Still digesting the 2016 Federal Budget and not sure what it means for your business? Read on!
When it comes to tax there are some big bonuses for SMEs. Whilst the changes are set to cost the government over $5bn in reduced revenue, it is anticipated this will more than be offset by new growth and employment opportunities. So what can you expect?
The budget helped put a framework around the Government’s 2015 innovation statement. Here’s how:
The $20,000 instant asset write-off scheme means instead of claiming deductions bit by bit, you can deduct the full value of every asset purchased to the value of $20,000. The threshold has also jumped up to businesses turning over up $10 million from July 1 2016. You’ll have to get in quick though; this scheme is set to expire on June 30, 2017.
So, while it’s been described as a conservative budget, the clear winners are SMEs. We are happy to see incentives being put in place to help recognise and support the backbone of our economy.
Credit is such an important tool for every business. It can help fund growth, fuel stock purchases and ensures staff and suppliers are paid on time. But it’s really important to understand the right way to use credit so it works for your business in a positive way.
So what should you use credit for? Businesses face different challenges at different points in their lifecycle, but around 40 per cent of small businesses seeking credit say the primary purpose is to expand their enterprise.
For instance, if you’re running a start-up, you might wish to use credit to launch the enterprises, while mature businesses might need it to hire and retain quality employees. But the one common challenge all businesses face at every stage of the commercial lifecycle is cash flow.
Credit is an essential part of ensuring the business can properly manage its cash flow. It can help when you’re:
Cash internally generated by the business is the cheapest source of funds. So most well run, growing businesses will keep a close eye on their working capital cycle and fund their day-to-day expenses from this.
In fact, even when businesses have financing facilities in place, it’s an idea to never take your eye off the drivers of your working capital cycle.
However, often there is a timing mismatch between when invoices are sent and funds received that will drive a business to seek short term financing alternatives.
When it comes to determining how much you need to borrow, one of the first steps is to look at the term of the loan. There is a range of term-based lending products with different repayment and interest cycles. Business owners need to understand the profile of their business’s cash flow to select the best repayment structure.
Any short-term debt used to fund the day-to-day expenses of the business should typically be repaid (principal and interest) in four to six months, as debts are collected and inventory is converted into cash.
Longer-term debt used to fund the expansion of the business can take many forms depending on the nature of the asset funded. Large capital equipment purchases are best funded by an asset finance loan over a three to five-year term. The tenor of the product is typically driven by the depreciable life of the underlying asset.
Before applying for a loan, it’s also important to understand that lenders use a variety of formulas to determine how much a business can borrow Variables such as a length of time of in business, location of the business and the nature of the industry in which the business operates are used to work this out.
If you’re still using traditional accounting software – or even a paper-based system - in your business, switching to cloud-based accounting may seem daunting.
But you might be surprised at the benefits it can bring to your business. Among other things, it can dramatically improve collaboration and security, help you control the level of access to your financial information and provide an overview of your business’ financial position in real-time. Plus, you can finally ditch the Excel spreadsheets (or shoebox!).
With cloud-based accounting, your financial data is stored in the cloud (rather than on to a server), which means those with a login can access it securely from anywhere with internet access. Businesses pay a monthly subscription, whereas those using traditional software pay a significant fee upfront.
Stacey Price, of Healthy Business Finances, says many small businesses are still getting their heads around the technology.
One of the major benefits of cloud-based accounting is the ability to choose the level of access: for example you could give your payroll person access only to payroll - not your sales figures.
“Businesses don’t want to give out the exact details of how the business is performing,” says Ms Price.
“If you change bookkeepers or change accountants, or an employee’s leaving, you can take away their access.”
Let’s take a look at three of the most popular offerings.
Ms Price says Xero is the best known, and probably the first true cloud-only accounting software.
“The feedback is that Xero is easy on the eye. People just feel familiar.”
Ms Price says Xero has been designed for small business owners, not just bookkeepers or accountants.
“The biggest plus is that business owners can use it straight away, whereas with MYOB you need a little bit of training.”
There are a few downsides to Xero: no phone hotline (though you can email, or ask your accountant), and you can also only use Xero if you have internet access.
Ms Price says some users also don’t like the fact that you can’t back up Xero, though she suggests that businesses download their reports each quarter.
If you’ve used the traditional version of MYOB, the cloud-based version will look familiar and should be easy to use, says Ms Price. However it can be daunting for first-timers.
Ms Price says MYOB has a Melbourne-based phone support team.
“The support from MYOB is amazing, QuickBooks Online is second and Xero would be third,” she says.
Another bonus is that if you have unreliable internet access, you can download a desktop version and keep working. Once you have internet again, the file will update online.
MYOB has a handy ABN look-up feature. It is also better for more complex inventory needs, such as managing retail stock, she says.
The cheapest of the three, Ms Price says this service is “designed for the lower end of the market”.
As with Xero, the only way to back up QuickBooks is to download the reports you need and save them on to your computer, says Ms Price.
Even the cut-price versions allow free payroll for up to 10 employees.
Where to start
Start by asking yourself a few questions, including the following:
Now that you know what kind of help you might need in your business, how can you make sure you find the right people from day one?
It will be difficult to find great help if you don’t have any clarity on what you want to achieve by working with that person, says Robert Gerrish, business coach and founder of website Flying Solo.
For example, if you’re trying to hire a great marketing person, first nut out a clear aim. Do you want the phone to ring, do you need some exposure, or do you want to increase sign-ups for your product or service, for instance?
Mr Gerrish says ideally you’ll be able to condense your aim down to a single sentence, such as ‘I want to generate new business leads’.
“Start to look around for people who are positioning themselves as doing that precise work,” he says.
On the subject of marketing, Mr Gerrish says you should be taking note of how any marketer is presenting themselves to the world.
If you’re searching for someone to help with IT support, but don’t really know what you need, Mr Gerrish suggests enlisting the help of a more tech-savvy friend or colleague who can help you prepare a one-page brief on what you need done.
Word-of-mouth remains one of the most surefire ways to find quality people to help your business, says Gerrish.
It also pays to ask your potential freelancer or professional for contact details of past clients that you can speak to, or examples of work they’ve completed which is similar to your needs.
Gerrish suggests asking past clients how responsive the person you want to hire is, whether their rates are reasonable, and whether they ever received any surprising invoices.
You should also be asking your potential help about their measures for success, such as ‘how will I know when you’re doing a good job for me?’ says Gerrish.
If you’re hiring a professional such as an accountant, check they belong to an industry body such as CPA Australia or the Institute of Chartered Accountants.
CPA Australia’s general manager of public practice, Peter Docherty, says if you’re looking to get an accountant on board, you should be asking what their areas of specialisation are, and which industries they service.
“What type of client relationship do they prefer? How accessible will they be? Will you be talking to an accountant directly or to a staff member?”
If you’re running a small business, chances are your success doesn’t just depend on you and your immediate staff.
Almost all successful enterprises have a network of people they can turn to for professional help - accountants, marketers, web designers and lawyers to name a few. And while you may not always have a huge budget, it’s still crucial that you find quality people who are not only easy to work with, but will put in the hard yards to help your business prosper and grow.
Whatever level people are in their business, they need to start with the end in mind,” says Fabrice Beillard, of Australia Business Coaching.
“If you start to manage it in that way it will start to be obvious you cannot do it all yourself.” So how do you know what’s worth outsourcing?
Whatever stage you’re at, it’s likely you can at least delegate some of your business’ regular, long-term tasks.
Smaller companies – those under the six-figure mark – might benefit from a virtual assistant or someone to help with the different aspects of digital marketing.
Those in growth mode are probably most in need of outside help to help take their business to the next level. “If they don’t do that they’re going to be stuck running in circles all the time,” says Mr Beillard. He says it’s also become much more common for larger companies to outsource tasks such as accounting, or basic administration.
Divide up the regular tasks that your business performs – for example under the areas of marketing, sales, compliance or accounting – and note who currently performs each task.
“You still want to know your numbers, but you don’t need to be the one that’s going to punch every receipt into the system,” he says.
Many businesses make the mistake of either wasting their own time, or choosing outside help based on the cheapest price, says Mr Beillard.
“People end up spending a lot of time doing trial and error, spending a lot of resources but not getting the right outcome.
“They’re generally looking at things mostly in terms of how much it’s going to cost them, but they end up having to get it redone.”
Hiring new staff is an exciting phase for any SME. Suddenly, there are people to delegate to. People who are specialists in areas that you may have been scrambling to cover yourself. People who give you fresh energy and enthusiasm for the future of your business.
Being a job creator is one of the most satisfying elements of overseeing a fast growing team. But while new staff are what drives your business towards growth, it’s also likely that they’re the biggest cost you’re facing. That’s why it’s important to keep the cost of a growing team sustainable and justifiable. Think of it this way – is there any other business cost you’d let escalate without careful planning? Here are three smart yet simple ways to help successfully manage the financial implications of a growing team.
It's tempting to make hiring decisions after getting one or two new accounts. You may feel an overwhelming sense that you’ve ‘made it’ after landing a big fish. However, you will need to project earnings/growth much further than you might think to rationalise the decision. Specifically, make sure you’ve estimated income for the next 12-24 months before advertising.
It’s important to remember that the income from an account may roll in over 3-6 months, but the average term of employment may be much longer. According to research by Aussie firm McCrindle, the average person stays in their job for 3.3 years. Job mobility may be higher for under 25s, at 1.6 years.
The one exception to this is casual employees. If you’re in an industry where casualisation is common – for example, hospitality – you may have more leeway.
Taxes, superannuation, WorkCover (percentage of payroll), other insurance, fringe benefits, training; it all adds up.
When you’re negotiating salaries with potential new employees, it’s a good idea to have a multiple in mind. Most employees don’t negotiate for their package – they negotiate for their take-home pay. Speak with your accountant, or internal financial controller, to determine a multiple that reflects the true cost of the average employee.
Staff salary should always be justified by the income they help bring in. That said, some positions are more directly linked to income than others. For example, it’s easy to compare a salesperson’s salary to the dollar value of sales they bring in.
Develop KPIs that are quantitative but reasonable. For example, with essential support staff, you have a couple of options. You could take the rise in earnings over their employment period, and deduct what’s attributable to other staff, such as the sales team. Or – and this may be simpler for your accountant or bookkeeper – you can compare their salary with alternative sources of task fulfilment, such as outsourcing. For example, with a little research you can find out what it would cost you to hire a temp or an online worker to complete the same tasks to the same level. If your employee is significantly more cost effective, they’re doing a good job.
The key is to remember to think long term, and review your team structure regularly. If you do, you’ll find the burgeoning cost of a fast growing team is well worth it.
Credit is an essential business resource. It’s one of the main vehicles businesses use to fund growth and an important cash flow management tool. So what’s the best way to get the best terms and how can you ensure you can meet your repayments? Here are our five top tips.
If you’re a small business, keep up-to-date with your tax returns, Business Activity Statement (BAS) and tax payments. You’ll be able to achieve a much better interest rate if you can show your full financial history going back a number of years.
“Ensure you’re comparing similar products when comparing rates and repayments,” says Melissa Browne, founder of accounting firm Accounting Taxation and Advantage and the author of More Money for Shoes and Fabulous but Broke.
For example make sure you’re comparing the same repayment, loan term, balloon payment and loan amount, rather than just comparing interest rates.
Before applying for a loan Melissa notes it’s important to look at your current profit and loss as well as your cash flow projections so you can understand whether you have enough cash flow to afford the loan repayments. “If there’s a shortfall it’s about understanding what benefits the loan will bring in terms of increased capacity,” she says.
For example if you want to finance a new machine, work out how much extra the business needs to produce to fund it. “Once you break this down in terms of sales then it’s easier to understand how much extra you need to make to fund the repayments. If you’re financing a new car, say, that’s not going to produce income and your cash flow won’t support the repayments then you need to question whether you really need it,” she adds.
‘The Bank Doctor’ Neil Slonim reminds business owners that credit decisions including the terms and conditions the lender is prepared to offer are largely automated and based on data such as bank account statements, accounting records and other inputs such as credit ratings.
“Despite the highly automated process there may still be the capacity for you to negotiate terms and conditions, depending on the size and quality of your loan and the keenness of the lender to win your business,” he says.
Different types of lenders tend to use different fee structures, so it is critical that you understand exactly how much you need to repay and when.
This is especially the case when it comes to loans whose duration is less than a year. Many lenders quote for the period of the loan, rather than quote a rate across a 12-month period. For example, you may be quoted a rate of five per cent for a loan that has a term of three months. This actually means the annual interest rate is 20 per cent!
Other lenders might hit you with additional fees such as early exit fees. But in funding from alternative financiers such as Banjo, you don't get penalised for paying back your loans early.
The message is: check the fine print and ensure you understand the full loan terms before signing on the dotted line.
If there’s one thing any small business is always short of, it’s time.
Often we get so bogged down in the day-to-day things that keep our businesses ticking along, it’s impossible to free up the time needed to dream up big-picture plans.
The great news is there’s an increasing number of productivity tools that can help you easily (and cheaply) streamline your operations – hopefully boosting your profits in the process.
Here are five tools you can start experimenting with now.
This project management tool allows teams to divvy up work, thrash out ideas, store and organise files and assets, and layout deadlines.
Matthew Magain, who runs the whiteboard animation business Sketch Videos, says Basecamp helps him assign to-do lists, and chat with his copywriter, illustrator and videographer in one online location. He also uses it as a repository for shared documents.
“This stuff normally happens over email or phone calls – the fact that they get sent a notification (when tasks are updated) is a huge time saver,” he says.
Alternative option: Freedcamp
Dropbox keeps files such as photos and documents safe and synced, making them easy to share.
Mr Magain uses Dropbox to store and share videos and other files that are too big to email.
It also allows him to store the various elements of each video in separate folders, such as scripts, imagery and audio, which everyone in his team can automatically access.
In his second business, the online learning resource UX Mastery, Mr Magain uses HipChat, a tool that enables teams to chat privately or in a group and share files.
Users are able to organise conversations, dubbed ‘rooms’, by topic.
For instance, Mr Magain uses ‘content’ to chat around podcasts and newsletters, and the ‘community’ room for chats about fostering the business’ online community.
Alternative option: Glip
Task management tool Things is something Mr Magain says he “would not be able to live without”.
The tool is basically a giant to-do list, which can be viewed by project, topic, or priority.
Mr Magain uses it to capture anything he needs to do in his professional or personal life, and the information is synced to his phone.
He uses it in conjunction with an Excel spreadsheet, where set times for each task are laid out.
“I realised that if I don’t plan my time like this then I’m completely reactive.”
Alternative option: Todoist
Advertising agency PENSO uses a large array of productivity tools to improve business efficiencies, including software development tool Jira.
Penso’s head of production David Rigbye says Jira has helped the business dramatically improve the way it delivers its products - such as websites, designs and videos - to clients.
“It allows us to break projects into tasks and ship them incrementally,” says Mr Rigbye.
“Rather than disappearing for months on end and launching a big project at the end of that period - it enables us to deliver the first component in one week or even one day.”
Alternative option: Assembla
Last week, we looked at the basics of marketplace lending and why it's making such an impact on small business lending.
Across the globe, marketplace lending is one of the fastest growing forms of lending. Major international investment bank Morgan Stanley, reported that from 2010-2014, global marketplace lending enjoyed a 123% CAGR. They predict that, by 2020, marketplace lending to Aussie small businesses will reach $11.4 billion.
Across the globe, marketplace lending is one of the fastest growing forms of lending. Major international investment bank Morgan Stanley, reported that from 2010-2014, global marketplace lending enjoyed a 123% CAGR. They predict that, by 2020, marketplace lending to Aussie small businesses will reach $11.4 billion.
The bank’s blue paper was titled ‘Global marketplace lending: Disruptive innovation in financials’. In it, researchers described how marketplace lending to businesses will grow much faster than lending to consumers. They talked about Australia’s “high online/mobile banking penetration [and] growing margins”. In other words, Aussies are comfortable doing important financial business online. And lenders that are agile – i.e. mobile, flexible and using technology smartly – are able to provide a high quality service.
True to this, most of the marketplace lenders in Australia are online-based. For example, Banjos entire application process is online. Thanks to security software and other capabilities that replace manual application assessment functions, lenders can get the info they need more efficiently. They don’t need to have a physical branch where borrowers can come in and hand in their paperwork, to be sighted in person. Credit and business information can be verified in seconds by connecting to official databases, including government registries.
It’s not just lenders benefiting from good technology (and positive attitudes to technology). Business owners and managers are getting an opportunity to have a closer look at what they want from their borrowing experience. Because there aren’t standardised packages in terms of rates, repayments and so on, business owners can look at their own books and define a deal that suits them. Some marketplace lenders like Banjo, offer the opportunity to chat with a consultant about how a loan will meet their broader business needs.
Flexibility
With marketplace lending, approval criteria and rates are adjusted according to the applicant’s circumstances. There’s no single rate that applies to all borrowers. This means creditworthy businesses like yours can access cash at a better rate. Better performing companies get rewarded for their management skills. On the other hand, businesses that are doing it tough can still get access to the money they need to get ahead.
Accessibility
Similar to flexibility, accessibility means being able to complete the loan transaction from any location with an internet connection. Essentially, it’s a 24/7, 365 day service that is always open for your business when you need it. This has a range of important implications. For example, rural and regional businesses can access services they may otherwise have to travel to cities for.
Fairness
Some banks think in black and white. To streamline their operations, they try to reduce the number of products they offer, and the criteria by which applications for those products are assessed. In contrast, marketplace lenders often focus on one type of loan and one audience (with Banjo, it’s business loans for SMEs). This means they can broaden the variables in terms of who they can accept and the different rates they can offer, whilst still processing loans quickly and efficiently.
Plain English
Online-based lenders have a special incentive to keep their offer simple and their service has been formed with the goal of enhancing the user experience. The good news is, it’s more than possible to get all the essentials across without resorting to jargon and legalese.
It will be interesting to see whether Morgan Stanley’s projections on marketplace lending come true over the next few years to 2020. At Banjo, we believe they will. It’s an almost inevitable result of the changes in the way everyone – not just banks – does business. So what if marketplace lending doesn’t have fancy offices, besuited loan officers, and free keyrings? It’s not your style, it’s not our style. We’re agile, dynamic and mobile.
And we wouldn’t have it any other way.
