Tips for Gaining Repeat Business

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All small businesses aspire to grow. But where is the source of that growth? The common answer is “attracting new customers.” But this could come at a massive cost. Competition is stronger than ever. Moreover, marketing is harder now with the proliferation of Internet advertising and social media offering. Virtually all small businesses are online trying to lure in new customers. Alternatively, there is word-of-mouth – if you are prepared to take it slow.

Successful businesses have one thing in common – repeat customers. The first thing you need to do to ensure customers keep coming back is cultivate relationships. Here are tips for how you can gain repeat customers:

1. Identify the worth of your customers

Know how much your customers spend on average with your business and how much your most valuable customer spends with you. Identifying who your most valuable customers are is the first thing you need to do before devising a plan to keep them. On the other hand, identifying your least valuable customers will help you determine why they are not coming back to your business.

Looking at your transaction report will help you easily do a quick analysis.

2. Create a basic, but strong communication strategy

Reach out to your customers regularly. Put a structure around your communication strategy by creating guidelines for your communication. Here are some sample guidelines that you can use:

  • Don’t forget to ask your customers for information such as email address and phone number.
  • Send notes saying thank you to all your customers.
  • Send emails notifying customers of new offers and promos every month.
  • Give your most valuable customers hand-written holiday cards.

These are basic tips that are effective enough to sustain your communication plan and gain you repeat customers.

3. Reach your targets using technology

Familiarise yourself with the etiquette to follow when communicating with your customers. Instead of conducting research and creating a strategy from scratch, make use of technology. A number of tools, many of them free, are available to assist you in managing your customer lists, communications calendar, and teaching you on basic etiquette.

4. Re-evaluate your products or services

Is your business offering just a few products or a one or two services? Have you considered increasing your products or services? You can ask your customers what other offerings they would like to see on your “menu.” There may be an opportunity for you to add a new offering that would not require you to invest so much.

5. Deliver excellent service

Probably the most effective means to turn a customer into an advocate is by providing exceptional service. Even if your product or service is one-of-a-kind, there would always be a competing offering in the market. Your level of service is what would distinguish you from your competitors.

Take for example a local coffee shop where the barista remembers exactly how their most valuable customers take their coffee and begin to make it as soon as they enter the store. With so many stores offering similar coffee, this local coffee shop would win loyal customers because of its excellent level of service.

Do you need help in analysing your business transaction reports to determine how much your customers are spending on your business, and identify who your most valuable and least valuable customers are? Talk with your accountant or call PJS Accountants. We offer accounting and other booking services to individuals and companies, big and small. Allow our team to evaluate your financial situation and advise you on the right measures to gain repeat business. Contact PJS Accountants for enquiries.

7 Things to Look at on your Return on Capital Employed

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Return on Capital Employed (ROCE) is the main measure to look at when evaluating the financial performance of a business. Aside from measuring the profitability of a business, ROCE also measures how effectively the capital was used. Basically, if ROCE is not high enough, it means something is not quite right.

ROCE is the measure to look at because it emphasises the connection between inputs and outputs of the business. The inputs are found in the balance sheet, such as stock, creditors, plant and equipment, etc. The outputs are found in the profit and loss statement, such as margin, sales and expenses.

If your ROCE is not high enough, what are the important things you should look at? Here they are:

1. Profitability

What is the percentage that your pre-tax profit bears to your sales? To find out, look at EBIT or earnings (profit) before interest and tax. The higher the number is the better. However, as a guide a profitability percentage of below 5% is too small.

2. Margin

Gross profit margin is one of the main influencers of your profitability percentage. You are not generating enough margin on your sales if your profitability is too low. It is the custom of some companies to cut margin in an effort to make more sales. This can be harmful, depending on the phase of the business cycle you are in.

3. Volume

Scale can be an issue for small businesses because of the fixed costs they incur just by opening their doors. Bottom line, businesses are likely to operate at loss until you attain a critical mass. When a breakeven point is reached, then that’s the time to pay attention on growing margin in order to earn more profit.

4. Expenses

If you analyse the items above and you still see a problem, then you need to cut your expenses. Focusing on margin will usually produce the best results in increasing profitability, but businesses sometimes allow expenses to go unchecked.

5. Working capital

The first four items are included in the profit and loss statement. Working capital and the remaining items are considered as inputs to the business. Working capital is a vital item, particularly for fast-growing companies.

6. Surplus assets

Accumulated assets that are no longer useful represent real cash – you just need to unload them. Find out if your business has a “lazy” balance sheet by checking if you have surplus plant and equipment, extra stock holdings or failed debtor management. Do something about your lazy balance sheet to improve business performance.

7. Small changes

Sometimes making small changes is enough to improve the financial performance of a business. So concentrate on making small changes on all 6 items above.
ROCE directs business value. Focus on improving ROCE if you are aiming to raise the value of your business.

Seek the expertise of professionals to improve the profitability of your business. Talk with your accountant or call PJS Accountants. We offer accounting and other booking services to individuals and companies, big and small. Allow our team to evaluate your financial situation and advise you on the right measures to boost profits. Contact PJS Accountants for enquiries.

How to Forecast your Sales

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Budgeting is part of operating a business. This task includes predicting your sales and distinguishing your Key Performance Indicators (KPI) to help you in preparing your budget.

When you have come up with a figure, you and your team now have targets to meet so it’s worth all the effort. So, where do you begin?

Use this 3-step method to forecast your sales.

1. Look at your sales history

You have a sales history, except if you are launching a brand-new business. Even one week’s worth of sales is still sales history. Use it.

Your Point of Sale (POS) system can be used not only to serve customers but also to obtain all sorts of data that you can use for budgeting.

  • Transaction reports: tells the number of customers served by the business daily, weekly, monthly, etc.
  • Average Spend: seen in the transaction reports, this is how much each customer spends on their visit to your store
  • Sales Reports: show the sales flow for a business, or the actual sales daily

You can use this as a starting place from which to forecast your sales. Of course, you want to raise these numbers, but identifying your starting point helps you predict where you can end up.

If you don’t have a sales history, talk to other businesses in your field, your buying associates, or seek help from the ATO. These agencies can provide you with sales benchmarks for any industry you can think of.

2. Find what your KPIs are

A detailed review of your reports will help you find out what your KPIs are. You can always improve your KPIs. You want to predict your sales not only because you aim to improve your future sales and expand your business, but you also want to be able to talk to your team more effectively.

Here are the KPIs you should look for:

  • Average spend per customer
  • Number of transactions daily
  • Sales per day

Sales will not be the same all the time. Determine your busiest days and slowest days. With your KPIs, you can teach your team ways to boost sales and also give them a daily sales target to meet. By identifying and boosting your KPIs, you improve sales, and in turn, your profit.

3. Ask yourself “What if?”

You go through steps 1 and 2 to forecast your sales. For step 3, play the “what if?” game.

  • What if I raise the figure for the average spend per customer by only $1 or $2 or 10%? How would it impact my turnover?
  • What if I succeed in enticing customers to make one more visit to my store every week? What difference would it make on my sales?

To compute this, multiply the number of current weekly transactions by a higher number, say 10%. Multiply the average spend for each customer by this figure in visits to find out how much your sales would increase. Then do the same thing using a 20% increase, and so on. Tinker with the numbers. Place these new sales numbers into the top line of your budget, and look at how it impacts your turnover.

After determining your sales budget for the year, break the figures down into weeks to come up with your weekly sales budget.

You can even break it down further into days to get your sales flow. However, always remember that you made all these efforts to forecast your sales because you are sharing these targets with your team.

Forecasting sales and turning it into reality are two separate things. There’s only one way to make it real: share it with your staff and push them to meet the daily sales targets.

It is essential for a business to forecast their turnover. PJS Accountants offers accounting and other bookkeeping services to individuals and companies, big and small. Allow our team to assist you in reviewing your sales history and determine a realistic sales budget for your business. Contact PJS Accountants for enquiries.

Put Selling Out of your Mind; Build Trust

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It’s likely that you have purchased something from someone you don’t trust. But it’s doubtful that you’d dealt with the same person for a second, or even a third time. This is because it’s human nature not to deal with people that we don’t trust.

Buzz words like solution-selling, strategic-selling and more recently social-selling are all over today’s marketplace. You can easily get confused on where to get started with selling your product or services.

If you are considering launching a new business, product or service, or expanding an existing one, the best to go about it is to first establish trust.

All relationships are based on trust. As a result of building good relationships, a business becomes more stable and gets good sales. It sounds easy, but it is actually hard to identify what trust really is.

To begin understanding it, let us use David Maister’s Trust equation, taken from his book “The Trusted Advisor.”

Trust = Credibility + Reliability + Intimacy
Blank fieldSelf-Orientation

Credibility

Know what you’re talking about.

Familiarise yourself with your product or service and learn the market you are entering. It will look good if you do. Being familiar with it will bring your conversations up to date and will allow you to grab attention.

Remember that it isn’t about boasting a list of features or making a 10-minute sales pitch. It is about what you need to know about the market or sector you’re operating in, or some great testimonials from your customers.

Reliability

Do what you say you’re going to do.

If you receive an offer for your product, make sure you keep it simple and you deliver. When meeting with customers, be early or at least be on time. This shows that you can be relied on.

If you are shipping or delivering products, deliver them to your customers prior to the deadline. Such a simple act leaves a good impression and will probably make them your advocates. These people are the most effective sales tool available to businesses.

Intimacy

Genuinely care about the people you are dealing with.

Your service or product becomes valuable to people if something in it contributes to their success. It is also not just about the item you’re selling, but more importantly about your insights or connections with other people, to sincerely assist them in whatever they are striving to achieve.

Self-Orientation

Don’t communicate with your customers only when there is a benefit to you.
Avoid calling your meetings “sales meetings” because you are likely to be actually doing this. Some people hate talking to sales people because they think that they’re only talking to them because of a possibility of making a sale. Never make people feel like they are a walking dollar sign.

We erode trust each time we behave only for our own gain. If you can deal with people or prospective customers with the goal of striving to offer value, then you are well on your way to establishing trust.

By understanding the above components, you can determine the best way to operate in your selected market. Define a clear purpose that adds value to the person you’re dealing with during meetings or market communications.

Each individual you deal with should be willing to advocate for your product or company on your behalf. They will do this if you have built trust with them.

Are you looking at outsourcing your bookkeeping, accounting and other business-related processes, but still wants to remain in control and make the big decisions for your business? We have has over 30 years’ experience with local businesses in Capalaba, Cleveland and the Redlands. Our team will be at your disposal, ready for your call to assist you to stay in charge of all aspects of your business. Contact PJS Accountants on how we can help you improve your business.

6 Things to Remember when Working with Outside Suppliers

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Almost all businesses must work with third party suppliers in some form. This may include the supply of material goods such as retail stock or parts for your business’s manufactured products, or rendering of services such as skills outsourcing or tech support.

Whatever the capacity is for your external working relationship, there are some important things you need to be aware of when engaging with any outside supplier.
Achieve the best outcome for everyone when working with your suppliers by following these 6 helpful tips:

Be realistic

You won’t get all the things you want from a supplier. You need to compromise and this compromise typically takes the form of one of three ways: Time, Quality or Price.

Your expectations of your suppliers should be realistic. Select the item that is most essential to you, like the highest quality items, and be willing to make concessions on Time and Price.

If you are lucky to find a supplier who can offer the best price, time and quality – hold on to them.

Pay on schedule

Any business relationship should make this the first rule. Sadly, this basic courtesy is often ignored, so it must be emphasised. Pay your bills on time to establish a strong relationship with your suppliers. Always remember that they are also operating a business, just like you are, and are depending on you paying them to avoid cash flow problems.

There’s also a benefit for you when you pay on time. You will be seen as a good risk by your suppliers, and be likely favoured over inconsistent payers. You will create a stronger relationship, and if money becomes tight in the future, your suppliers will likely go easy on you, and may even grant you better payment terms.

Talk to your suppliers as soon as possible if you ever experience problems with payments. Never forget to pay your bills and don’t make a practice of making late payments, because this would damage your relationship over time.

Be transparent

Being transparent doesn’t mean you have to disclose all your business secrets. It just means that your suppliers should know where the stand in your business.

Ask them to come to your place of business, so they can witness how your product or service works. Make your production schedules available to them, so they can be aware of the peaks and troughs in your business. Make sure they are aware of how their goods or service is important to your business.

Be honest

If different vendors are supplying you with the same goods or service, don’t make a secret of it. It is important for your suppliers to know the necessity for contingencies and backup plans. It would also benefit you to foster a bit of healthy competition among your suppliers.

Exercise honesty if a supplier doesn’t fit into your business. Don’t just drop a supplier; tell them why they’re not meeting your requirements. If circumstances will allow, give them the opportunity to improve or remedy the problem

Be friendly

Do you want to be in a relationship (personal or business) with someone you dislike? Your answer would most likely be “NO.” It is human nature to choose to connect with people to whom we have a vested interest in.

Conduct your business relationship in a similar manner. Ask your suppliers to attend your parties or functions, and make sure they know and feel that they’re an integral part of your business. If mistakes or miscommunications happen, try to be civil, and deal with problems together.

Be smart

Don’t deal with a supplier haphazardly. Expect a disastrous outcome if you give too much unearned trust at the start of your business relationship.

Do your research before signing up a supplier. Look into their track record of supplying goods or services, and Check the calibre of their other clients. Ask them relevant questions regarding their capability in supplying you with the required goods or services.

And don’t forget to arrange a detailed contract. Bear in mind all the tips listed above, and draw up a contract that both you and your supplier can agree on. Have all the details in writing from the beginning, so you can protect yourself if any problem arises in the future.

Bottom line, a relationship is a two-way street. Your relationship will go smoothly if you treat your suppliers the way you want to be treated.

One of the challenges in running a business is dealing with suppliers. Seek help and guidance on this area from experts. PJS Accountants are the partners you need to expand your business and help it overcome any challenge or trial. We offer a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning, estate planning and bookkeeping. Contact PJS Accountants for enquiries.

5 Reasons Why Unsecured Loans Make Sense for your Business

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People look at some business loans in a negative way. Many borrowers in the past have been victimised because they are normally easy to access and carry high interest rates. However, a business loan may be the best option when compared side by side with traditional financing products and taking into account the short term obligations and opportunities that confront majority of small businesses.

Here are 5 ways that unsecured loans could secure your business:

Swift access to money when businesses need it

Maybe your business faces hard times and need funds immediately, or maybe an opportunity appears that requires your business to have more funds than you currently have. It could take some time for you to get approved for a traditional bank loan if any discrepancy is found in your application or your credit history is not up to par. The truth is that some micro businesses must be paid on time. In these circumstances, a business loan, which you can get a hold of within 24 hours, is very handy.

Pay lower overall

Compared to traditional business loans, the repayment amounts for unsecured business loans are typically higher. However, it does not mean that you have to pay more.

For example, you take out a loan of $50,000 from any major lenders in Australia to buy a new piece of equipment. The interest rate will vary but for commercial equipment, the rate could be about 9%, and the term of your loan is over 10 years. You can expect to have paid about $25,000 in interest by the time you have made your final repayment.

On the other hand, you take out a business loan for the same amount of $50,000. You have some money but not enough to cover the full amount of the new piece of equipment. If you take a loan over a 12 month period, the amount of interest would reach about $9,000. Simply put, it is often better to opt for a shorter term than a lower interest rate, thus making a business loan more affordable in general.

Your particular situation will determine the right option for your business. If you have no money available at all, it may not be easy to pay a loan over 12 months. But if an investment presents itself to you, there are benefits to be gained from approaching business loan lenders.

Increase credit score for future loans

The difficulty in accessing funds because of poor cash flow or a low credit score is one of the major inhibitors to small business growth. Applying for a smaller, more manageable business loan that fits your business cash flow is one of the easiest ways to increase your credit score as well as raise your chances of getting approved for bigger loans in the future.

Short term depreciation of assets

For example, you are a window cleaning business operator and you borrow to buy new ropes, harnesses and safety equipment. These pieces of equipment would become old within a year if used regularly.

If you take out a business loan, you can structure the repayments based on the useful life of the items. Alternatively, a long term loan would require you to continue making repayments even after the equipment has gone beyond its useful life. With the exclusion of the added interest you might pay for a long term loan, there’s not much difference if you pay now or later. However, if possible, it would be smarter and more beneficial to limit long term liabilities.

Added flexibility

Compared with traditional long term financing options, business loans commonly offer far more flexibility. A number of business lenders will allow businesses to make repayments on the periods when they are generating revenues.

Allow for your business’s circumstances, such as you capacity to pay or the reason for the loan, to determine the financing option you will choose. Ensure your success by making an effort to do research on the options available with various lenders and in the end choose the loan that is right for you.

If you would like to seek professional advice about loans for your business, or if you have any enquiries about our portfolio of chartered accounting and business services, please contact PJS Accountants.

How to Improve your Cash Flow

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There are many aspects of your business that can impact the amount of cash you have on hand. You can boost your cash flow by monitoring your expenditures and raising your profits.

Here are more tips:

Watch your stock levels

You will tie up your cash and multiply your storage and insurance expenses by keeping a large amount of stock. Maintain stocks at efficient levels by implementing good stock control. This includes monitoring and accounting for the items you sell, utilise or make.

Handle your accounts

Overdue accounts should be followed up on. You will see cash coming in when you manage debtors and implement good credit policies.

Negotiate for longer payment terms with your suppliers. You don’t have to pay out of pocket if you can secure payments from your customers before you pay your suppliers.

Evaluate banking products

You can have the money in your hand sooner if you utilise the right banking transaction products. Think about using a mobile eftpos device, or look into services to get paid through phone or on the Internet.

Raise income

See if you can increase your profits by doing a pricing review, using an advertising campaign or enhancing customer service. Expanding your business may also be an option.

Trim overheads

Consider cutting back on employee overtime and watching your operating costs or overheads. Institute eco-friendly measures and you may see expenses such as power and water bills reduced. Make sure your policies on these areas are clearly communicated to your employees.

Enhance your financial acumen or hire a professional

You can improve your cash flow by enhancing your management and financial acumen. Improve your business knowledge by attending workshops.

It is important for a business to have cash always available. Get help from a financial adviser or accountant, professionals who are experienced in assessing your individual situation, on how to improve your cash flow.

PJS Accountants offers accounting and other booking services to individuals and companies, big and small. Allow our team to evaluate your financial situation and advise you on the right measures to avoid cash flow problems. Contact PJS Accountants for enquiries.

Preparations for BOFY (Beginning of Financial Year)

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That time of the year when every business is advertising their product or services, taking advantage of the “End of Financial Year”, has just ended. It’s great to be up to date with as many tax deductions as possible, but what plans are you making for “Beginning of Financial Year”, which started this July?

Most probably, if you are running a business, you aim to improve your profits. Here are the important things that businesses should pay attention to in order to achieve sustained and higher profits this year:

Sales / gross profits

Study your sales and profits by region, product, service, customer, etc. to identify which ones you must pay attention to this year. Maybe you should scrap some that are slowing your business down. Consider new prospects that open as a result of shifting business conditions.

Do not be a victim of “Digital Disruption.” Learn to survive it and take advantage of it by seeking help in the area of online/digital marketing. Unless your business only targets customers that are more than 65 years old, you need to establish an online presence. Meet with your staff to conduct a strategic planning session or hire someone to help you. Discuss ideas for achieving sustainable sales growths.

Costs

Explore ways your business can obtain supplies more cost effectively and efficiently.

For service businesses, labour hours is a great opportunity to attain improved productivity. Carefully review the productivity of each team member, i.e. how much of their working hours are you able to bill to clients? Profitability can be heavily impacted by minor changes in work practices. Find out if you are selling all the hours that you’re paying for.

Pricing

Give honest answers to these questions:

  • When was the last time you raised prices?
  • Are you feeling worried that customers will abandon you if you do this?
  • Will you be able to continue bearing the margin squeeze due to increased costs without raising prices?
  • What is your overhead this year versus the past two years?

If you are facing strong competition, fight back by reducing your costs or by justifying to the market why they should buy your better product/service for a higher price. You have to promote your product or service by providing details on what makes it better than others in the market, longer lasting or whatever makes it stand out.

Overheads/net profit

Ask yourself these questions after looking closely at all your overheads:

  • What are the reasons we are spending this money?
  • What are the contributions of these expenses to the business and its profitability?
  • Is it right to halt the spending on this item?
  • Is there a better alternative to achieve this?
  • Should we look for a new supplier – if only to prompt the existing supplier to sharpen their pencil on this expense?

It is indeed beneficial in some cases to set up an atmosphere of rivalry among suppliers. You shouldn’t take your value as a customer to them lightly.

Customer payments

How do you compare the average number of days it takes you to be paid by customers to the terms you offer? Very few business owners are aware of the big difference between these two items and the problem it can cause on cash flow if the gap is huge. Reduce this number by working it out and setting a goal.

Supplier payments

Work out the number of days it takes you to pay suppliers versus the terms they offer you. If you are not leveraging every day of the terms offered, you could be making a needless cash flow problems. It would do your business good to negotiate for better terms from suppliers – especially if you are a major customer and they have strong competition for your business.

Stock management

What’s the amount of inventory you require on hand at any particular time? Consider the inventory in dollar terms sitting in your stockroom that could be spent on other things, such as marketing to sell more and empty your stockroom faster. It’s tempting to purchase items in bulk to get discounts. However, if the inventory will sit unmoved taking valuable cash, you may be better off purchasing in smaller amounts. Think of ways you can reduce the quantity of your inventory.

Job management

If you discover that you have money tied up at any given time for on-going jobs, discover ways to hurry up the time it required to obtain payment on jobs, such as progressive invoicing, deposits, etc.

This year, create a plan to pay attention to these important elements of your financial management and you will definitely see profits and cash flow increase in the next financial year.

Prepare not just for the end of financial year but also for the beginning of financial year to improve your profits and avoid cash flow problems. Hire professionals to help you make these preparations. PJS Accountants provides a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning and bookkeeping. We have spent more than 30 years dealing with local businesses in Capalaba, Cleveland and the Redlands. Our team is always available to take your call and assist you in whatever business needs. For enquiries, contact PJS Accountants.

Tips to Write Off Bad Small Business Debts

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Before the financial year ends is the best time for small and medium sized businesses to assess outstanding invoices and bad debts. Many SMEs are no stranger to bad debts. As a business owner, you most likely have had customers who failed to pay for your goods and services.

You’ve performed the work, invoiced the customer, fixed a due date, waited for payment, but you waited in vain. You should write off these amounts.

A large business will typically have a payments team to pursue any invoices that are unpaid and receive payment. Small businesses may simply send out a few emails or make phone calls and then wait for payment.

What if the situation is your customer is unable to pay the money they owe you because of they are in a tough financial situation? Or if you had the misfortune of encountering a customer that makes it a habit to evade paying their debts?

You are not likely to be repaid because this is bad debt. So what remedies are available to you? One thing you can do is write it off as bad debt, as this may entitle you to a tax deductible expense.

Outstanding Invoices

If you own your own business you probably would have had experience problems in collecting payments on time. This kind of problem doesn’t just happen in Australia. In a survey performed by the Commercial Collection Agency Association in the USA, it was found that the chances of getting payment for the whole amount significantly decrease as time goes by.

The results showed that although most invoices are fully paid prior to the due date, the chances that you will receive payment at all has now declined by more than 50% by the time the due date arrives. After 30 days, this has declined even more to just 89.9% and 90 days following the due date, just 69.6% of invoice payments are received. It goes without saying that the number will go down from that point. Results showed that two year following the due date, the chances of getting paid for overdue invoices declines to just 9.3%.

An invoice blackhole is created, causing significant cash flow issues for businesses. This issue has been in existence ever since there have been standard business practices.

How to write off a bad debt

What are the steps for writing off bad debts? First, you must wait 12 months for the invoice to be overdue. After this period, the ATO will recognise that you are unlikely to get paid and let you write it off.

However, if you have recorded the amount as part of your assessable income either for the current year’s tax assessment return or for any past year, you may lodge the updated information about the non-payment to the ATO as part of your assessable income tax return. Make sure to lodge all the required papers prior to the conclusion of the financial year to avoid hindering the process.

Points to keep in mind

Per the Income Tax Assessment Act 1997, section 25-35:

“You can deduct a debt (or part of a debt) that you write off as bad in the income year if: (a) it was included in your assessable income for the income year or for an earlier income, or; (b) it is in respect of money that you lent in the ordinary course of your business of lending money.”

Don’t forget this when you are writing off bad debts. Below are some tips to help you through the process.

  • Finish the process of writing off bad debts prior to the conclusion of the financial year. Though this reminder may seem obvious, you can easily forget about it when you consider all your accounting and tax responsibilities.
  • You are only permitted to write off a debt that is bad to make sure you can claim a deduction. This means the debt is not likely to be paid.
  • You must have documentation to support all debts that you will write off.
  • The amount that you write off are subtracted from your profits, so be careful when writing off bad debts.
  • You may claim a refund of the GST paid to the ATO on sales if you report your income on an accrual basis.
  • When the amount has been overdue for over 12 months, it can be written off and GST credits claimed.

Before deciding to write off a bad debt, ensure you try all alternatives for collecting your Accounts Receivable balance. This is because it will affect profitability. Always remember to write off bad debts during the year and not when the financial year has ended.

Consult your accountant to help you in the process of writing off a bad debt. PJS Accountants offers accounting, taxation and other services to help you run your business affairs efficiently and in compliance with laws. Contact PJS Accountants for enquiries.

Leasing vs. Buying your Business Assets

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Small business owners usually lack the money on hand to buy business assets outright without tightening their cash flow. On the other hand, ownership can also be appealing.

So, what’s the right option for you: lease or buy?

Financing choices

There may be times when you can’t get a hold of cash to purchase business assets straight away, or you are saving your cash on hand for other more important uses. When it comes to purchasing and financing business assets, several options are available to you.

Equipment loans

This is suitable if you wish to own a business asset, such as key plant or equipment, outright. In most cases, you can claim a tax deduction on the interest payable on the loan.

Hire Purchase

If you eventually wish to own the asset, but don’t want to use your available cash, then a hire purchase (HP) agreement may be more suitable. This agreement involves the bank or financier buying the asset and hires it to your business for a prescribed period of time.

Finance lease

With finance leases, the bank initially owns the equipment and leases it to you for an agreed period of time. The rental payment can be arranged with a residual value balance, which allows you to buy the asset when the agreement ends. This options lets you better manage the initial cash flow.

Perhaps, you can opt to lease equipment for a prescribed time period, which brings its own benefits such as being more flexible and being more certain with regards to your cash flow.

Is buying your premises the right decision?

Possibly one of the most important decisions confronting small businesses is whether to lease or purchase business premises. Having ownership of commercial real estate can be attractive; the premises could turn into a major asset for your business, delivering possible capital growth while you avoid paying rent to a third party. There’s also the feeling of security with owning your premises.

By buying your premises, you can also borrow against the asset and use it to expand your business. In some cases, there could also be benefits in buying business spaces using your superannuation fund.

Cons of ownership

The significant amount of money you need is one of the disadvantages of purchasing business premises. You may also be required to provide a personal guarantee by the lender or mortgage company.

There is also minimised flexibility with ownership in case you need to move your business, downsize or upsize. If the nature of your business or its operations is specialised, you may have difficulty in selling a niche asset fast.

Lastly, the infusion of money into a property purchase can possibly cost you precious opportunities; it may minimise the possibility for investment in other productive assets of your business. Small business owners should ask themselves what is more important: concentrating on their primary business competencies or on real estate ownership.

For businesses that are just starting out, the flexibility brought by a short-term lease could be more beneficial until your business is on better footing.

Tax and ownership structure implications

Before making financial decisions, make sure to get familiar with all the various tax and ownership structure implications. It is recommended that you consider seeking advice from a licensed taxation accountant or financial planner.

Other business asset classes

There are various purchase or financing strategies to choose from for different business asset classes. For instance, a novated lease agreement is suitable in cases where the staff of a business utilise cars. This type of agreement, signed between the employer, employee and financier, deliver flexibility to employees while cutting down administration costs.

In the age of information technology, leasing assets for shorter prescribed periods may be more appropriate for small businesses, as it lowers the risk of obsolescence because certain IT equipment becomes outdated fast.

Cash flow requirements

The type of business you run will offer opportunities to maximise your cash flow and ultimately decide which way you will go: rent or buy your business assets.

How and when would your business assets earn money for you? When considering the answer, keep this simple rule in mind: it is illogical to fund an asset for a period longer than the length of time it is useful.

What is the situation with your cash flow? Is your business earning a steady cash flow, or does your business experience seasonal variations? The smart thing to do is prepare comprehensive projections to compare scenarios and allow you to prepare appropriately.

The major financial decisions you have to make for your business are determining how and when to buy assets. So, seek the help of your accountant, financial planner, and in certain cases, your small business banker.

Expect to make many major decisions when running your own small business, including whether to buy or lease equipment. Before deciding, seek the advice of your accountant or a financial expert. PJS Accountants, chartered accountants, offer a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning, estate planning and bookkeeping. Contact PJS Accountants for enquiries.