ATO Cracks Down on Small Business Tax Debts: Here’s What You Need to Know

In the wake of the Covid era, the Australian Taxation Office (ATO) adopted a lenient stance toward small businesses with GST, PAYG tax, and income tax obligations. However, the ABC recently reported that this period of leniency has come to a screaming halt and the ATO is now aggressively pursuing small businesses that owe tax debt, implementing stringent debt collection measures and shutting down businesses unable to comply.

The Current Situation

Rob Heferen, the new commissioner of the Australian Taxation Office, recently highlighted the severity of the issue. According to ABC News, small businesses collectively owe the ATO about $24 billion relating to their business activity statements (BAS). Heferen expressed concern over the growing trend of businesses falling behind on these payments, noting, “We are seeing an increasing number of businesses fall behind on these types of payments, from which point it is very difficult for businesses to get back on top of their obligations and remain viable.”

The numbers are alarming. Small businesses account for 65% of all collectable debt owed to the ATO, which amounts to $32.5 billion. Over the past four years, the total collectable debt, from businesses and individuals, has surged from $26.5 billion in June 2019 to $50.2 billion in June 2023 — an 89 percent increase. This sharp rise highlights the escalating pressures on small businesses across the country.

Aggressive Debt Collection

In response to the mounting debt, the ATO has intensified its debt collection efforts. Businesses with unpaid tax debts face the risk of being shut down if they fail to settle their obligations. The ATO’s hardline approach is a stark contrast to the leniency shown during the pandemic, and it serves as a brutal wake-up call for small business owners.

While the ATO is offering payment plans to help businesses manage their tax debts, these plans aren’t a get out of jail card and currently carry a general interest charge of 11.36%. Not only are you paying a high interest rate, these loans also have short repayment terms so your monthly payments can be astronomical. For many, meeting these repayment conditions may prove to be an insurmountable challenge, potentially crippling their operations.

What Can Businesses Do?

We reached out to Antony Resnick, insolvency expert and partner at DVT Group to get his thoughts on what businesses can do if they are burdened by ATO debt. He cautioned not to drown in the sea of debt but to raise your hand and ask for help. Companies that lodge their BASs but do not have the money to pay their bill are far better off from a personal liability standpoint than those who don’t lodge and don’t pay.

One option for businesses is to refinance the ATO debt through private lenders. TrailBlazer Finance is one of the few lenders willing and able to step up to the plate offering refinancing options that allow businesses to spread out repayments over five years, providing much-needed cash flow to continue operating and growing.

Take the First Step Toward Tax Debt Relief

If you’ve got ATO debt to pay don’t ignore it, raise your hand and ask for help.  We understand the pressures small businesses face and are here to help you find a solution that fits your unique situation. We invite you to set up a complimentary call with our experienced team to discuss your specific circumstances and explore how our refinancing options can help you. Reach out to us today at 1300 139 003 to clear the decks and get square with the ATO.

 

Understanding the market dynamics of trail book acquisition costs

Understanding the factors influencing trail book valuations is not just important but pivotal for making well-informed decisions in the acquisition process. These valuations encapsulate a complex interplay of multifaceted variables that can significantly impact the value and viability of an acquisition. Determining the factors influencing trail book valuations is crucial for making informed decisions. TrailBlazer Finance can help you understand the intricacies of trail book pricing across various sectors:

Mortgage Trail Books

Historically, mortgage trail books have traded at multiples ranging from 1.5X to 3X annual trail revenue. However, pricing varies significantly based on the quality of the asset. Just like buying a used car, factors such as client retention, revenue consistency, and asset quality play pivotal roles in determining the price. It’s essential to conduct external valuations to accurately assess the value of the asset being acquired.

Financial Planning Books

The valuation of financial planning books is typically based on a multiple of annualised recurring revenue (CSR), with historical norms around 3X. However, market sophistication has led to variations in pricing based on revenue streams, client base stickiness, and service offerings. Conducting detailed valuations and analysing revenue breakdowns are essential steps in determining the fair price for financial planning books.

Real Estate Rent Rolls

Rent rolls, representing real estate rentals, typically trade within the range of 2.5 to 3.5 times annual revenue. Factors such as client retention, vacancy rates, and rental reliability influence pricing. The focus is primarily on management fees and the quality of underlying properties.

Accounting Practices

Accounting practices are usually valued at 0.8 to 1.2 times annualised revenues, with considerations for achievable EBITDA. Client base stickiness, service availability, and eligibility of potential acquirers significantly impact pricing. Conducting thorough due diligence is essential to accurately assess the potential value of accounting practices.

Navigating trail book acquisitions requires a nuanced understanding of market dynamics and valuation principles

Taking into account elements such as asset quality, revenue streams, and client retention empowers you to make well-informed decisions and negotiate equitable prices. Engaging with experts like TrailBlazer Finance and conducting thorough valuations are indispensable components for a prosperous acquisition journey.

For finance professionals gearing up for an acquisition, our team offers confidential consultations customised to your unique circumstances. Alternatively, immerse yourself in our comprehensive eBook, “Acquisition Ready,” to acquire a deeper comprehension of the acquisition process and arm yourself with invaluable insights for achieving success.

 

Interested in gaining insights into the crucial aspects of a prosperous acquisition? Our comprehensive eBook, “Acquisition Ready: The 10 Things Finance Professionals Must Cover,” meticulously crafted by our specialist funders, offers valuable guidance to navigate the process effectively. Download today.

A comprehensive guide to navigating legal documentation in acquisitions

Embarking on an acquisition journey entails navigating a maze of legal documentation essential for a successful transaction. Let’s delve into the key legal documents required and their significance in the acquisition process:

2nd Level: Reference ability Checks

Delving deeper, it’s essential to scrutinise the character and reputation of the vendors involved. Conducting reference ability checks by reaching out to business development managers, partnership managers, and individuals associated with the target acquisition provides invaluable insights. Identifying any red flags regarding the vendor’s integrity or reputation is crucial, as acquiring an asset tainted by poor character can prove detrimental to your business. TrailBlazer Finance has numerous methodologies to delve deep.

3rd Level: Legal Searches

Lastly, thorough legal searches are indispensable to ensure a seamless acquisition process. These searches encompass verifying ownership, clearing titles, and identifying any encumbrances or outstanding debts associated with the asset. By meticulously conducting these searches, you safeguard against potential legal entanglements that could impede the acquisition’s success.

Although every acquisition journey may unfold with its own set of nuances, certain foundational principles persistently stand firm. With the expert assistance of TrailBlazer Finance, meticulously addressing these aspects of due diligence empowers you with the optimal opportunity for success in your acquisitions endeavours. 

Interested in gaining insights into the crucial aspects of a prosperous acquisition? Our comprehensive eBook, “Acquisition Ready: The 10 Things Finance Professionals Must Cover,” meticulously crafted by our specialist funders, offers valuable guidance to navigate the process effectively. Download today.

How to complete a thorough due diligence when acquiring a business

In the ever-evolving realm of business expansion, acquisitions emerge as powerful drivers of success. They present a thrilling opportunity to instantly double your business, skipping the lengthy process of organic growth. Through acquisitions, you not only achieve increased scale and efficiency but also gain the freedom to delegate day-to-day operations. Furthermore, your margins, purchasing influence, and market share undergo swift enhancement, marking the dawn of a prosperous new era.

However, the road to successful acquisitions is paved with layers of due diligence. Successful acquisitions hinge on meticulous due diligence across asset valuation, reference ability checks, and legal searches. By prioritising these critical steps and leveraging the expertise of TrailBlazer Finance, you pave the way for transformative growth and prosperity in your business ventures.

1st Level: Asset Valuation Due Diligence

At the outset, it’s imperative to conduct due diligence on the true value of the asset you’re acquiring. Engaging a third-party expert to perform a detailed valuation ensures accuracy and transparency in assessing the asset’s worth and its potential for leveraging. While some may possess the expertise and resources to undertake this task internally, most opt for the objectivity and proficiency offered by external valuers.

2nd Level: Reference ability Checks

Delving deeper, it’s essential to scrutinise the character and reputation of the vendors involved. Conducting reference ability checks by reaching out to business development managers, partnership managers, and individuals associated with the target acquisition provides invaluable insights. Identifying any red flags regarding the vendor’s integrity or reputation is crucial, as acquiring an asset tainted by poor character can prove detrimental to your business. TrailBlazer Finance has numerous methodologies to delve deep.

3rd Level: Legal Searches

Lastly, thorough legal searches are indispensable to ensure a seamless acquisition process. These searches encompass verifying ownership, clearing titles, and identifying any encumbrances or outstanding debts associated with the asset. By meticulously conducting these searches, you safeguard against potential legal entanglements that could impede the acquisition’s success.

Although every acquisition journey may unfold with its own set of nuances, certain foundational principles persistently stand firm. With the expert assistance of TrailBlazer Finance, meticulously addressing these aspects of due diligence empowers you with the optimal opportunity for success in your acquisitions endeavours. 

Interested in gaining insights into the crucial aspects of a prosperous acquisition? Our comprehensive eBook, “Acquisition Ready: The 10 Things Finance Professionals Must Cover,” meticulously crafted by our specialist funders, offers valuable guidance to navigate the process effectively. Download today.

Navigating the Approval Process in Acquisitions

A successful acquisition has the potential to transform your business, offering immediate scalability, improved efficiency, and the ability to delegate day-to-day operations. Moreover, it can result in instant enhancements in margins, purchasing power, and market share, propelling your business towards unprecedented success.

However, when venturing into the world of acquisitions, understanding the intricacies of the approval process is paramount. Before proceeding with an acquisition, thorough familiarisation with all relevant legal documentation outlining future payment rights is essential. Let’s delve into what you need to know:

Aggregator, Dealer Group, or Franchise Approval

In the acquisition landscape, securing approval from your aggregator, dealer group, or franchise is often a prerequisite. This step is vital as it grants you the legal right to take ownership of the acquisition target. However, it’s essential to note that approval procedures can vary significantly depending on the entity involved. Trailblazer Finance can guide you through this process. 

Restricted Approval

Approval may come with certain constraints. For example, some aggregators restrict acquisitions to their existing members, while specific mortgage managers may impose prerequisites such as specific guarantees and qualifications. Similarly, franchises typically require acquirers to become franchisees to access acquisition opportunities.

Failing to obtain the necessary approvals poses a significant risk, potentially resulting in the nullification of the acquisition and the loss of deposits or payments made.

Poorly executed acquisitions can spell disaster. Inadequate preparation and due diligence can devalue both the acquired asset and your existing business. Compliance issues further exacerbate the risks, potentially causing irreparable damage.

At Trailblazer Finance, we specialise in guiding clients through the acquisition process, ensuring optimal outcomes every step of the way. From conducting due diligence to negotiating agreements and securing financing, we provide comprehensive solutions tailored to your unique needs. With our expertise by your side, you can navigate the complexities of acquisitions with confidence and achieve your business objectives. Trust Trailblazer Finance to be your partner in success.

Eager to gain in-depth insights into the crucial elements of a successful acquisition? Download our comprehensive eBook, “Acquisition Ready: The 10 Things Finance Professionals Must Cover,” crafted by our specialist funders.

Mind the funding gap

The ongoing struggle for SME funding

A recent industry study* has shown one in four SMEs is unsuccessful in obtaining funding, with the majority being turned away by major banks.

And that’s a whole lot of cries for help that have fallen on deaf ears, particularly when you consider nearly 50% of Australian SMEs sought funding in the last 12 months as they struggled with the fallout from an economically tumultuous year.

Read More

Rolling in the deep

Reflecting on rent roll trends in 2020 and the outlook for 2021

2020 dealt a lousy hand to plenty of industries – and the property management industry is certainly no exception. If you’re a real estate manager, the pandemic has likely had a significant impact upon the value of your rent roll – and likely a net positive impact if you happened to be in the “right” location.

We’re here to help demystify some of the trends in rent roll evaluation over the last 12 months so that you can appreciate their impact upon your business in 2021.

Read More

Stinking hot with storm clouds on the horizon

Are you equipped to weather all seasons in 2021?

Congratulations – you survived the Covid-19 flash storm that engulfed 2020! But before the uncertainty and turbulence of 2020 dwindle into the recesses of our collective memory, stop to ask yourself what does the rest of 2021 hold for the mortgage and finance brokerage industry?

Read More

Will you be swimming between the flags this year or will you drown under debt?

I started my year with a scary experience. Whilst ocean swimming early one morning with friends beyond the breakers, I lost my form – and then my nerve. With my friends out of sight and shouting range, I decided to make my way back to the safety of the beach. However, to do so meant battling through a churning, dumping swell. I felt totally out of my depth. When,  finally, I made it unsteadily to the shore, I was shaking, heaving and questioning my choice of hobby. Fortunately, it was just one bad day at the beach for me. I could chalk it up to experience and I was back in the water two days later. I am one of the lucky ones.

While listening to a recent podcast with Accountants Daily, My Business Editor, Adam Zuchetti about small business tax debt, I had a flashback to that experience for an entirely different reason. Adam reported that a staggering 20 per cent of Australian small businesses are currently on an ATO payment plan. That’s some 800,000 small businesses who are financially overwhelmed, many of whom are drowning in debt.

One of the more shocking revelations from the piece is the comparative level of SME (small to medium enterprise) tax debt when compared to corporate Australia. The former cohort owes a whopping $16.5 billion with $1 billion contested. Meanwhile, their corporate counterparts owe just $1 billion and are locked in disputes for six times that amount. This points to the glaring discrepancy in resources between the two segments and the ability of the big guys to fight back, whilst the little guys are often forced to roll over and get carried out to sea. Moreover, it hints at the ongoing role corporates play in stretching payment terms to SMEs, thereby contributing to SMEs failing to meet their tax commitments.

It also highlights the pervasive fear of retribution small businesses feel towards the ATO.  This fear is now exacerbated by harsher penalties for missing tax payments, single touch payroll and new laws allowing the ATO to disclose tax debts to credit bureaus as part of comprehensive credit reporting. You may even have read recent press reports of harsh treatment on calls by outsourced “assistants”.

Daily, we also see a lack of understanding and education about the role the ATO does provide in easing the burden of tax debt – such as payment plans. Often SMEs mistake this for some form of back-door, inexpensive funding which, of course, it is not. The ATO is not a quasi-bank. This cocktail of fear, misunderstanding and concern about being sucked under contributes to murky and scary waters for SMEs who are struggling to meet their tax commitments. It can get in the way of proactively putting in place a plan to better manage debts by matching asset and liabilities and using recurring income to service longer-term, fully amortising debt.

I have started several small businesses myself and empathise with how easy it is to go a little off course and get sucked in out of your depth.  Suddenly you are fighting the rip, rather than working your way clear.  Progressively exhausting yourself and depleting your resources, unable to find a route to swim clear. We understand that an ATO payment plan is a sign of a struggle and that the struggle is real for small business.

Sometimes small business just needs someone to give them a break; throw them a life ring or give them financial support until they can catch their breath. There’s no shortage of new fintech lenders who have plunged into the market, particularly in the vacuum left by larger lenders. Some offer fast access to cash, but beneath the surface, their interest rates are so high they will inevitably cause an already weakened swimmer to drown under the additional debt burden. Have they helped the problem? Almost certainly some have, certainly in terms of addressing short-term cashflow needs. Are they solving the problem? Not really. The core issue of late payments will have to be addressed by government and regulators in due course.

The ATO will need to do more to educate small business about how they can help. In the meantime, the role of advisory services and prudent lenders in educating their clients about funding their businesses in a sensible way is more critical than ever.

As we swim out and greet 2020, will you be swimming responsibly between the flags or are you already a little out of your depth? As a sign of our commitment to small business, and staying afloat generally this summer we will donate $100 to Surf Lifesaving Australia, from each SME loan made to a financial planner, mortgage broker, accountant or property manager.

Banking Royal Commission: Is the sky falling for mortgage brokers?

Within hours of the Hayne Royal commission’s final report being handed down, I was inundated with calls from clients and interested parties, all of the mortgage brokers. Although their words were different, there was a common theme: “Should I be worried? What has happened to the value of my trail book?”, they asked uneasily.

With the Commission recommending the abolition of trail commission on new loans – and the sitting Liberal Government pledging they will enact this recommendation from July 2020 – it’s no surprise that mortgage brokers are concerned. But brokers needn’t panic.

Brokers can take comfort in the knowledge that our valuation methodologies have always focused on the value of the trail in force; with no presumption of the new trail being earned after the valuation date. At times that conservatism may have seemed draconian; now it feels justified. As long as the existing trail is ‘grandfathered’, it continues to exist and therefore remains a source of value and at this time no changes have been made to valuations algorithms.

But what multiple will people pay for that trail? That is a question of supply and demand. Market forces always trump theoretical valuations. In the rising bull-market we experienced over the past few years, books often changed hands at premiums to valuation. This is no different from what we’ve seen in the property market. If there is panic selling or a rush to exit, books may trade at a lower price for a while.

At the same time, it’s important to remember that the Commission’s recommendations are just that: recommendations. Until the Senate passes new laws, their commendations are not binding; politicians can change their stance depending on constituent pressure (think Malcolm Turnbull and climate change); and with elections looming we don’t even know which party will be in power, let alone what will be traded, as politicians wrangle to be elected.

In the meantime, as long as funding lines don’t dry up, it’s business as usual. We continue to receive calls and emails from brokers seeking guidance, funding and exit options and buying opportunities. Brokers are resilient beasts (they have no choice!) so I expect that most will adapt rather than succumb.

I’m proud to share that only today we issued an agreement to acquire a book at a valuation agreed last year– so we are standing our ground and supporting brokers as they face the changes and transitions likely to arise out of the Royal Commission.

2019 is likely to be a challenging and scary time for many in our industry. And Australia may – depending on political manoeuvres – join most other countries in not paying trail commissions to brokers. While this could become our sad reality, it is not the end of the road for well-resourced and well-capitalised brokers. On the contrary, those brokers who are able to adapt are likely to flourish, as struggling participants exit, or are absorbed into larger groups, and the market thins out. Those with the means and the will to persevere will not only survive but very likely emerge larger and stronger.

Unlike the fictional Chicken Little who created hysteria with her scaremongering -“The sky is falling!” – I am confident that the Hayne Commission’s findings do not spell the end of the broking industry for all.

Whether you’re a mortgage broker, financial planner, rent roll business owner, accountant or other cashflow business, we can understand and support your specific business goals and needs.

Contact us

Suite 401, Level 4,
59-75 Grafton Street,
Bondi Junction NSW 2022

1300 139 003

info@trailblazerfinance.com.au

Giving Back