EOFY planning – it is a leader’s responsibility to not only exercise their expertise in the running of a practice, but to also identify what areas require expert advice.

A common aspect of running an architecture, engineering or design practice in which creative leaders may lack confidence is financial management and preparations for the end of financial year and tax season.

Management for Design has created a list of recommendations to be considered in the lead-up to 30 June, and the impending tax deadline.

1. Consider your income

You should ensure that the fees for projects worked on in the month of June are captured as income, and then that income should be reviewed to ensure completeness – i.e. that all billable projects worked on throughout the month (and indeed the rest of the year if you have not already) have been billed.

JobKeeper payments are considered assessable income and so need to be included on your tax return; however, cashflow boost credits are classed as non-assessable income and so your practice will not pay tax or GST on them.

Some practices may consider a deferral of their assessable income – check in with your finance expert when deciding.

2. Capture your expenses

All costs should be captured and substantiated for the month and/or financial year to ensure appropriate tax deductions are available. A good rule of thumb to follow is that a deduction is available for expenses that cover a period of no more than 12 months.

By way of example:

• insurance premiums
• internet and telephone services
• rent
• subscriptions, and
• donations

are all considered deductable expenses.

It is usually prudent to bring forward any deductable expenses, such as subscriptions and insurance premiums, so the deductions can be made for the current financial year and count towards reducing taxable income.

3. Review aged debtors

Once all avenues have been exhausted in collecting an outstanding debt, consider writing it off as a bad debt. Practices should review all outstanding debt to assess the likelihood of recovery and to ensure that debts with poor prospects of resolution are identified and declared prior to year’s end. That way they will not be included as assessable income.

If you have any clients that are operating on the cash method, you can additionally use this time to encourage payment – make it clear that if they pay you before 30 June they’ll get a tax deduction.

4. Complete reconciliation of accounts

To ensure the accuracy of your numbers throughout the year you should be keeping track of all accounts monthly, but it is imperative to do this at the end of the financial year.

Reconciliation (the comparison and review of two sets of records to authenticate that the figures agree and are without disparity) of all accounts is recommended to document and confirm that account balances and your business records as a whole are correct.

5. Review Key Performance Indicators (KPIs)

The importance of setting and reviewing meaningful KPIs cannot be overstated. What is measured can be managed, and what is managed can be nurtured and will grow exponentially.

As an example, here are some KPIs that should be applied and reviewed at years end:

• profit margins
• debtor days
• fees/person
• costs/person
• work generated
• staff utilisation, and
• expenses as percentage of income.

6. Review your technology

All systems should be reviewed to ensure that subscriptions to essential programs and services are up-to-date and rolling over into the new financial year. Practices can also review their aged or depreciated technology and consider writing off hardware that is no longer viable or needs to be replaced.

7. Create a budget for 2022

A budget sets the tone for the year ahead and encapsulates the strategy for the practice in numbers. By setting a budget you are putting in place a benchmark that you expect to work to. A budget should be set annually and then reviewed monthly – typically at the start of the new financial year. This is essential for forward forecasting where you think your practice will be in 12 months.

Some important considerations when setting any budget include:

• work generated
• work in hand
• number of people
• cost of people
• cost of overheads, and
• current opportunities.

To ensure a successful budget, include the following:

• a detailed profit/loss budget
• a detailed cash flow budget
• involvement of key stakeholders in the process, and
• clear communication of the final budgets.

8. Assess your superannuation contributions

In order for your super guarantee contributions to qualify for a tax deduction you must ensure that they are paid by 25 June, as it will take until 30 June for it to clear and become deductible.

You should also keep in mind the changes being made to super from 1 July 2021, which include:

• The superannuation guarantee percentage will increase to 10 percent (subject to any further announcements made by the Australian Tax Office).
• The concessional superannuation cap for employer contributions and salary sacrifice amounts will increase from $25,000 to $27,000.
• The non-concessional superannuation cap will increase from $100,000 to $110,000.

9. Investigate your potential for instant asset write-offs and offset tax losses

Depending on the size of your business you may be eligible for a significant instant asset write-off for any depreciating asset installed or first used within certain time-frames. An overview of aggregated turnovers and deductions able to be claimed requires careful consideration, as there is significant complexity involved in the process – consult a professional! An example of the guidelines to be eligible for one of the brackets is provided below.

For entities with an aggregated turnover of <$50 million:

• Full deduction for the cost of depreciating assets that were first used or first installed between 2 April 2019 and 12 March 2020 for assets costing up to $30,000

This program was originally slated to run until 30 June 2022, but as announced in the recent federal budget it has been extended to 30 June 2023.

Another decision to be considered and discussed with your finance expert is whether it will be appropriate to use the new temporary loss carry-back measures to offset your tax losses.

If you do so, you will be permitted to offset tax losses against prior taxed business profits; losses from 2019-2020 and 2020-2021 can be carried back against 2019-2018 profits.

10. Enlist a tax accountant or finance expert to optimise performance

It is our recommendation that practices work with either an external accountant monthly or hire a CFO (chief financial officer) or head of finance internally.

The language of business is accounting, and unless you are well-versed in it you are dabbling! Some owners will have copious amounts of reports and yet lack the financial fluency to read, interpret or understand them. Most leaders will have enough to do between generating new work, designing and ensuring that existing projects are on track; the practice should instead put an expert in charge of this area.

By outsourcing the accounting function to a specialist service partner, the business will be free to focus attention on other key areas that have a direct impact upon profitability. This will also allow the directors to lead with confidence in a competitive market, secure with the knowledge that the finances are in safe and expert hands.

Final facts to remember:

• PAYG withholding summaries are due 14 July.
• The business tax rate is set to drop from 27.5 percent to 25 percent in 2022.
• If you are looking to hire new personnel between 16 and 35 you may be able to claim the JobMaker hiring credit (see page 54).
• Discuss the timing of your tax return with your tax accountant, external finance expert, or internal CFO/head of Finance.

The print version of this article can be found in AR168.

Management for Design’s financial and business management skills can maximise the potential of architects, designers, engineers, planners, and other creative professionals. To find out how they can help your business, visit m4d.com.au.

With over 25 years of experience in accounting and financial control Gordana has built a broad base of practice-informed expertise in a variety of industries. These include hospitality, retail, security and investigation, and fashion. Through the application of this breadth of knowledge Gordana has been instrumental in enabling businesses to attain financial stability and sustainable growth. 

As a founding director of Management for Design, she applies her valuable skills as a FCPA to enhance the business efficiency and performance of architects, engineers, and design businesses.

She is astute, proactive, and a great communicator – qualities that make her a natural leader and mentor in any team situation – and she is passionate about sharing her knowledge to help other business leaders succeed.