Well-structured financial strategies are critical to ensure every business is well-positioned for success. In this article, Paul McKinley gives his top 10 finance tips, tailored specifically for Australian optometry practices, as they ready themselves for the upcoming end of financial year (EOFY).
1. Prepare and Critically Review Monthly Budgets Against Prior Year Performance
Analysing your practice’s income and expenses on a monthly basis and comparing that performance to the budget and the previous year’s actual figures is critical to business success. By conducting this review, you can identify trends, spot areas of overspending, and make informed decisions about resource allocation for the upcoming year. Additionally, you’ll be able to adjust your budget to align with your practice’s financial goals and objectives.
2. Arrange Staff Performance Reviews
The success of any optometry practice relies heavily on the performance of its staff. As such, it’s crucial to arrange regular performance reviews for your team members and provide constructive feedback. These reviews offer an opportunity to assess individual performance, recognise achievements, and address any areas for improvement. By investing in your staff and fostering a culture of continuous improvement, you can enhance productivity, morale, and ultimately, the quality of patient care provided by your practice.
These structured conversations should be two-way. They’re a great opportunity to gather some feedback from your team, as to how and where they think the practice might be improved. They’ll feel valued, as you welcome their thoughts. And quite often, they’ll point out things that business owners and managers can’t see, as they’re heavily involved in the day-to-day running of the practice.
3. Consider Division 7A Loans and Dividend Payments
It’s worth having a discussion with your accountant before the end of the financial year if your optometry practice is structured as a company and the shareholders and/or directors have been borrowing/drawing funds from the company. Division 7A of the Income Tax Assessment Act 1936 contains provisions designed to prevent private companies from making tax-free distributions to shareholders. With the Australian Taxation Office (ATO) continuing to tighten regulations around Division 7A, it’s critical to review those loans and work out a repayment strategy. Strategies include, but are not limited to, repaying back the loan in full or having the company pay a dividend to the shareholders to offset those loans. If the loans are not repaid in full, it is vital that a Division 7A loan agreement is entered into before the company’s return is due to be lodged. Otherwise, you may risk having the loan assessed as unfranked dividends against the individual.
Where the company has retained earnings, dividend payments to shareholders are an important consideration e.g., to reward the owners and/or to move profit out of the company in a tax effective manner.
It is, therefore, important to seek guidance from your accountant before the end of the financial year.
4. Review and Pre-Pay Expenses for Tax Deductions
Maximising tax deductions is a priority for many optometry practitioners, and one strategy to achieve this is to review and pre-pay expenses before the EOFY. This could include expenses such as rent, insurance premiums, professional memberships, and training courses. By bringing forward deductible expenses, you can reduce your taxable income for the current financial year, and potentially lower your overall tax liability.
However, you must ensure that the expenditure is an ‘excluded expenditure’ and the 12-month rule applies. It is also essential to ensure that these expenses are legitimate and incurred for the purpose of earning assessable income.
5. Ensure Timely Superannuation Contributions
To ensure you can claim a tax deduction for your employees’ June 2024 quarter superannuation, payments must be paid, received and processed by the recipient fund before 30 June 2024.
As an employer, it’s your responsibility to ensure that superannuation guarantee contributions for your employees are paid in a timely manner. Timely contributions not only demonstrate your commitment to your employees’ financial wellbeing but also ensure compliance with superannuation laws and regulations. Failure to meet superannuation obligations will result in payment of super guarantee charges (SGC), which include penalties and interest charges imposed by the Australian Taxation Office (ATO).
As a business owner, you may also consider making additional personal contributions to your super fund. This could be a good strategy for business owners seeking to optimise their tax position and planning for retirement. Once again, it is vital to speak to your financial planner or accountant before making such contributions as thresholds, caps, and limitations apply.
6. Ensure Tax Liabilities are Up To Date for Future Borrowings
If you’re considering borrowing funds from banks or financial institutions in the coming year, it’s essential to ensure that your tax liabilities are up to date. Lenders typically require evidence of your tax compliance, which may include running balance statements from tax portals such as the ATO’s integrated client account and income tax account. By staying on top of your tax obligations and maintaining a clean tax record, you can enhance your credibility with lenders and improve your chances of securing favourable financing arrangements (read ‘approvals’).
7. Explore ATO Incentives
While the current instant asset write-off provisions may not be as generous as the ones introduced during the COVID-19 pandemic, they still represent valuable tax-saving opportunities for optometrists. Under current legislation, assets costing less than AU$20,000 may qualify for an immediate tax deduction if installed or ready for use by 30 June 2024. This could include equipment upgrades, technology investments, or refurbishments to your practice premises. By taking advantage of the instant asset write-off, you can reduce your taxable income and improve cash flow for your practice. (Note: at the time of writing, this Bill had been amended to increase the instant write off threshold to $30,000, however, this revised Bill has not yet become law).
Also consider looking into:
- Your entitlement to the Small Business Skills and Training Boost. This gives you an additional 20% bonus tax deduction for eligible expenditure incurred on training new and existing employees. The Boost runs until 30 June 2024.
- The Small Business Energy Incentive. This gives you a further 20% deduction when you invest in upgrades that save energy and reduce power bills. (Note: at the time of writing, this measure was still awaiting Royal Assent).
8. Critically Review Business Structure and Operations
The structure and operations of your practice play a significant role in its financial performance and sustainability. In consultation with your accountant, take the time to critically review your current business structure, including legal entity arrangements and ownership arrangements. Consider whether your existing structure is still appropriate given your practice’s size, growth trajectory, and long-term objectives. Additionally, assess the efficiency and effectiveness of your operations, including administrative processes, patient flow, and billing procedures. Identifying areas for improvement can help streamline operations, reduce costs, and enhance overall profitability.
9. Prepare Trustee Resolutions for Trust Distributions
Optometry practices operating through trust structures must ensure that trustee resolutions for the distribution of net income are prepared by 30 June each year. These resolutions determine how the trust’s income will be distributed, in a most tax effective manner, among beneficiaries. This has important tax implications for both the trust and its beneficiaries. Consulting with your accountant or tax advisor can help ensure that trustee resolutions are prepared correctly and in accordance with legal requirements. Failure to do so could result in in the trust paying tax at the top marginal tax rate.
10. Stay Up To Date with Federal Budget Changes
The annual Federal Budget announcements can have significant implications for optometry practitioners, particularly in terms of tax policy and regulatory changes. It’s essential to stay informed of any budgetary measures that may impact your practice’s finances and operations. This could include changes to tax rates, deductions, incentives, or compliance requirements. Engaging with your accountant or financial advisor will help you understand the implications of these changes for your practice and identify opportunities to optimise your tax position and financial strategy accordingly.*
READY, SET, GO
In conclusion, preparing for the end of the financial year (and the beginning of a new one) requires careful planning and strategic decision-making for optometry practitioners in Australia. By following these top 10 finance tips, you could optimise your practice’s financial health, minimise tax liabilities, and position yourself for success in the year ahead. Remember to leverage the expertise of financial advisors, accountants, and other professional advisors to ensure compliance with regulations and maximise financial opportunities. By taking a proactive approach to financial management, you can build a solid foundation for the continued growth and success of your optometry practice.
Paul McKinley CA BBus is the Managing Director of Optometry Finance Australia.
*At the time of writing this article, the 2024 Federal Budget, to be delivered on 14 May 2024, had not taken place. Readers are advised to consult their accountant for any further entitlements/ planning they should act upon.
