Business tips: Making the most of digital and the cloud

Clarke McEwan Accountants

Transforming into a digital business sets the best possible infrastructure for your future growth. And, as your business scales, the benefits of going digital will start to become obvious.

Running your key business processes in the cloud and using the latest digital software and apps adds to both your efficiency and your productivity. And, most importantly, digital systems are designed to scale with you as your enterprise grows and the need for resources increases.

Here are some of the big reasons for taking the plunge and diving into digital.

Automate your key manual process to increase efficiency

A scalable business has to systemise its processes and procedures. If your business model is still tied to manual processes and a system that only exists in the owner’s head, you’ll eventually come up against a capacity brick wall. Systemising and automating your processes is a fundamental step when you make the jump to digital.

Look at every internal and external step in your operations and write down how these systems work. Note down each task, who actions what and how the whole system links in with the next step in your operational chain. If there are opportunities to automate a step, automate it. Many business apps now include artificial intelligence (AI) or automation features that can chase up unpaid invoices, send automated replies to customers in live chats, or take automatic payments etc.

Work in the cloud to stay more connected

Since the start of the 2020 pandemic, the world has seen a quantum shift to remote working – and that’s only been possible because of cloud technology. Instead of working from local applications on our laptops or office-based servers, most tech-savvy businesses now use cloud-based apps that are accessible anywhere you have an internet connection.

Switching to cloud-based systems is a game-changer. You and your team are no longer tied to a physical office and can be productive from any WiFi-enabled location. That could be your home, your customer’s warehouse, your regional office or your local coffee shop. And the benefits aren’t just limited to remote working. With your applications and databases in the cloud, you can access customer information, sales data or financial numbers wherever you happen to be. Everything is securely backed up and available at the press of a button – that’s an invaluable benefit if you want to be flexible, connected and scalable as a business.

Create your own custom app stack

Your business systems and software no longer have to remain static and based on the office server. By combining a business and accounting platform like Xero, MYOB, QuickBooks or Sage with your own choice of business apps, you can create a truly tailored ‘app stack’.

Apps use an API (application programming interface) to connect with each other, share data and form a larger business system. This can include apps to:

Manage and automate your bookkeeping and accounting tasks
Send out e-invoices to your customers to speed up payments
Take automated payments and reconcile your transactions
Automatically chase late-paying customers and carry out credit control duties
Project manage your operations and provide detailed reporting
Manage your job utilisation and time spend on each project
Keep a detailed real-time inventory of your products
Send out marketing campaigns and social media posts to your audience
Interact more closely with your end customers and learn their habits

Record and track your business data

App integrations and a customer app stack don’t just improve your productivity. Because your apps are connected via APIs and are sharing your business data, you also have access to a wealth of data, information and reporting features.

Look in detail at your cashflow, expenses and spending to improve your cash position. Take a deep dive into your sales and marketing information to find out who your best (and most profitable) customers are. Run projections and ‘What if…’ scenarios, based on your historical data to forecast the future path of the business. There are plenty of ways to make use of this bountiful data to help you review, understand and improve your performance as a company.

Make better-informed business decisions

A business in the pre-computer age would have had very little information on which to base its decision-making. Annual accounts, cashflow statements and some basic management information would have been available, but there was very little real-time data to refer to.

In the digital age, you can literally see every aspect of your company’s performance in real-time – and, in some cases, in the future as well. That’s a game-changer in so many ways, and something every business owner should be using to improve strategy, financial management, customer experience and business decision-making.

To summarise, a digital business:

Creates systems that are integrated and connected

Shares and records all your business data

Reviews, analyses and finds insights in your business information

Connects with your customers in more meaningful ways

Makes better-informed business decisions, as a result.

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Your upcoming tax calendar for May and June

By Clarke McEwan • 06 May, 2024

As we move into the business end of tax planning for 2024, here is a list of key tax dates for May and June 2024. Be aware of your upcoming tax obligations here.

Bill proposing increased threshold for instant asset write off passes Senate

By Clarke McEwan • 27 Apr, 2024

A bill proposing to increase the instant asset write off threshold in Div 328 of ITAA 1997 from $1,000 to $20,000 has been introduced in the Parliament and awaits approval.

Budget 2024-25

By Clarke McEwan • 18 Apr, 2024

Budget 2024-25 The 2024-25 Federal Budget is the third for the Albanese Government and consistent with previous years, the primary themes are expected to be the cost of living and the economic shift to net zero. According to election guru Antony Green , the window for the next election starts on Saturday, 3 August 2024, “the first possible date for an election if writs are issued on 1 July. The election window will stay open until mid-May 2025, the last date being 17 or 24 May.” No doubt, the Government will have the election in mind when it presents the Budget on 14 May at 7.30pm AEST. Stage 3 tax cuts The redesigned stage 3 tax cuts have been passed by Parliament and will apply from 1 July 2024. The amendments broadened the benefits of the tax cut by focussing on individuals with taxable income below $150,000. Investment incentives for small business It remains to be seen whether an increased instant asset write-off threshold will apply to smaller businesses in the 2024-25 income year. The increased threshold to $20,000 announced in the 2023-24 Budget still has not passed Parliament (the Senate increased the threshold to $30,000). If the intent of this measure is to encourage investment, it is essential that legislation enabling these measures is passed by Parliament in a reasonable time to give business operators the certainty they need to commit to any additional investment spending. Energy bill relief The Prime Minister has hinted at another round of energy bill relief to ease cost of living pressures for low-income households and small business. The measure is subject to support from State and Territory governments. Look out for our analysis on how the 2024-25 Federal Budget will impact you, your business, and your superannuation.

The assault on professional services

By Clarke McEwan • 18 Apr, 2024

The assault on professional services The ATO has signalled that it is willing to pursue professional services firms who divert profits to avoid tax. Two new cases before the Administrative Appeals Tribunal demonstrate how serious the Australian Taxation Office (ATO) is about making sure professional services firms - lawyers, accountants, architects, medical practices, engineers, architects etc., – are appropriately taxed. In both cases, the ATO pursued the practices using Part IVA. Part IVA is an area of the income tax law that enables the Tax Commissioner to attack schemes or arrangements undertaken to obtain a tax benefit, enabling him to cancel any benefit derived by the scheme. That is, you could have a legally viable structure in place but if the only purpose of that structure is to reduce tax, then the Commissioner can use Part IVA to remove the tax benefit. And, if Part IVA applies, you may end up with an additional tax liability as well as an administrative penalty of either 25% or 50% of the tax shortfall amount. Broadly, the cases involved a solicitor who controlled a number of practice trusts that derived profits through marketing and facilitating tax planning arrangements. While the arrangement in each case was complex and involved a large number of steps, the practice trusts ensured their business profits weren’t subject to tax by essentially making trust distributions on paper through a series of trusts and ultimately to either a company that had existing tax losses, or a tax-exempt entity. However, the real funds relating to the trust distribution (less a commission paid for the use of these entities) were ultimately received by the solicitor or their associated entities in the form of a loan. Professional practices have been in the ATO spotlight for many years now for the way they distribute profits. Back in 2021, the ATO finalised its guidance on the allocation of professional firm profits, putting in place a series of risk ratings and gateway tests. These two cases however demonstrate the ATO’s willingness to pursue the issue in the courts using the Commissioner’s powers in Part IVA. For professional services firms, it’s important to be aware that there are several ways in which the ATO can potentially challenge arrangements involving the distribution of profits from a professional practice. For example: If a trading entity derives personal services income that mainly relates to the skills and efforts of a particular individual, the ATO has certain expectations around ensuring the profits are assessed to the individual performing the work. If a trading entity doesn’t derive personal services income but income from a business structure involving a professional practice, the ATO has set out its compliance approach to targeting arrangements that don’t result in a reasonable level of profit being taxed in the hands of the individual practitioners. If a trust makes paper distributions to loss entities to ‘soak up’ deductions or losses, there are integrity rules in section 100A, another area of tax law under intense scrutiny, that need to be considered.

How much is my business worth?

By Clarke McEwan • 18 Apr, 2024

How much is my business worth? For many small business owners, their business is their largest asset and for many, one that is expected to help fund their retirement. But what is your business really worth and what sets a high value business apart? Every business owner is naturally curious about just how much their business is worth. However, for every business that sells at an attractive price, there are others that struggle to sell, let alone fetch a premium. The question is, what makes a difference? When you come to sell a business the first question is, what are you selling? In most cases, this is fixtures and fittings, plant and equipment, stock on hand, and the goodwill of the business. Generally, a buyer won’t want to purchase your liabilities or your business structure, nor will they want to collect your outstanding debtors. Most business sales become a sale of business assets. These assets are relatively easy to value with the exception of the goodwill. The value of plant and equipment and trading stock can generally be agreed. The tension tends to be around the value of the goodwill because goodwill is made up of many intangible assets that can’t be readily quantified. We can all agree that there is value in these assets but the question is, how much? Goodwill is basically the value of the future free cashflow of the business. Based on how your business is structured, it is the value of the profits the business can generate in the future. This is what a buyer is prepared to pay for. If a buyer has a reasonable certainty of profits and free cashflow in the future, then this is worth something. By comparison, a start-up business will have a higher level of risk and no certainty that profits can be generated. In general, a new business may need to trade for a number of years at a loss before it can establish itself and generate profits. Goodwill is what you are prepared to pay to avoid the risk and the ‘time to establish’ factor. So, what influences business value and what will people pay for? A history of profits, profits, and more profits Returns on capital invested (better than 30%) Strong growth and growth prospects Brand name and value A business not dependent on the owners A strong, verifiable customer list Monopoly income – exclusive territories A sustainable competitive advantage Good systems and procedures It is possible to get a price that is widely different from the norm. Unique businesses, unique circumstances, and unique opportunities can always produce ‘an out of the box’ price. If you can build something unique, then you may achieve a price beyond normal expectations. At the end of the day however, the market will set the price. If you are planning on selling your business, identify who your buyers might be. There could be a purchaser who is prepared to pay a large premium to own your business because of the accretive value or because it is pivotal to their growth strategy. And, even if you are not thinking about selling your business, the reality is that one day you will. If you build your business with this in mind, then you should look to do the things that will grow your business value from year to year.

Non-compete clauses and worker restraints under review

By Clarke McEwan • 18 Apr, 2024

Non-compete clauses and worker restraints under review A new issues paper from Treasury’s Competition Review questions whether non-competes and other restraints are limiting job opportunities and movement. A recent Australian Bureau of Statistics (ABS) survey found that 46.9% of businesses surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey also found 20.8% of businesses use non-compete clauses for at least some of their staff and 68.2% for more than three-quarters of their employees. Over the last 30 years, Australia has seen a decline in job mobility. Australia is not alone in this and other advanced economies have experienced the same issue. While restraint clauses are not the only factor contributing to the decline – an ageing population and a rise in post-pandemic market concentration in some industries has also contributed, it is specifically the role of restraints that is the focus of the Competition Review issues paper (submissions close 31 May 2024). From an economic perspective, declining job mobility impacts wage growth and innovation as restraints prevent access to skilled workers within the economy. Productivity is a key concern as Australia’s productivity has declined in the last 20 years. The review states that, “The direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.” For business however, this is the point - restricting the knowledge developed by a worker during their employment from benefiting a competitor, limiting the likelihood of a ‘mass exodus’ of key workers from the business to a competitor, preventing clients from employing key workers, and protecting the value of the business by preventing employees from walking away with customers that were hard won, at a cost, by the business. However, the impact of restraints appears to be a psychological deterrent given that most are not contested. Of the 115 matters relating to restraints of trade between 2020 and 2023 dealt with by Legal Aid NSW, only one business commenced proceedings in court against a former worker. And, a further study indicates that where employers seek legal redress in the courts, they are more likely than not to fail. The international trend is to either ban restraints for workers under a certain income level and time limit restraints for higher paid workers, or to limit the duration of restraints generally but specify a level of compensation to the worker for the restraint period. Non-compete clauses prevent workers from joining a competitor or starting a new business in competition with their current employer for a period of time. Non-solicitation clauses prevent workers from soliciting former customers and co-workers. Non-disclosure clauses prevent workers from disclosing confidential information relating to their employment.