Now is the time to act

Shell shocked by the walloping tail of recession? Well it’s time to spring into action, and guess who you should see first? Your accountant. Now. Before we get busy with the new financial year stuff.  The reason is there is a slug of funds around that your accountant knows about.

The next step is to get your accountant to review your year-end tax position and set clear goals for the coming year.  The downside of the last year’s pressures on smart company cashflows is the failure to keep up with BAS and GST requirements, the tendency to overstate depreciation and to listen to the glib talk of the tax-minimisation fraternity.  So make sure you know your position. Then, with your accountant, start looking for opportunities.

The up-side is that the Government is in a very generous mood at the moment with its stimulus packages, openness to the role of SMEs in job creation, service development and new capital formation.  For example the Federal Government will give a $720 million cashflow boost to small business owners or trustees of a self-managed superannuation funds by cutting pay-as-you-go (PAYG) instalments.  The Government plans to provide further economic stimulus through a cut in PAYG instalments for approximately 1.5 million taxpayers in the 2009/10 financial year. As a result, PAYG instalment amounts will decrease by an estimated 6% for the 2009/10 financial year.  An early session with your accountant will help smart companies to get the facts in advance of the scrutiny from the taxman, improve cashflow and help prepare liquidity analyses for your bank manager.   But watch out. The recession means that medium to larger SMEs are increasingly going to be the focus of attention from the tax office. The tax office is looking at current and emerging tax administration risks in the SME market, approaches to address significant tax administration issues facing SME clients, and compliance risks in the SME segment.

We know that the tax office has announced it has commenced a personal services income data-matching project in which records of approximately 30,000 individuals and entities will be reviewed. The records of entities and individuals who have received contract payments will be matched against information collected from labour hire firms, placement agencies and computer consultancy firms.  Then you have Lindsay Tanner, Minister for Finance, and the toe-cutters looking for any way to increase net revenue after they make payouts to pensioners and training programs.  So while we get ready for a tough budget and tough taxman, balance that out with pro-actively looking for ways to take advantage of all the largess being poured into the economy.

ATO form: Reasonable estimate for documents destroyed by disaster
The ATO has published a form that is to be used by tax agents and taxpayers who have had their tax records lost or destroyed as a result of a natural disaster. This is to be used instead of a statutory declaration (NAT 72981). For a copy of the form, go here.

New temporary investment allowance – time is short

Key details

• The deduction is limited to new tangible, depreciating assets for which a deduction is available under the tax law and new investment in existing assets. An asset is new if it has never been used or installed ready for use by anyone, anywhere.
• Second-hand assets are not eligible for the deduction, and nor is software.
• New investment in relation to an asset (usually the asset’s GST-exclusive cost) needs to exceed a certain threshold before it can qualify for the deduction. The new investment threshold is $1000 for small business entities and $10,000 for all other taxpayers.
• The asset must be used principally in Australia for the principal purpose of carrying on a business.

Generally, the new investment threshold needs to be met for each individual asset. However, multiple investments in an individual asset may be amalgamated in meeting the new investment threshold.

The deduction is worked out using a rate of either 30% or 10%, depending on when the taxpayer committed to investing in the asset. The deduction can be claimed in the income year that the asset is first used or installed ready for use. The deduction will not be apportioned for any non-taxable use of the asset.

A taxpayer must make a decision to invest either in a new asset or an existing asset between 13 December 2008 and 31 December 2009. Assets that a taxpayer held or entered into a contract to hold on or before 12 December 2008 will not qualify. However, additional investment in such assets undertaken from 13 December 2008 may be eligible for the deduction.

To qualify for the 30% deduction, a taxpayer must:
• Commit to investing in the asset between 13 December 2008 and 30 June 2009.
• First start to use the asset or have it installed ready for use, or (in the case of new investment in an existing asset) bring the asset to its modified or improved state on or before 30 June 2010.

To qualify for the 10% deduction, a taxpayer must:
• Commit to investing in the asset by 31 December 2009.
• First start to use the asset or have it installed ready for use, or bring the asset to its modified or improved state on or before 31 December 2010.

Other points to note

Deadlines – While the date of 30 June 2009 is important, it should also be remembered that if an SME cannot meet the 30 June 2009 deadline, it may still be entitled to a bonus deduction of 10% of the cost of an eligible asset if it contracts for, or starts to construct, after this date and before 31 December 2009, provided it starts to use or have the asset installed ready for use by 31 December 2010.

A bonus – Don’t forget that the deduction will provide a bonus deduction. It has no impact on deductions for an asset’s decline in value claimed under other provisions of the tax law, for example, division 40 of the Income Tax Assessment Act 1997. This means that, over time, a taxpayer could effectively claim deductions of up to 130% of the asset’s value. Your accountant should be able to advise on this.

Cars – Generally, cars used in a business qualify as assets that can be eligible for the deduction. However, determining whether the business can claim the deduction depends on the method used by the business to work out deductions for car expenses. An SME that uses the “one third of actual expenses” and “log book” methods for claiming car expenses may be eligible for the deduction. Demonstrator vehicles can qualify as “new assets” provided they have only been used for reasonable testing and trialling.

Can add to a tax loss – The new temporary investment allowance provides a bonus tax deduction; it is not a rebate or a refundable tax offset. To the extent that a business may be in a tax loss situation for the income year that it claims the deduction, the bonus depreciation will form part of that loss.

Batches of assets – SMEs will be allowed to combine the value of batches of substantially identical assets, and assets that form part of a set, to meet the investment threshold. Whether assets form a set will need to be determined on a case-by-case basis. Items may be regarded as a set if they are dependent on each other, marketed as a set, or designed and intended to be used together.

Non-taxable use – The deduction will not be reduced for any non-taxable use of the asset or apportioned based on the actual taxable use of the asset over a particular income year. However, an SME claiming the deduction must be able to demonstrate that at the time it started to use the asset, or had it installed ready for use, it was reasonable to conclude that it will be used principally in Australia for the principal purpose of carrying on its business.

Use of asset in Australia – An asset does not necessarily have to be located in Australia when an SME begins to use it or have it installed ready for use. However, the purpose test will not be satisfied if it is reasonable to conclude that the business will never use the asset in Australia.

There really is quite some detail to be aware of when considering this deduction, so it is advisable to seek professional advice before committing any expenditure.

Source: Smart Company E-Newsletter 23/4/09
Rental properties – claiming capital works deductions

Rental properties – claiming repairs and maintenance expenses

Acres of Diamonds

Perhaps you are familiar with Russell Conwell’s famous essay and speech entitled “Acres of Diamonds” and the story behind it.  Briefly, it is a story of a successful farmer who roamed the world in search of a diamond mine when in his own farm, he had acres of diamonds but didn’t realise it.  This is the short version of the story but if you want to read the long version and I urge you to do so, then you can visit the following link:

The moral of the story is this. Many businesses make the mistake of roaming the earth looking for more sales. They do things the hard way. The easy way is to sell more to your current customers.  Here are just a few simple ways of increasing your sales without looking for new leads and new customers.

1. Sell the same products at a higher price.
Most people think they can get more sales by discounting. This will only give your business a short term boost but to increase sales in the long term, be brave and increase your prices. Think about adding value rather than reducing your price. Try not to sell a commodity that is the same as everyone else’s. Differentiate your products or services by making it better than others. Justify your prices. List all of your benefits and be clear in showing your customers that your product or service is better than every other alternative.

2. Sell more products to your current customers.
The best way to do this is simply to advertise to your current customers. Use direct marketing techniques such as direct mail, email broadcasts, fax broadcasts and telemarketing. Contact your customers often. Most businesses make the mistake of contacting their customers too infrequently. Stay at the front of your customer’s mind by being in regular contact. Also, don’t assume that your customers will buy from you again. Make special offers so your product is appealing. Use bonuses and competitions and other incentives.  You can also sell more products at the time of purchase. When done in person through a customer service representative, we call this cross-selling. McDonald’s are the experts in this. The question, “Would you like fries with that?” has become famous. It is also worth millions of dollars to McDonald’s per annum.

3. Sell higher priced products to your customers.
Upselling is a technique where you sell to your customers a similar product at a higher price. Employ skilled sales representatives and customer service personnel. However, you need to develop systems which allow this process to happen. If someone comes into your retail store, do not presuppose that they will want the cheapest item. Of course, you need to have available options for your customers so you need enough products to enable this technique to happen. An example is to ask your customers if they want the large size drink before going to the movies.

4. Sell to your customers more often.
Again, this is an underused technique. The biggest mistake most business owners make is not contacting their customers regularly enough. Do not assume your customers do not want to hear from you. They may have ignored your last piece of marketing because last month they weren’t ready to buy.  However, this month they are ready to purchase your product. It would be a shame if your competitor contacted your customer at this time because you were afraid of upsetting your customers by contacting them too frequently.

5. Sell different products to your customers.
The most common way of doing this is to develop new products that are similar to past products. Two examples are clothing and motor vehicle manufacturers. Clothing stores will display their latest designs. Motor vehicle manufacturers also make new models regularly. Developing new products is one of the best ways of attracting more sales from your current customers. You see, the products are new and this word, “new” is a very powerful word in marketing.  Of course, it takes time and money to develop new products. There is another way. If your product range is limited you can sell other company’s products. Ideally, the products and services should be relevant to your customers. You can resell another company’s product or do joint ventures where other companies also sell your products and services to their customers.

6. Sell to your lapsed customers.
A lapsed customer is a past customer who has not bought from you for a certain period of time. It is usually because these customers have purchased from someone else. It is up to you to win them back. Make them a special offer, offer a discount, do whatever it takes to get them back. Once they are back, then you can use the top five steps to turn them into a profitable customer once again. Never underestimate the power of your database. You should be contacting these lapsed customers often as this is the easiest way of getting more customers.

7. Convert more leads into sales.
Also, make the most of every lead. Contact them often and in different ways. You need a sophisticated marketing funnel with as much automation as possible so you can contact them regularly. If they don’t respond to your emails, try writing to them. It is often said that qualified leads are worth pursuing until they tell you to stop contacting them. Usually, this is when your email bounces back or your letter is returned.

All seven of these strategies are very simple. However, you will be surprised how few businesses adopt these simple strategies. And big businesses are more guilty than anyone of pursuing growth through trying to obtain new customers rather than doing it the easy way by following the seven simple steps above. In these difficult economic times, these seven steps are the best way of growing your business. There is much less risk involved with these strategies than if you were to embark on an ambitious customer acquisition program.  However, in order to increase sales without getting new customers from new leads, then there is one thing you must do. You have got to retain the customers you currently have. This is something you must not take for granted. Just as employees switch companies, so will your customers if you give them a reason to do so.

Past practice was for business owners and marketing managers to grow their business simply by obtaining enough new customers to replace the ones that have left. This is a flawed strategy since it is five to seven times more expensive to sell your products to a new customer than it is to sell this same product to one of your current customers. This strategy will reduce your profits since your marketing costs will increase.

A less expensive option is to spend more money on retaining your current customers. This will enable you to be more successful in implementing the seven strategies mentioned at the beginning of this article.

Source: SmallBIZTips E-Newsletter April 2009

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