Recently, we have seen an increase in the QBCC financial reporting requirements for licence holders. Previously, licensees were only required to lodge financial information in the form of a ‘financial declaration (FD), or, ‘Minimum Financial Requirement’ (MFR) report, when applying for a licence, or, if their Net Tangible Assets (NTA) and Maximum Revenue (MR) positions had changed. Licensees are now also required to report financial information to the QBCC annually which means that they must ensure that their QBCC licence requirements are continually met. As a result, we have seen an increase in the number of licence enquiries by QBCC.
It is important that licensees ensure that they continually meet their licence financial reporting requirements particularly during this past year with the COVID-19 pandemic. During this time, the pandemic has presented many challenges to businesses such as managing cash and liquidity needs in order to maintain a healthy financial position. As the QBCC financial reporting requirements are linked with maintaining a positive net asset position on the balance sheet, licensees, need to ensure they understand their business position and licence obligations to maintain their licence and continue operations.
Financial Information Reported to QBCC
Licence holders must ensure that the annual financial information meets the key indicators lodged in their MFR report that they have previously lodged to QBCC including the MR, NTA and current ratio requirements. Additionally, if there is a change to any of the key indicators within your licence threshold, the QBCC requires that these be reported within a specific timeframe so it is important to continuously assess these requirements.
One way of identify any future impact to the key indicators is the use of a three-way cash flow forecast report. The forecast is a tool that links three financial reports – Profit and Loss, Balance Sheet and Cash Flow reports which can assist in assessing if your business is able to meet the key indicators to maintain your QBCC licence.
Key Financial Indicators to Review
The forecast can assist in measuring the following key financial indicators as part of your QBCC licence:
- Maximum Revenue (MR) – this is the maximum revenue you are permitted to derive with your licence and includes revenue received from all sources. If your revenue has or is expected to decrease, there is no requirement to lodge a new FD or MFR report. However, if your revenue has increased by more than 10% you will be required to lodge a new FD or MFR report. It is important that your MR for your licence is supported by the required NTA.
- Net Tangible Assets (NTA) – This is the total business assets (excluding intangible assets) less liabilities, as defined by QBCC. Businesses are required to hold a certain NTA in order to derive the licence MR. Some requirements around the NTA for licence holders are as follows:
- Category 1-3 licence holders must maintain their NTA as reported in their MFR report and prepare a new MFR report where their NTA has dropped by more than 30%
- Category 4-7 licence holders must maintain their NTA and report where NTA has dropped by more than 20%
- Current asset ratio is the total current assets in relation to current liabilities. This assists in determining your business financial viability. The minimum current ratio required by QBCC is 1:1 where at least $1 of current assets for each $1 of current liabilities.
When holding a QBCC licence it is important to use tools such as a cash flow forecast and business performance reports to assess whether you are meeting your licence requirements. In this current environment, it is critical to regularly review the forecast to identify any issues in meeting your licence requirements. This allows you to act early so that you can maintain the financial health of your business and continue operations.
When communicating with external parties it is important to remember that you may be required to demonstrate and illustrate how COVID-19 will impact, or already has impacted your business. Many parties require forecasting tools to show the impact on your business. This allows you to effectively use the resources available be provided with assistance.
How we can help
It’s easy for owners of SMEs to get bogged down on the micro, day-to-day operations of their business. Our Business Advisory experts can help you with Regular Business Performance Reporting (BPR). Using specific, tailored Key Performance Indicators (KPIs) and targets our team provides business owners and managers with greater insights and allows them to better understand the performance of the business and present opportunities to assist in reaching their goals.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.