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Spring Cleaning the Finances for a healthier Christmas

While spring is usually associated with a clean-up at home, the co-founder of a payment collection agency believes it is an important time for businesses to do the same and get their finances in shape ahead of the busy Christmas period.

Smell that? It's the seasonal bouquet of spring time, bringing with it the perfume of blooming flowers, the earthy fragrance after rain, and the heady odour of freshly cut grass. It also brings with it the smell of opportunity.

Spring heralds the fact that Christmas is around the corner, and it's the time of year when you need to have capital available to buy more stock, pay seasonal workers' wages, and build up cash reserves before companies shut down for the holidays and recovering debts becomes much harder.

With one in two Australian businesses owed more than $20,000 on overdue invoices, putting effort into this area can make a material difference to your business' bottom line.

Unclogging cash flow entails taking stock of all of the overdue invoices, organising them by due date, and then tackling them one by one – with the oldest invoices receiving your immediate attention.

Remember: as an invoice ages, the cash becomes harder to recover, and the probability of making a collection decreases

As part of this debt spring clean, you'll need to prepare a log of all previous communications undertaken with each client in relation to the debt. This includes the date they received the first bill, who it was addressed to, and any subsequent interactions.

An audit trail of communications will help you counter the top two debtor excuses: "I never got your invoice" and "You should have reminded me to pay."

Each debt needs to be dealt with on a case by case basis. Generally, using different forms of communication as the debt ages is the recommended course of action.

Start with an email reminder two weeks after the invoice due date, with copies of the overdue invoices attached, and give your customer a reasonable time to respond. At this stage, you might agree on a payment plan if your customer is experiencing cash flow problems.

If that doesn't bear any fruit, follow up with a text message one to two weeks later (SMSes have a very high read rate). Otherwise, email a second payment reminder. Even better if debtors can click on a 'Pay Now' button from your invoice or reminder, as it removes friction from the process and enables them to settle the bill instantly.

Two reminders should be plenty in terms of flushing out payment, but if the money still hasn't landed in your bank account, it's time to work the phones.

If you've been dealing with a generic accounts receivable email address rather than a specific person, you'll need to identify the best person to chase at the business.

But what if you've done all of the above, and still haven't had any luck?

The next step is sending a debt collection letter, also known as a letter of demand. This is considered a more formal follow-up, and is typically sent with your business' letterhead.

Recently, the acceptable time frame for sending a debt collection letter has reduced from 90 days to 60 days from when the invoice is due.

You may also want to consider outsourcing collection of the debt to a debt collection agency. This agency works as an agent of your business to collect overdue debts, and is typically paid a fee or percentage of the total amount collected.

Whether to go down this route depends on a number of factors. If it's come to the point that your business is running out of cash, then calling in the professionals may well be a worthwhile investment, despite the fees involved. The beauty of a debt collection agency is that it has the resources to keep the ball rolling when your own in-house collections have stalled.

Another good reason to hire a debt collection agency is that they're one step removed from your business. While personal relationships with suppliers and customers can sometimes make it difficult to have that hard conversation regarding money, external agencies don't have that issue.

Finally, if your debtors have gone into hiding, and aren't returning phone calls or responding to letters and emails, debt collection agencies have a number of means at their disposal for tracking people down.

Ultimately, prevention is better than the cure

Once you've gone through your cash flow spring clean, it's worth ensuring that you have an effective debt collection strategy in place to stop overdue invoices spiraling out of control.

A pre-planned strategy will include your process for following up overdue debts, your time frame to escalate to management, and the third-party agencies (like legal and debt collection agencies) that you will call on as needed.

If this is applied consistently with every customer, it sends the message that your accounts receivable house is in order, and reduces the likelihood that debtors will drag their feet when it comes to future invoices.

A guide to developing a successful personal budget

A good budget should be the foundation for achieving our financial goals. But all too often we abandon our budgets at the very first obstacle, meaning they're simply not worth the paper – or spreadsheet – they're written on.

So what makes it so hard to keep to a personal finance plan and how can you give yourself the best possible chance of succeeding?

THE PSYCHOLOGY BEHIND FAILED BUDGETS

According to psychologist Rachel Clements from the Centre for Corporate Health many people fail to stick to a budget from a deep-seeded belief that they simply don't deserve to achieve their financial goals rather than from a lack of planning or preparation. 

"How often are we told that 'money doesn't grow on trees' or something similar, which suggests that finances should always be a struggle? That's the belief we can take with us into our savings plan," Clements says.

"But if your underlying beliefs are not aligned to your goal, it's not going to be achievable or sustainable no matter what you do," she says.

So Clements argues that the first step in any successful budgeting plan is to step back and look at our own attitudes to finances. In doing so, we need to accept that there is nothing wrong with managing your money successfully and that, by making the right decisions and showing a bit of discipline, we're worthy of reaching our financial goals too.

But if your underlying beliefs are not aligned to your goal, it's not going to be achievable or sustainable no matter what you do.

A MOVING OF THE MIND

Even once we've addressed our own attitudes to personal wealth, Clements says that sticking to a budget requires a conscious behavioural shift. In that sense, it's no different to having a plan for achieving any other goal. 

But she says that getting the behavioural change that's needed to make a budget work requires consciously re-programming our minds about who we are and what we're like.

"We all have a comfort zone and when we leave it our body has a strong reaction and we want to be pulled back in," Clements explains. "Although this might sound strange, a lot of people are comfortable when they're not in control of their finances."

But convincing your mind that you're a different person isn't easy, especially if you try it all in one hit. For that reason, Clements suggests getting it use to the changing behavioural shift by starting with – and achieving – small goals along the way to achieving larger ones so that our mind sees that we're doing well.

"As humans, we like to get reinforcement that we're doing the right thing," Clements says. "It's like people who set out to lose 10 kilograms. It's so much easier when they weigh themselves at the end of each week to show they're heading in the right direction."

MAKING GOALS SPECIFIC AND MEANINGFUL

Speaking of which, Clements suggests that you will stick to a resolution of any kind more easily if you're working towards something tangible.

That means a key part of making any budget work is to tie your milestones to meaningful and specific financial goals. For instance, having a goal of saving $500 a month for a $6,000 holiday to Fiji in 12 months is more concrete and therefore more achievable than simply aiming to save $500 a month for a year – even though the two require exactly the same budgeting.

BE REALISTIC AND PRECISE

Another, more practical, reason budgets often fail has nothing to do with psychology and more to do with maths. Put simply, sometimes the data that goes into building them isn't right.

For instance, if you're budgeting for how much to spend on power, and you base your figures on last summer's bill when the heater never went on, you'll have a distorted view of how much you need to spend each quarter. To get an accurate record you really need to go back over at least 12 months' worth of bills.

Alternatively, budgets sometimes fail because we're simply too hard on ourselves. In fact, one study in the Journal of Consumer Psychology1 found that our self-control can actually get worn out if we use it too much. We might be saving for a specific goal but we do need to have a little fun too. So make sure you factor in things such as holidays, eating out, movies and other entertainment too: or even better, tie these treats to your savings goals along the way.

It's also worth remembering that things rarely, if ever, go according to plan. For this reason, it's important to factor in a buffer that can be used for car or home repairs or for that large bill you didn't see coming.

CONSIDER THE POSSIBILITIES

At its heart a budget is all about living within your means to achieve your financial goals. And if you find your means are grander than you're allowing for – or if you want to save for something that you can't afford no matter how you play with the numbers – you really have two possibilities: scale back or bring in more money.

If you're not prepared or able to scale back, you'll need to look at ways to potentially create a second source of income away from your primary work: whether that's a new or second job, a business on the side or an income-producing investment.

AND REMEMBER…

Nobody is perfect. There will be times when we stray from our budget: whether that's because we get carried away on a night out with friends or buy something we probably shouldn't have.

So don't be too hard on yourself when you fall off the horse. After all, a dollar here or there won't cost you, so long as you don't do it too often. Just get back to your savings plan and start again while things are still salvageable.

YOUR BUDGETING CHECKLIST

If you're setting up your own budget, here are the questions you need to ask yourself first:

  1. What am I saving for?
  2. What milestones will I hit along the way?
  3. Is my data accurate?
  4. Have I factored in what will happen on a rainy day?
  5. Am I being too hard on myself?
  6. Will I bring in enough money to stick to this budget?
  7. What will I do if I stray from my goals?

And if you want to enlist some professional help, Clarke McEwan can assist you with a financial planner  to help tailor a budget to you that will help you reach your financial goals. 

Difference Between Binding and Non-Binding Beneficiary Nominations

 

To be certain of who your superannuation money goes to on your death you should consider completing a Binding or Non-Binding Death Benefit Nomination Form. Biding nominations instruct your trustee on what to do with the proceeds of your super on death whereas Non-Binding nominations are more like a wish list to your trustee of how you would like your super to be distributed. Both have advantages and disadvantages as outlined for you in the following article by superguy.com.au

 

http://www.superguy.com.au/difference-between-binding-and-non-binding-beneficiary-nominations/

 

For advice on superannuation and SMSF's as well as your estate planning talk to Clarke McEwan Accountants and Business Advisors today on the Sunshine Coast 07 5475-4300 and  in Brisbane 07 3842-3128.

 

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Business Identity Theft

Individuals have long been warned about personal identity theft and advised to keep information such as passwords, their tax file number and bank account details as closely guarded secrets.

However, the ATO has recently warned that thieves can target unsuspecting small businesses and the information that is stolen can be used to commit various crimes.

Once a business identity is stolen it may be used to commit tax fraud, create other fake business entities, lodge fraudulent GST claims, and take out loans.  The identity thieves might then have access to a business entity's information, and through this, gain the opportunity to further employee personal information, tax file numbers, bank details from payroll data, super fund details and personal addresses.

The ATO says considerable time and effort is required to restore a business's identity, amend credit profiles and sort out financial arrangements, so the best protection is prevention.

The following steps be used to protect your business  from identity theft (and of course you personally as well):

  1. secure your business files and employee information when these are not in use
  2. regularly change all passwords (and don't use passwords that may be easily guessed, such as the business name itself)
  3. ensure that the business's principal and staff log out of systems and lock computers when they are not in use
  4. make sure that your computers and other devices have up-to-date security and anti-virus software.  If in doubt, consult an IT expert.  Clarke McEwan recommends that the cost of a small  IT consulting fee may significantly save you the repercussions of identity theft.

If you are concerned that your identity may have been compromised, the ATO would like to hear about it (Call the Client Identity Support Centre on 1800 467 033).

 

Tax Advice for Doctors

 

As a medical professional in Australia you generally are classified as a high-income earner and as such, the rate of tax applied is also high with almost half of earned income going to tax.

For doctors who are also in business this can be extremely frustrating because you are not eligible for the 30% tax rate on 'personal services', which leaves you with a marginal tax rate of  up to 46.5%.

Our specialist accountants and tax advisors at Clarke McEwan can outline for you some of the many options  from which to choose to make sure your income is protected through legal and easy to manage methods.  

There are some easy and effective ways to reduce tax if you are a Medical Practitioner or a Medical Practice business owner. A consultation with us can help you determine which method is the right one for your lifestyle, needs, employment or business.

To give an idea of some of these are methods, we've compiled a list of the more common yet often overlooked allowable tax minimization strategies geared specifically to medical practitioners.

Specialised tax deductions

Most practitioners will know that allowable deductions are the expenses incurred in producing income. In Australia once these allowable deductions have been applied to assessable income, what remains is your 'taxable income'.  Basically, if the cost was paid in the medical practice of your profession, you can make a tax deduction claim by maximising your "allowable deductions". Some of these deductions may include:

  • Medical supplies, equipment, medicines and materials
  • Education – as long as it is relevant and/or related to your current employment or income
  • Professional subscriptions, accreditations, memberships and literature
  • Computer and office equipment
  • Professional Indemnity Insurance.

At Clarke McEwan we have tax bookkeepers who can assist you to maintain an orderly record keeping system either electronically or manually that clearly indicates your expenses for the year. This will make reviewing your expenses easier, reducing accounting fees and eliminating those ambiguous claims which could lead to an audit by the ATO.   For further information, refer to our post about outsourcing your bookkeeping.

Transitioning to retirement | Early retirement

Doctors over the age of 60 can  consider beginning the process of transitioning into retirement in the form of a pension that uses money from your super fund.

Specialised business structures

A legitimate business structures in the medical field is legal as long as you thoroughly follow the rules, regulations and guidelines.  Advice from your accountant or business adviser is critical to pass an audit from the ATO. 

 If you are thinking of undertaking one of these business structures contact Clarke McEwan.  We specialise in the medical sector and understand its unique landscape.

Use of a Service trust

This arrangement allows doctors to distribute some of their income to family members who work within the practice. For example, a partner who maintains the books or manages administration within the business. As they have a lower marginal tax rate, they can be paid a moderate salary.

Use of an Investment trust

This business structure is set up so that medical professionals don't have to buy their assets in their own name. They can also distribute income and capital to beneficiaries such as a partner on a low or income. Beneficiaries can also be companies, of which operate to store the income generated from the medical practitioner's. However this income excludes personal services income earned specifically by the doctor.

To make sure that you have the best structure in place to legally minimise tax and grow your wealth, we highly recommend you get appropriate advice before putting them in place.  Again, proper consultation and prudent counsel will ensure your structure is completely legal.  Without advice, these set ups can leave your business vulnerable, or to appear out of line with the Australian Tax Office's legalities. 

 

Why Doctors Should Think about Outsourcing the Bookkeeping part of their Business

Running a one-man-band type of business sounds great on paper, because if you do everything yourself, you don't need to pay anyone. That's the main reason why so many doctors choose that kind of approach when it comes to running their offices.

But ... is this path really the best one to take considering that being a doctor of medicine typically doesn't involve any kind of business training

 

Doctors tend to be rather dedicated people, that goes without saying. The training process that takes place before they receive their licenses can be long and tedious, and it takes a substantial amount of willpower to make it that far. Regardless of that, however, understanding medicine is only one aspect of the business that doctors need to know.

Truth be told, it's hard to be an expert in more than one field, and running a successful business typically requires you to either know multiple things, or start outsourcing the tasks you're simply running out of time to do or lack the skills they require. Luckily, hiring someone else to do them for you is the answer to both of these situations.

Expenses don't need to be sky-high, especially if you do your due diligence and search the market to find an employee who has all the needed skills and is willing to share them for a reasonable price. And by hiring someone to take care of the tedious part of your business like bookkeeping, finances, and dealing with insurance companies, you will be able to devote more time to doing the things you love, and your patients will appreciate it as well.

Given the fact that there are only a limited amount of hours in each working day, it's important to manage them wisely. If you're trying to tackle too many things at once, especially those that don't exactly fall under your main field of expertise, how are you going to manage them all?    Furthermore, things such as bookkeeping and finances really have little to do with the field of medicine.  It's not realistic to expect a doctor to be proficient at both. But by sacrificing just a little bit of monthly profits by hiring an employee who's going to handle it all for you, you're not only gaining additional time for yourself, but also getting a massive stress relief.

Bookkeeping can quickly get very technical, and trying to do it all yourself (and doing it incorrectly as a result) can open you up to several penalties if the inspection decides to visit your medical practice one day. You want to avoid this at all costs, because these kinds of actions against you can quickly end up costing you a lot of money, likely much more than you would have paid for your employees in the entire year.

Doctor's are better off outsourcing elements of the business, like bookkeeping and finances.  Not sure where to begin?  Call us at Clarke McEwan and we will put you in touch with a qualified tax bookkeeper who knows the ropes.

Encouraging clients to establish corporate trustees

 

Statistics from the Australian Tax Office show that corporate trustee structures are not favoured by  self managed super funds, but in many cases the benefits of this structure outweigh the short term cost savings of an individual trustee.

 

This trend can be seen to correlate with the increase of online providers in recent years which can include outsourcing accounting functions to foreign countries (such as Sri Lanka or Vietnam to name a few) offering "free SMSF set-up" and the lack of advice of the benefits of corporate trustee.   In many cases these online providers focus on low cost establishments costs however do not provide guidance or advice on the best structure based on a client's individual situation.

 

In the opinion of Clarke McEwan a corporate trustee is always the best choice and any accountants or advisors recommending individual trustees should be made to justify this decision to the client.  When deciding whether an SMSF is right for your client, practitioners are faced with their first question - will an individual or corporate trustee structure be best for the client and their SMSF?

 

When setting up an SMSF, individuals must appoint either two or more individuals or a company to act as the trustee of their fund. The trustee structure the client chooses is critical for the long-term operation of their fund and will influence how their fund is administered and the cost of setting up and running their fund.  It's important the practitioner helps the client choose the structure that best suits their needs and the needs of the other members in their fund.

 

Under superannuation  law, an individual trustee structure means there cannot be a single member in a fund; there must have at least 2 members and a maximum of 4 members. Generally, subject to certain exceptions, all members must be trustees of the fund and all trustees must be members of the fund.

 

While establishing an SMSF with individuals as trustees may save the client a few dollars in the short term, the benefits of registering a corporate trustee for their SMSF far outweigh the short term savings. Here are the key reasons why we believe you should advise clients to use a corporate trustee

 

The key reasons to use a Corporate Trustee are for asset protection, and the separation of asset;  reduced ATO penalties, in the event of borrowing to purchase property; succession upon death; and ownership of SMSF assets.

For further information about establishing a self-managed super fund contact Clarke McEwan.

Investments & SMSF

Prudent investing for long-term wealth is about investing our money wisely, but with all the investment choices available it's hard to know where to invest and what to invest in. It's no longer a simple case of shares, property, fixed interest or cash.  With hundreds of combinations of asset categories, across different countries, themes and sectors the choice is staggering.

Not only that, but each person's needs and goals are different and will change over time.

A Merit Wealth Investment Adviser can talk to you about your investment objectives, both short and long term, assess your current financial position, and recommend appropriate investment options to help you achieve those goals. Over time as your circumstances change so will your Adviser's recommendations. Financial advice should be ongoing and a Merit Wealth Strategist should be part of your everyday life.

Clarke McEwan and Merit Wealth provide fee-for-service investment advice, independently owned by its principals and not associated with any financial institution.  Therefore no financial institution can pressure us to recommend its investment products or services to you. As it is our strongly held belief that investors should receive advice which is totally free of influence, all of our investment advice is provided on a fee for service basis rather than accepting commissions from financial institutions, as we believe commissions have the potential to compromise the quality of the advice. This means we are working for you, not for a financial institution. We are committed to providing an extremely high level of financial planning, financial strategy, investment advisory and superannuation services to our clients, as well as the ongoing management of investment portfolios.

Why not maximize your investment potential?  Take the time now to get your money working as hard as you are by implementing sound, tax-effective investment strategies with Clarke McEwan and Merit Wealth.

Financial Planning for Doctors

Financial planners are often the first point of contact for doctors seeking advice on investment.  A specialist medical financial adviser has the expertise to help you achieve your goals and objectives by tailoring strategies to specifically address your needs.

At Clarke McEwan we have the knowledge and skills to provide you with assistance and guidance on:

  • Education – By building your knowledge and confidence we can help you achieve a better understanding of your investments and other key financial matters.
  • Budgeting – Part of our strategies are to identify opportunities to manage debt and save money. For a review of your finances and how these measure up, contact us now.
  • Estate planning – We will also work proactively with our network of estate planning professionals to show you how best to structure your assets to benefit your estate.
  • Insurance – One of our most sought after services is assistance is in guiding clients through the maze of insurance options available to protect you, your family and your assets in the event of illness, injury, disability or death.
  • Retirement planning – helping you find answers to those complex questions such as: "Will I be able to retire comfortably now?"  "How much money do I need to retire?" and "What do I need to do before I retire?"

A well-qualified financial planner for doctors can help alleviate the worry and stress associated with your finances, leaving you with more time to enjoy life. To book an obligation free appointment about financial advice click here or call Clarke McEwan on 07 5475 4300, and our specialist financial advisers will begin to assist you in planning a better future for you and your family.

Choosing An Accountant

 Looking to Change Accountants ?  It's not just a numbers game.  

Accountants have the power to change the lives of business owners, but most of them aim for average. We're here to change all that.

How many business owners do you know that actually say "I really like working with my accountant!"?  They are out there – but more often than not, their accountant has done a shocking job at serving their customers' actual needs.

It's not a light decision to make the leap to another accountant, but if you've been meaning to change accountants for a while, make it your priority now!

We've put together some important questions that you should ask yourself when evaluating your current accountant, or choosing a new one.

Who does the accountant normally work with? 

This is important to know: Are you a good fit to the accounting firm?  Are they a good fit for you?

It's a two way street, and unfortunately most accounting firms will usually say "Yes"  to anyone – whether they can provide them with value for their money or not.

Be sure you ask for leads within your industry, and even look at their marketing material.  Don't try to be a square peg in a round hole!

What services does the accountant offer?

You need to make sure their experience and skill set matches the service that you're after.

Are you looking for business advice at an accounting firm that just pumps out tax returns? Do you need bookkeeping assistance?

In most cases, if the accounting firm cannot do what you're after, they will most likely work with someone who can.  It's also best that if you need a second adviser, for an international tax matter for instance, that you keep your accountant in the loop, or let them manage the business relationship.

What does the accountant specialise in?

What is the one thing that the accountant would provide you over all other things?

Where is there best value to you as the customer? Look for statements like "we work with you, providing insight into your business and its numbers" rather than "we're really, really good at tax returns". 

After all, any firm can churn out a tax return. Business acumen and advice is another matter. 

How will the accountant charge me?

How do the dollars work?  Do they charge in a way that rewards inefficiency, or do they charge for the value that they provide and the access to knowledge? It's not always what they can do,  but rather what they know.

It's a different conversation and focus for both you and the accountant.  The attention shifts from 'be quick to reduce the fee' to 'let's focus on where the value is'.

Some questions to pose might be:

  • What does the project or subscription include?
  • Do they price each job before they start, so you can both agree to the scope and terms?
  • Do they allow you to pay by the month to spread out the burden on cash flow?

Be sure to get a good understanding of the charges and how they work – it avoids unwanted surprises and you have clarity before moving forward.

What is the response time to my questions?

How quickly will you expect to hear back from your accountant, and who will answer that query?  We regularly hear from new clients that a former accountant takes weeks to get back to them, or doesn't respond at all!

Response time is key number that we focus on – and we measure it in hours, live on our website or by return phone call the same day.

Make sure you ask for a clear understanding of how and how quickly your accountant will return your call or email.

How long does it take to get your work done?

"Turn-around time" is a common complaint heard when businesses are talking about their existing accountants.

If, after an honest look at how you provided information and followed up their queries, your accountant still takes months to finish your work without a valid reason, maybe it's time that you moved on.

What would your standards be if you ran a business that took that long?

This is one of the key numbers that we measure as the Clarke McEwan team – one that we see is important in the eyes of our clients. 

What technology does the accountant use?

It's important to know how you'll be interacting with your accountant on a regular basis.  It's all very well to throw ideas around on a whiteboard in the boardroom, but what about for the "in-between" times?

Do they use the internet, a website and technology to communicate with you or enhance web meetings to describe concepts and run scenarios? 

Be sure that the technology they use makes sense to you.

How often does the accountant talk to you each year?

At Clarke McEwan, what we really love about working with our clients is that we get to learn about their business and their lives.  Accountants can't do that if they only speak to you once or twice a year. 

This is how an accountant will be able to provide you with real insights into your business. It's important that you understand how often you'll be in touch with your accountant, and that you're comfortable with this.

Is the accountant a member of an association?

It's best to choose an accountant that is part of an association.  The three main associations in Australia are:

  • CPA Australia
  • Institute of Public Accountants Australia
  • The Institute of Chartered Accountants

All three have different levels of requirements to join, different membership levels – but all have a set of standards that members must adhere to.  If you've got a problem with an accountant, you can usually take it to their association.

Can you have a coffee or a beer with them?

It's important that you can hold a conversation with your accountant, outside of your business.  Ask whether they will meet you for a coffee to get acquainted.

By the way, John likes his coffee with a dash of milk.


Contact Clarke McEwan