Small Business Finance news, tips and knowledge from the tranches.

Why a Line of Credit is far better than a Business Loan these holidays

Author - Tom Whitworth

As the Christmas period draws nearer, many businesses in the hospitality and retail sectors look forward to their busiest trading period in the year. However, the busy period comes with its own set of problems. A large concern for most businesses in this time is the health of their cash flow, and whether it will hamstring or help them capitalize on the opportunity Christmas brings.

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What is invoice factoring and how does it work?

Author - Admin

Invoice factoring is a process by which businesses use their unpaid invoices to smooth out cash flow requirements by having a third party, usually a financial organisation known a ‘factoring company’, buy their invoice at a discount from the face value. Here’s how it normally works:

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Choosing the right structure for your business – Sole Trader vs Pty Ltd Company

Author - Admin

The first decision for many entrepreneurs or aspiring business owners is choosing the right legal structure for their business. This decision can be complex and requires a genuine understanding of the differences between the business structures, the responsibilities that are required for each, and how these variables will impact the ongoing operations.

Continue reading

Read these 8 facts before redesigning your business website.

Author - Admin

Whether you sell apples or zebras, or anything in between – one thing will remain the same – success comes more seamlessly to this businesses who put their customers first, whether it’s online or offline. Having a website designed to enhance and optimise the user experience..

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Why a Business Loan might not solve your cash flow problems.

Author - Admin

In this article, we’ll discuss the differences between fixed-term business loans and cash flow finance – and why a one size fits all approach to finance does not work.

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How to use debt to your advantage

Author - Admin

It’s an old adage that you need money to make money. In other words, you need money to invest in order to grow your wealth. Unless you inherit a fortune at a young age, this inevitably necessitates borrowing money at some stage …

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‘Instant Asset Write Off’ explained for your business

Author - Admin

What is the Instant Asset Write off for Small Businesses and how does it work? With the Instant Asset Write Off potentially ending in 2018, Finstro explains the Instant Asset Write Off and how your small business can potentially benefit from it.

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Why cash flow is King (or Queen)

Author - Admin

You can call cashflow king. Or you can call cashflow queen, if you favour equality (and don’t we all). Whatever title you prefer there’s no doubt that, when it comes to business success, cashflow reigns supreme and creating a cash flow model is essential. Steady cashflow is the heart of

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Simple tips to improve your cash flow

Author - Admin

Ask business owners what is the single biggest problem they face on a daily basis and chances are that having sufficient cash to pay bills as they fall due – be it wages for staff, rent, utility bills or payment to suppliers – will be at the top of the list. 

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How to transform your budget with cash flow solutions

Author - Admin

Ever wished you had a magic wand to wave over your accounts and create consistent and steadily growing cashflow? A quick trip to Diagon Alley to purchase such a wand may be wishful thinking but now there is a non-wizarding way to transform your budget with cashflow solutions, and it’s called Finstro.

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Why a Line of Credit is far better than a Business Loan these holidays

Author - Tom Whitworth

Why a Line of Credit is far better than a business loan this Christmas

 

As the Christmas period draws nearer, many businesses in the hospitality and retail sectors look forward to their busiest trading period in the year.

However, the busy period comes with its own set of problems. A large concern for most businesses in this time is the health of their cash flow, and whether it will hamstring or help them capitalize on the opportunity Christmas brings.

That’s starting to show with applications for small business loans in November increasing 190% on October in the Food and accommodation sectors, new data from OnDeck shows. This foresight is will help those businesses feel confident they can trade through with extra operating hours, staff and stock, making the most of this important trading period.

The most important question then is not why, but what kind of finance should a business look for to help manage its cash flow through the holiday period?

 

Term Loans

Term loans (or “Business Loans”) can offer a quick injection cash that can be paid off over a 6, 12 month or longer term. This can seem like a good idea - larger chunk of cash, longer time to pay. Simple, right? The issue comes with when the cash is needed, what you’re paying to use that cash when you don’t need it, and when the repayments fall due.

With a Term Loan, you draw down the full approved amount on day 1, and start paying interest on the whole amount from day 1.

So, if you get approved for a $50,000 loan with a 12 month term, you take the full $50,000 in to your bank account and start paying back repayments with interest, usually a week from when the money was deposited. However, if you don’t need the money immediately, and instead are making sure you have enough cash to carry you through, then you are paying interest for a very expensive safety net to sit in your bank account.

On top of this, as the few surviving Starks say, “winter is coming”. During the colder months businesses will often see trading volume drop, yet just as predictably as the changing seasons, your repayments and interest will continue though the slower part of the year, eating into your cashflow when it could be at its tightest.

 

Line of Credit

Lines of credit are approved “loan” facilities that you can draw down on at any time that suits your business, without any further approvals. There are many different types, but the one most suited to the Christmas period is a cashflow line of credit.

A Cashflow line of credit will sit happily waiting for your business to need it, to purchase stock , pay for more staff or higher wage costs with holiday penalty rate, without costing you anything until you do.

It is a safety net, but unlike a large pile of expensive cash sitting in your account and slowly dwindling from repayments and interest, it sits costing nothing until its needed.

When the opportunity to use the cash to grow or trade more arises, the facility is available to draw on, at the opportune time for your business.

The repayment terms are often shorter, in the 2-6 months, meaning that the facility is paid off with the cashflow generated from the increased trade, and ready to draw down upon again when opportunity or need arises.

In summary, if you want to set your business up to trade through Christmas with the best possible chance to take advantage of all this silly season has to offer, a line of credit can be the safety net that helps you sleep at night (air conditioning will also help).

How does Finstro work?

Apply for a Line of Credit

 

Tom's Top Tips:

Hidden Costs – What to look out for

Hidden costs can often rack up, and don’t become apparent until you finally meet with your bookkeeper in the tail end of January.

Hidden costs to look out for with Lines of Credit are undrawn fees, line fees, or interest that is charged on money that has been made available but not drawn down. This should be avoided if it can. If your business hasn’t taken any cash, it should not pay any interest. (Seems fair?)

Drawing funds that aren’t immediately used is another very large and hard to measure cost. When a business draws funds it uses that money to drive more business, grow its revenue and increase profits.

Conversely, if the business borrows funds, but doesn’t use them for a period of time, then the business is not driving any more revenue from the borrowed money. If the business only uses half of the drawn funds, or waits a month or two to use the whole loan, then it has paid substantially more interest for the money it has used that it needed to.

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What is invoice factoring and how does it work?

Author - Admin

Invoice factoring is a process by which businesses use their unpaid invoices to smooth out cash flow requirements by having a third party, usually a financial organisation known a ‘factoring company’, buy their invoice at a discount from the face value. Here’s how it normally works:

The third party financial organisation will generally transfer around 80% of the unpaid invoice value (less their service fee) to its customer who has issued the invoice and collect 100% of the invoice either directly or indirectly (the client may have to collect the funds and transfer them to the factoring company). Once collected the factoring company will return the remaining amount of the invoice that was not advanced, known as the 'retention’, (around 20% subject to the percentage they have already funded) minus their interest cost.

Working Example:

Debtor example for an invoice paid at 30 days

  1. a) Invoice Amount = $10,000
  2. b) Advance Amount (80%) (a x 0.8) = $8,000
  3. c) Advance Fee (2.75%) (a x 0.0275) = $275
  4. d) 0-30 Day Fee (2.00%) (a x 0.02) = $200
  5. e) Initial payment to client (b - c) = $7,725
  6. f) Balance Payment ((aX20%) – d) = $1,800
  7. g) Total Fees = $475

………………………………………….

Advantages of invoice factoring

If your business does not issue invoices with payment terms (i.e. cash on delivery), then this form of finance is really not for you - and like an episode of Jerry Springer, it would be best to observe and not participate.

If you do invoice on payment terms then this form of finance can help to your cash flow and even more so if your debtors are perennial late payers.

A May 2018 Report by MYOB on Australian Businesses found that 40% of Manufacturing and wholesale businesses and 37% of construction and trades businesses found Cash Flow to be a pressure point effecting their business operations.

Rather than taking out a long term business loan or redirecting cash flow that was going to be used to grow your business it may be better for your bottom line to ‘sell’ an invoice or invoices to a factoring Company and have the loan repaid when your debtor pays.

A smoother cash flow will hopefully allow you to engage in paying suppliers on time, ensure timely payment of payroll (and avoid disgruntled employees), focusing on customer retention and acquisition initiatives or pursue business opportunities that require immediate access to funds that weren’t previously budgeted for.

Disadvantages of invoice factoring

Whilst getting access to additional cash flow is an attractive option to any business, you should consider the below before going ahead and applying for a facility.

Invoice factoring companies often charge a premium for the flexibility of factoring a particular invoice or invoices, which can result in clients paying more in fees than in equivalent ‘whole ledger’ factoring facilities where all debtors or a large portions of debtors are factored on a reoccurring basis, which can be  a more cost effective option, based on the individual circumstances of the business.

Negotiating better payment terms with your debtors can at times be a more effective way of dealing with cash flow problems rather than using a factoring company  to unlock the value of invoices.

Late fees and arrears interest can at times be excessive for perennial late paying debtors. Whilst not always the case the arrears interest charged may be worth incurring depending on the opportunity gained by factoring the invoice.

A difficulty a lot of SMEs face is having household name Companies as their debtors who use their industry reputation and power to dictate payment terms which can be in excess of 120 days. This can prove quite costly as the longer the invoice remains unpaid, the more interest the business has to absorb.

Things to consider

Rightly or wrongly there is a negative connotation that having a factoring facility means that your business may be in an adverse financial position. Whilst there are different opinions on this subject matter this problem can be avoided by finding a factoring Company that allows invoices to be sold on a confidential basis, whereby debtors are not aware of the arrangement.

You’re not alone:

The same MYOB survey referred to earlier reported that 63% of business owners and managers would vote favourably in relation to Government policies committing Government and big business to pay small businesses within 30 days.

Questions about Invoice Factoring? 

For more information on Finstro's Invoice Factoring solutions, click here:
Finstro Fund | Invoice Factoring.

Questions about Business Finance? 

Call Finstro's team of Small Business finance specialists on 02 9056 9757 or email team@finstro.com.au.

The information contained on this web site is general in nature and does not take into account your personal or business situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a business adviser or Accountant.

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Choosing the right structure for your business – Sole Trader vs Pty Ltd Company

Author - Admin

 Registering a Pty Ltd vs Registering as a Sole Trader – What are the key differences?

The first decision for many entrepreneurs or aspiring business owners is choosing the right legal structure for their business. This decision can be complex and requires a genuine understanding of the differences between the business structures, the responsibilities that are required for each, and how these variables will impact the ongoing operations.

In this article, we’ll aim to highlight the key differences between the two different structures and the more obvious impacts these will have on day-to-day trading of your new business.

What is a Sole Tradership?

A sole trader business structure is a person trading as the individual legally responsible for all aspects of the business. This includes any debts and losses, which can’t be shared with others. Source.

What is a Proprietary Limited Company?

A company is a separate legal entity, unlike a sole trader structure. This means the company has the same rights as a natural person, and can incur debt, sue and be sued. The company’s owners (shareholders) can limit their personal liability and are generally not liable for company debts. Proprietary Limited companies are commonly abbreviated to “Pty Ltd” Source.

 What are the perceived benefits of being a Sole Trader?

  1. You’re the boss. And the only boss.
  2. You keep all the profits – no dividends or profit shares.
  3. Registration costs are relatively low.
  4. You have maximum privacy.
  5. Establishing and operating your business is simple.
  6. It’s easy to change your legal structure later if your circumstances change and
  7. You can easily wind up the business.

What are the perceived benefits of being a Pty Ltd business?

  1. When operating with a number of directors or shareholders, you will have freedom from being the sole decision maker and can access the knowledge and experience of your co-Directors.
  2. It’s easier to raise capital, as you have shareholders.
  3. It’s easy to transfer full or part ownership of the business to another individual or entity.
  4. Easier to expand as you can operate a group of Companies and offset losses from one Company against the profit being taxed of another.
  5. Perception is reality – rightly or wrongly, companies are often perceived as being more “serious” by outsiders as the process to setup and requirements for ongoing trading are more involved and costly – requiring more of a commitment from the Directors.
  6. Taxation on profits is advantageous (see the Taxation section below).
  7. Liability is limited. (see the Liability section below).

 

What are the fees and charges applicable to registering as a Sole Trader?

Every sole trader requires and Australian Business Number (ABN), which can be registered for free. As a Sole Trader, the business is the person – therefore a Sole Trader ABN is registered in the applicant’s name – e.g John Smith ABN 99 999 999 999. If you would like to register a Business Name to trade with -e.g John Smith trading as John’s Plumbing, ABN 99 999 999 999 – the cost to do this with ASIC is $36 for 1 year, or $84 for 3 years.

What are the fees and charges applicable to registering as a Pty Ltd Company?

Registering a company costs $488 for a Pty Ltd company. Upon completion, you will receive an Australian Company Number from ASIC, once they’ve registered your company. If you want to run your business as a company, you’re also required to apply for an ABN (free) and a separate company bank account. The company bank account may attract fees, depending on the bank and type of account you open. Companies are also required to pay annual ACN renewals, as well as any applicable ASIC fees when changes are made to the structure of the business.

What are my liabilities as a Sole Trader?

As a sole trader, your personal assets are not protected by the business structure. Because of this, you are personally liable for every part of the business, including any debts, liabilities and contracts of that business.

If you hire staff, you are also personally responsible for PAYG withholding obligations and Super Guarantee (SG) contributions obligations.

What are my liabilities within a Pty Ltd Company?

As the director of a Pty Ltd Company, your personal assets are not automatically protected, however, generally if you comply with your legal obligations as a Director, the company is liable for the Company’s debts. This means that all debt or liabilities of the company are to be paid by the company, not by you, as a Director.

As the Director of the business, if you hire staff, you are still personally responsible for PAYG Withholding and SG Contribution obligations.

What are the differences with Taxation between a Sole Trader and a Pty Ltd Company?

Sole traders have a tax-free threshold of $18,200, whereas Companies are not eligible for any tax-free threshold. When it comes to the tax rates on income, sole traders are required to pay tax at their individual income rate.  For Pty Ltd Companies with an aggregate turnover of less than $10,000,000 per year, the Company tax rate is fixed, as of 1 July 2016 at 27.5%.

Sole traders will also need to lodge their normal, individual tax return each year, adding their business income and expenses into a separate schedule. For Companies, a separate Company tax return is required to be lodged annually, as well as personal tax returns for any income you earn via wages, shares, dividends, disbursements, loans received from the company, or any other sources of income.

It should be noted that Sole Traders must submit their annual tax return by 31st October of that year, whereas a Pty Ltd Company isn’t required to submit their annual tax returns until 28th February of the next year.

For more information on the Australian Taxation structure, visit this site.

As you have probably determined by now, there are a myriad of differences, advantages, and disadvantages between establishing your business as a Sole Trader or a Pty Ltd Company.

It’s always best to do the appropriate research required or engage a trusted and knowledgeable Business Advisor, Accountant or Legal counsel to help you through the journey.

Becoming an entrepreneur is exciting, empowering and at times, difficult. Ultimately, it should be a personally and financially rewarding journey to take.

The team at Finstro wishes you the best of luck and remind you that we’re here to help all types of businesses, with our smart cash flow management software and innovative business finance solutions.

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Read these 8 facts before redesigning your business website.

Author - Admin

Whether you sell apples or zebras, or anything in between - one thing will remain the same - success comes more seamlessly to this businesses who put their customers first, whether it's online or offline.

Having a website designed to enhance and optimise the user experience will go a long way towards helping your company to do more business. It can be a daunting experience to sit down in front of your website and think "how can we do this better?" - and creates even more questions such as  - "where do I start?" "how can I convey my service offering to my potential customers?" or even "how can I stand out in a saturated market?".

Here's 8 facts about redesigning your website to consider before you get started on assembling your new grill website.

Fact 1. Redesigning stuff is a good thing

No one gets things right the first time, and that same mantra applies when communicating with your customers through your website. Moreover, very few peoples business’s could be considered static - Your direction and purpose will have altered over time, to either suit your customer’s needs, or to seek new growth opportunities. 

Aligning your website with what you do best today should be a big goal of any redesign.

Dave's Pro Tip: Don’t have the budget to redesign? Often rewriting the content of your website will meet your communication goals.

Fact 2. You have people around you that can help

This isn’t just one designer, or one content writer’s job. Leverage the knowledge within your company, to get ideas, direction, content, and buy in.

Want to speak to customers? Ask your sales team for an introduction!
Confused by a concept? Get ask the person who know most about it to sketch it for you! 

Fact 3. A baseline is not just for tennis

You might have some ideas about what's not working, but it's important to validate those assumptions and get a baseline first. Put your website in front of people, grab some popcorn, and prepare to get your mind blown?-?It's almost guaranteed you'll learn more than what you set out to.

Write a testing plan first, but try to resist the temptation to jump straight into tasks like:

Find where you’d order coffee beans

Instead, consider letting users explore on their own before asking :

Can you tell me what (insert your business name) does, and what it offers to their customers

Following up on open ended questions is a great tactic for getting broader feedback on your product or service.

Dave's Pro Tip: Make sure to record a quantitative baseline too… How are you placed in google results? How many unique visitors a month? What are your most popular pages? What are the bounce rates for those pages?

Fact 4. Documents are boring. Put your findings into personas instead

No one wants to read a document full of findings and recommendations. Convert them into personas, with frustrations, goals, and opportunities.

Hint: Keep your persona’s focused towards your project. i.e if you are redesigning a website to gain more customers, focus on the specific needs of people who might become your customers, not the needs of your existing customers.

Example persona:

Fact 5. Good websites grow on trees

Make sure you lay it out before you flesh it out. Convert your old website into a tree diagram, and use your learning from stakeholders and customers to re-organise that based on your findings and priorities.

Make sure to validate the new structure, and re-adjust if necessary.

Example tree diagram:

Dave's Pro Tip: Tools like treejack can help with this process

Fact 6. Getting hung up on design gets in the way of content.

A pretty website design with Lorem Ipsum everywhere ain’t gonna get you far. Keep it simple, and write content in an accessible location first, or better yet, get the people who know best in your business to assist!

Laying your content out in a a simplified manner helps you focus on what’s important, and more importantly, helps you throw away what’s not. Whenever too much time is invested in a design, it becomes harder to dispose of, so go for speed at this stage on the process.

Dave's Pro Tip: A couple of great free tools you can use are balsamiq and invision

Fact 7. Reviews are not just for movies

Make sure to hold regular reviews to validate your content and structure, and make sure to get your new solutions in front of people inside and outside your company!

Fact 8. HiFi isn’t just for stereos

So you’ve got great content in a great layout that’s been validated internally and externally? Now you just have to decide how to bring it to life:

You may want to engage a UI designer or developer, or for many simple websites, picking a suitable wordpress or squarespace template might just be all you need.

Armed with these 8 facts, now is time to get started on enhancing your website, and ultimately, your customer's experience.

Image result for to start press any key

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Why a Business Loan might not solve your cash flow problems.

Author - Admin

In this article, we’ll discuss the differences between fixed-term business loans and cash flow finance – and why a one size fits all approach to finance does not work.

Let’s look at this common scenario:

Jerry Smith runs a wholesaling business.

Jerry buys his products from local and overseas suppliers and has payment terms with those suppliers of between 0 and 14 days. His local suppliers have 14 day terms, whereas his imported goods require pre-payment (as well as the cost of shipping and insurances).

Jerry's wholesale customers have typical payment terms of 28-60 days.

Every time that Jerry logs in to his online banking, he is faced with a balance that reflects his payments going out to his suppliers – and a slow trickle over the next month of payments coming in from his customers.

This isn’t just a problem that Jerry or his industry face – this is a problem that all B2B businesses will face at some time.

Jerry still needs cash in his account to trade – he needs funds for his wages, funds for his overheads and funds in the account to cover those “rainy days”.

Jerry’s peers suggest that he might want to look at taking out a fixed term business loan to add a buffer to his cash flow and working capital. Jerry starts ringing around to his bank and a couple of non-bank lenders and gets a few options.

Ask anyone, not just Jerry, what time frame they want to pay back the business loan, and inevitably the answer will be “as long as possible, please and thank you”.

On the face of it, this makes sense. The capital is available to use within the business for longer and coming up with repayments is a problem for the future. But, is this the right answer in all cases?

How Business Loans work:

Typically, a Business Loan is a fixed term loan that puts cash directly into the business’s account. Because it’s a fixed term, the repayments will generally be the same amount on a recurring basis.

 Is this an appropriate solution to bridge a cash flow gap?

While it’s definitely A solution, it may not be the best solution. Taking on external finance generally works best when the finance is working as hard for your business as you are. While you can’t expect it to be in your warehouse packing orders, you should be able to see a return on investment – your capital should be earning your business more than it is costing.

With the longer, fixed-term of a business loan, businesses can find themselves retaining expensive cash, sitting in an account slowly depreciating as a cash flow buffer or “rainy day” fund. Inevitably, when the business next requires additional working capital, a supplementary loan or “redraw” is required, again, locking the business into a fixed term of expensive cash.

How does cash flow finance work?

Cash flow finance is a unique solution which can provide control over cash flow. It is essentially a line of credit linked to and secured by a business’s outstanding accounts receivable and payable.

There’s often no real estate security and in some cases no capital repayment requirements.

Businesses will have access to the cash tied up in their outstanding credit sales upfront, to put back to work and seize opportunities, meet overhead costs, pay down debts, increase stock orders or steadily increase orders.

In other words, they can be free of many of the constraints that they may regularly face without such cash flow strength.

How does cash flow finance differ to a fixed term business loan?

Cash flow finance is a short-term, revolving finance solution to fill only the cashflow gap that the business is experiencing.

Typically, the debt is repaid as soon as the gap closes, and the extra capital injection is in use, earning additional revenue, for the whole time the business has it.

As a revolving facility, cash flow finance is available on demand for when the business needs it. As a short term finance solution, it can roll in and out of the business without the burden and stress of forecasting repayments into the future.

Whichever solution your business decides on, always look at the cost of the capital that will be in use. While some loans may seem cheaper or easier, the cost to the business can be hidden in the structure.

Cash flow finance - often the best solution to a cash flow problem.

Finstro offer an innovative line of credit, designed to support strong cash flow and business growth. Find out more by clicking the link below:

Finstro Business Finance | Line of Credit

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How to use debt to your advantage

Author - Admin

It’s an old adage that you need money to make money. In other words, you need money to invest in order to grow your wealth. Unless you inherit a fortune at a young age, this inevitably necessitates borrowing money at some stage to buy a home or start a business. Debt shouldn’t be a dirtyword, and the vital deciding factor is your skills at debt management.

Maxing out  credit cards on holidays, dining out and high fashion, for instance, accumulates bad debt.  Bad debt as you have not spent the borrowed money on  growth assets and it has to be paid back at high interest rates. A home loan, on the other hand, is good debt. You are paying off a growth asset while saving putting dead money into renting a home.

When you own and run a business you need to be smart about debt. Debt allows you to start your business and to build it at crucial times. You need to aim for and maintain ‘efficient debt’, debt that allows you to acquire assets that have the potential to grow in value and generate assessable income.

You also need to maintain a steady cashflow so you can service your debts. If your customers are late paying their invoices owing to you, then problems can arise paying your invoices from suppliers, loan repayments, wages and other expenses and a cashflow crisis can occur.

Using debtor finance is a solution. Debtor finance can be used to fund slow-paying invoices, which in turn improves your business cashflow and provides the funds to pay your business expenses. By syncing Finstro with your cloud accounting software you will automatically have access to this form of  finance .

Debtor finance works like a revolving line of credit, financing batches of invoices as available funds and adjusting regularly as customers pay their invoices and your business raises new invoices.

With Finstro’s available credit system, you will benefit from improved cashflow, providing the financial stability vital to all businesses.

You will be better able to extend payment terms to clients and customers without the worry of potential cashflow problems. Think of Finstro as your cashflow insurance policy.

What’s more, at Finstro we have your back in other ways as well. Finstro’s holistic cashflow management and debtor management platform has a suite of valuable resources to help manage your cashflow.  These include the ability to run credit checks on new customers to make sure they have the ability to pay you, customised payment reminders to save you chasing late invoices, automated invoice payments to make sure you always pay on time and protect your credit rating and real time analysis of your cashflow position at any time.

If you think Finstro could be the safety net your business needs to ensure your debt management is fully under control, then give it a test run by signing up for a free 30-day trial today.

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‘Instant Asset Write Off’ explained for your business

Author - Admin

The Instant Asset Write Off - what is it and how can your business utilise it?

A key feature of the 2015/16 Federal Budget (and subsequent Federal Budgets since) was the $20,000 Instant Asset Write Off scheme for small businesses – a scheme which has proven to be very popular with Small Business Owners. The $20,000 Instant Asset Write Off scheme allows business owners to immediately write off depreciable assets that cost the business less than $20,000.

What does this actually mean?

As you know, deductions are typically available for purchases that are made by your business, for your business. The purpose of the $20,000 Instant Asset Write Off is to accelerate the speed at which you can make deductions for those purchases.

Since the commencement of the scheme, small businesses (ATO definition of small business) have been able to instantly deduct business assets that cost $20,000 or less. This allows business owners to claim a deduction for that asset in the same income year as the asset was purchased. This deduction is then able to be claimed on the business’s tax return for that income year.

How is this different to the previous Asset deduction rules?

The main difference is that until May 12th, 2015, businesses were only able to instantly write off assets up to $1,000. Assets that exceeded $1,000 were only able to be written off partially every year, in accordance with the relevant depreciation rate for the class of asset.

Since the introduction of the $20,000 Instant Asset Write Off, businesses can now write off the cost of the asset (providing it is $20,000 or under) in the same financial year as they bought it instead of the ongoing depreciation rules that previously applied (and still do apply to assets that cost greater than $20,000).

What about items that cost more than $20,000?

Assets that you have purchased in this income year that are greater than $20,000 can be allocated to a pool, and then be depreciated and deducted – albeit at different rates. Check with your Accountant or Tax Advisor for more information on your individual circumstances.

Does this mean I get a $20,000 tax refund for each asset?

No. The $20,000 Instant Asset Write Off scheme means that you can reduce the amount of tax that your business has to pay. This means that if your business is structured as a “company”, the most you would “get back” would be the current company tax rate of 27.5%.

What about Assets that are also used personally?

If you buy an asset for your business that you also use personally, you can only write-off the equivalent percentage that is used for business purposes. As an example, if you were to buy a $20,000 van for your florist business, that 80% of the time was used for business purposes, and 20% of the time was being used for personal purposes, you would only be eligible to write off $16,000 (the 80% of the total asset cost).

Additional points to consider before rushing out to purchase Assets

Assets must be ready to use: To be eligible to write off your new assets, they must be either installed and in-use, or purchased and ready for use in the same financial year as it was purchased. This means that you can’t claim the $20,000 Instant Asset Write Off for a purchase that was finalized in June 2018, but that won’t be installed or operation until September 2018, for example.

How long will the Instant Asset Write Off be available? Initially launched in the 2015/16 financial year, the Federal Government has continued to extend the scheme on a year-by-year basis. There is no guarantee, however, that the Government will continue the scheme in the 2018/19 financial year, so this could be the final year of the increased $20,00 thresholds before being reduced back to the original $1,000 cap.

Does every “Small Business” qualify? The write off is only available to small businesses with an aggregate turnover of less than $10,000,000. Further, the entity that is purchasing the asset must be trading business – meaning that the entity conducts business in it’s own right.

Is every business asset eligible to write off?

No. Whilst most assets are, there are a number of asset classes or types that the ATO has excluded from the scheme. These include capital works assets, horticultural plants (including grapevines) and more. Check with your Accountant or Tax Advisor for more information on your individual circumstances.

Is it wise to invest now to take advantage of the $20,000 Instant Asset Write Off?

It may be wise for you to take advantage of the $20,000 Instant Asset Write Off if your business has the cash flow to support the purchase/s, and that you can have the asset either operational, or ready for use in this financial year.

Finstro offer various finance options for Australian businesses, including trade finance, invoice finance and debtor finance. Call the team at Finstro to find out more about these options and their suitability for your business.

The information provided on this website is general in nature only and does not constitute personal or commercial financial or taxation advice. The information has been prepared based on our interpretation of the IAWO program and has not taken into consideration your personal or business objectives, financial situations or needs. Before acting on any information on this website, or others, you should consider the appropriateness of the information with regard to your personal or business objectives, financial situations or needs. Speak to your Accountant, Tax Advisor or the Australian Tax Office for any questions you may have with regard to the application of the Instant Asset Write Off for your business.

Find out more about Finstro's Invoice Finance here

 

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Why cash flow is King (or Queen)

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Why Cashflow is King

You can call cashflow king. Or you can call cashflow queen, if you favour equality (and don’t we all). Whatever title you prefer there’s no doubt that, when it comes to business success, cashflow reigns supreme and creating a cash flow model is essential. Steady cashflow is the heart ofyour business that keeps its lifeblood pumping. Restricted cashflow is the cholesterol that can block the arteries of your business – possibly permanently.

Enter Finstro – a holistic cashflow management and debtor management platform that seamlessly integrates with your cloud accounting system to help you manage your cashflow and keep those arteries pumping and the king (or queen) sitting comfortably on the throne where he or she belongs.

In fact, more businesses fail due to lack of cashflow than due to lack of profit. Without steady cashflow, your suppliers may stop extending you credit and you might not be able to purchase the goods needed to sell to your customers and receive payment. Restricted cashflow limits your growth as you cannot take up new opportunities, build up stock or take on extra staff when needed. In short, lack of cashflow can choke your business growth and lead to more stress than you ever thought possible.

It’s important to note here that there are three common ways businesses struggle or fail due to lack of cashflow:

 

  • The business has grown quickly and requires cash on hand within the business to purchase larger quantities of supplies or pay bigger wage bills, putting a strain on the business’s cashflow.
  • Customer payments take longer and longer to collect, so that whilst sales are growing and supply requirements are growing, the cashflow for those sales doesn’t come in for days, weeks or even months after it was needed.
  • The business owner has failed to anticipate a cash shortage, leading to a cash crisis and suspension or cessation of operations, even though the business has ample customers.

Finstro's Innovative Line of Credit has been designed to address these concerns, offering three separate solutions within a single product:

Finstro Pay | Supplier Finance

Finstro Fund | Debtor Finance

Finstro Cash | Cash Advance 

To avoid these mistakes, you should be completely realistic and honest when preparing your cashflow model. If you are not doing cashflow projections on a regular basis, it is worth using a cashflow projection worksheet and entering your current cash in hand (your liquidity), anticipated inflows (money coming in) and anticipated outflows (money going out). At all times err on the conservative side by estimating your inflows lower and sooner and outflows lower and later.

If you can see a cash shortage looming, Finstro’s readily available credit system can head it off at the pass, and avoid damaging your credit, losing suppliers, cutting back on staff or, worst of all, going out of business.

Another way Finstro can help you maintain cashflow is with our debtor management platform. A key factor of your cashflow is how long it takes customers to pay you. Our customised automated reminders can significantly reduce delays in payment as well as the valuable time you or your staff spend chasing up debtors. This is time you can use on far better pursuits, such as winning new business, or collaborating more closely with your team, rather than tearing your hair out.

Understanding and effectively managing your cashflow and being realistic with your cashflow model is essential to your business success. With healthy cashflow, you can build your business and have the flexibility to take new opportunities that are presented to you as well as knowing you have the ability to survive lean times. Want to maximise your cashflow? Sign up now for our free trial.

At Finstro, we know that cashflow is indeed king (or queen) and have the tools to help you generate healthy cashflow and plan your business better and more effectively. Find out just how helpful we are by signing up for a 30-day free trial today.

 

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Simple tips to improve your cash flow

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Ask business owners what is the single biggest problem they face on a daily basis and chances are that having sufficient cash to pay bills as they fall due – be it wages for staff, rent, utility bills or payment to suppliers - will be at the top of the list.

Cash flow shortfalls, or the working capital gap as it is commonly known, affect all companies, big or small, in any industry in any part of the world.

Managing working capital effectively ensures that a business is able to manage its day to day operations and also meet short term debts and future expenses. Therefore, necessary but by no means easy.

Here are some simple tips on taking control of your working capital and maintaining smooth operations:

Invoice your Customers on time

  • Many businesses with strong sales still suffer from insufficient cash flow largely due to inefficient invoice management.  Selling to other businesses usually involves providing trade credit terms – 7,14,30,60 days to pay.  If this sounds like your business, then whenever you have completed a project or provided a service, start preparing an invoice – this should be your top priority. The sooner you send invoices, the more likely you will be paid early.
  • Many companies have moved on from traditional invoicing to online invoicing; it’s easy to keep things moving even in your hectic schedule. Use cloud accounting software and automation to your advantage!  Start invoicing your clients on schedule and set up automated follow-ups on non-payments.

Make it Easy to Get Paid

  • It’s important to be open to various payment methods to ensure getting paid on time by your customers. Accepting credit/debit card payments, payment by cheque (yes, some people do still use them) or, best yet, cash, are all options you should be capable of accepting.
  • Also, make it possible to pay you digitally so they can pay you from the comfort of their desk chair or via their smartphone.
  • Remember, the easier it is to pay you, the harder it is for them to make excuses.

Incentivise Quick Paying Customers

  • Now that you’ve made it easier to pay you, you should consider setting up rewards for customers who pay you quickly or on-time. One way to do this is to offer discounts or rewards programs to incentive good behaviour.
  • Or, as you grow, you can extend credit to your customers (but only the best!). Make sure to consider the disadvantages, including impact on your gross margin; if it is financially viable to offer this to your customers, they’ll be willing to spend more money than usual.

Negotiate longer payment terms with your suppliers

  • Slow-paying or non-paying customers often cause disastrous hurdles to growth, yet it’s still necessary to control your business cash flow. One way to do this is to work out longer payment terms with your suppliers.
  • Just like you can do for your customers, your suppliers will want to do with you. If you’ve maintained a loyal business relationship, and you’ve been a dependable payer, your suppliers may well be willing to work out a deal with you. It never hurts to ask – the worst they can say is no, right?

 

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