Rachael Conlan, Author at Enrich Finance

Take advantage of the Federal Government’s Small Business Tax Incentive

Small businesses around Australia are taking advantage of the Federal Government’s Small Business Tax Incentive. If you operate a small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased before 30^thJune 2019 and your business turnover is less than $10 million.

This deduction can be used for each asset that costs less than $20,000, whether purchased new or second-hand. You claim an immediate deduction for the business portion of each asset through your tax return, in the year the asset was first used or installed ready for use.

Business assets include all fixtures and fittings on your practice premise, equipment, motor vehicle and other items, a full list is available on the ATO website.

How does it work?

Say you need to purchase a medical equipment for your practice. You purchase the equipment from the supplier, finance approved and paid in full before 30th June 2019, even if the item is not installed and delivered before EOFY. At the end of the financial year you can then claim 100% of the cost of this asset as a part of your depreciation expenses. Ultimately this reduces company profits by the same amount and therefore, reduces total tax owed at the end of the financial year.

The $20,000 threshold applies from 12 May 2015 to 30 June 2019 and reduces to $1,000 on 1 July 2019.

How to budget your way to financial freedom

Talk to wealthy people and you will find most have one thing in common – they know how to manage their money. And that means having a budget. Boring, right? It might sound tedious, but the reality is you won’t get ahead without spending less than you earn.

Here’s our guide to budgeting so you can take charge and change your financial future.

Take stock

You won’t know where you can save if you don’t know what you’re spending. While it can be confronting, the first step to better budgeting is to find out where all your money goes.

Start by reviewing your past three months’ income and expenses. Categorise your costs into fixed essentials (mortgage, rent, insurances, phone), variable essentials (groceries, petrol, haircuts), unplanned essentials (new brakes, dental surgery) and nice-to-haves (Netflix, fashion, holidays).

You can use a traditional spreadsheet or a free budgeting app, such as Track My Spend, designed by ASIC.

Don’t fret if you find you don’t have enough income to cover your expenses. Better to discover this now than to keep heading in the wrong direction. If you’re spending more than you earn, or not saving enough, it’s time to make some changes.

Adjust spending

Time to decide where to cut back, keeping in mind even small changes can make a big difference. That take-away coffee before work tallies to about $850 a year. Starting with the nice-to-haves, decide what you can go without. Whether it’s eating out less, shying away from shoe sales or cancelling your wine subscription, sacrifices must be made! Your essentials also offer big saving opportunities. Budget less for groceries, shop around for a cheaper phone plan and talk to me about a mortgage review. There are plenty of costs you can adjust so don’t put it off and don’t make excuses!

Allocate funds

Once you know your essential costs, budget for those first. There’s no point splurging on a night out if you don’t have enough money to pay your electricity bill. If tempted to spend before you save, open separate savings accounts where you can allocate funds for bills and savings.

Add up the annual cost of your bills, such as insurances, electricity and rates, and divide the total by 12. Set up a monthly funds transfer for that amount so when bills are due, you have money on hand to pay them. You can then work out how much you need for weekly expenses, such as petrol and groceries, and even that daily coffee.

Now you know your essentials budget, set aside some savings. If you’re not sure how much to put away, start small and build to bigger amounts as you learn to live within your budget. A good savings goal is 20 per cent of your take-home pay. Once you’ve allocated funds for bills, weekly living and savings, the rest is yours to spend as you please. Just remember there’s a difference between desire and need, so try and save as much as you can. Remember, this is the bucket that rewards you down the track.

Stay on track

Everyone thinks about and manages money differently, so it’s important to find what works for you. The main thing is that you stay on track. It might take several months to notice a difference, but if you’re spending less than you earn, you’re heading in the right direction. Remember, budgeting needs to be part of your lifestyle not instead of it, so find ways to treat yourself from time to time without undoing your hard work.

Comprehensive Credit Reporting

Comprehensive Credit Reporting, or ‘Positive Reporting’ is here. And while the banks may not be happy about sharing their customers’ information with other banks, borrowers like you stand to benefit a lot more.

Comprehensive Credit Reporting is a new set of government-mandated rules for banks, where they have to share more detailed credit information about you. Some of you may initially be a bit concerned about the thought of more of your private information being known, but the important difference about this data is that it’s what’s called, positive information.

Traditionally the banks have only shared the negative facts about your borrowing. These are things like credit applications, defaults, overdue payments of loans and bills, and bankruptcy. Now they also have to share the good news. Rather than being penalised for missed payments, you’ll be rewarded for paying on time, and demonstrating responsible money management like closing credit cards when they’re no longer needed.

A more comprehensive and balanced view means lenders can get a clearer picture of your finances and make assessments based on your individual financial behaviour.

IT’S A GAME CHANGER

The policy was announced by then Treasurer Scott Morrison in late 2017.

“This will be a game-changer for both consumers and lenders, and will lead to greater competition in lending and naturally provide better access to finance for Australian households and small businesses,” he said.

“For borrowers, this regime should lead to one thing – a better deal on your mortgage, your personal loan or business loan.

“If you have a good credit history – you’re paying down your mortgage, you haven’t missed a payment on your car loan and your credit cards are under control – you will be able to demand a better deal on your interest rates, or shop around, armed with your data.”

SO IS IT GOING TO BE THE ‘GAME CHANGER’ AS PROMISED?

There’s no doubt this new system will change the lending landscape in Australia, and lead to more responsible behaviour from the banks and other lenders. Ultimately it’s you, as an individual customer or a small business owner, that will benefit.

HOW WILL YOU BENEFIT?

As a borrower, the new regulations are designed to make it better for you. Needless to say, the more your credit rating score is, the more you stand to benefit.

When a lender can get a clearer picture of your individual financial situation, they can better calculate your risk, and potentially tailor an interest rate for you to give you a better deal.

They’ll look at your positive behaviour over a 24-month period, which can help balance any one-off blemishes like a missed payment.

If you haven’t had a long history of borrowing, lenders can now look at loan repayments to assess your general patterns of paying on time and credit worthiness. Lenders can also see how many credit facilities, including limits, that you have open. This may require you to close or reduce the limits if you apply for credit. Don’t worry, I can help you through this process.

And if you have a poor credit score you can still benefit. Greater transparency makes it much easier to see what you need to do to improve it, such as paying loans on-time and closing any credit cards that you don’t need.

HOW WILL LENDERS BENEFIT?

With more information at hand, lenders can better assess an individual’s risk. This will lead to more responsible lending and help them reduce bankruptcies and bad debts.

A better understanding of the market and individuals means more tailored solutions and less of a one-size-fits-all approach. This should encourage more innovation, competition and new products from banks.

INFORMATION IS POWER

At the individual level, when you’re more informed, you’re more empowered. When you understand your financial position and how you’re seen in the eyes of the bank, you can make the most of it – or make changes to improve your situation.

It does add another layer of understanding to borrowing that has to be considered. And improving your financial literacy is where I can help.

The adoption of more open banking practices is designed to promote more responsible lending, which is something mortgage brokers strive to achieve every day. It’s not in anyone’s interest to have an unaffordable mortgage – for you, the lender or the broker.

With a more challenging lending environment, making the most of your broker’s expertise is more important than ever.

Since April 2015 the number of individual products a broker could offer you has more than doubled, and now sits in the thousands. If you’re on your own, it’s not really possible to be across all your options.

Another important thing to consider with the new reporting guidelines is that making multiple credit enquiries can have a negative impact on your score. Using a broker as your one point of contact, and letting them shop around for you, is a smart way to avoid this potential pitfall.

And if your credit score is not what it should be, there are steps you can take to improve things.

So, to find out about your credit score and how it can affect your ability to borrow, it’s a good idea to have a chat with me. Even if you’re not in the market for a new loan right now, it’s good for you to understand how any changes may affect your current loans, and any potential advantages if you decide to refinance.

Let me know when you’re free to catch up. I’m available at a time that suits you.

RBA NO CHANGE

The RBA has decided to leave the official cash rate unchanged at 1.5% for the 28th consecutive time and I’d like to share some thoughts on why the Reserve Bank of Australia has made this decision.

Following its February meeting, the RBA said the case for the next rate move to be a decrease was now almost equal to the case for an increase and that it would continue to watch the economy closely for signs around its key objectives of decreasing unemployment and increasing inflation. It will also be watching property markets, particularly in Sydney and Melbourne, very closely as prices continue to fall.

With lenders continuing to review rates independently of the RBA, it is important to review your lending options regularly to ensure they remain the most suitable for your situation. There may be different rates available from our wide panel of lenders and I’m always available to ensure you have the right financial solution for your current and future circumstances.

If you’d like to have a chat about what today’s news means for you and your finances, please don’t hesitate to get in touch.

Unsecured Loan

A faster way to access finance for everyday expenses.

Unsecured business loans are a relatively new option for businesses that need to get access to some extra funds. The obvious benefits of this type of finance is the speed in which access is granted to the finance, with simplified application process. This may allow you to quickly take care of cash flow, cover urgent expenses, or make the most of an opportunity.

In recent years, a number of agile, financial technology (fintech) lenders have entered the finance market in Australia. These more non-traditional lenders can turn around approvals and deposit cash into your account in as little as 24 hours. Because they are unsecured the application is simpler and the loan amounts are often smaller – usually anywhere from $5,000 to $250,000. It also means there is greater risk to the lender so the interest rates may be relatively higher and the loan terms a lot shorter, with principal and interest repayments generally on a weekly basis but sometimes even daily.

While the access to funds can be handy, it’s important to weigh up the repayment terms and amounts to make sure this short-term cash injection helps your business over the short and medium-term.

Self Managed Super Fund Loan

Have you considered using the funds in your Self Managed Super Fund to invest in commercial property?

The savings you’ve built up in your Superannuation Fund can be used to make investments in a range of asset classes. By transferring your super to a new or established Self Managed Superannuation Fund (SMSF) the opportunity to use gearing to purchase property may become available.

Using your SMSF funds as a deposit, some lenders will approve loans starting at just $100,000 to purchase property, and the income generated from the rental can help meet your repayments.

With commercial property, it may be possible for your SMSF to purchase a property that will be occupied by your business, as long as the rent is at market rates.

Essentially this type of finance is a Term Loan with features such as flexible terms up to 30 years, the choice of principal and interest or interest only repayment, and the options of fixed or variable rates, or a combination of both.

There are many rules and regulations governing your SMSF so it’s important you get the advice of a financial professional, like your accountant or financial planner to assist you to make the right choices.

Invoice Finance

Looking for an effective way of unlocking cash that’s already been invoiced to your clients?

Sometimes called Invoice Finance, Debtor Finance or Accounts Receivable Finance, this is like a cash advance based on the sales you’ve already made to your customers, without having to wait for the traditional 30, 60 or even 90 day payment periods.

In simple terms, a lender considers the invoices or monies you have owing as an asset. They’ll lend you a percentage of the money that’s owed to you, then pay you the remaining balance once they’ve collected the invoice, less a small percentage.

As an example, the lender could pay you 80% of a single invoice or the total balance of your combined invoices. The remaining 20% is paid to you once your client has paid the invoice, less a percentage ‘factor fee’.

This type of financing is a relatively quick and flexible way for your business to maintain cash flow, and can have many benefits when compared to other bank loans or lines of credit.

These can include:

Gives you almost immediate access to funds once an invoice has been issued
No other collateral or security is required
There are no repayment schedules
You don’t waste time chasing unpaid debts
Helps you manage cash flow and plan for seasonal and day-to-day fluctuations

Debtor Finance, Invoice Finance and Accounts Receivable Finance.
What’s the difference?

Essentially, they are all the same thing with one slight difference. Accounts Receivable Finance lends you money based on the total balance of all your invoices. Debtor or Invoice Finance is a loan based on one or several invoices.

Author Archives: Rachael Conlan