It’s July, start of a new financial year. For some it’s time to take time off, for others a time to reflect on the year that was and what we need to do for the coming one. I am no different, so, let’s do a little reflecting.

At Venta, most of our focus for the April – June period is around Fringe Benefits Tax (a topic for another day) and tax planning with our clients. Come July, we reflect upon the conversations we have been repeating. By far and away the biggest takeaway coming out of this tax planning season has centred around cashflow, and how owners can take a larger salary from their business to meet their rising living costs.

At a time when interest rate rises are seemingly never-ending, the cost of buying food and other everyday items (not to mention the non-everyday items) seem to be rising at a rapid rate of knots, it is understandable that owners need to “lavish” themselves with a pay rise. But how? The costs of the business have also gone up, the salaries/contractor costs they pay have gone up and from today, so too has the superannuation they need to pay. Cashflow is tight, so where is this extra money supposed to come from?

The solution is not simple, has many factors and is not the same for every business owner, but it is affecting all of us, myself included (I too will be spending some time today running through the business to give myself a pay rise). After all, we are all in this together (a phrase much bandied about at the moment!).

You might now be saying to yourself “that’s great, she gets it, but how does she propose we fix it?!”, well here is my 5 step process:

  1. Prepare a detailed 12 month budget for both yourself personally and the business. You need to be really crystal clear around what the business is facing over the next 12 months in terms of revenue and expenses (all of them, including your loan payments, ATO bills, every single thing). You need to know whether your business in it’s current form can afford the pay rise. Then you need to go through the same process for yourself personally. Again, be as thorough as possible, you need to know exactly what’s coming and going, and when.
  2. How much of a pay rise do you need? Be honest with yourself, now is not the time to be greedy. Taking a whopping great pay rise unnecessarily is just going to put extra stress and strain on both your business and yourself. Suddenly what was supposed to be a panacea for your personal finances will become the final straw amplifying any problems.
  3. It’s what you do with the budget that really counts. Putting it in a draw and forgetting it’s there doesn’t either achieve or change anything. You need to really look at it. Use it as a tool for change. Identify areas where savings can be made, where you can be creative and think outside the box to see what can be improved. What are you restricted on, what do regulatory requirements prevent you from doing?
  4. Now we’ve done all this, what are some of the easy wins…the low hanging fruit to freeing up some cash to give it to you? These are things which can be changed immediately to make a difference now, when it counts the most. This might be as simple as keeping an eye on your ATO PAYG instalments – making sure they keep pace with your cashflow and are not based on 12 month-old data submitted to the ATO.
  5. What are some of the areas where changes are needed, but they are going to take longer to have any effect. This might be things where payments need time to finalise, supplier agreements may need to be renegotiated, lease terms, new marketing strategies, diversification.

It might be tempting to reduce head count or play around with the way you remunerate your staff. It is an employee’s market at the moment, businesses are screaming for good quality employees, so if you have them, look after them. Now is not the time to allow them to be tempted away with a better offer. This doesn’t necessarily mean you need to give them a pay rise (although remember, they’re living through the same cost issues you are, so you may need to give them something). Again, be creative, are you happy for them to work from home? 9 day fortnights? Leaving early to pick the kids up from school. Focus on their productivity, and not on their presence in the office. After all, spending time by the water cooler just to satisfy your need to see bums on seats doesn’t get the work done.

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