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Collins Hume Accountants and Business Advisers in Ballina and Byron Bay has announced the appointment of Naomi Monk as the firm's new Practice Manager, effective 7 March 2024. Naomi, who joined Collins Hume in 2017, has been promoted from an internal position and succeeds Clare Busch who stepped into the role after David Keith’s retirement at the end of 2022. Collins Hume Partner, Jamie Doyle said Naomi’s predecessor had a big and brilliant 14 months with the firm. “The changes that Clare initiated in our business will carry forward and help us for many years,” Jamie said. “An awesome legacy.” Jamie also emphasised that he and the Partners were excited about the appointment of Naomi, who is an admin and customer service specialist having previously performed roles in interstate tourism and local hospitality back office before joining Collins Hume. She has also been a key part of getting Collins Hume‘s business sustainability initiatives off the ground, as Dedicated Office Sustainability Champion. Speaking on her appointment, Naomi undertakes in tandem with Collins Hume’s leadership team to “continue to challenge and push the boundaries of what’s possible for Collins Hume’s clients and our business”.

The ATO has issued a warning to trustees of SMSFs about sloppy valuation practices. ATO data analysis has revealed that over 16,500 self managed superannuation funds (SMSFs) have reported assets as having the same value for three consecutive years. With many of these assets residential or commercial Australian property, you can forgive the ATO for being incredulous. For trustees of SMSFs, where asset values are consistently reported at the same value, it’s likely your SMSF will be flagged for closer scrutiny by the ATO. The value of assets in your SMSF impacts on member balances and by default, can impact the amount you can contribute, ability to segregate assets for exempt current pension income, the work test exemption and access to catch-up concessional contributions. And, as we move closer to the implementation of the Division 296 $3m superannuation tax, valuations will be very important for anyone with a member balance close to or in excess of $3m. If the asset is an in-house asset, for example a related unit trust,   then an accurate valuation is essential to ensure the fund remains within the 5% in-house asset limit. If the value of in-house assets rises above 5% of total assets, the asset/s need to be sold to bring the limit back below 5%. Valuing at market value Each year, the assets of your SMSF must be valued at ‘market value’ and evidence provided to your auditor. Broadly, market value is the amount that a willing buyer of the asset could reasonably be expected pay to acquire the asset from a willing seller assuming that the buyer and seller are dealing at arm’s length, and everyone acts knowledgeably and prudentially. It’s a common sense test that looks at the value you could reasonably expect to achieve for an asset. If your SMSF holds collectible and personal use assets like artwork, jewellery, motor vehicles, etc a valuation must be performed by a qualified independent valuer on disposal. This does not necessarily mean that an independent valuation needs to be completed every year but at least every three years would be prudent. If you are not utilising an independent valuer, you will still need to make an active assessment based on market conditions. For example, if you hold artwork and the artist who created your investment artwork died, has this changed the value? Are the primary and secondary markets for the artwork transacting at a higher value? Leaving the value of the asset at its acquisition price calls into question the rationale for acquiring the asset within the fund in the first place. If the asset is unlikely to add any value to your retirement savings, then should it be held in your SMSF when you could achieve a higher rate of return elsewhere? In most cases, the ATO require trustees to value an asset based on “objective and supportable data”. This means that you should document the asset being valued, a rational explanation for the valuation, and the method in which you arrived at it. Valuing real property Commercial and residential real estate does not need to be valued by an independent valuer. But, if there have been significant changes to the property, the market, or the property is unique or difficult to value, it is a good idea to have a written independent valuation from a valuer or estate agent undertaken (their report should also document the valuation method and list comparable properties). If you are completing the valuation yourself, ensure that you document the time period the valuation applies to and the characteristics that contribute to the valuation. For example, a 10 year old brick four bedroom property on 640m2 of land in what suburb and any features that make it more or less attractive to a buyer, for example proximity to transport. And, you should access credible sales data either on similar properties in the same suburb that have sold recently or from a property data service. More than one source of data is recommended. The estimates on a lot of online property sales sites are general in nature and not reliable for a valuation of a specific property. The average price change for the suburb however could be used as supporting evidence of your valuation. For commercial property, net income yields are required to support the valuation. Where the tenants are related parties, for example your business leases a commercial property owned by your SMSF, you will need evidence that a comparative commercial rent is being paid and the rent is keeping pace with the market. Valuing unlisted companies and unlisted trust investments Valuing unlisted companies and unlisted investments can be difficult. The financials alone are not enough. But, if your SMSF invested in an unlisted company or shares in a unit trust, then there is an expectation that the trustees made the decision to make the initial acquisition based on the value of the asset, its potential for capital growth and income generation. That is, if you assessed the market value going into the investment, then it should not be a stretch to value the asset each year. The difficulty for many investors is that in unlisted companies or trusts, the initial investment was broadly equivalent to the cash requirements of the activity being undertaken. Generally, the starting point is the value of the assets in the entity and/or the consideration paid for the shares/units. For widely held shares or units, this is the entry and exit price. Where property is the only asset, then the valuation principles for valuing real property are likely to apply. Where there is no reliable data or market We’ve seen a few scenarios where the assets purchased or created by the SMSF have no equal or there is no market – the true extent of the value will only really be known when the asset is realised. These unusual items default to either a professional valuation or a viable market assessment. This might be a derivative of the purchase price or data from a related market. Valuations and the impending Division 296 tax on super earnings The value of assets will be particularly important for those with super balances close to or above the $3m threshold for the impending Division 296 tax on fund earnings. Because the tax will measure asset values and tax the growth in earnings above the $3m threshold, accurate valuations will be important to ensure that the fund does not pay tax when it does not need to, and to reduce the likelihood of anomalies artificially inflating tax payable. How to contact us We’re available to assist you with tax planning including asset valuations. Contact  Collins Hume Accountants & Business Advisers in Ballina on 02 6686 3000 (Byron Bay by appointment). Collins Hume clients can book here »

As a business owner, the path to increased profitability and a better lifestyle often parallels that of elite athletes striving for excellence. Just as top athletes rely on coaches to gain that crucial extra edge, you can benefit from expert guidance to elevate your business. The Power of Mentorship Mentorship bridges the gap between theoretical knowledge and practical application. Having a mentor for your business can be akin to an athlete having a coach, helping you achieve that extra one percent which can make the difference between success and mediocrity. Key Benefits of Working with a Mentor Skill Enhancement: Mentors can help your team develop critical skills necessary for navigating today’s complex business environment Employee Retention:  A strong mentorship program enhances employee satisfaction and loyalty, reducing turnover and ensuring a stable, skilled workforce Leadership Development:  Mentorship cultivates future leaders within your organisation, ensuring long-term stability and growth. Introducing Strategy360 for Business Owners Working with Collins Hume offers numerous benefits. We tailor our solutions to your precise needs, designed to improve business performance, minimise risks, boost business value, advance strategic initiatives and execute plans effectively. Our approach ensures that your business receives targeted support and guidance, ultimately leading to enhanced success and growth. We take the complexities of business and simplify them. Customising and collaborating with business owners, we help focus on achieving meaningful outcomes aligned with their specific objectives. We understand business. We have worked with hundreds of business owners covering all aspects of their business from set up to sale. We know that being a business owner can be difficult and often lonely. We offer helpful and holistic support for business owners and can be that sounding board you need to ensure you make informed decisions. Elevate your business to new heights. Contact Nathan McGrath on 02 6686 3000 for an obligation-free discussion on how Collins Hume can help you achieve greater profitability and a better lifestyle. Meet Nathan McGrath

The ATO has made a call to help identify and manage illegal early access to superannuation by members of self-managed superannuation funds (SMSFs). In general, access to your super is only possible if: You retire and turn 60; or You turn 65 (regardless of whether you’re working). Early access to superannuation is only possible in very limited circumstances such as terminal illness, permanent incapacity, and severe financial hardship and there are very strict protocols to follow before any amounts are paid out. One of the benefits of an SMSF is the control that it provides to members. The flip side of full control is the temptation to dip into the super account and approve transfers without proper controls. There are two common ways illegal early access occurs: When the trustees (or their business) are in financial distress and they use the superannuation account for a short-term loan; or A promoter offers access through a scheme – often getting people to establish the SMSF and roll over their superannuation into the SMSF. Illegal access to the SMSF’s account or assets is not difficult to identify and generally will be picked up by your auditor. Where illegal access has occurred, not only is it likely that your retirement savings have been lost or impaired, but you are likely to face additional tax, penalties and interest, and be disqualified as a trustee. In addition, your name will be published online. One of the signs that there is a problem is when SMSF annual returns are not lodged on time or at all so ensure you are up to date with your SMSF compliance. Considering self-managed super? Unsure where to start? Ask to speak with Collins Hume's knowledgeable superannuation advisers to find out more on 02 6686 3000.

Here’s a summary of the key changes coming into effect on 1 July 2024. For business $325 energy relief credit for small business commences (for small businesses that meet the relevant State or Territory definition of a ‘ small customer ’) $20k instant asset write-off extended to 30 June 2025 (subject to the passage of legislation). For taxpayers Tax cuts reduce personal income tax rates and change the thresholds Superannuation guarantee increases from 11% to 11.5% - check the impact on any salary package arrangements Superannuation caps increase from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions Luxury car tax threshold increases to $91,387 for fuel-efficient vehicles and $80,567 for all others Car limit for depreciation increases to $69,674 $300 energy relief credit for households comes into effect (credited automatically quarterly). Need support or have questions? Talk to us today about maximising your outcomes and reducing your risks. Call Collins Hume on 02 6686 3000.

Defining and achieving your ‘budget goals’ As businesses are currently setting their budgets (or should be soon) this is an excellent time to put some basic business budgeting theory into practice. Whether you’re planning your budget for the next six months or full financial year, the specific framework remains the same. Instead of focusing on revenue targets, start with a straightforward approach that aligns your budgeting process with your ultimate goals. This simple yet effective framework will set you on the path to achieving your financial objectives. As we kick off another financial year, there are two main principles for your budgeting that will help you meet your profit goals. Principle 1: Focus on the bottom line The first principle is to determine what you want your bottom line to be at the end of the year. Don’t get bogged down with sales targets, staffing, or marketing details just yet. Ask yourself, "What is the profit I must achieve over the next 12 months?" Set a specific profit target:  Whether it’s $100,000, $500,000 or $2 million, having a clear, specific target is essential Work backwards from the target:  Once you’ve set your profit goal, plan everything else around achieving this number. For example, if you aim for a $500,000 profit, identify all your overhead expenses for the year. Let’s say your overheads amount to $1.5 million. This means you need a gross profit of $2 million to cover your overheads and achieve your profit target. Principle 2: Set a gross profit target Gross profit, defined as revenue minus direct costs, is the second critical element. Determine how you can generate the required gross profit given your current resources and market conditions. Assess overhead expenses:  Calculate all overheads you’ll need to invest in for the year. In our example, this is $1.5 million Target gross profit:  To achieve a $500,000 profit with $1.5 million in overheads, you need a gross profit of $2 million. Optimise Resource Utilisation With a clear gross profit target, evaluate how you can generate the necessary revenue using your existing resources. Consider: Product offerings:  What products or services can you offer to maximise gross profit? Selective clientele:  Determine who your ideal customers are and be willing to say 'no' to any who don’t fit this profile. High demand can lead to unrealistic expectations, making it essential to maintain a strong business positioning. For example, not everyone can afford a Louis Vuitton product, which is positioned at a premium price point. Similarly, your business needs to be selective about who you serve to maintain high gross profit levels. Balance Capacity and Demand Be strategic about your capacity and the demand you’re meeting. Saying ‘yes’ to every customer may keep your team busy, but it can compromise your profitability and distract you from your financial goals. Maintain high GP levels:  Ensure your offerings provide the highest possible gross profit Capacity management:  Balance your team's capacity with demand to maximise gross profit without overextending your resources. Being selective and focusing on high-value customers ensures you can achieve the necessary gross profit to cover overheads and reach your profit goals. By setting a clear bottom line and focusing on gross profit targets, you can strategically plan for the 2025 financial year. Remember to: Set a specific profit target and plan backwards from it Determine the required gross profit and optimise your resources to achieve it Be selective about customers and maintain high gross profit levels Balance capacity and demand to maximise profitability. Implement these principles to ensure a successful and profitable financial year. Elevate your business to new heights. Contact Nathan McGrath  on 02 6686 3000 for an obligation-free discussion on how Collins Hume can help you achieve a better performing business and lifestyle.

The ATO has warned that it is looking closely at how trusts distribute income and to whom. The way in which trusts distribute income has come under intense scrutiny in recent years. Trust distribution arrangements need to be carefully considered by trustees before taking steps to appoint or distribute income to beneficiaries. What does your trust deed say? An area of concern is that trustees are not considering the trust deed before income is appointed. The answer to what the trust can do, and who it can allocate income to and how, is normally in the trust deed. This should be your first point of call. Review your deed Conduct a review of the trust deed and any amendments to ensure trustees are making decisions consistent with the terms of the deed Check the trust vesting date. The trust deed will specify what happens when the trust vests. If the trust vests, the trustees might be directed to distribute the income and property of the trust to particular beneficiaries. The trustee may no longer have the discretion to decide who to appoint income or capital to Check who the intended beneficiaries are, and also keep in mind that some beneficiaries might have different entitlements to income and capital under the trust deed Timing and requirements for resolutions - Check the deed for any conditions and requirements for trustee resolutions, including the need to have the resolution in writing and the timing of when it’s required to be made. For example, the deed might require trustees to take certain actions before 30 June If you are looking to stream capital gains or franked distributions to certain beneficiaries, check the trust deed doesn’t prevent this and the streaming requirements have been met. Family trust and interposed entity elections A family trust election helps wrap the workings of the trust around a specific individual’s family group. These elections can help protect trust losses, company losses, and franking credits but can also cause significant tax problems if they are used incorrectly. An interposed entity election makes an entity a member of the family group of an individual. Where these elections are in place, it is essential that trustees understand the implications before making any decisions on distributions. Distributions of trust income outside the specified individual’s family group will trigger family trust distribution tax at penalty rates. Who receives the benefit? The ATO is also on the lookout for arrangements where amounts are allocated or appointed to beneficiaries, but they don’t receive the real financial benefit of the distribution. If the arrangement has the effect of reducing the overall tax paid on the income of the trust, then this will normally increase the level of risk involved and attract the ATO’s attention. Increased reporting on tax returns Changes have been made to capture more information on the tax return about how trusts distribute income. These include: Trust tax return – four new capital gains tax labels have been added. This information should be provided to beneficiaries to match what is reported in their returns. Beneficiaries – all beneficiaries of trust income will be required to lodge a new trust income schedule. This schedule should align to your distributions as set out in the trust’s statement of distribution. Trusts can be an excellent vehicle for many reasons including the flexibility to determine how income is distributed. The cost of that flexibility is strong controls and compliance. The ATO is increasingly strident about how trusts are distributing income, and the tax impact of those distributions. It’s important for trustees to get it right because if trust distributions are found to be invalid, the tax ramifications can be significant. How to contact us We’re available to assist you with trust distributions. Contact  Collins Hume Accountants & Business Advisers in Ballina on 02 6686 3000 (Byron Bay by appointment). Collins Hume clients can book here »

As a business owner, you know that understanding the nuances of cash flow is essential to the health and longevity of your company.   Did you know, businesses that only focus on profit neglect their cash flow? Ignoring the significance of cash flow has led to the downfall of many good businesses, and unfortunately, many business owners realise their mistake too late.  The reality is that when you are managing a business “cash is king”. As long as you have positive cash flow, you’ll survive. Or at least, you should.  To ensure your cash flow doesn’t become your business’s Achilles’ heel, follow these guidelines:  Step 1: Assess Your Current Cash Flow Situation  Begin with a thorough evaluation of your current cash flow. Scrutinise your financial statements, cash flow projections, and historical data to understand your cash inflows and outflows. Look for patterns, such as seasonal fluctuations or delayed customer payments, that may impact your cash flow.  Step 2: Identify Bottlenecks or Inefficiencies in your Cash Flow Process  This might include unfavourable payment terms with suppliers, slow invoice processing or high overhead costs. Addressing these issues can significantly improve your cash position.  Step 3: Bridge the Gaps  Consider utilising working capital finance to bridge gaps in your cash flow. Solutions like invoice financing or lines of credit can provide the funds needed to cover short-term expenses and keep operations running smoothly.  Step 4: Negotiate Better Payment Terms  Improving cash flow can also involve negotiating better payment terms with suppliers. Seek to extend payment terms or secure early payment discounts to better manage your cash flow and reduce financial strain.  Step 5: Streamline Operations  Streamlining operations can reduce costs and improve efficiency, leading to better cash flow. Automate manual processes, reduce waste and optimise your supply chain to enhance overall operational efficiency.  Step 6: Build Stronger Supplier Relationships  Strong supplier relationships are crucial for smoother cash flow management. Maintain open communication, pay invoices on time and grasp opportunities to collaborate and negotiate mutually beneficial terms.  Step 7: Continuously Monitor Cash Flow and Adjust as Necessary  Regularly review your financial statements, cash flow projections and key performance indicators to ensure your cash flow remains healthy and resilient.  Cash flow is the lifeblood of your business – prioritise it, nurture it, and watch your business flourish.  By following these steps and adopting a proactive approach to cash flow management, you can bolster your business resilience, maximise profits and thrive in today’s fluctuating market.   Collins Hume can help you take the first step toward a stronger, more resilient business with Strategy360. Contact Nathan McGrath  on 02 6686 3000 for an obligation-free discussion on how we can help you achieve a better performing business and lifestyle.

Do you know how much your business is worth? Or how to boost that value?  Unlock Your Business's Potential with Collins Hume's Strategy360 Services  Understanding your business valuation is more than just a number—it's a critical insight into the health, performance and financial future of your business.  Why Business Valuation Matters Informed Decisions:  Knowing your business’s value helps you strategise effectively  Growth Identification:  Spot areas for improvement and work on enhancing them  Investor Attraction:  A higher valuation makes your business more appealing to investors  Exit Strategy:  Essential for fair negotiations if you plan to sell or pass on your business  Financing:  Lenders assess your business value, affecting your funding opportunities  Benchmarking:  Track progress and compare with industry standards  Risk Management:  Identify improvement areas to mitigate risks  Financial Health:  Reflects your business’s stability and performance.  Calculating Business Valuation is simple: maintainable profits times a multiple  For example, $1M in earnings with a multiple of five values your business at $5M. Improving profitability and the multiple can significantly enhance this value.  7 Factors Driving Business Valuation   1. Performance Quality: High gross and net profit margins boost valuation  ACTION: Regularly review financials and optimise profit margins.  2. Level of Growth: Continuous growth and potential for expansion attract higher valuations  ACTION: Develop a growth plan with specific steps and milestones.  3. Cash Conversion:  High-margin, low-asset businesses are more valuable  ACTION: Improve profit efficiency and minimise asset requirements.  4. Owner Dependency: Less dependency on the owner increases value  ACTION: Document operations procedures for smooth functioning in your absence.  5. Industry Perception: Thriving industries are more attractive  ACTION: Encourage positive reviews to enhance your industry’s reputation.  6. Economic Conditions: A strong economy boosts valuation multiples  ACTION : Engage financial experts to time your sale strategically.  7. A Bit of Luck: Timing and positioning can command a premium.  ACTION : Develop a detailed exit strategy for optimal business sale conditions.  Harness the power of Collins Hume's Strategy360 services to unlock your business’s full value. Contact Collins Hume and take the first step toward a stronger business valuation. Contact Nathan McGrath  on 02 6686 3000 for an obligation-free discussion on how we can help you achieve a better performing business and lifestyle.

Generational succession - handing your business across to your kids or family - sounds simple enough. However, many families end up in a dispute right at the point when the parents, business, and children are most vulnerable. It’s important that generational succession is managed as closely and diligently as if you were selling your business to a stranger to avoid misunderstandings and disputes.  If you are looking to hand your business to your children or relatives, there are a few key issues to think about:  Capability and willingness of the next generation – do your kids really want the business?   There needs to be a realistic assessment of whether or not the business can continue successfully after the transition. In some cases, the exiting generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. All of these are reasonable objectives, however, they only work where there is capability and willingness.   The alternative scenario can also exist where generational succession is pursued by the younger generation. In some cases, it’s seen as their birth right. In these cases, the willingness will exist but this does not automatically translate to capability.  Capital transfer – how much money needs to be taken out of the business during the transition?  What level of capital do the current business owners, generally the parents exiting the business, need to extract from business at the time of the transition? The higher the level of capital needed, the greater the pressure that will be placed on the business and the equity stakeholders.  In most cases, the incoming generation will not have sufficient capital to buy out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt.  In many cases, the exiting generation will want to maintain a level of equity investment. This might be a means of retaining an interest in the business or alternatively staging their transition. In either case, it is important to map the capital transition both from a business and shareholder perspective. This needs to be documented and signed off firstly from the business’s perspective and then by both generational groups. No generational transition should be undertaken without a clear and agreed capital program.  Income needs – ensuring remuneration is on commercial terms  In many SMEs, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little.   Under a generational succession, there should be an increased level of formality around compensation to directors and shareholders. Compensation should be matched to roles and where performance incentives exist these should be clearly structured.  Operating and management control  Once the capability and capital assessments have been completed, it is important to look at the transition of control. This can be a very sensitive area. It’s essential to establish and agree in advance how operating and management control will be maintained and transitioned.  The plan for operating and management control should be documented and signed off by all parties with either timelines for time driven succession or milestones for event-focussed transitions.   Transition timeframes and expectations  Generational succession is often a process rather than an event and achieved over an extended period of time. The critical issue is to identify and ensure that all parties have a common understanding and acceptance of the time period over which the transition will take place. This should be included in the documented succession plan.  The need for greater formality and management structure  Generational succession often requires a greater level of formality in the management and decision making process. This formality should achieve a separation of function between management, the Board, and shareholders.  Often in an SME business, these roles merge and there are no clear dividing lines or boundaries. Roles, responsibilities, and clear key performance indicators (KPIs) for management should be agreed and documented.  Need assistance? We can work with you to successfully transition your business. Elevate your business to new heights. Contact Nathan McGrath  on 02 6686 3000 for an obligation-free discussion on how Collins Hume can help you achieve a better performing business and lifestyle.

ASIC’s annual insolvency data shows corporate business failure is up 39% compared to last financial year. The industries with the highest representation were construction, accommodation and food services at the top of the list.  Restructuring appointments grew by over 200% in 2023-24. Small business restructuring allows eligible companies – those whose liabilities do not exceed $1 million plus other criteria – to retain control of its business while it develops a plan to restructure its affairs. This is done with the assistance of a restructuring practitioner with a view to entering into a restructuring plan with creditors.  Of the 573 companies that entered restructuring after 1 January 2021 and had completed their restructuring plan by 30 June 2024, 89.4% remain registered, 5.4% have gone into liquidation, and 5.2% were deregistered as at 30 June 2024.  In the latest statement from the Reserve Bank of Australia, Michelle Bullock stated that, “...there’s also some signs that the business sector is under a bit of pressure, that the business outlook isn’t as rosy as it was.” Productivity is also lagging. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are - the things that make the difference between doing well and going under - then it’s time to find out.      A business becomes insolvent when it can’t pay its debts when they fall due.  The top three reasons why companies fail are:  Poor strategic management  Inadequate cashflow or high cash use  Trading losses. It’s easy to miss the warning signs and rely on optimism that things will get better if you can just get past a slump. The common problem areas are:   Significant below budget performance.  Substantial increases in fixed costs without an increase in revenues - Fixed costs are costs that you incur irrespective of your business activity level. When fixed costs go up, they have a direct impact on your profitability. If your fixed costs are increasing, such as leasing more space, hiring more people, buying more plant and equipment, but there is no measurable increase in your turnover and gross profit, it might tip you over.    Falling gross profit margins - Your gross profit margin is the margin between your sales, minus cost of goods sold. Every dollar you lose in gross profit is a dollar off your bottom line.   Funding your business primarily from debt rather than equity finance.  Falling sales - If sales are falling, it is going to have a ripple through effect on your business, reducing profit contribution and inhibiting growth.   Delaying payment to creditors - Your sales are good but you don’t seem to have enough cash in the business to pay your creditors on time.  Spending in excess of cashflow - Trying to pay today’s expenses with tomorrow’s income.    Poor financial reporting systems - Driving your business with a blindfold over your eyes!  Growing too quickly - You’re making more sales than your business can sustain.   Substantial bad debts or ‘dead’ stock - Customers who won’t pay their accounts and stock that you can’t sell. For a business structure review appointment with expert advice, call Collins Hume in Ballina (Byron Bay by appointment) on 02 6686 3000.

The cost of living has eased over the past year but consumers are still under pressure. For business, planning is the key to managing Christmas volatility.  The countdown to Christmas is on and we’re in the midst of a headlong rush to maximise any remaining opportunities before the Christmas lull. Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. The result is that it is not ‘business as usual’ and for many, volatility can create problems.   Added to this dislocation are cost of living pressures impacting consumers. Employee households are the hardest hit experiencing mortgage cost fuelled increases – spiked by the rollover of fixed rate loans to higher variable rate loans. While there has been some relief from energy subsidies and a reduction in fuel prices, underlying inflation remains persistently above the RBA’s target rate. Services inflation - the cost of your rent, insurance, your hairdresser, etc – is sitting at around 5%. With the Reserve Bank of Australia (RBA) Board keeping rates on hold for now and hinting that it will be some time yet before they are comfortable reducing rates, consumers want a reason to spend based on value for money. The irony is that if we all spend up big, which a recent Roy Morgan poll  suggests we are, there is a risk this elevated spending will further delay rate cuts. But, while we might spend more, some of this increase is simply to compensate for inflation - we need to spend more to buy at the same level as previous years.  The discounting trend  Consumers expect a bargain and can generally find one. If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away. A business with a 20% gross profit margin that offers a 15% discount, needs a 300% increase in sales volume simply to maintain the same position. Worst case scenario is that a business trades below its breakeven point and generates losses.   Increased sales from discounting can be great if you know your numbers, have excess or older stock that needs to be moved, generates demand, or drives new customers to you.  Also think about how you create value; it does not always have to be a direct discount on a product. Packaging might be a better option than a straight discount where you can increase sales of multiple items, even better if you can combine higher demand with lower demand stock. Quantity discounts, value added are also options.  The Christmas cost hangover  Costs tend to go up over Christmas. More staff, lower efficiency, downtime from non-trading days, increased promotional costs, all mean that the cost of doing business increases. It’s great to get into the Christmas spirit as long as you don’t end up with a New Year hangover. Cost control is important.  Many businesses also bring in casual staff. It’s essential that you pay staff at the correct rates and meet your Superannuation Guarantee obligations. Check the  pay calculator  to make sure you have it right.  New Year cash flow crunch  The New Year often leads into a quieter trading and tighter cash flow period. The March quarter is often the toughest cashflow quarter of the year. You will need a cash buffer. Don’t over commit yourself in the run up to the end of the year and start the new Year with a problem.  Take a lesson from Scrooge  If you work with account customers, start your debtor follow up early. If your customers are under cash flow pressure, the Christmas period will only exacerbate it. The creditors that chase debt hard and early will get paid first. Don’t be the last supplier on the list; the bucket might be empty by then.  Trading stock headaches  If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. That makes sense as long as you don’t go too far. Too much stock post the Christmas period and you will either be carrying product that is out of season, or you will have too much cash tied up in trading stock. Try to work with suppliers that can supply on short notice.   Managing your trading stock is not just about managing cost. If your customers are in your store but can’t find what they need, have an online option available in store to take the sale. Christmas is a great time of year. Just don’t get caught up in the rush and remember your business basics. Call Collins Hume in Ballina on 02 6686 3000 for any help you might need in your business before Christmas to see you through the festive season.