Bookkeeping and Accounting Blog - Articles for Bookkeepers in Australia

August 12, 2020 Accounts, Bookkeeping

Increasing Your Stock Turn In A Slow Moving Economy

If you sell stock or inventory, it’s essential you understand stock turn and how to increase it.

Obsolete or ‘dead’ stock will harm your cashflow and your ability to increase profit, particularly in a slower-moving economy. The longer stock takes to sell, the longer you have your cash tied up in the stock before it can be sold for a profit. The older the stock, the less likely it is that you’ll be able to sell it for its original retail price.

Use the below formulas to calculate your stock turn:

Stock turn = cost of sales / average stock held

To calculate cost of sales: opening stock + annual purchases – closing stock (where purchases includes all variable costs that show in your trading account).

To calculate your average stock:(opening stock + closing stock) / 2.

For example, where your cost of sales is $150,000 and average stock is $45,000, your stock turn will be 1.33 ($150,000 / $45,000). This means that on average, you sell each item of stock 3.3 times per year.

So, how do you increase your stockturn to sell items faster, free up cashflow and increase your profit, particularly in the current economy?

Reduce your stock levels. In the above example, if stock was reduced by $10,000, stock turn would increase to 4.3, you would free up $10,000 of cash, and increase your margin.
Buy stock on consignment. This means you only pay for it when it sells.
Order ‘just in time’. For example, if it takes two days to receive an item after the order is placed, and you sell an average of five items per day, only hold a maximum of 10 of that item in stock.
Use display stock. If a customer wants to buy the item, have it delivered straight from your supplier to the customer instead of holding multiple items in store.
Use a catalogue. Reduce the stock held in store and provide customers with a catalogue to order from.
Reduce ordering levels. Ideally, calculate the stock turn per item (use the above formula for each item). You’ll then be able to identify the slow-moving stock so you can reduce how often you re-order it.
Stop stocking slow-moving stock altogether. It’s just tying up your cash for longer. Reassess whether you should be selling these items at all.
Encourage your sales team. Tell them which items sell more quickly and encourage them to sell more of these items.
Get rid of obsolete or dead stock. You’re better off to have cash from a discounted sale reinvested in faster moving stock.
Ask us for 10 more ideas! There are numerous ways to increase your turnover, get in touch and we’ll help you identify the best ways for your business.

July 29, 2020 Mindset

Surround Yourself With Champions

It’s human nature to be influenced by the people in your inner circle. In fact, the odds of being successful are a lot higher if you’re surrounding yourself with people who are also successful.

In a business context, consider very carefully the people and friends you associate with. Who plays a role in influencing your life? Who are your role models, mentors, and supporters?

“You’re the average of the five people you spend most of your time with”.

It really pays to think about who your top five are.

These people play a part in determining how you think, how you act and ultimately how successful you will become.

As entrepreneurs, you’re responsible for yourself. Being around the right people can help success come more naturally to you, instead of being around those who exhibit certain behaviours that hold you back. Keep an eye out for people who have the following traits:

1. People with an unbeatable work ethic

Perhaps this is you! People with the best work ethic will motivate and inspire you. True passion and commitment will breed a successful business.

2. Positive attitudes

If you are working with people who only see the negative or the problem, it will bring you down. It can get very tiring being around people who don’t have a winning attitude.

People who are constantly pessimistic are in every business, so they can be hard to avoid, but you can balance the impact they have on you by finding positive people who look for opportunities and will take you higher.

3. Curious people

These people have an insatiable curiosity for business and life. They’re the ones who are always asking ‘why’ or ‘how’ and genuinely keen to know more. These people will push you to be better thinkers, to ask better questions and ultimately to demand better results.

Take some time to think about your top five people in your life, or set up a regular catch up with people who help you and your business grow – it might be a monthly breakfast. It will be a positive experience for all members. If you’re not surrounding yourself with champions, start thinking about how you could be.

July 22, 2020 Uncategorized

When Should You Offer Casual Employees A Permanent Position?

Recent court cases involving casual workers have increased attention on casual worker classification, which means your workers may be more aware of the ability to convert to a permanent position.

The law has not changed; however, these cases are good reminders for employers to be aware of the rules around converting casual employees to permanent positions.

What Makes an Employee Casual?

No expectation or commitment about duration of employment.
No guaranteed hours of work.
Usually works irregular hours.
Is not entitled to paid leave.
Can usually end employment without notice.

Note that there is such a thing as a long-term casual employee. Long-term casuals may be eligible for flexible working arrangements, parental leave and long service leave, even though they don’t have guaranteed hours of work or expectation of ongoing work.

When Does a Casual Employee Become Permanent?

This is addressed in most modern awards in a casual conversion clause. Employers should check the relevant award provisions to see if there is an obligation to offer a part-time or full-time position, then follow the directions about offering permanent positions.

Example of Casual Conversion Rules

Each award must be checked for details, however there are similar guiding principles.

Casual employees are entitled to ask to change to full-time or part-time employment when they have worked a regular pattern of hours over a set period (usually 6 to 12 months) and could reasonably expect to continue to work those hours as a full-time or part-time employee without significant changes.
Employers must specifically notify casual employees about this entitlement within 12 months of the casual start date.
Casual employees that do not receive notification of this entitlement are still entitled to request a change to full-time or part-time employment.
An employer can only refuse the request if there are ‘reasonable grounds’ such as the employee not working regular hours or there are other significant changes to the current work patterns.

There are more provisions and details in each award’s casual conversion clause – employers need to check the applicable award to make sure they comply with the casual conversion requirements.

Visit the Fair Work Ombudsman Casual Employees webpage for more detail.

Talk to us if we can help with payroll management and assessing the classification of your workers.

July 15, 2020 Accounts, Bookkeeping, End of Financial Year

The Fundamentals of a Business Budget

A business budget is one of the essential tools in managing your business finances and actively building your business.

A budget shows what you plan to do with your cash over the next year.

For a complete picture of your business health, you need to review the profit and loss statement, the balance sheet, the cash flow forecast and the budget. Taken together, these reports allow you to make informed business decisions and monitor performance.

Why have a Budget?

Forecast sales and expenses according to monthly or quarterly variations.
Evaluate performance over time, including changes or patterns.
Get really familiar with where your money goes and where it comes from.
Clarify targets and goals and use the budget to help you focus and achieve those goals.
Comparing actual figures to budgeted figures allows you to see potential problems early and plan for unexpected costs.
A budget will help you to see the big picture and stay motivated over the long term.

Where to start

A basic budget takes known income and expenses, then makes certain assumptions about the timing of income and planned expenditure. The basic budget is based on cash in and out of the business.

Over time, as you start to see the benefits of using a budget, your budget should evolve into a more sophisticated version that includes non-cash elements such as provisions and depreciation.

Most businesses will start with one budget but soon move to having three budgets.

Business as usual – the next year’s budget is based on current year income and expenses, with perhaps a small adjustment for consumer price index increases.
Worst case – budget is based on a pessimistic view of next year’s performance.
Best case – budget is based on an optimistic view of performance over the next year.

A budget is usually for a financial year, but you can also set up budgets for two to five years.

Once you have one budget (or more) set up, you can then run your current financial reports against the budget to see how you are tracking. This allows you to make rational business decisions in real time to adjust accordingly.

You can run your financial reports monthly and adjust your budget as needed.

What Next?

Now is a great time to put a budget into place for the coming financial year. Book a time with us to help you create a meaningful budget in your accounting software so that you can use it as a proactive part of your business management, strategy and your success.

July 1, 2020 Accounts, Uncategorized

Understanding Your Revenue Drivers

For your business to make money, you need to generate revenue.

You produce revenue through your usual business activity, by making sales, getting your invoices paid or taking cash from paying customers. So, the better you are at selling your products/services and bringing money into the business, the higher your revenue levels will be.

But what actually drives these revenue levels? And how do you get in control of these drivers?

Knowing where your cash is coming from is more crucial than ever

As a trading company, you face the multiple challenges of a global recession, an increase in online consumer buying and a ‘new normal’ when it comes to trading, markets and buying expectations. The better you can understand the nature of your revenue and its drivers, the more you can flex, manage and control your ability to generate this income.

This helps your medium to long-term strategic thinking and your decision-making, allowing you to be confident that you’re focusing on the business areas that deliver maximum revenue.

Import areas to consider will include:

Revenue channels – where does your revenue actually come from? Do you create income from online sales and ecommerce, through retail sales in bricks and mortar stores or through wholesales to other businesses? You may focus on just one of these channels, or it could be that you use a mixture of two, three or more.
Revenue streams – your total revenue will be made up of a number of different ‘streams’ So, you might be a coffee shop, whose revenue streams include coffee sales, cake and pastry sales and lunch sales. Knowing which revenue streams you rely on, which are most productive and what return they are delivering allows you to make decisions. If 80% of your income comes from 20% of your products, perhaps you need to tighten up your product range and ditch some of the poor sellers. If you’re selling more services to one particular industry, perhaps you should focus more marketing in this specific niche, or downscale your sales activity in less profitable niches.
Product/service split – Do you know which products/services are the most profitable in the business? Which products/services have been resilient to market changes (giving you some revenue stability) and which have adapted well to change? The more you can dive into your metrics and find the most productive and adaptable products and services, the greater your ability is to provide constant and evolving revenue for the business.
Value vs volume – Is your revenue based on selling a high volume of products/services at low margin, or low volume at a high margin? Based on this, can you move your margin down to create a more attractive price point (and more value for customers)? Or are their ways to push volume up, shifting more units and boosting total revenue? By diversifying into new channels, new streams or new products/services you can aim to balance value and volume to create brand new sales – and higher revenue levels.

Talk to us about exploring your revenue drivers

If you want to boost revenue and increase your overall profitability, come and talk to us. We’ll review the numbers in your business, help you to understand your revenue drivers and will give you proactive advice on enhancing your total revenue as a company.

Get in touch to kickstart your revenue generation.

June 24, 2020 Uncategorized

Efficiency Through Automation

Lockdown forced us to rethink the way we operate our business. The barrier of procrastination has been removed and we’ve had to adopt new technology and automate our processes.

Technology exists to increase efficiency, but it can be a double-edged sword. When you apply automation to an efficient operation, it will magnify the efficiency. However, if you automate an inefficient operation, it will magnify the inefficiency. In other words, we must first ensure our systems and processes are efficient before introducing automation.

Review all of your existing technology, processes and systems to determine any that are obsolete. For example, texting for business is now the norm; instead of calling customers to remind them of an appointment, first send an automated text message asking them to reply ‘yes’ to confirm attendance. This will reduce time spent on follow ups and no-shows.

There are many benefits of improved systemisation and technology adoption:

1. Leverage. Getting more done with less effort (e.g. automated monthly management reporting systems).
2. Consistency. Guaranteeing output quality (e.g. a templated proposal or pricing tool).
3. Efficiency. Automating manual tasks using technology (e.g. auto-coding of transactions using Xero).
4. Risk management. Removing the risk of human error (e.g. an automated bank reconciliation).
5. Scalability. Systemising processes to enable growth without increasing your workload (e.g. a point of sale cashbook system).
6. Saleability. Increasing the value of your business by automating as much as possible.
7. Induction and training. Minimising hands-on training by having robust systems for new team members to follow.

The cost (and disruption) of any new technology or automation must be clearly outweighed by the benefit or time saving. Don’t adopt shiny new technology for the sake of it.

In order to achieve these benefits and avoid systems or processes which serve no useful purpose, it’s important to complete a full technology review. We recommend you do this as part of your Business Recovery Plan which reviews all business improvement opportunities, including in the technology department. Call us for more information.

June 3, 2020 Accounts, BAS, Bookkeeping, End of Financial Year

Get Your Business Records Ready for Your Tax Return

Whilst it is not exactly business as usual right now, you still need to prepare for your business tax return. Organising your documents now will mean you can get your tax return completed earlier and access any refunds due or start planning for tax payments.

Getting your business records up to date and accurate will allow us to work with you proactively to plan for the coming year, which will continue to be unusual (and possibly difficult) for many.

It will also be one less thing to do when your normal business activity resumes later in the year.

What Records do you Need to Have Ready for the Tax Agent?

Have you bought or sold assets? If so, you need full details of acquisitions and disposals.
Have you taken out a new loan or other finance? You must have details of the finance arrangements and statements of monies owing at 30 June.
Check that any bonds or deposits paid or received have been allocated correctly.
Have you prepaid for insurance or other large business expenses that need to be apportioned to the following financial year? Make note of the portion applicable to the current financial year.
Do you carry stock? If so, you need to perform a full stocktake at 30 June (unless you qualify for the simplified trading stock rules).
List any doubtful or bad debts to be written off.
Review your debtors and creditors (accounts payable and receivable). Is the list current and correct?
Do you have loans with related entities? Reconcile the loans to and from each entity to ensure the same value is reported in the accounts of both entities.
Ensure that all payments to company directors have been correctly captured. Talk to us now if you want to make director payments before 30 June.
If contact details of business owners and key personnel have changed let us know.

We will let you know if there are other matters to discuss with us before completing your tax return, such as capital gains, vehicle usage, private usage apportionment or superannuation. This year, there may also be new elements to discuss if you have received refunds, credits or deferrals of business expenses and liabilities.Remember you need to keep all your business records for seven years, so store everything securely and where possible electronically for safety and ease.

Once you have all your records for the 2020 financial year, make an appointment with us to schedule in your tax return for prompt lodgement.

May 6, 2020 Uncategorized

How To Create A Cash Flow Forecast For Your Business

A cash flow forecast is an important tool for business planning. And right now, understanding the cash coming in and going out of your business is vital.

A cash flow forecast will show you how long your business can continue to survive on current sales levels, by showing you how much money you’ll have in the bank at the end of a period.

It will give you an understanding of what the revenue drivers are in your business and give you visibility of your expenses and the things you can control. Having this information in a forecast will also allow you to plan for different scenarios, work out your priorities and understand the outcomes of different options such as diversification.

A cash flow plan can give you a proactive tool to deal with uncertainty. If you are seeking funding in the form of a loan, applying for business support or just establishing your long term survival, you’ll need a cash flow plan.

What information do you need?

We can help you to create a plan for your business. The plan is only as good as the data you have. So here’s what you’ll need to get started:

Understanding where your cash is coming from

Start with revenue from sales – break your sales figures up by product line and across channels. This will show you where the cash is coming from. For example:

Does 80% of your revenue come from only 20% of your products?
Do you sell to different markets and does one deliver more revenue than others?
Are some of your products high value but low volume or low value at high volume?

The data you collect will enable you to ask questions, such as can you reduce margin to lift sales, can you push volume up or are there other channels to sell through?

Make sure you include all other revenue streams, such as grants, tax refunds or investment in your cash inflows.

Understanding expenses – where is the cash going to?

This will include all the costs associated with your business, including rent, wages, supply materials, bank loan fees and charges, tax bills and electricity.

If you have a bank loan, include the details such as the length of the term and the monthly payments.

Your cash flow plan should also include tax payments when they are due and any capital expenditures.

Some of your variable expenses will directly relate to revenue such as freight or materials. When your sales stop, these will drop too, so your cash flow plan should reflect this relationship in order for you to scenario plan.

Controlling expenses – what costs are fixed and what are the variable costs that you can control? You may not be able to stop fixed expenses like rent, power and internet, but you could reduce the cash going out on petrol and travel, cleaning and even directors’ drawings.

Making informed decisions in your business

A good cash flow forecast will collate all the data from your business in one place. It will allow you to plan and work out how long your business can weather a storm. It will also help you make decisions around staffing, purchasing inventory, ordering supply materials or investing in growth.

It’s worth remembering that a cash flow plan is a different tool to a budget. Here’s one example: a budget will show sales but a cash flow plan will show the cash benefit of those sales. If you offer credit to customers, your sales may not result in immediate cash flow.

Want to get a handle on cash flow in your business?

If you’re not certain of how to get this information from your accounting software, talk to us about which reports to run. You may need a combination of accounting software reports and projected figures.

Use the information above to source the data you’ll need and get in touch. We can help you build a plan that gives you cash flow projections to assist your decision making.

April 29, 2020 Uncategorized

What Can You Do To Prepare Now, For A Return To Business?

In the context of the Covid-19 outbreak, the duty to remove or minimise health and safety risks in your business has become harder. When lockdown measures ease, businesses will need to have a plan on how they will manage risks and protect workers and customers before they start operations.

Many businesses are still unable to operate or are required to work from home. If you are one of the businesses that are able to return to work, you will need to think about the following safety measures:

Keeping your workplace and the people you work with safe

Strict hygiene measures – disinfecting surfaces and allowing people to have easy access to soap and water and/or sanitiser so they can maintain high levels of hygiene. Reminding staff with posters about how to reduce risk will be important too.
Social distancing for employees – the goal is to limit the interaction between people. Can you set up split-shifts for staff or ensure that only essential workers come to the workplace in order to reduce interactions?
Social distancing for customers and suppliers – offering online purchase and contactless delivery. If people come into the business, have a plan for a managed entry system, with space for people to maintain a safe distance from others.
Contact tracing – you may need to record who is working together and any other people such as suppliers, customers or a tradesperson who you have contact with.
Providing protective equipment, if it is required – you may not need PPE equipment but if it is necessary, you’ll need to be able to supply workers with the items they need.
Have a plan to respond to suspected infection – make sure everyone can identify symptoms (fever, cough, sore throat and shortness of breath). Unwell people should stay home.
Employee engagement – work together to discuss and agree the new working arrangements.
Have a plan for managing employee absences – who is essential to your business operation? Have a plan in place if staff are unable to work.
Communication with customers – you’ll need to consider how you will communicate with customers.

Your workplace will need to operate consistently with public health guidance. For more information on workplace health and safety visit the Safe Work Australia Website.

State Government websites have up-to-date information on which businesses can operate and how to comply.

April 21, 2020 Accounts, Bookkeeping

How Do You Invoice During A Crisis?

It’s not easy to request payment right now, but it is important to keep cash flowing into your business so you can cover expenses and meet your obligations to others. As with all business dealings right now, a little empathy and a lot of open communication can go a long way.

The following tips might be useful to keep in mind when you are asking for payment.

Communication – Connecting with your customers is important. Try to make it personal to their situation rather than a one-size-fits-all email. Connecting on a more personal level shows you value them and are conscious of the impacts that the current situation may be having on them. The empathy you show now will also be remembered when business returns to normal. Be proactive – early communication will help you stay on top of cash flow and will also alert you, if you need to account for late payments.

Add value – Use your expertise to give something back. Surprise and delight your customers by offering something over and above your usual services. It could be as simple letting customers know you want to help and being open to requests, offering a one-off discount or an offer just to chat one to one.

Offer flexible payment options – for customers who can’t pay in full, consider breaking invoices into multiple payments with payment terms moved to a longer timeframe. Set up a credit card facility to give customers other options for payment. After all, the easier you can make it for them to pay you, the quicker you will get paid. If you don’t have payment services set up in your Xero account, we can help you do this. Offering a discount for early payment might provide the incentive for customers who can settle, to pay your invoice before others.

Keeping cash flow going is vital for your business so the earlier you can communicate with customers the better.

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