You probably know how important it is to maintain your net tangible asset or NTA for short, and the current ratio for your maximum allowable revenue each year.
Your NTA refers to your business’s working capital position, considering your total assets and liabilities.
The QBCC sets a limit on the annual revenue a licensee can earn based on its NTA and current ratio to ensure its working capital is sufficient to be financially sustainable.
The current ratio measures the amount of current assets in relation to your current liabilities. At a minimum, you must maintain a current ratio of 1:1, meaning for every dollar of current liabilities, you must have at least a dollar of current assets. This includes debtors, work in progress, and cash.
Why track your QBCC NTA and Current Ratio?
Find out more in the 5th video in our KPIs for Tradies video series with Connor Holliday from Elements Advisory Group.
Annual reporting is an important QBCC compliance requirement to check a trade business’s financial strength. So it goes without saying that tracking your NTA trends and current ratio is critically important to your business.
Of course, with a bigger NTA, your maximum allowable revenue also increases. So it’s important that you track your NTA trends to see opportunities and set strategies to improve your maximum allowable revenue in the future years.
It is also helpful to review these metrics monthly and forecast your business performance in the coming year. This will identify any shortfalls in the NTA and current ratio so you can address them well in advance of 30 June.
As always, Elements Advisory Group is here to help you stay compliant with the QBCC and improve your maximum allowable revenue over the years. Reach out to anyone in the Elements Advisory Group team for assistance. Email us at firstname.lastname@example.org or give us a call at 07 3878 9181.