Payroll tax audits and court cases during 2023 have brought the issue of payroll tax for medical practices into focus. Until recently, medical practices largely excluded contractors from calculations on the basis that the contractor operates their own business out of rooms rented from a medical practice.

Payroll tax is a state-administered tax with different rules, rates and thresholds in each state. Employers that pay employees or contractors totalling more than the state threshold must submit wage reports to the relevant state revenue office and pay the calculated payroll tax monthly.

A medical or health centre that pays contractors is deemed an employer for payroll tax; therefore, relevant payments made to the practitioner are treated the same as wages.

Many types of arrangements could be counted as relevant for payroll tax. Contractor agreements, service arrangements, and management or agency agreements could all be considered for payroll tax.

The Rules Haven’t Changed

Various states have guidance on what contractors are included and excluded in payroll tax calculations. The recent focus is not because of changes to the law but because of audits and court cases where the final ruling required the practice to pay tax on contractor payments.

The rules in each state are similar but with some distinctions. It’s essential to check the contractor guidance for inclusions and exclusions in your state. In addition, each state currently has different dates at which they will enforce the tax on medical practice contractor payments, with some states offering an amnesty.

What You Need to Do

If your medical or allied health practice pays employees and contractors above the state threshold, you must do an internal audit on agreements with contractors. Check your state’s rulings on inclusions and exclusions and clarify written agreements with your contractors. If you need more clarification about the rules for contractors in your medical practice, start with the information at payrolltax.gov.au.

Payroll tax laws are notoriously complex and it’s a good idea to get professional advice about which workers should be included.

Contact us today on 08 6118 6111 or hello@prescottsolutions.com.au to discuss more!

Why is cashflow so central to good financial management? Here’s our plain english guide.

What is cashflow?

Cashflow refers to the movement of money into and out of your business over a specific period.

In the most basic terms, cashflow is the process of cash moving out of the business (cash outflows), and cash coming into the business (cash inflows). The ideal scenario is to be in a ‘positive cashflow position’. This means that your inflows outweigh your outflows – i.e. that more cash is coming into the business than is going out.

When you’re cashflow positive, the main benefit is that you have the liquid cash available to fund your daily operations and debt payments etc.

On the flip side, if you’re in a negative cashflow position, this can be a red flag that the business is facing some financial challenges – and that some serious cost-cutting and/or revenue generation is needed.

How does cashflow affect your business?

Not having enough liquid cash is one of the biggest reasons for companies failing. So it’s absolutely vital that you keep on top of your company’s cashflow position.

Five key cashflow areas to focus on will include:

1. Monitoring your cash inflows and outflows
   this means regularly tracking your cash inflows from sales, loans and investments, as well as managing your cash outflows from expenses, purchases and debt repayments.
2. Managing your account receivables and payables
   efficiently managing your customer receipts and supplier payments helps smooth out your inflows and outflows – and delivers stable cashflow that’s easier to predict and manage.
3. Getting proactive with your budgeting and forecasting
   creating realistic cashflow budgets and forecasts helps you predict your future cash position. By anticipating your future cash needs, you can actively plan for potential shortfalls or surpluses.
4. Being in control of your stock inventory
   having excess stock in your warehouse ties up cash. So, it’s a good idea to optimise your inventory levels and to only manufacture/order the items you need on a day-to-day basis.
5. Investing in your cash reserves
   with emergency cash reserves in the bank, you know you have the funds to handle unforeseen cashflow issues or sustain your operations during lean periods. This makes your whole cashflow position more stable.

How can our firm help you with cashflow management?

Positive cashflow is the beating heart of your business. Working with a good adviser helps you keep that cashflow healthy, stable and driving your key goals as a company.

We’ll help you keep accurate records, track your inflows and outflows and deliver the best possible cashflow position for the business.

Contact us today on 08 6118 6111 or hello@prescottsolutions.com.au to chat about improving your cashflow.

Founding, building and growing your own small business is a hugely rewarding experience for many entrepreneurs. But the road ahead isn’t always smooth.

There are common challenges that crop up and ongoing issues that need to be factored into your business plan, your strategy and your own personal thinking.

So, what can you do to beat these challenges and make the journey as frictionless as possible?

5 proactive ways to overcome your business challenges

We’d all love to know what lies around the corner when it comes to the future path of your business. The truth is that every business journey is unique. But there are common challenges that every owner-manager or CEO will be faced with – and being prepared for these hurdles is the best way to leap over them and take each challenge in your stride.

We’ve highlighted five common challenges and the simple ways to overcome them:

1. Uncertainty:
   No-one has a crystal ball to know exactly what’s coming around the corner. But there are ways to be prepared for some unknown circumstances. You can’t fully predict the main external threats like government policy, economic conditions or freak weather conditions. But you CAN use forecasting and scenario-planning tools to build up contingency plans so you have a Plan A, Plan B and even a Plan C. With forecasts of your business data, finances and industry trends, you can be ready to react, pivot and take positive action.
2. Competition:
   Small businesses often face stiff competition from larger, more established companies. To stay ahead of the curve, it’s important to be nimble and agile. It’s also vital to find your niche and to know precisely why your customers value your offering. By ploughing a unique furrow and keeping your customers happy, you can give yourself an edge over larger, slower-moving corporate-size competitors.
3. Access to capital:
   It can be a struggle to secure funding as a startup, particularly if you have limited financial resources or a poor credit history. Having a detailed funding strategy is a crucial way to overcome this problem. Keep your finances in order and make sure you have in-depth financial reports to show banks, lenders and investors. It’s also helpful to focus on paying suppliers on time, keeping debt levels under control and ensuring your cashflow is in a positive position. These are all excellent ways to improve your business credit rating and show you’re a stable, risk-free prospect for lenders.
4. Hiring and retaining employees:
   Attracting and retaining talented employees is difficult, especially during the ongoing talent shortage. Offering competitive salaries or benefits packages can be one way to attract people. But it’s also important to think about your brand reputation, your sustainability credentials and your CSR policy – all things that Millennial and Gen Z workers value alongside decent pay and benefits packages. Employees want to be proud of where they work, so make your company a progressive, satisfying and rewarding place to work.
5. Keeping up with technology:
   Business technology is evolving at a rapid pace. It can be daunting keeping up with all the available apps, tools and software solutions that are aimed at your business. The trick is to be informed but selective about the apps you use. Start with the operational and financial needs of the business and look for apps that can automate, improve efficiency or provide improved data and management information. Talk to other business owners and your profressional network to find out what the essential apps are in your industry. And do your research and homework before you choose any software solution to add to your app stack.

Talk to us about being an agile small business

Looking to the horizon for the upcoming pitfalls is essential as an ambitious and informed business owner. As your adviser, we can help you generate the most informative management information, to keep you agile and ready for what lies around the corner.

We’re also on hand to discuss your ongoing strategy, how to react to upcoming risks and the best ways to access capital and manage your company’s finances.

Arrange a meeting and let’s see what the future may bring for your business.

Your profit and loss statement (P&L) helps you understand your business performance and profitability over time. It’s sometimes called an Income statement and its main purpose is to list income and expenditure.

Whereas a balance sheet is a snapshot in time, the P&L shows transactions over a specific period of time. This can be a month, quarter, financial year or any other period, and it can be a stand-alone report or a comparative period report.

Together with the balance sheet, these two reports provide a comprehensive understanding of the financial position and performance of a business.

The profit and loss statement has two main sections: income and expenses

These may be further subdivided depending on the complexity of the business and reporting requirements.

Income or Revenue

Income primarily includes main business activities such as sale of goods or services. Other income such as interest received, capital gains or income from secondary business activities is also reported.

Expenses

Expenses are usually divided into two sections: direct costs, or cost of goods sold, and expenses. Cost of goods are those that are directly linked to the provision of services or sale of goods. For example, if you buy widgets from a wholesaler and sell them at a marked-up value, the cost of the widgets is a direct cost, not an overhead expense.

Other types of direct costs might be importing and freight costs, contractor costs or certain equipment. Some direct costs are fixed, that is, they are the same from month to month, or they could be a fixed percentage of sales; others vary in value but are still related to the income producing activities.

Overhead expenses are all the other expenses required to run the business, regardless of the level of income: for example, rent, utilities, bank fees, bookkeeping fees, professional development costs, vehicle costs and staff costs. Many of these costs form the basis of working out your break-even point, or how much it costs just to open the doors for business.

There are some expenses which may be reported as a direct cost in one business but an indirect cost in another type of business, for example, merchant fees or contractor costs.

The Bottom Line

Total income minus total expenses results in the net profit (or loss), is often called ‘the bottom line’. Often business owners are just interested in looking at the bottom line, but a true financial picture requires an understanding of several reports and an ability to see the big picture that the reports are illustrating.

The P&L is a vital tool to analyse for trends over time

• What does your P&L tell you about relationships and ratios between sales and expenses, seasonal changes and annual trends?
• Have all your direct costs been allocated correctly?
• Have you recouped all billable expenses from customers?

Financial statements help you understand the big picture for your business. With deeper understanding of your business operations and performance you can make informed decisions about your business finances.

Contact us today on 08 6118 6111 or hello@prescottsolutions.com.au to get a better understanding of your business!

It might sound obvious, but it isn’t to many businesses. If current sales levels don’t support the overheads and other cash demands on the business, then your overdraft will keep increasing.

This means that your business in its current state is not viable (unless you have ongoing access to new funds from investors or financiers).

There are five ways to improve your sales levels. These are:

1. Increase customer retention.
Stop your customers from defecting to the competition.

2. Generate more leads.
Gain more enquiries from people who are not yet customers.

3. Increase your sales conversion rate.
Get more of your prospects to buy from you.

4. Increase transaction frequency.
Engage your customers to buy from you more often.

5. Increase transaction value.
Help your customers to buy more products or services from you.

There are literally hundreds of individual strategies that you can implement within these categories to increase sales. Sending you a list would be pretty silly of us and overwhelming for you. Some strategies don’t apply to your industry, and some just won’t work in your business for whatever reason.

What we have found through experiencing a wide range of client situations over the years, is that certain things do work in each type of business. There’s a pattern that we see in clients – both good and bad! How does a business grow its sales without its owners becoming overwhelmed by a mountain of change?

The best and most supportive way to grow and improve a business is to have someone looking over your shoulder from time to time, helping you build a plan and a forecast, and keeping you accountable to making the changes that will make the most important differences.

Without that support, we all end up in our business and never working on it. Talk to us about how we can provide that support.

Overheads isn’t typically a place where you will find a lot of wastage. Our experience is that business owners are very careful about managing their expenses, and the smaller the business, the truer that statement is.

Having said that, as a business grows, so do the layers of hierarchy. Management control can deteriorate, and the business can become a bit flabby. The trick is to trim the fat but not the muscle when evaluating your expenses.

As an absolute minimum, every business should do a thorough review of its overheads at the same time every year, so that it becomes a natural routine.

Here are some questions to ask yourself:

1. Do appropriate managers and key staff have individual expense budgets? If so, how are these managed?
2. Have you conducted a formal review of all debt service costs and related fees?
3. What policies and cost control processes are in place for sales staff? Include all working away allowances, vehicle reimbursement expenses, entertainment, and credit card use.
4. What was your total marketing and advertising spend for the last 12 months? Have you analysed each component of spend based on effectiveness and results to the business?
5. When was the last time you renewed your IT support contract? Have you negotiated a fixed monthly fee? If so, is your current fee and contract appropriate (consider migration of services to cloud)?
6. List all subscriptions you pay monthly for SaaS cloud services. Are you using all these services and on the right plan for each? Conduct a cost-benefit analysis.
7. And finally, do you consider your accounting fees a cost or an investment? If they’re a cost, you need to reduce them. If you’re getting value from your annual spend with us, maybe you should invest more to get better business outcomes!

Best practice for keeping control over spending is to set budgets and monitor them monthly. Talk to us about the best way to do that. We can show you the impact reducing your overheads can have on your cashflow.

Your gross profit margin is what is left from your total sales after variable costs are deducted.

For example, if you are a retailer and your sales in a given period are $1,000,000 and the cost of the goods you sell in that period is $650,000, your gross profit margin is $350,000, or 35%.

In the above example, if you implement some strategies to improve the margin from 35% to 39%, your gross profit will improve from $350,000 to $390,000. That’s an increase in profit of $40,000. You may need to increase your overheads a little to get that increase, however if you get the results, it will be well worth your investment and energy.

There are many ways to lift gross profit. Some will be appropriate for your business, and some won’t. For example, if you’re a retailer, you could focus on reducing stock shrinkage and theft, avoiding some discounting, and making sure you minimise obsolete stock.

If you’re a contractor, you might focus on rework and wastage, ensuring all work and materials on jobs get billed, and team member productivity.

We can help you to determine the best strategies to lift your margins. We can then run your figures through our Cashflow & Profit Improvement Calculator to show you the impact of seemingly small changes.

Don’t let poor margins destroy your cashflow and working capital. Get some help from us to make a better plan.

Often a reduction in interest charges as well as significant cashflow improvements can be achieved with a regular review of existing debt.

A good place to start is to list all bank loans, mortgages, finance company loans, hire purchases, credit card debts, and any other debts (don’t include amounts owed to suppliers in this list).

Add columns to cover:

• The amount of the debt owed
• The interest rate being charged
• Whether the interest is charged on a fixed or floating rate basis
• Repayment terms (the number of years the debt is to be repaid over)

Perhaps your debt can be consolidated, financed by one lender and paid off over a longer term. This will help you retain more cash in the business which is vital for growth (or even just to cover expenses and your drawings).

Are the drawings you take from the business for personal expenses placing pressure on cashflow? If so, that might mean that we need to look at strategies to lift the profitability of the business. It might mean that your drawings are just too high for the business to support right now. The business may need an injection of capital to fund its growth.

Here’s an interesting exercise for you to do. List out your annual personal expenditure in detailed categories; everything from rent, childcare, groceries and eating out. You may need to prepare yourself for a shock. If you’re serious about this, we have a Personal Budget Template that you can use to make life easier.

Getting your debt and capital structure right makes a big difference to the cashflow in your business. This is a subject that we have a lot of experience in. The first step is to prepare an updated personal budget and a Cashflow Forecast, then measure the extra cash the business will have as a result of making some simple changes. We can help you calculate this extra cash at our Cashflow & Profit Improvement Meeting.

Doing a forecast for the first time seems scary, but once you’ve done it, you’ll realise that it’s one of the most essential business tools you’ll ever put in place. We can do the forecast with you. You’ll sleep better for it!

Carrying stock for too long means full shelves but an empty bank account. Similarly, if you’re a service provider and are taking a long time to bill for your services, then you’re carrying too much stock in the form of work in progress. Consider that work in progress a form of virtual stock.

You can calculate your ‘stock turn’ by taking your cost of sales from your annual financial statements and dividing it by your average inventory (or work in process). Most clients need some help from us to work this out, so don’t worry if you don’t understand straight away; we’ll show you. Expected stock turn rates vary from industry to industry, so it’s important you don’t compare your stock turn to other types of businesses.

The key is to convert stock to cash faster. Ask yourself these questions, just for starters:

1. Do you have a stocking strategy? Do you determine safety stock, desired stock levels, and re-order points for each stock category?
2. What software do you use to measure how much stock you have on hand at any given point in time?
3. What clear policies do you have to ensure you have no slow moving stock items?
4. How much is stock shrinkage (theft, damage) costing your business?
5. Do you have a formal stock ordering system so that stock levels don’t blow out?

These are just some of the ways to improve your stock turn. If you think your stock levels might be stifling cashflow in your business, make a time to see us.

At our Cashflow & Profit Improvement Meeting, we’ll use our calculator to show you how much cash you can unlock in your business by reducing stock turn with a simple action plan.

The second cause of poor cashflow relates to when and how money is spent in your business, and includes your Terms of Trade with suppliers.

Do you have spending budgets in place?

It’s best practice to prepare an overall business budget every year, usually before the beginning of the new financial year. It’s also best practice to make sure that team members with the authority to order products and services are doing so within the parameters of an agreed budget, and that controls are in place to ensure that department spending budgets are not exceeded.

Now is a good time to review (and document) your Accounts Payable process, from ordering right through to making payment.

When was the last time you reviewed your suppliers’ Terms of Trade and prices?

Terms such as payment expectations, discounts for early payment, late payment implications, insurance, and warranties are all worth a closer look. What controls are in place to ensure supplier payments are made on time and discounts for prompt payment are maximised? If you’re not paying suppliers on time, you need to look at freeing up cash in other areas to ensure you’re meeting your payment terms.

Have you recently evaluated the pricing of your current suppliers and compared this with competitors’ prices? Your evaluation should include delivery charges, payment terms, and discounts.

There are many more strategies you can employ to minimise the risk of fraud and human error, maximise prompt payment discounts, and build strong relationships with your suppliers.

Talk to us about your accounts payable processes. At a Cashflow & Profit Improvement Meeting, we can show you how to improve your accounts payable processes to manage your cash outflows more effectively.