11 tips for reducing costs in small business

Small businesses across the country will be looking for ways to reduce costs amid cost of living and rising price pressures.

Economic challenges are expected to continue into the 2024 financial year, from inflation and supply chain lags to higher interest rates and reduced consumer spending.

Businesses will need to keep a close eye on their income and expenses to maintain positive cashflow, Small Business Loans Australia founder, Alon Rajic says.

“As Australian businesses continue to face the repercussions of the last two years, a significant proportion will have challenges, particularly without a savings buffer or strategy to help meet their expenses,” said Rajic.

Small Business Loans Australia research set out to find out if fast-rising interest rates and inflation would impact small business’ ability and motivation to invest in themselves. Specifically, more than a quarter (29 percent) of respondents had not planned to invest in their business at all this financial year.

Three quarters of respondents (76 percent) admit their cashflow will be impacted by interest rate rises and inflation over the next year, it also found.

Specifically, 30 percent believe their cashflow will be impacted because it will be harder to collect customer payments, while 26 percent say it will be harder to attract sales. A further 20 percent say both issues will impact cashflow.

But before you take any extreme actions like reducing staff hours or letting workers go, here are 11 straightforward tips to begin minimising business costs today.

Take a systematic approach
The best starting place is to consider your key cost centres, such as purchasing, sales, finance, and administration, for example.

Go over your profit and loss statement for the past 12 months and rank your expenses from highest to lowest and comb through each one in search of cost saving potential.

Make sure you go back and look over your budgets and forecasts and see how you’re tracking.

Also, benchmark your business against industry standards. For example, your waste levels could be higher than the industry average, or others in your industry could be introducing sustainable business measures, which could be bringing them savings.

Uncover hidden costs
Costs aren’t always easy to spot in business, but they can add up quickly.

Hidden costs could be the rising cost of insurance policies, unused subscriptions, permits and industry memberships you pay each month even though you never enjoy any of the perks they offer.

Sit down and go through your bank account and track the expenses to see where you can make savings or do without.

Also, be sure to double check supplier invoices for any overcharging, double billing or discounts that haven’t been applied.

Sell off unwanted equipment
If you’re no longer using tools and equipment, don’t let them sit in the garage or stockroom gathering dust. Conduct an audit and convert what you can back into cash wherever appropriate.

Selling used or unwanted items brings in some extra cash, you’ll be able to put that money back into keeping the business running.

Negotiate with suppliers
Taking half a day out to shop around for lower prices could end up making you more money than you realise.

Call your bank and see if they will offer you a better deal on your business loans, and shop around energy providers to see how you might reduce your utilities overheads.

Start with your biggest expenses and work your way down the list.

Separate personal and business expenses
Put simply: don’t make personal purchases from the business credit card.
Separating out your expenses will mean you can account for them easily and it’s a great way to make sure you don’t miss out on tax deductions.

It can also make sure you aren’t mistakenly claiming for personal expenses, which will be frowned upon by the Australian Taxation Office.

Reduce spending
After all, a penny saved is a penny earned.

And that means it’s much easier to hold onto the cash you already have.

Set a budget, and follow it, and analyse where your money is being spent and where you can cut costs.

Even simple things like packing your lunch and purchasing a coffee
machine for the office can add up over time — that five dollars a day for takeaway coffee will wind up being around $1,300 over the course of a whole year.

Conduct a tech audit
Technology costs can add up, but if you’ve implemented tech a year ago that you’re no longer using, it can be a huge waste.

Go through your licenses and subscriptions that you don’t need or use to see what you can be culled.

It may be that you’re also haemorrhaging money due to inefficiencies in your systems — for example, if you’re wasting time and resources on manual data transfers between multiple software solutions.

A business management platform should include a broad variety of built-in features, allowing you and your staff to accomplish all your core business processes, such as accounting, payroll, inventory management and more.

Improve staff productivity
Employees not pulling their weight in the business can reduce efficiency and become a costly liability.

Assessing and improving staff performance can be a great way to reduce costs before resorting to reducing staff hours.

Set ambitious but achievable goals your staff can get behind and consider what business management tools you might need to help track productivity and performance.

Realign marketing budgets with performance
The sole purpose of marketing is to drive interest in your business’ products and services.

When times are tough, taking a close look at your marketing performance should be a regular occurrence to determine whether you’re getting value for money.

For instance, doubling down on your customer service may drive word of mouth outcomes that effectively boost the effectiveness of other marketing activities, or a targeted letter could deliver a new favourite customer.

Whether your analysis results in less spend or more, auditing your marketing budgets will help you gain a better understanding of where and when sales are coming in, and where your money is spent.

Reduce your space
Do you really need that shopfront or office space anymore?

We all learnt the virtues of running a virtual business over the past few years, so if you’re still leasing an office space, now could be the time to consider whether there are more cost-effective alternatives.

Seek out an expert
If you’re finding it challenging to cut costs, consider hiring an expert to suggest other cost reduction strategies.

The right advisor can help you audit your existing systems and processes, business and sales strategies, and make suggestions on how to sustain and grow your operations.

Don’t leave the hard decisions until too late. If you’re facing challenges as a result of the current high-cost environment, now’s the time to get active.

Source: MYOB November 2022

Reproduced with the permission of MYOB. This article by Nina Hendy was originally published at myob.com

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Tax Alert December 2022

Tax compliance, higher fines in spotlight

Business taxes remained largely unchanged in the second Federal Budget of 2022, but employees working from home can expect less generous deduction rules for the 2022-23 financial year. Here’s some of the latest tax developments.

All quiet on the small business tax front

There were no significant tax changes affecting small business in the October 2022 Federal Budget, although there was a big focus on tax compliance.

The ATO will receive $685 million over four years to help it raise $2.1 billion from a crackdown on shadow economy activities. This may be of concern to some small and mid-size enterprises (SMEs), as the ATO believes the bulk of these activities occur among smaller business taxpayers. The Budget also included a $15.1 million boost for the existing small business debt helpline and programs focused on the financial and mental wellbeing of small business owners. Help with rising energy costs included $63 million to improve SME energy efficiency and energy use.

It’s unknown whether measures of the popular instant asset write-off and carry back of losses will be extended past 30 June 2023. We may need to wait for the May 2023 Budget for the answer.

STP Phase 2 deadline soon

With Single Touch Payroll (STP) Phase 2 reporting now well underway, small business employers need to remember their next reporting deadline is 1 January 2023.

Common STP reporting mistakes seen by the ATO this year include incorrect re-mapping of pay codes and not separately itemising bonuses, overtime and commissions; failure to correctly input existing year-to-date amounts; and incorrectly categorising allowances. The ATO has a range of factsheets and resources available to help employers get their STP reporting right.

Draft guidance on work from home deductions

Taxpayers working from home are likely to face significant rule changes when claiming tax deductions this financial year following release of the ATO’s draft guidance on the issue.

Under the new guidelines, employees will only be permitted to claim a deduction of 67 cents for every hour they genuinely work from home, instead of the 80 cents under the short-cut method available prior to 1 July 2022.

Asset depreciation on items used for work purposes will require a separate depreciation calculation. Employees will not require a separate home office or dedicated work area to claim the deduction, but normal substantiation rules apply.

Alternatively, employees working from home can claim a deduction for their expenses using the traditional actual cost method.

Increase in ATO penalty units

Taxpayers running afoul of the taxman will find themselves facing bigger bills this year after the Federal Budget included measures to increase the fines for regulatory penalty units. From 1 January 2023, fines will jump from $222 to $275 per penalty unit, a 19.3 per cent increase.

This is on top of regular indexation by the CPI, which is every three years, and this will remain in place, with the next one due to take effect on 1 July 2023.

Enhancing tax transparency

Large private business entities will face more scrutiny of their tax affairs after new legislation passed through Parliament to require greater transparency of the tax affairs of private companies.

The reform reduces the tax information reporting threshold for private corporate tax entities to companies with a total income of $100 million or more (previously $200 million or more). This lower threshold applies to reporting for 2022-23 and subsequent financial years.

The previous grandfathering of the exemption applying to certain large proprietary companies from the normal obligation to lodge their annual reports with ASIC was also removed.

Super for holiday season employees

Employers planning to hire staff on a short-term basis for the holiday season need to remember changes to the Superannuation Guarantee (SG) rules mean temporary staff may be eligible for super contributions.

From 1 July 2022, employers must make SG contributions at 10.5% for eligible employees regardless of how much they earn after removal of the $450 per month eligibility threshold.

For new employees who are offered choice of super fund but fail to choose, you must request their stapled super fund details from the ATO to meet your super obligations.

Inflation – what to know and what to do

Rising inflation brings about concern for many, but Vanguard’s time-tested investment philosophy—and a long-term focus—can help any investor navigate choppy waters.

What is inflation?

Inflation happens when prices rise and purchasing power decreases. This can be the result of a simultaneous high demand for and low supply of goods and services. Consumers have money and want to spend it, but since not enough goods are being produced, prices move skyward.

How has inflation affected the markets?

Inflation has been historically low for most of the last 40 years, so the level of inflation we’re experiencing now is unsettling. When inflation increases, interest rates tend to rise, which can cause both bond and share prices to fluctuate. This can be especially challenging for companies as they plan capital expenditures, budgets, and payrolls. For many investors, this could be their first experience with inflation and they may be wondering how to proceed.

When should I make a portfolio adjustment during high inflation?

In this inflationary environment, as with any period of high uncertainty, investors should reflect on their goals, time horizon, and tolerance for risk. If you determine that you need to make a change after that analysis, you should consider it carefully before making any sweeping changes (such as switching all your investments to cash). It’s important to put what’s going on into perspective and decide if it truly warrants an adjustment to your portfolio. Oftentimes, a moderate change will suffice. A diversified portfolio will give you the best chance at increasing purchasing power over the long run.

If you don’t think your portfolio needs any modifications but you still want to hedge against inflation risk, you can make spending adjustments. Reducing spending during periods of high inflation can help make your investments last, but won’t feel like a permanent change; you can always increase, decrease, or maintain your spending level, depending on your situation and the market environment.

When should I NOT make a portfolio adjustment during high inflation?

Don’t make adjustments to your portfolio in haste. It’s crucial that you take time to think about what makes the most sense for you and your long-term needs. Even if your risk tolerance has changed, your asset allocation shouldn’t change that much. We also discourage spontaneous changes based on hearsay; just because someone on the news or online makes a recommendation doesn’t mean it’s right for your portfolio.

Instead of veering to avoid bumps in the road, we recommend you stay the course and focus on your long-term goals – your future will thank you for it.

Speak to us today if you would like to discuss how inflation may impact your portfolio.

Source: Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.