SMEs: Who are the winners this year?

(First published in Business First Magazine – December 16)

Christmas is almost upon us and business owners will be shifting their focus to planning for 2017.  Let’s take a look at the highlights for 2016 and how they lead into key themes for 2017.

The budget of uncertainty

The Turnbull government’s May 2016 budget was widely flagged as a step in the right direction for small business. However, the proceeding lag time in policy implementation and uncertainty around superannuation policy has seen many SMEs simply “tune out” to how these changes affect them or their business.

Business owners should keep these in mind:

  • Reduction to the small business company tax rate down to 27.5% from 1 July 2016 – applicable to business with up to $10M turnover.
  • Other tax benefits opened to many businesses within the $2 and $10 million turnover band including simplified depreciation and trading stock rules
  • Tax offset of up to $1,000 for individuals carrying on business via a trust, partnership or sole trading.
  • No change to eligibility threshold for small business CGT concessions.
  • Small business restructure tax concessions made available to family groups

The bad news for SMEs was to be at the personal retirement level with super flagged for retrospective policy, restricted thresholds and months of uncertainty in policy.  While a backflip on the $500,000 retrospective lifetime non-concessional cap was announced in September the main superannuation policy announcements from the budget look set to become law from 1 July 2017, these include:

  • $1.6 million transfer balance for super pensions
  • Removal of the transition to retirement pension tax exemption
  • Reduction in the concessional cap to $25,000 annually and non-concessional to $100,000 annually
  • Lowering of the threshold for the additional 15% super contribution tax from $300,000 to $250,000

Business highlights as of November

The key 2016 highlights we hear from business owners on a day to day basis come from outside the tax sphere.

Low Interest Funding

Access to low interest business goodwill and asset funding has clearly been a key winner for business in 2016 –especially businesses that were able to capitalise on the low rates. We have seen many cases where the major banks have shown high degrees of flexibility on rates in order to retain and win new business – while this was not always on the first approach, it pays to be persistent.

New tools to monitor your business

We have also seen a shift in openness to technologies and new streamlined processes.  Business owners now have access to apps and software that are affordable, giving them a comprehensive and real time view of their trading results and cash flow position.  Business owners who previously preferred traditional methods are beginning to realise that they must adapt or be left behind.

Innovation

Business operating in the innovation field fared well during 2016 with a range of policies and grants delivered to foster innovation.  The commercialisation of innovative products and services continues to be an area of growth with ongoing rounds of funding and tax incentives.  One of the most generous of the concessions is the Early Stage Innovation Company (ESIC) tax concession which provides investors with a rebate of 20% on their investment and the ability to disregard capital gains for assets sold within 10 year.

On the radar for 2017

The 2017 landscape for SMEs will continue to present challenges.  SMEs will need to be focused and savvy when it comes to steering their business in a winning direction.

Business Planning is Key

The top concern keeping business owners awake at night in 2016 was business planning (or lack thereof).  With research showing that 72% of business owners don’t have a business plan. Too many owners are concentrating on day to day operations and either don’t have the time, skills or support to focus on long term planning and growth.

Given the tools available to SMEs, 2017 will see in app based resources, there is no longer any excuse to shy away from strategic business planning and ongoing monitoring.  Benchmarking, industry averages and real time comparative data is readily available and should be put to work. 

People & processes – get these right and ease your stress

As engage with remote employees or “gig” workers, processes will need to be dynamic and streamlined.  Focusing on new ways of working along with smarter processes will be a key theme of 2017 and can also help ease the stress levels for business owners.

Stress and Lifestyle concerns rose from #5 in the 2015 SME research report to #3 in 2016.  The majority hold a belief that their business can’t operate without them. To avoid burnout and missing out on family time business owners should invest focus in this area. Cloud based tools that allow time away from the business without compromising connectivity can also be a useful planning tool for business owners.

Actively managing cash

The record low borrowing rates of 2016 can’t last indefinitely and cash should always be a key focus for business.  Most businesses that fail still do so because of cash flow issues.

In 2017, we recommend using KPIs, benchmarks and cash flow planning apps to make cash management a priority for your business. Once you’ve harnessed your cash flow you can take advantage of business opportunities when they arise.

SME Owners to plan for Financial Freedom

Close-up of a women hand typing laptop keypad from representing the concept of business graph in front of blackboard.

Financial independence, key person risk and being too busy to grow their business are some of the most common stresses facing SME businesses in Australia today.

Formal business planning is squarely in the ‘too hard basket’ for many business leaders (72%) and this is holding them back when it comes to financial independence, growth and financing, and planning for retirement – with many SMEs without a retirement date and no succession plan (90%), or worse, they don’t know what income and assets they need at retirement (88%).

So says a comprehensive face to face study conducted over 12 months with more than 500 SME business leaders.

To access the research report findings and commentary please contact us on 02 4907 7222.

Why aren’t businesses doing strategic planning for growth?  We found 66% of participants in this study are too busy working in their business with no time to work on their business.

Here are some key business planning tips for SMEs, across the key areas of Strategy, People, Processes & Cash, to take the mystery out of planning and to help business leaders to take charge.

1) Everything is relative – Even if you do planning – how do you know it’s going to work?  Benchmarks are fundamental indicators of success and without knowing how your business and activity currently performs against other SMEs, you could be flying blind. Ask your adviser about helping you with benchmarking your business against others.

2) What are you solving for?  You need to determine what your end game is – where are you going and why? What do you need to get there? What’s holding you back? What does your vision look like in terms of what you sell, to whom, when, where and how.

3) Do you have the processes and systems in place to implement a plan? Identify your key processes, highlight what needs to change to grow where and how you want, then develop the processes and enlist your team to troubleshoot and own them.

4) How much money do you need? Revenue for cashflow, profit target, capital for growth. How much is enough and what’s the best sources of finance for your business? What do you need to secure it?  How healthy is your credit history?  All of these factors are important if you are looking to secure outside investors or fund your growth through debt. Your accountant can help you to put sums around your plans.

5) Do you have the right skills and experience in-house to implement a plan? If not, where can you find them?  Do they need to be in-house or can you use a virtual CFO, marketing team or cloud accounting solution? If you need experienced resources for sales or development then what will it take to get them and how much will it cost?

6) Have you thought about what it will take to align your staff so you can get the 1+1=3 effect? Make sure you have champions for each aspect of your plan or it will fail. Hold people accountable through alignment and integrating the plan into every day activity. Do you need a reward system to get the best out of your staff? Something simple may not cost you a lot of money but could create a step change in your business culture.

7) What are your indicators for success?  Every plan needs to have indicators of success and clear timelines. These help form KPIs for your team and will demonstrate outcomes to investors and owners when the time comes.

8) Reassess and refocus. Use real time financial and management reporting to steer incremental change. Cloud Accounting solutions are your go to. Set yourself a timeline for assessing success periodically and refocus where you need to in real time. Cash flow is king regardless of the size of your business. Don’t let your focus on expansion blind you to the need for strong cash flow and money in the bank.

There is always plenty to think about when you run your own business. Sharing the load with a trusted adviser will help you to put perspective on your vision as well as reality around your plans. A Board of Advice is a term used widely when it comes to business advisory and it can be a useful step for you to consider if financial freedom is your goal. Enlisting a structured Board of Advice with those who you trust to give you honest and informed insight could mean the difference between feeling stressed by the treadmill, and seeing your vision blossom.