, poring over spreadsheets and tracking expenses?

Constantly searching for and trying to integrate scattered data makes it nearly impossible to close out the monthly books quickly and efficiently.   Manage your business finances faster and more accurately by moving them to cloud-based financial management systems which have these benefits:

• Integration with all your other operational systems for the quick retrieval of data;
• Automation of daily financial processes so you can step away from manual record keeping;
• Efficient expense tracking that improves accuracy and reduces revenue leakage; and
• Easy collaboration with staff and customers.

Conduct regular financial reviews

Vigilance is key to effective business financial management.  Each month, set aside time to review your balance sheet, profit and loss statement and cash flow statement.  Regular monthly check ups will give you valuable insights into your business performance, which is crucial for:

• Projecting future revenue, cash flow and expenses;
• Validating major purchasing decisions; and
• Anticipating and mitigating risk.

You’ll also need this key data when applying for a loan to expand and grow your business.

Bring an expert or two on board

Hiring an experienced bookkeeper and/or accountant may seem pricey, but their expertise could mean considerable long term gains for your business.  Also, a technical expert can optimize the efficiency and accuracy of your financial management systems which will give you peace of mind and time to pursue growth opportunities.

Final tips

Consider enrolling in a course so you can better understand the fundamentals of business management.  The knowledge you gain will empower you and, combined with professional support, is the very best route to sustainable and effective growth.

If you are looking for a business accountant who will support and guide you to help improve your business finances speak to the experienced team at BSN & Co today.  Call 9204 3733 for an obligation free review.

The saying “cash is king” might be a trite expression, but it really is vital for all small businesses, especially when you consider that poor cash flow is the top reason for business failure.  This means that getting on top of and remaining in control of your cash flow is essential for business success.

Neglect your cash flow and you’ll experience the pain and suffering that comes with failure in business.  Take good care of your cash flow and you’ll be on your way to financial security.

One of the easiest ways to take care of your cash flow is to stop making the same mistakes every year that are literally draining your business of cash.  Take action now and make the commitment to plug any leaks so you can put more of your hard earned money in your pocket.  Listed below are our top 5 tips for managing and improving your cash flow to make more money in 2016.

1.  Understand your peaks and troughs

All businesses have peaks and troughs and some are more evident than others.  A peak cash month is when your cash balance is generally at its highest point during the year.  The trough cash month is just the opposite.

When in a peak cash month, many business owners feel really good about their cash flow balance and make the mistake of using that money without considering that they will need it during leaner months.  The inevitable trough month arrives and there is not enough cash to get through that period.

Look at your cash flow over the last 3 – 5 years and plot it on a graph to help you identify trends.  Then identify your peak months and when you are most likely to expect a bad month.

Truly understanding your cash flow will help you plan and make informed decisions – e.g. you can use this information when marketing and maybe plan a special offer or sale during your trough months to boost your income.

2. Understand your business expenses

Take the time to list all of your monthly business expenses.  This gives you your break even point – the amount you need to generate just to cover your costs and keep your business going.  Now, if you compare your costs with your income, you can easily identify when you will experience potential cash flow problems.

Are there any months where there is not enough cash flow to cover your costs?  Are there times when you have excess cash that can be held to cover costs in those leaner months?

This will help you understand whether you are in a position to invest in new opportunities or equipment.  It can also help identify times when you may need to source additional funding.  Banks are far happier to lend to businesses who really understand their business finances.  It is also a good idea to speak to your accountant about this and make sure that you have included all costs.  They can help you identify ways to reduce your costs and better manage your cash flow.

3.  Pay special attention to capital expenditure

Capital expenditure can surprise you unless you actively manage and control it each month.  A capital expenditure is recorded on your balance sheet rather than as an expense in your income statement.  The cost of the asset you purchased is then depreciated over the life of the asset.

As a result, you don’t see the cost of that expenditure show up immediately in your income statement.  It’s this accounting treatment for capital expenditure that makes it so important that you manage it closely.

4.  Watch accounts payable closely

Delaying payment to creditors for as long as possible can give you a false sense of security as cash flow is temporarily boosted.  Pay your bills by the due date to have a true picture of your cash flow position.

5.  Evaluate your terms 

If you’re having trouble with cash flow, check to see how well balanced your customer and supplier terms are.  Are you having to delay paying suppliers because your customers are not paying you on time or are your payment terms too lenient?   If necessary, change your terms so that your invoices are to be paid within 14 days instead of 30, allowing you time to pay your suppliers.

Remember, your success in business will ultimately be determined by the way you manage your cash flow.  This does not mean that you have to do it alone.  Call us today – we can review your business and identify ways to improve your processes.

We can all be guilty of wasting money on the little things, but when it comes to buying a big ticket item such as a car, we are pretty good at getting value for our money.  We’ll look at several different models and compare prices and features before making an informed decision.

However, we often don’t adopt the same attitude when it comes to day-to-day purchases like clothes, food, entertainment etc.  Imagine the savings you could make if you did.

It all adds up

Let’s start with food.  How many times last week did you buy your lunch?  Although each purchase may seem small, buying daily lunches quickly adds up.  You could make make your lunch at home and easily save approximately $50 a week.  That’s over $2500 a year!

How about your groceries?  If you analyse how much you spend each week, you might be surprised at the total.  Perhaps you could consider trying generic brands instead of big name brands to see if they are suitable replacements.  This, combined with shopping for “specials”, would reduce your spending and improve your personal cash flow.

The best way to save money around the house is to be vigilant  – for example, turn the lights out when you leave a room, set the air conditioner’s thermostat higher in the summer and lower in the winter and be more “water wise”, both inside and outside.

To improve your personal cash flow you need to be a disciplined consumer rather than an impulsive buyer.  If you make some changes now, you’ll soon see some positive results and if you regularly bank the money you save, you’ll have a fund for unforeseen expenses or emergencies that may arise in the future.

If you want to improve your personal cash flow, we can help you create a plan so call us today on 08 9204 3733.

Here are 5 more of our top ideas to help you minimise tax.

1. Control the timing of your tax deductible expenses

If you know in advance that you will have large tax deductible expenses, sometimes you can choose which financial year you purchase them in, depending on your expected levels of income.  You want to consider the timing of purchasing any items to minimise any potential tax liability.

For example, if you have a large tax deductible expense and your income for a particular year is going to push you into the next tax bracket, it may be best to purchase your item now.  This will lower your taxable income for this year and may even move you down into a lower tax bracket.  Alternatively, in a year that you take an extended holiday or unpaid leave and your income is lower, it may be more beneficial to delay the purchase until the next financial year.  This will help you reduce tax paid in the higher tax bracket and save you more money than if you purchase the item when your income is lower.

2. Investments

Depending on your individual finances or circumstances, making an investment can help you reduce tax. Before you decide to invest, speak to your accountant who can advise if an investment will suit you. Remember, the investment should benefit you now and into the future – there is no point saving a small amount of tax now if it is a poor investment and you end up losing your original capital in the long run.

There seems to be a big trend towards negatively geared property investments as a way of minimising tax. This could be a great strategy for you, but it really does depend on your personal circumstances. So never listen to a smart talking investment company representative; always seek independent professional advice.

There are also tax advantages to be gained by investing in your super fund, however this locks money away until you retire so this strategy may not be suitable for everyone. So the best thing to do before making any decisions is to get advice from a qualified accountant.

3. Adjust your finances to suit your circumstances

For example, couples who have funds invested in a short term account that earns interest may find it beneficial to invest it in the name of the lowest income earner, as they will pay a lower rate of tax on the interest income.

4. Don’t overlook the little expenses

Whether your expenses are for $2, $20 or $200, they all add up over a year.  Ensure you keep every one of your receipts to achieve the best possible tax outcome.

Remember, if you are not sure whether you can claim it, keep the receipt and ask your accountant for advice at tax time.

5. Selling Assets

If you plan to sell one of your assets which may be subject to capital gains tax, there are a number of things you should consider. For example, if you have owned the asset for longer than twelve months you may be entitled to a 50% capital gains discount. And, you may choose to sell the asset in a year you expect to earn lower income so your anticipated capital gain won’t have as big an impact on your tax liability.

If you are looking for a tax agent who works with their clients to ensure that they achieve the best taxable position possible, then speak to us today.  Our experienced team can guide you through the tax maze.