The ATO will be undertaking some scheduled maintenance on the Small Business Superannuation Clearing House between 11:30pm AEST on Saturday the 25th of June 2022 and 7:00am on Sunday the 26th of June 2022. If you’re looking to claim a tax deduction for superannuation payments made before the end of this financial year (Thursday the 30th of June 2022), we recommend you make your payment before this maintenance period. Doing so will ensure you’re not disadvantaged in the event of processing delays.
The Department of Mines, Industry Regulation and Safety has introduced new Work Health and Safety (WHS) laws for Western Australia. The Small Business Development Corporation has written an article covering seven things you should know about this new legislation.
Net Profit Ratio
In our last newsletter, we helped you to calculate your operating profit ratio and reiterated how useful knowing your numbers can be when it comes to running your business. This week, we’re looking at your net profit ratio, or what is left over after all is said and done.
Net Profit Margin
Your net profit margin is calculated by dividing your net profit figure by your total operating revenue amount.
Here’s how to work it out:
Net Profit Margin = Net Profit / Total Operating Revenue
=$22,200 / $150,000
=0.148 or 14.8%
That means for every $1.00 coming into your business, $0.148 or just under fifteen cents per dollar, is your net profit.
Typically speaking, the higher the net profit margin, the more efficient a business is at converting sales into actual profit and the less likely it is to default on its financial obligations.
A zero or negative result would indicate that a business is struggling, or at the very least, having a tough month/quarter/year. For seasonal businesses, like retailers that make the bulk of their money at Christmas time, showing a zero or negative profit margin result in April may be perfectly normal and nothing to worry about. For businesses that typically enjoy more steady trading periods, however, a decline in net profit can be symptomatic of other issues (a global pandemic, for instance). Depending on the situation, additional investigation/analysis and/or intervention may be required. It could be that the business needs to pivot in some way to make lemonade from life’s lemons.
Again, as with other ratios, net profit ratios are industry specific and so what’s normal for you in your business might look different to someone else in a different business. High-end luxury goods retailers may sell fewer items, for example, but enjoy higher profit margins than retailers selling low-end consumables. (Think Gucci versus K-mart.) One would need to sell a lot more than the other to see a significant impact on the bottom line.
How do you know what’s normal in your industry? There are a few places you can go for information. The Australian Bureau of Statistics publishes quarterly estimates of private sector sales, wages, profits and inventories, for instance. The most recent numbers were published on the 31st of March 2022 and are available here. Another good source of information is the Australian Taxation Office, however, the ATO’s data is a few years behind. The most recent small business benchmarks available relate to the 2019-20 financial year. Still, it’s worthwhile taking a look. If your business was trading in that financial year, you might consider comparing your numbers to others in your industry, for interest’s sake. IBISWorld is also a useful source of information, however, with the caveat that reports are often behind a paywall. As your local library or university might have a subscription to the site, we encourage you to try and access reports that way before committing to making a payment yourself.
Next edition, we’ll cover debtor days and how important keeping control over your accounts receivable is to your cashflow.
Asked & Answered
Unpaid ASIC Fees
Question: ASIC has charged me close to $1,000 in annual review fees and penalties because I didn’t pay my company’s annual review by the due date. I moved house and didn’t tell them and never received communication from them to my Post Office box. Can I ask that ASIC remits these penalties? It’s a lot of money to have to pay for simply forgetting to update my address!
Answer: Your situation is one reason we offer corporate secretarial services to our company clients. It can be incredibly easy and expensive to miss complying with communication from ASIC and the corporate watchdog’s fees add up quickly.
Unfortunately, ASIC has no administrative scope to remit late payment fees, so you will have to pay everything that is outstanding in full as soon as possible, otherwise you risk being forced into company de-registration action since the regulator might consider the company is trading insolvently. For an up-to-date balance on what is outstanding, ASIC advises you must submit your request to www.asic.gov.au/question
As a reminder, Section 1.5.4 (Continuing obligations after the company is set up) of the Corporations Act 2001 outlines some of the obligations imposed on companies, directors and secretaries under legislation. Sub-section 4.3 of Section 1.5.4 clearly states that it is an obligation of the company and its directors and secretaries to pay ASIC’s review fee each year. Sub-section 4.4 subsequently states it is also an obligation to notify ASIC within specific timeframes if “certain basic changes to the company occur”, such as a change in the company’s registered office or a director’s physical/residential address, and/or a company’s capacity to pay its debts.
Furthermore, Sub-sections 5.3 and 5.4 of Section 1.5.5 (Company directors and company secretaries) of the Corporations Act 2001 specifically outlines the duties and liabilities of directors and secretaries, which include:
- to exercise care and diligence;
- to prevent the company trading while it is unable to pay its debts; and to
- notify ASIC about changes to the identities, names and addresses of the company’s directors and company secretaries.
Failure to comply with your duties as a director can result in negative consequences, as you are currently experiencing.
If you haven’t done so already, we highly recommend you update your address details with ASIC, noting that a street address will be required (ASIC will not accept a postal address as a director’s residential address). As always, please feel free to contact us directly if you would like our help straightening things out.
Xero Quick Tip
Xero offers you the chance to save time getting routine, day-to-day tasks done with its repeating invoice function which works not only for invoices you’re issuing, but also on bills you’re receiving.
You can utilise the repeating invoice function by first developing a template or editing one from your list, which you can do by heading to your Business menu > Invoices > Repeating > New Repeating Invoice. Xero will then automatically raise invoices for you based on how routinely you need them created. If the amounts you’re billing vary or you need to edit some other field, you’ll find your repeating invoices under the Draft tab.
To use this functionality to handle the bills you receive, you’ll need to access the Repeating tab in each respective category. From there, click “New Repeating Invoice/Bill” and again, either create a new template or use an existing one, then modify the remaining specifications to suit your needs.
Knowing your numbers can change your life for the better. If you have any questions or concerns about anything you’ve read here today – or if you’d like to work with us one-on-one on analysing your financial performance – please let us know by email to email@example.com or phone on (08) 9221 4100. We’re here to help.