Maintaining cashflow is currently the most important issue in family-owned businesses right now. The high growth, and rising costs, across Perth private businesses is creating opportunity but often the lack of cashflow is hindering the ability for businesses in hire, train and develop team members or install machinery. Even the investment into trading stock and debtors can place a strain on the cashflow of a business as it expands.
And while the need to maintain cashflow in a business is universally acknowledged as critical. The ways in which you do it vary greatly from business to business. A developer of apartments will have a much more difficult cashflow model than a small lunch bar that is paid in cash. And the family’s personal finances can have a direct impact on the financing cashflows of a business – if the family supporting the business are financially stable the cost of business finance is often much less. Likewise, if a family have a highly geared property portfolio the potential need for dividends from the business to support the investment profile of the business might restrict the ability of the business to change cashflows quickly.
If you want to generate growth you will need to consider a range of options to open cashflow. This could include cost reduction, recovering prior year taxes, new cash generating activities, changing finance options or engage with new government grants.
Finance options
The cost of finance by many private businesses is seen as a death spiral. Quite often the family will keep very high working capital in the business simply to avoid the need to engage with the bank – however finance should be used by a business to give the family options.
If the family wants a succession strategy, or simply a strategy to reduce risk, considering leasing of machinery can work well. The released equity from the business could then be tax effectively incorporated into a superannuation strategy to give the family the ability to fund the retirement of the founders (with advice from a licensed personal investment advisor).
Further, often a private business is financed over the years by large loans to the owners. The refinancing of these loans can create a tax effective option for the business as loan interest might become tax deductible together with the owners accessing the loan proceeds tax free. And if this option is coupled with smart tax effective loan structuring at a personal level the options can be surprising.
With interest rates increasing the other clear option is looking at loan facilities and securities to ensure that the lending, and bank security position, for the business is competitive.
Tax incentives
The generous use of tax incentives across the spectrum should not be overlooked. The R&D Tax Incentive, Fuel Tax Credit, tax loss carry back, Export Market Development Grant, GST management including deferred GST schemes, grants and low interest loans by government can all make a significant impact on the cashflow for privately held business.
Given that taxation is often the single largest drivers of take-home profits the need to ensure cashflow is managed intelligently and in advance.
Human resources
In a competitive labour landscape the cost of human resources can be significant. And the additional cost of employment, like superannuation, workers compensation insurance and payroll tax can add to that cost significantly.
Consider the benefits of adopting new employment strategies like salary packaging elective vehicles or contracting part of your labour force.
Control
While generating extra cashflow from better finance and lowers costs is good – controlling cashflow is the primary driver for unlocking and understanding cashflow. The use of cashflow forecasting tools like Futrli that looks at both your balance sheet as well as profit and loss helps with understanding cashflow, forecasting and controlling your business.
The control of cashflow also incorporates the three different types of cashflow in a business – operational, investing and financing. So getting great cloud software that efficiently eliminates mundane data handling is critical to getting real time forecasts without a massive investment into resources.
At Westcourt we understand how important cashflow is to a privately held business. And it is the critical nature of cashflow control that has focussed our practice into only helping private business and invested into training Futrli accredited advisors and Calxa experts so cashflow forecasts are done with comfort. And coupled with our deep tax knowledge, global depth and first hand knowledge of creating a business we are ideally suited to helping you control, manage and improve your businesses cashflow – so why not give us a call?
