The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cashflow is reality.” Chris Chocola, President of Club for Growth 2009 to 2014.

Keeping the cash flowing – five principles

  1. Without cash your business will not survive
  2. You need to understand your key cashflow drivers
  3. Managing cashflow is all about your business processes
  4. Treating the symptoms of poor cashflow without fixing the underlying causes is time consuming and frustrating
  5. You need to be prepared to make process changes in your business

Why we developed this service

Cash is king.

Cashflow planning is best practice in any business and critical to survival and growth. Setting cashflow targets and regularly monitoring your actual cashflow against your forecast will enable you to predict large cash outflows and respond to changes in your business.

Inadequate cashflow is a symptom of management problems in a business, NOT the cause. Helping you look ahead with confidence and putting in place basic cashflow maximisation strategies is core to our purpose as your business development accountants.

Who should have this service?

How many times have you been told you made a profit and have tax to pay, but have no cash in the bank to show for it?

If you answered yes above, you probably need a cashflow forecast and cashflow management coaching.

Alternatively, you may be just starting, or planning to start, your own business. Fundamental to starting a business is working capital. Working capital is cash to fund the set up and pay the bills until the business gets enough cash from selling goods or services.

If you require a Cashflow Forecast because your bank manager has requested one, we can create one for you. However, this Cashflow Management service is fundamental as every business owner needs an understanding of cash and liquidity for better decision making. Recognising the difference between profit and cash, and the impact improving your Cash Conversion Cycle will have on your business is essential to managing and growing any business.

What is involved?

There are two service options. Both include the completion of a Cashflow Forecast and the input of your Cashflow Forecast into your accounting or reporting software.

Service one: A Cashflow Forecast. Preparation of a Cashflow Forecast and a one-hour Cashflow Forecast Review meeting to discuss and finalise the Forecast.

Service two: Cashflow Management Coaching. Preparation of a Cashflow Forecast along with a three-hour Cashflow Management Coaching session to:

  • Discuss and finalise the Cashflow Forecast
  • Identify your current Cash Conversion Cycle
  • Identify the likely causes of cashflow problems within your business
  • Set 12 month and 90-day cashflow improvement goals and actions

This initial session is followed by four quarterly accountability coaching sessions, ensuring that you put in place essential cashflow management strategies and achieve your cashflow improvement goals.

When should I have a session?

Businesses just before, or on, starting out need a cashflow forecast, as part of their business plan to know how you’re going to pay the bills and keep your business afloat for the first year.

Businesses should have a Cashflow Forecast in place before the beginning of the new financial year.

Having said that, we can provide this service at any time. The sooner we complete a Cashflow Forecast for you, the sooner we can work together to agree strategies for improvement.

Benefits of Cashflow Management

  • Helps to ensure business success and longevity
  • Assists with bank lending requirements
  • Identifies ways to avoid late payment penalties and interest from ATO and suppliers and dishonour bank fees
  • Improves communication and relationships with your financiers and suppliers
  • Gives you an understanding of cash and liquidity for better decision making
  • Helps you understand the key cashflow drivers and the Cash Conversion Cycle in your business
  • Enables you to predict and plan for large cash outflows
  • Teaches you how to monitor your actual cashflow against forecast in your accounting or reporting software
  • Provides peace of mind that your cashflow needs are known and properly funded
  • Improves business processes that maximise cashflow, profit and business value
  • Drives your business to achieve your goals in a controlled and managed way

Let’s face it – sometimes you just don’t know what you don’t know. You would think that employing staff would be a simple thing, but often times no.

In my work as an accountant who also does bookkeeping and payroll for my full-service clients, I often find that my new clients are not paying their staff correctly. This is generally because they don’t know what they are supposed to be paying and/or have not had the correct advice from their previous bookkeeper/accountant. So, here’s a few things you should be doing:

  • Prepare a contract for all your employees which includes a job description. The contract includes their start date, their hours of work, their rate of pay and when it will be paid, among other things. Let me know if you need a template for an employment contract
  • Pay your staff at the award There are many jobs in industries that are covered by an Award, including Hair & Beauty Industry, Hospitality, Retail, Clerical and many others
  • If there is no Award for your industry then the industry standard or your industry professional organisation can help you with the appropriate pay rate for them
  • Apply the minimum standards to your employees. In Australia, The National Employment Standards (NES) are minimum standards even without an Award relating to your industry. One of the minimum standards is that the maximum weekly hours for any employee is 38 hours per week. Consequently, depending on the industry or agreement with the employee, any hours over that are overtime hours to be paid at the overtime rate. Go here for a copy of The National Employment Standards
  • Follow the award provisions regarding paying overtime including TOIL, entitlements to leave and breaks
  • Pay overtime hours at the correct rate. This is not covered in the NES but should be covered in your industry award. If your employees are not covered by an award, the standard rate is 1.5 times the ordinary hourly rate for that employee for the first three hours of overtime worked for that day. Did you know that Time in Lieu (TOIL) is also accrued and paid at the overtime rate when taken
  • Keep overtime/TOIL accrued to a strict minimum. Unnecessary overtime will make your wages bill blow out and you may not see enough increase in sales/revenue because of it. You or your manager must be on the game and send your staff home when their daily hours are up if possible.
  • There is a 3.3% increase to minimum wages due to the annual wages review announced on 6th This applies from 1 July 2017. You need to review your employees’ current award on 1st July and update their pay rates accordingly.

The concept of a “going concern” exemption for the purposes of the goods and services tax (GST) can still cause confusion when businesses are sold.

The sale of a business may be GST exempt if the enterprise is deemed to be a “going concern” — which refers to an enterprise’s ability to continue trading. The ATO (and the GST legislation itself) says a supply of a going concern occurs when:

  • “a business is sold, and that sale includes all of the things that are necessary for the business to continue operating”, and
  • the business is carried on, “up until the day of sale”.

The GST exemption has its advantages — a buyer of a business does not have to find extra funds to cover GST that is added to the purchase price. And while the buyer is entitled to get the tax back via the input tax credit system, this cannot happen until some time after the completion of the transaction. It also must be remembered that while the GST is eventually refunded, any stamp duty payable on the sale of a business will include the amount for GST.

What are the requirements for the exemption?

Business owners may be aware of the existence of a GST exemption but not completely understand the way it operates. The GST legislation says that the sale of a going concern will be GST-free if:

  • the sale is “for consideration”
  • the purchaser “is registered, or required to be registered” for GST, and
  • “the supplier and the recipient have agreed, in writing, that the supply is of a going concern”.

The sale of business contract will usually specify that the business (that is, the “supply”) is a going concern when the contracts are exchanged. This is critical, because it shows that all parties to the sale acknowledge that the business is a going concern.

A vendor is required to supply “all of the things that are necessary” for the continued operation of the enterprise. This does not mean everything that is owned by the business. It does however mean those things without which the enterprise could not function. Generally, this includes the necessary assets such as premises, plant and equipment and customer contracts. It can also include arrangements such as ongoing advertising.

The legislation requires the vendor to carry on the business “up until the day of sale”, with it deemed to be transferred on the date on which “effective control and possession” of the business is handed over to the buyer. While this date generally refers to the settlement date, “the day of sale” may occur before or after the settlement date. Importantly, there is no requirement for the purchaser to actually continue carrying on the business.

The tax liability risk (in case the ATO does not view the sale as a supply of a “going concern”) ultimately lies with the seller, as it is the “supplier” in any transaction that is required to remit GST to the ATO.

Some vendors seek to avoid this tax liability risk related to the business by including a clause in the sale contract requiring the buyer to indemnify the vendor for any GST that may be payable in the event that the ATO does not view the transaction as one of a going concern.

Disclaimer: All information provided in this newsletter is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information