CASH FLOW MANAGEMENT DURING THE LOCKDOWN AND BEYOND
6 May 2020
Under separate cover we have already made you aware of what is effectively 6 month’s protection (effective 23.3.2020) from bankruptcy or company liquidation. To recap:
Temporary Higher Thresholds and More Time to Respond to Demands from Creditors
A creditor issuing a statutory demand on a company is a common way for a company to enter liquidation.
The Government is temporarily increasing the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 from $2,000 to $20,000. This will apply for six months.
Not responding to a demand within the specified time creates a presumption that the company is insolvent. The statutory timeframe for a company to respond to a statutory demand has been extended temporarily from 21 days to six months. This will apply for six months. To assist individuals, the Government has made a number of changes to the personal insolvency system regulated by the Bankruptcy Act 1966. The threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor has temporarily increased from its current level of $5,000 to $20,000. This applies for six months.
Failure to respond to a bankruptcy notice is the most common act of bankruptcy. The time a debtor has, to respond to a bankruptcy notice, has been temporarily increased from 21 days to six months. The extension will give a debtor more time to consider repayment arrangements before they could be forced into bankruptcy. This now applies for six months.
When a debtor declares an intention to enter voluntary bankruptcy by making a declaration of intention to present a debtor’s petition there is a period of protection when unsecured creditors cannot take further action to recover debts. This period has been temporarily extended from 21 days to six months. This gives debtors more time to consider the options that are best for them. This will apply for six months.
Creditors, many of whom are themselves small businesses, will still have the right to enforce debt against companies or individuals through the courts.
in similar fashion there is temporary relief (6 month) from directors’ personal liability for trading while insolvent. The government has stepped up to the plate with tax free cash flow boosts for employers of between $20,000 and $100,000 to eligible businesses based on their PAYG withholding obligations.
In addition, the JobKeeper Allowance will allow many struggling businesses to retain staff.
The following cash flow management techniques may be of some use in this crisis.
Manage Your Cash Flow
In these trying times, business owners need to stay on top of their cash flow by monitoring their cash flow statements monthly or even weekly to keep their eye on cash inflows and outflows.
1. Monitor your cash flow regularly.
Most small business online software packages make it simple to reconcile your accounts, generate reports and more. With your information secure in the cloud, you can stay on top of your cash flow wherever you are. The key is to have a system in place to regularly review your cashflow.
2. Get a business line of credit before you need one.
A business line of credit is a good insurance policy against cash flow problems. It may be possible to get a line of credit for a percentage of your accounts receivable or inventory if you use them as collateral.
3. Cut costs.
Focus on recurring monthly, quarterly or annual expenses. Establish whether you can cut back on utilities, rent or payroll. If you are incurring costs on services you’re not using or insurance you no longer need, then cut these. Consider renegotiating the terms of outstanding loans or leases.
4. Cash in on assets.
In the event you have equipment no longer in use or inventory that’s becoming obsolete then consider a sale to generate quick cash. Scrapping or waiting off obsolete equipment and/or stock will result in tax savings.
5. Stay on top of invoicing.
Promptly send invoices when the work’s completed or products are delivered—Establish the relevant person, job title and address to send your invoices to so they don’t get lost in a shuffle from department to department. If possible, develop a dialogue with the relevant person. Make sure your invoices are straightforward and concise, with key areas like due date, amount due, where to send payment and payment methods highlighted. Emailing invoices speeds up the process.
6. Lease equipment instead of buying it.
By leasing vehicles, computers and other business equipment, you get access to the latest features and avoid tying up cash—but you still get to expense the lease costs as a tax deduction.
7. Offer deals to speed up payments.
Consider offering your customers incentives, such as percentage off the total, for early payments, but ensure the trade-off is effective.
8. Don’t let travel slow your invoicing.
If you’re on the road use the free instant invoice creators by inputting your info into a template, then generating a PDF you can email to your customer.
9. Use mobile payment solutions.
If you sell products or provide services at customers’ homes or offices, get paid on the spot with mobile apps that use your smartphone or tablet to accept payment by credit and debit card.
10. Delay payments to your suppliers.
Unless there’s a worthwhile incentive for you to pay early, establish how late you can pay your suppliers without risking late fees or causing harm to your relationship. This retains cash in trying times.
11. Consider the use of business credit cards.
Look for cards with rewards such as points you can use toward travel or business purchases. In addition to providing a cushion for lean times, business credit cards also categorise your purchases, so it’s easier to track expenses.
12. Request deposits or partial payments on large orders or long-term contracts.
For example, a building contractor or a website developer might charge a 10 percent deposit upfront before beginning to draw up plans for the project, then charge half the remaining amount when work begins, and the balance upon completion. Charging this way, the company generates enough cash to finance the materials and pay the workers needed for the job.
Now more than ever, it is crucial you stay on top of your cashflow.
Manage Your Relationships
We acknowledge the challenges are unprecedented, and people are facing real stress. The temporary protection outlined above may not exist in 6 months. The power will shift back to creditors (people you owe money) in due course and their attitude to your business will in part be a function of how effectively you have communicated with them and how pleasant their dealings have been with you.
The enterprises most likely to succeed post lockdown will be those with a business plan which includes an effective credit policy. In tandem with this, business owners will need to have personal budgets for themselves. Make no mistake – insolvency practitioners are still busy in times of economic expansion and business owners need to ensure they are adequately capitalised and have strong cash flows before undertaking significant expansion.
Review Your Credit Management Policy
While not all the below may be relevant to your business, you may find some procedures you’ve overlooked.
Here are our suggestions:
1. Establish terms of trade
These need to be documented and agreed with your customers prior to supply.
These terms need to cover where applicable:
- The issue of price
- Terms of payment
- Warranties and conditions of purchase
- Limitation of liability
- Interest/administration fees
- Costs recoverable
- Security for payments
- What constitutes “default”
- What constitutes termination of the agreement
In the event of a dispute, the terms of trade should be signed and dated by the customer to show their acknowledgment and agreement to those terms.
2. Undertake credit checks and use a credit application
Conducting an accurate overall assessment of customers to which you will be providing credit is crucial.
You should insist on and check trade references, then carefully assess the customer’s likelihood of being a relatively safe credit risk. In the event this has established, provide your customers with an Application for Credit document.
This form will include the customer’s basic details, such as:
- Full legal name of the entity
- Type of entity i.e. sole trader, partnership, company, trust, government authority
- Details of the legal owners of the business or company
- ABN or ACN if applicable
- Physical address/Place of business
- Postal address
- Relevant telephone numbers (for business and after hours)
- Email address
This enables the business to more effectively enforce the collection of outstanding payments if the customer were to go into default. Therefore, the more information gathered about the customer from this process, the greater chance of securing payment for supplies in the future.
It may also be necessary to obtain or confirm business or company information by conducting Australian Securities and Investments Commission (ASIC) searches.
The credit application form can also allow you to:
- Assess the customer’s ability to meet their financial obligations
- Undertake credit reports pursuant to thePrivacy Act 1988
- Disclose your terms of trade
3. Use personal guarantees and secure your debt
The incorporation of personal guarantees in a credit application may be effective to recovering a customer’s debt successfully.
Guarantees should also be required to produce evidence of their personal ability to pay, such as providing financials.
In addition to obtaining information on guarantees, it is also important to secure your debt with a properly drafted “Retention of Title” clause in the terms of trade and registration of your security interest on the Personal Property and Securities Register (PPSR).
A registration on the PPSR will provide added protection in proving and enforcing your security interest against the customer in the event of default of the terms of trade and the customer entering administration or insolvency. This may set your debt apart from other creditors and increase the likelihood of receiving payment.
4. Establish a system and enforcement Plan
Once you have completed a risk assessment of the customer, their ability to pay has been satisfied to the required extent and the terms of trade are finalised, it is important to establish an effective system to manage the payments.
By creating a system that consistently monitors invoicing, collection and follow up, a business is more likely to obtain regular repayments and sustain cash flow.
It is also essential to monitor any extensions of credit to customers, and to remain firm in not extending credit beyond reasonable limits based on the customer’s assessment. If outstanding debt arises, you need to have an established approach in managing the overdue payments.
When there are administration errors or cash flow problems, you must set a firm timeframe in which the payment can be expected. If at all possible, avoid making special payment arrangements for customers, as these can often backfire and leave your business financially vulnerable.
You need to have enforcement plan to effectively collect bad debt. Initially, this plan should involve issuing reminder and collection letters and telephoning customers at scheduled intervals. It may also include entering into an agreement with the customer for payment to be made by instalments.
If there is still no payment, then you can consider enforcing payment by the terms of trade. This may involve instigating debt recovery proceedings.
Personal budgets
During the lockdown people have been unable to socialise with friends, eat out or shop for non-essentials. Clearly the temptation here will be to cut loose and enjoy life to the full. Of course, this needs to happen but excessive personal expenditure at this time could do irreparable harm to your business.
There are number of free personal budget templates online and we recommend A.S.I.C.’S https://moneysmart.gov.au/budgeting/budget-planner
It would be a shame to emerge from the lockdown with a business that it is still viable only for things to go awry due to excessive personal expenditure.
Making It Easier for Charities to Access Jobkeeper
Charities that are registered with the national regulator are now eligible for the Morrison Government’s $130 billion JobKeeper Payment if they have suffered a 15 per cent decline in turnover as a result of the coronavirus.
Legislation passed by Parliament just prior to Easter includes a concessional test for ACNC registered charities given the benefit they provide to the Australian community.
A reduced threshold at which a charity is considered to be substantially affected by the coronavirus, as compared to businesses and other not-for-profits, will support a sector which is expected to have a significant increase in demand for its services.
There are more than 57,000 charities employing more than 1.3 million Australians registered with the Australian Charities and Not-for-Profits Commission, providing services ranging from mental health support to access to food for vulnerable Australians.
The reduced threshold follows conversations with the charity sector including ACOSS, the Salvation Army and Catholic Social Services Australia.
The JobKeeper payment will provide around 6 million workers a flat payment of $1,500 per fortnight through their employer.
The $1,500 payment is the equivalent of around 70 per cent of the national median wage.
Every arm of government and industry is working to keep Australians in jobs and businesses in business, and to build a bridge to recovery on the other side.
Eligible businesses and charities can apply for the payment online and are able to register their interest via ato.gov.au (https://www.ato.gov.au/general/gen/JobKeeper-payment/).
New Working from Home Shortcut
The ATO has announced special arrangements this year due to COVID-19 to make it easier for people to claim deductions for working from home.
The new arrangement will allow people to claim a rate of 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.
Multiple people living in the same house can claim this new rate. For example, a couple living together could each individually claim the 80 cents per hour rate. The requirement to have a dedicated work from home area has also been removed.
This new shortcut arrangement does not prohibit people from making a working from home claim under existing arrangements, where you calculate all or part of your running expenses.
Claims for working from home expenses prior to 1 March 2020 cannot be calculated using the shortcut method and must use the pre-existing working from home approach and requirements.
The ATO will review the special arrangement for the next financial year as the COVID-19 situation progresses.
Example
Bianca is an employee who works as a copy writer and editor. Bianca starts working from home on 16 March as a result of COVID-19 and replaces her face-to-face meetings with online video conferencing.
Bianca has just bought a new laptop, desk, chair and stationery. She also wants to claim some additional gas, electricity, phone and internet costs due to working from home.
Under the shortcut method, Bianca can now claim all her expenses under a rate of 80 cents per hour. All she needs is her timesheets.
Bianca can also decide to claim using existing working from home calculations. Under that method, Bianca can claim the desk, chair, gas and electricity under the 52 cents per hour, but would need to work out the decline in value of the laptop, and calculate the work-related portion of the laptop, stationery, phone and internet.
Working from home claims for 1 March to 30 June
There are three ways that you can choose to calculate your additional running expenses for the 1 March – 30 June period:
- Claim a rate of 80 cents per work hour for all additional running expenses
- Claim a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture, plus calculate the work-related portion of your phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device
- Claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis
Working from home before 1 March 2020
Claims for working from home expenses prior to 1 March 2020 should be calculated using the existing approaches and are subject to the existing requirements.
Temporary Protection
Strategies for individuals before June 30, 2025
Strategies for individuals before June 30, 2025
A foreign entrepreneur’s guide to starting a business in Australia Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia. Key takeaways Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership. Registered office and resident director requirements are key legal considerations. ABN and ACN are essential for business registration. The application process can be done online, simplifying the process for foreign entrepreneurs. Why register a business as a foreign entrepreneur? There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments. Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture. The general process for registering a business as a foreign entrepreneur While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur: Choosing the business structure The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include: Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability. Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk. Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders. Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company. Registering with local authorities Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as: Company name and business activities: You need to choose a unique company name that adheres to local naming regulations. Articles of incorporation: This document outlines the company’s structure, activities, and bylaws. Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents. Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office. Tax Identification Number (TIN) and bank accounts After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes. Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process. Complying with local regulations Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary. Appoint directors and shareholders To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations. For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations. Choose a company name Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website. Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move. Apply for an Australian Business Number (ABN) and Australian Company Number (ACN) Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia. ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies. ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier. You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites. Register for Goods and Services Tax (GST) If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit. Set up a registered office Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address. Common challenges for foreign entrepreneurs While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia: Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role. Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax. Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard. FAQs Can I register a company in Australia as a foreigner? Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director. Do I need to be in Australia to register a company? No, you can complete the registration process online. However, you must appoint a resident director. Do I need an Australian bank account to start a business in Australia? You will need an Australian bank account to handle your business’s finances and transactions. Can I operate my Australian company from abroad? Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.