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ACCOUNTING CLINIC: The coffee's on me

ACCOUNTING CLINIC: The coffee's on me

You've finally cursed your way through the latest BAS statement, paid the monthly salaries, payroll tax, group tax, fringe benefits tax, superannuation contribution, rent, insurance, kicked the dog and finished with a good stiff drink. The weekend's already gone and all you can think is soon you'll be doing it all again. Once again you stop and consider life as a public servant - so much easier spending taxes than paying them!

For the first time since the recession ended, the introduction of the GST has moved the issue of cash management to the forefront of most business concerns. Now before those people surviving on baked beans for the last five years contact the editor, let me concede that cash management, like Pink Floyd's Dark Side of the Moon, always makes it into the top 5 even when it's not cool to talk about it.

Most of the recent press covering the GST and cash management has focused on how to simply survive. Since this has been done to death I would like to consider some short term investment options for those fortunate businesses that are not simply existing from hand to mouth. Although these businesses have strong cashflow, their actual cash position varies greatly throughout the month or, in some cases quarter. The majority of these businesses have probably already established a separate GST account where the GST collected is set aside for future payment.

Whilst it may be tempting for those of you running an overdraft facility to simply leave the GST collected in your trading account, you should transfer this money to an interest-bearing or offset account. A close friend who managed a successful IT company in the UK advises to avoid at all cost spending the GST you've collected. Move it, don't touch it and get a good night's sleep!

Like many startups, when Adaptive Technology launched three years ago we had so little money that our idea of making our money work was to minimise bank charges by limiting cheques and buying homebrand coffee. Fortunately, things have improved and we now fluctuate each quarter from cash-rich double decaf soy lattes to homebrand coffee again.

Our trading account is with one of Australia's largest banks - no need to mention the name, since despite their multimillion dollar marketing efforts, they still seem pretty much the same to me. So make a guess and the story still holds true. As a self-funded entity, we've always taken a very conservative approach to cashflow. Naturally we want our money earning maximum interest, but we don't want to have it locked away so tight that we cannot access it at short notice.

Firstly I investigated our existing banker. Using their Internet banking facility I looked for 7-day rates on $64,000. Currently the 7-day account would earn me about 1 per cent interest (annualised rate). So after a month I would have earned about $53 in interest and still be drinking homebrand! In fact, at these rates, it should not be too difficult to find a more attractive option.

As an alternative to a term deposit, I investigated using an ANZ V2 Plus money market investment account. These are available through any ANZ branch. Most V2 accounts are paying about 5 per cent interest on every dollar invested, with a minimum deposit and balance of $5000 and no fixed term. Interest is calculated daily and paid quarterly. Based on my example above, I would accrue almost $267 at month-end and be on a first-name basis with the Barista at my local coffee shop.

From a commercial standpoint, it seems financially attractive for us to establish our GST account in a V2 money market account and transfer the GST collected each week into their high interest account. At the end of each quarter I can simply transfer the money back to our trading account. The interest earned in investing $64,000 each month for three months at 5 per cent is about $1600, versus $320 with my existing approach.

Spending an hour to consider your cash investment options is one of the easiest and most profitable hours you'll work all year.

Anthony Roberts is business development director of Adaptive Technology. He recommends readers consult their financial adviser to discuss how the views expressed above may apply to their individual circumstances. Contact him on aroberts@adaptivetech.com.au


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