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Cashflow Tips – Does profit mean cash? – Do you know the difference?

Cashflow Tips – Does profit mean cash? – Do you know the difference?

Cashflow Tips – Does profit mean cash? – Do you know the difference?

I hear many clients say there is a profit in their business, then say they don’t have cash in the bank – what they often don’t realise is Profit does not mean Cash!

If you have all cash sales, profit will usually correlate closely with the bank account, depending on when banking is completed – that is you get paid immediately and bank it, and do not invoice (waiting to be paid in 7,14, 30 days etc). And you pay your expenses with cash direct from the bank, the balance should be the cash Profit.

But if you invoice clients for goods and services, the timing of when customers pay has an effect on the cash the business actually has. For example not everyone pays on time, but if they did you would have more regular cash flow, and at the start the first money coming in would only be delayed by the terms at the beginning eg 7 days, 30 days. Once those days of waiting have passed, the regular payments will mean regular flow of money to cover your expenses.

What happens if clients are late paying? Then the debtors/accounts receivable asset account on your balance sheet will grow (that is where the invoice “waits” for payment) until the client pays.

As an example, in our earlier post explaining Profit and Loss, (see HERE) we gave an example of Profit and Loss resulting in $15,000 profit.

Cashflow Tips – Does profit mean cash? – Do you know the difference?

Consider now, that you were only paid half of the sales at the end of the period (which is more close to reality – eg most pay the next month or two…in 60 days)

Sales (invoices)                                       $100,000

But only paid (actual cash)                   $50,000

Which goes to bank (in assets)

Net Left                                                       $50,000

Which sits in debtors/receivables (in assets)

NotePROFIT would be same in accounting terms,

but CASH Profit would be -$35,000 – see below

Business Cash Profit

That is – if you still had paid all your bills, you would have to find $35,000 to pay them!

This is where businesses will use credit cards or overdrafts to keep paying suppliers and the rent to stay open!

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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MYOB – What Reports to use for paying Super

MYOB – What Reports to use for paying Super

MYOB – What Reports to use for paying Super

Our Client has been trialing a replacement bookkeeper, who called us asking what are the best reports to use for paying the super last month?

Answer is to look in the Super folder when we did the super last month to temporarily do the books while a new bookkeeper was being advertised, see the reports we used:

1.     Superannuation Employee Advice Detail (or Summary) – is good as it allows you to see all the pay weeks/periods and the total super;

2.     Payroll Activity Summary – dated for the last month 1st to 31st, as long as no deductions are being used, the Expenses column at the Right is all super, per staff member and should match the employee totals – and will also give the TOTAL super so you can reconcile to the total on the online data you enter in your SuperStream super fund portal;

3.     Paying – The superannuation should all match, print the contribution once reconciles, for proof, and finish as per method of your chosen portal. MYOB Super is a great method Free with a Subscription, that takes less than 10 min or so to pay the super for 30 staff for one client, we assist. And the ATO Small Business Super Clearing House is great for up to 19 employees – login, fill in the amounts, get a Bpay or EFT detail to confirm and print, and pay from your banking online.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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Business Tips – Get moving again when feeling stuck in business

Business Tips – Get moving again when feeling stuck in business

Business Tips – Get moving again when feeling stuck in business

Here’s a 5 step process to get moving again when you are feeling stuck with problems or your business, from Flying Solo’s Jayne Tancred.

When you’re in one of those situations where nothing seems to be working or the best way forward is distinctly murky, it’s easy to fall into a state of paralysis or reluctant resignation.

If you want to be the master of your own destiny, however, neither staying stuck nor admitting defeat is an acceptable option. So, over the years, I’ve worked out a nifty little approach that helps me sidestep the roadblocks and find my momentum. I hope it helps you too.

Step 1: Do nothing

When you’ve been doing everything you can to get things going, and you just aren’t seeing any results, there’s no point continuing to beat your head against a brick wall.

Instead, schedule a block of time in your calendar to dedicate to the issue, and then declare a holiday from the whole catastrophe until that time arrives.

Your goal is to return to the issue with a fresh perspective, renewed energy, and a different attitude, so if the topic crosses your mind in the interim, gently remind yourself that there’s an agenda set for this to be revisited later and in the meantime do something completely different…

Step 2: Go macro – revisit the big picture

Often when we’re stuck, it’s because we’re concentrating on the obstacles rather than on our objectives. With that in mind, the first thing I do upon re-entry is to re-familiarise myself with why the issue at hand is important to me, and what my goal is in addressing it.

I always find that when I stop thinking about how I’m going to make something happen and instead focus on my best-case scenario outcome, I shift out of a defeatist mindset and into a can-do one….

Step 3: Go micro – zoom in on what you can do

If your big picture review has confirmed that you’re on the right track and the issue you’re trying to push forward is one that you really are committed to, you may still be stalled by not knowing all the steps it’s going to take to create the breakthrough you need.

Whenever there are lots of unknowns, it’s easy for me to fall into the trap of thinking that I don’t know anything at all, but that’s actually rarely the case. I almost always have some idea of what’s needed, even if I don’t yet have a handle on everything there is to know.

At this point in the process, it always seems to help to step away from the computer and go old-school with paper and pen to create a list or (better still) a mind map of all the tasks and milestones that might need to be completed in order for my big picture goal to be achieved….

Step 4: Make it fun

If everything’s still feeling really overwhelming or as though you’re not gaining any traction, try turning parts of it into a game.

My business partner and I did this recently when we decided to pursue an opportunity we hadn’t budgeted for but really wanted to take up. The first time we ran the numbers, the cost of participation was so far outside our reach that no-one would have blamed us if we’d walked away. But from a big picture perspective it was a no-brainer, so we set ourselves the challenge of coming up with the cheapest way possible to achieve our goal.

Once we made the decision that we were going to go ahead regardless of cost AND that we were going to do so in a way that was affordable for us, momentum came as we amused ourselves coming up with wild and wacky ways that we could achieve our objectives while spending a minimal amount of money….

Step 5: Rinse, repeat and learn along the way

None of the processes above work unless you commit to learning everything you can about yourself, your business and what’s effective every step of the way, and applying what you learn.

Often a project that’s big enough to make you feel stuck in the first place will also be big enough to involve many layers or moving parts. Applying the steps above in an on-going loop has helped me get unstuck so many times that I’ve lost count, and might be just what it takes to help you move forward too.

For the full article and more on each point go HERE

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Business Finance 101 – What does accounting equation mean?

Business Finance 101 – What does accounting equation mean?

What does accounting equation mean?

The Accounting Equation is used by small and large business, and gives a financial position of the business – ie its value (also known as equity), after debts/liabilities. The Accounting Equation or financial position is calculated from three items – assets (what it OWNS), liabilities (what is OWES) and equity (the difference between assets and liabilities, or owner’s equity).

The accounting equation is a simple way to understand how these three amounts relate to each other, and written –

Assets – Liabilities = Equity

It is also reported another way (eg USA)

Assets = Liabilities + Owner’s Equity for a small business sole proprietor

The accounting equation for a company/corporation is:

Assets = Liabilities + Stockholders’ Equity

Assets are the company’s resources —what the company owns of value – cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, and goodwill. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity.

Liabilities are the company’s obligations—what the company owes – notes or loans payable, accounts payable, salaries and wages payable, interest payable, superannuation, and income and payroll taxes payable.

Owner’s equity or stockholders’ equity is the amount left over after liabilities are deducted from assets:

Assets Liabilities = Owner’s (or Stockholders’) Equity. It also reports the amounts invested into the company by the owners plus the cumulative net profit/income of the company that has not been withdrawn or distributed to the owners.

With accurate records, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. The balance is maintained because every business transaction affects at least two of the company’s accounts. As an example, if a company borrows money from a bank, the company’s assets will increase and its liabilities will increase by the same amount. When a company purchases inventory for cash, one asset will increase (inventory) and one asset will decrease (bank paid for the stock). Because there are two or more accounts affected by every transaction, the accounting system is referred to as double entry accounting.

A company keeps track of all of its transactions by recording them in accounts in the company’s general ledger. Each account in the general ledger is designated as to its type: asset, liability, owner’s equity, sales/revenue, expense, profit, or loss account.

Balance Sheet and Profit & Loss

The balance sheet is also known as the statement of financial position and it reflects the accounting equation. The balance sheet reports a company’s assets, liabilities, and owner’s (or stockholders’) equity at a specific point in time. Like the accounting equation, it shows that a company’s total amount of assets equals the total amount of liabilities plus owner’s (or stockholders’) equity.

The profit and loss or income statement is the financial statement that reports a company’s sales/revenues and expenses and the resulting net profit/income. While the balance sheet reports one point in time (the FINAL Balance at a date), the profit & loss covers the total amount over a time interval or period of time (eg a month). The profit and loss will explain part of the change in the owner’s or stockholders’ equity during the time interval between two balance sheets, as the profit or loss is reported on the balance sheet.

Understand the Balance Sheet HERE

Understand the Profit & Loss HERE

Learn why Profit does not equal Cash HERE

Need help? Not sure? Call for FREE 30min advice / strategy session today! 0407 361 596 Aust

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Reckon/Quickbooks – Accounts Hosted and PC – How to set up and use ABA files to pay creditors – simplify!

Reckon/Quickbooks – Accounts Hosted and PC - How to change the email message for sales invoices

Reckon/Quickbooks – Accounts Hosted and PC – How to change the email message for sales invoices

(> means click)

Here is the procedure of how to set up and use ABA files to pay creditors (For Reckon Hosted and some recent Quickbooks versions) –

Before you can prepare an electronic payment file, you need to complete the following steps.

First – Set Up the a bank account in R for Online Banking

  1. Open the bank account you wish to enable for online banking
  • Go to the Lists menu, and click Chart of Accounts. The Chart of Accounts opens.
  • Select the bank account you want to enable, right-click and then select Edit Account. The account details open ready for you to edit.
  1. Click the Online Bank Details
  2. Click to select the Online Account Access check box. R makes a number of fields that relate to online banking active. Enter mandatory information about the online bank account set up with your bank.

Complete the following details:

  • Click the Financial Institution drop-down arrow and select the bank. This may take a few seconds to process.
  • Enter the code in the Branch Code field to identify the branch for the financial institution. This code is known in Australia as a BSB number.
  • Enter the account number in the Account Number
  • Click the Account Type drop-down arrow and select the type of account.
    You may choose cheque, savings, credit card, money market or line of credit.
  • Click to select Include Balance Record if you want to include a balance record for online banking files (ABA format) that you generate. This applies if you plan to pay employees or suppliers by generating online banking files (ABA format) in Reckon. Most banks require online banking files to include a balance record within the ABA file format. You should check with your financial institution first.
  • Enter an APCA number in the APCA number field for this account if it is different from the Default APCA number for your company. The APCA number entered in account details always overrides the default APCA number entered in company banking preferences for all online banking transactions using this account.
  1. Click Save & Close.

Second – Set up Suppliers and Employees for Online Banking

Updating Suppliers:

  1. Go to the Suppliers Centre then >Suppliers Tab >
  2. >Double Click a Supplier
  3. >Bank Details Tab >Enter Account Name (of Supplier), their Bank Account Number, Bank Name, Branch Code (BSB eg 083245, 6 digits) OK
  4. Repeat for all suppliers to be paid using ABA files, or that supply a bank account to pay (not Bpay suppliers usually)

Third  – Process Transactions and Create Online Banking File

Pay Bills

This involves processing transactions as normal, but at the Pay Bills window, Reckon should identify payments set up for banking online and have those ready to include when creating an online banking file. So ensure at the bottom the bank you set up for ABA id=s selected, and next to that the Payment Method is “Bank Online”. Finish transaction with Pay Selected Bills. Then Pay more Bills for the next suppliers to pay or Done to finish.

Create an online banking file:

  1. Go to the Online Banking Centre: > (top menu) Banking menu and click Online Banking Centre.
  2. Scroll to the section To Bank (at bottom).
  3. Choose the date you want the payment to be made, using the calendar from the Date to be Processed field or today’s date as defaults.
  4. Enter a payment description eg Creditors or Bills or Pays. If no payment description is entered, a description of “payment” will display in the ABA file by default.
  5. Tick payees from the list. Each payee must have a bank account defined for them under their employee or supplier record. This includes details for Bank Account Name, Number and Branch Code. In addition, employees must have an employee number.
  6. Click Preview ABA File if you wish to review the ABA file before creating it.
  7. Click Create ABA File. Reckon displays the standard Windows Save As dialog box with *.ABA entered in the file name at the end.
  8. Enter a name for the online banking file (leaving the .ABA) and choose a location to save it, such as desktop. Reckon provides a default folder within the installation directory called Export Files/ ABA Files. You may choose to save the ABA file in this directory, or in any other directory of your choice.
  9. Click Save.
  10. Your ABA file is now ready for upload to the relevant financial institution.
  11. Follow their online instructions to upload a payment file.

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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Cashflow Tips – 5 tips for better business cashflow

Cashflow Tips – 5 tips for better business cashflow

Cashflow Tips – 5 tips for better business cashflow

One of the things many business find a burden is that cashflow can easily get out of hand and several studies suggest that financial miss-management is one major contributor to business failure. Here are 5 tips to help get cashflow under control – remember it is an on-going monitoring that keeps you on top – measure and tweak, measure and tweak…!

1.  Look at who owes you – WEEKLY – check your debtors/accounts receivable report every week – get onto those tardy payers – send Statements every Fortnight! A month is too big a gap and easy to slip the mind…

2.  Plan for highs and lows 
Be aware of possible lean cashflow patches coming up and plan for them!. Avoid major purchases from your business’ working capital unless you are sure you have cash to cover it. A cashflow budget will help you see this – eg when revenue is down on forecast you expected (eg the average monthly required, or based on same time last year, or certain % growth if that is the current trend).

3. Have finance products working to your benefit
Overdrafts, premium funding, lease facilities and cashflow funding products can all be excellent tools to help boost a business’ cash. Even the business credit card can be a good way to ease the squeeze as long as you are sure the debt can be paid before interest kicks in, which is the best way to handle credit cards!

4. Avoid penalties
Keep on top of taxes and compliance to save the cost of fines… and the stress!

5. Keep your hands out of the till.
Make cash drawings for personal purposes as minimal and follow conservative cashflow forecasts. Take a weekly wage for yourself so it’s easier for the bookkeeper/accountant, and gives stability to regular expenses and drawings so you can PLAN better!

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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Business Tax Tips – Capital Gains Tax Concessions for SME – Don’t get caught out

Business Tax Tips – Capital Gains Tax Concessions for SME – Don’t get caught out

Business Tax Tips – Capital Gains Tax Concessions for SME – Don’t get caught out

Terry Hayes, writing at Smart Company, warns that many SME businesses can get caught out by not knowing the Capital Gains Tax  Concession rules. He has a link to another article with details, but in this one he writes…

…A fundamental threshold is the necessity to meet what is known as the maximum net asset value test (MNAV) in order to qualify for the concessions. Under that test, the value of all the CGT assets of the taxpayer, entities “connected with” the taxpayer, the taxpayer’s “affiliates” and entities “connected with” the taxpayer’s affiliates must not exceed $6 million. Such assets would include a debt owed to the taxpayer.

A recent case before the Administrative Appeals Tribunal (AAT) highlighted the importance of passing that threshold test and what is required to do so. It is one of the most fundamental issues that a taxpayer will confront when seeking to obtain the benefit of the small business concessions.

The AAT confirmed the Tax Commissioner’s view that a taxpayer failed the MNAV for the purpose of qualifying for the CGT small business concession because of a $500,000 capital gain he made in relation to the sale of his finance broking business.

The taxpayer argued that a debt of $1.1 million owed to a related entity had a nil value and should not be taken into account for the purpose of the MNAV test as it was “statute-barred” from recovery. However, the AAT found otherwise on the basis that the debt had been legally acknowledged as recoverable and legally in existence at the relevant time.

The taxpayer was a beneficiary (and trustee) of a family trust that held units in a unit trust which operated a finance broking business. The business was sold in the 2008 income year for a capital gain of $500,000 to which the taxpayer was entitled.

The issue in this case was whether the capital gain could be reduced or disregarded under the tax law, if the taxpayer and his related entities satisfied the maximum net asset value test. In particular, just before the sale of the finance broking business, did the sum of the net value of the assets of the applicant and his related entities exceed $6 million?

The taxpayer argued that, in determining whether the MNAV test was satisfied, a loan of $1.1 million made to him by the family trust prior to 1998 had a nil value and was not to be taken into account as it was “statute-barred” from recovery. In particular, he claimed that the family trust could no longer sue for the debt because of the six-year statute of limitation – where it had not sought repayment of the debt because it may have been used to repay a debt of another entity in the group that had become insolvent.

However, the AAT found that the fact that the taxpayer signed the balance sheets of the family trust for the 2003 to 2008 income years (in his capacity as trustee) was sufficient acknowledgment in writing that the debt was still legally in existence as an asset of the family trust in the year in question and it had a market value equal to its face value in the balance sheet records. The inclusion of the $1.1 million debt meant the taxpayer failed the MNAV and therefore could not reduce his $500,000 capital gain under the small business concessions.

The AAT also noted that the trustee of a trust has the authority to sign off on such balance sheet records as an agent of the trust (which the AAT found was equivalent to the situation where directors of a company sign balance sheets of the company in pursuance of their duty as directors).

That the CGT small business concessions continue to catch out taxpayers, for varying reasons, is some cause for concern. While it may be true that ignorance of the law is no excuse, the complexity surrounding these concessions still confounds many. May be its time they were simplified. No doubt the government’s Tax White Paper reform process will look at them.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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