SMBs have been warned to review their financial positon ahead of the end of financial year to address tax change pitfalls and new opportunities.
Bibby Financial Services has revealed its top 10 tips to help SMBs make the most out of this end of financial year.
Bibby Financial Services managing director, Mark Cleaver, said almost 40 per cent of SMEs identified time management as a leading business challenge.
"We are encouraging SMEs to make time to review their business strategy and start planning for the new financial year,” he said.
“It is important that SMEs take stock of their financial accounts now, as there are a number of new SME tax opportunities to be aware of and tax change pitfalls to avoid.”
Top 10 tips:
- 1. Pay and clean up any super owing before June 30, 2014
A compulsory rise in superannuation contributions, from 9.25 per cent to 9.5 per cent, will take effect from July 1, 2014. Businesses must ensure they are paying employees additional superannuation after July 1, 2014. As superannuation is not tax deductible until it has been paid, it is also important to ensure all superannuation payments owing are completed before July 1 2014, this is a great way of reducing your income tax bill. Business owners should be aware of the cash flow implications of the change and make plans accordingly.
- 2. Be aware of relevant tax changes
A number of tax changes will come into action at the start of July and it is important to consider what immediate and long-term effect these will have on your business and cash flow position. From July 1, 2014, the Medicare levy will increase from 1.5 per cent to 2.0 per cent of taxable income and the new 2 per cent Temporary Budget Repair levy (previously known as the Deficit levy) will come into effect. The Temporary Budget Repair levy will impact any employees earning $180,000 and over. The effect of this new levy may be harder felt by family-run businesses.
- 3. Get your tax-deductible expenses in order
An easy way for SMEs to claim tax deductions is to pre-pay relevant services and supplies such as office supplies or costs for supplier services, such as accountant fees, up to a period of 12 months or less. By bringing forward tax-deductible expenses and deferring income, you can reduce your taxable income for the financial year. Approach your suppliers now for all invoices made up to June 30, 2014 and organise payments arrangements to secure a great number of tax deductions.
- 4. Be aware of all applicable tax benefits
Any business with a turnover of less than $2 million is eligible for a wide range of tax benefits within areas such as Capital Gains Tax, Income Tax, Goods and Services Tax, and Fringe Benefits Tax. So make sure you are aware of any tax benefits that may be applicable to your business. This is especially important for small to micro business owners.
- 5. Know the value of your depreciating assets
Another tax opportunity for SMEs with a turnover under $2 million are available tax deductions on any depreciating assets up to the value of $6500, purchased before December 31, 2013. Business assets which may fall into this value category include office equipment, computers, printers, work tools. Make sure you keep track of assets within this value category for potential tax deductions.
- 6. Keep your income producing assets up-to-date
You can reduce operating costs, increase productivity and free up cash by structuring your financing and repayments to suit your tax and cash flow needs. Make an effort to keep your income producing assets up-to-date, as this helps keep your business operationally efficient and maximise cash flow.
- 7. Write off bad debt
According to the latest Dun & Bradstreet Trade Payments Report, the average number of days business-to-business payments being made has increased, now sitting at an average of 56 days. If you’re still chasing invoices from the last financial year, now is the time to write them off. Bad debts are tax deductible and can be used to offset your taxable income.
- 8. Reassess your cash position
Starting the year with a healthy cash position is crucial. Ensure you review your cash management processes and consider the most appropriate funding solutions. There are a number of cash flow finance tools to help you better manage cash flow and funding. Debtor finance is gaining in popularity as it provides advances of up to 85 per cent against receivables without needing real estate security, and is scalable in line with the sales growth of the company.
- 9. Have an accounting spring clean
As a number of tax and superannuation changes take place from July 1, 2014 onwards, make sure you review and update your accounting systems to include these changes; as you do not want to have to back pay items such as missed super contributions or lose other potential tax saving opportunities next end of year financial year.
- 10. Reward your staff
End of the financial year is always a good time to reward your hard-working staff and thank them for their contribution to your business. Take them out to lunch or consider rewarding them with a small bonus. It may also be a good time of year to review their KPIs and present your refreshed business and marketing strategy.