Issue 128 - May 2019
In many cases a business represents the owners' 'nest egg' for retirement. Therefore, creating a sustainable and profitable business will help you maximise its value and help secure you and your family's financial future.
So, what are some of the things to consider in maximising and protecting the value of your business?
In a potential business sale, a purchaser will conduct a due diligence review which will not only look at the numbers to determine the value of the business, but will also review business operations to assess whether they can enter the business and operate it successfully.
Over reliance on key individuals or management could affect the valuation. Thought needs to be made to engage the next generation of leaders within your business and find opportunities to empower them with ownership of key tasks and projects. The development of your team will help build capacity for management and ownership to focus their efforts on other value-add areas to foster business growth.
A mentoring and skill retention strategy should be implemented to help provide an environment where your leaders are supported and encouraged to become the best they can be.
Beyond the financial performance of your business, ensuring processes and measures are in place to allow for prudent financial control is vital. Management reporting on a monthly basis will help identify trends and strategies to improve margins and profitability. Having a detailed understanding of your business segments will help identify areas of strength or identify key areas of improvement – this should also underpin your business' strategy. Tracking actual performance against a thorough budget allows you to measure performance against expectations and identify abnormal items or unexpected deviations.
Once you have established a valuable business, the following safeguards can help protect it.
Conduct an insurance review to determine whether you hold adequate insurance for professional indemnity, business premises, product liability, plant and equipment, loss or incapacitation of key employees/management, business interruption and cyber threats.
Ensure that you have sufficient agreements in place to help navigate shareholder or business partner disputes or disagreements. Obtain advice regarding the documentation of a succession agreement to ensure that if there is an unforeseen death or incapacitation of a business owner there is a plan to move forward as best as possible (i.e. protecting family and remaining business owners).
Review your wealth plan holistically with your financial adviser to ensure that investment assets are sufficiently separated from business risks and that cash reserves and retained earnings in trading entities are strategically managed.
Maximising the value of your business and protecting it can be workshopped in a strategic planning session and subsequently executed and monitored over a number of years.
If such a session is of interest to you, please contact Brentnalls SA to discuss.
Large Proprietary Company Reduced Reporting Requirements
From 1 July 2019, thousands of private companies may be relieved of certain financial reporting obligations under the Corporations Act 2001.
The financial thresholds which govern whether a private company is classified as 'large' or not have been revised. Currently, if a company is classified as 'large' it is required to lodge financial reports, a director's report and an auditor's report with ASIC annually which are made available publicly. The revised legislation eases this reporting requirement by lifting all thresholds which define what constitutes a 'large' proprietary company.
The table below summarises the current and new legislation:
These new thresholds will apply from 1 July 2019, therefore for the 2020 financial year onwards.
If you have any questions on these changes, please contact Brentnalls SA.
Super Guarantee On Leave Loading
The ATO have recently published updated guidance to clarify their view that annual leave loading will be viewed as ordinary time earnings (OTE) for superannuation guarantee (SG) purposes, unless it is specifically referrable to a lost opportunity to work overtime. Annual leave loading paid for other reasons will be subject to superannuation guarantee (currently at 9.5%). This clarification provided by the ATO may give rise to historical superannuation guarantee shortfalls.
Leave loading was originally created for the benefit of some workers to compensate for the lost opportunity to work overtime while on leave. However, more recently leave loading has been paid by employers to salaried employees or employees that do not receive overtime, which is not what the original leave loading rules were intended for.
Assessing Your Leave Loading Payments
It's important for all employers to assess their leave loading payments to determine whether or not leave loading constitutes OTE. The wording of agreements and awards covering your employees should be reviewed to consider the historical purpose of leave loading entitlements.
The ATO has recognised the uncertainty around this topic and will not apply compliance resources to investigate previous periods where the employer has self-assessed that the annual leave loading was for a loss of opportunity to work overtime, and where there is no evidence that suggests overwise (for example where leave loading is paid to employees who do not work overtime).
The ATO have stated that going forward, written evidence demonstrating the intention or purpose of the leave loading entitlement will be required. This can be evidenced by:
- wording in the award or agreement which clarifies the reason for the entitlement; or
- a documented policy that clarifies the reason for the entitlement and reflects the mutual understanding of both parties
If an employer does not obtain written evidence, the leave loading payments will form part of the employee's OTE.
The ATO have advised that where employers have obtained this evidence as soon as practicable, they will not apply compliance resources to scrutinising the purpose of the leave loading for quarters before they obtained the evidence.
We recommend all employers consider the impact of this on their business and employees.
Xero Digital Connectivity Report
Xero have recently released their report: From Little Things Big Things Grow – How digital connectivity is helping Australian small business thrive.
Xero is able to produce analysis and snapshots across the small business space using anonymised, aggregated data from its over 500,000 subscribers.
The findings of this report provide a fascinating insight into the benefits to businesses which have adopted digital technology:
Improved Digital Technology Is Linked To Business Growth
- Businesses in mature NBN regions grew employment by one-third more than those in non-NBN regions
- Businesses with at least one integrated app (such as for inventory, rostering, document management) grew revenue by 5.5% per year (compared to average of 3.6%)
- Businesses with at least one integrated app had employment growth of 4.7% (compared to average of 2.5%)
- Revenue growth tended to increase as businesses adopted more integrated apps
- Employee rostering apps on average saved business owners up to two hours per week
The report broke down the integrated apps into the following categories:
- Clerical (e.g. processing expenses)
- Business Intelligence (e.g. cashflow reporting)
- Job Scheduling & Invoicing
- Point of Sale & Payments processing
- Customer Relationship Management (CRM) or Account Management
- Staff Rostering & Time Tracking
Some insights were offered into the use of these apps by various sectors:
- Rostering apps were more likely to be used by Hospitality or Real Estate businesses
- Retail, Wholesale and Hospitality were more likely to use Point of Sale & Payment Processing Apps
- Health businesses were more likely to use CRM apps (most likely patient management systems)
- Construction businesses were the largest users of Job Scheduling and Invoicing apps
- All industries had consistently high use of Clerical and Business Intelligence apps?
The larger the business, the more likely they were to use apps, with 44% of businesses with turnover greater than $2million using an app, compared to 35% for those with turnover between $500,000 and $2million, and even lower for smaller businesses.
There are obviously many factors which determine the growth of a business, however the adoption of integrated apps can assist a business with their growth strategy by removing some clerical and administrative functions and improving data to aid better decision making.
There are a large and ever growing number of apps available which may be suitable for your business.
If you would like to discuss whether there is an opportunity for your business to implement an integrated app, please contact your Brentnalls SA.
|*Source: AlphaBeta analysis of Xero SBI data.
Industries may have multiple apps connected to Xero; breakdown does not add up to 100%
We congratulate our clients, Andrew Kalleske and family on opening a stunning new cellar door 'Atze's Corner' in Nuriootpa.
We welcome back Caitlin Smith who has rejoined us as Client Services Manager.
We welcome Suzy Pham who has joined us as a Junior in the superannuation team.
We congratulate Jade Gurung for passing her final Chartered Accountants exam.
We congratulate Sarah Hall and her husband Aidan on the birth of Charlie, a little brother for Oscar.
We congratulate James Moore and his partner Bec on the birth of their daughter, Amber.
We congratulate Georgia Lang, Ian Lintag & Phoebe Wilson on recently graduating university.
We farewell Damian Canala and James Dimasi and wish them both all the best for their future endeavours.
Jess Jurek participated in the Cancer Council's Relay for Life in February, where her team raised $10,086 for the amazing cause.
We recently had Melanie Tate and Elyse Moon from Puddle Jumpers Incorporated join us for a morning tea. Brentnalls SA assisted the Puddle Jumpers team by getting involved in their annual food drive. We are pleased to announce that as a firm we were able to present them with 621 cans to assist with their great cause.
Hutt St Centre is a place of hope and opportunity, helping people facing homelessness to rebuild their lives, without judgement. In the past year 570 people were assisted into housing and accommodation, 150 paid work opportunities were provided, and over 60 people undertook training or education.
I joined the Brentnalls SA team in January 2017 as a Junior Accountant, straight after graduating Year 12. The last two years at Brentnalls have been amazing – everyone is super friendly and also very supportive with my professional development.
I am currently pursuing a Bachelor of Commerce (Accounting) at the University of South Australia, which I am hoping to complete in the next two or so years.
Outside of work and uni, I love to travel and go hiking. I also enjoy spending time with friends and family.