With the budget announced last week, here are what we believe are 6 top budget measures to assist our amazing small business community move from surviving to thriving beyond 2020.
Before going on though, did you know that we small businesses employ 2 of every 3 Australian workers and make up 99% of the economy? Something to be very proud of we reckon!
So, moving on to the budget:
Immediate tax write offs: When you buy or finance any equipment of any value (no cap on the price) from October 6, 2020 to June 30,2022 you can write off the entire cost of it in that financial year….. That means not only do you benefit from using new technology and income generating assets, but your tax bill is reduced.
Loss carry back: Any loss your business incurrs up to June 30 2022, you can offset it against profits made in the past (from 2018-19). That means that you can request a tax refund and boost your cashflow.
Changes to responsible lending laws: Small businesses have been the unintended sufferer of lending laws that should have been applied to consumers only, not small businesses. This has led to good businesses with good loan repayment history struggling to either a) get approved for finance and/or b) pay higher interest rates with 2nd and 3rd tier lenders. Not fair, we say! The government claims they will relax these new laws as of March 2021. Let’s hope it translates to the banks peeling back some irrelevant credit policy.
Personal income tax cuts bought forward and backdated to July 2020: So, if you earn up to $45,000 the new reduced tax rate is 19% and 32.5% for those earning up to $120,000.
Investment in research into future climate disasters: Many of us know someone who was affected by this years catastrophic bushfires. Ecolease has a number of small business customers severely impacted by the fires and it is investment into this type of research that in the long run benefits the SME community. Buried in this year’s budget was the provision of $7.6 million to upgrade the Australian Community Climate and Earth System Simulator, known as ACCESS, to increase the nation’s “capacity to respond to future climate disasters and emergencies”.
You may have noticed that we have recently been sharing some resources aimed to help manage your cashflow in these challenging times.
Below we share three ways Ecolease can assist with reducing monthly payments to ease cash flow pressures:
Finance Solar and energy efficient equipment
1. Refinancing all your vehicles!
Cars, Utes, Vans
If you have vehicle loans that have been running for 12 months or more, it is worth looking into refinancing. We can extend the term and get a better rate as a simple way of reducing your monthly outgoings.
Refinancing your commercial and/or residential property loan is a strategy that could provide some very good savings. With current rates as low as 2.99% p.a talk with Dave our resident property specialist to find out more.
Solar and energy efficent equipment can bring substantial savings every month by reducing your power bills.
Michael McDowell at The Sign and Badge Centre, Melbourne, had this to say regarding his invesment:
“Our business has two buildings and we wanted solar panel installations put on both. Ecolease were excellent to deal with and made the financing process simple and fast and our reduction in energy costs is around 70% per annum since the system was turned on.”
What can be financed? Solar Panels and Inverters. Efficient and LED Lighting. Batteries and Storage. Cooling and Heating Systems.
With many businesses running with fewer staff, some business owners are finding their working week is longer than ever.
Labour saving equipment and technology is more critical than ever to maintain productivity and profitability.
Over the past couple of months, we have heard firsthand from our amazing customers how important the right equipment is for business – especially now. New technology is allowing business to produce more with less.
Here are a few questions to get you thinking about how new equipment may help your business:
Will equipment produce my product quicker, easier, more cheaply, reduce waste?
Does it give us more control over quality and production time? (especially true if you are outsourcing)
Will purchasing the equipment open my business up to new streams of income, new markets?
Does it allow me to produce new goods that my existing customers are demanding?
If you answered YES to any of these questions now may be a good time to buy.
Any current downturn in business may allow you time get the equipment installed and staff trained so that when business ramps up (and it will), you will be ready.
The price of the equipment (and how you intend to pay) is the final consideration. Focus should always be on the value the equipment brings to your business.
Financing the equipment can help because you only have to come up with a monthly repayment rather than a large lump sum. It also allows you to hang on to cash, essential in the current environment. Cash should be spared for operational purposes rather than purchasing equipment where possible.
With the additional benefits of lower rates and tax deductions from the Instant Asset Write Off scheme now is a good time to consider. We suggest you seek advice from your accountant regarding your individual circumstances
3. Extend Your ‘cash’ Runway.
Cashflow forcasting is a powerful tool…
Cashflow forecasting is a powerful tool to help you beat COVID, keep your business alive and help you prosper on the other side.
Stuart Donaldson unpacks survival and revival methods you can implement in your business in this thirty-minute webinar we aired back in May. An absolute must watch for any business owner but particularly if your business is being negatively impacted by COVID.
PLUS We are giving away free 13 week and 12-month Cashflow Templates and guide for you to start forecasting.
Many businesses are taking this quiet period to refurbish, update technology and pivot with new goods and services.
This may mean you need new equipment and now is a good time to buy.
Why BEFORE June 30?
Seriously good deals on offer for vehicles and equipment
Instant Asset Write Off (IAWO) drops to $1K AFTER June 30
Record low interest rates
Key points to know about IAWO:
You can write off 100% of eligible assets that cost up to $150,000 each
Equipment to be purchased and ready for use by June 30, 2020
For businesses with up to $500 million turnover
After June 30, the IAWO threshold drops from $150K to $1K
How does IAWO help me? In a nutshell, it means you pay less to the ATO, meaning you keep more cash in the business. It also means that any equipment you purchase now effectively costs you almost 30% less than what you will pay for it after June 30.
How can Ecolease help you? Fast Simple approvals up to $150k with no financials* We live and breath equipment finance and our expertise is more important than ever in these COVID lending times.
Can I finance it and still qualify? YES. Speak to the Ecolease Commercial Finance Experts to learn more.
Stay Strong, Team Ecolease
* Specific Credit criteria applies.
Please note, it is important that you speak with your accountant when considering purchasing equipment and in utilising the benefits of IAWO within your business.
In the past couple of weeks we have been asked by a number of clients about the Government Guaranteed Small Business loans to help business with cashflow during this crisis (known as the SME Guarantee Scheme) .
In this COVID Bulletin we set out to explain how the government guaranteed loan works, how you can apply, and also offer other options that may work for your business at this time.
Remember, if you are considering using these options, it’s essential that you talk with your accountant and key stakeholders.
1. Government backed Loans for Businesses (SME Guarantee Scheme)
Under the Scheme, the Government is encouraging banks and other eligible lenders to support small businesses with unsecured loans.
Why is the government backing important? It means that small business owners do not need to use their home or investment properties to secure funding for their business.
What are the key points?
SMEs with a turnover of up to $50 million will be eligible to receive these loans
Maximum loan is $250,000 per borrower
The loans will be up to three years, with an initial six month repayment holiday
Rate circa 4.5% p.a
How you apply?
The major banks have information on their websites and a hotline to call. They will require your financial statements and tax returns for 2018 and 2019, cash flows and other information.
You can call your bank direct or feel free to call ECOLEASE to walk through your options. One thing we can guarantee is that there is someone at the end of the phone!
Why would you consider this option?
The major benefit here is the flexibility that comes with mortgage backed loans and lines of credit. By extending the term for longer than 3 years there is less pressure on current and future cash flow.How you apply?
You can call your bank direct or feel free to call David at Ecolease for assistance.
Why would you consider these options?
There are a number of lenders that offer loans and overdrafts with less complicated application processes.
You may consider these options if you don’t have completed financial statements.
Rates vary from 12.95% and upward for loans up to $250,000.
How you apply?
You can call your bank direct or feel free to call David at Ecolease for assistance.
It has been a bizarre and stressful couple of weeks for many of us, as we grapple with the impact of COVID19 on our businesses and work places.
Things are changing daily, and this has been the first chance we have had to message you.
Please view our video where I give an update of how we, and our lenders, are handling your enquiries. I also provide directions to those who may be considering assistance with their loan repayments.
Below is a list of the Government Economic Response to the Coronavirus and links to their Fact Sheets. Importantly, please remember the best place for advice and information in relation to your business is with your accountant.
Lastly, a reminder that we are open for business and continue to assist with any equipment, vehicle and property finance needs.
A COVID-19 mortgage deferral won’t affect your credit rating.
The major banks have announced that any Australian who is granted a six month deferral on loan repayments on their mortgage or other credit products, such as a credit card, will not have their credit rating affected as a result of that deferral, provided they were up to date with repayments prior to COVID-19
1. Get your equipment delivered now and don’t pay until June!
Deferred Repayments for Rental Facilities!
If you were holding off purchasing that piece of equipment for your business, we may have found the right solution for you!
Very much so, a lot of our day to day conversations have been focused around the current Covid-19 situation. As a small business ourselves, this has been on our minds too.
We want to reassure you that Ecolease is still open for business. We are here to help. We recognise that many businesses still need vital income-generating pieces of equipment. So we have organised with one of our lenders the option to finance your equipment with a 3 month payment deferment.*
This means that you can get your equipment NOW, and not have to make any repayments for the first 3 months.
*Subject to credit approval and criteria. Applicable for Rental contracts only.
2. Support Options in Times of Hardship
LET US KNOW IF YOU NEED ASSISTANCE
With the devastating bushfires earlier in the year and now with the Covid-19 situation many small businesses have been impacted.
A range of our lenders have put in support measures to help these business during these difficult times.
If you are experiencing hardship due to these circumstances, we encourage you to please get in touch with us so that we can speak to our lenders about what options are available to you**.
Our thoughts are with everyone who has been, and continues to be affected during these challenging times. We are here to support you.
**All cases of hardship will be assessed by the lenders on an individual basis and certain criteria will apply.
3. Save with Solar!
At Ecolease we have helped various clients to save on their energy costs through financing solar power installations, irrespective of whether the premises are leased or owned.
Most clients, once they have installed solar, find that the savings they make on their energy bills more than offset the cost of the installation and is cash flow positive.
Here’s a strategy to offsetting the loan cost through installing energy saving technology!
If you haven’t already installed or thought about Solar to reduce your energy bill costs, you really should. In many cases the smaller energy bill plus the cost of financing the energy saving technology is less than the old electricity bill, leaving you with some extra cash that could be put towards funding that new piece of equipment you’ve been wanting.
“The payback period is very short and we are on track to achieve two thirds cost saving per annum.” Peter Anargyros, Managing Director, Created to Print, Adelaide
“Our business has two buildings and we wanted solar panel installations put on both and our reduction in energy costs is around 70% p.a since the system was turned on.” The Sign and Badge Centre Bayswater, Victoria.
So remember, the Sun will never send you an invoice!
Whether you own or lease your premises, Ecolease can help finance your installation and we even have our own Solar expert consultant who can assist evaluate the likely savings you can make with solar for free, so if you would like a free evaluation contact us now.
2. Thinking new car?
MAKE SURE YOUR COMPARING AN APPLES WITH APPLES QUOTE
When can an interest rate of 5.5% mean lower monthly repayments than another quoted interest rate of 2.99% when they both have the same loan period and payout balances?
Simple really, at Ecolease we always quote the effective rate not the base rate. The effective rate reflects the true cost of the loan, including all interest and fees, and provides you with a true comparison against other financing options. We like to call it our “Apples with Apples” quote!
The base rate, on the other hand, is often quoted to entice people. It is the net rate BEFORE any costs and fees have been amortised into the loan. It’s for this reason, we often get asked:
“How come your repayments are lower, yet your interest rate is higher?“
The best way to get around this, is to always ask for a quote to include the repayments and terms, rather than asking just for an interest rate.
Based on a competitve effective rate of 5.5%, the following repayments apply:
New car cost: Monthly repayments:* $50,000 $806 per month $75,000 $1209 per month $100,000 $1612 per month
*Monthly in advance based on 60 month term with a 20% balloon
So next time you are looking to buy a new car use this as a guide and always make sure you ask for what THE EFFECTIVE RATE is and check with us first to make sure you are comparing Apples with Apples.
3. How healthy is your business?
End of calendar year, when business is typically quieter, can be a good time to reflect on how your business is performing. Here are four key ratios that can help you understand better how healthy your business really is.
1. Revenue KPI the EBIT margin ratio
Every one of us in business knows
what our Gross profit ratio is but the EBIT (earnings before interest or tax)
margin ratio is a percentage that shows you how much you earn after deducting all expenses.
Formula: Revenue – Cost Of Goods Sold (COGS) – Op expenses = EBIT
Example: $1,000,000 in revenue $500,000 is the COGS $250,000 all other expenses $1,000,000 – $500,000 – $250,000 = $250,000 which is 25% of revenue
A 25% profit margin, meaning twenty
five cents of each sales dollar is remaining for your business. The other 75%
of earnings go toward expenses.
Most businesses aim for having margins above 25% but standards vary with different industries
2. Liquidity KPI the Acid Test Ratio
The Acid Test Ratio (sometimes called the Quick Test) is used to measure short-term liquidity. Liquidity is your business’s ability to pay off current liabilities (debts you must pay off within 12 months) with current assets (items your business has that can easily be converted into cash within 12 months), not including inventory.
Formula: Cash + Marketable Securities + Accounts Receivable ÷ by current liabilities
Example: You have $8,000 in cash, $0 in marketable securities, $3,000 in accounts receivable. $4,000 in current liabilities, $8,000 + $0 + $3,000 ÷ $4,000 = 2.75
Your Acid Test Ratio is 2.75. This shows that you have $2.75 in assets per $1.00 of liabilities, which means you have enough to meet financial obligations.
A quick ratio of 1.0 or more means you are able to meet your financial obligations. 1.0 means that you have $1.00 in liquid assets per $1.00 of current liabilities. If you have a score below 1.0 it means you are unable to pay all your liabilities.
3. Investment KPI the ROI (Return On Investment) Ratio
The ROI Ratio shows you how much your company gained from an investment you made. ROI is a percentage and helps you determine which investments were successful and which weren’t.
Formula: Net gain from Investment ÷ by cost of Investment X 100
Example: Let’s say you want to measure the ROI of your marketing strategy. You have $9,000 in gain from investing in say Google Adwords advertising, and your cost of investment was $5,000:
gain $4,000 ÷ $5,000 = 0.8 x100 = 80%
this example, you made a good marketing investment since 80% is high.
4. Cash Flow KPI the Debtor Day Ratio
This is a ratio that measures
how efficiently a business is collecting receivables.
Formula: Average trade receivables ÷ annual credit sales X 365 days
Example: A company has average trade receivables of $2,000,000 and annual sales of $15,000,000
$2,000,000 ÷ $15,000,000 X 365 = 48.66 meaning that its average Debtor Day Ratio is 48.66 days.
There are a number of ways to reduce debtor days. A key one is by having credit policies and procedures in place, including taking steps to approve customers before granting payment terms, having clear invoicing procedures and following up quickly when invoices are overdue.
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