The productivity killer

Time wasting on the internet

Recent reserach has confirmed that the internet is a major source of time-wastage for many employees, including salacious material and social networking websites.

More than half (55%) of the human resources decision makers polled in a Clearswift survey had caught employees wasting time on the internet, or had disciplined employees for wasting time.

Pornography was found to be a particularly prevalent time-waster: 60% of respondents had either found staff accessing pornography or disciplined staff for accessing it via the internet.

A large majority (79%) of HR professionals reported blocking access to social networking sites such as Facebook and MySpace.

Despite these policies, 68% of surveyed HR decision makers reported leaving monitoring to the IT department.

From http://www.mybusiness.com.au/newsletter/index.php?issue=76

ATO publishes compliance program

The Australian Tax Office has published its compliance priorities for FY07 with the release of the Compliance Program 2007-08.

Tax Commissioner Michael D’Ascenzo maintained Australia enjoys high levels of compliance with tax and superannuation laws.

“Our program is as much about helping people to comply as it is about dealing firmly with those who don’t want to do the right thing.

“Initiatives to better support individual and business taxpayers as well as tax agents are a priority in this year’s program. These initiatives include help to improve tax governance, support tools for trustees of self-managed super funds, and improved access to expert advice for tax practitioners.

“We want to work with the community to reduce red tape and minimise compliance costs,“ said Mr D’Ascenzo.

“For example this year we will provide more services including an assistance program for small business, more pre-filling options to help people complete their tax returns accurately and quickly, and products to assist people with their super obligations.

“Our aim is to be as unobtrusive as possible to the majority of people who meet their obligations, but to be highly visible to those who don’t.

“This is about fairness and creating a level playing field for everyone,“ Mr D’Ascenzo said.

Areas that face increased scrutiny this year include:

• corporate restructuring
• mergers and acquisitions
• the cash economy
• self-managed super funds
• super guarantee obligations
• serious fraud and evasion

New laws also mean the ATO can also act against promoters of schemes involving offshore and other aggressive arrangements.

A copy of the Compliance Program 2007-08, summary of priorities and key activities, and the Commissioner’s speech are available on the Tax Office website www.ato.gov.au

Councils cut red tape

In an attempt to reduce the cost and burden of local laws compliance for businesses, South East Queensland Councils have developed an online “toolbox”.

The toolbox is designed to help businesses operate within the regulatory standards of government more effectively.

It has also provided a driver to standardised information and requirements relating to the permits, licences and registrations.

The Toolbox website spells out:

• which businesses need to apply;
• how to apply; and importantly
• how to comply

with Council local laws.

It throws in some visual examples, such as sample event plans and photographs, to help businesses better understand what standards and solutions are required.

It also lists websites and other resources, where you can pick up additional useful information.

Toolbox makes neighbouring councils’ regulatory information available through the same portal, making it easier to find information if you have a mobile business that operates across council boundaries.

Funding for Toolbox came from the Commonwealth’s Regulation Reduction Incentive Fund (RRIF), a $50 million fund directed to Local Governments around Australia to assist them in reducing the burden of regulation on small business.

RRIF is administered by AusIndustry, Department for Small Business, Tourism and Resources, Australian Government.

So, if your business needs to comply with local laws and regulations in any of the following activities, you should visit the site.

• Advertising signs
• Caravan parks and camping
• Commercial swimming pools
• Entertainment venues and events
• Filming
• Handling flammable liquids
• Food businesses, footpath dining and roadside vending
• Home Based Activities
• Personal appearance services
• Rental accommodation
• Waste transport
• Water carriers
• Other 'environmentally relevant' activity

The toolbox is applicable to the following council areas (subject to Queensland council amalgamations):

Beaudesert, Boonah, Brisbane, Caboolture, Caloundra, Eidsvold, Esk, Gatton, Gayndah, Gold Coast, Ipswich, Kilcoy, Laidley, Logan, Maroochy, Mundubbera, Noosa, Pine Rivers, Redcliffe, Redland, Toowoomba and Tweed.

Toolbox website

Getting your GST right

The GST has now been operating for six years yet despite a massive education campaign by the Australian Taxation Office (ATO) there are still many errors and omissions that are being made by small businesses on their GST returns.

Most of these errors relate to the over-claiming of GST credits. It is important to note that the GST is a "transactions based" tax and therefore each transaction needs to be analysed to determine the correct GST treatment.

Some common GST mistakes are shown below, aong with the correct GST treatment.

• Incorrectly claiming GST credits on bank fees (e.g. monthly and annual fees, cheque book fees and loan establishment fees). Bank fees are treated as "input taxed", meaning that the bank doesn't charge GST to the customer. Note that GST is charged on credit card merchants' fees and therefore a GST credit can be claimed on these expenses;
  
• Incorrectly claiming GST credits on government fees where no GST has been charged. Examples include land tax, council rates, water rates, ASIC filing fees and motor vehicle registration;
  
• Incorrectly claiming GST credits on expenses relating to residential rental properties where the entity is registered for GST. Residential premises are input taxed and therefore GST credits cannot be claimed on the expenses paid;
  
• Incorrectly claiming a GST credit on the "total cost" of a business insurance policy. As there is a stamp duty component in the premium which is not subject to GST, a GST credit cannot be claimed on this portion of the payment. The actual amount of GST payable on an insurance premium is usually stated on the renewal form;
  
• GST is not paid on the sale of cars and equipment, including the trade 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;
  
• Not remitting GST on government grants and incentives which are received inclusive of GST; Incorrectly claiming GST credits on GST-free purchases such as basic food items, exports and some health services;
  
• Incorrectly claiming GST credits on wages and superannuation payments; Incorrectly claiming the entire GST credits on entertainment expenses where the business has elected to use the 50/50 split method for fringe benefits tax purposes. Only 50 percent of the GST credits can be claimed in this situation;
  
• Claiming the entire GST credits on a car purchased for more than the luxury car limit of $57,009 GST inclusive. The maximum GST credit that can be claimed is limited to $5183;
  
• Sole traders and partnerships are not apportioning input tax credits and making adjustments to expenditure that is partly private and partly business use (e.g. motor vehicle expenses). 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 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;
  
• Incorrectly claiming an upfront GST credit on assets financed by way of commercial hire purchase (CHP). 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. 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 consider financing the asset by way of a chattel mortgage;
  
• Incorrectly claiming GST credits on payments for Yellow Pages advertising. Where the business chooses to pay for the cost of advertising by instalments the entire GST is charged up-front. Businesses that accounts 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; and
  
• Claiming GST credits when the business does not have a valid tax invoice at the time of lodging the BAS. Businesses in this situation should contact the ATO for permission to claim the GST credit.

Correcting GST mistakes

Where a business has made a clerical error on an earlier period BAS or omitted a particular transaction there are both "time" and "dollar' thresholds for determining the particular BAS in which the error or omission needs to be corrected.

A business can make the change in the "current" BAS where all of the following conditions are satisfied:

• The turnover of the business is less than $20 million;
  
• The "net" effect of the errors and omissions from the earlier period BAS's is less than $5000 in GST credits; and
  
• The original transactions occurred within 18 months of the end of the current BAS period. Where the "net" effect of the errors or omissions from previous BAS's occurs outside the relevant time and dollar limits the business must revise each of the original BAS's that the errors or omissions occurred in. This may lead to the imposition of a general interest charge where the revision results in additional GST payable.

The ATO has now shifted its GST focus from an education to compliance phase. It is therefore very important for businesses to have the correct systems in place to ensure that GST is correctly accounted for on each transaction and that proper documentation is kept (e.g. valid tax invoices).

Failure to comply with the GST rules may result in substantial penalties upon an audit by the ATO.

http://smallbusiness.ninemsn.com.au/article.aspx?id=117036

Year-end tax planning strategies

Year-end tax planning is the use of legitimate strategies to accelerate deductions and to defer the recognition of income.

Where the business owner has chosen to adopt the "Simplified Tax System" (STS), there are a different set of rules applying to some of these strategies.

The most common tax planning strategies that business owners should consider prior to June 30, 2006, include:

Simplified Tax System (STS)

STS started from July 1, 2001, and was introduced to minimise the compliance burden on small businesses by applying cash accounting rules for income and deductions as well as simpler rules in recording trading stock and depreciation.

Currently a small business with a three year average turnover of $1 million or less GST exclusive and depreciating assets (other than land and buildings) with a written down value of less than $3 million can elect to use the STS.

The removal of the compulsory "cash" accounting rules from July 1, 2005, is a positive change for small businesses as they now required to record "income" on either a cash or non-cash basis depending on which is the most appropriate to their particular circumstances.

New entrants into the STS on July 1, 2005, can also claim a deduction for certain expenses that have been "incurred" but not paid by June 30, 2006, even though they are required to account for income on a cash basis.

This provides business owners with a further incentive to enter the STS this financial year.

Already in STS?

You can choose to opt out of the cash accounting rules from FY2006 (this does not involve leaving the STS).

However, if an STS small business chooses to opt out they can never re-apply the cash accounting rules.

There are two possible outcomes from opting out:

1. The business will continue to record income on a cash basis (because it is the most appropriate method) and will now be able to claim deductions on an incurred basis; or
2. The business will commence to record income on an accruals basis (because it is the most appropriate method) and will now be able to claim deductions on an incurred basis.

Deferring income

STS and non STS small businesses that return income on a cash basis are assessed on income as it is received. A simple end of year tax planning strategy is to delay "receipt" of the income until after 30 June 2006.

STS and non STS small businesses that return income on a non-cash basis are generally assessed on income as it is derived or invoiced. Income may be deferred by delaying the "issuing of invoices" until after June 30, 2006.

Maximising depreciation claims

Non STS small businesses can claim an immediate deduction for assets costing less than $100 GST inclusive (e.g. minor tools). An STS small business can claim an immediate deduction for assets costing less than $1000 GST exclusive.

Non STS small businesses can scrap or sell depreciable assets for less than their written down value to realise a tax deduction loss. This does not apply to STS small businesses as they are subject to pooling arrangements for assets costing $1000 or more GST exclusive.

Where an STS small business purchases assets costing $1000 or more GST exclusive, they are included in an asset pool. A full depreciation deduction of 15 percent (30 percent thereafter) can be claimed for 2006 regardless of when the assets were acquired during the income year.

Non STS small businesses can allocate assets costing less than $1,000 GST exclusive to a "low value pool" and claim depreciation of 18.75 percent for 2006 (37.5 percent thereafter) regardless of when the assets were acquired during the income year.

Claiming deductions for expenses not paid at year end

Small businesses that entered the STS prior to July 1, 2005, and have not opted out of the cash accounting rules, can only claim a deduction for expenses when they are paid.

Therefore to claim an immediate deduction the business should pay for the expenses by June 30, 2006.

Non STS small businesses and small businesses that entered the STS on July 1, 2005 (regardless of whether they use the cash or non-cash basis for recording income) are entitled to an immediate deduction for certain expenses that have been "incurred" but not been paid by June 30, 2006, including:

• Salary and wages. A tax deduction can be claimed for the number of days that employees have worked but have not been paid until after 30 June 2006. - Director's fees. A company can claim a tax deduction for directors fees it is "definitely committed" to at June 30, 2006, and has passed an appropriate resolution to approve the payment. The director is not required to include the fees in their taxation return until the 2007 year when the amount is actually received.

• Staff bonuses and commissions. Like director's fees, a company can claim a tax deduction for staff bonuses and commissions that are owed and unpaid at June 30, 2006, where it is "definitely committed" to the expense.

• Repairs and maintenance. A deduction can be claimed for repairs undertaken and billed by June 30, 2006, but not paid until the new income year.

Writing off bad debts

Where both STS and non STS small businesses operate on a non-cash basis and have previously included the amount in assessable income, a deduction for a bad debt can be claimed in 2005/06 so long as the debt is declared bad by June 30, 2006.

The business will need to show that it has made a genuine attempt to recover the debt by year end to prove that the debt is bad. It's important that this decision is made in writing (e.g. a board minute).

Note the business can claim back the GST paid on debts that have been written off as bad.

Prepayment of expenses

STS small businesses can claim an immediate and without limit deduction for prepayments that extend into the 2007 income year provided that the eligible service period does not exceed 12 months and ends no later than June 30, 2007. Subject to cash flow requirements, the most common expenses that an STS small business should consider prepaying by June 30, 2006, include lease payments, rent, business travel, insurances, business subscriptions, etc. Note that an immediate deduction for prepayments is not allowed simply where the STS small business makes a voluntary payment and there is no option or requirement under the contract for the payment to be made.

Non STS small businesses may be able to claim a deduction for certain prepayments costing less than $1,000 GST exclusive. (e.g. Workcover premiums and motor vehicle registration).

Superannuation contributions

The removal of the superannuation contributions surcharge from July 1, 2005, and changes announced in the 2006 Federal Budget have increased the incentive for business owners to put more money into superannuation.

Both STS and non STS small businesses can claim a deduction for aged based limit superannuation contributions made on behalf of employees that have been paid by June 30, 2006. The aged based limits for 2005/06 are as follows:

Other tax issues

Where a private company provides loans to shareholders, a careful review of the loan arrangement must be undertaken as certain rules may deem the loan to be an unfranked dividend. It may be necessary to ensure appropriate loan agreements are in place and repayments are made.

Where individuals incur losses from business activities, the non-commercial loss rules should be considered as such losses may not be eligible for offset against other assessable income during the year.

Adapted from http://smallbusiness.ninemsn.com.au/article.aspx?id=104119

When customers pay late

Managing cash flow is the biggest financial headache for small businesses, with research showing two out of every five customers are paying late.

A survey of 200 small business owners, released by Visa International, found that financial planning, budgeting and meeting monthly expenses continued to be the greatest concerns.

More than 70 per cent of respondents said this was their greatest challenge, followed by taxes (9 per cent).

Even though most small businesses offer payment terms up to 30 days after the transaction, 38 per cent of customers are paying late, and 8 per cent are more than one month late.

About 2 per cent of customers turn bad each year, translating to 1 per cent in lost revenue.

Eighty-one per cent use their own staff to chase up late payments and 7 per cent said they wrote off between $10,000 and $50,000 in bad debts each year.

Adapted from http://www.news.com.au/couriermail/story/0,23739,21527204-36437,00.html , 10 April 2007

Taking on Goliath

Small businesses can take on giants by being clever. And it may not cost a fortune. David and Goliath battles were more about common sense than anything else.

Marketing expert Fiona Mackenzie, founder of Undercover Strategist, says small businesses need to exploit the failings of bigger businesses and capitalise on any openings.

Competing on price is not the answer, as big business win hands down every time. Service is more important.

Ms Mackenzie saw small businesses struggling with marketing and decided to create her business to meet a need.

"Undercover Strategist was created to give smaller businesses a plan to take on bigger competitors," she said.

"We're using our extensive experience in the corporate world to help smaller companies and we like it."

She has the following tips to take on Goliath:

Don't make a full-frontal attack

Goliath is bigger than you. If you attack him full-frontal he's going to squash you like an ant. It will almost certainly be a costly exercise (especially for you) - and potentially a disastrous one as well. He has more money than you. He has more resources than you and he has more to lose than you. You need to expect a reaction.

Don't copy

You cannot win by copying Goliath. You can only exploit Goliath's weaknesses.

Find the holes

The bigger Goliath is, the more holes appear in the business armoury. Holes are exactly that - they are small areas of weakness, just waiting for David to target. If you are going to tackle Goliath, find and tackle a hole. Keep your focus narrow and on the hole and don't let go.

Don't compete on price

Don't go in on a price lead. Goliath has deeper pockets than you and could wipe you out financially.

Service a niche market

Look for uncontested areas. Often larger players cannot service niche markets.

Look for areas where the cost of servicing the niche outweighs any financial benefit to the larger player (bearing in mind that the bigger you are, typically the greater your cost base and the greater the need to mass-produce to create efficiency).

Find a niche market that is small enough to defend.

Keep quiet!

Don't tell anyone what you are doing. All it does is alert your competitors to the game plan. Do not say anything and move quickly.

Surprise is the name of the game. There will be plenty of time to brag later.

Be a leader but don't behave like one

Become a leader in your part of the market but don't get complacent and behave like one. If you do, just as you took from someone, someone else will take from you.

Take control at the top

Keep decision making away from the committees. You want one person (preferably at the top) directing the plan of attack. Be the general - direct your troops.

From http://www.news.com.au/couriermail/story/0,23739,21289464-38205,00.html , 27 February 2007

Small Business - Tax Concessions

Tax concessions have been introduced for small business under the Simplified Tax System (STS).

The STS was introduced to remove some of the tax and compliance obstacles to businesses turning over less than $1 million a year, in a bid to encourage budding entrepreneurs.

Some of the more valuable changes allow small businesses to:

• fully write off depreciable assets of less that $1,001;
• depreciate assets with a lifespan of less than 25  years at  a diminishing rate of 30%;
• claim expenditure prepayments up to a year ahead;
• disregard opening and closing stock variations for dollar amounts of up to $5000; and
• claim income and deductions on a cash or receipts basis.

Businesses with an annual turnover of $50,000 also qualify for the special 25% Entrepreneurs’ Tax Discount.

Therefore, a business with a turnover of $45,000 and a gross profit of $30,000 could enjoy a tax rebate in the region of $1,215.

Another windfall for STS businesses was an ease of the regulations on record keeping.

Recognising that small businesses do not have the resources to economically comply with tax legislation designed for larger businesses, the tax office has decided to reduce the amendment period in which it can adjust STS tax assessments from four years to two years.

This information has been sourced from an article by Mark Northeast, a Partner with Pitcher Partners, appearing in My Business Magazine, May 2006.

Make your business green

Making your business green can give you an edge over rivals and help you hold on to your staff.

Not only will businesses benefit financially from cutting their impact on the environment, many business owners feel obligated to do so.

Materials used in an office fitout can make a big difference to the impact a building has on the environment. Even chair and workstation material help.

Whether this is due to global warming or companies' competitive instincts, more corporate organisations are showing support for sustainability by relocating to, or even building, their own eco-friendly offices.

Going green with a new office fitout is about 2 per cent more expensive than a regular fit-out, but it can have long term benefits.

Buildings are a huge contributor to greenhouse problems, consuming 32 per cent of the world's resources, 12 per cent of the world's water and 40 per cent of its energy.

Commercial buildings in Australia contribute 8.8 per cent of the nation's greenhouse gas output.

Aside from environmental benefits, however, there are immediate pluses for any businesses which are willing to make even small changes.

The simple fact is that staff feel better around fresh air and natural light which makes them more efficient and effective.

Staff who are working in an eco-friendly office within a building which doesn't suffer from "sick building syndrome" are also less likely to take days off sick.

And, in an age where environmental responsibility is becoming highly regarded, having an eco-edge also makes it easier for businesses to attract and retain staff.

Energy and water bills can be cut 5-10 per cent and a growing proportion of customers are likely to choose your product or service over another if they know your business is making an effort to do the right thing.

But even if a business's resources do not stretch as far as an office refit or building relocation, here are several ways to make a meaningful contribution on a lower budget.

Adapted from "Green new office hue", 22 January 2007 11:00pm, from http://www.news.com.au

Gearing up for good times

The ‘growth phase’ is one of most welcomed, yet feared, stages of the business cycle. More customers mean more profits, but also more stock, more working capital, more equipment, more staff and, possibly, even larger premises.

Funding this growth by reducing margins may work for a while, but for most businesses this ‘cutting it fine’ strategy raises the chances of a liquidity crunch, from which recovery is difficult.

Managing these variables is a priority for business owners and the better prepared a business is for its growth phase, the better its chances of survival.

1. Break down your funding needs

Forward planning is essential and breaking down funding needs into their components can be helpful. The first step is to distinguish the need for working capital from project-specific capital, such as new plant and equipment or larger premises and research and development.

2. Control your cash flow

There are two main strategies for maximising working capital. The need for working capital is generally a function of the yearly sales and the days outstanding for debtors.

If debtors are well managed, the increase in sales can usually cover working capital demands.

So rule number one is strong credit control. Conversely, try to secure favourable trading terms from suppliers, as this is one of the cheapest sources of finance.

3. Get the funding balance right

Hiring extra staff, buying new equipment or moving to a larger office often requires an investment based on predicted future sales – a significant risk for small business. However, for those who do decide to manage this risk, the next major step is to choose the right balance of funding sources.

Current profits, retained profits and owner’s funds (“internal reserves”) will, for most businesses, be a component of this funding. The proportion will depend largely on the businesses’ existing reserves, its ability to source other funds and the owner’s overall objectives.

When determining the right balance between internal reserves and outside funding, a business owner should keep in mind that they need a much higher return to justify investing their own capital in the business (in the order or 15-20 per cent) than does a bank or traditional financier (at about 7-8 per cent). So in many cases it will be outside sources of funding will be cheaper.

4. Choosing a source of funding

Finance from a bank or finance company can be secured with an overdraft, line of credit, invoice discounting, inventory finance and factoring.

Overdrafts carry interest and charges and can usually only carry a business through short-term growth fluctuations.

It is rarely appropriate for funding long-term growth demands, such as permanent increases in working capital, plant, equipment or premises. This is because equity in property rarely grows as fast as a business during a growth phase; unless the property market itself is booming.

Loans that grow with your sales fall under the generic term of debtor-finance. This includes facilities such as invoice discounting, factoring and inventory finance.

For plant and equipment, there are the usual lease or buy decisions that are generally driven by taxation outcomes.

5. Business angels

Outside of the loan market and provided the owner is prepared to share the profits as well as the risk, the three main sources of funds available to businesses include business angels, venture capital and a stock exchange listing.

A business angel is a silent or active partner. These are individuals who are prepared to provide private venture capital to businesses offering good prospects.

Agents can match-make investors with businesses for a fee, but be prepared to offer up business plans and a strong track record of success and sound management.

6. Venture capital

Larger capital injections justify seeking venture capital. Banks and investment companies specialise in arranging venture capital for investments under $15 million.

Again, you need a business plan, a solid track record and good, demonstrable growth projections. A much stronger focus on formal corporate management structures is usually required.

In this instance, the investment usually exceeds 50 per cent ownership. A $10 million investment, for example, would incur costs of between 5 per cent and 9 per cent.

7. Going public

For some new businesses, a listing on the stock exchange may have been a part of the business plan from the outset, but for others, they may suddenly decide that a listing is an attractive option.

Australia has three stock exchanges for businesses going public: the Australian Stock Exchange, the Newcastle Stock Exchange and the Bendigo Stock Exchange.

Costs to consider for listing include a prospectus, experts’ reports, underwriting and your time taken to meet formal requirements; upwards of $800,000 in total.

This information has been sourced from an article by Dennis Mattiske, partner with HLB Mann Judd Sydney, which appears in Dynamic Business magazine, April 2006 edition.