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Is it Time Your Business Raised Its Prices?

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The escalating costs of running a business are undeniable. If your company has been absorbing inflation from suppliers without evaluating your current pricing for products and services, now might be the opportune moment to contemplate implementing a price increase.

As a business owner, you face an array of critical decisions daily, and one of the most daunting questions is whether or not to raise your prices. It’s a dilemma that has both financial and emotional implications. However, in today’s fast-paced and ever-changing market, understanding when to increase your prices is crucial to maintaining a healthy and sustainable business. In this blog, Impact Taxation and Financial Services will guide you through the key factors to consider when contemplating a price hike and help you make an informed decision that aligns with your business goals.

1. Cost of Goods and Services:

The first aspect to review when considering a price increase is your cost of goods and services. If your production costs have risen due to inflation, increased material prices, or labour costs, maintaining the current pricing structure may eat into your profit margins. A price adjustment can help you offset these increased expenses and maintain a healthy bottom line.

2. Competitive Analysis:

Conduct a thorough analysis of your competitors’ pricing strategies. If you find that your offerings are priced significantly lower than similar products or services in the market, it might be a sign that it’s time for an update. Be cautious not to overprice and drive customers away, but positioning yourself competitively is essential for long-term success.

3. Value Perception:

Consider the value your products or services bring to your customers. If your offerings have improved in quality, features, or benefits, your customers may be willing to pay a premium for the enhanced value. Clearly communicate these improvements to your customers to justify the price increase and show how it benefits them.

4. Customer Feedback:

Listen to your customers’ feedback and track their satisfaction levels. If customers express positive experiences and strong loyalty to your brand, they may be more accepting of a moderate price increase. Regularly engaging with customers will help you understand their expectations and provide insights into how they perceive the value of your offerings.

5. Inflation and Economic Trends:

Keep an eye on macroeconomic trends, particularly inflation rates. Inflation can impact both your business expenses and your customers’ purchasing power. Adjusting your prices to account for inflationary pressures can help maintain your profit margins while keeping your business financially resilient.

6. Profitability and Long-term Viability:

A sustainable business must be profitable in the long run. If you find that your current pricing structure is hindering your ability to invest in growth, research and development, or employee training, a price increase may be necessary to ensure the long-term viability of your business.

7. Communicate Transparently:

If you decide to raise your prices, it is vital to communicate the reasons behind the adjustment to your customers. Transparency fosters trust and strengthens your relationship with your clientele. Clearly explain the value they will receive despite the increase and assure them that you remain committed to providing top-notch products or services.

While the decision to raise prices can be nerve-wracking, it is often an essential step for businesses to thrive in a dynamic marketplace. Carefully assess your costs, market position, customer feedback, and long-term objectives before making any adjustments. At Impact Taxation and Financial Services, we understand the complexities of pricing strategies and their impact on your business. If you require further guidance on how to make informed financial decisions for your business, don’t hesitate to reach out to our team of experts.

Remember, a well-executed price increase can lead to enhanced profitability, a strengthened market position, and the ability to deliver even greater value to your customers in the future. Embrace change, stay ahead of the curve, and make decisions that will positively impact your business for years to come.

For help with planning your business strategy contact Impact Taxation & Financial Services for free no-obligation consultation today!

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    10 things you should consider before buying a property

    Are you considering buying a property? Do you know you could miss opportunities to save thousands, or tens of thousands of dollars if you don’t plan well before the purchase?

    Below are a few key considerations:

    1. How should you set up your loan structure? If you don’t have a loan offset account for a rental property, after you make extra payments directly to the loan account, you can only claim interest deduction on the remaining balance of the loan. For tax purposes, this deductible balance can’t be changed even if you redraw the overpaid amount later. A good loan structure could also help you to stabilize interest rate and speed up loan repayment by combining a standard variable loan (with an offset account) and a fix rates account.

    2. Timing of renovation. You might want to do a renovation right after you have bought the rental property. But do you know for any genuine repair & maintenance included in the renovation, you can claim an outright deduction against the rental income when the property is available for rental? If the work is done before the date when the property is available for rental, you can only claim the deduction against future capital gain when the property is sold. Depend on when you are going to sell, it could take years or up to decades before you can claim the deduction.

    3. How should you split ownership? You might want to share the property ownership with a family member. For tax purposes, the percentage of ownership is based on the legal title, regardless of who is paying more on the mortgage. If the property will give you a tax profit, you might want to allocate more
    ownership to the low-income earner to utilize the lower marginal tax rate. If it is giving you a tax loss, you might want to allocate more ownership to the high-income earner to utilize the loss. The goal is for the family to pay minimum tax together.

    4. Should you use a family trust to purchase the property? There are many pros and cons related to a family trust. The advantages include tax savings on rental profit or capital gain, asset protection and succession planning on family wealth. However, family trust can’t distribute losses. All losses are trapped in the trust to be used to offset future trust profit. Therefore, you can’t utilize any rental loss in a trust to offset other income such as salary & wages. Family trusts also attract high accounting fees on initial setup and annual fees on financial statements and tax returns. State governments also charge much higher land tax on family trusts.

    5. Will the income level change in future years for different owners? You might want to forecast the possible income for different owners to understand total tax payment / savings related to the property. This could also impact on your decision making on point 3 and 4 above.

    6. Understand when you can treat your property as main residence to receive an exemption on capital gains tax. When eligible, even if you have received rental income, you could still treat your rental property as main residence and receive the exemption. To be eligible, you will need to treat it as your main residence at the beginning. Please check out this ATO link: Treating former home as main residence.

    7. Decide whether you need to purchase a depreciation report. Most taxpayers don’t know that the depreciation on the building will need to be added back to calculate capital gains tax when the property is sold. When the property is held for more than 12 months, after applying the capital gains tax discount of 50%, it will effectively cut the tax rate by half at the time of sales. This makes depreciation deductions desirable for high income earners. However, for low-income earners it might not be ideal to claim depreciation as a rental deduction since they could be paying more on capital gains tax in the future. It could get more complicated if the property is under joint ownership between high and low income earners.

    8. You might want to consider Centrelink payments for future or existing owners. Most Centrelink payments are income and asset tested. Before attaching a rental property to a family member who is receiving, or plan to receive government benefits, you might want to check the testing thresholds first to see if the Centrelink payment will be impacted. This is also applicable when you are making distributions from a family trust to different family members.

    9. Have you considered using your SMSF (selfmanaged super fund) to make the purchase of a rental property? There are a lot of tax saving opportunities with a SMSF since the income tax rate is only 15%. And the capital gains tax rate is effectively only 10% after factoring in the 1/3 discount. The major downside with a SMSF is normally you can’t get the money out until you retire or on compassionate grounds (SMSF does have more flexibilities compared to normal retail super fund. But the choices are still very limited). It could be expensive to set up and operate a SMSF too. There are also strict legal requirements on the trustees. Penalties on incompliance could be severe. Tax law around SMSF is very complicated too. You will need to find a good tax accountant specialized in SMSF to help you to understand the structure, also do a cost-benefit analysis before setting it up.

    10. Consider internal ownership changes. For your existing rental properties, you can also consider whether you should transfer the ownership between family members, or between different business structures (this is not applicable for SMSF). You might want to do this when the income level changes with family members, or rental property changes between tax profit and loss. Before the change, you need to consider the cost of transfer including capital gains tax, stamp duty, conveyancer fees, etc. Again, a cost-benefit analysis is a must before the change.

    Last but not the least, did you combine all the above strategies and compare your choices? If you haven’t yet, how would you know that you have picked the best strategy to minimize your taxes? We can help you to factor in all considerations, compare different scenarios, also present you with a Property Prepurchase Report with all our findings to help you to make a decision. Contact us today to book in a consultation with an experienced tax accountant!

    IMPORTANT INFORMATION
    This is general advice only and does not consider your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.

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