Cloud Accounting – is it for your small to medium sized business?

Simply, cloud accounting software has many benefits for the small to medium sized business as per below:-

• Saves time
• Cost savings
• Greater productivity
• Availability – anywhere, anytime, any device
• Mobility – access your data wherever an internet connection is available
• Security – same encryption as leading financial institutions
• Flexibility – allows many collaborators access to real time data – the business owner, employees, your accountant and financial advisers
• Always up to date with the latest version
• Always backed up – if your computer crashes you don’t lose your work

To move your accounting into the cloud you have to be fully committed. With many accounting software packages available – MYOB, Xero & Intuit QuickBooks to name a few, there will be a solution ideal for your small to medium sized business.  Cloud Accounting Software Packages save you time and money over a similar desktop solution on a local network or desktop computer.

Cloud Accounting Software benefits far outweigh any disadvantages.  Often the fear of a business owner is the security of the cloud.  Once they find that it is encrypted at the highest levels, it is time and cost efficient, excellent value for money, more areas of the business can be accessed in real time allowing the business owner to manage their business to suit their own needs rather than working in and around their business tied to the office.

At Insight Management Accountants we are passionate about the success of small businesses, therefore we can provide a cloud accounting solution to suit your small and medium sized business needs.  Contact us today to discuss your cloud accounting requirements.

Support Local Business ~ Support Your Community

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

The importance of “knowing your 7 key numbers” is a measure to a successful business.

Why is “knowing your 7 key numbers” an important thing to understand for any small business?

Simply, “knowing your 7 key numbers” is a basic concept of knowing what you can measure you can manage.  The top three reasons why small businesses fail are due to poor financial management, poor accounting and lack of management experience.  So how do you recognise the warning signs?  Your 7 key numbers let you know where your business stands.  You can manage and change your strategy and therefore, improve your outcomes, before they become a problem.  Knowing your 7 key numbers will keep you on track for a successful business.

As a guideline the 7 key numbers to be aware of are as follows:-

1. Sales – accurate sales figures are the first indicator of business trends – whether increasing, decreasing or flat-lining they give you a clear indication of where the business is heading.
2. Gross Profit Margin as a Percentage of Sales – the percentage indicates the price you charge your customers against the prices your suppliers charge you.  An increase is favourable, a break-even point or a decrease rings alarm bells as losses are indicated.
3. Profit before Income Tax as a Percentage of Sales – ideally this figure should increase, a flat line may be acceptable for a period, but a decrease is a warning sign for further losses are indicated.
4. Cash Flow Forecasts – In simple terms the calculation is: Cash in the Bank plus cash coming in over the next four weeks minus cash going out over the next four weeks.  This indicates any cash shortfalls over the next four weeks and the ability to pay your bills at the end of the month.
5. Debtor Days Outstanding – the average days it takes for your customers to pay your invoices.  The calculation is:  Accounts Receivable/Sales x 365.  A decrease is a positive sign whilst an increase is an issue as it will impact on your cash flow and the growth of your business.
6. Creditor Days Outstanding – the average days it takes you to pay your suppliers.  The calculation is:  Accounts Payable/Purchases x 365.  This needs to be monitored in conjunction with your debtor days as ideally you would want your creditor days to be equal or higher than your debtor days.  If it is lower, you need to improve your debt collection, reduce your customer’s credit terms or negotiate better payment terms with your own suppliers to avoid cash flow problems.
7. Inventory Days or Stock Turnover – the average days the goods you purchase remain in your warehouse or on your shelves before you sell them.  The calculation is:  Inventory/Purchases x 365.  The lower the number the better for your cash flow and ultimately it allows you to grow your business.

Knowing your 7 key numbers needs to be tailored to your business and they should represent and track those things that clearly tell you at a glance if your business is performing at its optimum or those areas that need urgent attention.  If you are not measuring your 7 key numbers your potential for growth and success in your business may be weakened.

At Insight Management Accountants we provide a regular reporting package as part of your business analysis which includes your 7 key numbers to ensure the health and growth of your business.  At Insight Management Accountants we are passionate about the success of small business.  Contact us today to discuss how we can help grow your profits and the value of your business.

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

The importance of outsourcing allows the business owner to work on their core expertise.

Why is outsourcing for small business an excellent alternative?

Simply, outsourcing allows the business owner to work on their business rather than in their business.  When running your business you cannot do everything by yourself, effectively.  There are simply too many things you need to think about and too many tasks from a variety of disciplines that it isn’t practical to do them all yourself.  Delegation of tasks is imperative to any successful business and for a small business outsourcing is a very viable alternative.  It is a quick and efficient means to getting quality work done by a professional who knows their field which ultimately saves you time and money.  If you spend too much time trying to do tasks in house with a limited staff with little or no experience in those speciality fields the quality of work will be lower and ultimately it will cost more in the long term.

Outsourcing benefits far outweigh any disadvantages.  Often the fear of a business owner is the expense of outsourcing.  Once they find that it is time and cost efficient, excellent value for money, more areas of expertise will be outsourced allowing the business owner to manage their business rather than working in their business doing all the grunt work themselves.  It also allows businesses to economise their rental space, training time and using the space for core activities.  Those non-core activities like accounting, IT services, human resources, payroll, marketing etc which are normally not required on a full time basis can be outsourced which saves you space and the costs associated with employing full time employees in house as you pay on a needs only basis.

At Insight Management Accountants we are passionate about the success of small business, therefore we provide an accounting and bookkeeping outsourced service to small and medium sized businesses.  Contact us today to discuss your outsourcing accounting requirements.

Support Local Business ~ Support Your Community

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

The importance of knowing how to protect your investment in the tough times ensures a successful business for the future.

Why is protecting your small business investment so important for any small business?

Simply, knowing how to protect your investment means a successful business for the future.  It is important for the small business owner to strike a balance between pessimism and optimism ensuring expectations are realistic in order to grow their business and protect their investment.  In good times the weaknesses in the business are often glossed over or can be hidden, but when the tough times arrive both strengths and weaknesses surface.  By constantly working on increased productivity and growth you can help reduce or minimise the impact on your business in a downturn.

3 key areas every small business owner should know to protect their investment:

1. Quality Financial Records – for a successful small business good accounting records are imperative.  Up to date, accurate financial records allow the small business owner to make informed business decisions.  They also provide valuable management information to grow your business by monitoring key number indicators.

• Accounting Software – it is important to use the right accounting software to maintain quality financial records.  If the software is beyond your level of expertise and you do not understand double entry accounting principles then you should not try and make financial or strategic business decisions without consulting an Accounting professional.

Quality accounting records become important when you need financial assistance from banks or other investors/lenders or when you may wish to sell your business in the future.  Historical and current data to prove your business performance is invaluable and these people will demand it.

It is the requirement of the ATO that you keep and maintain business records for 5 years.

2. Prepare a business plan – a business plan is essential for the direction of the business to move forward.  It allows you to see what growth you are trying to achieve and what resources and cash flow you will need to get there.  In the tough times, it allows you to reassess your goals for sustainability.  If you don’t have a business plan of action then you are asking for trouble when times get tough as you won’t have a viable resource to identify and ultimately fix any pending problems.

Historical data is important, but you also need to look forward.  Today’s decisions will impact on your future results, so a budget creates a template for the future and one which you can measure your actual results against.  Whilst a budget may be prepared at the start of a new financial year it is also important to keep monitoring this against updated forecasts as what was envisaged 12 months ago may need readjusting based on actual to date.   You also need to be able to react to situations with all your important information at hand, especially when times are tough, as every dollar becomes crucial.

Cash flow is always a big part of any small business.  It is more often than not the reason why so many small businesses fail.  Therefore, understanding where to find your cash savings within your cash flow budget, your profit and loss statement and your balance sheet is the lifeline to any small business.  Whilst it is important to sell your goods and services at the right price to maximise your profits and this is certainly a positive step to a successful business, you can’t spend profits until they are collected.  A positive cash flow is a necessity for any small business.  This needs to be planned with a 12 month cash flow budget to identify future cash shortages.  Your cash flow budget is based on a number of assumptions regarding the expectations of the future performance of the business so these assumptions have to be based on realistic information and known facts such as rental agreements, leases, loans and other contract’s etc in order to make informed business decisions.

Your cash flow budget will highlight your cash position at the end of each month, it will identify any shortfalls, show when major payments are expected and be a useful tool in deciding when an injection of funds may be required to support the business or with careful planning you may be able to time certain payments to prevent the shortfalls from occurring.

3. Know where your hidden cash is –a positive cash flow alone is not enough for survival.  The business needs to be cash flow positive and making profits long term for sustainable growth.  It is important that you have enough cash available to pay all your bills including your employees, your tax liabilities and of course your suppliers.  You need to ensure that you collect your debtors in a timely manner, pay suppliers on time, but not early, reduce your slow moving or excess stock and ensure your invoicing is up to date.  If you concentrate on these core areas then you may have some cash reserves in your bank account.  This may ultimately reduce your interest bill, if you are running an overdraft facility.

3 specific areas to look for your hidden cash:

                                I.            Debtors – unpaid accounts – you need to chase them up.  Ensure you send statements out on time and follow up with requests for payment throughout the month.  If you don’t ask, you don’t receive, often getting pushed to the back of the queue.  A good idea is to print the actual due date on your invoices instead of using the generic current, 30, 60, 90 day terms.  Keep in mind that you are not in the business of ‘bank rolling’ your customers.

                              II.            Creditors – ensure your supplier terms are being met and you are not paying bills before they are due.  Renegotiate supplier terms if practical or investigate alternative suppliers for a better deal.

                            III.            Stock – only purchase new stock to meet demands.  Idle, excess and slow moving stock eats into your available cash.  Don’t just purchase when a salesman puts pressure on you or entices you with discounts, purchase to suit your own needs.  Stock impacts on your working capital and the ability to purchase other items or grow your business.  If you have borrowings your stock levels could be costing you in interest at high rates.  By monitoring your stock turns and producing valuable stock reports you can make informed decisions on what products are your best sellers, what products are slow moving or have become obsolete, seasonal trends, your margins on product lines and your freight into store costs.  Tough decisions have to be made on obsolete stock as they tie up your cash reserves until sold. To sell at a loss is a hard decision to make, but it makes sense to sell at a cheaper than normal rate and turn that stock into working capital and this allows you to spend on better stock choices.  By having excellent stock reports you will be able to determine your minimum and maximum stock levels for your products.  They will enable you to make informed purchasing decisions of what, when and how much to order and minimise poor choices.  With excellent stock records you will have the knowledge of your purchasing from suppliers which can give you some bargaining power when it is time to renegotiate prices and terms.

Knowing how to protect your investment within your small business by having a realistic business plan, maintaining quality financial records and knowing how to find your hidden cash will ensure your business is viable and primed for growth.  It will allow you to ride out the tough times and prosper by making informed business decisions for your continued success and growth.

At Insight Management Accountants we provide a regular reporting package as part of your business analysis which includes essential information to ensure the growth of your business.  At Insight Management Accountants we are passionate about the success of small business.  Contact us today to discuss how we can help grow your profits and add value to your business.

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

The importance of quality management reports improves your growth potential.

Why are Management Reports – In particular the Profit and Loss and the Balance Sheet some of the most important things to understand for any small business?

Simply, management reports highlight any inefficiency within your business.   A lack of reliable reports or misunderstanding of those reports can become costly if not monitored properly, leading to a lack of cash and therefore, no growth from within your business.  To ensure you have potential to grow your business from within, you need to improve your cash flow and increase your efficiencies by firstly, checking your Profit and Loss Statement and secondly, by monitoring the Balance Sheet.

Essential planning tools for any small business is having a thoroughly prepared profit and loss and balance sheet that represents your business structure. The most important business rule is the 80/20 rule. That is:  where you concentrate on the 20% of your customers, products and services that provide 80% of your profits.  By looking through your Profit and Loss you can find ways to grow your business by firstly, improving your sales.  Determine your best money making sales products and/or services and concentrate on the profitable lines.

Secondly, by concentrating on a reduction in your business costs can be attained by looking at your supplier costs.  Are you buying your goods and services at the right price?  Negotiate better deals with long term suppliers or look for other opportunities to shop around for new suppliers.  Ensure your quality of goods remains to your standards as cheaper is not necessarily better.  Improve efficiency with freight and delivery costs negotiating better deals with freight suppliers.  Finally, review your overheads as this is an area where excellent savings can be made.  Ask questions like do I need to spend money on this good or service and if so, does it provide good value to my bottom line?  Can I do this differently and still achieve the same result, but with less costs to the business and compare with your competitors to see if they can deliver this product or service and what would they charge?

To find efficiencies within your balance sheet you need to concentrate on chasing your customer accounts. This will ensure your cash flow remains at its optimum as slow payer’s leave your business with fewer funds to grow your business.  When paying your own bills you should ensure you pay your invoices within the credit terms agreed and no faster than required to ensure you maximise your cash flow.  If you pay your bills too soon and your customers delay paying you, then you are at a serious disadvantage to growing your business.  With your stock levels you need to closely monitor the trends.  If you have idle stock then this impacts on your cash flow as it ties up further funding until the stock is sold.  If you can get deposits or progress payments for larger items or services to cover costs this will help with your cash flow and improve your opportunities to grow your business.  If you can find a way to implement the above improvements into your business you will have the potential of freeing up your working capital and strengthen your cash position and this will lead to growing your business.

At Insight Management Accountants we provide a regular reporting package as part of your business analysis which entails your profit and loss and a balance sheet where we highlight areas of improvement to ensure you continue to grow your business.  At Insight Management Accountants we are passionate about the success of small business.  Contact us today to discuss how we can help grow your profits and the value of your business.

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

The importance of having a cash flow budget and projecting forecasts improves your cash position.

Why is cash flow one of the most important
things to understand for any small business?

Simply, cash flow is the life blood of your business.  Cash is King.  It can be the most unpredictable element, particularly for new businesses, as you do not have historical data to rely on; you do not have a history of seasonal highs and lows or where extra cash reserves are required in a downturn.  Cash is often misunderstood as profits, but profits do not guarantee cash reserves in the bank.  Many profitable businesses fail because of poor cash flow and not understanding how important it is to have systems and controls in place to manage your cash correctly.

Essential planning tools for any small business is having a budget, cash flow forecasts and projected profits to measure your actual performance against them.  This allows the business to manage the timing of your cash inflows and outflows.  Trading stock is often a major investment for any business and the implications of carrying too much stock impacts on your cash flow.  By assessing sales, cash flow, seasonal trends and stock turnover we can help you manage your cash needs and the appropriate level of stock for your business.  This can potentially free up your working capital and strengthen your cash position.

At Insight Management Accountants we provide a regular reporting package as part of your business analysis which entails your projected profit and calculates your likely bank balance based on actual performance to date and projected forecasts.  This allows you to identify if and when you may need an injection of funds either via bank finance or whether a reduction in your trading stock may help ease your cash flow burden.  At Insight Management Accountants we are passionate about the success of small business.  Contact us today to discuss how we can help improve your cash flow, grow your profits and the value of your business.

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

Why is Benchmarking beneficial for any small business?

Simply, we all need to know how we compare with our competitors. Are we spending too much on advertising? Paying too much for rent? Are my employee costs too high? What is the average bottom line of my competitors? To succeed in business you need to be able to compete in today’s ever changing climate. You need to spend more time working on your business rather than working in your business.

Benchmarking allows an assessment of your business performance compared with your industry average. A business can compare their performance from an internal perspective via their financial results from historical data, budgets, last month, last year etc. but to be able to compare with others in your industry or related industries from the best, average and poor performers is a powerful insight. You can assess what other businesses are doing differently, where they spend their dollars, their turnover, overheads and profitability. Key number indicators are also a good comparison to drive your business further.

Benchmarking is only useful if you use the results to improve your own business. Once weaknesses are identified in your business the next step is to ensure changes to strengthen your business.

At Insight Management Accountants we can provide a benchmarking report as part of your business analysis which can highlight areas of improvement to ensure you continue to grow your business. At Insight Management Accountants we are passionate about the success of small business. Contact us today to discuss how we can help grow your profits and the value of your business.

IMPORTANT DISCLAIMER:
This article does not constitute advice. This article is to be used as a general guide for our clients for their own private information. Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.

The GST has been in effect since 1 July 2000, yet despite an Australian Taxation Office (ATO) education campaign there are still many errors and omissions being made by small businesses on their GST returns. Most of these errors relate to the over-claiming of GST credits.

Below are some of the more common GST mistakes made by small business that do not have accurate accounting systems or professional Accounting personnel in place:

• Advertising – when a small business chooses to pay for the cost of advertising by instalments like for Yellow Pages, the entire GST is charged up-front.  Businesses that account for GST on an accruals or invoice basis can claim this up-front amount in their next BAS, whereas businesses that use the cash basis can only claim a GST credit equivalent to 1/11th of each instalment.
• Bank Fees – monthly and annual fees and loan establishment fees.  Bank fees are treated as “input taxed” meaning the bank doesn’t charge GST to the customer. The exception is Credit Card Merchant Fees – GST is charged on these fees and therefore a GST credit can be claimed on these expenses.
• Entertainment Expenses – where the business has elected to use the 50/50 split method for fringe benefits tax purposes, only 50% of the GST credits can be claimed.
• Government Fees – ASIC filing fees, council rates, water rates and motor vehicle registration are GST free.
• Insurances – for general insurance and premiums a GST component is listed on the invoice.  The Stamp Duty component is not subject to GST, therefore a GST credit cannot be claimed for this portion.  For Life and Sickness or Accident insurance these are not subject to GST, therefore no GST credit can be claimed.
  
• Interest Income – should have ITS (Input Taxed Sale) as the code
• Motor Vehicles – if the purchase price is in excess of the luxury car limit, currently $57,009 GST inclusive, then the maximum GST credit that can be claimed is limited to $5,183 (check ATO for current updates for latest limits and claimable GST)
• Financed Assets via Chattel Mortgage or Commercial Hire Purchase –while an up-front GST credit is available for businesses accounting for GST using the accruals or invoice basis, this is not available where the business uses the cash basis for CHP.  When the cash basis applies the GST credit to be claimed is calculated as 1/11th of the “principal” portion of the total CHP payments made during the relevant month or quarter. (i.e.  the credit is claimed progressively over the term of the CHP loan).  In order to claim the total GST credit upfront, the business would need to finance the asset by way of a chattel mortgage.
• Sale of Assets – Motor Vehicles and Equipment – including the trade-in of motor vehicles. The sale of a business asset is subject to GST just like any ordinary business transaction unless the going concern exemption is claimed.
• Staff Amenities – basic food items, milk, coffee, tea and sugar are GST Free.
• Wages and Superannuation – these payments are non-taxable supplies.
• Other GST Free Expenses – donations, some first-aid supplies, some health services
• Other Expenses that are Non-Taxable – depreciation, drawings, fines, loan repayments, income tax.
• A Special Note for Sole Traders and Partnerships:

Due to partly private and partly business use of motor vehicles small business often fails to apportion input tax credits.  To calculate their GST liability, small businesses are required to undertake this apportionment each time they prepare their BAS, though in practice the actual private use may not be accurately determined until the business is required to complete and lodge its annual income tax return.  Sole traders and partnerships with an annual turnover of up to 2 million dollars that pay GST either on a monthly or quarterly basis can apportion the private portion of GST credits on an annual basis, instead of each time the BAS is lodged.

IMPORTANT DISCLAIMER:  This article does not constitute advice.  This article is to be used as a general guide for our clients for their own private information.  Clients should not act in isolation or solely on the basis of the material contained herein. We therefore recommend that formal advice for your situation be sought before taking action in any of these areas.