Big businesses know this backwards, but many smaller businesses – and especially sole traders – aren’t really sure what cashflow actually is.
In short, it’s the amount of money entering and then leaving your business. But – and we don’t want to get too complicated here – it’s not just profit and loss.
As accountants, we think of cashflow in a few different ways. Don’t get too bogged down, but here are the three main varieties of cashflow:
Operating cash flow is the cash you make by running your main business activities
Investing cash flow is money in or out based on other business ventures or investments. It also includes purchases of capital assets to run your own business
Financing cash flow is basically the money your business receives from debt repayments as well as payments your business receives from investors.
If this seems confusing, don’t worry. Most SMEs are only interested in operating cash flow. What do you make and what do you spend?
A positive cashflow is where more money enters your business than leaves it. A negative cashflow means you spend more than you earn. And if that sounds bad, it’s because it is.
The ideal, of course, is positive cashflow. The bigger, the better.
So how can COVID-affected businesses protect or even increase cashflow? Here are a few ideas:
Diversifying
Even in tough economic times, some businesses can make the most of uncertain times through offering new products or services. The trendy term is ‘pivot’.
Protecting income
For many SMEs, revenue is down (less cash coming in). Some enterprises are lucky enough to get a cash injection from the government through JobKeeper, but that flows out to your workers. This is a great thing. You’ll need them back soon. But for the most at-risk workers, there’s nothing for them except Jobseeker.
If there’s any way to keep these people connected to your business, reach out. Being unemployed in a recession is difficult; if you think you might need people back in the next few months, let them know, even if you can’t make a promise.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. We are here to help, contact us today:
Philip Martin Chartered Accountant
Phone 1300 744 547 | Web pmca.com.au | Email philip@pmca.com.au
Level 9, 440 Collins Street, Melbourne, Vic 3000
JobKeeper is a real example of ‘cashflow’, and a great initiative for employees, but not much joy for a business owner. The government gives you money and you pay it to your staff. They win. What about you?
Eventually, government stimulus will stop. With this knowledge, what can we do now to survive in the short term and prosper in the longer term?
Maximise payments offered
SMEs that employ people
Remember that you can access and pay the JobKeeper allowance to employees who were:
In addition, if you’re a small or medium business that:
… you can get payments equal to the amount of tax withheld from employees’ salaries and wages, up to a maximum of $100,000.
If you aren’t required to withhold tax, you’ll get the minimum payment of $20,000.
For many small business owners, this is pretty complicated. Tax withholdings, turnover values and more aren’t your bread and butter if you run a bakery, café or web design business. It can seem impenetrable.
Contact PMCA for advice on what tax withholdings mean, and how it might help your business.
Asset write offs
According to the Australian Tax Office:
Under the instant asset write-off, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used, or installed ready for use.
Like most government communications, this should come with its own translation booklet. If you are ‘eligible’ you can immediately write off things you buy and use for your business.
This is great ... But are you ‘eligible’? And what’s the ‘business portion’ of a car or a desk or a printer or a phone? If you’re working from home, does your coffee machine count?
There could be significant financial advantages to taking up this scheme. Don’t miss out!
Contact us for advice on how this asset tax scheme could help your business
The flip side of increasing the cash coming into your business is obviously trying to limit money out. This is hard for many proud business owners, but these are not typical times.
Just as you are encouraged to be flexible with your creditors, you can ask your debtors to be flexible with you.
First, start by talking to businesses you need to make payments to. Everyone understands the dramatic impact ofCOVID-19; you might be able to renegotiate payment terms with suppliers, landlords, banks and even the Australian Tax Office.
These groups all have a vested interest in your survival and future strength. If everyone goes under, your creditors have no business.
You’ll never know if you don’t ask.
Alongside the wide ranging (but, we know, not all-inclusive) government schemes, there are a many things you can do yourself as a small or medium business owner to beat the competition when most businesses are suffering or – sadly – failing.
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The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.
A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!
Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.
The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.
A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!
Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.
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The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.
A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!
Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.
