A trap that causes many businesses to go broke, while they're making a profit
There’s a saying in business, “You can go broke making a profit.” And another, “Cash is king. Profit is theory.”
As you know only too well, you don’t pay rent, meet payroll or pay your bills with profit.
You pay them with cash.
A business can make a lot of sales, have a book full of orders, have delighted customers and clients, have a great reputation, be growing, and yet still go broke.
Why? Cash flow.
The business might be profitable on paper, but have no money left in the bank. They become insolvent.
A growing business is often hungry for cash ... hungry for inputs so it can make the business’ outputs, be they physical products, services or a combination of both.
The tragedy in this is that cash flow crises can often be averted. They can be predicted, planned for, and then contingency measures put in place.
For example, if a business has seasonal effects where some months are busier than others, or if a business knows it has some jumps in expenses or fixed costs approaching—such as moving to a larger premises or hiring more staff to cope with growth—then these expenses can be planned for and compared with the planned income in those months.
Which would you prefer to do?
(A)
Call your bank manager and ask for a short-term loan or increase in overdraft when you are urgently in need of the cash (and therefore stressed, and desperate, and not in a great frame of mind to negotiate good terms), or
(B)
Call your bank manager 6 months in advance and meet with him or her to explain the coming cash crunch, the reasons behind it, and plan for the funding in a calm, relaxed, totally-in-control manner?
Not only would you get the loan, you’d impress the bank manager and strengthen the relationship for further funding, should it be needed to support your growth.
The bank manager would see you are a professional operator with a planned approach to your business, not a fly-by-the-seat-of-your-pants operator. (They see a lot of those. They don’t like doing business with them.)
Apart from the relationship with your bank, there’s the immediate effect of sleeping better at night.
We all seek a level of certainty to comfort us. Knowing what lies ahead in business and planning your cash flow gives you a peace of mind and confidence in your day-to-day work that will rub off on those around you...
...in your workplace and at home. It’s a good feeling.
This is one of the reasons we are so passionate about helping our clients put together cash flow forecasts, to help them keep their business on track and to avoid any stressful, unpleasant surprises in the coming months.
It doesn’t matter whether a business is a one-person hairdressing or lawn mowing business, or a 10 person, 20 or 200+ person business.
Every business needs a cash flow forecast.
Running your business without a cash flow forecast is like driving a car at night along a dark country road with only your normal headlights on. It’s hard to see what lies ahead. Some wildlife might come right out in front of you, leaving no time for you to react. CRASH!
On the other hand, a cash flow forecast is like driving along that country road with high beam on. You can see so much more. You can drive with much more confidence. Less stress. And avoid the CRASH!
Another thing we often find in helping our clients build realistic cash flow forecasts, is that we can spot problems and make suggestion that help improve the business’ cash cycle. This puts money in your bank account.
For example, a combination of negotiating better terms with suppliers, tightening up or at least clarifying and enforcing your business’ own credit terms, and reducing stock holding and waste can have a powerful positive effect on your cash flow.
So, if a cash flow forecast is so crucial, why do many businesses not have one?
Simple. Business owners get busy. Busy pleasing customers or clients. Busy dealing with staff. Busy paying suppliers. Busy generating sales.
Also, it’s easy to get ‘too close’ to your own business. “You can’t see the forest for the trees,” as the saying goes.
Having an independent and fresh pair of eyes come in and look at your business—especially cash flow which is its life blood—allows opportunities for improvements to be identified. Things that are there, but difficult for the business owner to see amidst the ‘busy-ness’ of it all.
So, what should do about it? Call us. Take action. A cash flow forecast costs less than you think.
It’s time to turn those high beams on!
Your next step ... Call us on 08 6336 6200 or email us on nparker@ascentwa.com.au to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.
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If your business provides a car to an employee (or you’re the business owner/employee using it), there’s a good chance the Fringe Benefits Tax (FBT) rules apply. A car fringe benefit arises when a car owned or leased by an employer is made available for the private use of the business owner, an employee or their associate (such as a family member). “Private use” doesn’t just mean weekend road trips — it can include everyday commuting and even cases where the car is parked at an employee’s home, making it available for personal trips. Understanding how FBT is calculated and what records to keep is essential for compliance — and for avoiding paying more tax than necessary. What counts as a “car” for FBT purposes? The FBT law defines a car as a motor vehicle (except a motorcycle or similar) designed to carry less than one tonne and fewer than nine passengers. From 1 July 2022, some zero or low-emission vehicles are exempt from FBT, provided they meet certain criteria — for example, they must be first held and used after 1 July 2022 and must not have attracted Luxury Car Tax. Electric vehicle running costs, such as charging, are also exempt when the vehicle itself qualifies. Two main methods for calculating FBT on cars There are two ways to calculate the taxable value of a car fringe benefit. 1. Statutory formula method This method applies a flat 20% statutory rate to the base value of the car, adjusted for the number of days in the FBT year the car was available for private use. The formula is: (A × B × C ÷ D) − E A = Base value of the car (cost price plus GST and certain accessories, less registration, stamp duty and eligible reductions) B = Statutory fraction (generally 20%) C = Days available for private use D = Total days in FBT year (365) E = Employee contributions If the car has been owned for at least four full FBT years, the base value can be reduced by one-third. 2. Operating cost method This method calculates the taxable value by applying the private use percentage to the total operating costs of the car (actual and deemed costs). The formula is: Taxable value = [Operating costs × (100% − Business use %)] − Employee contributions Operating costs include: Fuel, oil, repairs, maintenance, registration and insurance Lease costs (for leased cars) Deemed depreciation (25% diminishing value) and deemed interest for owned cars Certain costs, such as tolls, car parking and insurance-funded repairs, are excluded. The business use percentage is determined by odometer readings, logbook records, and a reasonable estimate based on usage patterns. The three-month logbook requirement (operating cost method only). If you use the operating cost method, you must keep a logbook for at least 12 continuous weeks (roughly three months) to record: The date of each trip Odometer readings at the start and end Total kilometres travelled Whether the trip was for business or private purposes The purpose of each business trip This logbook is generally valid for five years, but you must start a new one if usage patterns change significantly (e.g., a role change, relocation or different duties). You also need to record odometer readings at the start and end of each FBT year. Why record-keeping matters. Keeping accurate records can support a higher business use percentage (and therefore a lower FBT bill). They also ensure you claim only legitimate business kilometres and help you provide evidence if the ATO reviews your FBT calculation. Finally, your records help you decide which calculation method (statutory or operating cost) is more tax-effective. Key takeaways for businesses and employees. If a car is available for private use, FBT may apply — even if the car isn’t driven often for personal trips. Electric cars may be FBT-exempt if they meet eligibility criteria, but you may still need to calculate their taxable value for reporting purposes. The operating cost method often works better if business use is high — but only if you have a compliant logbook. Keep odometer readings, expense records and a valid logbook to support your claims. Need help with your FBT obligations? Get it at Ascent Accountants. We guide business owners through every step of FBT compliance — from choosing the right valuation method to maintaining the right records for ATO peace of mind. If you provide cars to employees or use a company vehicle yourself, now is the time to review your FBT position before the next FBT year rolls over. Let’s talk .
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