Do you have the right financial support for growing your business this year?

As a business owner, there will be many times when it feels like you’re on your own as you’re managing the entire business. Business has many demands and challenges, and you need to cover many bases.

One of the single biggest mistakes business owners make is that they try and do everything themselves. The reality is, you can’t. At the very least, you shouldn’t.

Financial management isn’t your area of expertise. If it was, you’d be in accounting or financial planning, rather than building or property development. For you to personally manage your accounting and finances takes up far too much of your time and effort, which means it is taking time away from what you do best and, ultimately, costing your business money. Every hour you spend on accounting results in an hour lost on doing the things that actually generate dollars.

You can’t be all things to all people, all of the time. The reality is that there are not enough hours in the day and there is not enough expertise in any individual to be able to achieve that.

So, what do you need?

Support.

While you have the expertise to manage the operational functions well, you will need some assistance with the financial management of your business.

Why?

Because that’s not where your expertise lies. Your knowledge and experience is in your business, not financial requirements and obligations. While you know the basics, there is always more to learn when it comes to making your business as successful as it can be. For this reason, you need to have the right people supporting you that do.

Who can help?

Your own personal chief financial officer (CFO).

A CFO is the most senior executive of a business who is responsible for its financial control and planning. They are in charge of all of the accounting functions of the business, including preparing financial statements and budgets, credit control, monitoring expenditure, managing cash flow, coordinating finance and capital raising, managing investment, managing all taxation and other compliance requirements, and reporting financial performance and financial data to the chief executive officer (CEO).

You are the CEO.

A CEO is the most senior executive of a business who is responsible for the overall operational management and performance of the business. They are in charge of the strategic direction of the business. They are ultimately responsible for operations, sales and marketing, human resources and finance. They make all the key decisions in the business in all those areas. The smaller the business, the more hands-on they are.

In your business, you are the CEO because you are the person who is in control of operations. You are the builder and/or property developer with your skills focused in that area. Generally speaking, sales and finance are areas where you do not have the same level of training and experience, however, they are areas that are critical to your business success.

You typically cover the sales area by advertising, whether that is online or in traditional print, by setting up a website and, in today’s world, via social media. You may also be connected to network groups, local communities, sporting clubs and more, and you will generate sales via referrals from former customers.

When it comes to finances, the CEO has oversight of the business’s financial decisions and makes decisions around key investments. However, the CFO is the one who does the bulk of the management.

What do you do if you don’t have a CFO? Employ one?

Not all businesses can afford the luxury of employing a full-time CFO, particularly, small- to medium-sized businesses. So, what then?

The answer is simple. You employ a virtual CFO.

Now I hear you ask, ‘What is a virtual CFO?’

A virtual CFO is essentially the same as a CFO, but fills the role on a part-time basis for a fraction of the cost of a full-time CFO.

The virtual CFO is your personal financial adviser – someone who becomes the trusted source for financial perspective. Someone you can trust who works closely with you and your business to help you make the right decisions to improve the financial management of your business, and your business’s performance as a result. They act as a sounding board and provide financial sanity to you and your business. In these tough economic times, a virtual CFO will provide you with the valuable insight you need to navigate your way to success.

Your virtual CFO will enable you to take advantage of a level of expertise not previously available to you, which will now enable you to run your operation while knowing that all your financial matters are being taken care of by a highly qualified and experienced adviser.

Outsourcing this part of your business makes perfect sense. If you have a plumbing issue, you hire a plumber. If you need an electrician, you get one. If you want to get fit, you engage a personal trainer. If you want a financially healthy business, you get yourself a virtual CFO.

Doing so will resolve your financial management issues.

You will no longer have to base all your financial business decisions on gut feel. Instead, you will have sound, informed financial advice at your fingertips.

You will no longer have to worry about what the numbers mean in all those financial reports and tax returns. You will have them explained clearly so you understand what they all mean and why they are important.

You will no longer feel like your efforts are not being rewarded financially. You will have the required expertise alongside you to convert your effort into dollars.
If you do it, you will never look back.

Do you feel like you’re on your own? Are you trying to do everything yourself? Do you struggle with everything you need to get done and the time it takes to efficiently manage every single aspect of your business? If you answered yes to any of these questions, contact us via phone on (03) 9349 3499 or email us at admin@adpartners.com.au for a free 30 min consultation to help you with understanding what support systems are best suited to you and your business.

Do you have access to funds to help grow your business?

You can fund business operations and investment from debt (a loan from the bank or another third party), equity (your own funds), an equity partner (taking on an investor) or internal funds (profits).

Each of these options comes with its own set of risks and advantages, and it can sometimes be difficult to figure out the best option, or whether you should look for financing at all. Consequently, finance can be an extremely difficult and frustrating for business owners and, as such, needs to be planned for and executed as carefully and thoroughly as possible.

Let’s consider the four types of financing, to help you determine which is right for you.

Debt

Risks

You may not be able to generate sufficient cash flow from your business operations to service the debt.
You may be unable to repay the principle at the end of the loan period.
The level of security required for you to finance may leave your personal assets vulnerable if you cannot meet repayments.
You will need to pay interest on top of the sum borrowed, making the financing more expensive.
You may be vulnerable to changes in interest rates.
If you are in the early stages of business, it can be difficult to get external finance.

Advantages

You retain control over your business by not having to answer to partners or investors.
The profit and growth of the business is all yours as you would not have to share it with partners.
Fixed repayments are agreed to from day one and you can better manage your cash flow.
Lower cost of capital (interest payable) and raising debt finance (bank fees, insurance fees, legal/accounting fees).
Interest and associated costs are tax deductible.

Personal equity

Risks

Putting your own money on the line means you bear the risk of the business and its ability to achieve the growth you require.
While it does not impose any significant cash flow requirements, it could take longer to generate the level of funding required.
You might lose your capital if the business doesn’t survive.
No tax deductions are available as there are no servicing costs.
It can place strain on family relationships should personal financial obligations (such as meeting mortgage payments) be put under stress.

Advantages

You can raise funds without exposing your personal assets to risk.
You have no exposure to interest rates.
Less burden as there are no monthly loan repayments, improving cash flow.
An improved financial profile with lenders and/or investors.
If you have prior credit issues, accessing debt could be a problem, whereas personal equity will bypass this hurdle.

An equity partner

Risks

You might lose control if they seek to acquire a share of your business.
If you sell a share of the business, this could trigger a capital gains tax event.
Potential conflict with the investor.
Greater pressure from the investor to achieve growth and higher returns.
Need to establish an exit strategy.

Advantages

You could benefit from mentoring support from the investor.
Easier access to funds with less compliance requirements than banks.
No exposure to interest rates.
External resources could add strategic input and alliances.
A more stable financial structure.

Profit

Risks

Funds used from the business may impact negatively on business operations.
Reduced funds for working capital.
Inability to cover unforeseen costs.

Advantages

Increased profitability as there are no direct costs imposed on you and your business.
You have no exposure to interest rates.
You retain control over the business.
The growth of the business is all yours.
Your assets are not vulnerable to creditors.

When it comes to choosing which financing option is right for you, there are a number of factors to consider.

If you are fortunate enough to have a profitable business and have maintained your cash reserves, using these funds can be one of the most favourable alternatives.

However, while the ideal scenario would be for all operations and investment to be funded by your profits, this may not always be possible due to cash flow requirements. Your ability to generate increased cash flow through good management of your working capital is very important. You need to be able to generate excess cash from your business operations to ensure this funding option is best suited to your circumstances. For this reason, you’ll need to look at all possible alternate sources of funding to ensure you adopt the one most suitable to you and your business.

Are you in need of finance or funding to help grow your business? Do you clearly understand the cost of money? Contact us for a free 30 min consultation via phone on (03) 9349 3499 or via email at admin@adpartners.com.au and let us review your business and funding requirements to help you grow your business and achieve your goals.

Are you spending too much time on managing your accounts?

Financial management is all about having accurate, up-to-date financial information so you can make informed business decisions. You want to protect your investment and make sure that you don’t do anything that can jeopardise that investment.

Good financial management will ensure that you can detect, if not prevent, any problems.

With this in mind, you’ll need to make sure that your financial controls are detailed enough to provide you with enough information to make the right decisions.

Here is a list of some key controls:

Compare budgets and cash flows to results. You need to ensure that budgets and cash flows are compared to actual results and that any significant variations are investigated and reviewed accordingly. Setting up the budgets and cash flow forecasts clearly define where your business is headed. Reviewing them regularly enables you to see how you are tracking so you can make any adjustments you need to get back on track.

Prepare financial information regularly. Financial information should be prepared and available on a regular basis so you can make informed business decisions as required. With the advent of more sophisticated online accounting systems, you can get real-time data and reports on exactly where you are.

Approve all price and payment terms. Ensure all sales quotes and orders are agreed and approved for price and payment terms. The better this is communicated to your customer the less likely problems will occur. It’s one thing to get the job, it’s another to get paid when you want/need to. Communicate regularly with your client.

Review debtors regularly for outstanding amounts. In an ideal business world, you would have no debtors because every client would pay you on completion of the job. In the real world, this is not the case. So you need to make sure you are following up with clients to ensure they pay as soon as possible. Agree to suitable payment arrangements if need be.

Reconcile all bank accounts. All accounts should be reconciled on a regular basis so you have accounted for all receipts and payments. That will allow you to know exactly where you sit with both your debtors and creditors and what your cash position is. In addition, it will provide accurate reporting so you’re not missing anything and are therefore looking at up-to-date reports.

Ensure payments are approved and recorded. All wages, salaries, commissions and contractor payments should be approved and accurately recorded. Your labour force is a major component of your costs for your business. You must check and review this cost regularly to make sure the correct payments are made and that any variation is investigated and accounted for. You need to make sure your employees’ time is managed effectively and that your contractors are charging you for the work they have performed based on either quotes provided or your expectation of hours worked for the jobs completed.

Record all cash payments. You need to ensure that any cash payments are recorded appropriately against accounting records. This may not sound important, but you may be surprised how much you and your business spends on its smaller expenses on a day-to-day basis. It could add up to be quite a significant amount by the end of the year, and you want to ensure that nothing is missed so you can claim your rightful tax deduction.

You need to put in place these controls to ensure that your business is protected.

A regular review of these procedures will ensure that you have good financial controls in your business so you can spend your time on growing your business and achieving your goals.

We all want to make things easier and more efficient. In the building game, this has been made possible through innovation in tools, equipment processes and materials, all of which save you time, avoid problems and enable you to achieve more without extra effort. The same is true when it comes to money management – by adopting standard processes and systems in your business, you can save time, save money, solve problems and move towards the lifestyle you want.

Do you have all accurate, up-to-date financial information at your fingertips at all times? Are you proactive, rather than reactive? If so, great. If not, give us a call on (03) 9349 3499 or email is at admin@adpartners.com.au for a free 30 min consultation. Let us help you setup for efficient reporting and give you your time back so you can grow your business and achieve your goals.

Are you lodging and paying all your ATO commitments on time?

You need to ensure that all of your statutory compliance is met on time and with complete accuracy. If you don’t, you’ll be hit with penalties, interest and extra costs to fix the problem.

This is even true in areas that you may believe are simple or straightforward, such as hiring contractors versus hiring employees. You may think you know the difference, but do you really? To be considered a contractor, certain criteria need to be met:

• They need to have a certain level of control over the work they are performing on a day-to-day basis.
• They are engaged to produce a specific result.
• They have the right to delegate work.
• They bear the commercial risk and responsibility for their work or injury.
• They provide their own tools, equipment and, in some cases, materials.
• They work for you on an as-needs basis, rather than being an integral part of your business.

They may have an ABN, but that in itself is not enough. They may work for you only 80 per cent of their time, but that is also not enough. They may only work for you for a short period of time, such as two months, but that is still not enough to consider them to be considered a contractor.

So let’s take a look at the main compliance requirements for your business, and how you can ensure you meet them.

The main compliance requirements you need to be aware of in a building and property development business include tax, superannuation, workers’ compensation, payroll tax, land tax and stamp duty.

Tax

There are a number of tax obligations that every business needs to meet.

The first is your obligation to lodge annual tax returns to the ATO, be they as an individual, partnership, company, trust or self-managed superannuation fund.

The second is your obligation to lodge monthly or quarterly activity statements. Activity statements account for your goods and services tax (GST), your pay as you go (PAYG) withholding and your PAYG instalments. The frequency of your activity statements will depend on the turnover of your business (for GST) and the level of your payroll (PAYG). Irrespective of the frequency, the obligation remains the same: lodgement must take place.

Lodging your annual tax return and your monthly or quarterly activity statements can be managed with minimal effort using cloud accounting tools – a must for businesses in today’s commercial world. It not only helps with lodging on time, but also making sure you’ve reported accurately.

Once again, this is an area where cash flow management is important. While lodgement is one key compliance requirement, payment is the other. Ensuring you have accurately captured all relevant income and expenses will ensure the accuracy of reporting. Having done so will help you manage your cash flow position because you will know exactly what is required to make provision for the necessary payments of your tax obligations.

If your activity statement results in an amount payable, this typically suggests that you have received more business income than you have paid business expenses, not including payroll. In this instance, if your cash flow is effectively managed, you should have the funds to make payment. Sounds simple enough, doesn’t it? Unfortunately, it can be tempting to utilise some of that excess cash elsewhere and, as a result, be left a little short when payment to the ATO is required. However, if you are monitoring your financial statements on a monthly basis, as discussed in Chapter 1, this will help prevent this from happening.

Meeting these ATO obligations keeps you ahead of the game. There are some non-negotiables in business and the ATO is one of them. The sooner you accept its place in business and the obligation for the lodgement and payment of your compliance requirements, the better off you will be.

Superannuation

The next compliance issue relates to your labour force – superannuation.

The superannuation guarantee scheme requires you to provide a minimum level of superannuation for your employees, currently being 9.5 per cent of their gross pay. If you don’t pay the required minimum, you will be liable to pay a non-deductible superannuation guarantee charge, which is made up of the superannuation shortfall (the super you should have paid) plus nominal interest of ten per cent plus an administration charge of $20 per quarter per employee.

This might not sound like a significant penalty, but I can assure you that it can quickly add up to be a major financial burden. Not to mention that the ATO does not take too kindly to employers failing their superannuation guarantee charge obligations.

When you employ people on your payroll, it is relatively straightforward to understand your requirement to pay superannuation. What sometimes gets lost or forgotten is the requirement to pay the same 9.5 per cent of gross payments to your subcontractors. Not all your subcontractors would attract this requirement, but those who just supply labour as individuals/sole traders and those who work predominately for you would.

Why? The answer is that the ATO sees those contractors as employees, particularly if they are not employed to produce a specific result on a specific job or project and they are employed as part of a larger work group to work together to complete that project. In other words, they are no different to the employees on your payroll.

There is no obligation to pay those subcontractors who are employed to perform a specific job, such as roofing contractors, electrical contractors and plumbers. If the transaction is considered to be a business-to-business relationship with another company that supplies labour and materials, then the obligation for superannuation does not exist.

Understanding the difference between the two will ensure you comply accordingly. More importantly, with this knowledge, you may seek to employ subcontractors on a different basis moving forward so as to not impose additional obligations on your business.

Workers’ compensation

A requirement from day one of employing a labour force is to ensure that they are covered for any injury caused relating to their employment with your business.

Workers’ compensation applies in a similar manner to superannuation. If the labour, be it under an employee relationship or as a permanent or semi-permanent subcontractor, is considered to be an employee relationship in the eyes of the industrial relations and tax law regime, then workers’ compensation is required to be paid.

You can pay it quarterly or yearly in advance and it is based on your estimate of what your rateable remuneration will be for that financial year. Should your estimate be higher, you will be entitled to a refund that will usually take the form of a reduction of the next year’s premium. Should your estimate be lower, you will be required to pay the excess at the end of the financial year.

You have a requirement to lodge an annual Certificate of Remuneration to confirm what your actual payments to employees, directors, contractors and apprentices were for the financial year, including payment of superannuation. On this annual certificate, you are also required to estimate the following year’s total payment to the above labour force. This estimate then forms the basis for the premium you will be required to pay for the upcoming financial year.

Just like with superannuation, determining how you engage the services of subcontractors will have an impact on your workers’ compensation payments.

While there is a financial impact of deciding whether your labour force will be employees or external contractors, the issue of control may be just as important, if not more so. As explained earlier, you have total control and direction over employees in terms of what they do, how they do it and when they do it. When it comes to external contractors, they control how and when they perform the work, and even who performs the work, within the specific requirements of the job. They can delegate to their employees or subcontractors, and their methods could well differ to your own. While you may lose some control, you do benefit from not having to direct and manage the work, given you have confidence in the contractor you have employed to perform the work.

In summary, there are many statutory compliance obligations placed upon you in your building and property development business. Being aware of these is the first step. Being set up to account for these is the second. Knowledge is power but management is success.

You may be aware of your obligations, but would it hurt to be sure? Give us a call on (03) 9349 3499 or email us at admin@adpartners.com.au to arrange an obligation free 30 min consultation to ensure that you have the most efficient systems in place to meet all of your statutory compliance on time and with complete accuracy.

Did you pay too much tax last year?

Human nature may suggest the answer is “yes”, but do we really know?

The answer lays in the structure of your business.

The benefits of having the right structure are that it saves you money by reducing the amount of tax you need to pay; it gives you flexibility when it comes to distributing profits and adding or removing partners; it enables you to grow without any adverse effects; and it gives you peace of mind, knowing that you are set up not only for today, but for well into the future.

If you don’t have the right structure, on the other hand, it could cost you your business.

When it comes to structuring your business to minimise tax, there are two areas to consider – your business’s taxable income and any potential for Capital Gains Tax (CGT).

If your business derives a taxable income, then minimising income tax will be an important factor when choosing your business structure.

You want to ensure that any profit generated by your business is taxed at the lowest possible rate. This can be done by ensuring that individual tax rates and tax-free thresholds are taken advantage of, and that any additional income is taxed at a corporate rate.

At the time of writing, income tax rates in Australia are as follows:

Taxable income / Tax on this income
$0–$18,200 / Nil
$18,201–$37,000 / 19c for each $1 over $18,200
$37,00 –$87,000 / $3,572 plus 32.5c for each $1 over $37,000
$87,001–$180,000 / $19,822 plus 37c for each $1 over $87,000
$180,001 and over / $54,232 plus 45c for every $1 over $180,000

Different structures have different treatments of tax. If you are a sole trader, all profit earned by the business will be counted towards your personal income and taxed at the rates above. The same goes for partnerships, though the profit would be divided between the partners.

Profits generated by companies, on the other hand, are taxed at a rate of either 27.5 per cent or 30 per cent, depending on their aggregated turnover.

Using the figures above, the percentage of income tax you pay increases as your income does, reaching a total of 30 per cent at $180,000 in income (total tax paid of $54,232 ÷ total income of $180,000 = 30%). After this, the percentage increases with every additional dollar earned. This means businesses making over $180,000 in profit can pay a lower percentage of tax than they would have otherwise if they use a company structure. You can also gain tax benefits if your income is less than $180,000 where you could pay yourself $87,000 as a salary or wage and leave $93,000 of income in the company to pay tax at the corporate rate. In this example, you would save either nine or 10.5 per cent tax.

When it comes to trusts, the income is distributed to beneficiaries and is then recorded as a part of their taxable income. As you can choose how much income goes to each beneficiary, you can maximise your tax benefit by paying more income to beneficiaries who are in lower income brackets, and benefit from lower tax rates.

Finally, SMSFs pay a flat tax rate of 15 per cent on the net earnings, including concessional contributions. This structure is the most tax efficient, however, it is also the structure with the most restrictions in regard to operating a business, so please seek advice if contemplating an SMSF.

Note that the government is continually putting in place measures to reduce the tax benefits of certain structures depending on the type of business you run and how you run that business. For example, contractors in the building industry are now facing the likelihood that the ATO will not grant them an individual ABN if the ATO believes that they are effectively operating as an employee contracting to one employer for only their labour services. Instead, a business operation in the eyes of the ATO is one where you contract to two or more employers and when you supply your own plant and equipment and/or materials.

The second area to consider when it comes to tax minimisation is Capital Gains Tax (CGT).

If your business derives income that is considered capital, then planning to minimise CGT is important.

Income that would be considered capital is the profit made when you sell an asset. Under that simple definition, property development would be considered capital. Unfortunately, it is not that simple, as the ATO has introduced significant legislation in this area. For example, if you undergo a property development and your intention is to make a profit by selling the developed properties at completion, the ATO now considers such an activity as income, not capital.

So, what might they consider capital? If we take the example above but change the intention from selling the developed properties at completion to renting the developed properties for a period of time before, then selling them at some time in the future, this scenario would be considered capital at the time of sale of the rental properties.

The ATO provides a tax incentive for you to hold on to assets for a period of at least 12 months, where they will give you a 50 per cent CGT discount on the profit on the sale of the properties.

The other main activity that would be considered capital, and one that is generally not even considered when setting up a structure, is the sale of your business. If your intention is to build value in your business and sell it for a significant profit at some point in the future, then CGT should be a major consideration.

Structuring your business so that you can get access to both the CGT 50 per cent discount and various small business concessions is important if you plan to generate income that is considered capital.

So which structure should you choose? The only structure which is not entitled to the 50 per cent CGT discount is a company. Therefore, all of the other structures are valid options for accessing the CGT discount along with other small business concessions.

However, while a company cannot access the CGT discount, there is a loophole. If you operate your business in a company structure you can benefit from the CGT discount if you sell your shares in the company, rather than selling the business and retaining the company. The shareholder then becomes the seller and if the shareholder is you (individual) or a trust you are connected with, then you can access the CGT discount. You need to be aware, though, that a purchaser may not wish to acquire the shares in your company as it may not suit their requirements.

You may also minimise CGT by conducting your business through an existing entity with available capital losses. For example, if you have an existing trust that has capital losses from a previous investment that was sold at a loss, this can be offset against a future capital gain, thus reducing the total profit and the tax you’ll need to pay as a result.

It is important to also consider the other taxes that affect your business, including payroll tax, stamp duty and land tax. Other costs include workers’ compensation, superannuation guarantee contributions and leave entitlements.

It can be a minefield and you need to make sure you don’t make the wrong step.

For an obligation free 30 min chat, please contact us via phone on (03) 9349 3499 or via email at admin@adpartners.com.au to arrange a convenient date and time to review your business and your structure.

Have you prepared your budget/cashflow for the upcoming year?

It’s essential that you take the time to sit down and map out a plan to get control of your money. That means knowing where, when, how and why it is coming in and going out.

As a result, you need to prepare your cash flow forecast for the next 12 months.

The cash flow forecast is a detailed report that shows the predicted movement of your cash position. To create this, you need to understand not only what level of sales and expenditure you are likely to generate, but also the timing of it. This timing determines your cash position at any point in time.

Creating a cash flow forecast is critical for you to be able to manage your cash flow and make sure your business meets all its financial obligations (and, most importantly, leaves you with some cash in your pocket). After all, as an ambitious business owner you are in business to make some money for yourself and improve your own lifestyle, not everyone else’s.

For a free copy of my Cash Flow template, go to www.adpartners.com.au/cashflow.

To create your cash flow forecast, start with your fixed expenditure. These are those expenses that must be paid on a weekly, monthly, quarterly or yearly basis. These can go directly into your forecast without too much thought.

The next area to consider is your sales/income. Unfortunately, these areas are not fixed, and neither are the direct variable expenses attached to them. You might not know the exact number of projects you’ll be working on over the next 12 months, or the scope of those projects, which makes it difficult to predict your income and expenses like the materials and labour required for those jobs.

A secondary complication is timing – not only do you not know when these projects might take place (and when the direct variable expenses have to be paid), you also can’t guarantee that the client will pay you exactly when you want.

Forecasting the timing and dollar value of your sales will depend on both historical and future factors. Some historical factors include how long you have been in business, how stable or predictable it has been, whether your business is growing or shrinking, the size of your operation and what’s been happening in the building and property market. Some future factors are whether the recent trend will continue (up or down), whether you are planning to do anything in particular to generate more business or win some large contracts (which would likely give you a fairly predictable outlook), whether you are planning to employ more workers or branch out into other areas.

You can see that there are a number of things that you need to consider and, the more you do, the better you will understand what is happening in your business and the market. The more you know your market needs, the more you can focus on providing exactly that.

Once you have put your projections in place, the next step is analysing what the cash flow forecast is telling you (you may be surprised).

Whether that is the amount and timing of sales or the amount and timing of certain expenses, your forecast will give you a clear picture of what the next 12 months will look like and will likely highlight the areas you need to start focusing on immediately. You will be forced to start thinking about which actions you will take, such as trying to cut down on certain expenses or increasing certain types of revenue streams. You may even decide that you require a capital injection, be it short-term or otherwise. Regardless of what you decide, the benefit of creating a cash flow forecast is that you will be able to make educated decisions because you will have the right information in front of you.

Without this forecast, you just might be guessing. That can be a very dangerous thing because one wrong decision can mean the difference between a healthy profit, completing a project at cost or, worse still, a loss.

It is far more effective to be able to make decisions earlier in the business process and before any potential problems arise. Being proactive, rather than reactive, will substantially increase your likelihood of success.

As stated earlier, download your free copy of my Cash Flow template at www.adpartners.com.au/cashflow and feel free to contact us to help you ensure all relevant issues have been considered in completing the forecast to provide you with a real live working document in which you can financially measure your progress moving forward.

How can you set effective goals?

How can you set effective goals?

You need to be SMART.

The SMART goal-setting method is one way to help you set more effective goals, which then makes you more likely to achieve your ultimate goals. You do this by setting goals that are:

Specific: What do you specifically want to achieve? Do you want higher revenue, to hire more staff, to work with more clients, to increase your profits? Or do you want to be able to take more time off and live a better lifestyle because of your business?

Measurable: How will you measure that you have been successful? When it comes to revenue, what number do you want to hit? How many people do you want to hire and how many clients do you want to work with? How much time would you like to take off? How much income do you want to be earning?

Assignable: Who is responsible for achieving this goal? Is it you or someone else? Will it be a team effort and, if so, who’s responsible for what?

Realistic: Is the goal realistic? Is it achievable, given your available resources? Or will something need to change (the goal, the timeframe or your resources) to make it realistic?

Time-bound: When do you want to achieve your goal? Do you have any other business or personal activities that may impact your timeframes?

They key is to get things done. Or, as the Dent organisation would say, #GSD – Get S#%T Done.

Here’s a link to my new book, www.buildit-book.com.au. to help you along the journey.

The 5th Step to Business Mastery is…..Support

Support

‘Give light and people will find the way.’ – Ella Baker

As a business owner in building and property development, there will be many times when it feels like you’re on your own as you’re managing the entire business. This industry has many demands and challenges, and you need to cover many bases.

One of the single biggest mistakes business owners make is that they try and do everything themselves. The reality is, you can’t. At the very least, you shouldn’t.
For you to personally manage your accounting and finances takes up far too much of your time and effort, which means it is taking time away from what you do best and, ultimately, costing your business money. Every hour you spend on administration results in an hour lost on doing the things that actually generate dollars.

You can’t be all things to all people, all of the time. The reality is that there are not enough hours in the day and there is not enough expertise in any individual to be able to achieve that. So, what do you need?

Support.

You need the support of others to ensure that you don’t leave a roof tile out of alignment or miss the final coat of paint in the ensuite.
Similarly, while you have the expertise to manage the operational functions well, you will need some assistance with the financial management of your business.

Why?

Because that’s not where your expertise lies. Your knowledge and experience is in building and property development, not financial requirements and obligations. While you know the basics, there is always more to learn when it comes to making your business as successful as it can be. For this reason, you need to have the right people supporting you that do.

Who can help?

Your own personal chief financial officer (CFO).

A CFO is the most senior executive of a business who is responsible for its financial control and planning. They are in charge of all of the accounting functions of the business, including preparing financial statements and budgets, credit control, monitoring expenditure, managing cash flow, coordinating finance and capital raising, managing investment, managing all taxation and other compliance requirements, and reporting financial performance and financial data to the chief executive officer (CEO). You are the CEO.

When it comes to finances, the CEO has oversight of the business’s financial decisions and makes decisions around key investments. However, the CFO is the one who does the bulk of the management.

What do you do if you don’t have a CFO? Employ one?

Not all businesses can afford the luxury of employing a full-time CFO, particularly, small- to medium-sized businesses. So, what then?

The answer is simple. You employ a virtual CFO.

Now I hear you ask, ‘What is a virtual CFO?’

A virtual CFO is essentially the same as a CFO, but fills the role on a part-time basis for a fraction of the cost of a full-time CFO.

The virtual CFO is your personal financial adviser – someone who becomes the trusted source for financial perspective. Someone you can trust who works closely with you and your business to help you make the right decisions to improve the financial management of your business, and your business’s performance as a result. In these tough economic times, a virtual CFO will provide you with the valuable insight you need to navigate your way to success.

Your virtual CFO will enable you to take advantage of a level of expertise not previously available to you, which will now enable you to run your operation while knowing that all your financial matters are being taken care of by a highly qualified and experienced adviser.

Outsourcing this part of your business makes perfect sense. If you have a plumbing issue, you hire a plumber. If you need an electrician, you get one. If you want to get fit, you engage a personal trainer. If you want a financially healthy business, you get yourself a virtual CFO.

Doing so will resolve your financial management issues.

You will no longer have to base all your financial business decisions on gut feel. Instead, you will have sound, informed financial advice at your fingertips.
You will no longer have to worry about what the numbers mean in all those financial reports and tax returns. You will have them explained clearly so you understand what they all mean and why they are important.
You will no longer feel like your efforts are not being rewarded financially. You will have the required expertise alongside you to convert your effort into dollars.

If you do it, you will never look back.

It is all detailed in my book, http://www.buildit-book.com.au/. Take a look now.

The 4th Step in Business Mastery…..Systems

Systems

‘Step by step and the thing is done.’ – Charles Atlas

Good financial systems need to be in place to help you manage your business. They will assist in monitoring your financial situation as you move towards your goals, they will ensure you have enough money in the bank to meet your expenses, and will keep you on top of your statutory requirements.

One of the most important aspects of running a business is to ensure you have adequate cash flow to meet all of your financial obligations. Cash is the lifeblood of your business and ensures you stay afloat. Unfortunately, most business owners tend to focus on profits rather than cash flow, and this is where most cash flow problems begin.

Put simply, there are two sides to your cash flow:

1. Money you receive from your clients for work performed.
2. Money you pay out to workers, suppliers, the ATO and others.

One of the biggest killers to your business cash flow is slow paying customers. It is great to have lots of customers, however, if they are not paying you on time (or at all), that will make it very difficult for you to pay your bills.

The second silent killer is your commitments to the ATO. Depending on the size of your business, you will have to pay the ATO for your GST and PAYG obligations. After your workers, the ATO should be your top financial priority. It is one organisation that you do not want to get on the wrong side of.

The third silent killer is over committing expenditure. The way you manage your stock of materials is important. The vast majority of material supplies are readily available and therefore there should be no reason to buy extra ‘just in case’. The same goes for equipment. While we tend to want to have every piece of equipment that we could possibly ever need, that is not a sensible approach, particularly if there are certain items that would just end up sitting in the warehouse gathering dust. In addition to that, we tend to want the best of everything, and sometimes just because ‘the other guys have one’. Neither of these are smart business decisions.

It is possible to be making a profit, yet still experiencing cash flow problems. A simple example is when you are generating sales, which increase your profits, but you are not collecting the money and therefore your sales revenue is not the same as your cash inflow. Having said that, I am sure you do receive the money at some point in time, but the timing of the receipt is very important.

Simply, making more money will not solve your problems if cash flow management is the problem. So it’s important to establish strategies to make sure that you have enough cash in the business to operate on a day-to-day basis without facing any sort of cash crisis.

One benefit of both reviewing your historical cash flow patterns, as well as creating a cash flow forecast, is being able to make changes that will maximise your working capital.

Working capital is the money you have available to operate your business from day to day. In the building industry, working capital is made up of three key components:

• Payment to suppliers (creditors)
• Work in progress
• Collection from customers (debtors)

How much working capital you have at any one time is dependent on the length of time between you using your cash to purchase materials and pay your labour, and receiving payment for completing a job.

Clearly, there will always be a delay between these two steps. Problems arise when you are unable to meet your financial obligations because you are still waiting for payment.
When you are working on a project that is larger than usual, and you know there will be a substantial delay before you finally get paid, you will need to plan for that by ensuring you have a larger amount of working capital on hand to tide you over. By contrast, for smaller jobs where turnaround time is quite short, your working capital requirements will be minimal and your cash position will be relatively unaffected.

The real issues occur when delays are unexpected. For example, you may be doing a small renovation for a client and, while you have quoted the job and know how long it will take to complete, there is no way to be sure that the client will pay for it on time. Depending on the size of that job, you may wish to demand an upfront payment to cover the materials you need to pay for before commencing the job.

The key to successful cash management is carefully watching all the steps in the process and planning accordingly. The quicker you can make the cycle turn, the faster you can convert your trading operations back into cash, which means you will have increased liquidity in your business and will be less reliant on cash or extended trading terms from your suppliers.

Fortunately, you can manage your payments to suppliers, your work in progress and your debtors to improve your cash flow.

It is all detailed in my book, http://www.buildit-book.com.au/. Take a look now.

The 3rd Step to Business Mastery…..Statutory

Statutory

‘It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.’ – Josiah Charles Stamp

The building and property development industry has its own compliance regulations to ensure all the necessary standards are met.
For example, your state building authority requires that, as a builder, you must be a registered building practitioner and use a building contract when work costs more than $5,000. This work includes such things as building a house, renovations, extensions, garages, driveways, demolition and even preparing plans. You must also take out Domestic Building Insurance when the cost of the work reaches a certain level ($16,000 in Victoria or $20,000 in New South Wales, for instance). If the building project requires a building permit, there are fines that can be levied against you if you carry out that work without one.

Meeting these compliance requirements is a must, otherwise approvals will not be granted and/or rectification will be required, which can be a costly exercise. Worse still, you could lose your licences and registrations and, in certain cases, your insurances may not be able to help.
There is no difference when it comes to the financial management of your business. You need to ensure that all of your statutory compliance is met on time and with complete accuracy. If you don’t, you’ll be hit with penalties, interest and extra costs to fix the problem.

So let’s take a look at the main compliance requirements for your business, and how you can ensure you meet them.

Compliance requirements

The main compliance requirements you need to be aware of in a building and property development business include tax, superannuation, workers’ compensation, payroll tax, land tax and stamp duty.

Tax

The first obligation is to lodge annual tax returns to the ATO, be they as an individual, partnership, company, trust or self-managed superannuation fund.
The second is your obligation to lodge monthly or quarterly activity statements. Activity statements account for your goods and services tax (GST), your pay as you go (PAYG) withholding and your PAYG instalments. The frequency of your activity statements will depend on the turnover of your business (for GST) and the level of your payroll (PAYG). Irrespective of the frequency, the obligation remains the same: lodgement must take place.
Lodging your annual tax return and your monthly or quarterly activity statements can be managed with minimal effort using cloud accounting tools – a must for businesses in today’s commercial world. It not only helps with lodging on time, but also making sure you’ve reported accurately.
Meeting these ATO obligations keeps you ahead of the game. There are some non-negotiables in business and the ATO is one of them. The sooner you accept its place in business and the obligation for the lodgement and payment of your compliance requirements, the better off you will be.

Superannuation

The superannuation guarantee scheme requires you to provide a minimum level of superannuation for your employees, currently being 9.5 per cent of their gross pay. If you don’t pay the required minimum, you will be liable to pay a non-deductible superannuation guarantee charge, which is made up of the superannuation shortfall (the super you should have paid) plus nominal interest of 10% plus an administration charge of $20 per quarter per employee.
When you employ people on your payroll, it is relatively straightforward to understand your requirement to pay superannuation. What sometimes gets lost or forgotten is the requirement to pay the same 9.5 per cent of gross payments to your subcontractors. Not all your subcontractors would attract this requirement, but those who just supply labour as individuals/sole traders and those who work predominately for you would.

Workers’ compensation

From day one of employing a labour force you must ensure that they are covered for any injury caused relating to their employment with your business.
Workers’ compensation applies in a similar manner to superannuation. If the labour, be it under an employee relationship or as a permanent or semi-permanent subcontractor, is considered to be an employee relationship in the eyes of the industrial relations and tax law regime, then workers’ compensation is required to be paid. Just like with superannuation, determining how you engage the services of subcontractors will have an impact on your workers’ compensation payments.

Payroll tax

Should your total employee workforce reach a certain threshold, you will be required to pay payroll tax. Depending on your particular building and property development operation, this could have a material impact. Typically, in a property development project the labour force would be external to your business and therefore would not impact you at all. However, in a building operation, this is something you may need to monitor, particularly if your operation fluctuates depending on the projects you have year to year.

Land tax

In a business where you hold land for investment purposes, you need to be mindful of any land tax implications. Land tax is essentially a tax for holding land for investment or business purposes. This includes property where you operate your business or property you lease to another entity to operate their business. The greater the value of land you hold, the more land tax you will pay as the percentage rate of tax increases as the value increases. The state authorities calculate the land tax based on the rateable vale of the land, which appears on your local rates notices, and multiplies it by the percentage rate of tax based on the total value. You need to be mindful of the government’s grouping provisions. These provisions dictate that if the same person is the ultimate owner, irrespective of the structure, they will be grouped together and land tax payable at a higher rate.

Stamp duty

When you purchase land or property, you are required to pay stamp duty on the purchase. Stamp duty rates vary depending on the price of the property as well as the state in which the property is located. Regardless of your state, stamp duty adds up and is something you should be aware of when costing any acquisition.

Summary

In summary, there are many statutory compliance obligations placed upon you in your building and property development business. Being aware of these is the first step. Being set up to account for these is the second. Knowledge is power but management is success.

It is all detailed in my book, http://www.buildit-book.com.au/. Take a look now.