At Tradies Accountant we have been providing additional services to clients such as upgrading their licence category and helping resolve QBCC audits. We have found that some of the business owners are unaware of their requirements regarding holding a QBCC licence. As a trade business owner and a licence holder, you need to make sure you are compliant with all QBCC licence requirements. Explained below are the two main requirements imposed by QBCC:
The Tests
1. Current Ratio
The current ratio test will determine the solvency of a company. This test is required when turnover exceeds $600,000; however, even if your turnover is under $600,000 the QBCC can still requires you to meet the limit. The purpose of this test to ensure that the industry is not at risk by insolvent operators.
The ratio is required to be equal to or greater than 1:1. When upgrading your licence category from SC1 or SC2, you will be required to show that you meet or have greater than 1 current asset to 1 current liability. The classification of your assets on your balance sheet between current and non-current is important to perform this test.
You need to speak to a specialised adviser to make sure your business assets are accounted for properly. In our experience, clients that have attempted to supply the QBCC with self-generated reports have failed the test because of incorrect classification of assets.
Failing to meet this test will result in a show cause notice and potentially QBCC licence cancellation.
2. Net Tangible Assets (NTA)
The second test is the net tangible assets test. This is a test to show that the total business assets held less total liabilities meet the required amount specified by the QBCC for the relevant business turnover. An important issue to consider in this test is your business structure. Trading out of a family trust can cause issues with respect to this test. If this is the case, we would advise you to arrange a meeting and we can discuss your structure, QBCC requirements and how to pass the NTA test.
The QBCC provides a list of net tangible asset required to be held by a business in order to trade in the certain licence category and the maximum revenue that can be earned:
The formula for deriving level of Maximum Revenue between minimum and maximum NTA values expressed within categories 1 to 6 is:
Maximum Revenue = {[(Licensee’s NTA – c) / (d – c)] x (b – a)} + a
Understanding your risk as a QBCC licence holder is an important aspect of your risk mitigation plan. This is a complex matter and you should seek advice if you need help in this area.
What to Do from Here?
If you hold a QBCC licence, then you should have specialised advisers that work in the trade space. We have found that many general accountants are not giving trade business owners the correct advice when it comes to their licence and business performance. Being a trade business owner means your livelihood depends on being compliant with the QBCC regulations. This is one of the critical elements of your business!
At Tradies Accountant we offer quarterly review sessions. In these sessions we will review your ratios and make sure they are compliant with the QBCC regulations. Furthermore, we have specific industry benchmarks that relate to builders, painters, plumbers, and other trade industries. This means we can advise you on how you compare to your competitors. The quarterly reviews will enable you to focus on the areas that require improvement. We have demonstrated that the review process will help you improve the profitability or cash flow of your business.
If you require an MFR report or would like to have a meeting to see how we can help you improve the performance of your business, please contact us.