07 3863 3933
JohnStitt@profitwise.com.au
           
           
Tax Services
If you're serious about growing your business then We have the right packages
Business Advisory
If you're serious about growing your business then We have the right packages
Self Managed Super Funds
If you're serious about growing your business then We have the right packages

The End of Another Financial Year

The 30th June 2011 is fast approaching and SME operators have a lot of issues to consider in the current business climate.  There is no doubt that there is a two speed economy operating in various parts of Australia.  The month of April had the highest number of insolvencies in 2011 with retail and mining companies being the highest categories of companies which went into liquidation.

The news that first home buyers taking out home loans is at the lowest it has been for seventeen years is not good news for the building industry.

The Australian government's new regulations relative to paid Parental Leave put more administrative responsibilities on employers as does the government’s requirement for building industry contractors to submit an annual report detailing payments made to all sub-contractors. 
Company directors need to be aware that the government’s new legislation is making director's liable for unpaid superannuation contributions.  This is not restricted to phoenix companies; it could also apply to any corporate entity.

All of these changes, and the general uncertainty in the business world, highlight the necessity for businesses to have a plan. 

  • What are you business’ objectives?
  • What do you want your position to be in one, three, five years time?

Business Plans can assist in: 

  • Reviewing all aspects of your business operation;
  • Documenting what the plan is; and
  • More importantly, how you intend to make the journey from now until you have achieved your business objective.

If you would like our assistance in the preparation of a Business Plan for 2011/2012, please do not hesitate to contact us.

Debtors Days Outstanding

The latest reports from Dun & Bradstreet indicate that trade payments are now taking 56 days on average. This is causing cashflow stress for many businesses.  If you are experiencing problems in the collection of your debts and would like our assistance in the review of your systems, please do not hesitate to contact us.

Knowing Breakeven Helps!

Do you know what the breakeven amount is for the various operations being conducted in your business?  "Breakeven" sales are the level of sales necessary to cover all fixed and variable expenses. This gives the revenue needed to produce neither profit nor loss.  The formula for calculation of break even sales is:
Total of fixed and variable costs divided by gross profit percentage x 100/1 = break even sales.

A fixed expense is an expense that does not vary relative to production or turnover within reasonable production or sales levels.  

  • Rent would normally be considered to be a fixed expense and would not vary until such time as it was necessary to obtain larger premises.  
  • Management salaries would normally be considered as a fixed expense. 
  • Some staff salaries would also be considered fixed expenses, but in the main, staff expenses that relate to production or sales would normally be termed a variable expense, as variable costs normally move directly in relation to increases in production or sales of the business.  
  • To calculate the breakeven amount you also need to know the gross profit percentage for that particular operation within the business, or the overall gross profit percentage for the business.

To determine your Breakeven Sales Figure for a particular operation within your business, you need to prepare a list of the fixed expenses relating to that business or to that activity and then prepare a list of the variable expenses that relate to that activity and add the two totals together.

eg:

 

If the fixed costs were   $195,750
And the variable costs were  $392,000
The total of costs would be  $587,750

If the business was achieving a gross profit of 32%, then the calculation of breakeven sales would be as follows:

Total of Fixed and Variables Costs divided by Gross Profit Percentage x 100/1 = Breakeven Sales.

 

 

$587,750

 

 

 x

 

 

 100

 

 

 =

 

 

 $1,836,718

 

 

 This is the Breakeven Sales.

 

 

32

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

Proof :

 

 

 Sales

 

 

 

 

 

 $1,836,718

 

 

 Gross Profit Percentage 32% =

 

 

 

 

 

$   587,750

 

 

Less: Fixed Costs

 

 

$195,750

 

 

 

 

 

Variable Costs

 

 

$392,000

 

 

 

 

 

Total Costs
Profit/Loss

 

 

 

 

 

$   587,750
Nil

 


Management should be aware of the breakeven sales figures for their business or individual operations so as to assist in the strategies being prepared for the business or the individual business operation. 

For more information contact us for a copy of Paper 006-010 - Break Even Calculation

Austrade Changes Focus

The Australian government has announced that Austrade will be encouraging exporters to North America and Europe to use private consultants as Austrade shifts it emphasis to emerging markets such as Mongolia, Latin America, Africa and Central Asia. Austrade believes that its expertise would be more valuable to Australian exporters in these emerging markets. Austrade is expected to halve its presence in locations in North America and Europe in the near future.

If you are interested in exporting to these new markets, we recommend that you contact your local Austrade Office or contact us to arrange a meeting with Austrade.

For more information contact us for a copy of Paper 014-030 - Austrade

Directors Liability Extended

The Federal Budget included additional liabilities for directors who will now be liable for unpaid superannuation guarantee payments. Directors will also be liable for PAYG arrangements unpaid for three months by their companies.

Directors should be ensuring that they receive an assurance on a monthly basis of a company's position with the Australian Taxation Office, particularly with regards to superannuation payments and PAYG payments.

Superannuation Contributions

Superannuation contributions for persons aged under 50 years are restricted to $25,000. If you are over 50 years, contributions for the year ended 30th June 2011 and for the 2011/2012 year can be $50,000.

The government has introduced new legislation that from the 1st July 2012, only those persons over 50 years with superannuation savings of less than $500,000 will be able to make a $50,000 contribution.

If the level of superannuation savings exceeds $500,000 - from the 1st July 2012, superannuation contribution for a person over 50 years will be restricted to $25,000.

If you would like to have a discussion relative to your superannuation contributions, please do not hesitate to contact us.

 

Parental Leave Mandatory from 1st July 2011

The Australian government's Parental Leave Scheme, which has been operational since the 1st January 2011, becomes mandatory for all employers of eligible employees from the 1st July 2011.

The Australian government will fund eligible employees for parental leave (calculated at 18 weeks of the federal minimal wage which is currently approximately $550 per week) for paid parental leave. The payment amount will be indexed from time to time.

The Federal government will pay the employer and the employer will be responsible for making the payments to the eligible employee.

Employers do not have to concern themselves with an employee's eligibility. An employee wishing to claim parental leave has to contact the Family Assistance Office (FAO) who will review the employees' eligibility by utilising tests, including citizenship and work tests. The FAO may make some enquiries about the employee to the employer.

The employer can elect to be paid by the Australian government either on a fortnightly basis or in three payments equivalent to six weekly instalments.
 
The employer is responsible for making the payments to the employee, on the same basis that the employee is normally paid e.g. if the employee is paid weekly, the employer would have to pay the parental leave amount on a weekly basis.
If you have any concerns about the operation of the parental leave payments please do not hesitate to contact us.

What's It Mean?

Current Market Value

The current market value of a business is the valuation of assets, particularly fixed assets, calculated (normally by a valuer) certifying the current market value of the asset.  This is compared to what is shown in the Balance Sheet, which is normally recorded at the original purchase price - sometimes known as historical cost.

For more information contact us for a copy of Paper 005-001 - Accounting Terminology

Building Contractors Extra Requirements

The Federal Budget imposed additional reporting requirements on all contractors operating in the building industry.

The new obligation operational from 1st July 2011, requires that builders must record details of payments made to all contractors and sub-contractors including the contractor’s ABN. The building company is then required to lodge an annual report detailing payments to all contractors or sub-contractors.

The government has indicated that they intend to implement an education campaign to ensure that contractors are fully aware of their reporting requirements. The obligation for building contractors is to ensure that they have received contractors/sub-contractor’s ABN and that a detailed list is maintained of all payments so as to facilitate the preparation of the annual report detailing payments to all contractors and sub-contractors. 
If you are concerned about the reporting requirements under this new legislation, and if you would like our assistance in reviewing your internal systems, please don't hesitate to contact us.

Business Plans - Questions To Consider

Budgets/Cashflow Monitoring

Modern business practices show that both budgets and cashflow forecasts should be continually updated on a monthly/quarterly basis.

Some of the questions to consider are;

  • Has the business calculated "what if" scenarios?
  • Does the cashflow forecasts identify if the business will need to raise additional funds?  
  • Does the business track cashflow on a weekly basis, analysing the probable cash/overdraft balances for the next 4-6 weeks?
  • Do you discuss your performance against budget with your banker?

If you would like to receive a copy of the budget/cashflow forecast monitoring questions, please contact us and we can send those questions to you.

There are over 50 questionnaires relating to the preparation of a business plan, in the next issue we will consider Bank Relationships.

For more information contact us for a copy of Paper 021-038 - Budgets And Cashflow Forecasts Monitoring.

 

Business Packages

If you're serious about growing your business then We have the right packages for you! Profitwise Accountants Pty Ltd will provide you a business valuation with regular advice and guidance.

Business Health Check

If you're serious about growing your business then We have the right packages for you! Profitwise Accountants Pty Ltd will provide you a business valuation with regular advice and guidance to enable your business to grow.