How SMEs can survive the end of financial year

How SMEs can survive the end of financial year

Latest SME Index shows decreased spending and increased costs ahead of tax time

Australian SMEs are facing increasing costs while attempting to spend less this quarter, according to the latest Westpac-Melbourne Institute SME Index, with the organisation offering tips for the sector ahead of the coming end of financial year.

The study showed overall confidence in the economy is down and so are profits, but the view for the future is slightly less bleak overall but by no means positive.

Industries such as professional services and businesses under five years old are embracing technology at a faster rate than those older than five years, with 98.7 per cent and 91.1 per cent of SMEs respectively managing admin though new online tools and digital solutions.

Other findings include 31.4 per cent of SME reported an increase in working hours over the past three months. Also, almost one in five spend over 40 per cent of time on internal administration for their business each week, such as payroll, accounts and contracts despite 84.6 per cent saying they manage the majority of tasks such as bookkeeping and payroll through software tools or apps.

Westpac senior economist, Matthew Hassan, said there were a number of contributors to the current subdued results in the Q2 2016 Index.

“The second quarter is typically a slower one for many Australian businesses but these results suggest SMEs are coming under even more intense pressure than usual,” he said.

“The ongoing downturn in the mining sector, cooling housing markets, and still subdued consumer spending look to be combining with a notable increase in competition. The latter may be of particular concern for many SMEs as shown in this quarter’s survey while most SMEs are still seeing sales up on a year ago, a significantly larger majority are reporting lower profits. The implied contraction in margins is a clear sign of heightened competitive pressures.”

“Fortunately there is some relief ahead. While competitive pressures are likely to remain fierce, the RBA’s May interest rate cut should give some support to demand.

"The Federal Budget also introduced a range of measures directly aimed at supporting SMEs, including a company tax cut from July 1.

"With the RBA expected to cut interest rates again in coming months, SMEs should see at least some improvement in their bottom lines. Whether that is enough to tip the balance sentiment-wise remains to be seen.”

Top EOFY tips for SMEs

Westpac has also provided some tips to SMEs ahead of the end of the financial year to help make it through what can be a difficult time of the year.

1. Consult your accountant

Many businesses underestimate the added value their accountant or financial advisor can provide. This interaction should go beyond mere compliance and tax return submissions and include growth and cash-flow strategies

2. Take advantage of the $20,000 asset write-off

Businesses with annual revenue of up to $2 million can take part in the government write-off scheme for plant and equipment purchases. The accelerated depreciation measure applies to all asset purchases up to the value of $20,000 and can significantly reduce the amount of tax a business will pay. However, this only applies to acquisitions from May 2015 to June 30, 2017, after which the limit will revert to $1000.

3. Maximise any other deductions

Aside from the write-off scheme, businesses should take advantage of other legitimate deductions. This may include bringing forward expenses such as office supplies, repairs and maintenance into the current year, or prepaying monthly costs such as rent, utilities and wages before 30 June.

4. Write off bad debts

Ensure you write off any bad debts and prepare minutes documenting the debts and all efforts you have made to recover them, otherwise they cannot be claimed as deductions. This action also enables adjustments for any GST charged on the invoice.

5. Comply with your superannuation requirements

Getting organised on the superannuation front is a must. Super is not tax deductible until it has been paid, so it is important to ensure all super contributions for employees are completed by the end of the financial year.

6. Understand how to manage cash flow

Review your cash-management processes and adopt the most appropriate funding solutions. It’s a good time of year to plan for the future and make sure that all appropriate steps are taken in terms of managing cash flow.

7. Check your trust obligations

It is important to understand your obligations when it comes to trust structures. There is a requirement for the trustee to sign off on the distribution of income to beneficiaries before 30 June. If a valid distribution does not occur before this time, there is a risk that the accumulated income will be taxed to the trustee at a penalty rate.

8. Consider any capital gains tax benefits

If your business has made a capital gain in the current financial year, the best approach is to assess the presence of any other capital losses that may offset those gains. For example, you could include selling assets that have incurred a capital loss.

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Tags WestpacSMEEOFYWestpac senior economistMatthew Hassan


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