EOFY cash flow tips for SME's

EOFY cash flow tips for SMEs

22 April, 2015 Aoife Boothroyd



Although the end of financial year isn't quite upon as yet, it pays to be organised when it comes to cash flow management especially for SMEs.

David Henderson, chief executive of accountancy group ROCG Asia Pacific and founder of CashMaxforecaster.com says that June 30 can often catch SMEs by surprise, and that cash flow management in particular is one of the biggest problems for small and medium businesses at the end of each financial year.

"There can be a down-time in trade for stocktake, slashing of profits margins due to seasonal sales, the settling of debts, chasing of creditors, and a binge of last minute budget-balancing spending," says Henderson. "Without planning, tax time obligations can deplete current cash flow reserves and this can have a negative impact on the following year's operations.”

Henderson says that SMEs have the advantage over big business in that they can more readily adapt to the changing environment in which they operate, however those that fail to adapt can pay heavily.

"It is not unusual to find SMEs rigidly sticking to certain ways of doing things, even when small warning signs start to trigger major alarms," he says. "Far too many claim they are too busy running the business to worry about things such as cash flow.

"Managing cash flow is critical to the success of any business – small or large – and a bit of advance planning might be all that is needed to free up liquid assets and ensure ongoing profitability," he said.

To help SME’s prepare for EOFY, CashMaxforecaster.com has put together a list of ten resolutions:

Embrace change

What works one year might not work the next: unsettled markets, fickle clients, different suppliers and staff, changes in operational procedures, refurbishments, capital asset shifts, different taxes, and complying with updated legislation can all have a big impact on cash flow.
Resolve to not only embrace change each and every financial year, but to adjust accounting and management practices to accommodate this change. Sticking with the same old way of doing things could limit growth, productivity and profit.

Leverage low interest rates

Cash reserves are not getting the return they were even just a few years ago but low interest rates can be made to work in an SME's favour.
Consider if it is worth investing in capital equipment and paying off debts while keeping lines of credit open. Resolve to leverage low interest rates but budget now for higher rates over the next few years.

Cash upfront and in advance

It is possible to save up to 10 per cent by shopping around and being willing to make a one-off, advance payment for services and utilities including insurance and phone plans. Paying for the following year in advance before the price rise can see a saving of 3-6 per cent. Such savings can be much higher than current interest returns on cash deposits. Resolve to shop around or negotiate savings on fixed costs.

Direct debit not direct debt

Set up direct debit accounts when discounts for this payment method are offered. Direct debit can lead to savings of around 4 per cent on fixed costs, but this will be more than wiped out if there are insufficient funds and the supplier and bank impose heavy penalties. Resolve to manually check that there is no danger of the autopilot failing.

Time the annual return

If the tax office owes the business money, try and get it back as soon as possible after June 30. The refund might also beat the rush and take less time to process. Small companies lodging their own returns have until late February 2016 or October this year if there is a history of late reporting. Resolve to get that cash back as quickly as possible or avoid paying it out for as long as possible.

Choose the best GST option

Compulsory collection of the goods and services tax can artificially inflate cash assets by 10 per cent. Refunding that 10 per cent to the ATO as a one-off payment can blow a big hole in any business budget. To help maximise cash flow, choose a GST payment option carefully.
A small business with an annual turnover of less than $2 million or with a GST turnover of less than $2 million can pay GST by monthly instalments or quarterly.

1 July changes

July 1 is the usual date for a raft of tax changes to take effect. In 2015 there will a reduction in the company tax rate from 30 per cent to 28.5 per cent. This could be offset by an additional levy for businesses with a taxable income of more than $5 million.

Off peak rates

Prices drop and there is more choice when holidaying out of peak season. The same can be said for financial and legal advice. Even if accounting and legal fees stay the same year round, seeking advice in off peak times can mean an adviser might be better focussed or more appointments are readily available.

Depreciation, deductions and donations

To make the most of a favourable depreciation deal, buy in July. Grab all cheaper directly deductible bargains right up until midnight on June 30. A deduction is a deduction based on its purchase date, not whether or not it was used.