Mortgage brokers and accountants are well placed to build deeper relationships with their SME clients this time of year by talking about their cash flow needs, says small business funder Scottish Pacific.
End of financial year housekeeping, combined with a review of cash management processes, will put small-to-medium businesses in a strong starting position for the new financial year, according to Scottish Pacific.
“Cash flow is key to the health of any business. Now is the perfect time for owners and managers to get a clear understanding of their position, and explore the funding options that will help them in their business situation as the new financial year unfolds,” Scottish Pacific CEO Peter Langham said.
Scottish Pacific's top two EOFY tips for SMEs:
1 – Reassess your cash flow position
Thinking what has happened over the past year and what is about to happen in the upcoming financial year, now is a great time to review strategic goals and consider whether the business is using the most appropriate funding solutions to meet these goals, Mr Langham said.
“Working capital finance is essential for all business situations and without it, you will not be able to fulfil your ambitions. Therefore, it is critical to consider all working capital options and make sure you pick the right one for you,” he said.
Trade and Debtor Finance are two options. Mr Langham points out that they are linked to the success of the business (not your personal assets) and should not require real estate security, providing flexibility to expand.
2 – Keep your income-producing assets up-to-date
SMEs can reduce their operating costs, sometimes very significantly, by structuring finance and repayments to suit tax and cash flow needs.
“Keeping your income producing assets up-to-date contributes towards keeping a business operating efficiently, and maximises cash flow,” Mr Langham said.
“Make sure you utilise all the tools and tax planning assistance you can find, to keep assets up-to-date and possibly avoid costs in the future.”
Four EOFY housekeeping must-dos:
1. Meet your superannuation commitments before 30 June
2. Put tax changes on your radar
3. Bad debt – write it off
4. Be aware of credit reporting changes from 1 July
Meet your superannuation commitments before 30 June
Superannuation is not tax deductible until it has been paid, so ensure all your superannuation obligations have been completed prior to 1 July. It’s the right thing to do by staff, and is a great way to reduce your company tax bill. Look at funding options, including debtor finance, that allow obligations to be met while smoothing out the cash flow implications.
Put tax changes on your radar
New financial year, always new tax updates to be aware of. Your financial advisers will be able to highlight changes, or the ATO website is a good source of tax amendments that SMEs should be aware of. It’s important to be well-positioned to take advantage of positive change (continuation and extension of the $20,000 instant asset write-off, for example – the turnover for eligible businesses has increased from $2 million to $10 million) and to be prepared for adverse change.
Bad debt – write it off
If you’re still chasing old invoices from the last financial year, now might be the time to write them off. Bad debts are tax deductible and SMEs can use them to offset their taxable income.
Be aware of credit reporting changes from 1 July
From 1 July the ATO will disclose to credit reporting bureaus the tax debt information of businesses who have not effectively engaged with the ATO to manage their taxation debts. Take steps to ensure tax arrears are paid down (invoice finance can provide the necessary working capital to prevent the cash flow issues that often lead to tax arrears).
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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