ATO warns over honesty of cash-only businesses
30 Jul, 2018 by David Seamans
The ATO supports Elements!
Well, sort of!
According to the Reserve Bank of Australia, the proportion of cash payments made by Australian consumers dropped from 70 per cent in 2007 to 37 per cent in 2016. Over the same period, the value of the payments dropped $56 billion, down to $162 billion.
“Cash Only” businesses are where the owner or staff take cash for services rendered. They makes change out their pocket. The owner usually pays cash for all labor and inputs.
The tax office is looking from the perspective that the business survives. Thus it can meet its taxation and superannuation obligations.
So the ATO is really saying “The only way the small business owner can survive is by doing the right thing. The business owner has to understand their business.”
This assumes that the business owner “wants” to survive and grow. This may not always be the case.
Elements looks at this business from the viewpoint of it’s long term viability and growth.
Elements has three Handles to help small and medium business grow:
- “Active Customers”
- “Average Sale Value”
- “Average Number of Transactions” multiplied together to produce an Income result.
There is no way to determine these three handles with any consistency in a Cash Only business.
There is no way the owner knows that they are getting all the income from the day’s trading. There is no way that the owner know where the income originates.
Elements, via Focus, highlights: __the best clients spending the most money with business most often. __
“Cash Only” business is just a bucket that gets whatever money it can. Clients are "price driven" who would go to another lower priced business at a “moments notice”. The business’ existence is tenuous.
When the business owner wants to dispose of the business and retire, they have nothing to sell. The business is worthless.
The business owner must work with their business advisor, accountant or bookkeeper. They need to understand the numbers and put in place strategies.
Elements provides strength and credibility to a business.