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Business Advisory

The Importance of Cash Flow Management: Tips for Business Owners

Introduction:

Cash flow management is a crucial aspect of running a successful business, yet it’s often overlooked or misunderstood by many entrepreneurs. Effective cash flow management can make the difference between thriving and struggling in today’s competitive business landscape. In this blog post, we’ll explore the importance of cash flow management and provide valuable tips for business owners to optimize their cash flow.

Understanding Cash Flow:

Cash flow refers to the movement of money in and out of a business over a specific period of time. Positive cash flow occurs when the incoming cash from sales, investments, or financing exceeds the outgoing cash used for expenses, investments, and debt payments. Negative cash flow occurs when the outgoing cash exceeds the incoming cash, leading to financial challenges and potential cash shortages.

Importance of Cash Flow Management:

  • Liquidity and Stability: Effective cash flow management ensures that a business has enough cash on hand to cover its day-to-day expenses, such as payroll, rent, and utilities. It provides liquidity and stability, allowing the business to weather unforeseen expenses or economic downturns.
  • Financial Planning: Cash flow management enables business owners to forecast future cash inflows and outflows, helping them make informed decisions about budgeting, investments, and strategic planning. It provides clarity and visibility into the financial health of the business.
  • Debt Management: Proper cash flow management can help businesses avoid excessive debt by ensuring that they have sufficient cash to meet their financial obligations, such as loan payments and interest expenses. It reduces reliance on external financing and minimizes the risk of default.
  • Business Growth: Healthy cash flow is essential for fueling growth and expansion initiatives. It provides the necessary capital to invest in new projects, hire additional staff, purchase equipment, or enter new markets. Effective cash flow management facilitates sustainable growth and scalability.

Tips for Effective Cash Flow Management:

  • Monitor Cash Flow Regularly: Keep track of your cash flow on a regular basis, preferably weekly or monthly. Use accounting software or cash flow forecasting tools to analyze trends, identify potential issues, and make informed decisions.
  • Manage Receivables and Payables: Accelerate the collection of receivables by implementing clear invoicing procedures, offering discounts for early payments, and following up on overdue invoices promptly. Similarly, negotiate favorable payment terms with suppliers to optimize cash flow.
  • Control Expenses: Review your expenses regularly and identify areas where you can reduce costs or eliminate unnecessary expenditures. Prioritize essential expenses and consider alternatives, such as outsourcing non-core functions or renegotiating contracts with vendors.
  • Build Cash Reserves: Establish a cash reserve or emergency fund to cushion against unexpected expenses or revenue fluctuations. Aim to maintain a buffer of at least three to six months’ worth of operating expenses to ensure financial stability.
  • Forecast Cash Flow: Create cash flow projections based on historical data, future sales forecasts, and anticipated expenses. Update your projections regularly to reflect changes in market conditions, business performance, or external factors.

Conclusion:

In conclusion, effective cash flow management is essential for the long-term success and sustainability of any business. By understanding the importance of cash flow and implementing these tips, business owners can optimize their cash flow, improve financial stability, and position their businesses for growth and prosperity.

Remember, Nexzen Accounting is here to support you on your financial journey. If you need assistance with cash flow management or any other accounting-related matters, don’t hesitate to reach out to us. Together, let’s maximize your business’s financial potential!

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Day to Day Accounting & Payroll

What is Single Touch Payroll?

Single Touch Payroll (STP) is a payment system method that reports payments to government agencies. It is an initiative set out by the Australian government to simplify payment reporting and replace group certificates. STP software enables businesses to manage bookkeeping tasks effortlessly while ensuring that all tax obligations are being met.

If you are a new business owner and have been asking yourself: what is STP? Keep reading. This post will explain what it is and what it does.

What is STP Exactly?

Single Touch Payroll allows businesses to streamline their payment and compliance processes through a single action of sending a payment. It is an innovative method for employers to report tax information to the Australian Tax Office (ATO) every time employees receive payments. STP is designed to report a variety of payments made to employees and directors of a company.

Here are some examples of the payments that are reported to the ATO.

  • Any payment to an employee, such as wages
  • Payments to the director of a firm
  • Seasonal Labor Military Program payments
  • Employees termination payments
  • Parental leave pay
  • An employee return to work payment

STP software enables companies to meet the required tax reporting legislation practices with ease.

Introduction of STP

The Australian government originally introduced STP to organizations with a minimum of 20 employees. It came into effect from the start of July 2018. From this point onwards, the tax office advised firms to integrate STP technology into their business processes through a controlled rollout program. The aim was for firms to implement this technology by the end of April 2019.

The next stage of the STP rollout was for all firms with 19 or fewer employees to integrate the technology into their business payment operations. Just like the previous rollout for firms with 20 or more employees, it is also now mandatory for firms with 19 or fewer workers to use STP.

How This Affects NDIS Providers

NDIS service providers who are WPN holders have until 1 July 2022 to implement the mandatory payment system. If you are making use of this exemption, the ATO would prefer you to keep records that support your choice to wait until it becomes mandatory.

STP: Essential Points
  • Employees new to the workforce can use the Government Online Portal to complete their tax file number declaration.
  • Employers can use STP to notify the Tax office about their PAYG Withholding status during their current payroll cycle.
  • STP technology automatically informs the Tax Office of any superannuation contributions.
Additional STP Benefits
  • Small companies can manage their business finances in an organized manner.
  • It will be simpler to observe a firm’s PAYG withholding and superposition during the year.
  • All relevant company data is pre-filled in the BAS, which helps firms to be more time-efficient as they no longer have to fill out the business activity statement from scratch.
  • STP technology is also proficient at performing basic calculations.
    Business owners have flexibility regarding super payments and PAYG withholding.
  • Registering a TFN declaration online is simple and done with greater accuracy with STP technology.
STP Reporting Options

According to the Australian Government Taxation Office, the number of employees you have will signify any concessions and reporting systems available for STP.

Who counts as an employee? Use the list below as a guide for your headcount.

  • Part-time employees
  • Full-time employees
  • Employees based overseas
  • Casual Employees
  • Any employee who is on leave or absent (unpaid or paid)

Be sure NOT to include the following in your headcount.

  • Independent contractors
  • Officeholders
  • Employees who no longer work for you
  • Any staff provided through a third-party organization

For more information on reporting options, please view the Australian Taxation Office website.

Decide How You Will Report Through STP
As a new business owner, you will have to determine the best reporting option for your small firm. Here are three ways you can report through STP.

  • If you already use payroll software, your Digital Service Provider will inform you about how they offer this STP reporting.
  • You have the option of asking a BAS or registered tax agent to do it on your behalf.
  • A payroll service provider can report for you as long as they are a registered agent.

Other Considerations

Before you get everything set up for reporting STP, be sure to check that your data is accurate. It will include things like employee information. Are their names, addresses, and dates of birth correct? Also, if you have already issued payments to employees, are you paying employees correctly?

Once you start reporting through STP, if you notice that any information is incorrect, you will have some time to amend this. This type of correction is referred to as a ‘fix’ and will not incur any penalties. However, you have to make these corrections promptly or you could be liable to a penalty charge.

If, for example, you are correcting employee information, you should either update it within 14 days of identifying the inaccurate data. Or it should be amended in the next regular pay event. Although, it would have to be in the same financial year.

It is also important to note that some corrections can impact your PAYGW liability. It is because when you correct the inaccurate information, it can change the PAYG withholding that was initially reported to the tax office. If this happens, you may choose to carry forward the correction to your PAYG withholding for the current tax year. Or you have the option of revising your Business Activity Statement for the earlier tax year so that the amended figures can be displayed.

NDIS Best Practice Considerations

As an NDIS provider, running a small healthcare business is very rewarding because you get to see firsthand the positive effect of your work on service users’ lives. However, because you are paid with government funds, there are obligations that come with being an unregistered service provider. Some of these obligations will include things like determining if you need to register for goods and service tax (GST), having a tax file number, holding a valid national police check, and an understanding of NDIS code of conduct practices.

STP: Phase 2

The Australian government is going to increase its data collection efforts through STP. This will involve employers reporting additional information either before or on the date that payments are made. This expansion initiative is known as STP Phase 2. The start date for organizations to meet these new requirements is from 1st January 2022. However, if you need more time to prepare for these changes, you should be able to apply for extra time.

If you are unsure about anything to do with STP reporting, visit the Australian Tax Office Website for more information.

 

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This is a loser that most people are probably pretty happy about — the government is extending a task force that targets tax avoidance by multinationals, large public and private groups, trusts and wealthy individuals.

It is giving the Australian Tax Office (ATO) more than $600 million over the next three years to keep the scrutiny on those groups.

The budget forecasts the extension of the task force will make the government $2.1 billion in revenue from tax over the next four years.

In bad news for people’s pay packets, real wages are not forecast to grow until later this year at the earliest thanks to higher-than-expected inflation.

At the end of last year, Treasury predicted the inflation rate would be 2.75 per cent. The reality has ended up being around 4.25 per cent.

The budget is predicting wages will only be just higher than inflation in the next couple of years, meaning cost of living pressures are unlikely to ease any time soon.

Despite current price hikes, the budget is forecasting inflation will taper off and wages will grow faster by the middle of the decade.

Buried under the wildly exciting headline of Commonwealth’s Deregulation Agenda, is the $19.9 million spend by the Australian Bureau of Statistics to develop a new reporting application to enable businesses to submit surveys on business indicators directly through their accounting software. Excellent. Real time reporting utilising verified data on the state of Australian business. Guarantee of Origin scheme, and the development of a Biodiversity Stewardship Trading Platform to support farmers to undertake biodiversity activities ahead of the introduction of a voluntary biodiversity stewardship market.

Another $148.6m is for the development of community microgrids and just over $50m to develop gas infrastructure projects.

An additional $652.6m has been set aside to extend the ATO’s Tax Avoidance Taskforce by 2 years to 30 June 2025.
In that time, the taskforce is expected to increase receipts by $2.1bn and increase payments by $652.6m.

Just prior to the Federal Budget, the Government announced the extension of the:

  • Boosting Apprenticeship Commencements wage subsidy, and
  • Completing Apprenticeship Commencement wage subsidy.

    Any employer (or Group Training Organisation) who takes on an apprentice or trainee up until 30 June 2022 can gain access to:
  • 50% of the eligible Australian Apprentice’s wages in the first year, capped at a maximum payment value of $7,000 per quarter per Australian Apprentice,
  • 10% of the eligible Australian Apprentice’s wages in the second year, capped at a maximum payment value of $1,500 per quarter per Australian Apprentice, and
  • 5% of the eligible Australian Apprentice’s wages in the third year, capped at a maximum payment value of $750 per quarter per Australian Apprentice.

From

7:30pm AEDT, 29 March 2022 until 30 June 2024

The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. The deduction will be available to small business with an aggregated annual turnover of less than $50 million. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.
Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.
We assume there will need to be a nexus between the employee’s employment and the training program undertaken for the boost, although we are waiting on further details of this initiative to be released. 
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in the tax return for the following income year (that is, the 2023 tax return). The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

From

1 July 2021

As previously announced, work‑related COVID‑19 test expenses incurred by individuals will be made tax deductible. 
Changes will also be made to ensure that FBT will not be payable by employers if they provide fringe benefits relating to COVID‑19 testing to their employees for work‑related purposes.
The changes for deductions will be effective from 1 July 2021, with the FBT changes to apply from 1 April 2021.
At this stage it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home. The initial media release indicates that the measure will cover situations where the individual has the option of working remotely, while the Budget only refers to costs of taking a COVID-19 test to attend a place of work but doesn’t specifically refer to employees who can work from home.

From

1 July 2022
Back in the 2019-20 Budget, the Government announced that Australian Business Number (ABN) holders would be stripped of their ABNs if they failed to lodge their income tax return. In addition, ABN holders would be required to annually confirm the accuracy of their details on the Australian Business Register.


This measure has been deferred for 12 months, which means that the tax return lodgement obligation is due to commence from 1 July 2022 with the annual confirmation of ABN details to commence from 1 July 2023.

As announced prior to the Budget, the Government will commit $6.6 million for the development of IT infrastructure that will enable the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis. 

The funding will be deployed following further consideration of which states and territories are able and willing to make investments in their own systems and administrative processes to pre-fill payroll tax returns with STP data in order to reduce compliance costs for businesses.

The measure that enables payments from certain state and territory COVID-19 business support programs to be treated as non-assessable non-exempt (NANE) income has already been extended until 30 June 2022. 
The Government has announced that the following state and territory grant programs have been made eligible for this treatment since the 2021-22 MYEFO, although it is not clear whether the relevant legislative instruments have been issued as yet:

  • New South Wales Accommodation Support Grant 
  • New South Wales Commercial Landlord Hardship Grant 
  • New South Wales Performing Arts Relaunch Package 
  • New South Wales Festival Relaunch Package 
  • New South Wales 2022 Small Business Support Program 
  • Queensland 2021 COVID 19 Business Support Grant 
  • South Australia COVID 19 Tourism and Hospitality Support Grant 
  • South Australia COVID 19 Business Hardship Grant.

    This builds on the list of existing grants paid by New South Wales and Victoria that can already qualify for NANE income treatment. 

From

1 January 2024

As announced prior to the Budget, businesses will be able to report Taxable Payments Reporting System data via their accounting software on the same lodgment cycle as their activity statements.
The measure is expected to reduce the costs of complying with the system and increase transparency.

From

1 January 2024

As announced prior to the Budget, companies will be able to choose to have their pay as you go (PAYG) instalments calculated using current financial performance, extracted from business accounting software, with some tax adjustments. 
The move is intended to ensure that instalment liabilities are aligned to the businesses cashflow. In addition, the digitisation of PAYG instalments will improve transparency and provide more accurate data on performance. 

From

2022-23 income year

Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government is setting this uplift factor at 2% instead of the 10% that would have applied. 

The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year and are due after the amending legislation comes into effect:

  • Up to $10 million annual aggregated turnover for GST instalments and 
  • $50 million annual aggregated turnover for PAYG instalments 
From 7:30pm AEDT, 29 March 2022 until 30 June 2023
The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services. The technology boost will be available to small business with an aggregated annual turnover of less than $50 million.An annual expenditure cap of $100,000 will apply to the boost. The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred. That is, the additional deduction available under this measure is expected to be claimed in the 2023 tax return.  

The temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023. 


Minimum superannuation drawdown rates 2019-2023

Age 

Default minimum drawdown rates (%) 

Reduced rates by 50% for the 2019-20 to 2022-23 income years (%) 

Under 65 

4 

2 

65-74 

5 

2.5 

75-79 

6 

3 

80-84 

7 

3.5 

85-89 

9 

4.5 

90-94 

11 

5.5 

95 or more 

14 

7 

 

From

1 July 2024

Trust and beneficiary income reporting and processing will be digitalised with all trusts being provided with the option of lodging income tax returns electronically.

While this measure will reduce compliance costs, it will also increase transparency and provide the ATO with a greater insight into where anomalies are occurring.

From

1 July 2021

The Medicare levy low income thresholds for seniors and pensioners, families and singles will increase from 1 July 2021.

 

2020-21 

2021-22 

Singles 

$23,226 

$23,365

Family threshold 

$39,167 

$39,402

Single seniors and pensioners 

$36,705 

$36,925

Family threshold for seniors and pensioners 

$51,094 

$51,401

 
For each dependent child or student, the family income thresholds increase by a further $3,619 instead of the previous amount of $3,597. 

The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. The Government has extended two existing guarantees and introduced a new regional scheme.

Just prior to the Budget, the Government announced:

  • First Home Guarantee – from 1 July 2022, an increase from 10,000 to 35,000 guarantees to support eligible first homebuyers to purchase a new or existing home. 
  • Single parent Family Home Guarantee – 5,000 guarantees each year from 1 July 2022 to 30 June 2025. The family home guarantee supports eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as 2%.
  • Introduction of a Regional Home Guarantee. This guarantee will support eligible citizens and permanent residents who have not owed a home for 5 years (including non-first home buyers) to purchase or construct a new home in regional areas with a minimum 5% deposit areas (subject to the passage of enabling legislation).

From

April 2022

A one-off $250 ‘cost of living payment’ will be provided to Australian resident recipients of the following payments and concession card holders:

  • Age Pension 
  • Disability Support Pension 
  • Parenting Payment 
  • Carer Payment 
  • Carer Allowance (if not in receipt of a primary income support payment) 
  • Jobseeker Payment 
  • Youth Allowance 
  • Austudy and Abstudy Living Allowance 
  • Double Orphan Pension 
  • Special Benefit 
  • Farm Household Allowance 
  • Pensioner Concession Card (PCC) holders 
  • Commonwealth Seniors Health Card holders 
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

    The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. An individual can only receive one payment.

From

1 July 2021 to 30 June 2022

The low and middle income tax offset (LMITO) currently provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000.

The tax offset is triggered when a taxpayer lodges their 2021-22 tax return.

For the 2021-22, the LMITO will be increased by $420 which means that the proposed new rates for individuals are as follows:

 

Taxable income 

Offset 

$37,000 or less 

$675

Between $37,001 and $48,000 

$675 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500

Between $48,001 and $90,000 

$1,500

Between $90,001 and $126,000 

$1,500 minus 3 cents for every dollar of the amount above $90,000 

From12.01am 30 March 2022

There are a few jokes going around social media about the price of fuel.

As widely predicted, the Government will temporarily reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for 6 months from Budget night. That is, the current 44.2 cents per litre excise rate will reduce to 22.1 cents per litre from Budget night. However, the measure is subject to the passage of the enabling legislation so don’t expect to see a change right away. 

 The reduction extends to all other fuel and petroleum based products except aviation fuels.

At the conclusion of the 6 months on 28 September 2022, the excise and excise-equivalent customs duty rates revert to previous rates including any indexation that would have applied during the 6 month period. 

The Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is passed on to consumers.

The measure comes at a cost of $5.6bn.

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