Calxa – animating budgets & cashflow forecasts

The difference between a budget and a cash flow forecast can sometimes be confusing. They can seem to show similar information yet both are very different and have different uses. Both are essential for the accurate financial management of your organisation.

A budget details what you plan to do with your finances for the relevant period of time. This is usually over 12 months, and focuses on profit. In addition:

 

• Accruals and other non-cash adjustments such as depreciation are often included
• A Budget also reflects the planned objectives of what the organization is trying to achieve and is linked to the strategic and business plans
• A budget also provides a benchmark to then monitor performance. After each month you can compare what actually occurred against what was budgeted or planned to occur
• Usually the full year budget is broken down into months

A budget is NOT used to monitor the amount of cash in the bank accounts. That is where the cash flow forecast comes in. 

A cash flow forecast details when the actual receipts and payments are likely to occur.

·    A cash flow forecast reflects when the actual income and expenditure is transacted into/from the actual bank account

·    It is not based on accrual accounting and adjustments, such as, depreciation are excluded

·    The full year cash flow forecast is mostly broken down into a month by month basis. But in some instances it can be further broken down into fortnightly or even week by week depending on the circumstances

The main difference between a budget and a cash flow forecast is based on: 

1.      The type of the transaction and;

2.      The timing when receipts and payments will occur

 

As a simple example: a budget will record the income when you have sent out the invoice whereas your cash flow will record it when you actually receive the amount into your bank account.

One point worth mentioning is not to assume that debtors will pay the following month. Often it may be later which is why it is important to know your Average Debtor Days which may show that payment occurs typically 64 days after sending out the invoice.

This also highlights the value of knowing some important Key Performance Indicators (KPI’s) such as:

Ø  Debtor Days

Ø  Creditor Days

Ø  Inventory turnover days

Ø  Working capital ratio

Understand the difference between a budget and a cash flow forecast and you will be well on the way to managing your finances.

'Accounting Software' or 'Business Operating Software'

Are you using your software as 'Accounting Software' or 'Business Operating Software'?  What is the difference? Does it matter?

When you started your business, you had an idea, then a plan and you made it happen.  One of the ways you made it happen was to keep records - customers, stock you sold and your expenses. Keeping records, gathering information, allowed you to make better decisions for your business. All those things are about operating your business.

You knew you needed to keep records for GST, Income Tax  and compliance. So you picked an accounting software to help you keep your records.  How did you implement using the software in your business?  Is it after the actual transaction has happened? Is it historical? Does it help you and your business?

By altering how you record your business transactions - you could turn your accounting software into 'Business Operating' software. Gathering 'real-time' information about your business.  Don't double handle bits of paper, use the computer and your software to its best advantage.

Below are four simple changes to your accounting software, changing it into Business Operating software.

1. Clients Details:  Do you capture your clients details - not only for the invoice but for later marketing to them.  Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour. To use Loyalty programs to its best advantage you need clients details.
 
2. Invoices:  Do you create a manual invoice and then later the bookkeeper inputs into the accounting software? Can you change your practice and input the invoice, with all its detail, directly into the accounting software? What will that do? It saves you double handling, its keep your Debtors listing accurate. It allows you to look/search on historical sales and marketing to clients who have bought those goods previously from you.

3. Bank Feeds: A feature where your bank transactions are synced with your cloud accounting software.  This handy feature can cut down your manual data entry and allows you to see what is really happening with your money in the bank.

4. Orders to Suppliers: Suppliers are essential to almost every business, supplying materials and services you need to do business.  They can also be important sources of information, helping you evaluate the potential of new products, track competitors' actions and identify opportunities.  Keep all their details within your system.

Many industries have traditionally had 'front-of-house' software that captures specifically information for marketing to customers.   There are specialty programs called CRM (Client Relationship Management) which are available but most account software will keep track of your clients and allow you to extract their details so you can market directly to them, without you going to the expense of a CRM program.  Most software allows you to email directly to your clients and suppliers, making contact cost-effective, accessible, easy and immediate.

These changes generally, only require you to instigate some planning, training & implementation time.  You receive in return more value from your accounting software and some 'real-time' gains for your business

Changes to fuel tax credits

Fuel tax credits provide a credit for any fuel tax (excise or customs duty) included in the price of fuel used in business activities, machinery, plant and equipment or heavy vehicles.

From July 1, 2013, most fuel tax credit rates were reduced by a carbon charge introduced under the new Clean Energy Laws.

For most businesses, the correct rate to apply as of July 1, 2013 will be the rate in effect on the day the fuel was purchased. Businesses with heavy vehicles travelling on public roads will continue using the rate in effect when completing their Business Activity Statements (BAS).

The carbon charge will not affect the fuel tax credit rates for renewable fuels or fuels used in:

• Heavy vehicles travelling on public roads;
• Specified activities in the agriculture, fishing or forestry industries; and
• Industries that do not involve the combustion of the fuel.

For those industries that are affected by the carbon charge, the following rates will apply for liquid fuels:

Examples of business use	Fuel type	For fuel acquired from July 1, 2013
Mining Nursing and medical Electricity generation Construction Manufacturing Property Management Landscaping	Petrol	32.347 cents per litre
	Diesel and other liquid fuels	31.622 cents per litre
Supply of fuel for domestic heating	Heating oil and kerosene	31.622 cents per litre

The current fuel tax credit rate for heavy vehicles travelling on public roads from July 1, 2013 is 12.003 cents per litre.

Click here to access the Tax Office guide on fuel tax credits.

Selling or closing your business - things to consider

The Tax Office offers business owners an overview of tax related issues that may need to be addressed prior to the sale or closing of a business.

It is emphasised by the Tax Office that the guide is not exhaustive, but seeks to be a starting point for recurring topics pertinent to the sale or closing of a business, including:

• Goods and services tax (GST);
• Capital gains tax (CGT);
• Superannuation;
• Winding up a company;
• Record keeping and lodgment obligations; and
• Cancelling registrations.

The guide notes that GST implications may arise following the disposal of capital assets and business owners should familiarise themselves with the treatment of such transactions.

The Tax Office highlights the availability of various CGT concessions to small business owners and the appropriate application of the concessions may minimise CGT liabilities when selling a business.

Business owners may still be required to complete an activity statement for the tax period in which their registration is cancelled. PAYG instalment obligations may still exist until the date of business cessation and instalment activity statements may be received even after cancellation of the Australian business number (ABN).

Lastly, the Tax Office has developed a structured checklist to assist business owners in meeting their requisite tax obligations when selling or closing their business.

Click here to access the guide.

Common payroll tax errors

The Department of Finance commented that its Compliance Division undertakes audits and investigations to ensure that employers liable for pay-roll tax adhere to legal requirements prescribed by the Pay-roll Tax legislation.

 Such examination serves to recognise common pay-roll tax errors made by employers, including:

• Failing to register when total liable wages exceed the Western Australia threshold of $750,000 per annum;
   
• Failing to declare fringe benefits and benefits under employee share schemes;
   
• Failing to include all liable wages such as director's fees and superannuation;
   
• Incorrect claiming of an exemption for certain wages;
   
• Incorrect classification of employees as contractors; and
   
• Late lodgment of monthly or annual returns
   

Penalties will result if a taxpayer:

• Fails to register as and when required;
• Fails to lodge returns and payments on time;
• Underpays tax due;
• Understates wages in returns; or
• Provides false or misleading information.

Lastly, the Department of Finance states that taxpayers who voluntarily declare a liability may obtain substantially lower penalties in comparison to those who do not.

Taxable Payments Report - Order Manual Copies of Forms on 1300 720 092

General Information on how the system works:

·      Within your software flag the suppliers to be reported on (it doesn’t include goods only invoices)

·      Invoices for labour or mixed labour/goods are to be included

·      The Law DOES NOT require a dissection between what is on the suppliers invoice

·      It is NOT a requirement to notify the suppliers of what you are informing the tax office

·      Print report of suppliers & YTD Paid Value for Taxable Payments Report for you to review

·      Only PAID invoices to be included in Taxable Payments Report at 30/6/2013 (it seems all software is aware of this requirement)

·      Create file of Taxable Payments Report in required format

·      Business may lodge on Business Portal or Tax Agent can lodge through Portal or SBR enabled software

·      If you want to lodge a paper form, you must complete and send the Taxable Payments Annual Report to the ATO

·      If you have more than 9 contractors you will need to order additional manual form

How to transfer a business name

You are required to notify ASIC in situations involving the change of a business name, including: 

• Change in the entity's structure that holds the business name;
• Sale of a business to another entity; or
• Handing over the business to a relative.

An application must be lodged to cancel the previous business name before transferring the business to the new entity. Upon receipt of the application, ASIC will issue a consent to transfer number.

 

The current business holder will need to provide the proposed business holder the consent to transfer number to proceed with the transfer of the business name. The proposed holder will also be required to provide a new ABN to ASIC.

 

 

The basic steps for current business name holders (in chronological order) include:

• Logging into ASIC Connect;
• Getting an ASIC key;
• Using your ASIC key to link your business name to your account;
• Completing a 'Cancel/Transfer business name' transaction;
• Obtaining the consent to transfer number; and
• Giving the consent to transfer number to the proposed business name holder.

 

For proposed business name holders, the steps include:

• Obtaining the consent to transfer number; and
• Registering the new business name.

If the business name was changed due to a sale transaction, the names of both the old and new business will be displayed on the national register for a period of 28 days after the transfer application is completed. Upon expiry of this period, the register will be updated to display only the details of the new business name holder.

 

To access the guide on how to transfer a business name, click here.