Where did it go?: Taking the mystery (and pain) out of managing your money

Most people will quite literally earn millions of dollars in their lifetime. Yet many people struggle financially and live from one pay period to the next.

With the ageing population and many Baby Boomers now continuing to work—at least on a part-time basis—past the traditional retirement age, people are working more years than ever. Even if a person works only 40 years, at average earnings, that’s a lot of money.

It is said, “Money talks”, but for many, all it ever says is, “Hello, and Good-bye”.

Have you ever found that the month lasts longer than the money? Or have you ever got your tax return and looked at all the money you have earned over the past 12 months and then thought, “Where has it all gone?”

You’re not alone. And the good news is, now there’s a simple solution.

There’s a great quote from Charles Dickens’ book David Copperfield where the character Mr. Micawber says to Copperfield, “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

This is so true, regardless of the income level.

Yet keeping track of what you spend your money on, for many, is too hard, too laborious. The benefits of doing so are obvious to anyone, yet the discipline to keep all your receipts, enter the information into a program like Quicken Personal or MS Money (or just to write it into a paper ledger), and keep that going consistently over time is beyond most of us.

Well … and here’s the good news … what if a piece of software could track and categorise what you spent your money on, but it involved very little effort by you?

Imagine the clarity you’d get if you knew exactly how much you have spent and what percentage of your income is going on the various areas including mortgage/rent, vehicles, groceries, schooling/education, eating out, entertaining, mobile phones and internet, medical and pharmaceutical, and so on.

For most people, it would be a real eye opener.

It is said that knowledge equals power.

That is very true when it comes to your personal finances.

Once you can objectively see exactly how your lifestyle and your habits—that is, you—are spending your money each year, and month-to-month as you go, you then have the power to make decisions on where you can change your spending (and saving!) habits.

In this information age and electronic era, many of us use credit cards, debit cards and EFT when buying things. We have now reached a point for the first time in history where more money is exchanged electronically than through cash transactions.

That’s a lot of transactions. And it’s a lot of data.

This data is available to be analysed on a societal basis, industry basis, business basis and … a personal basis.

And that’s where a brilliant tool comes into play: Xero Cashbook

Here’s how it works …

Xero Cashbook is online software. It’s the non-tax-tracking version of the Xero software used by businesses.

It analyses and categorises all your electronic transactions to give you a snapshot of your complete financial position in an instant. This also organises a view of all your bank accounts and credit card accounts in one place. Very handy.

This is precisely what a lot of people have been waiting for: An easy way to track and control your finances.

Xero Cashbook categorises your spending and saving, so you can tell whether your money is being used for essentials or you’re splashing out on other things.

If you are concerned about security, Xero protects your financial data with 128-bit SSL encryption, the same as online banking. Your data is well protected.

You can also invite people you trust, such as your spouse, accountant or other financial advisor, to access your Xero reports for free. This means that as your advisors we can see the true picture of your finances and spending habits, and help you stay on track.

This allows us to help you plan ahead and make the most of your money.

You will never before have felt so in control of your personal finances.

Being web-based, rather than being stuck on one computer like traditional software, you can access Xero from home, work and even on your smartphone such as an iPhone and Android device.

If you’d like us to step you through getting set up with Xero Cashbook, or their Xero equivalent for Business, or both, get in touch and we’ll hand hold you through the process. It’s not difficult, and once your bank accounts are set up, it happens automatically from there.

The way we see it, the more clients we help keep track of their finances in such an easy way, the more clients who will prosper and find financial happiness instead of financial misery, to paraphrase Dickens’ Mr. Micawber.

Your next step … Call us on 07 3421 3421 or email us on cpa@mcadamsiemon.com.au to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.

It’s time to stop saying “good-bye” to so much of your money each year!

 

Why a good cash flow can be more important than a big profit

There’s a saying in business, “You can go broke making a profit.” And another, “Cash is king. Profit is theory.”

As you know only too well, you don’t pay rent, meet payroll or pay your bills with profit.

You pay them with cash.

A business can make a lot of sales, have a book full of orders, have delighted customers and clients, have a great reputation, be growing, and yet still go broke.

Why? Cash flow.

The business might be profitable on paper, but have no money left in the bank. They become insolvent.

A growing business is often hungry for cash … hungry for inputs so it can make the business’ outputs, be they physical products, services or a combination of both.

The tragedy in this is that cash flow crises can often be averted. They can be predicted, planned for, and then contingency measures put in place.

For example, if a business has seasonal effects where some months are busier than others, or if a business knows it has some jumps in expenses or fixed costs approaching—such as moving to a larger premises or hiring more staff to cope with growth—then these expenses can be planned for and compared with the planned income in those months.

Which would you prefer to do?

(A) Call your bank manager and ask for a short-term loan or increase in overdraft when you are urgently in need of the cash (and therefore stressed, and desperate, and not in a great frame of mind to negotiate good terms), or

(B) Call your bank manager 6 months in advance and meet with him or her to explain the coming cash crunch, the reasons behind it, and plan for the funding in a calm, relaxed, totally-in-control manner?

Not only would you get the loan, you’d impress the bank manager and strengthen the relationship for further funding, should it be needed to support your growth.

The bank manager would see you are a professional operator with a planned approach to your business, not a fly-by-the-seat-of-your-pants operator. (They see a lot of those. They don’t like doing business with them.)

Apart from the relationship with your bank, there’s the immediate effect of sleeping better at night.

We all seek a level of certainty to comfort us. Knowing what lies ahead in business and planning your cash flow gives you a peace of mind and confidence in your day-to-day work that will rub off on those around you…

…in your workplace and at home. It’s a good feeling.

This is one of the reasons we are so passionate about helping our clients put together cash flow forecasts, to help them keep their business on track and to avoid any stressful, unpleasant surprises in the coming months.

It doesn’t matter whether a business is a one-person hairdressing or lawn mowing business, or a 10 person, 20 or 200+ person business.

Every business needs a cash flow forecast.

Running your business without a cash flow forecast is like driving a car at night along a dark country road with only your normal headlights on. It’s hard to see what lies ahead. Some wildlife might come right out in front of you, leaving no time for you to react. CRASH!

On the other hand, a cash flow forecast is like driving along that country road with high beam on. You can see so much more. You can drive with much more confidence. Less stress. And avoid the CRASH!

Another thing we often find in helping our clients build realistic cash flow forecasts, is that we can spot problems and make suggestion that help improve the business’ cash cycle. This puts money in your bank account.

For example, a combination of negotiating better terms with suppliers, tightening up or at least clarifying and enforcing your business’ own credit terms, and reducing stock holding and waste can have a powerful positive effect on your cash flow.

So, if a cash flow forecast is so crucial, why do many businesses not have one?

Simple. Business owners get busy. Busy pleasing customers or clients. Busy dealing with staff. Busy paying suppliers. Busy generating sales.

Also, it’s easy to get ‘too close’ to your own business. “You can’t see the forest for the trees,” as the saying goes.

Having an independent and fresh pair of eyes come in and look at your business—especially cash flow which is its life blood—allows opportunities for improvements to be identified. Things that are there, but difficult for the business owner to see amidst the ‘busy-ness’ of it all.

So, what should do about it? Call us. Take action. A cash flow forecast costs less than you think.

It’s time to turn those high beams on!

Your next step … Call us on 07 3421 3421 or email us on cpa@mcadamsiemon.com.au to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.

Thinking about investing?

McAdam Siemon Business Accountants Upper Mt Gravatt, Noosa Heads & Maroochydore. Specialising in Accounting, Taxation, Management Rights, SMSF Administration, Business Advisory, Business Valuations and more.

Thinking about investing, but worried about market conditions? 

Daniel Green may have the solution.

Whilst it’s true that interest rates for investment loans are generally higher, there are very competitive loan options still available to you. By setting up a Principal and Interest (P&I) loan for your investment, you can enjoy similar low rates to those normally offered to an owner occupier.

Many investment loans are interest only, meaning over the period of the loan, the amount owing to your lender will remain the same. With a P&I loan your repayments are calculated on the total loan amount and interest, meaning when you are ready to sell or reinvest, the value of your loan will have decreased.

This could mean increased buying power for your next investment, and more cash available when you sell.

Any taxation matters regarding your investment property should be discussed with a tax professional.

So give Daniel a call today, to discuss making your finance and investment goals a reality.

(O7) 3899 2866

http://www.greenfinancegroup.com.au/

Accelerate your cashflow

In a typical business your cash cycle looks something like this.

Accelerate your cashflow diagram

While this can vary slightly from business to business the difference would usually only be in the addition or subtraction of one piece of this cycle. In our model you start your business by investing cash, firstly in your plant and equipment, and then into stock. Next you make some sales, converting your stock into debtors. Once you are paid by your debtors it turns back into cash and the cycle begins again.

The more you can accelerate your cash cycle the faster you turn your profits into cash and the easier it is to manage your liquidity position.

Here are some tips to manage cash flow:

  • Plant & Equipment – don’t have too much money tied up here. Avoid surplus plant and don’t invest in plant that is significantly in excess of your capacity requirements. Sometimes it is a good idea to lease plant rather than having a lot of your capital tied up in this area. If you have surplus plant to your requirements consider selling it and turning the asset back into cash.
  • Stock – be careful about how much capital you have tied up in stock. Generally the more times you can turn your stock over in a year the more efficient and profitable you will be. Also avoid holding obsolete or slow moving stock. You should be aiming to have your stock levels as low as possible without impacting on the efficiency of your business.
  • Debtors – this is an area where lots of businesses have their cash tied up. You need to be on constant alert here and really police this area. Once you have agreed trading terms with a customer, ensure they stay within them. If you allow them to drift out not only are you incurring additional costs but you are also risking a bad debt – and that can really be costly to your business.

Here are a few ideas to help accelerate your cash flow cycle:

  • Buy stock on a consignment basis
  • Arrange with your suppliers to hold stock for you with the capability to deliver within a day or so of order
  • Keep good records on your stock position so you know exactly when you need to order replacement stock
  • If you have seasonal stock then be prepared to adjust your price toward the end of the season to avoid having to hold over the surplus stock
  • Unless there are significant quantity discounts for buying volume stock only purchase what you know you will need within the immediate future
  • Encourage customers to pay cash on delivery (COD) rather than operate on an account
  • Offer settlement discounts for account customers who will pay you within seven days
  • Avoid opening accounts for small customers or those who only buy from you on an occasional basis
  • Allow your customers to buy from you using their credit card
  • Always issue your invoice immediately on completion of the job
  • Be prepared to stop supply if a customer does not pay you within agreed trading terms
  • Always complete credit checks when you are opening new customer accounts

Call or Contact us us if you would like some more information.

Brisbane: 07 3421 3421 (Rob & Sam)

Sunshine Coast: 07 54748955 (John)

 

 

Some highlights for the new financial year

Overseas assets & income? Why the ATO wants you!

The ATO is heavily targeting individuals that have assets and income from overseas. A month ago, the ATO announced an amnesty, called Project DO IT, that allows people to declare unreported assets and income they have received from overseas. These voluntary disclosures have already raised over $13 million in back taxes.

Now, the ATO are backing up that amnesty with a new datamatching program to target those who have not voluntarily declared foreign income. The data matching program will troll through information from overseas tax authorities on Australians with offshore investments and bank accounts; information from Australian and foreign banks on fund flows, interest and account balances; information from informants about offshore accounts, and money transfers to and from offshore bank accounts.

The bottom line is that if you don’t declare income you receive from overseas that you should be paying tax on in Australia, and the ATO catch you, you can expect little mercy.  Don’t assume that just because your foreign income is genuinely not subject to tax overseas that it is not taxable in Australia.

If you suspect you might have a problem, talk to us today to assess your position and manage your approach.

Employers paying Superannuation Guarantee!

Employers can expect a renewed focus from the ATO on superannuation guarantee (SG) payments made to employees. With the increase in the SG rate from 9.25% to 9.5% on 1 July 2014, employers will need to make sure that payments are made on time and that the calculations are accurate. Just be aware that the increase in SG does not necessarily reduce the take home pay of employees. In many cases employee contracts are ‘base plus superannuation’. In this case, the employer absorbs the increased SG rate not the employee.

Are your contractors really employees?

The ATO continues to enjoy a high success rate challenging the treatment of contractors under the superannuation guarantee (SG) legislation.  Despite recent comments made by the Government that the ATO should ‘relax’ its approach to contractors, the ATO has no reason to simply walk away from such a potentially lucrative revenue stream – why would they when the law is on their side?

As there is no real time limit on the recovery of outstanding SG obligations, business owners need to take a proactive approach reviewing arrangements to ensure that the business is not exposed to material liabilities – the start of the new financial year is a great time to do this.

The underlying issue is often that employers take the contractor relationship at face value – that is, what the piece of paper describing the relationship actually says.  The reality is quite different as the law is based on the character of the relationship not what is stated in writing.  So, if your business has contractors (or you are a contractor) performing the same role as an employee, then it’s possible the ATO will classify them as employees for SG purposes.

A genuine independent contractor who is providing personal services will typically be:

  • Autonomous rather than subservient in their decision making;
  • Financially self-reliant rather than economically dependent upon the business of another; and
  • Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided.

There are a number of tests that can apply to help determine the status of a contractor-such as control, whether the worker has been hired to produce a result, the ability for them to freely delegate work to someone else, risk exposure, ownership of tools and equipment, and the treatment of business expenses, etc.

Employers cannot contract out SG responsibilities by adding fail safe clauses in contracts; and there is no certainty that a contractor using an interposed entity (for example setting up a company and operating through it), is fool proof.

Clear out the old! New Year house keeping

Here is the essential checklist to prevent last year overflowing into this year:

  • Reconcile your GST control account.
  • Does the income declared in your BAS for the last year reconcile to your annual income?
  • Check that the minutes for all director and trustee resolutions pre June 30 are documented and signed off.
  • Make sure your stock take has been completed and documented.
  • If you have paid management fees to a related entity during the year, ensure that all of the tax invoices have been documented and that there is a reasonable commercial basis for the charges applied.
  • Where dividends have been declared to manage Division 7A loan payments, ensure that there are letters on instruction on the file that the dividend is to be credited against the loan account. Dividend statements will need to be completed.
  • If you have cross border related party transactions, make sure you have your transfer pricing file completed with all the requirements signed off.
  • Review all contractors for the year going forward to ensure they would not be deemed as employees.
  • Get your operating budget completed for the year.
  • Get your cash flow budget in place.
  • Check the adequacy of your funding arrangements with your bank.
  • Check that you meet any loan covenants that you have with the bank at June 30.

Please contact the team at McAdam Siemon if you would like further information.