1. What Is Crowd Sourced Funding? 2. Stage I of the CSF Legislation Journey in Australia 3. Stage II: Corporations Amendment (Crowd Sourced Funding for Proprietary Companies) Bill 2018 4. Understanding Small Proprietary Companies in Australia 5. Who Is a CSF Shareholder? 6. Defining an Eligible CSF Company 7. What Is the Issuer Cap in CSF? 8. Fundraising Beyond a CSF Offer: What You Need to Know 9. Annual Financial Reports and Directors’ Reports for CSF Companies 10. Shareholder Directions for Small Proprietary Companies 11. Understanding the CSF Audit Threshold 12. Primary Issue Only: What It Means for CSF 13. How to Make a CSF Offer: A Step-by-Step Guide 14. Corporate Governance Concessions for CSF Companies 15. CSF Intermediaries: Financial Services Licensing Requirements 16. What Is an Australian Market Licence (AML)? 17. The Obligations of a CSF Intermediary 18. Stages of a CSF Offer: From Start to Finish 19. Who Are CSF Investors? 20. General Investor Protections in CSF 21. Investor Protections for Retail Clients in CSF 22. When Is a CSF Document Defective? 23. Obligations Regarding Defective CSF Documents 24. Investor Rights Concerning Defective CSF Documents 25. Criminal and Civil Liability in CSF 26. The Role of ASIC in CSF 27. When to Seek Professional Advice for CSF

Mih Chowdhury  Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
CROWD SOURCED FUNDING
EQUITY RAISING OVERVIEW
Paper 003-055
CONTENTS
Page
1. What Is Crowd Sourced Funding? 3
2. Stage I of the CSF Legislation Journey in Australia 3
3. Stage 2 - Corporations Amendment (Crowd Sourced Funding for Proprietary Companies) Bill 2018 4
4. Small Proprietary Company 4
5. CSF Shareholder 5
6. Eligible CSF Company 5
7. Issuer Cap 5
8. Fundraising in Addition to a CSF Offer 6
9. Annual Financial Reports and Directors’ Report 6
10. Small Proprietary Companies – Shareholder Directions 6
11. CSF Audit Threshold 6
12. Primary Issue Only 6
13. Making a CSF Offer 7
14. Corporate Governance Concessions 7
15. CSF Intermediaries – Financial Services Licensing Requirements 8
16. Australian Market Licence (AML) 8
17. The Obligation of a CSF Intermediary 8
18. Stages of a CSF Offer 9
19. CSF Investors 9
20. General Investor Protections 10
21. Investor Protections For “Retail Clients” Only 10
22. When is a CSF Document Defective? 11
23. Obligations in Relation to Defective Documents 11
24. Investor Rights – Defective Documents 11
25. Criminal and Civil Liability 11
26. ASIC 11
27. Professional Advice 12
CROWD SOURCED FUNDING
EQUITY RAISING OVERVIEW
Paper 003-055
This paper covers the journey from an enquiry to the preparation of the Crowd Sourced Funding Offer Document.
1. What Is Crowd Sourced Funding?
Crowd Sourced Funding (CSF) is a type of corporate capital raising whereby a company seeks funds, in small amounts, from a large number of individual investors in return for securities in the company. CSF involves:
• Companies (issuers) that propose to raise funds;
• Intermediaries that host the platform through which offers are made to crowd investors;
• Crowd investors.
CSF has developed over the last six years in other countries as an online phenomenon, utilised particularly by small start-up companies seeking seed capital, as a complement to more established financing options involving professional investors, such as angel investing and venture capital.
However, the legislative framework in Australia presented barriers to CSF. Proprietary companies have been limited to 50 non-employee shareholders and are prohibited from making public offers of securities, while public companies are subject to governance, reporting and disclosure requirements that may be too onerous for a small business.
2. Stage I of the CSF Legislation Journey in Australia
The legislation known as the Corporations Amendment (Crowd-Sourced Funding) Bill 2017 was passed by the Australian Parliament in March 2017.
The legislation authorised capital raising utilising Crowd Sourced Funding Equity Raising to commence from September 2017.
The Australian Security Investment Commission (ASIC) finalised the appointment of the initial group of Crowd Sourced Funding Intermediaries in early January 2018 thus enabling Crowd Sourced Funding Equity Raising to commence.
The Bill provided for the addition of a new Part 6D.3A to the fundraising provisions of the Corporations Act. The new Part provided for a disclosure regime that can be used instead of the existing fundraising disclosure requirements for certain offers of securities for issue in small unlisted companies.
In Stage I only unlisted public companies were able to use CSF.
However proprietary limited companies could convert to an unlisted public company so that they were able to utilise this legislation. During 2017 the government announced proposals to introduce amendments relating to crowd sourced funding equity raising which would enable private companies to raise capital from the public without having to convert to an unlisted public company.
3. Stage 2 - Corporations Amendment (Crowd Sourced Funding for Proprietary Companies) Bill 2018
The legislation which was originally introduced into parliament as a 2017 Bill was passed by Parliament on 12 September 2018. The Act commences on the 28th day after the Act receives the Royal Assent. This Paper summarises the ongoing position that applies under the new legislation.
Royal Assent was granted on 21 September 2018 – the amendments operate from 19 October 2018.
4. Small Proprietary Company
1. A small proprietary company needs to be limited by shares or be an unlimited company with a share capital.
2. A small proprietary company needs to:
(a) have no more than fifty shareholders, although employee shareholders and shareholders connected with CSF offers do not count for this purpose; and
(b) not do anything to require disclosure to investors under Chapter 6D – except for:
An offer of its shares to:
(i) existing shareholders of the company; or
(ii) employees of the company or a subsidiary of the company; or
(iii) a section 708 of securities that are of the same class as those offered under the CSF Offer; or
(iii) a CSF Offer.
3. A CSF shareholder (or an entity that has acquired a security of the company that was originally issued to another entity pursuant to a CSF Offer by the company) is not counted as a shareholder of the proprietary company.
4. A proprietary company must not engage in any activity that would require disclosure to investors.
5. Small Proprietary Limited Company
Counted Not Counted
Ordinary shareholders Up to 50
Employee shareholders 
s708 Capital Raising (included in 50) 
6. CSF Company
Counted Not Counted
Ordinary shareholders Up to 50
s708 Capital Raising (included in 50) 
Employee shareholders 
CSF shareholders 
Shareholders who owns shares originally issued as a CSF shareholder shares 
5. CSF Shareholder
CSF shareholder of a proprietary company means an entity that holds one or more securities of the company due to being issued with the securities pursuant to a CSF Offer by the company.
6. Eligible CSF Company
1. At the time of the offer, the company making the offer must be an ‘eligible CSF company’, which is a company that satisfies the following conditions:
• it is a public company limited by shares;
• or the company is a small proprietary company (section 45A(2) that:
- has at least 2 directors
- with its principal place of business and a majority of its directors in Australia;
• the value of the consolidated gross assets of it and its related parties must be less than $25M at the time it is determining its eligibility to crowd fund (the “assets test”) (a related party, for the purpose of the CSF provisions, is a related body corporate or an entity controlled by a person who controls the company or an associate of that person);
• the consolidated annual revenue of it and its related parties must be less than $25M (the “turnover test”);
• neither it nor a related party is a listed corporation (as listed corporations generally have access to other forms of equity raisings such as rights issues and share purchase plans);
• neither the company, nor any related party of the company is included in an official list of a financial market operated outside this jurisdiction;
• neither the company, nor any related party has the intention of utilising the funds sought to be raised by the offer to issue a credit facility to the company or a related party of the company.
• The Explanatory Memorandum tabled in Parliament by the Minister for Small Business and Assistant Treasurer relating to the “Corporations Amendment (Crowd-Sourced Funding) Bill 2015 commented as follows:
“The company must not intend the funds sought under the offer to be used by the company or a related party of the company to any extent to invest in securities or interests in other entities or managed investment schemes.”
2. A CSF company only has to have an audit if it has raised a total of $3M or more.
7. Issuer Cap
The offer must comply with an “issuer cap” of $5M in any twelve month period, calculated taking into account:
• the amount sought to be raised under the current offer;
• all amounts raised from previous CSF Offers made within the twelve month period preceding the current offer;
• all amounts raised from small scale personal offers exempt from disclosure pursuant to s.708(1) within the twelve month period preceding the current offer;
• all amounts raised from certain offers made through the holder of an Australian Financial Services Licence (AFSL) and exempt from disclosure pursuant to s.708(10), within the twelve month period preceding the current offer.
8. Fundraising in Addition to a CSF Offer
In addition to the $5M that can be raised under the CSF regime, a company can raise funds from:
• sophisticated investors
• professional investors
Fundraising from these persons does not require a disclosure document under the current fundraising disclosure provisions in Chapter 6D of the Corporations Act (s.708(😎, 708(11)).
9. Annual Financial Reports and Directors’ Report
A Financial Report and a Directors’ Report must be prepared for each financial year by (section 292):
• all public companies
• a small proprietary company has to prepare the Financial Report and Directors’ Report only if (section 292 (2)):
(i) it is directed to do so under section 293 (refer item 10);
(ii) it has one or more crowd sourced funding shareholders at any time during the financial year (section 292 (2) (c).
10. Small Proprietary Companies – Shareholder Directions
Shareholders with at least 5% of the votes in a small proprietary company may give the company a direction to (section 293):
(a) prepare a Financial Report and Directors’ Report for a financial year; and
(b) send them to all shareholders.
The direction may specify all or any of the following:
(a) that the Financial Report does not have to comply with some or all of the accounting standards;
(b) that a Directors’ Report or a part of that Report need not be prepared;
(c) that the Financial Report is to be audited.
11. CSF Audit Threshold
The Audit Threshold for a Crowd Sourced Funding Company is $3 Million.
12. Primary Issue Only
The offer must be for a primary issue of securities of the company making the offer: it cannot be for secondary sale of those securities.
13. Making a CSF Offer
An issuer must, for each CSF Offer:
• prepare a CSF Offer Document containing clear, concise and effective information, as specified in the regulations (for instance, information about the company and its business, the securities on offer, how the proceeds from the offer will be used);
• in the CSF Offer Document, the following information needs to be shown:
- a description, or a summary, of the key provisions of the offering company’s constitution that deal with any rights and liabilities that attach to the securities in the issuing company (this information will be required from a public company as well as a small proprietary company that are seeking to raise Crowd Sourced Funding Equity Raising Capital);
• small proprietary companies that have one or more CSF shareholders are bound by the related party transactions rules contained in the Corporations Act as if the small proprietary company was a public company: (Section 738ZK);
• the related party transaction rules are designed to protect the interests of a proprietary company with one or more CS F shareholders as a whole, by requiring approval for giving financial benefits to related parties that could endanger those interests.
• obtain the consents of persons associated with the offer document;
• publish the offer document (including, or together with, the offer itself) on the platform of a single CSF Intermediary;
• have only one CSF Offer open at any one time;
• not have a CSF Offer open at the same time as a CSF Offer of a related party (this avoids circumvention of the issuer cap).
An issuer has the power to withdraw a CSF Offer at any time before the Offer is complete by notifying the Intermediary. Other stages of a CSF Offer are mostly under the control of the Intermediary. Refer to Section 15 and 17.
Issuers have particular responsibilities when a CSF Offer Document is found to be defective. Refer to Section 22.
The regulations also clarify that the description of the rights attaching to a company’s securities also covers rights and liabilities arising out of the company Constitution and Shareholders Agreements and there must be disclosure of any restrictions that apply to the company in relation to the off market transfer of shares, including any rights of the directors to refuse to register a transfer of shares in the company including where such a transfer would bridge the fifty shareholder cap.
The requirement to summarise the key terms of a company’s Constitution applies to both public and proprietary companies.
14. Corporate Governance Concessions
These concessions only apply to a public company or a proprietary company that converted to a public company and the required application was lodged before the “eligibility end day”.
“Eligibility end day” means the day, 28 days after the Royal Assent was given to Corporations Amendment (Crowd Sourced Funding for Proprietary Companies) Bill 2018 – 19 October 2018.
The legislation provides a CSF issuer with corporate governance concessions for five years from the date of registration as a public company if it:
• satisfies the CSF eligibility criteria at the time of registration as a new public company and at the end of the relevant financial year; and
• intends to crowd fund at the time it is registered; and
• completes a CSF Offer within twelve months of registration.
The corporate governance concessions are:
• an exemption from holding a physical Annual General Meeting;
• the option to provide financial reports to shareholders online only;
• not being required to have audited Financial Reports until more than $3M has been raised from CSF offers or other fundraising offers requiring disclosure.
15. CSF Intermediaries – Financial Services Licensing Requirements
A CSF Intermediary must hold an AFSL (Australian Financial Services Licence) to provide a crowd-funding service, which is a new category of financial services created under the Bill.
A person provides a crowd-funding service if:
• applications may be made to the person for the issue, by an issuer company, of securities pursuant to the offer;
• a CSF Offer Document relating to securities of a company is published on a platform operated by the person.
The crowd-funding service is provided to:
• the issuer (when the issuer enters into the hosting arrangement for the offer of securities with the Intermediary);
• potential investors who apply for CSF securities through the Intermediary’s platform (when the investors first use the Intermediary’s application facility to apply).
16. Australian Market Licence (AML)
In some circumstances, the operations of a CSF Intermediary may require it to hold an Australian Market Licence (AML).
17. The Obligation of a CSF Intermediary
The obligations of the Intermediary include:
• Gatekeeper obligations, which require the Intermediary to conduct certain checks (which are prescribed in the regulations) to a reasonable standard before publishing an issuer’s Offer Document on its platform and not to publish an offer if the Intermediary:
- is not satisfied about the identity of the company making the offer, or of any of the company’s directors or other officers;
- has reason to believe that any of the company’s directors or other officers are not of good fame or character;
- has reasons to believe that the company, or any of its directors or senior managers or officers, has knowingly engaged in misleading or deceptive conduct in relation to the offer, for instance, by providing misleading information in response to a post on the communications facility;
- has reason to believe that the offer is not eligible to be a CSF Offer (for instance, if it does not comply with the issuer cap);
• to have adequate arrangements, recorded in writing, to ensure that it complies with its gatekeeper obligations;
• to provide an application facility, reject applications not made via that facility (to ensure that applicant investors are aware of, and receive, the various investor protections) and not allow an application to be made while an Offer is suspended or when it has closed;
• to provide a communication facility to allow potential investors, the issuer and the Intermediary to communicate with each other about a particular CSF Offer. This facility should enable:
- investors to make and see posts relating to the offer and ask the issuer or the intermediary questions relating to the offer;
- the company or the Intermediary to make posts responding to questions and other posts (officers, agents and employees of the issuer or the Intermediary must disclose their status when making posts on the facility);
• to display prominently on the offer platform:
- the CSF risk warning (the terms of which, to be specified in the regulations, will include the potential risks associated with, and high failure rates of, start-ups and emerging companies);
- information on investors’ cooling-off rights (including the means by which investors can exercise these rights);
- fees charged to, and interests that the intermediary has or intends to take in, an issuer company;
• to comply with the prohibition on giving financial assistance to a retail client to purchase securities pursuant to the CSF Offer;
• to close or suspend the offer as required;
• to deal with application money appropriately.
The provision of a crowd-funding service includes all these Intermediary’s obligations. This wide meaning of ‘crowd-funding service’ will ensure that all the Intermediary’s activities will be subject to the general obligations of a licensee (s.912A), such as the obligation to provide the service ‘efficiently, honestly and fairly’.
Intermediaries have particular responsibilities when a CSF Offer Document is found to be defective. Refer to Section 22.
18. Stages of a CSF Offer
CSF Intermediaries play a key role in determining when CSF Offers are made, open, closed, suspended and complete.
The maximum duration for a CSF Offer is three months from the time the Offer was made. This maximum offer period ensures that the information contained in the CSF Offer Document remains current and is consistent with the notion of CSF as a simpler, faster way of raising funds with streamlined disclosure.
When an Offer is complete (that is, when the minimum subscription condition is met, disregarding any withdrawn applications), the Intermediary must pay the application money to the issuer following the issue of the securities. If the minimum subscription amount is not raised, the Intermediary must refund the application money to the applicants.
19. CSF Investors
CSF Investors must:
• make their applications in response to a CSF Offer via the Intermediary’s offer platform, to ensure that they have the various protections of the CSF regime (such as the communication facility, the risk warning and cooling-off rights);
• provide the application money via the Intermediary, to ensure that the money is handled according to the client money provisions and is subject to the CSF rules for when money is paid to the issuer and refunded to applicants.
20. General Investor Protections
Issuers and Intermediaries must comply with the stipulated advertising rules. For instance, an advertisement or publication about a CSF Offer must include a statement that a person should, in deciding whether to make an application under the offer, consider the CSF Offer Document and general CSF risk warning.
There is an exception from the advertising rules for publishers and the publication of certain reports and notices.
There is also an exception for statements made in good faith on the Intermediary’s communication facility. However, the onus is on the person making the statement to show that it is made in good faith.
Persons will be prevented from offering securities for issue or sale through an unsolicited meeting or telephone call (a practice known as “securities hawking”), regardless of whether the offer is identified as a CSF Offer.
ASIC will have “stop order powers” in relation to advertising and publications that are misleading or deceptive or that do not draw attention to the CSF Offer Document or the general CSF risk warning.
21. Investor Protections For “Retail Clients” Only
When providing a crowd-funding service to a person, the Intermediary must determine whether the person is a “retail client” (i.e. not a “sophisticated investor”), as retail clients have additional protection both under the current law (Financial Services Guide, access to dispute resolution and compensation arrangements) and under the CSF provisions.
The tests for determining whether an investor is a retail client are, for the most part, the same as under the current licensing provisions.
Additional protection applicable to retail clients only under the CSF provisions are:
• an investor cap of $10,000 per issuer via a particular Intermediary’s platform within a twelve month period (this amount is to be apportioned equally if there are joint applicants for securities);
• an unconditional ‘cooling off’ right for a retail investor to withdraw from a CSF Offer within five business days of making an application;
• a prohibition on the company and its related parties, and the CSF Intermediary and its associates, providing retail investors with the financial assistance to acquire securities under CSF Offers;
• the requirements for a CSF Intermediary to obtain a risk acknowledgment from a retail investor before accepting a CSF application from the investor.
Investors have particular rights when a CSF Offer Document is found to be defective. Refer to Section 22.
22. When is a CSF Document Defective?
A CSF Offer Document is defective where:
• it contains a misleading or deceptive statement;
• it omits information that is required to be included;
• since the document was published, a new circumstance has arisen that would have been required to be included if it had arisen before the document was published.
23. Obligations in Relation to Defective Documents
The following obligations arise when the relevant person becomes aware, while a CSF Offer is open, that the Offer Document was defective:
• the issuer must notify the Intermediary as soon as practicable;
• the Intermediary must:
- notify the issuer as soon as practicable;
- remove the Offer Document from the platform and either close or suspend the offer
• a person liable on the Offer Document must notify the issuer and the Intermediary as soon as practicable.
The issuer need not do anything other than notify the Intermediary: it has the option of providing a replacement or Supplementary Offer Document, but no obligation. The Intermediary is not obliged to publish a replacement or supplementary document, as the Intermediary’s gatekeeper obligations apply to these types of document in the same way as to the original Offer Document.
24. Investor Rights – Defective Documents
Prospective investors who have already applied for securities under the document will either:
• receive a supplementary or replacement Offer Document that corrects the defect and then have the right, for fourteen days, to withdraw their acceptance; or
• be refunded any application money paid as soon as practicable.
25. Criminal and Civil Liability
An issuer that offers securities under a defective CSF Offer Document is criminally liable if the relevant statement, omission or new circumstance is materially adverse from the point of view of an investor.
An Intermediary that publishes an Offer Document that it knows to be defective is criminally liable.
An investor can recover from various persons associated with a CSF Offer the amount of loss or damage suffered. The investor has six years from the day the cause of action arose to commence recovery proceedings.
26. ASIC
Unlike other disclosure documents, a CSF Offer Document will not need to be lodged with ASIC. However, ASIC will have “stop order powers” where a company offers securities under a defective CSF Offer Document.
27. Professional Advice
Please contact your accountant for further advice if you are interested in raising capital utilising Crowd Funding.
AN IMPORTANT MESSAGE
The forms and commentaries contained in this paper are provided as a guide only and should not form the sole basis for any advice in relation to the particular situation of any person without first obtaining proper professional advice.
Mih Accounting Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

1. Research & Development Assisted by Government Grants 2. Crowd Sourced Funding Might Be The Answer 3. The Business Planning Process Helps! 4. Predictive Accounting Identifies The “Financial Picture" 5. Virtual Chief Financial Officer Services Help SMEs 6. “Scale Up” To Implement Your Vision 7. Thinking About Being A Business Person? 8. Issue - July 2021 9. Happy New Financial Year - Best Wishes for 2021/22!!

Articles supplied by
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
Research & Development Assisted by Government Grants 1
Crowd Sourced Funding Might Be The Answer 1
The Business Planning Process Helps! 2
Predictive Accounting Identifies The “Financial Picture" 2
Virtual Chief Financial Officer Services Help SMEs 3
“Scale Up” To Implement Your Vision 3
Thinking About Being A Business Person? 3
Issue - July 2021
Happy New Financial Year - Best Wishes for 2021/22!!
Research & Development Assisted by Government Grants
The Research and Development Tax Incentive Rebate is of tremendous assistance to companies that have undertaken research activities.
The rebate amount was changed from 1st July 2021.
There was virtually no change for a company with a turnover under $20M. The new rebate, which is a refundable benefit, is the “appropriate corporate tax rate that applies for that company +18.5% premium”.
The government has indicated that, from 1st July 2021, the small company tax rate will be 25%, meaning that the Research and Development Tax Incentive Rebate will be 43.5%, which is the same amount as it has been for the last few years, but with a different set of components in the calculation.
There has been significant changes to the non-refundable rebate for companies with turnovers between $20M and $50M.
Companies which spend up to 2% of their total expenditure on research and development will be deemed to have a research and development intensity of 2%. This will be referred to as “2% Research and Development Intensity” and they will receive a non-refundable research and development tax offset of the appropriate corporate tax rate +8.5% premium.
With the corporate tax rate expected to be 25% the companies in this category, this will have an effective research and development rebate of 33.5% of the eligible research and development expenditure.
Where companies in the $20M – $50M category spend more than 2% of their total expenditure on research and development, they’ll have a research and development intensity of over 2% and the premium will be 16.5%.
Based on the corporate tax rate of 25%, companies in this category will have an effective research and development rebate of 41.5% of the eligible research and development expenditure.
The “refundable benefit” for companies with a turnover under $20M means that, if the company is trading at a loss, the company can elect, within its tax return, to receive a cash refund of the research and development rebate so long as the company’s losses exceed the amount of the research and development rebate.
If you are interested in finding out more information on the research and development scheme, please do not hesitate that to contact us for a discussion.
Crowd Sourced Funding Might Be The Answer
If your company needs additional funding and your group turnover is under $25M, your company may be able to utilise Crowd Sourced Funding Equity Raising to raise up to $5M, in a 12 month period, from the public.
You can raise this capital without having to mortgage assets or issue personal guarantees. The company has to allocate ordinary shares to the investors.
To go through this process the company will need a Business Plan that clearly articulates the directors’ and leadership team members’ vision for the company and the strategies that they intend to implement so that the vision can be achieved.
Crowd Sourced Funding Equity Raising has been introduced by the government making amendments to the Corporations Act so as to facilitate this type of capital raising.
There is a process for the directors and leadership team members to participate in to have a clear understanding of how this system of raising capital operates.
A company has to work with an accredited Crowd Sourced Funding Intermediary (who has been appointed by the Australian Securities and Investments Commission) who has the authority to approve a company to be able to use the Crowd Sourced Funding Equity Raising process.
If you have any interest in this process or questions, please do not hesitate to contact us.
The Business Planning Process Helps!
Business Plans are like maps for tourists – you need a plan for where you are intending to go, what you want to look at, where you are going to stay and, if you deviate off track, you need to be able to identify where you’re at and then navigate to get back onto your original path.
Planning a business activity is very similar.
The Business Plan should incorporate commentary from the people involved in the business – directors, owners, shareholders, leadership team and other team members, together with a summary of the strategies that have been developed, the tactics for the implementation of those strategies and the allocation of responsibilities for monitoring the supply of funding for the business.
A new financial year has just commenced. This is a great time to be planning what you’re going to do in your business during 2021/22. With the continuation of COVID-19 causing problems all over Australia, there is going to be ongoing problems, particularly for businesses, until the immunisation rates are at the level required for “herd immunity”. In the meantime preparing a “realistic but flexible” Business Plan can give you a map for the conduct of your business until something approaching “normal business conditions” emerges.
If you would like to discuss with us the development of a “realistic but flexible Business Plan” for your business, please contact us.
Predictive Accounting Identifies The “Financial Picture"
A good Business Plan contains a commentary on the strategies to be implemented over a range of activities as well as the business’ vision.
“Predictive Accounting” creates a “financial picture” of the visions and strategies by preparing four key documents:
1. Key Drivers – the key compilation data relative to the predictive reports:
- sales estimates
- raw materials required
- raw materials’ inventory
- labour team required
- labour cost estimates including productivity percentages
- labour on cost estimates
- electricity, gas, oil estimates
- overhead budget
- markup on external purchases for clients
- estimated outlay for client purchases that has to be funded through the cashflow forecast
- sales’ budget
- inventory of completed products
- work in progress
- research and development
- debtors’ budget
- creditors’ budget
- operational budgets for each business activity
- loan accounts
- taxation payments
- capital expenditure
- shareholder accounts
- cashflow forecast
- projected balance sheet
2. Budgets – prepared for each business activity.
3. Cashflow Forecast – reflects the financial figures shown in the budgets and from subaccounts within the key drivers – debtors, creditors, inventory etc.
4. Projected Balance Sheet – highlights the impact of the various financial decisions.
If you would like to discuss with us the concepts involved in the development of a “financial picture” for your business, please do not hesitate to contact the person in our organisation with whom you normally deal.
Virtual Chief Financial Officer Services Help SMEs
Virtual Chief Financial Officer (CFO) services are provided by accountants who have wide commercial experience in a range of business activities to assist growing SMEs.
A key aspect of the role is to be able to “dig down” into the business’ records other than just to extract key financial data.
Virtual CFOs are performing this function for small or growing businesses that haven’t yet reached the scale to justify the investment in a full-time CFO.
The engagement of a virtual CFO fills a void in SMEs’ commercial financial management capability by providing high value, essential strategic financial management advice and enabling business owners to focus on commercial matters within their business and in dealing with their own clients.
Any business that is contemplating “scaling up” possibly by approaching external investors, will benefit by being able to indicate to those investors that a virtual CFO engagement with their accounting firm is assisting the leadership team in the development of the key financial policies for the business.
If you are interested in exploring the concept of utilising a virtual CFO Service, please contact the person in our organisation with whom you normally deal.
“Scale Up” To Implement Your Vision
“Scaling up” is a process that normally follows after the Business Plan has been finalised incorporating the vision for the business.
“Scaling up” requires the following key items to be attended to:
• The business needs to assemble a “leadership team” that is committed to ongoing training and professional development and that are prepared to ensure that they conduct quality communications with the team members.
• Businesses that are attempting to scale up need enthusiastic “team members” who are well trained and who are committed to the culture of ongoing skills development. To achieve this, the business needs to have an ongoing commitment to the concept of succession planning in every segment of the business’ operations.
The leadership team needs to have been able to develop “workable strategies” for every aspect of the business.
We then come to the challenging part of a scaling up process and that is the “implementation of the strategies”. This is a major commitment to ensure that the business will operate in accordance with the vision. Unless there is commitment to implement the vision, it probably will not happen!
Businesses need “money” to implement their strategies. The leadership team needs to have a complete understanding of the financial position and to have developed strategies to raise additional funds, loans or capital from the public, if need be, to ensure that sufficient funding is available.
“Scaling up” is a process that is available for every company/business that has a vision. If you would like to have a discussion with us about the process to implement a scaling up strategy for your business, please contact the person in our office with whom you normally deal.
Thinking About Being A Business Person?
That’s great – but there are a few issues that you should think about before starting a business or purchasing a business.
Unfortunately, there is a high failure rate in the first 3 years of a business’ life. An accountant’s role is to advise you on systems and processes that will contribute to your business being successful. Some of the problems which confront new business operators include:
• Inadequate Planning – it is important that adequate consideration is given to planning when considering starting or acquiring a business. Will the lifestyle of running a business suit you and your family? Most small business people have to work longer hours than they would if they were in paid employment - sometimes on weekends and at nights. How will these working hours fit with your family and sporting commitments and perhaps studies?
• Lack of Professional Advice – the CEO of a public company, or even a larger business, has a team of in-house experts or other key advisors readily available to assist him/her in making decisions. Small business operators do not normally have this luxury of having key advisors readily available.
Successful small and medium-sized business operators establish a network of key advisors who can assist them very early in their business careers. The key professional advice areas include:
- Accountants who are offering proactive business advice – not just preparing annual accounts and income tax returns.
- Commercial solicitor to advise on agreements, leases, terms of trade agreements, personal property securities register requirements, retention of title agreements etc.
- Marketing consultant to advise on the establishment of a marketing strategy, social media strategy and general communications with clients/customers and prospects.
- Web consultant – to implement and maintain a suitable website for your business.
- Sales coach – to advise on the implementation of appropriate selling strategies for your business.
- Business mentor (who could be your accountant) – to assist in the setting of business strategies, business plans, budgets and cashflow forecasts.
- Experienced business people/directors – to be a board of advice and subsequently a board of directors for your business – this is a very important concept because even though it is your business, it introduces the “accountability function” for you by instigating a regular reporting function to your own board of advice/directors.
• Inadequate Capital – this is a big problem for many types of businesses – at the beginning you need to prepare an honest appraisal of your capital needs in your business. Discuss your calculations with your accountant. Your accountant would advise you of some of the financial issues to which you will have to give consideration.
• Not Establishing Appropriate Systems – this is where you should be heeding the advice from your accountant, relative to the establishment of appropriate systems and then implementing those systems so that your business receives prompt accurate monthly financial accounts and, in some businesses, weekly profitability estimates and key performance indicators for each business activity, daily, weekly and monthly, so that you are fully aware of your business performance.
• Not Understanding Working Capital Requirements – this relates to your business investment in stock (inventory), work in progress (applies to trades, manufacturing and professional firm businesses) debtors’ management (knowing who your customers are, prompt preparation of tax invoices, prompt dispatch of debtors’ statements at the end of a month, calculation of debtors’ days outstanding each month, having effective debtors follow-up processes in place.
• Periodic reviews of expenses in each of the business activities to ensure that “value for money” is being achieved from each purchase transaction.
• Preparation of the Business Plan which incorporates all aspects of the business and clearly identifies the strategy that the company wishes to implement.
If you are contemplating starting or buying a business, please don’t hesitate to contact any of the accountants within our firm for a discussion.
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

Research and Development Reminder

Articles supplied by
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
Research and Development Reminder 1
Reportable Payment Reports 1
Early Stage Innovation Company 1
Trustee Distribution Minutes 2
Payment Summaries, If Not Using Single Touch Payroll 2
Shareholders’ Loans 2
What Strategies Are You Considering For 2021/2022? 2
Charge Out Rate Calculations 3
Issue - June 2021
Happy End of Financial Year!!
Research and Development Reminder
• If your company has undertaken research and development activities during 2020/21, you have conducted part of the research and development activities in an overseas country and you wish to claim that expenditure under the Research and Development Tax Incentive Rebate, you must lodge your Overseas Finding application with the Australian Taxation Office by 30th June 2021. If you need any assistance with the preparation of this application, please do not hesitate to contact us.
• If your company commenced a research and development project during 2020/21 and you would like us to review the records that you have maintained, please contact the accountant in our organisation you deal with as soon as possible.
• If you are giving consideration to undertaking research and development activities during 2021/22, please contact us for a discussion on the research and development recording system that needs to be implemented so that your company complies with the research and development rules as advised by the Australian Taxation Office and AusIndustry.
Reportable Payment Reports
A reminder that, if you’re operating the following industries, you are required to submit a summary of payments, made during 2020/21, to the Australian Taxation Office by 28th August 2021:
• Building and Construction Industries
• Courier Services
• Information Technology
• Road Freight
• Security, Investigation and Surveillance Services
• Cleaning
If you require assistance with the preparation of these reports, please do not hesitate to contact the accountant in our organisation with whom you normally deal.
Early Stage Innovation Company
If your company has completed the due diligence requirements to be classified as an Early Stage Innovation Company during 2020/21 and you have to raise capital from new shareholders, you are reminded that you are required to lodge the company’s New Investor Statement with the Australian Taxation Office by 31st July 2021.
Trustee Distribution Minutes
The minutes of trustee meetings, relative to distribution of trust profits in 2020/21, should be signed by the chair or another of the trustees by 30th June 2021.
Payment Summaries, If Not Using Single Touch Payroll
These summaries are required to be lodged with the Australian Taxation Office by 14th July 2021.
Shareholders’ Loans
If your company has made loans to shareholders, the minimum interest rate to be charged in respect of those loans for 2020/21 is 4.52%.
A reminder that the company must have prepared Loan Agreements for each loan and, if the loans are for in excess of 7 years, the borrower is required to submit securities to the company.
What Strategies Are You Considering For 2021/2022?
The latest shutdown of State borders, the continual discontinuance of most International tourism to Australia and the shortage of labour to work in agricultural areas, highlights that many segments of the Australian economy are still finding it tough, even though the unemployment rate has decreased well below expectations for this time.
This is the background for business operators to be planning operations in this new financial year. As an accounting firm we are committed to offering our clients a broader range of professional services then just the preparation of annual accounts and income tax returns.
Some of our clients are already receiving some of these services to assist them in the implementation of their business strategies. If you are not currently receiving these services, we are interested in hearing from you as to whether you’d like to review the services that we’re providing to you. We have prepared the following summary of some of the strategies that you might like to discuss with us. Please don’t hesitate to contact the accountant in our organisation with whom you normally deal if you require further information on any of these strategies.
Strategic/Business Plan
This is a fundamental business document that basically every business should have. Our recommendation is that your Strategic/Business Plan should be updated each year so that it reflects your current vision for your business and outlines strategies as to how you’re going to implement that vision.
Budgets, Cashflow Forecasts, Predicted Balance Sheets (This is known as “Predictive Accounting”)
This trifecta of services is developed from the Business Plan and is the “financial picture” of the information contained within your Business Plan so that you can ascertain whether your business needs an injection of additional funding which would come via loans or capital raising direct from the public.
Loans
The special COVID-19 loan 50% guaranteed by the Australian government with a maximum loan of $250,000 to be utilised for working capital purposes, closes on 30th June 2021. If you intend to submit an application you will need to do so urgently. If you require assistance in the preparation of the application, please contact us.
Capital Raising
There are three opportunities for private companies to be able to raise capital direct from the public, without having to issue a Prospectus. These opportunities are:
1. Section 708 of the Corporations Act
A private company is able to raise up to $2,000,000, in a 12 month period, from a maximum of 20 investors. There can be no advertising for this capital raising and therefore investors normally come from family, close friends, customers and employees. Companies will need a Business Plan and Budgets and Cashflow Forecasts which clearly identify the company’s vision, to be able to raise capital in this manner.
2. Early Stage Innovation Company
A “young company” – under 3 years of age, but in some cases up to 6 years of age, with a turnover in the last 12 months of less than $200,000 (not including funding from an Accelerating Commercialisation Grant) and expenditure less than $1,000,000 in the last 12 months will have passed the first test to be and Early Stage Innovation Company.
The company is then required to pass one of two additional tests series which are:
- Gateway Test – the company has to accumulate more than 100 points relative to a series of eligibility criteria; or
- The Principles Test – which requires the company to submit written responses to five key questions relative to the company’s ability to be able to successfully develop for commercialisation a new product, process, service, marketing or management methodology.
There is a due diligence test requirement that we can conduct to ascertain whether the company meets the requirements for an Early Stage Innovation Company.
The government developed this type of company status to assist young companies to be able to attract investors.
The attraction for investors is that they receive a tax rebate calculated at 20% of their investment in the company with a maximum rebate of $200,000 for sophisticated investors (people with a net worth the $2.5 million or who have earned income of $250,000 in each of the last two years and who produce an Accountant’s Certificate that this information is correct).
If the investors retain their shares for more than 12 months and less than 10 years they do not have a liability for Capital Gains Tax when the shares are sold. If the shares are held for more than 10 years, the cost price of the shares can be revalued in the tenth year, to reflect a higher new cost price.
These benefits make an Early Stage Innovation Company very attractive for investors who have a keen interest in emerging companies which have been involved in the development of new technologies.
3. Crowd Sourced Funding Equity Raising
A private company, with a turnover less than $25,000,000 and gross value of assets less than $25,000,000, could consider the requirements for eligibility as a company that can seek to raise capital from the public as a Crowd Sourced Funding Equity Raising Company. These companies are able to raise up to $5,000,000, in a 12 month period, and can return to the market to raise a further $5,000,000 in the following year – subject to market support of course – if they wish.
We can guide you through this process and inform you of the roles and responsibilities of the Crowd Sourced Funding Intermediaries and assist you in the preparation of the documentation, primarily the Crowd Sourced Funding Offer Document, which is based on the company’s Business Plan, Budgets and Cashflow Forecasts.
If you are interested in having a discussion with us about any of these capital raising opportunities for companies, even if you are currently not incorporated as a company, please do not hesitate to contact us
Charge Out Rate Calculations
Tradies’ Manufacturing Businesses
Now is a good time to review the charge out rates that you are using within your business. The key requirements for establishing charge out rates for your team which will generate your targeted profit for the year include:
• Team member classification showing wages, working hours, holidays and other special leave and the productivity that you can reasonably expect.
• The markup that you intend to charge (if any) on materials that you have purchased on behalf of clients for installation on the client’s premises.
• The business’ overhead costs for the 12 month period.
• You can then indicate what your desired profit is for the year – this is normally based on the value of the business.
These factors are then brought together within a spreadsheet to determine appropriate charge out rates to be used based on the estimate of working hours, labour costs, productivity, mark-ups on external purchases and overhead costs to determine whether this mix of various factors will generate the targeted profit for the year.
Professional Services Firm
A similar approach is also taken for the determination of appropriate components of professional charge out rates.
Professional firms also relate to productivity being achieved by the individual team members.
In some professional firms there will not be the mark-up on materials purchased for clients.
The combination of estimated working hours, salaries, productivity, overhead costs are then factored into a spreadsheet to determine individual classification charge out rates that, when applied to the productive hours estimate for each person, will generate the targeted profit for the professional firm.
Retail Businesses
Retail businesses are not “selling labour hours” even though labour is a key cost in operating a retail business.
The key factor within a retail business is the “product mix” which comprises various types of stock that has variable potential units of sale and invariably significant different mark-up rates which can apply to those individual types of stock.
The business’ overhead costs and labour costs need to be budgeted for the year based on the anticipated level of sales.
We can then utilise our calculator to prepare an analysis on various levels of the stock mix over a range of products and mark-up percentages to determine one or more combinations which will generate the targeted profit for the retail business.
This type of approach gives the manager, responsible for an individual retail business, a guide to the type of product mix that they should be trying to generate so that the business will earn the targeted profit.
Business Review Meetings
A business review meeting is a worthwhile investment for a business to make to enable a full review to be undertaken of a business’ performance. This type of meeting is preferably held each month or quarter.
The leadership team should be the key participants in the business review meeting and each of them should have prepared a report on the “portfolio responsibilities” that they have in the business so that their peers can be informed and ask questions, if they wish. It is very desirable that an accurate set of financial accounts is prepared for each business activity so that the Profit and Loss Account and Key Performance Indicator Report for each business activity is available for review.
This process enables an evaluation of the performance within tradie, manufacturing and professional services businesses for which a charge out rate has been established to see whether those charge out rates, together with the productivity being achieved, has generated the targeted profit.
Retailers will benefit from analysing financial accounts to be able to judge the effectiveness of the manipulation of the product mix and charge out rates as part of the challenge of trying to achieve a targeted profit for the business. Other matters which can be considered at the business review meeting include:
• Cashflow Position – what has caused any variance?
• Projected cashflow position for the months ahead – is there a need to consult with the bank now?
• Debtors’ Aged Analysis and, in particular, what is the debtors’ days outstanding figure?
• How is the business performing, as compared to the vision included within the Business Plan?
MIHC Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

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