Why cash flow controls are so important in busines…….

Picture a scenario where all of your customers decided to delay payment of your invoices by 30 days. How long could your business survive without this cash inflow? How would you pay your staff, meet your overheads and pay your creditors?
If you don’t know the answer to these questions then careful cash flow management is essential to not only your business’ success but to its very existence.
Cash flow management involves carefully planning your business’ cash flow needs via the formulation of cash flow budgets and developing policies and controls around its cash inflows and cash outflows. Here we focus on how to manage a business’ cash inflows.
According to Dun & Bradstreet cash flow troubles account for approximately 80% – 90% of business failures, and more specifically latest research links a 25% increase in business failures with a similar increase in the number of days a business’ customers took to pay their invoices.
On average invoice payment time is 53 days and for many businesses this is almost twice as long as the standard 30 day payment terms that they want to be paid within. And with trading conditions becoming tougher for most SMEs this average is expected to continue to increase.
So how do you keep the cash flowing into your business bank account in this current trading climate? The key is to have both preventative measures in place to ensure customer pay you within your payment terms to begin with as well as effective and efficient measures to reel in those customers who do stretch the friendship.
Below are the solutions we provide to our clients to assist them with developing their invoice collection policies.
Preventative Measures:-
·         Credit & reference check all new customers. This is a simple and cheap process to undertake because you don’t want to provide credit to a new customer who already has a history of slow or non payment
·         Set specific credit limits for all customers. As an internal control this ensures you do not extend credit beyond what a customer has been ascertained as being able to pay
·         Outline and agree upon payment terms up front and on a regular basis. Communication of these terms is the key to ensure customers can’t use the excuse, ‘sorry, I didn’t know they were your payment terms’
·         Make sure these payment terms are clearly displayed on your invoices. This is another way to remind your customers of the agreed upon payment terms.
·         Credit check existing customers. Much like the checking of new customers, this control ensures existing customers have not fallen into trading difficulties with other suppliers
·         Offer as many payment types as practical to your customers. Cash, Cheque, Credit Card, PayPal, EFT or even Direct Debit……make it as easy as possible for customers to pay you so that they have less reason for delaying payment
·         Send out the invoice as soon as possible. As soon as the service is provided or the goods are delivered ensure the invoice is issued. If you don’t issue the invoices promptly you can’t expect to be paid on time.
·         Consider offering discounts for early payment. Business owners love discounts so if planned carefully, this can encourage faster payment of your invoices
·         Depending on your business, ask for a deposit up front before proceeding and considering progress invoicing for longer type jobs or projects. This can assist your customers with their cash flow needs and reduces the chance of a large invoice remaining unpaid for a significant period of time.
·         Ensure you have received written confirmation (i.e. a purchase order) for every order, especially if a customer requires their own purchase order number to be displayed on your invoice. This can reduce the risk of a customer delaying payment because of their own internal authorisation issues.
·         Develop a strong working relationship with your customers and encourage them to contact you if they need extra time to pay before the due date. This is just good business sense and ensures you aren’t just an anonymous creditor.
·         Ensure you have a complete and concise accounts receivable invoicing and tracking system in place and review your aged debtors regularly. If you can’t track when an invoice was issued and how long it is overdue, how can you expect to identify those invoices that need chasing up
·         Consider the use of debtor factoring or debtor finance. In come instances, the use of debtor finance can free up much needed working capital to allow your business to operate and grow, however the downside with any finance is that it comes at a cost.
Collection Measures:-
·         Follow up initial overdue payments promptly. As soon as an account is overdue, follow it up with either an email or phone call reminding your customer that they have exceeding their payment terms.
·         Continue with regular follow ups for longer overdue accounts. For longer overdue accounts, keep up the pressure with regular phone calls as well as emailing monthly or fortnightly statements
·         Make the customer commit to a payment date. Whenever direct contact is made with the customer, get them to commit to a payment date rather than a ‘sorry, cheque is in the mail’ response.
·         Offer repayment schedules. When you know that a customer is having trading difficulties, offer to assist them by agreeing to a repayment plan to clear the debt. Whether you charge interest on the overdue amount is at your discretion and may be dependent on your initial agreement.
·         Document all attempts to recover the debt. For legal reasons, make sure all the details of attempts to chase long overdue accounts are recorded as you may need these if the matter proceeds to mediation or court.
·         Use the services of a debt collection agency. If the customer is no longer going to be using your business and they refuse to pay your invoice consider passing on the debt to a reputable debt collection service.
·         Use the services of a solicitor. Much like a debt collection agency, the use of a solicitor is a last resort and should be used for larger debts owed by customers. The main reason for this is due to the costs involved in going down this path.
In summary when it comes to managing your customers and their payment of your invoices, prevention is always better than cure. So, the key is to do as much as you can initially to avoid having to waste time and money on chasing up bad debts.

Australian Market Outlook

Even though economists are positive on the outlook of the Australian share market for the remainder of 2011, there are still some concerning factors which have kept average returns in the red over the past 11 months. The European debt crisis, which began as concerns around Greece and its debt servicing ability seem to have spread further in the European Union, with Ireland and Portugal looking increasingly unstable. Further market instability has been seen with increasing oil prices a result of political instability in the Middle East and North Africa. These factors have kept the Australian market quiet on trade and discouraged investment over the past year. Looking forward we should see some of these issues regarding EU debt ease, although not quickly, as the global economy continues to recover post GFC. China’s economic growth has continued and this has benefitted Australia’s large resource companies as strong demand for its products continues. There may be a slight dampening of such demand as the Chinese government attempts to curb inflation on the back of fast economic growth.
The first six months of 2011 has seen the share market fall short of expectations due to events and concerns beyond our shores. Even so, our economy and the businesses that operate within it continue to grow and rebuild, albeit slowly, from the repercussions of the GFC. The forecast for the Australian economy is very strong for the next couple of years. This view is underpinned by the expectation that unemployment will continue to decline and stabilise around 4-5% as more labour resources are required. This is particularly true for the mining and resource service sectors.
Australia’s terms of trade have recently been upgraded creating an income surge which will quickly flow throughout the entire economy with workers, corporations and the government all benefiting.  Recent concerns regarding US debt have also had a negative effect on the All Ordinaries. However, recent developments suggest this too is improving with retail sales and production figures up and a trillion dollars’ worth of government spending cuts agreed upon in principle by the US government.
The mood across global markets appears to be decidedly downbeat and the reality is that 2011 was always going to be a tough year. In the short term at least it appears the australian market will continue to respond to poor global conditions and fears of another GFC.  However the outlook for the Australian economy is improving and we would expect this economic strength to be reflected in the market movements hopefully toward the end of this year and into 2012.
*The advice provided is of a general nature only. Everyone’s financial situation varies so please contact a financial planner at EFS on (02) 9868 3900 for a financial plan that meets your needs.

Elite Financial Solutions ABN 32 077 847 486 provides its financial planning services as an Authorised Representative of Count. ‘Count’ and Count Wealth Accountants® are the trading names of Count Financial Limited, ABN 19 001 974 625. AFS Licence Number 227232. Principal Member of the Financial Planning Association of Australia Limited.


First home buyers: Choose the right home loan and get ahead

Looking for a home loan can be daunting.  And with the recent rise in interest rates (and future rises expected), finding a competitively priced loan is more important than ever.
With so many home loan products on the market, first home buyers need take heed when comparing loans and make sure they get the right advice from a lending professional.  Do your homework and look for loans with features that will save you money over the long term, rather than looking for a short term fix.
Low introductory rates are one tactic banks and financial institutions use to attract customers.  What appears to be a good interest rate in the beginning, can often only apply for a few months.  From there on, the interest rate skyrockets and the loan ends up costing you more in the long run than a loan which has a standard rate.
First home buyers should be aware of any additional costs before getting locked into a loan.  Flexibility is one of the most important components to look for.  A loan that has high exit fees or penalises you for making extra repayments is locking you into the loan – discouraging you from looking for a better deal elsewhere and possibly refinancing.
Likewise, beware of any broker who charges exorbitant fees or recommends loans with a very high interest rate, as they are not likely to have your best interests at heart. A reputable loan adviser will go through a range of loan and repayment scenarios to help you decide which suits your needs best and will then recommend loans accordingly.  They should not pressure you to take up a loan which you are obviously not comfortable with.
Making certain you are comfortable with the repayment structure is one of the most important considerations when choosing a loan. Having the ability to make regular repayments is one thing, but you should also make sure that the loan structure allows for further interest rate rises.  A loan which doesn’t allow this buffer, may expose you to trouble later down the track if your repayments increase and you are unable to afford them.
Getting the right advice and shopping around early seems to be the key to choosing the right loan and owning your home faster.  Whether you are taking out your first loan or refinancing a current loan, advice from a qualified adviser can make a world of difference and could mean you save thousands of dollars over the term of your loan.

For more information on choosing the right loan for you, please visit http://www.elitefinance.com.au/ or call (02) 9868 3900 and make an appointment with one of our qualified financial advisors.

Is a Self Managed Superannuation Fund right for me?

SMSFs an attractive option: top 6 benefits of Self Managed Super Funds

About one third or $420 billion of superannuation savings in Australia is now held in Self Managed Super Funds, or SMSFs, says Christine Hallowes from EFS, part of the Count Wealth Accountants network.
Also known as a ‘Do it Yourself’ or ‘DIY Fund,’ a SMSF is a super fund you set up and manage yourself, in contrast to employer and retail super funds which are managed by professional trustees and managers. “A SMSF member becomes their own fund’s trustee and can seek advice from experts like accountants, financial planners and lawyers when they need it,” says Christine.

A key benefit for many is greater investment choice, which can be tailored to specific retirement goals.

As well as the conventional asset classes of cash, fixed interest and managed funds, SMSFs also have access to investments such as residential and commercial property and direct shares. For example, business owners may seek to make their business premises an asset of their SMSF.”

Christine also advises that a SMSF can be an excellent vehicle for holding death and disability insurance, giving you and your family peace of mind. “Premiums for death and disability insurance are tax deductible in the SMSF (unlike in situations where death and disability insurance are held outside superannuation), and may be funded from your super contributions or fund account balance.”

Christine notes that, subject to certain rules, a SMSF can also borrow to invest in assets such as residential or commercial property.  “These assets are then held in the tax effective superannuation environment, which can result in a significant boost to your retirement savings.”

Once you reach age 55, you can start a pension in your SMSF. Earnings and capital gains from the investment assets that support a pension are not subject to tax in the fund. According to Christine, “by timing asset sales in a SMSF to take advantage of these rules, substantial tax savings can be achieved. That said, it is essential that your fund be reviewed to work out whether this strategy will be effective – which is where a good financial adviser comes in.”

Christine points out that self managed super funds may allow added flexibility in determining how your estate will be paid after your death. “For Australians, superannuation is often the largest asset after the family home so it may be a substantial part of your estate. Therefore, it’s important to ensure that your superannuation funds are paid to your dependants in the most tax effective way.”  Christine advises that, when determining the best way to pay your superannuation benefits on death you should consider factors such as tax, family circumstances and other estate assets.

Finally, Christine notes that a pension drawn from a SMSF may allow you to draw tax efficient pension payments to supplement your income as you approach retirement. “You could “salary sacrifice” your employment or business income into the SMSF, while at the same time receiving pension payments. Salary sacrifice contributions are taxed at 15% rather than your marginal tax rate. Pension payments are tax free over age 60 and otherwise are taxed advantageously.”  As mentioned, assets that support a pension are subject to zero tax in the fund.

Christine Hallowes is an Authorised Representative of Count Financial Limited, an Australian Financial Services Licence Holder (No. 227232) and Australia’s largest independently owned network of financial planning accountants and advisers.
The advice provided is general advice only as, in preparing it, we did not take into account your investment objectives, financial situation or particular needs.  Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, objectives and financial circumstances.

Please visit http://www.elitefinance.com.au/ for further information on how a SMSF could be right for you.

How will the carbon price affect you?

The announcement yesterday by the Gillard government of a $23 a tonne carbon price from July 1, 2012 may mean many things for you and your business. Whilst the tax is targeted toward the 500 or so largest polluters in the nation, the flow on effect in prices may have an impact on your overall financial position.

Families in the lower to middle income range should be, at least initially, compensated through tax cuts and welfare increases. However, for many middle income earning families the tax will have some impact on overall financial position. For example a family with two dependant children earning a combined income of $90,000 a year can expect to be out of pocket by around $120. This increases as taxable income rises. A personal calculator can be found on the Clean Energy Future website which estimates the impact of a carbon tax on you and your family:

For small and medium business the carbon tax will also have a real effect on operating costs in the short term. The government has taken the step of increasing the instant asset write-off from $5,000 to $6,500 for purchases after July 1, 2010 which is a step in the right direction. Despite this, there will be increased energy, inventory and other costs passed on that will not be reimbursed by the government. The government has also provided information for small business on their clean energy website:

Every business and individual circumstance will vary and therfore it is important to consult your tax and financial professional for more specific advice.

Please visit our website for more information: http://www.elitefinance.com.au/

SMEs need planning for post GFC Recovery

“As featured in the July Edition of the Western Sydney Business Access magazine (WSBA)”

ALMOST two years have passed since the ‘official’ end of the Global Financial Crisis (the GFC) however for many small and medium sized businesses (the SMEs) the effects of this downturn in the economy are only just starting to subside.

Big businesses, having the luxury of greater access to resources across the board have been able to move beyond this downturn and are operating back at relatively normal levels again; but what about the SMEs?
The drastic and often cut throat measures taken by many SME owners to survive the GFC, coupled with the banks reigning in business credit in its aftermath and the high level of economic instability has left many businesses seeing the opportunities starting to present themselves in this new period of economic growth but unable to seize them due to their lack of resources.
SMEs were forced to cut back staff numbers and review their operating expenditure to find areas where spending could be reduced. At the same time plans for capital outlays were quashed as existing assets were kept rather than being upgraded and now many of these assets are well past their use by dates.
But these measures to help ease cash flow constraints were somewhat undermined as many of the SMEs customers started stretching out their payment terms. In addition not only were customers taking longer to pay, some were not paying at all! And to further compound the lack of cash inflows the drop in consumer spending meant that sales figures were simply just down overall.
Cash flow constraints during a general economic downturn are a struggle for any business, but during a downturn of the magnitude of the GFC any business that had not planned properly in the good times for the bad were in for a real struggle.
For many years Australia experienced strong economic growth and it was easy for almost anyone to register an ABN and a business name and make a buck or two. But it was the smart SME owners that reinvested some of these profits into getting advice on how to plan for the future.
And that is the key to moving ahead in this post GFC business environment. Businesses need to plan for the future.
The businesses that diverted resources pre GFC to defining and implementing a strategic business plan and continued to allocate resources (even if on a reduced scale) to the planning and review process during the GFC to carefully monitor their position and make decisions as they were needed, are the SMEs well positioned to take advantage of the post GFC recovery opportunities.
However, for those businesses that either never allocated resources to planning pre GFC or cut out expenditure on this important process when the GFC hit, are the SMEs that face a tough future.
These are the businesses that would have also cut back on valuable resources or asset upgrades because they didn’t have the plan in place to help them ride out the storm and their decisions would have all been reactive in nature. They now find themselves facing a slow and hard recovery.
But fortunately it is never too late to start planning for the future and below is how we have been helping our business clients to grow both pre and post GFC. This centres around four major steps.
The first step is to conduct a business health check. You need to take stock of exactly what position your business is in at this point in time. Without knowing where you are now, you can not effectively plan for where you want to go.
The next step is to plan for the future. You need to either develop your business plan (if you don’t already have one) or revisit and redefine your existing business plan to set your current goals and objectives.
The third step is to assess what gaps exist in the business in terms of the resources required to help you achieve the goals as defined in your current business plan. And then start looking at how to fill these gaps.
From this point forward SME owners will be equipped with a “Business Game Plan” which at the very minimum sets out the steps needed to achieve their desired goals. But the process doesn’t stop here.
Business plans then have to be implemented and monitored to ensure that the business remains on track to achieving its goals. This is the most challenging step as owners have to often follow through on tough decisions to make it happen.
Whilst the fourth step of implementation is the most challenging the most important steps are the second and third steps. The planning steps are where all the assessments are made of where the business is going and determining how it is going to get there.
This planning phase has to cover the following areas, linking what the desired outcome is with the inputs and resources required.
Business strategy; have you got clear sales, marketing and growth objectives to take advantage of the opportunities that will arise as consumer confidence increases?
Your service mix; do you have the right service mix in place to meet consumer demand or effectively challenge your competitors?
Resources and reserves; do you have in place the right people and financial capabilities to implement a growth strategy?
Business information systems; are your business systems in place to record, report and effectively use business and market intelligence?
SME owners will be more responsive and efficient when they have information at their fingertips and by feeding that information back into the business it will ensure that they make smarter decisions which are proactive rather than reactive and that is what helps SMEs to grow.
To summarise, it is all about being focused on sales and marketing strategies to lead the charge, but having a clear understanding of how the business is positioned to handle new business, implementing good measurement tools to provide visibility to management and ensuring that the strategy is appropriate for the business’s capabilities.
SME owners are passionate about what they do but the key to succeeding in this post GFC business environment is for them to be objective when making decisions about their plans for the future.
Once the plans are made, then it is time for the passion to takeover and help seize the opportunities as they present themselves.

How to choose a financial planner….

Reblogged from James Solomons’ Business Blog

Prior to the Global Financial Crisis (or the GFC as it is affectionately now known), the financial planning industry held a somewhat precarious place in the financial services world. It was often on the receiving end of unfavourable media attention thanks to a small number of unscrupulous and often unregulated advisers who had the sole intention of preying on and ripping off unwitting people of their life savings .

With many Australians not really understanding what a financial planner did or what the financial planning process involved, people steered clear of those offering these much needed advice services, and opted for the typical aussie DIY approach to manage their financial affairs. In many cases, it was (and still remains) a “she’ll be right” attitude. However, does this approach provide someone with ‘peace of mind’?

Post GFC, during the aftermath of its destruction the financial planning industry was dragged into the spotlight as fingers were pointed. But in many cases the blame being laid at the feet of financial planners was misplaced. This was generally as a direct result of the lack of knowledge of what a good financial planner does and what impact financial planners actually had on the losses incurred by so many Australians as well as other investors around the world.

As is often the case in life, the fear of the unknown is what stops people from moving out of their comfort zone and this analogy can be applied to the financial planning process. Sitting down to identify your financial and lifestyle goals, then having a plan prepared which shows you how you can achieve these goals and then challenging yourself to trust this advice and make the changes identified are all factors which can take someone out of their comfort zone. With any ‘plan’, financial or non financial, the outcomes are never guaranteed and for many this fact leads them away from getting the advice they need.

The GFC however, has highlighted the need to obtain financial advice from professionals to reduce the risk of making the wrong choices when it comes to one’s financial affairs and since the GFC there have been a wave of reforms to make the financial planning industry more regulated and more transparent so as to give people both financial and legal protection as well as to build faith in the profession.

The Financial Planning Association of Australia (or FPA), the peak body governing and representing financial planners and the financial planning industry within Australia lists the definition of financial planning as; “Financial Planning is the process of developing strategies to help you manage your financial situation so that you can protect and build wealth, enjoy life and achieve financial security” . The FPA website also contains information as to what the financial planning process is as well as when you may need advice along with other invaluable information concerning the industry.

But what really is financial planning? Who are financial planners? And what is a financial plan? Quite simply, financial planning is about identifying what your financial and non financial goals are (B), taking stock of where you are now (A) and working out how you can go from A to B in a comfortable and secure way. Financial planners are the professionals who help you do this and a financial plan is the roadmap you get that outlines how all of this is going to happen. In essence, the financial planning process is all about ‘adding’ value to your financial situation that you otherwise could not have achieved without having received the advice.

That all seems very simple and straightforward, so why are many Australians still scared of the process? For most, it is a question of trust. Who do you trust to give you advice that in most cases is life changing? It’s a tough decision for an individual to make and they would sincerely hope that the person that they put this trust into takes this responsibility seriously and acts in their best interest at all times.

So how do you choose a financial planner? At a minimum, you should always choose a financial planner who is a member of the FPA and if possible is also a CFP. CFP stands for Certified Financial Planner and is a designation which indicates that this planner has undergone extensive formal training and maintains this level of expertise through regular ongoing training. It also means that this person is bound by the FPA’s Code of Conduct which covers many ethical, legal and professional requirements.

From this it is all about building a relationship with the financial planner. Without this relationship there can be no trust and a good financial planner will take the time to get to know you and your entire personal situation. Without doing this, it is virtually impossible for a financial planner to provide advice that is adequately tailored to your personal needs.

Hence why in many cases financial planners who are either your accountant or work within the accounting firm you use are well placed to provide the advice as they have this relationship with you already. But that is not to say that financial planners working on their own or within a financial planning firm are any less competent and it does really come down to the relationship and the level of trust an individual has with their financial planner of choice.

And what about the actual financial plan? What does it actually cover? In reality it covers a whole host of things. A good financial plan takes into account your entire financial and personal situation. It can cover retirement strategies, investment strategies, superannuation strategies, savings plans, budgeting and lending strategies just to name a few areas. It can be for you as an individual or it can be for your business.

And if you have a good financial planner, it will provide advice on the best personal insurance options available to you including income protection insurance, life and disablement insurance and trauma insurance. Because with any plan you have to protect against the unforseen and so insuring the sources of income that will provide the opportunity to achieve these financial and lifestyle goals is a must.

Finally, good financial planners see this financial plan as a ‘work in progress’. A set and forget approach to financial planning doesn’t work and once the process has started and the seeds have been planted it is a life long commitment from both sides. (Hence why the relationship between planner and client is vital to the success of the financial plan).

At a minimum your financial plan should be reviewed on a yearly basis to ensure it remains on track to achieving your goals. Things change and a good financial plan has the ability to be flexible to absorb those changes and allows your financial planner to make adjustments where needed to ensure your short and long terms goals are still achieved.

There are many examples out there of the benefits of engaging the services of a financial planner and going through the financial planning process. The FPA website has published a booklet with easy to read real life case studies which not only highlight the benefits of getting proper financial advice but also to help show the value that a good financial planner can provide to you.