APL Accounting News June 2015
More incentive to manage those debtors
Small Animal Veterinary business is effectively a cash business, meaning that clients should for the most part pay at the time of treatment, however, we see a HUGE discrepancy with some clinics only accruing around $3,000 of debtors versus other small animal clinics accruing over $60,000 in debtors. Clinics in Australia and the UK seem to build up more debt than clinics in the USA. The few clinics in the USA that we have dealt with seem to accrue almost no debt at all.
Of course, a legitimate excuse for debtors building up could be the fact that you have loads of insured patients and that you claim direct for your insured clients – and this is probably one of the only scenarios which is not bad for the business, because these debts are likely to be paid and any clinic with a high percentage of insured pets is certainly more profitable.
What most business owners however do not consider is that debt has a very large hidden cost -TAX!
Lets explain this and put numbers to this in the worst case scenarios of a business with $60,000 in debtors:
In their infinite wisdom most governments globally have decided to tax businesses on amounts invoiced, not amounts paid – this is something called an accruals system. Anyone who is listed as a debtor on your system has been invoiced without paying, so this means that you are paying tax on your debtors.
So in the worst case scenario, a business with $60,000 in debtors being taxed at roughly 30% will be paying $20,000 in extra tax. Clearly a business owner in this situation would be left thinking “my business appears to be turning a profit but I don’t seem to have much free cash”. And this is no surprise, because effectively they are paying tax on money they have not yet received.
So what is a business to do in this situation? The reality of the matter remains that a small animal veterinary business that has built up so much debt will find that a lot of this debt cannot be recovered. So a solution is to write off as much of that debt as possible BEFORE the end of the financial year – this will save you huge amounts of tax. Writing off the debt in your systems does not mean that you have no legal right to still claiming it, because you can still go after the money, or insist that the client pays off their debt before offering them any more services. From a legal perspective, a ‘write off’ is legitimate if it is unlikely (not impossible) that the debt can be recovered.
Now that you have put out the fire, make sure that you apply some preventative measures so that it does not happen again. If you found that you had to write off a whole lot of debt, start the new financial year with the attitude of building up no debtors. As hard as it may be as an ethical professional to manage your debt, it’s of no surprise that highly profitable practices build up less debt than low profit clinics. What’s more, the result of their high profitability is better equipment, better facilities and more well paid staff and therefore a higher standard of practice.
We continue to try to encourage everyone to introduce quarterly themes into their businesses, and as promised we will keep you up to date with our themes. We said goodbye to our ‘Clouds’ theme last quarter after successfully having moved a number of our in house software systems to true cloud systems – goal achieved. Our team having received their rewards after much debate – so we settled for a choice of ‘heavenly massage’ or ‘heavenly chocolate’. Personal note, next time we will be more clear about the reward because not everyone was particularly excited about massages.
This quarter the focus will be on ‘growth’ – so the office looks pretty nice and ‘natural’ with a whole lot of flowers and fake vines hanging from the doors and lights. Objectives have been set with regards to how many new clients we will register and rewards/celebrations have been set in the form of Bunnings vouchers to buy plants for home (something all our team members have this time agreed on). Visually, new client registrations are written up on our ‘grafitti’ wall at the back of the office.
Besides being fun, quarterly themes help your team to focus on what is important for the quarter. It is a great team building exercise and just makes the office a lot more fun to come into every day.
Help with end of year payroll for Xero users – avoid a bit of pain
So many of our clients get stuck on the end of year process for payroll. It’s really hard to remember what to do when you only do it once a year and of course the process may change a bit from one year to the next. If you are a Xero user (and most APL clients are), Xero is offering a free end of year payroll webinar.
Save yourself some pain and get whoever completes your payroll to attend this webinar. The sign up details are at this site:
And the webinar is being run on a number of dates to make it easy for anyone to attend. Initially it was offered to Xero partner companies, but we have contacted Xero and they have said that we can invite you guys.
Bottom of the pack – Are you a ‘Yapper’.
Zack is a dog who is a couch potato and has an unusual life experience. His owners who were once exciting vets have now become boring accountants. They used to bring him into the exciting vet practice every day, now they bring him into a boring accounting office every day. This gives him a unique dog’s eye view on both professions.
Pictured above taking a ‘Power Nap’ at APL Head Office!
Even from the canine perspective, nobody likes a ‘yapper’ – this would be one of those dogs that just yaps incessantly. I have never yapped and never will for the simple reason that it’s impossible to sleep and yap at the same time, and given the choice, I choose sleep.
However, it has come to my attention that humans can yap too! One of the most likely times for human yapping is at meetings, and I’m sure all of you have been confronted with the ‘meeting yapper’. Some people just like to be heard (like my chihuahua friend ‘Bozo’), and given the opportunity to be noticed and heard at a meeting, they will take this opportunity with determined enthusiasm and speak the meeting to death, interrupt and discuss matters that are not on the agenda.
Just like any yapping, ‘meeting yapping’ can be counter productive and frustrating. It makes meetings run over time and therefore makes it hard to have meetings at all.
The knee jerk reaction in many businesses then becomes not to have any meetings at all, but unfortunately there is a strong co-relation between highly profitable businesses and frequent meetings, so this is not the right solution.
The correct approach is to set a clear agenda for every meeting and have a non-yapper chair every meeting. This allows yappers to be promptly cut off with the “that is not on the agenda and will have to be discussed at a meeting when it is on the agenda” command.
A very good example of frequent meeting is the ‘daily huddle’. For these meetings to work there have to be clear rules and boundaries set:
Agenda/topic – each person discusses what they are doing today, what they hope to achieve by end of day (their metric/kpi), and are they stuck on anything.
Rule 1- you have 20 seconds to say this, some chairpeople hold a stopwatch to enforce this
Rule 2- if someone is stuck, someone else needs to volunteer to help and set a time before the next meeting. Stuck items are not dealt with during the huddle.
A new suggestion from business coach Harnish Verne is to pass an object (ball or toy) to each person. Only the person with the ball or toy can speak. I suspect the APL Accounting crew are going to try this just because it sounds whacky (and a weird new toy has appeared which I’ve not been allowed to chew).
Thinking about all this (yapping, clear rules, fluffy toys) all brings a wag to my tail, training dogs and training humans is not so different after all.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. In particular, please note that ‘Zack’ is a dog and does not have opposable thumbs so has to type with his nose.