Cash Flow tip – Sales Insights from your Accounting Software

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Published on Thursday, 31 October 2024 12:00

Your accounting software provides valuable insights you can gain about your sales & customers, beyond its typical functions, such as preparing for the end of the financial year, handling payroll, managing leave and superannuation, calculating GST automatically and generating profit and loss and cash flow reports to assess your financial standing. It also facilitates online invoicing to streamline payment processes.

Your best clients

Gaining insight into your clients' behaviours is crucial for achieving business success. Your financial records can offer a comprehensive understanding of your customers, including identifying your top clients, their spending habits, the products or services they prefer, their payment reliability and peak sales periods. This information can enhance your sales strategies and improve cash flow.

Identifying Your Top Clients 

By generating sales reports, you can pinpoint who your most valuable clients are, what they purchase and how much they spend. For instance, a sales report can reveal the sales volume for each client. You can also create more in-depth reports that detail every item or service sold, as recorded in invoices or receipts. These reports offer various options to analyze the data further and align it with your business goals.

The Importance of Knowing Your Best Clients 

It's commonly stated that 80% of your revenue typically comes from just 20% of your clients, known as the 80/20 or Pareto principle. Additionally, it's often significantly cheaper - up to five to seven times - to sell to existing clients than to acquire new ones. By leveraging this knowledge, you can specifically target your top clients for upselling, cross-selling, promotions, discounts and reminders. Providing excellent customer service and proactive marketing will help maintain strong cash flow and encourage repeat business. Furthermore, understanding your best clients and their purchasing patterns allows you to effectively market to similar demographics, ensuring a more focused and efficient sales and marketing strategy.

Identifying Your Most Popular Products or Services 

By analyzing the sales data in your accounting software, you can gain a clear understanding of which of your offerings perform the best. Running reports on item sales will reveal valuable historical data. If a particular product or service stands out in terms of sales, it’s essential to focus your marketing and sales efforts on promoting these top performers. Conversely, you can also identify your least valuable offerings based on client purchasing behaviour, allowing you to phase out these items and concentrate on those that provide higher value.

Understanding Payment Behaviour 

A crucial element of client knowledge involves accounts receivable, which refers to the money owed to you by clients, typically in the form of unpaid invoices. If you've issued invoices for services rendered but have not received payment, this represents your accounts receivable. By generating accounts receivable reports through your accounting software, you can identify your best and worst-paying customers. This information can inform your future invoicing strategies and help you determine which clients require closer attention.

Creating an Accounts Receivable Ageing Report 

You can generate an aging report within your accounting software to categorize accounts receivable based on how long they have been outstanding. For example, these reports often classify debts into categories like '30-60 days overdue' and '60-90 days overdue.' By analyzing an aging report, you can identify clients who need follow-up, assess their financial health and recognize those who consistently pay promptly. This knowledge may lead you to relax credit terms for reliable clients while tightening them for those who pay late, potentially requiring down payments or stricter terms for future transactions.

Identifying Optimal Sales Periods 

By examining sales data in your accounting software, you can gain insights into your peak and off-peak sales periods. If certain days of the week or months attract more clients, you can utilize this information in several ways: 

• Concentrate your marketing efforts during these peak times to maximize sales; 
• Encourage sales during slower periods by offering attractive promotions or incentives; 
• Use quieter times to focus on other business activities, such as launching new campaigns.

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Business Tip – Open Book Management needs more than Financial records

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Published on Thursday, 24 October 2024 09:10

Open Book Management - Jack Stack rescued a company that International Harvester planned to shut down in Springfield, Midwest USA, known as Springfield Manufacturing Company (SRC), by altering its management approach. He embraced an innovative concept, recognizing that if employees comprehended the financial workings of the business and understood how their actions impacted the company’s sustainability - along with having a share in the profits - they could unite as a team to turn the business around. And it worked!

More than Open Book

Years ago, journalist John Case from Inc. magazine introduced the concept of “open-book management.” He was inspired by companies like Springfield Manufacturing Company (SRC), which began sharing their financial information with employees and teaching them its significance to improve outcomes.

However, Jack Stack of SRC discovered that merely opening the books isn’t sufficient to quench employees’ thirst for information. They were eager for as much insight as possible, including financial data, which ultimately reflects the stories of the people involved.

To provide the team with as much information as possible, they hold Zoom calls every week or two, inviting everyone in the company to discuss updates ranging from the latest developments to organisational performance. These calls also feature “shout outs,” allowing team members to recognize their colleagues for exceptional contributions.

As an example of one company-wide call, management shared details intended for the upcoming Board of Directors meeting, demonstrating commitment to full transparency. For instance, they discussed one Critical Number - retention rate - and highlighted the Human Relations team’s success in recruiting and onboarding 808 new employees over the past year, despite the ongoing talent competition. Despite this, they still have over 100 job openings, and the action is to encourage all associates to help fill these positions through referrals and word-of-mouth.

Another issue, also addressed the significant challenge of rising healthcare costs, which increased by 21% per person over the last year. As a self-insured organization, it’s crucial for employees to understand how these expenses affect our bottom line and what we can do together to manage them.

Additionally, they reviewed the prior-year financial results, which were quite promising, and shared forecasts for the coming year. While they anticipated some volatility and growth in, it was unlikely to be as robust as the prior-year, which was seen as an opportunity to regroup.

Leadership Development in Action

What was appreciated most about these calls - despite the preparation they require - is that they serve as valuable learning experience for the associates. They also enable all to delve deeper into what drives the business, especially for those who have been for less than five years.

The more information shared, the more employees seek to understand. This creates a compounding effect. Rather than just presenting profit and loss statements, they analyse the ratios that reveal the underlying stories behind the numbers.

Plus, they also use these sessions to show staff associates how they can build fulfilling careers within the organization.

See staff explain in a video down the page HERE.

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Business Tax Tips – Allowances in STP2 Australia

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Published on Thursday, 17 October 2024 13:47

Allowances are typically designated sums that are added to a predetermined salary. These amounts are clearly specified and pertain to various categories such as:

• Working conditions, e.g., danger and height allowance;
• Qualifications or special duties, e.g., first aid officer, leading hand;
• Expenses not claimable as a tax deduction, e.g., travel from home to work;
• Work-related expenses that can be claimed as a tax deduction, e.g., travel between work sites.

It's important to note that not all allowances are subject to Pay As You Go Withholding (PAYGW) or Superannuation Guarantee (SG) contributions.

Generally, deductible expenses are listed separately on the Income Statement in an allowance section and do not incur SG, as these allowances are not classified as Ordinary Time Earnings.

In the context of STP2, allowances are usually reported individually and are fully detailed on the income statement. However, it is advisable to verify the specifics for each allowance provided.

General Principles for Tax and SG Requirements

PAYGW

PAYGW applies generally when you make a payment to an employee.

PAYGW applies to allowances when:

1. They are occupation, qualification, working conditions type allowances;
2. They are allowances for non-deductible expenses;
3. The employee is entitled to a tax deduction at the end of the year for the allowance paid.

• Example: Tool Allowance: the employees are able to claim the expenses at the end of the year therefore PAYGW applies.
• Refer to the table included below.

Superannuation

Superannuation applies when the allowance is not a deductible expense and qualifies as ordinary times earnings and generally applies to those allowances that relate to work conditions, qualifications, tasks, and special duties.

• Example: Height, danger and first aid officer allowances fall into this category as there is no deduction at the end of the financial to the employee.

When Doesn’t PAYGW or SG Apply?

There are some allowances that the ATO defines a threshold (a reasonable amount limit). Regarding these allowances amounts up to the threshold PAYGW or SG don’t apply.

• Example: Cents per kilometre. The ATO defines the threshold of this allowance and PAYGW or SG is not payable. However, once an allowance goes over that limit, generally as per award, that difference is taxable. In this instance a second wage line will need to be created to capture the amount over the limit so that it can be taxed appropriately. In these cases, SG is not applicable.

ATO Defined Allowances

There are 2 allowances that the ATO allocates a reasonable amount to, where there is no PAYGW, SG, requirement to allocate to an STP field and are not reported on the Income Statement. Current allowances that fall under this requirement are:

• Award overtime meal allowance.
• Domestic or overseas travel allowance involving an overnight absence.

For amounts paid over the reasonable allowance PAYGW will apply and the allowance will be reported on the Income Statement on the difference.

Source: Withholding for allowances | Australian Taxation Office

In a Single Touch Payroll environment and definitely with STP2 the allowances are typically reported separately, and all disclosed on the income statement. However, you should check the details for each allowance paid.

Note:

• ATO have confirmed – Allowances are included on the BAS at label W1 if they are reported on the income statement even if there is not a requirement to withhold PAYGW.
• Review the relevant award or agreement for clarification of allowance rates and conditions.
• Exempt component is calculated E = K × R (K = business kilometres, R = exempt rate derived from income tax legislation). If paying this type of allowance seek guidance from tax agent regarding correct treatment

ATO Policy

ATO policy now is that these components are required to be reported separately if the allowances are identifiable. The breakdown of these allowances can generally be found under the Fair Work Pact Calculator.

The reasoning behind this is because, different components previously reported within gross have different treatment by Services Australia (as well as the ATO in regard to OTE/SG) and flow on impacts on the use of the information by the employees and their practitioners when completing tax returns.

Examples:

• SG being paid on an allowance where the allowance is not part of salary and wages for SG as it is expected that the allowance will be expended by the employee. E.g.: Tool allowance;
• Services Australia includes this allowance in the employee’s income when it is excluded as it is expected to be expended by the employee;
• Tax Agents won’t have visibility of the allowance when completing employee’s completion of their tax return;
• ATO can’t assist employee preparing their own tax with tailored information relating to claiming work related expenses;
• ATO may question work related expense claims where there is no allowance and it is common for the industry.

Single Touch Payroll – Phase 2

STP2 imposes additional reporting requirements for Allowances.

You will now need to report all allowances separately in your STP Phase 2 report across most income types, not just expense allowances that may have been deductible on your employee’s individual income tax return.

This means that allowances previously reported as gross must now be separately itemised and reported.

Don’t report

Reimbursements: These are an amount that reimburses an expense which was (or will be) incurred by the employee in the course of their duties and can be verified by receipts.

Types of Allowances

• Cents per km (allowance type CD).
• Award transport payments (allowance type AD).
• Laundry (allowance type LD).
• Overtime meal allowance (allowance type MD).
• Domestic or overseas travel (allowance type RD).
• Tool allowances (allowance type TD).
• Qualification and certification allowances (allowance type QN).
  Task allowances (allowance type KN).

Other Allowances

(Allowance type OD). Description required here also.

• G1 (general). Laundry allowances for the cost of laundering deductible conventional clothing.
• H1 (home office). Home office equipment allowances.  Internet allowances.
• ND (non-deductible). Cents per km payments for private travel such as travel between home and work. Allowance payments for the cost of transport for private purposes.
  Laundry allowance for the cost of laundering uniforms for private purposes. Part-day travel allowances. Allowances paid in relation to equipment used for private purposes.
• T1 (transport/fares). Allowance payments for the cost of transport for business related travel not traceable to a historical award in force on 29th October 1986.
• U1 (uniform). Allowances paid for the purchase of a uniform.
• V1 (private vehicle). Cents per km payments for vehicles other than a car such as a motorbike or van. Flat rate car allowance that is referable to the kilometres travelled.

• ATO has more detail about Allowances and STP2 - STP Phase 2 reporting – Quick reference guide

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