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JMp Accountants news bulletin - April

COMPANY NEWSLETTER | April 2023 issue

In this edition:

  • Ageing Aussie business owners ‘put the brakes’ on innovation.

  • ATO interest charges hit highest level in a decade.

  • How SME’s can survive through volatile economic times.

Ageing Aussie business owners ‘put the brakes’ on innovation

With more entrepreneurs over 50 and fewer under 40, the rest of the Asia-Pacific is winning in the race to digitise.

Australia’s ageing small business owners are holding back innovation and digitisation, according to the latest CPA Asia-Pacific Small Business Survey.

It found Australia had the most company directors over 50 and came ninth (out of 11) for number of business leaders under 40.

CPA Australia senior manager of business and investment policy Gavan Ord said Australia’s youthful entrepreneurs had gone missing in action.

“Australia has been ranked among the worst in Asia-Pacific for attracting young people into small business ownership since we started our survey in 2009.”

“The survey results show that young business owners and founders are a necessary ingredient for Australia’s economic future, our digital capabilities and future innovations.”

CPA Australia was calling on the government to launch a public inquiry into barriers to young entrepreneurs from owning and operating small businesses.

“We need Australians of all ages running and owning small businesses. Diversity brings huge benefits to the economy,” he said. “The absence of young people has long-term implications.”

An example of how this impacts digitisation is social media use, with 30 per cent of small firms in Australia failing to use social media, double the survey average of 15.4 per cent.

Investment in technology was another sign as CPA Australia said local firms looked to update existing hardware rather than expanding and incorporating innovative technologies such as AI.

Aside from showing that Australian businesses had a much lower digital capability than their Asia-Pacific peers, the survey also revealed they were least likely to innovate throughout 2023.

“Only 14 per cent are intending to introduce a unique product or service to the market in 2023, this is the worst result in Asia-Pacific,” said Mr Ord.

“A lack of innovation is a drag on economic growth and productivity that we will feel for years to come. Encouraging new talent to launch small businesses can boost long-term innovation.”

“The government needs to ensure running a small business is an attractive option for young people who can bring their digital skills to the sector.”

However, CPA Australia said it was not all doom and gloom, with 2022 being Australian firms’ best year in the last five and almost half of all small businesses growing, with 2023 expected to be even better.

“It’s understandable that some young Australians are questioning whether business ownership is worth the stress and commitment. The pandemic, rising cost of living, high property prices and global uncertainty are adding to their doubts,” said Mr Ord.

“We want young people to seize the opportunity to control their own destiny.”

“This is a huge chance to inspire and encourage young people into the business community as Australia continues to recover. We want the government and current business owners to explore how to attract young minds into this critical sector.”

CPA Australia’s Asia-Pacific Small Business Survey gathered results from 4,280 small businesses across 11 markets including Australia, Mainland China, Hong Kong, India, Indonesia, Malaysia, New Zealand, Philippines, Singapore, Taiwan and Vietnam.

ATO Interest charges hit highest level in a decade

Both the general interest charge and shortfall charge rate rise again in the April to June quarter.

The ATO has raised both its general interest charge (GIC) rate and shortfall interest charge (SIC) rate for the sixth quarter in a row, lifting it by 0.4 per cent.

The GIC annual rate for the April to June quarter would be 10.46 per cent while the SIC annual rate would be 6.46 per cent, the tax office said.

Shortfall interest charge (SIC) may apply if your tax return is amended and your tax liability increases and there is a tax shortfall.

If your tax return is amended and there is a tax shortfall, the ATO applies SIC rather than general interest charge (GIC). This is because taxpayers are usually unaware of a shortfall amount until they receive an amended assessment.

The increase means both charges have hit their highest levels in more than a decade since the December quarter of 2012, when the GIC annual rate was 10.62 per cent and the SIC annual rate was 6.62 per cent.

For the same quarter last year, the rates only increased by 0.03 per cent, with the GIC rate at 7.07 per cent and the SIC rate at 3.07 per cent.

The ATO applies the GIC rate to late or unpaid tax liabilities or excessive shortfalls in income tax instalments that were incorrectly varied or estimated.

The ATO can apply SIC rather than GIC rates, while taxpayers would be unaware of the shortfall amount until they have received an amended assessment.

However, GIC applies to the original assessment of any tax shortfalls and associated SIC from their due date if the tax is unpaid. The due date in this instance is 21 days after the ATO issues the notice of the amended assessment.

Both the SIC and GIC rates are determined by a formula in the Taxation Administration Act 1953 which relies on the 90-day bank bill rate rather than the high-profile RBA cash rate.

“The ATO does have a remission policy that allows the GIC to be waived and we have found based on member feedback that it is been used in a fair and reasonable way particularly for special circumstances.”

How SME’s can survive through volatile economic times

A trio of steps that can make all the difference to businesses when money gets tight.

Market volatility and economic uncertainty have been at the top of the news lately with headlines about tech lay-offs, the economic downturn, and RBA rate hikes. Things are only going to get worse with a recession looming.

However, there are ways SMEs can continue to drive business success during challenging times. It’s critical they do; of the 2.6 million businesses in Australia, 98 per cent of them are SMEs.

Here are three steps SMEs can take to protect themselves during challenging times:

1. Prioritise profitability

Prioritising profitability instead of growth is essential to ensure your business continues to operate during turbulent times caused by rising interest rates. Small businesses should achieve this by focusing on growing and investing in their highest-performing products and services. This generates more revenue to help increase profit.

Businesses also need to ensure they have sufficient funding for profitability; a very common pitfall of early-stage start-ups is a funding shortfall. Planning and accounting for additional costs that are often left out — such as marketing, labour costs, and insurance — help businesses identify how much funding they need to be profitable.

2. Experiment with pricing strategy

Pricing is all about finding the sweet spot between turning a profit and enticing your target customers. As businesses continue to be affected by inflation, there is a need to review current pricing models and identify how to best reach your target audience.

Businesses need to be willing to experiment with different pricing options and test what works best.

Adopt a tiered pricing model: Offer customers a variety of prices based on certain features. These tiers allow your customers to make options that best suit their needs.

Offer competitive pricing: Track your competitor’s prices and ensure you are offering comparative pricing that pits your products against your competitors.

Use early adopter discounts: When you are just getting started, it’s absolutely critical to get users to test your product and give feedback. Lowering your price or giving the product away for free will allow you to retain the original price as an anchor but communicate clearly the real value of your product offering.

3. Manage cash flow

Seasonal fluctuations can leave some businesses with quiet periods short of cash when bills come along as usual. A strategic approach to cash flow management can prevent this from happening. This includes having an optimal working capital ratio between 2:0 and 1:2, which can help manage the day-to-day operations of running a business.

Working capital is used to fund daily operations and meet short-term obligations. If a company has enough working capital, it can continue to pay its employees and suppliers and meet other obligations, such as interest payments and taxes.

Businesses may look into getting a working capital loan. This is where funds will typically be credited to a business’ bank account periodically. An overdraft is another option. Unlike a working capital loan, it’s a line of credit that is always available to access when the business is short of cash.

Variables to consider include the interest rate, any collateral you will need to raise to access the funds, the loan’s term, fees, and the frequency of repayments. When it comes to cash flow funding , the right path for your business will depend on the industry in which it operates, the risk appetite of the owners and the maturity of the business; As younger businesses tend to be more inclined to pursue growth opportunities than more mature ones, though there are notable exceptions.

Make more informed decisions as a small business

From revisiting the fundamentals of business to experimenting with new pricing models to taking proactive steps to manage cash flow, these are some key ways small businesses can continue to thrive and achieve high profitability even during economic volatility.

The fiscal landscape is always changing and to make the best decisions, businesses should always ensure to conduct quality research on the market.

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