Did you know you still have to pay tax on uncollected debtors? This is because you pay tax on your sales figures irrespective of whether you have collected the cash.

To avoid paying tax on uncollected debt, here are some quick and easy-to-implement debt collection strategies to ensure your hard-earned money is sitting in your bank account (and not in theirs):

• • Agree on your payment terms at the time of sale
  • Get the Terms of Trade signed off in writing before you start the job
  • Include a guarantee in the payment terms
  • Ask for a deposit
  • Invoice as quickly as you can
  • Change your payment terms to 7 days or ‘on delivery’
  • Send statements with only two columns – current and OVERDUE
  • Schedule overdue reminders and follow up the day after the due date
  • Put someone other than the business owner in charge of collection – owners are usually too soft!
  • Document what your customers have promised in terms of payment and hold them to it
  • Use a debt collector sooner rather than later – the longer you leave it, the harder the debt will be to collect
  • Stop credit for customers who are late on payment

Take action! Reflect on how many of these ideas you’ve integrated into your business and check how many you’re actively applying. Don’t let procrastination hold you back — address your debtors today!

The following content was originally published by BOMA. We have updated some of this article for our readers.

Making time to look over your financial reports each month is an important task for any business owner.

If you are not taking time to do this, either because you’re too busy, or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are 6 reasons we recommend you should start to.

But before we get our 6 reasons, let’s talk very quickly about which reports to look at. At a bare minimum, and depending on the complexity of your business, you should be looking at the following:

• • The Statement of Financial Performance – also known as the Profit and Loss report (P&L) or the Income Statement – tells you, as the name suggests, how your business is performing over a period, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
  • The Statement of Financial Position – also known as the Balance Sheet shows the value of the business’s Assets, Liabilities and Equity.
    • • Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
      • Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances
      • Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced
  • Accounts Receivable Ageing report (Aged Receivables) – this shows how much money is still owed to the business as at a certain date in time and is usually segmented as to how overdue they are, or sometimes by how far past the invoice date they are. Generally, you will have Current, 30-, 60- and 90-days columns.
  • Accounts Payable Ageing Report (Aged Payables) – this report shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.

So why bother?

1. Understand your business better – by looking at your Profit and Loss report monthly you will get a good picture of how your business is performing month by month and it gives you a better understanding of what makes up your profit. It can be helpful to compare periods, or to look at a month-by-month P&L, so you can clearly see on one page the revenue and expenses month by month. This also helps identify trends in your data and many also help to highlight anomalies in coding/categorizing or unusual expenses or earnings.
2. Accurate information for lending purposes – If you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.
3. Get paid quicker and reduce bad debts – by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this.
4. Better relationships with your suppliers – Assuming you are entering your supplier bills into your accounting software (recommended for most businesses to get an accurate profitability figure) your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.
5. Better cashflow – having an accurate understanding of how much money the business is owed, and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, its expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.
6. Better business decision making – Your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability.

If you would like to know which reports are relevant to your business, and you want to better understand what’s going on in your business, then get in touch so we can make a time to go through them with you.

Your business success is important to us and we are here to help you.

The following content was originally published by BOMA. We have updated some of this article for our readers.

Have you ever wondered about the best ways to protect you and your business?

In this series, we’ll look at the key ways to use trusts, insurance and risk-management techniques to protect both your personal assets and the future of the company.

In this article, we’ll look at how you can use a trust to shelter your assets.

What is a trust?

Before we go any further, let’s explain exactly what a trust is and how they can be used.

A trust is a legal arrangement where a person (the settlor) transfers ownership of certain assets to another person or entity (the trustee) to hold for the benefit of one or more third parties (the beneficiaries). These assets could be money, property or shares etc.

It’s essentially a separation of legal ownership from beneficial ownership.

These are the three main parties involved in a trust

Settlor: The person who creates the trust and contributes the assets. In this instance, the settlor is likely to be you, the small business owner.

Trustee: The person or entity (this could be an individual or a company) who holds legal title to the assets and manages them according to the trust deed. They have a fiduciary duty to act in the best interests of the beneficiaries. Trustees are likely to be you and your family members, or anyone in the business who you decide to make a trustee.

Beneficiaries: The individuals or entities who are entitled to benefit from the assets held in the trust. This will usually be the family members or other interested parties that you wish to be beneficiaries of the assets held in the trust.

What’s a trust deed?

The rules for how the trust operates are set out in a legal document called a ‘trust deed’.

The trust deed is a legal document that formally establishes a trust. It outlines the trust’s rules, names the settlor, trustees, and beneficiaries and defines the trustees’ powers and duties.

The deed also dictates how assets within the trust are to be managed and distributed to protect personal assets from business liabilities.

How can you use a trust to protect your personal assets?

Running a business comes with a certain amount of inherent risk. There’s potential for the business to go bust, for creditors to come after your assets, or for individuals and organisations to make legal claims against you and the business.

Setting up a family trust to shelter your personal assets allows you to separate your personal financial security from these inherent risks of running a business.

The trust creates a legal barrier between your individual wealth and any financial liabilities or claims arising from the business.

Here are the five key reasons why a trust is worth considering

1. Shield your personal assets from any business liabilities:

If your business faces bankruptcy, lawsuits, or significant debt, your personal assets can become vulnerable. This is especially true for sole traders or partnerships, where you don’t have the protection of limited liability as an incorporated company.

By transferring your assets to a trust, these assets are legally owned by the trustee, not you personally. This makes them inaccessible to the owner’s personal creditors, in most cases.

2. Mitigate the risk of being an entrepreneur:

Being an entrepreneur involves taking on certain risks. Sales can plummet, businesses can fold and unexpected external conditions can scupper your well-laid plans as a business owner.

With your personal assets held in a trust, you can take calculated business risks knowing that your family home, savings and other personal investments are safeguarded. The family trust provides you with a crucial safety net to secure yours and your family’s future.

3. Enhance your estate and succession planning:

Protecting your personal assets is the key function of the trust. But a well-managed family trust can also help with the orderly transfer of your assets to future generations.

Having the family trust set up prevents your hard-earned assets from being tied up in your estate upon death. This is great for estate planning and helps your immediate family achieve a smoother transition and protects these important assets from potential claims against the estate.

4. Balance control vs. ownership:

As the business owner, once your assets are held in a trust you are no longer the legal owner. However, through a trustee or appointor role, you can still maintain a significant degree of control over how the assets in the trust are managed and distributed

Even though you no longer hold legal ownership of these assets, you can still balance a level of control over the assets, while also enjoying the benefits of reduced liability and risk.

5. Benefit from better tax planning, in some instances:

Asset protection is the primary driver of a family trust. But having the trust in place can also make it easier to distribute income among beneficiaries in different tax brackets. As such, there may be an opportunity to enhance the overall tax position of the whole family.

Tax planning within a trust structure is a complex area and should always get professional advice from your tax adviser.

Helping you enjoy the protection of a family trust

Having worked so hard to create a profitable business, it’s vital to take every opportunity to protect your personal assets and the future prosperity of your family and loved ones.

Talk to our team about the key benefits of setting up a family trust, and the potential benefits you could achieve in your own specific business and family situation.

The following content was originally published by BOMA. We have updated some of this article for our readers.