We hope you have had a prosperous start to the 2015 Financial Year. Today, we are talking about R&D Grants and Banking Covenants. Two often neglected, but potentially very important items of education for Small to Medium Businesses. We hope you enjoy this addition of our newsletter and we hope there is some added value here for everyone.
The Bourke Group Team
Research & Development Expenses – are you leaving money on the table?
The R&D Tax Incentive provides eligible companies with a tax offset for eligible Research & Development expenditure. The two components of the program are:
- a 43.5% refundable tax offset for eligible entities with a turnover of less than $20m per annum; and
- a non-refundable 38.5% tax offset for all other eligible R&D entities
The tax incentive exists to encourage businesses to innovate and examples of eligible R&D expenditure are:
- Researching and Developing a more efficient manufacturing process
- Researching and Developing a new product
- Researching and Developing new process for delivery of a service
- Researching and Developing software
Bourke Group have experience in assisting clients with R&D claims, including a recent case in which our team obtained a substantial refund for a Liquidator of a failed Company. The claim had not been pursued by the failed companies (very large and well known) Accounting firm.
If you are unsure of your ability to claim R&D offset, please contact us to arrange a consultation.
Managing your banking relationships
All businesses have a need for finance.
The question we want to put to clients here is “when was the last time you read, understood, or paid attention to the covenants section of your finance Letter of Offer?”
Do you understand the consequences for a breach? It is not enough to simply ‘pay the bank’ to remain within the terms of your financing arrangements. Unfortunately, due to the complexity and length of banking documents, many clients simply do not read them and sign away.
Some common covenants that can apply:
- Asset valuations be performed
- Regular Financial Reporting with Budget Vs Actual (monthly, quarterly, biannually)
- Explanation for variances from budget
- Maintaining Financial Ratios (Interest cover/current ratio/debt to equity)
- Insurance policy on life of owner/manager
Failing on any one of these can actually see you in breach of your facility terms and create difficulty with your borrowing arrangements. Bourke Group actively manages covenant requirements with many clients as part of our cashflow reporting packages.
We find this can increase the strength of banking relationships and client awareness which adds value to clients businesses in the long run. Being a “good client” of the bank will always help in terms of negotiating rates on finance and ease of obtaining credit.
We urge you to read your letter of offer and ensure you are doing everything that is required of you to remain a solid client of your bank, and as always, we are here to help.
Contact your advisor to find out how we can assist.