We find that most small business owners find the step from pushing passed and going above that $2m turnover level a major hurdle with many government and legislative roadblocks getting in the way of their otherwise great growth and momentum.

From the outside, most people would look at the owner of a business which turnovers $2m per annum and consider them to be living relatively comfortably, perhaps even very well off. The truth is, in most cases that couldn’t be further from the truth. Worse than that, the current system stifles the potential for future growth, potentially jeopardising any future job creation.

Let’s look at a case scenario we recently came across.

This business currently turnovers $2.1m per annum, however after paying all direct costs, overheads and wages the business has not distributed one dollar in dividends since it incorporated 5 years ago. The owner of the business has never taken an annual salary of more than $80k per annum, however for the first 4 years of barely breaking even has been satisfied with the sales growth of the business. Other than the owners salary, the business pays approximately $700k in salary and contractor payments to employees and workers of the business. You could say it’s been a fantastic contributor to the economy.

However, not only does the business have 9.5% superannuation and a workers compensation tariff of 15% due to some claims outside the employers control, but because its turnover is now over $2m the government says it has to report and remit GST and Income Tax on the Accruals basis of accounting. This means the business must pay GST and Income Tax on any sales even if those sales haven’t been settled into their own bank account – so basically, pay the government before the business even gets the cash. Any business owner could appreciate how tight that could make things from a cash flow perspective. On top of all this, because this business has been such a good contributor to the economy, paying over $760k in wages and superannuation, the state government now gets to impose Payroll Tax (a tax on employment creation). Now this bill at the moment is quite low, but if the business is to grow any further so will this tax.

The point is, the above scenario is not uncommon and many business owners spend the first 5 years putting their blood, sweat & tears into building a business with some scale. There comes a point then where the business owner can be satisfied with where they’ve grown their business or continue to push, grow and create further employment. The above scenario is a prime example and it’s been the business owners decision to actually scale back on the level of jobs they take on because trying to push through that barrier has been a major handbrake on cash flow.

The current $2m turnover threshold is simply inefficient. Just because a business ticks over from $1,999,999 in sales to $2m doesn’t mean it can push a button and have improved cash flow. In our opinion there needs to be a review of the $2m threshold. Until then, it’s immeasurable to know exactly how many new jobs we are sacrificing.