Q&A on Managing Cashflow

On Friday, 5 June 2020, ASAPS held a webinar for ASAPS Members to put forward their questions to industry experts about: Managing cash flow and other important matters before EOFY – pertaining to them as business owners in relation to COVID-19.

This information is accurate as on 5 June 2020. It is important that you get specific professional advice in relation to your circumstances since the situation is fluid and subject to legislative changes.

In terms of an economic recovery, what type of recovery do you think we’re going to have? Is it going to be a U or a V? 

What we’re pretty well seeing across every client sector and every industry sector we work with is that April was a terrible month for everyone. A lot of the doors were shut completely. When I overlay the JobKeeper payment, the cashflow boost, the state government grants, the local government or local council grants and things like that, and I look at the turnover in May and project it through to June, profit this year looks like it’s down around about 10% for a lot of those sectors.

The Government stimulus has pretty well plugged the gap. But broadly speaking what we’re seeing is that so many industries have been remarkably robust through this and the industries that have been hit hardest don’t employ people that are homeowners and the biggest consumers. So, hospitality and tourism has obviously been hit extremely hard but most of the people that work in that industry are young people and a lot of them have got early access to their superannuation, that’s $10,000 worth. All of the statistics indicate that this money’s come out and it’s just gone into the bank, it hasn’t been spent.

Online retailers are booming as people are at home and they’re consuming. A lot of the money that people have been getting on Jobkeeper they can’t spend. So what that indicates to us is that when things open up and return to normal, there are a lot of people that are going to have a lot of dollars in their pocket. This will enable GDP spending in the economy to pick up very quickly.

Australia came out of the GFC more or less like a hockey stick – sort of straight up. I don’t think we’re going to get that degree of recovery that quickly in Australia because one of the drivers in the recovery post-GFC was immigration in Australia. Very strong immigration happened and the population growth linked to immigration in Australia for the last 20 years since about ’97 has pretty well matched GDP growth. If we have that contraction in immigration which naturally has to happen through this, that’s going to limit our recovery. Immigration has floated Australia’s boat for a long time. It’s the influx of population which is probably the main concern about our recovery.

Should I go and spend some money in June? There’s a large bit of equipment that I want to acquire. Should I buy it pre-30 June?

If this bit of equipment is critical to your practice, the old one’s blown up, you need a new one, absolutely do it. If this is a desirable versus an essential, I would be really very critically running the business case on that because the biggest concern is that if we get another wave of this and Australia locks down again, we could be in real trouble. Avoid spending a large amount on capital works or on a capital item just now.

If someone is considering purchasing a new piece of equipment does it need to be delivered and onsite, operational before 30th of June?

It goes to the legislation around depreciating assets of plant and equipment and the legislation provides with the term, “Installed, ready for use.” What that means is that broadly speaking if it’s a refrigerator it must’ve been delivered, because simply to plug it in is no big deal.

If it’s something that has an order lead time of many months, then I don’t believe it will satisfy. If it was delivered, but not installed, I think you’ll be okay. When the GFC hit and they changed the investment allowance write off, the ATO looked at when something was ordered and if there was an invoice. Did you spend the money? Can you prove that you spent the money? That’s really all they’re looking to do in this as well I would suspect. But if it hasn’t even been delivered, I would be apprehensive about claiming.

Don’t go and buy a piece of equipment on the 30th of June.

The company tax rate is changing, it’s going from 27.5% to 26% how does one leverage this effectively and efficiently?

In terms of bouncing corporate tax rates from one period to the other, one of the advantages in relation to the receipt of income, particularly in terms of treatment in advance and/or treatment programs that run for an extended period of time, is they broadly still apply the Arthur Murray Principle. This is, if you have a whole lot of receipts or the like for forward treatment, then those receipts don’t have to be income until the actual treatment is completed. In addition to that you can also look at bringing forward expenses.

If you’re pushing income into a year with a lower tax rate and you’re bringing forward expenses to a higher tax rate, then you’re creating a permanent difference of 2.5% in relation to those transactions. This is basically a margin you couldn’t get otherwise. It’s about identifying what income you’ve received but haven’t earned and what expenses you can bring forward and sometimes not even pay.

What are the other activities from a budgeting tips perspective that owners should be focused on now and really gathering together in preparation for the end of June?

The first thing is making sure that you’re across the numbers. That is making sure that the bookkeeping is up to date.  If you don’t have time to do it, get someone to do it. There’s heaps of businesses that will do the bookkeeping for you.

You can’t make proper business decisions without knowing what the numbers are actually saying.

The second thing is to give some form of ownership of the numbers to your team or your staff. You don’t have to give them a granular level in terms of every item going through the business. But particularly in times of economic stress you can reward the staff by saying, “Look, I need you to go through our entire profit loss statement. I need you to look at everything from accounting to pencils to biscuits to everything like that and I want you to review every line item.” Because if the outgoings are $100,000 and you can save 10%, even 5%, then you’re miles in front.

What are your thoughts on using services such as credit card or after pay and these facilities if cash is tight, but you do want to try to maximize the $150,000 asset write-off?

There’s businesses out there that are offering facilities where you can buy what you need and get the first year interest free.

The leader generally still for the healthcare industry is most suppliers will still take credit cards. A lot will still take Amex without fees. Using the right cards will still give you up to 55 days interest free. Critical to note is they have to be paid out in full. You cannot pay a dollar worth of interest on credit cards. The 20 plus percent that they charge you can be quite ruinous.

One of the other things that a lot of people have investigated through this as well is contacting their bank and putting loan repayments on hold. However tread carefully – there’s a couple of fundamentals. You never pay your wages late. You pay your landlord on time and you pay your bank. When it comes to the Big Four banks – if you put your loan on hold, you are now in the turnaround, naughty section of the bank for non compliance, derelict loan section. That means you’ve internally impaired your credit rating with the Big Four. They will not admit that to you but the policy at credit at the Big Four now is if your loans are on hold – you are a non-lend client. They’re really cagey about it but if you ask for it in writing from your banker that you absolutely will stay in the same section and not have your credit writing impaired, they won’t give it to you.

If you have negotiated with the ATO, can you then go and renegotiate a payment plan again?

Absolutely. With respect to the ATO, we haven’t seen the ATO playing this nicely since the GFC. But in terms of that, that’s where again, politics aside, the tax office and the Government are doing an outstanding job. If you have a payment plan in place and all of a sudden it’s gotten too tight or cash flow has contracted, all you need to do is be proactive. Just ring them before you default on a payment.

There is the Government co-guaranteed $250,000 business loan that is available. If you make an application for that, that will not affect your internal credit rating at the bank.

Are there any upcoming deadlines besides the June 30 that people should be aware of?

This year for Super contributions – the money needs to have left your account by Friday the 26th of June because it has to have physically hit the Superannuation fund bank account by the 30th of June. If it’s not in there, it hasn’t happened.

Anyone who hasn’t lodged their 2019 tax return, it’s now overdue. The ATO will be lenient, but you need to get that in urgently. The only other sort of critical date you’ve got after 30 June is likely your 28 July, which is your June installment and your June BASS. If you are late on your June BASS and you don’t file it on time, there’s no ability for you to vary your June tax installment.

If you think turnover may be down, you think profit might be down but you won’t be able to get your tax returns in for many months, then you should really be on top of the June BASS and June tax installment, because if you want to vary it down or adjust it in any way it has to be done prior to the due date of the June BASS.

If people want to get tax deductions on Superannuation pay for their staff, they need to go out before the end of June. The only other thing I’d float as well, is that there seems to be some confusion on JobKeeper payment – if you’re getting it, it’s income. It’s not tax free. The PLAG credit is absolutely tax free. But the JobKeeper is income.

Taking into account the cessation of the JobKeeper payments as scheduled for the 28th September, what does cash flow forecasting and planning need to look like? 

Don’t bank on the JobKeeper programme lasting until the end of September because everyone who’s getting JobKeeper is reporting everything monthly –  their single touch payroll, their income, their BASS, everything. The Government is getting a lot of information about your practice and it has hinted that if things are back to normal, then perhaps you shouldn’t still get the JobKeeper.

In terms of what changes in terms of cash flow, I would say that a lot of our clients probably only closely look at the cash flow stuff really at the end of the year, in the last quarter. So when we’re doing your planning I would say, going forward, if we are going into … I think the next six months are probably a bit more a worry for me than the last sort of three months, because it’s this … Well, we saw what happened. Well, is it going to happen again or not?

In terms of cash flow – have a good idea running out for the next six months about all your tax obligations, all your loan obligations, the key family obligations, school fees, cars etc… Understanding what your outgoings are, will help you sleep well at night because you know how much your income needs to be to meet those obligations. The really sharp operators are all over this. You should be able to jump into your system weekly and be able to pull up exactly where you are, exactly where you were and where you’re going. To operate the best practice, providing the best healthcare to your patients you’ve got to be running a profitable practice.

 

Convenors: 

Dr Naveen Somia, President, ASAPS 

Suzane Ali, ASAPS

Sean Collins, Encite Partners

Heath Stuart from Clark Jacobs