Profit – How to improve your bottom line?

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Profit – not something every business has, so how can you get it and improve it?

  1.     Raise your prices. You’ll be surprised how few complaints you’ll get about a 5% price increase.
  2.     Sack a customer. Think about abandoning demanding customers who eat up too much time for too little reward.
  3.     Drop a product from your range. Most companies carry products or services that are just not working or cost too much to produce.
  4.     Change your bank. There’s plenty of big and small financial institutions out there, so shop around for the best deal.
  5.     Put your printed materials online. Posting documents such as manuals and brochures on your website saves on printing, storage and postage.
  6.     Change suppliers. China, India, Vietnam and Thailand are full of companies that can supply products cheaper than in Australia. If you can’t beat the importers, join them.
  7.     Put lots of information on your website. This will help reduce the amount of time you spend on the phone answering customer queries.
  8.     Bill customers promptly. Get your invoices out as quickly as possible to get them back faster.
  9.     Create incentives for creditors to pay faster. Offer a small discount to clients prepared to pay within a week and your cash flow will improve.
  10.  Weed out slow payers. Before taking on a major customer, check their credit worthiness and references. Bad debts are bad news.
  11.  Use email. Cut postage costs by migrating customers to email.
  12.  Cut your inventory. Don’t tie money in the warehouse. Get that money out there working for you. Or better still, get it back in your wallet.
  13.  Consider different property options. Moving out of the city can save you a bundle on rent.
  14.  Barter. Look for companies with which you can exchange goods and services. It keeps cash in your pocket and helps you network at the same time.
  15.  Add a new product or service to your range. Then bundle the new product or service with your new offering and watch revenue grow.
  16.  Pay your bills online. It saves on cheque fees and postage costs.
  17.  Consolidate your loans. Multiple loans mean multiple sets of fees. Consolidate and save.
  18.  Change your phone company. Communications — particularly mobile phones and internet — can be expensive. Review your supplier and don’t sign a contract longer than 12 months unless you’re sure prices aren’t going to fall.
  19.  Do things out of season. Conference facilities, hotels and airline flights are cheaper at certain times of the year. Plan around this and save.
  20.  Negotiate. It makes some people uncomfortable, but haggling is a perfectly normal part of doing business.
  21.  Shop around. You can find a cheaper price for everything if you look around. The bigger the expense, the more shopping you need to do.
  22.  Advertise online. Online advertising is relatively cheap and its effectiveness is much easier to measure.
  23.  Check your invoices. Don’t just pay up blindly — make sure none of your suppliers are over-charging you.
  24.  Take advantage of discounts. You love prompt payers and so do your suppliers — take advantage when companies offer discounts to customers that pay quickly.
  25.  Recycle. Reuse marketing materials such as promotional signage and displays.
  26.  Find a purchasing partner. There are some things every business needs, like stationary and cleaning products. Team up with another business and use your combined buying power to get discounts.
  27.  Standardise and simplify. Big manufacturers try to standardise every process in their business so it is done right every time. Less mistakes means less wastage.
  28.  Clean up. Tidy your work environment so staff waste less time dodging obstacles and finding lost files and spend more time attending to customers.
  29.  Survey your clients. Find out what they like about you and what they don’t like. Decide where you should invest your time and energy.
  30.  Cut your labour costs. People are typically a business’s biggest expense. Weed out underperforming or unnecessary staff.
  31.  Outsource. In some industries such as manufacturing, outsourcing production of some products or components can save big dollars.
  32.  Form a joint venture. Many companies are too small to compete for large contracts. Find businesses with complimentary products or services and bid together.
  33.  Make an acquisition. Buying another company is a quick way to grow revenue. The key is managing the integration.
  34.  Go global. Australia is a relatively small market and taking your business offshore can open huge sales opportunities. There are even government grants available to help with the costs.
  35.  Buy second-hand furniture and fittings. A slick office never made anybody any money. Keep it neat, tidy, functional and cheap.
  36.  Do some R&D. Research and development can be expensive but new products don’t make themselves. Take a punt and trial something new.
  37.  Copy. So what if you didn’t have that great idea first? If you see something that works, incorporate it into your business.
  38.  Be extra nice to your customers. The cheapest and most reliable form of advertising is word-of-mouth.
  39.  Say no. Some jobs are marginally profitable or high risk — don’t be afraid to avoid them.
  40.  Go upmarket. Customers are prepared to pay for high-quality products. Make sure you are seen as the premium alternative and price products to reinforce this.
  41.  Steal top staff from a competitor. Luring a proven employee with a big salary may end up being cheaper and less risky than hiring and training new staff.
  42.  Improve your reporting systems. Knowing how each department and sales person is performing on a weekly basis helps highlight your strengths and weaknesses.
  43.  Focus. Work out exactly what your business is good at and concentrate on it. If you stop trying to be all things to all people, you’ll improve your competitive advantage.
  44.  Cut out the middle man. See if you can source products directly from the manufacturer at below wholesale prices.
  45.  Extend your trading hours. Staying open a bit longer can be a good way for retailers to bring in extra revenue.
  46.  Examine your logistics. Big companies regularly restructure their supply chains to improve profitability. Look at your transportation arrangements and eliminate double handling and delays.
  47. Benchmark your business. Compare your departments to each other. Compare your business to competitors. Compare your company to those in other industries. Then decide what sort of returns you should be getting and make a plan to get there.
  48. Develop and maintain your customer database. Selling to your existing clients is far cheaper than trying to find new ones. A good database is a big asset you must exploit.
  49. Change electricity suppliers. Energy companies are targeting small and medium businesses so take advantage and get a better deal.
  50. Monitor and manage staff workflow. If employees are getting through their work quickly, assign them new or extra tasks. You may even find you’ve got more staff than you need.
Posted in Business

Small Business tax help

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Plant and Associates Accountants Beenleigh and Nerang specialise in small business.  They take the pain out of the accounting, taxation and business side of your business.  Contact them for assistance today.  admin@plantandassociates.com.au

Small businesses need tax help – Article by Terry Hayes

So what else is new you say! That heading won’t shock any SME. The question is where to get that help. The SME’s adviser or accountant is one obvious source, but the ATO is another very valid so
Australia has almost three million small businesses, employing about one in five of the workforce. Small businesses therefore represent a large target sector for the ATO. Little wonder when you consider a survey by American Express earlier this year revealed a staggering 39% of small businesses keep their tax receipts in a shoebox!
Not surprisingly, the ATO does try to help, especially where a small business is just starting. Some of the guidance materials it can provide include:

  •  a checklist for people starting a new business;
  •  information about tax assistance visits by the ATO;
  •  tip and fact sheets about a range of business topics; and
  •  an easy-to-use small business tax calendar to plan and manage business tax obligations.

The ATO also contacts businesses that register for pay-as-you-go withholding when they take on staff for the first time or register for GST when their turnover exceeds the $75,000 threshold, to help them get it right from the start.Recently, the Tax Commissioner said that, in collaboration with local councils, industry associations and other government agencies, the ATO offered assistance to small business operators in western Sydney.

In one example in Penrith, the sister-in-law of a couple operating an earthmoving transport company attended an ATO seminar and got the couple to ask for an assistance visit. The couple in their first year in business earned $100,000 with the turnover increasing to around $2.6 million in the second year.During the visit, the ATO discussed the company’s need to move from cash to accrual accounting; how to better plan its cashflow; and how to manage its tax liabilities associated with much higher levels of income.

In another “good news” story, after reading an article in a Darwin newspaper about small business assistance visits on offer, a builder who registered for an Australian Business Number and for GST in July 2000 “because he thought he had to”, sought an ATO assistance visit as he had a significant amount of unopened mail from the ATO, causing him “sleepless nights”.

As he had operated his business for only a short period and was an employee for the rest of the time, the ATO helped him tidy up his un-lodged quarterly business activity statements. He also cancelled his GST registration, which he no longer needed.
The ATO also uses what are known as Taxpayer Alerts to provide early warning of arrangements it is concerned about. Recently, the Commissioner says the ATO has seen small business involved with deemed dividend schemes, labour hire arrangements (splitting income from personal services through the use of a discretionary trust ), research and development abuse, and foreign trust arrangements (foreign based discretionary trusts used to avoid taxation on Australian sourced income).

Employee vs contractor

There are, of course, regular problem areas. One of those is the issue of whether someone is an employee or a contractor. Disputes about this are becoming more common, especially in light of increased action by Fair Work Australia, and I have written on a number of occasions about this issue.In a very recent case, Fair Work Commissioner Jones ruled that a specialist Microsoft software consulting firm had 15 employees, finding two alleged contractors were, “as a practical matter”, employees. Therefore, the firm was not exempt from unfair dismissal claims nor could it avoid an obligation to make redundancy payments as per the Fair Work Act 2009. I’m sure this won’t be the last of the employee vs contractor cases that we will see.
In 2011-12, the Tax Commissioner said from its audits the ATO collected details of approximately 51,000 payments made to around 41,000 contractors, about 18,000 of which were individuals. The ATO found that 48% of businesses that engaged contractors were wrongly treating individuals as contractors. These workers were legally employees but were missing out on employee entitlements such as superannuation. To help SMEs, the ATO has an Employee or Contractor homepage on its website.

Information matching

The Tax Commissioner said the ATO’s information matching program is expected to match over 600 million transactions in the current year (up from 538 million in the 2011-12 income year). He said commensurate with the increase in information matching, the ATO also expects an increase in the number of discrepancies identified. According to the Commissioner, discrepancies detected by ATO information matching increased from 266,000 in 2007-08 to over 540,000 in 2011-12.Specifically in relation to small businesses, the Commissioner said the records of more than 10,800 taxpayers were matched in 2011-12, and identified businesses not reporting correctly through undeclared income or overdue returns. He said the identified discrepancies raised more than $40 million in liabilities.For example, by working with other agencies such as the Department of Climate Change and Energy Efficiency, the ATO was able to identify a government grant of $200,000 that was not declared by a taxpayer. Further information from the Department of Human Services highlighted the same taxpayer had also received a disability support pension, at the same time.

Small business benchmarks

Controversial as they may be, the Commissioner said ATO statistics indicated that approximately 90% of small businesses in benchmarked industries fell within a benchmark ratio. However, he said around 76,000 businesses reported income that was significantly below those benchmarks.To address this issue, Mr D’Ascenzo said the ATO wrote to around 30,000 small businesses regarding the benchmarks in 2010-11. He said around 17% (or over 5,000) of the businesses have since started reporting income commensurate with the benchmarks, thereby lowering their risk profile with the ATO.

Compliance and prosecution

The Commissioner said in the last financial year, the ATO’s compliance activities in the small business sector yielded around an additional $1.97 billion in taxes collected. He said that year also saw a decline in the number of returns and statements lodged on time for small businesses, as well as fewer income tax return liabilities paid on time. No doubt the general state of the economy was influential in that.

The Commissioner also said small business debt with the ATO increased in the last financial year to 61.4% of the total ATO collectable debt. The ATO believes this increase mostly reflects the cashflow impacts of the challenging economic environment. Despite the challenging economic conditions for small business, the Commissioner said the ATO will continue to support those businesses that are viable.
However, the Commissioner warned that the ATO undertook over 28,000 of what he called “firmer and legal recovery actions” in the small business sector in 2011-12. The ATO also conducted over 11,800 compliance reviews of self-managed super funds (mainly micro enterprises) raising tax liabilities of around $21.9 million.
Future ATO improvements for small businesses
Future technological improvements are planned to the interactions of small businesses with the ATO. By 2013, the ATO is aiming to allow small businesses to access and update their obligations online. By 2014, the ATO aims to allow small businesses to complete obligations using a mobile device and track their dealings online. Then by 2015, the ATO will aim to have integrated payment services, personalised options, and cross-channel authorisation solutions for small businesses.
With our complex and ever-changing tax laws, complying with them is not easy. That’s why around three-quarters of Australians use a tax agent. But there are ways SMEs can obtain the information they need to make tax compliance easier.
The Tax Commissioner says the ATO acknowledges that running a small business is not always easy and that behind every small business are people. He said, “We’re all human and we don’t always make the right choices, or circumstances sometimes make it extra difficult for us”. For people trying to do the right thing, he said the ATO will try to get them “over the line” where it can. A good adviser/accountant wouldn’t go astray either.

Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.

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