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Christmas is a great time to acknowledge and reward your employees and other associates by celebrating and giving gifts. But don’t get caught out by entertainment rules! Claiming entertainment and gifts as business expenses is not always straight-forward, as there are implications for GST, income tax and fringe benefits tax (FBT).

Is it Entertainment?

Entertainment is generally not a deductible business expense. Entertainment rules can be tricky, but in general, the more lavish the meal or event, the more costly, the later in the day and if alcohol is involved then it will generally be called entertainment. Fringe benefits tax may apply to entertainment benefits provided to employees, and if an event or gift is considered to be entertainment then you cannot claim a business deduction or GST. A Christmas party for employees, spouses, suppliers and customers may or may not be classed as entertainment. Check with us to see if any of the party costs can be claimed.

Keep it Free From FBT

If you give gifts to your employees keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
Give gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
Give gift cards or vouchers up to the value of $300. (Vouchers are not considered to be entertainment).
Avoid giving ‘entertainment’ gifts over $300, such as membership to clubs, tickets to events or travel.
Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.

Enjoy the Party

Talk to us when planning your Christmas gifts and events to check how much may be claimed as business expenses. Once you know the costs of throwing a party and giving gifts and bonuses, you can put your feet up and enjoy your own party! For more information on FBT here.

The summer holiday period and can be confusing to employers and employees alike – public holidays worked or taken as annual leave, business shutdowns, annual leave provisions… there are many rules employers need to understand.

Employees are entitled to annual leave and public holidays (PH) under the National Employment Standards minimum entitlements.

Employers can ask employees to work on PH within reason. For example, if the business is open every day of the year, and the employment agreement states that public holidays may be required, the employer can reasonably ask an employee to work a public holiday.

An employee can refuse to work a PH if the request is unreasonable or there are reasonable grounds for refusing.

Christmas and New Year Public Holidays 2022-23

This year the following public holidays apply to employers in all states:

Sunday 25 December 2022 Christmas Day
Monday 26 December 2022 Boxing Day
Tuesday 27 December 2022 Additional PH for Christmas Day
Sunday 1 January 2023 New Year’s Day
Monday 2 January 2023 Additional PH for New Year’s Day

Public holidays are paid at ordinary rates for employees who take the day off. Employees who work on a PH must either be paid penalty rates according to the relevant award or be given an extra day off in lieu of the public holiday. Some awards have specific provisions or additional benefits for public holidays, so it’s important to check.

If an employee has booked annual leave for the Christmas New Year periods, the PH aren’t counted as annual leave. For example, if a permanent employee is on annual leave from 26 December to 6 January, they will use eight days of annual leave, not ten. Two of the days are paid as public holidays.

Some other key points to remember:

PH are counted as service, so annual and personal leave continues to accrue as usual.
Overtime worked on a public holiday may be paid at a different rate than regular overtime – check the relevant award or agreement.
Check the award or agreement for shutdown provisions. Most awards have guidance for directing employees to take leave during annual shutdowns.
If employees don’t have enough annual leave, employers can agree to pay them in advance for leave not yet accrued. Or the employee can take unpaid leave.

The FWO has further advice on rules and entitlements during the end-of-year holiday season.

You might also need to think about cash flow planning for the holiday period, particularly if the business shuts down but still has obligations for payroll and other expenses.

We can advise you about your employer responsibilities and help plan holiday period payments so you can make the most of your summer holiday!

For a quick read on understanding profit and loss, click here.

Are you interested in comparing your business performance against the ATO Small business benchmarks? It can be a useful exercise to see whether your business is performing well, on average, or lower than the benchmark figures.

Each year the ATO publishes industry-based data to highlight specific ratios of financial and other types of performance.

You can compare your cost of sales to turnover, total expenses to turnover, or labour cost to turnover. Comparing to average data gives you an idea of how your business performs compared to others in your industry.

It’s no problem if your ratios are different – but it can be a helpful starting place to look if you want to improve financial performance or reduce costs. If your ratios are very different from the ATO’s, it could be worth diving deeper into your financial reports to see if you have problems that can be addressed. For example, a hospitality business might realise that its food cost is much higher than average. They could then take action to change suppliers and manage wastage.

The ATO benchmarks are based on your business industry code used in your activity statements and tax returns. If you’re not sure what industry you fall under, check the ATO Business industry code tool to find the correct code for your business.

To start comparing your business, you’ll need some information from your accounting software financial reports.

Gross sales income.
Salary and wages expenses, including superannuation.
Vehicle expenses.
Interest on credit cards and loans.
Cost of sales.
Total other business expenses, including all running costs, administration, contractors, suppliers, rent, freight, training and website fees.

Once you have these totals, either from your software or your last tax return, you can compare your figures to the ATO benchmarks.

Want to learn more? We can analyse your business performance using the ATO benchmarks as a starting place for comparison. We will discuss areas you can target to increase profitability, reduce costs and streamline operations.

In a tough labour market, finding talent is a challenge – so it’s especially important to retain your good workers. Profit sharing can help with this.

NZ company Mainfreight has had a bumper couple of years; the transport and logistics industry boomed during the pandemic and shows no sign of slowing down. In 2022, Mainfreight paid workers a total of $94 million in bonuses, double what it paid out the previous year. The company also used 15 pages of its annual report to thank its 10,393 employees, printing every single name.

This might seem like an extreme move, but every employee wants to feel appreciated. Paying a bonus to every worker at the business, not only the managers, strengthens the feeling of working together as a team.

Spend more to make more?

Profit sharing and profit-based bonuses can help your business in several ways:

Your staff feel appreciated
They’re incentivised to grow profits – if the business does well, they’ll be rewarded
Hopefully your people will stay with your business
It should build your reputation as a good employer, making it easier to attract new talent.

Win-win agreements

We can work with you to come up with profit-sharing agreements or bonus structures that will be a win-win for your business and your team. Get in touch, we’d love to help you grow or develop your business’s talent.

Have a spare 2 minutes? Read some tax tips for small business here.

Optimism among business owners was high coming into 2022. But a number of factors are now making things a lot more challenging:

Global events are pushing up energy prices to astronomical levels.
Ongoing supply-chain issues are making it difficult to source raw materials.
A scarcity of talent is causing problems when it comes to staffing and hiring.
Covid is still around and making trading more complex and difficult.

Faced with these hurdles, you might feel that your goals are no longer attainable. But is this true? Growth is likely to be a challenge, but not impossible.

5 steps for meeting your goals during a slowdown

Moving forward during a period of economic recession is certainly more of a challenge. But what’s needed is an updated plan with awareness of the major external threats.

Here are five steps to set you on the right path:

Revisit your goals and see how realistic they are – look at the numbers and make a call on whether they still make sense in the current business market. If necessary, update your goals and make them challenging. But, importantly, make any goals attainable during a time when cash and resources are in short supply.
Get the best possible understanding of your financial position – take a deep-dive into your finances and see how you’re tracking against your budgets and targets. How is your cashflow looking? Do you have enough working capital to fund your growth? If additional funding is needed, where could it come from?
Decide if you have the right team for the job – Whatever your key goals, you need talented people on board who share your core aims for the business. Think about whether you have the team you need, or if there’s a pressing need to hire new people. And consider if artificial intelligence (AI) and automation could fill some of the resourcing gaps and help you scale up.
Assess the current situation in your sector – You can’t change the big external threats in your industry. But you can do your homework and find out what the immediate threats will be. Are there supply chain issues? Are prices going sky high? Get up to speed and look for ways to minimise the impact and rise to the top of the crop.
Update your plan – once you’ve looked over your numbers, goals and strategy, you’re likely to need an updated business plan. Factor in the threats, set meaningful goals, but give your company a target that’s realistic during a global slowdown. Successful small steps towards a goal are better than one giant leap; a leap where you may land flat on your face.

Talk to us about your goal-setting for this year and beyound

The sooner you start revisiting your goals and business plan, the better prepared your company will be for the ups and downs of a recession. Come and talk to us about your financial position, your core strategy and your concerns about the next six to twelve months.

We’ll help you set practical, attainable goals that will push your business forward.

As a business owner, it’s never been more important to have a good grasp on your finances and key numbers.

For many businesses, priorities have changed, customer behaviours have mutated and revenue streams have had to evolve and pivot in order to create a viable business model.

To drive your financial performance, it’s important to have a handle on your key financial metrics.

Getting to grips with your key numbers

In the past, extra cash in the business may have been seen as a surplus that needed to be spent on something, recent years have shown us that having these reserves is vitally important for the survival and long-term health of businesses.

To truly be in control of this cash, it’s vital that you can dip into your accounts, financial reports and dashboards and ‘see the genuine story’ behind your financial position.

So, what are the key reports to focus on? Let’s take a look:

Budget.

Your budget is the financial plan that’s tied in with your strategic plan. In essence, the budget is your approximation of the money it will take to attain your key strategic goals, and the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historic numbers) against, allowing you to see the variances, gaps and missed targets over a given period.

Cashflow Statement

A cashflow statement shows the flow of money into and out of your business. Understanding these cash inflows and outflows in detail allows you to manage this ongoing process, allowing you to aim for a ‘positive cashflow position’. This is where inflows outweigh outflows. In this ideal scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.

Cashflow Forecast

Forecasting allows you to take your historic cash numbers and project them forward in time. As such, you can see where the cashflow holes may appear weeks, or even months, in advance. This gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or going to lenders for additional funding.

Balance Sheet

The balance sheet shows you the company’s assets, liabilities and equity at a given point in time. It’s a snapshot of what the business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity). The balance sheet is useful for seeing what stock and equipment the business owns, how much debt (liabilities) you’ve worked up and what the company is actually worth. All incredibly useful information to have at your fingertips when making big business decisions.

Profit and Loss

Your profit and loss report (P&L.) Your P&L gives you an overview of the company’s revenues, costs and expenses over a given historic period of time. Whereas the balance sheet is a snapshot, your P&L is more like a moving video. It shows you how your finances are progressing by demonstrating how revenue is coming in and costs/expenses are going out.

Talk to us about accounting and financial reporting for your business

We’ll run you through the key reports in your accounting software, and can help you track your performance. We can help set a plan to take action and prepare your company for surviving the new business normal.

Check your business performance against the ATO small business benchmarks here.

Keeping on top of your cash flow is even more important during tough economic times.

With a global slowdown on the cards, energy prices soaring and supply chain challenges, cash is likely to be tight over the coming year and beyond. Cloud technology and fintech apps can give your business the best possible control over its cash.

Why is cash flow so important?

To keep your business operating you need enough money coming into the business to cover outgoings with enough surplus cash to deliver a profit. When recession begins to hit, this can have a significant impact on your income.

Consumers will have less disposable income to spend on your products and services. Business customers will be looking to reign in their spending on suppliers. Because of this, your business is likely to make fewer sales and will bring in smaller revenues.

This means:

Reduced income coming into the business.
Less cash in the business to cover your operational expenses.
Not enough money in the bank to pay suppliers, utility providers or payroll costs.
In the worst-case scenario, insufficient cash flow for you to continue trading.

What can you do to improve your cash flow situation?

The more informed you are about your cash position, the more you can do to prepare for cash flow gaps. It’s this foresight that can make all the difference when you’re battling against tough external economic forces and a downturn in sales.

So if you want to safeguard your cash flow, some sensible steps to take are:

Switch to cloud accounting. Accounting and finance technology has moved on in leaps and bounds in the past decade. The latest crop of cloud accounting platforms all offer a detailed reporting of your cash position. These software tools will generally offer real-time data, giving you up to date cash numbers.
Integrate with cash flow forecasting apps. Cloud accounting platforms let you add third party apps to create a custom stack of helpful business tools. There are plenty of cash flow forecasting apps to choose from. This gives you the ability to predict your future cash flow position.
Plan ahead for the cash flow gaps. When your forecast shows a shortfall of cash coming up, that’s the time to take evasive action. If there’s a cash hole approaching next month, look at ways of raising extra finance to fill that hole. This could mean extending your bank overdraft, taking out a small business loan or taking out an invoice finance facility with a lender.
Look for opportunities to cut your overheads. One way to even up your cash flow is to cut down on your expenditure. If you can cut back on overheads, expenses and unnecessary costs, this can help you re-balance your cash position, even when cash flow is getting tight. So, look for cheaper suppliers, buy in smaller quantities and take every opportunity to cut costs and keep your spending more sensible.
Update your prices and your sales strategy. Raising your prices is one way to bring in more cash, with the same volume of sales. But it’s a balancing act. Because putting your prices up can alienate existing customers and could see you losing customers, but if you can find the sweet spot for your pricing AND also drum up more sales, you can quickly increase revenue and give your cash inflows a healthy boost.
Review your cash flow reports regularly. So it’s important to look at your cash flow numbers and reporting regularly, not just at period-end. This is particularly important when economic times are tough. With the most current cash information to hand, you can make informed business decisions and aim to keep the business operational.

Talk to us about updating your processes

With your business in a healthy cash flow position you give yourself some solid financial foundations for riding out the global recession. Because no business is invulnerable in these conditions, but with liquid cash in the business, you have more flexibility and more capital to play with.

Book a meeting and let us see how we can improve your cash flow processes.

It’s unfortunate, but employee expense claims are a common form of business fraud. Are you across all your employees’ claims for reimbursement?

The best thing you can do to minimise expense claim fraud is implement a process for reviewing and authorising expenses and reimbursements. Many business owners simply trust people to do the right thing and be honest.

Having good systems in place will mean that the dishonest actions of a minority do not jeopardise your business.

Examples of Expense Claim Fraud

Expenses based on faked or altered documents or even booking confirmations that were never actually paid for.
Asking for reimbursement for the made-up cost of goods or services provided for free.
Collusion with someone in another business who can provide falsified documents to show purchase and payment.
Personal expenses labelled as business expenses.
Duplicated claims. For example, an employee might claim for legitimate travel expenses in one month and then claim the same expenses two months later.
Purchasing an item using the business credit card and providing a personal card to receive the refund when goods are returned.
Inflating legitimate expenses, such as meals or meeting costs, paid for in cash.

Steps to Proactive Expense Management

Get a policy in place that includes limits on categories such as travel, office supplies or business meetings, and a clear authorisation process.
Randomly check all expenses to ensure no staff members are collaborating.
Get digital credit cards for employees who need to purchase items on behalf of the business regularly. Some solutions allow you to set monthly budgets and limits for specific categories.
Make it easy for employees. Using a phone app means there is no excuse not to get a photo of the invoice or receipt, and the authorisation process is built into the app.

Mistakes in claims happen, and not all expense claim errors are fraudulent. But by having a procedure in place, you’ll soon pick up an innocent mistake compared to deliberate fraud.

Talk to us if you’d like to know more about apps that provide a systematic process for proactive expense management and read more about expense claims here.

The statement of cash flows, (also known as the cash flow statement), shows how your business has generated and used cash (and cash equivalents) within a specific time period.

For each of the reporting categories, receipts and payments are listed (money in and money out). This is reported as a net increase or decrease in cash held for that category.

The net change in all categories is added to the amount of cash on hand at the start of the reporting period to arrive at the current cash on hand figure at the end of the reporting period.

It’s another important financial statement to understand in conjunction with the Profit and Loss statement and the Balance Sheet. These three reports provide a good understanding of the financial position of your business.

How Does it Work?

It integrates the information provided by the Profit and Loss statement and the Balance Sheet into a current cash position. The cash flow statement is reported on a cash basis. Your other financial statements are usually reported on an accrual basis. Accrual income (from the profit and loss statement) is converted to cash by calculating the changes in the balances of asset and liability accounts.

Report Categories

The statement of cash flows is organised into sections that report on different types of business activity.

Operating activities – all business income, expenses, assets and liabilities (except for those assets and liabilities reported in investing and financing activities).
Investing activities – the purchase and sale of long-term investments, property, plant and equipment as well as security deposits paid to suppliers or received from customers and dividends received.
Financing activities – the changes in balances of equity accounts. For example, issuing and repurchase of stocks and bonds and payment of company dividends if applicable. Loans are also included in financing activities.

Formal financial report packages usually include notes to the financial statements. The notes contain supplemental information that explain significant items or activities that did not involve cash transactions. The notes may also include detailed reporting of categories that may have been reported as summary totals only in the profit and loss, balance sheet and statement of cash flows. Other items such as taxes, employee provisions, risk management or related party transactions may also be detailed in the notes.

Why is it Useful?

The statement of cash flows gives you a valuable measure of cash flow in and out of the business over a given period. It shows the ability of the business to pay its bills and fund its operating activities. This gives you a picture of overall performance.

You can see the relationships between assets, liabilities, equity and cash accounts. It shows changes and movements over time, whereas the balance sheet and profit and loss reports show account values at a single point in time.

The statement of cash flows gives you vital information on your business.

How strong is your cash position?
What is the long-term outlook for your business?
What activities generate the most cash flow?
What is the relationship between your net income and your operating activities?

Finally, if you’d like to understand your financial statements, cash position and future outlook in more depth, arrange an advisory session today. We’ll help you identify and appreciate the strengths of your business.

Read more about cash flow statements here.

Are you in the habit of checking your suppliers’ ABNs? (Australian Business Numbers)

When you make business purchases, you should receive a valid tax invoice from the supplier to prove that your purchase is a business expense. The ABN holds information including, contact details, business structure and GST registration.

Many business owners don’t routinely check the ABN of suppliers. This results in incorrect GST claims – either claiming too much or not enough.

How to Check a Supplier ABN

Go to the ABN Lookup website.
Enter the supplier ABN provided on their bill.
Review the current details, including the GST registration date. This will show whether a business is registered and, if so, from what date.
The entry will also show if an ABN has been cancelled.
Print or save the PDF extract and attach it to the supplier record in your accounting software.
You can search multiple ABNs by uploading an Excel spreadsheet template.

When to Check Supplier ABNs

It’s good practice to check the ABNs of all new and major suppliers and any large or unusual payments. Always check the ABNs of suppliers you know to be new to business.

Check your accounting software – there may be add-ons that will automatically check the ABNs for you. Or, you may choose to audit ABNs once per quarter or even once per year for smaller businesses. If you do an annual check, make sure you do it in the March quarter so you can make any GST adjustments in the June BAS if needed.

Better yet – check the ABN of every new supplier and save the details in your software, so you always have the correct information and tax codes.

What if it’s Wrong?

It’s not uncommon that suppliers (especially those new to business) charge GST on their invoices when they are not yet registered for GST. Some suppliers may also provide the ABN of another business. For example, one person may conduct business under both a sole trader ABN and a company ABN and provide you with an invoice from the wrong entity.

If you conduct a review of your suppliers’ ABNs and find that some have been charging GST in error, notify the supplier and ask for a refund of the GST or a credit to the value of GST incorrectly charged. Ask the supplier to reissue correct tax invoices.

Another common error is to claim GST on purchases made from small overseas businesses that are not registered for GST in Australia.

Need Help with BAS Adjustments?

Once you have corrected the entries in your software, you will need to make a GST adjustment on your next BAS.

If you have made significant changes over multiple BAS periods, it may be challenging to correct the GST.

Talk to us if you’d like to conduct an audit of supplier details and pick up the necessary adjustments to GST. Amending prior BASs might result in further GST payable, but it could just as easily result in a refund!

And if you want to read about how to speed up invoicing, read here.