With less than a week left in the financial year, a debtor finance specialist has offered tips for small businesses to get their affairs in order ahead of tax time.
Bibby Financial Services has urged SMEs to prepare themselves ahead of next week, as tax changes from 1 July could hit small businesses hard.
“Almost 40% of SMEs identified time management as a leading business challenge in our latest Bibby Barometer survey, so we are encouraging SMEs to make time to review their business strategy and start planning for the new financial year,” said Mark Cleaver, Managing Director, Bibby Financial Services, Australia and New Zealand. “It is important that SMEs take stock of their financial accounts now, as there are a number of new SME tax opportunities to be aware of and tax change pitfalls to avoid.”
The company offered 10 tips to small businesses facing the end of the financial year:
1. Pay and clean up any super owing before 30 June 2014
A compulsory rise in superannuation contributions, from 9.25% to 9.5%, will take effect from 1 July 2014. Businesses must ensure they are paying employees additional superannuation after 1 July 2014. As superannuation is not tax deductible until it has been paid, it is also important to ensure all superannuation payments owing are completed before 1 July 2014.
2. Be aware of relevant tax changes
A number of tax changes will come into action at the start of July and it is important to consider what immediate and long-term effect these will have on your business and cash flow position. From 1 July 2014, the Medicare levy will increase from 1.5% to 2.0% of taxable income and the new 2% Temporary Budget Repair levy (previously known as the Deficit levy) will come into effect. The Temporary Budget Repair levy will impact any employees earning $180,000 and over. The effect of this new levy may be harder felt by family-run businesses.
3. Get your tax-deductible expenses in order
An easy way for SMEs to claim tax deductions is to pre-pay relevant services and supplies such as office supplies or costs for supplier services, such as accountant fees, up to a period of 12 months or less. By bringing forward tax-deductible expenses and deferring income, you can reduce your taxable income for the financial year.
4. Be aware of all applicable tax benefits
Any business with a turnover of less than $2m is eligible for a wide range of tax benefits within areas such as Capital Gains Tax, Income Tax, Goods and Services Tax, and Fringe Benefits Tax. So make sure you are aware of any tax benefits that may be applicable to your business.
5. Know the value of your depreciating assets
Another tax opportunity for SMEs with a turnover under $2m is available tax deductions on any depreciating assets up to the value of $6,500, purchased before 31 December 2013. Business assets which may fall into this value category include office equipment, computers, printers, work tools, etc.
#pb#6. Keep your income producing assets up-to-date
You can reduce operating costs, increase productivity and free up cash by structuring your financing and repayments to suit your tax and cash flow needs. Make an effort to keep your income producing assets up-to-date, as this helps keep your business operationally efficient and maximise cash flow.
7. Write off bad debt
According to the latest Dun & Bradstreet Trade Payments Report, the average number of days business-to-business payments being made has increased, now sitting at an average of 56 days. If you’re still chasing invoices from the last financial year, now is the time to write them off. Bad debts are tax deductible and can be used to offset your taxable income.
8. Reassess your cash position
Starting the year with a healthy cash position is crucial. Ensure you review your cash management processes and consider the most appropriate funding solutions. There are a number of cash flow finance tools to help you better manage cash flow and funding. Debtor finance is gaining in popularity as it provides advances of up to 85% against receivables without needing real estate security, and is scalable in line with the sales growth of the company.
9. Have an accounting spring clean
As a number of tax and superannuation changes take place from 1 July 2014 onwards, make sure you review and update your accounting systems to include these changes; as you do not want to have to back pay items such as missed super contributions or lose other potential tax saving opportunities next end of year financial year.
10. Reward your staff
End of the financial year is always a good time to reward your hard-working staff and thank them for their contribution to your business. Take them out to lunch or consider rewarding them with a small bonus. It may also be a good time of year to review their KPIs and present your refreshed business and marketing strategy.
