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29/09/2009 -
improve profitability and the capital value of your business. |
TIME IS RIGHT FOR
SOME “HOUSEKEEPING”
Article by Peter Brewer - pbbConsult Pty Ltd
The reality is many of us get too busy during the good times to focus on opportunities that can improve profitability and the capital value of your business.
With many commentators now confident the worst of our economic woes are behind us and positive sentiment returning to the business sector, there is probably no better time to do some “housekeeping” to ensure you can take full advantage of the upswing.
A couple of thoughts:
(i) Government Investment Allowance
It’s not every day a permanent tax saving is offered by Government to encourage us to buy capital equipment – the last one was over 20 years ago!
If you are planning on investing in any depreciable plant and equipment over $1,100 (for example motor vehicles, PABX systems, computers) in the next 2 year period, it may make sense to bring that decision forward prior to 31 December 2009. For businesses with a turnover of less than $2 million, this will ensure you are eligible for an additional tax deduction equivalent to 50% of the GST exclusive purchase price.
Assuming a 30% marginal tax rate, this equates to a real saving of approximately 15% of the purchase price of the equipment. The news gets better – there is no recoupment of the deduction in the event of a future sale of the item.
If you are financing the purchase, closely consider the terms of the facility (including interest rates) and impact on cashflow. As a general comment, rent or hire agreements are dangerous!!
(ii) Interest Rates
There is widespread agreement amongst economists that inflationary pressure will begin to mount with the economic upswing (many of us will argue there has been significant underlying inflation for the last 2-3 years in any case!). This will bring with it rises in interest rates.
Spend some time with your Business Advisor to review your current finance structure, including existing rates and charges. There may be an opportunity to lock some part of your funding in to longer term fixed rates to provide cashflow certainty moving forward. Before making that decision, the following issues may be worth considering:
- How long do you expect to be in the current business? Early payout of fixed rate facilities may bring with it interest rate penalties.
- What is the current differential between fixed rates and variable rates offered by your bank?
- It may be prudent to maintain some part of your borrowings on variable rates if the upward move is slower than anticipated.
- Are there any costs associated with “fixing” part of your debt?
- Is an offset facility available?
For all queries, contact Peter Brewer on 07 5455 3320 or email him at: peter@pbbconsult.com.au
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