It’s often overlooked by business owners but government small business grants can be a great opportunity for Qld businesses to increase cash flow and gain much-needed support to grow.

The local, state and federal governments are currently offering various programs of financial assistance and grants to support small and medium businesses to continually improve and pursue growth.

If you have plans to invest in the development of your business this year it is definitely worth looking at what government grants are available and whether you are eligible.


Government Small Business Grants Currently Available

1) Entrepreneurs’ Program (Australian Businesses)

Co-funded grants of up to $20K

This is the Australian Government’s flagship initiative for business competitiveness and productivity. The program ensures businesses get the advice and support needed to improve their competitiveness, productivity and to seek growth opportunities. Support includes advice and co-funded grants to accelerate commercialisation, take advantage of growth opportunities and help you access the latest technology, research and innovations. MGI is working with a number of clients who have used this grant to fund our business advisory and growth services.

To be eligible you must turnover between $1.5 – $100 million (between $750,000 and $100 million for remote and northern Australian businesses) and operate in one or more growth sectors:

  • advanced manufacturing;
  • food and agribusiness;
  • medical technology and pharmaceuticals;
  • mining equipment, technology and services;
  • oil, gas and energy;
  • enabling technologies and services of the listed above
  • or satisfy the criteria to be a tourism business located in northern Australia.

In addition your business must meet one of the following:

  • be engaged in, or expanding your operations to be engaged in, interstate or overseas trade and commerce
  • a foreign corporation formed within Australia
  • a corporation for which trading or financial activities are a substantial or significant proportion of the corporation’s overall activities
  • a corporation or body formed under commonwealth law.

Learn more about the Entrepreneurs’ Programme grant.


2) Advance Queensland Accelerate Small Business Grants Program (Queensland businesses)

Matched funding of up to $10K

This is one of the government business grants for business owners that can demonstrate high growth and employment aspirations to engage a strategic adviser to work closely with them in their business. To be eligible you need to be a Queensland business that has been trading for 3 years, have a minimum turnover of $500,000, have a maximum headcount of 20 employees and be experiencing growth with a clearly defined growth opportunity. Learn more about the Advance Queensland Business Grants Program.


3) Advance Queensland Business Development Fund

Funding between $125K and $2.5M

The government offers co-investment for Queensland businesses undertaking groundbreaking research, ideas, products or services to help make their ideas a reality. Find out more.


4) City of Gold Coast Programs (Gold Coast businesses)

Growth Accelerator Program 

This program is specifically targeted at high growth businesses and will assist in identifying the critical steps needed to achieve the next growth phase – rapidly and sustainably. It equips businesses with an understanding of how to build a thriving business that is not reliant on one person and identify and overcome potential barriers for growth. MGI South Queensland has delivered this program for the last three yearsLearn more.

Lead for Business Growth

This session provides business owners with the leadership tools and knowledge to successfully lead their business towards continued growth. Learn more.

Market Identification Master Class

This master class will take you through a technical process to test and qualify your key target markets and the best channels to reach them. Learn more.

Emerging Exporters Program

This program helps local businesses to develop their export supply capabilities with the aim of developing export markets globally. Learn more.

Securing Council Supply Contracts

The City, as the second largest local government in Australia, undertakes substantial procurement. This session will provide you with information and updates on how to take advantage of local procurement opportunities. Learn more.


5) Brisbane City Council Grants (Brisbane organisations and NFPs)

The Brisbane City Council provides funding for not-for-profit community groups and creative industry initiatives. See an overview of what local government grants are available here.

MGI South Queensland have tax advisors and business consultants in Brisbane and on the Gold Coast who can help you navigate the various grants, determine which might be right for you to apply and assist you in the process.

MGI South Queensland can assist Brisbane and Gold Coast small businesses with tax advice as well as identifying and applying for appropriate government grants.

If you are a small business interested in applying for government small business grants and would like to know more about what programme’s MGI South Qld’s clients have been successful with contact us today.

In my work advising business owners I’m often asked the following question – “how much profit should I be making?” Or to put it another way, “how much profit is enough?”

Often a business owner will advise me that they’re making a certain gross profit margin (GP margin) or certain net profit. Sometimes, the GP margin might appear reasonable and other times it might not. Then I ask them how many products or services they provide. “How many distribution channels do you have? Do you sell online, wholesale, retail etc.?” Usually, the answer is that they sell more than one product or service, usually many more. Sometimes they’ll even sell through multiple distribution channels.


Granularity

I then ask them – “do you have granularity over the profitability of each individual product or service and/or distribution channel?” The response is usually a blank look, before the inevitable “aha” moment. The reality is that whilst a business may achieve a GP margin of say 40%, you can be sure that it is not achieving 40% on every single product, service or distribution channel. On some lines, the margin may be higher. On others it will be lower.

In my experience, the reality is that many businesses do not have a clear picture on which of their product or service lines are profitable and which aren’t.


Boston Matrix

The Boston Matrix is a useful model to use to focus attention on this issue. There appear to be numerous different examples of the Boston Matrix. Below is an example of the one I use.

Product Portfolio

As you will see, it focuses on two axes:

  • The x axis (or horizontal axis) focusing on Business Strength. In other words, how good is the business at producing the various products or services? These attributes are usually internal to the organisation.
  • The y axis (or vertical axis) focuses on the Market Attractiveness of the various products or services sold by the business. These attributes are usually external to the business.

The challenge is to then come up with a series of criteria for determining where a particular product, service or distribution channel fits on the x and y axis. For example, some factors that may indicate the market attractiveness of a particular product could include:

  • The growth potential of the market
  • Margin or profitability
  • Market size

Some factors that may indicate whether the business has business strengths in each product could include:

  • Production efficiency
  • Product quality
  • The skills and knowledge of the business

Dog, cash cow, star or wildcat?

The key is to then allocate a score (out of 10) to each attribute of the x and y axis for each product line, service or distribution channel, as well as a total sales figure for each product. The sales figure will help you assess the size of the portion of your business that is either a dog, cash cow, star or wildcat.

The challenge is to rid the business of dogs, use cash cows to fund the development of wildcats which may in turn develop into stars.

Whilst this may be helpful at a superficial level, it doesn’t help identify how profitable each of these products and services are to your business. Often, there will be different costs to purchase raw materials for a particular product. There may also be different labour and overhead costs. In my experience, a large number of SMEs don’t allocate costs with sufficient clarity. They are therefore unable to achieve a true appreciation of the profitability of individual product lines or distribution channels. The result of this is to continue selling dogs which are subsidised by stars and cash cows.


Activity Based Costing

In my view, the most appropriate manner to obtain clarity on product profitability is by Activity Based Costing. However, this is not always feasible or economical for many SMEs. For this reason, I recommend that business owners apply the Pareto principle. In other words, spend 20% of the effort to get 80% of the information, not the other way around. So I try to encourage them to focus on allocating the main operating costs to product lines initially. They can then refine it down the track if they want more precise information.

Costs that may typically fall into the “easy to allocate” bucket include purchases or raw materials, direct labour, premises and plant and machinery costs. In my experience, this can be achieved in even basic accounting packages by creating “jobs.”  Alternatively code the above costs to a “job”, which may be a particular product, product category or distribution channel.

Once you are able to identify which product categories are not as profitable as others, you can then implement a strategy to address it. As the saying goes – what you can measure, you can manage. If you’re not measuring it, you can be sure you’re not managing it, meaning you’re flying blind.

Unless you’re running your business as a sole trader, the time will come when you must decide how you will remunerate yourself for your time, efforts and entrepreneurship. The profits of your business belong to the company operating that business, not to you. But there are various ways in which you can extract the value you have created. There are a number of factors you should consider in deciding whether to pay yourself via a salary, dividends, drawings, or a combination.


Legislative restrictions

Firstly, it’s important to note any legal restrictions that will limit your options. The most common of these include:

  • PSI rules: if your business income is primarily produced through your personal skills, knowledge and efforts, the PSI rules may apply. This means you’ll have to attribute the company’s profit to yourself as salary income.
  • Excess payments to associated persons: your company cannot pay excessive or unrealistic salaries to family members who perform no or little actual work for the business, to avoid tax.
  • Division 7A: you cannot draw money out of your company that exceeds any amounts you have previously loaned to it. If making a drawing leaves you owing your company money, you will need to repay it or enter into an interest-bearing loan agreement with your company – otherwise the sum may be treated as an ‘unfranked’ dividend, which will assessable for tax.

Some of these rules are very complex, so you should seek detailed advice from your accountant if you think that they might apply to your business.

Apart from these considerations, you are free to decide how you wish to remunerate yourself.


Tax outcomes

  • Salaries
    You will need to include any salary your company pays to you in your personal tax return and pay tax on it at your marginal rate. Your company will have PAYG withholding, superannuation, workers’ compensation insurance and payroll tax obligations in respect of salary paid to you ¬– just as it does for any other employee. Reasonable salaries paid to working family members are treated the same way, in their personal tax returns. Salaries paid are tax deductible for your company – reducing its profits and taxable income, and therefore the amount of company tax it pays.
  • Dividends
    Dividends paid by a company to a shareholder out of after-tax profits are taxable for that shareholder. If the company has already paid tax, and ‘franking credits’ on the dividend are available, the dividends may be franked. The credits for the tax that has been paid will be passed on to the shareholder, which will reduce the amount of tax they have to pay on the dividend. Dividends are franked at the company’s tax rate – currently either 27.5% or 30%, depending on the size of the company. If you as an individual are a shareholder of your company, you will be personally taxed on your dividends. But if your company is owned by a discretionary family trust, the trustee will decide how to distribute the trust’s income – and may distribute it to other taxpayers in your family group, who will then be taxed on that income. In this way, a carefully-considered ownership structure can help you to manage your tax burden by splitting your company’s profits with other taxpayers in your family.
  • Drawings
    Drawings apply when you have previously leant money to your company – usually during the business start-up and initial growth phases. Drawings are loan repayments by your company to you, not a distribution of profits, so there will be no tax payable on repaying these amounts as long as you have not breached Division 7A (see above).

Commercial considerations

If you are preparing your business for sale, are applying for finance, or are in any other situation where you need to maximise the apparent profit or value of your business, it might seem tempting to stop paying yourself a salary (because removing this expense from your P&L will boost the company’s reported profits, and hence the value).

Unfortunately this is unlikely to be an effective strategy – directors’ remuneration will generally be ‘normalised’ to a market rate of salary as part of the due diligence process in any of these situations.


Conclusion

Depending on the individual circumstances of you and your business, it is likely that a combination of these strategies will be most appropriate. For example, you may choose to draw a base salary to cover your ordinary living expenses, then consider whether to pay a dividend at the end of each financial year, depending on the business’s performance and your expected tax profile.

It’s a good idea to discuss your options with your accountant, to make sure your strategy suits to your financial circumstances and tax position.

Measuring the right financial metrics is key to the ongoing health of your business. They can provide important insights into how well your business is doing, and allow you to make informed decisions to maximise your growth into the future. If you want to keep your business on track, you simply cannot ignore the process of developing financial metrics for monitoring your progress.

The specific metrics you need to monitor to achieve financial success will vary depending on your industry – but regardless of the size of your business, you should be monitoring these ten key metrics:

  • Sales revenue

You’ll need to correlate your sales data to your advertising campaigns, price changes, seasonal forces, competitive actions, and other costs of sales.
You can use asset turnover ratio, return on sales, and return on assets ratios to compare your business against others in the same industry or location.

  • Operating productivity

High staff productivity can be one of your company’s best assets and must be measured. You can apply productivity ratios to almost any aspect of your business.
Compare your productivity to industry statistics, and use your business’s accumulating statistics over time to measure improvement.

  • Gross margin

Gross margin is calculated as your total sales revenue minus your cost of goods sold, divided by your total sales revenue. It is expressed as a percentage ¬– the higher the percentage, the more you are retaining on each dollar of sales you make, to service your other costs or enjoy as profits.
Tracking margins is especially important for growing companies, since increased volumes should improve efficiency and lower the cost per unit. But improving your margins may require both effort and innovation.

  • Profit or loss

You should be preparing profit and loss statements on a monthly basis and analysing them against your budget targets. If you are not meeting your budgets there must be justifiable reasons and you should focus on these areas in future months.

  • Overhead costs

Overheads are fixed costs that do not vary with the level of goods or services you sell. It’s important to track these on a monthly basis so you can clearly see where your business is spending its money.

Use this information when updating your business plan or preparing yearly budgets. If you need to cut your fixed costs you could consider strategies like moving to a location that is less expensive, or switching utility suppliers.

  • Variable costs

Variable costs are expenses that change in proportion to your activity.

It’s useful to track these so you can make sure they are decreasing as the volume of product you sell or produce grows – and that they are consistent with industry trends so that your business will remain competitive.

  • Inventory

Inventory is one of the most important assets of many businesses. Turnover of that inventory is one of the primary sources of revenue, and it must be managed carefully.
It’s important to find the balance between having too much stock, which can tie up your precious working capital, and not having enough to meet customer demands, leading to lost sales or lower market share. You can find guidance on how to forecast and manage your inventory here.

  • Marketing and advertising

Investment in marketing and advertising can be a hefty cost to your business, so you need to measure that investment to see that it is paying for itself.
This metric assess the total cost associated with acquiring each new customer. Over time, your customer acquisition costs should go down, as your company and reputation grows and people become more familiar with your brand.

  • Customer loyalty and retention

Your business needs to be able to attract the right clients or customers and keep them. A happy client will refer your business or brand to others, bringing you new customers with no acquisition costs.

There are three common methods for measuring customer loyalty and retention: customer surveys, direct feedback and purchase analysis.

  • Break-even analysis

Break-even analysis is the process of finding your find break-even volume (the amount you need to sell to cover your costs and make no profit or loss).
It involves analysing relationships between your fixed and variable costs and your sales volume, pricing, and net cash flow. Understanding how these factors impact each other is crucial when it comes to budgeting, production planning, and profit forecasting – and break- even analysis is central to this understanding.

There is no ‘one-size-fits-all’ when it comes to choosing financial metrics for your business, and you should use a mix of quantitative and qualitative factors.
However, one thing for sure is that you do need to monitor your numbers on a regular basis to keep your business health in check. Financial analysis will guide your business away from financial pitfalls and towards important opportunities, and put you on the path to lower risk and increased sustainable cash flow.

Managing the cash flow of a business is definitely one of the most important tasks of being a business owner. Prudent business owners regularly look at updating vital business equipment to take advantage of efficiencies that are created by newer technology. Choosing the right type of asset finance to fund this equipment can help save you time and money to invest in growing your business.

It is important to ensure that the terms of asset finance is arranged so that the cash flow generated by the asset is matched to the loan repayment obligations.

When considering asset finance options, look to ask yourself:

  • What capital do I need to grow my business?
  • Is my cash flow subject to peaks & troughs?
  • How long will I need the equipment and how long before I will need to upgrade it?
  • Is technology rapidly changing in my industry?
  • Do I want to ‘own’ or ‘return’ the asset?

Plant and equipment assets can generate cash flow for a business over long periods. Ideally, any asset finance should be repaid by the time the asset is retired, or at least from the residual proceeds from the sale of the asset at that time. Ideally, you should endeavour to cover the repayments on the debt over a shorter period than the estimated life of the item because rapid improvements in technology can result in perfectly working items of plant no longer being viable and thus having little or no value.

Costs vary dependent the asset finance chosen, but it is not always the form of finance that appears to be the least costly that is ultimately the best choice for your business. Generally, the following types of financing are available:


Equipment Loan

Equipment Loans have become the most common and popular form of Asset Finance. The finance provider lends you the funds to buy the asset, and then takes a mortgage over the equipment. Payments are made over a term, generally between two to five years, depending on the equipment’s expected effective life. The rate of interest is set at the start of the loan and regular P & I payments made. The payments are generally monthly but, in some seasonal businesses such as agriculture the timing of payments can be matched with the times when the business generates its cash flows, i.e. Annual repayments in February after Harvest income has been received.

Some banks offer an Equipment Loan facility, where a business will be given a pre-determined limit, which allows them to continually update and purchase new equipment without going through an approval process provided the limit is not reached.


Hire Purchase

A Hire Purchase is where the financier pays for the asset and the client hires the asset from the financier for a fixed monthly repayment over the term. The client may use the asset but is not the owner of the asset and the title to the asset only passes once the goods have been paid for.


Leases

Operating Lease: A fixed-term rental agreement where you rent the asset from the financier, who owns it. This type of facility is useful for rapidly depreciating items like IT equipment because there is more flexibility to update and you can hand the equipment back at the end of the lease.

Finance Lease: A fixed-term rental agreement where you rent the asset from the financier, who owns it. At the end of the term of the lease, the business acquires the plant for an amount agreed at the commencement of the lease (usually called the lease residual). It is important to ensure that the final payment is not likely to exceed the estimated value of the item at that time.

The most suitable source of funding for you will depend on your business, the asset you are buying and your circumstances at that time. Therefore, it is a good idea to seek advice from your accountant before taking out any form of financing.

When you’re busy growing your business it can be easy to neglect managing your debtors – but good debtor management is critical to ensuring your business has enough working capital to reinvest and grow.

Here are six simple steps to help you effectively manage your debtors.


1. Have a credit policy and terms of trade in place

Many businesses supply goods and services on the basis of informal arrangements. Unfortunately this means that disputes often arise that could have been avoided if there had been clear, written terms of trade from the start. Having clear terms of trade is an excellent way of minimising and preventing bad debts.
Make sure you complete thorough credit history and business reference checks before you offer credit to new customers. Clearly articulate to your customers up front, in writing, your terms and the credit limits (so they know you are serious about your collection program) and ensure that they sign acceptance of your terms. It’s important that all your staff understand and follow this credit policy.

If you decide to implement new payment terms and conditions, begin with new customers or customers who wish to extend their credit limit. You may find it more difficult to introduce new terms to existing customers, especially those who have been loyal in the past or who you know personally and don’t wish to upset!


2. Provide the right information on quotes, invoices and statements

If you provide the right information on your documents, and invoice promptly, you are more likely to be paid on time.

All quotes, estimates, invoices, contracts, agreements, purchase orders, and related documents should refer to your terms of trade and credit policy. Invoices and statements should show clearly:

  • the amount owed
  • the payment due date
  • the billing address
  • your bank account details.

Include any extra details that a customer might need, such as the purchase order number, contract/account number, and details of who placed the order. If necessary, contact the customer before billing to check exactly what information they need to expedite payment.

A good way to discourage late payment is to show details on your invoices and statements of the collection charges you may apply to overdue accounts.


3. Make sure your systems are up to date and monitored

The secret to good debtor management is well-maintained information. There are many software solutions available to help you with your credit management, and increasingly more of them are cloud-based. Good software solutions can relieve you of much of the administrative and management pain associated with debtor management.

The best way to minimise issues is to monitor your debtors ledger closely – by keeping close track of the days outstanding you’ll be able to spot adverse trends and take prompt action before they start to have an impact on your cash flow.


4. Implement robust accounts receivable processes

It is very important to have a robust collections process in place, with set timescales for the various stages of communication (letters, emails and phone calls). Map out your process clearly and make sure it’s understood by all your staff. Here are some key points to consider:

Check your delivery systems and keep signed delivery dockets so that you can prove delivery.

  • Invoice as early and as often as possible, as receiving invoices late encourages customers to delay payment.
  • Automatically send 30, 60, and 90 day reminder letters and highlight your trade terms where these are not being met.
  • Regularly follow up on all slow payers to encourage payment. Once customers know you will always make contact if payment is late, you are more likely to get priority when they schedule payments. Don’t finish a follow up call without obtaining a firm commitment to make a payment. Follow up again if it is not paid on the promised date – or better still, arrange a visit.
  • In the event of debtor disputes, insist on the payment of any undisputed amounts to maintain your cash flow while you resolve the issue. Always deal direct with your customers’ decision-makers.

5. Don’t over extend credit and avoid concentration risk

It’s critical that you regularly review the credit limits for each of your customers. Look out for warning signs that they are experiencing financial difficulties. Regularly check for any changes in their buying habits and increasing levels of debt – the new business the customer is giving you may be the result of other suppliers removing credit facilities. Long-standing customers can be the greatest credit risk, because no one thinks to check on them.

High customer concentration (i.e. doing a large proportion of your business with any one customer) carries substantial risks, which can far outweigh any benefits in the long term. Be careful when handling any requests for extended credit, and keep an eye on customers who appear to be expanding quickly. A growing customer may help your sales, but rapid growth also puts pressure on their ability to pay. Make commercial decisions based on their behaviour and any available information – industry gossip about a company’s financial position is often surprisingly accurate.

Stick to your payment terms and immediately stop supplying customers who haven’t paid accounts on time. When you stop credit, discuss the situation with your customer, and reach an understanding about payment for past supplies. You can use the fact that they need your goods or services as leverage to get paid promptly and set conditions for new supplies. This might cost you some business, but it will also reduce the risk of being exposed to bad debt.


6. Bad debt provisioning

Have your terms of trade reviewed by your solicitors to make sure they are legally compliant, so there will be no impediments when it comes to recovering debts.

You may want to consider using credit insurance products and debt recovery services to manage the risk and effects of bad debts. Don’t put off sending professional demand letters or threatening legal action – and be prepared for the possibility of going to court.

Credit management is about safeguarding your profitability, so you should make provisions for bad debts in your annual or ongoing budgeting process, and act swiftly if your debtors begin to exceed your provisions.

Bad debts can quickly spiral out of control and have a serious impact on your cash flow. These six strategies will help you set up robust credit relationships with your customers from the outset – and give you the tools you need to identify and respond swiftly to individual risks or dangerous patterns in your receivables.

Formulating a strategy for your business means defining and setting your business’ mission, objectives or goals, and stating how you plan to achieve them. But while many organisations commit time and money to formulate great strategies, they often fail to turn ambition into reality.

If the execution or implementation of your strategy fails, all your time and money will be wasted. Here are the six top reasons why strategy implementation fails.

1. Your strategy isn’t meaningful

Be careful not to fill your strategy document with fancy words and grand aspirations that no one can actually relate to. If your strategy isn’t meaningful to the stakeholders in your organisation (your employees, management, clients) they can’t engage with it, and it will end up condemned to the bottom drawer.

2. You haven’t properly understood your current situation

Imagine being dropped into the middle of a jungle with just a map. The map is very detailed and shows the location of a beautiful secluded holiday villa. But you have no idea where you are right now.

A strategy that fails to properly map out where your organisation is now will be almost impossible to implement – because you won’t know what actions to take to enable you to move from ‘here’ to ‘there’. Your strategy will be as useless as a map without a current location.

3. Failing to engage the right people

You can’t simply delegate the implementation of your strategy to ‘that guy in marketing’. Sure, allocate activities for your strategy to key individuals – but you must get your executive team engaged from the start, as a lack of buy-in from management will doom your strategy to failure. To maintain momentum, you need to drive the implementation of your strategy from the top.

To ensure engagement, involve your executive team – or key individuals within the team – in regular meetings to review progress against measurable strategy implementation activities. Identify other influential individuals from across your organisation to help with implementation and drive successful engagement of all stakeholders.

4. Allocating insufficient time

Be sensible with the timeframe within which you want to achieve your organisational goals. Major change takes time to implement and bed down – and just as your business cycles wax and wane, so will motivation to achieve your strategy.

Make sure your stakeholders give appropriate priority to strategy implementation, rather than waiting until they are ‘less busy’. We are always busy – and most people overestimate what they can do in one year, but underestimate what they can do in ten.

5. It’s too far from ‘here’ to ‘there’

It’s ok for your strategy to be ‘blue sky’ – your business goals should reflect the organisation’s end game. But make sure the people on the ground who need to implement the strategy (and who might not have been involved in the strategic planning process) don’t find it too difficult to see the plan in perspective.
If your strategy doesn’t take your short term objectives into account, there will just be too much of a stretch between your strategy and what your team are doing on a daily basis.

6. Failure to follow-up

The development of a strategy is not the end of a process – it’s just the beginning.
To ensure that day-to-day operational issues don’t end up swamping your strategy you’ll need to implement activities to move towards your goals, and monitor their success using meaningful data.

Make sure your strategic objectives are translated to tangible activities, and make individuals accountable for reporting and monitoring their success. Linking strategy implementation with individual KPIs should ensure strong stakeholder engagement.

By avoiding these pitfalls and putting the same effort and energy into implementing your strategy as into developing it, you’ll be well on the way to achieving your strategic goals. Remember, though, that your strategy should be a living document – review it regularly to make sure it’s still relevant to your current market and your long-term plans.

The best way to create wealth will depend on your personal and business circumstances – and the same is true when it comes to protecting that wealth for the long term. There’s a lot to think about when you’re deciding on a strategy for building and managing your wealth. Here are the key wealth management strategies you need to consider.

Business structures – protecting your assets

When you’re choosing the structure that’s right for your business you’ll probably be focused on minimising your tax liability. But it’s important that you also think about asset protection.

The four most common types of business structures are:

  • Sole trader
  • Partnership
  • Company
  • Trust

From an asset protection perspective, a sole trader structure offers you the least protection. In fact, it provides no asset protection at all – if someone makes a claim against your business, all of your assets (including personal assets) could be at risk.

A company, on the other hand, is a separate legal ‘person’. This means that the company runs the business, owns its investments and can be sued in its own right. The owners of the company (the shareholders or members) are generally not exposed to any claims made against the company.

Trusts also make a very useful asset protection vehicle. A trust is a ‘relationship’, with the trustee holding assets on behalf of a group of beneficiaries. If someone makes a claim against the trust, the trustee will be liable, but the beneficiaries will not. And the risks to the trustee can be mitigated by, for example, having a company act as trustee of the trust.

Even if your business is structured as a company, all of your business assets could still be at risk in the event of a lawsuit. This is a common problem for business owners, and one potential way to mitigate the risk is to set up a ‘trading’ company to run your business and a separate ‘holding’ company to hold your business assets – for example the plant and equipment, which it would then hire to your trading company.

The good news is that you’re not locked into any one structure. You can restructure as you need, in response to changes in the size of your business or your asset protection requirements. In fact, Australian tax legislation incorporates a number of capital gains tax concessions, which can reduce (or even eliminate) the potential capital gains taxes you, or your business, may incur as part of a genuine restructure.

It is important that you speak to your accountant regularly, to check that your current business structure provides the level of asset protection you need.


Superannuation – your wealth management and protection vehicle

The superannuation system was created to allow Australians to adequately fund their retirement. Many people consider superannuation to be one of the best wealth creation and protection opportunities we have available.

But superannuation is widely misunderstood – it’s a common misconception that super is, in and of itself, an investment. Actually, it’s a specialised tax environment governed by its own set of rules and legislation. It’s only once you have contributed money to a superfund that you need to make decisions about how to invest it.

The superannuation tax legislation includes a number of valuable tax concessions for complying superfunds, which can make superannuation a very effective way to maximise and protect wealth.

These include:

  • Income earned by a fund’s assets before any member draws a pension is taxed at just 15%. This is much lower than Australia’s personal income tax rates (21% to 47% (inclusive of the Medicare Levy) for individuals earning more than $18,200) or corporate income tax rates (27.5% to 30%).
  • Capital gains on assets held in the fund for more than 12 months, and sold before any member draws a pension, are eligible for a 33.3% discount. This means they attract an effective capital gains tax rate just of 10%.
  • Once a superannuation funds has begun to pay pensions, all the income it earns from its assets becomes fully tax exempt (up to $1,600,000 per member). Even more importantly, this exemption also applies the capital gains tax when the fund’s assets are sold.

One of the most common questions accountants are asked is whether a taxpayer (either an individual or a business owner) will receive a tax benefit by making a contribution to their super fund.

The answer is often ‘yes’. When either you or your business contribute money into superfund (within the cap limits) you may well able to claim a tax deduction for the contribution, because personal and corporate income tax rates are higher than the tax rate on superfund contributions.

Another important benefit of superannuation is that superfund balances are quarantined from your personal and business assets. This means your superannuation fund balance is protected even if you incur personal or business debts. As a business owner this gives you the peace of mind of knowing your superfund balance will be safe in the event of a lawsuit, or if your business runs into financial difficulties.

It’s wise to work with your accountant so you can make the most of all the opportunities superannuation offers you to maximise and protect your wealth.


Risk insurance – protecting your wealth

One of the most important wealth management strategies is taking steps to protect your wealth in the event of an unexpected death, injury or illness.

There are several types of risk insurance available that can help provide financial security to you or your descendants.

  • Life insurance provides a lump sum to your dependants if you die.
  • Total and permanent disablement Insurance provides a lump sum if you suffer a serious injury or illness that leaves you unable to work.
  • Trauma insurance provides a lump sum if you suffer a specified critical illness such as a heart attack, cancer or a stroke.
  • Income protection insurance replaces up to 75% of your income for an agreed period of time if you can’t work due to sickness or accident.

The premiums you pay for your insurance will be based on a number of factors such as your age, sex, health (both current and historical), family medical history, occupation and lifestyle.

Premiums can also be stepped (meaning they start lower but increase with your age) or level (meaning they start higher but do not increase with your age).

In the case of income protection insurance, premiums will also depend on factors like the waiting period before benefits become payable, the length of time over which payments will be made, whether payments are indexed, and whether payments will be an ‘agreed value’ (based on your income at the time of application) or ‘indemnity value’ (based on your income at the time of claim).

As well as thinking about which types of insurance you may require, you also need to decide where you will hold your policy. Life insurance, total and permanent disablement insurance and income protection insurance can all be held either inside or outside of your superfund, but trauma insurance can only be held outside.

The tax treatment for both the premiums you’ll pay and the benefits you or your dependants may receive may be different, depending on whether you hold the policy inside or outside your superfund. It’s a good idea to ask the advisor who arranges your risk insurances to work with your accountant to formulate a strategy that is right for you.

When you’re busy running your business and building your wealth it’s easy to forget about the future. But considering these three wealth management strategies, and discussing your options with your accountant or financial advisor, will set you on track to protect everything you’ve worked so hard for.

Give the team at MGI a call or contact us to arrange an informal consultation about how we can help.

Fundamentally, there is only one reason that businesses go broke – they run out of cash. Business cash flow problems are a major problem for small growing businesses as well as bigger well-established ones.

So how do businesses (even listed ones) run out of cash and what can you do to make sure it doesn’t happen in your business?


There are three basic reasons for business cash flow problems

1. They are not profitable in the first place

They don’t have a business cash flow problem; they’ve got a profitability problem. In other words, the lack of cash flow is a symptom of poor profitability (or even losses). If you have a profitability problem, unless you fix your business model and restore profitability, you’ll never get cash flow under control.

2. The second is that they use short-term working capital to fund the acquisition of long term assets

In other words, they use their working capital (short term funding) to purchase plant and equipment or property (long term assets). If your business is growing rapidly, this is a big no, no. You’ll need that working capital to fund your growth, particularly larger inventory holdings.

In most cases this issue can be fixed by sale and lease back of the assets (assuming funding is available). But the key to avoiding business cash flow issues is never to use your working capital to acquire long term assets unless you’re absolutely sure you have significant excess and know that you won’t need it in the near future.

3. The third reason for business cash flow problems is that they grow too fast

Yes, businesses can grow too fast and it is a situation we see all too often. Make no mistake, a fast growing business is potentially in danger territory, particularly if it doesn’t have access to an endless supply of funds – and which businesses have that luxury?

For many fast growing businesses, this means holding more and more inventory. As the business (and sales) grows, more of the profits are required to be used to invest in more and more inventory to stock more and more stores. If you’re in a business where margins are tight – whammo! – you have lower profits to fund ever increasing inventory. Should inventory turnover slow you could also be in serious trouble.

If you also happen to have a business where you give credit terms to your customers, then not only do you have a build-up of inventory, but you also have a build-up of debtors. These have to be funded from somewhere. Unless the business is highly profitable, the profit alone may not be enough to fund that growth. This invariably means going to your friendly banker but at some point there will be a limit to which banks will be prepared to fund your growth.


How to avoid running into a business cash flow problem?

There are three key measures every business should be checking on a regular basis, but particularly fast growing businesses, to make sure that they have a sound cash position. If you don’t currently know these you’re flying blind. Make sure you ask your accounts team for more information.

Your Free Cash Flow
Your Free Cash Flow (or available cash) is simply that. It is the amount of cash you have left out of profit after funding the increase in size of your business. If you’re not measuring and monitoring this then you’re flying blind.

Your Working Capital Burn Rate
This is simply the amount of working capital (debtors plus stock less creditors) as a percentage of sales. If this is (say) 25%, then you know that for every additional $1m in sales, you’re going to need $250k in working capital to fund that growth.

Your Sustainable Growth Rate
This is simply the rate of growth the company can sustain without adversely affecting its proportion of debt to equity funding. It’s called “sustainable growth rate” for a reason.

There is a saying that goes ‘turnover is vanity, profit is sanity but cash flow is reality.’ We have worked with countless high growth businesses who have been stunned to learn that their financial position is unsound despite their growing sales.

It might sound crazy but at times it is essential to reign in your growth to ensure a sustainable journey in the long run. It might be painful to turn down opportunities at the time but trust me, you will be thankful when you come out with a sound business in the end.

At MGI South Queensland our specialist business growth advisors in Brisbane and on the Gold Coast can help you avoid many of the pitfalls of growing your business and ensure you maintain a healthy business cash flow.

We’re also able to offer outsourced CFO services which can be completely tailored to the needs of your organisation. From cash flow planning and management to helping you reduce the risks your business is exposed to, talk to one of our CFO consulting partners today.

Ever wondered how you can get funding to help your growing small business? Here are seven business funding options you may not have considered.


Company funding option 1: Government grants

If you are eligible, government grants can be great company funding options with minimal risk. However, typically the application can be lengthy and complicated.

If you are interested in pursuing government grants, websites such as Australiangovernmentgrants.org and business.qld.gov.au can help make it easier. MGI can also help you to assess your eligibility for various grants and tax offsets.

Government funded innovation centres that you should also look into include ilab, QUT Creative Enterprise Australia and  Innovation Centre Sunshine Coast. The City of Gold Coast also provides support to start-ups and growing businesses and R&D tax offsets is another way to access funding for innovation.


Small business funding option 2: Small business loan

There is a common perception that securing a small business loan can be difficult. To be fair this is often true, particularly in your early days or if you don’t have a line of credit against your house. However, there are ways to increase your appeal to the banks. Most importantly you need a solid business plan, profitability projections and some of your own money on the table.

Using your accountant to approach the bank can be beneficial. If you can convince the bank that (together with your accountant) you have your finger on the pulse of your business then you’re a long way there.


Business funding option 3: Debtor financing or funding

Traditionally thought of as a lender of last resort, debtor finance companies should not be overlooked as company funding options for growing businesses.

Provided the business is profitable, debtor finance allows you to borrow against the debtor book. There are a few drawbacks associated with using debtor funding, however when managed correctly these can be overcome and I have certainly seen debtor funding used to beneficial effect by business owners who had little or no ‘bricks and mortar’ security.

Some debtor funding companies will require the arrangement to be disclosed to the customer and outstanding debts are handled by the debtor finance company.

This needs to be handled with care and communicated as a good news story (i.e. ‘the business is growing and needs cash to fund that growth’ and ‘the business has outsourced its debtor management function thereby enabling the owner to focus on business growth’).

Debtor finance is also generally more expensive because of the inherent risk but if it’s your only source of funding and if you’re making a return on capital from your business that is greater than the cost of the debtor finance, then it is worth doing.

Using your debtor book to fund your growth makes sense. As your business grows, you can borrow more to fund that growth. However, this form of funding is not perfect, so speak to your accountant or business adviser before heading down this path.


Business funding option 4: Negotiating an advance from a strategic partner or customer

If you can find a major customer, or a complimentary business, who sees immense value in your idea you may be able to negotiate for them to fund the growth of your business.


Business funding option 5: Angel investors

Angel investors offer another business funding option for your business. There are a number of angel investor groups in most cities and a number of angel investors who operate outside of a business angel network.


Business funding option 6: Venture capital

If you are a well-established company looking to raise a serious amount of capital, venture capital firms may be an appealing option. Because of the size of funding provided by venture capital firms, and the high-risk nature of the loan, venture capital funding comes with a number of cons. Generally VC partners will want to be involved at the board level. Sometimes they may also require more than a 50% stake in your company, which means you could lose management control. Ultimately the decision to pursue venture capital should depend on whether it will open up much greater opportunities. In other words, are you better off with 50% of something or 100% of nothing?


Business funding option 7: Out of the box ideas

Sometimes it pays to think outside the box. Airbnb’s founders got some early funding by selling Obama O’s and Captain McCain cereal during the McCain-Obama election campaign. It’s not orthodox but it did get them a foot in the door.

Want to discuss company funding options for your growing business? Often funding a growing business can involve using a combination of the above strategies. If you are interested in discussing business funding options contact us today.

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