Overview

Xenon Connect’s Dividend Availability feature provides real-time insight into the maximum amount that can currently be taken out by shareholders, through dividends.

The calculation provides an up-to-date snapshot of the company’s profit reserves, after considering an estimate of corporation tax (where required) and dividends taken to date.

Corporation Tax Estimate

In order to accurately assess the profit reserves available to be taken as dividend, a corporation tax estimate in respect of the current (and potentially the previous 2 years if it has not been adjusted in Xero yet) must also be considered.

Xenon Connect’s Corporation Tax Estimate feature is able to provide a good estimate of corporation tax payable for the current and previous 2 years.

Include any/all of the 3 years’ corporation tax estimates in the dividend availability calculation by clicking on the edit icon next to the appropriate year (see image above).

The following popup will appear, which will allow you to choose one of the following options for that particular financial year:

• Include an estimate of corporation tax charge – include the automatic calculation of corporation tax for this year
• Override estimate of corporation tax charge – input your own value for corporation tax
• Don’t include an estimate of corporation tax charge – select this option if you have already provided for corporation tax for this year within Xero already – for example by recording a journal for the corporation charge

Xero Dividend Accounts

Within Xenon Connect’s Settings area, you are able to select which Xero accounts represent dividends taken. Multiple accounts can be selected as appropriate.

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The Working Capital Cycle displays how efficient the business is in dealing with its cash inflows and outflows.

It considers, on average, how long customers take to pay their invoices, how long the company takes to pay its own bills as well as how long stock remains unsold (if applicable).

Generally, a low (or even negative) number of working capital days is optimal.

A high number of working capital cycle days may indicate that the company is (or soon will be) suffering from cash flow problems.

Basis of Calculations:

Working Capital Days = Debtor Days + Stock Days – Creditor Days

Where…

Debtor Days = [ Trade Debtors (at month-end) / Sales Income (last 12 months) ] x 365

Stock Days = [ Stock Held (at month-end) / Cost of Sales (last 12 months) ] x 365

Creditor Days = [ Trade Creditors (at month-end) / Cost of Sales (last 12 months) ] x 365

Settings

The Xero accounts that contribute to the following variables in the Working Capital Cycle calculation can be added and removed in settings:

• Trade Debtors
• Stock Held
• Trade Creditors

The accounts that are created in the default chart of accounts in Xero are added automatically.

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The Business Valuation feature on the Xenon Connect allows you to keep track of the potential value of the business.

Note: It is recommended that you discuss with an expert an appropriate business valuation model to use for your particular business.

A business valuation is provided for each of the previous 6 months, based upon your choice of valuation model.

Settings

The calculation can be tailored to your own business and the industry it is in within settings.

Base the business valuation calculation on… – The business valuation for each month can be tailored based upon your choice of valuation criteria, with the options being as follows:

• Current Annual Profit (Last 12 Months) – Calculated as the sum of Profit over the last 12 months
• Average Annual Profit (Last 24 Months) – Calculated as the sum of Profit over the last 24 months / 2
• Current Annual Sales (Last 12 Months) – Calculated as the sum of Sales over the last 12 months
• Average Annual Sales (Last 24 Months) – Calculated as the sum of Sales over the last 24 months / 2
• Current Net Asset Value – Calculated Total Assets minus Total Liabilities

But disregard the following accounts… – If there are Xero account codes that you wish to disregard from the calculation, then you can add those accounts here.

For example, you may choose to disregard the Director’s Remuneration from the “Average Annual Profit (Last 24 Months)” calculation.

And then apply a multiple of… If you determine that your business has a valuation multiple of 3, for example, then you can enter “3” here. The multiplier value is applied to the valuation model chosen (e.g. based upon Sales, Net Profit or Net Assets).

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Overview

The Directors’ Loan Accounts feature on the Xenon Connect dashboard allows you to monitor the balances owed to/from the company by the directors of the company.

The reason that the loan relationship between directors and the company is important is that, where a loan account is overdrawn (i.e. the director owes money to the company), there can be adverse tax consequences for both the company and the director.

The official UK Government guidance on overdrawn directors’ loans can be found here.

Settings

Xenon Connect automatically attempts to detect Xero accounts that are set up as directors’ loans during the setup wizard.

Xero accounts can be added or removed as appropriate.

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The corporation tax estimate feature on the Xenon Connect dashboard provides a tailored and automatic estimate of corporation tax for the current and previous 2 financial years.

The estimate allows the business owner and their accountant to gain real-time insight into the business’s upcoming corporation tax liability.

The calculation behind the corporation tax estimate considers common tax adjustments required to the accounting profit (as produced by Xero) in order to reach the taxable profit (as used as a basis for the calculation of tax payable). This provides a much more accurate estimate of corporation tax payable when compared to merely multiplying the net profit by the rate of corporation tax.

Settings

It is recommended that you request that your accountant help you set up these settings.

Disallow / Addback Expenses – Xenon Connect allows you to specify income and expenditure account codes in Xero which should not be considered for the purposes of reaching a taxable profit figure for the company.

By default, the following common “add-backs” are already adjusted in settings:

• Depreciation Expense
• Entertainment – 0%

By default, the full value of income/expense accounts added here are disallowed (i.e. 100%).

If you wish to merely disallow/add back a proportion of the income/expense, then the toggle and input box allows you to specify a different percentage.

Deduct Capital Allowances in Fixed Asset Additions – This section allows you to specify the taxable treatment of the various fixed asset “cost” accounts in Xero.

The options are as follows:

• No writing down allowance available
• 18% General Pool Writing Down Allowance
• 6% Special Rate Pool Writing Down Allowance
• Custom % (by enabling the toggle) – This allows you to specify a different percentage to apply as a capital allowance/tax deduction. For example, if you wish to apply the Annual Investment Allowance to all purchases in a fixed asset account code, then you would apply a rate of 100% here.

Deduct Other Items – This section allows you to specify other Xero account codes that require further adjustment for corporation tax purposes.

Again, you are able to specify the percentage to be deducted as appropriate. Therefore, for example, you could apply the effect of enhanced R&D tax credit relief to a particular Xero account code here.

Note that any account codes added to this section are at risk of being deducted from/added back to profits twice.

Rate of Corporation Tax

Xenon Connect automatically provides the UK rate of corporation tax and any changes in the rate, to ensure that the correct rate of corporation tax is applied to the correct tax year.

Where your business’s financial year straddles the date of a change in the rate of corporation tax, then Xenon Connect applies the 2 different rates by pro rata of the taxable profits.

Corporation tax rates applied in Xenon Connect can be overridden, if required.

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• Sales Income – Total income from customers during the month
• Gross Profit – Total income minus direct costs during the month
• Net Profit – Total income minus all direct costs and overheads during the month

The chart provides a monthly breakdown for the current month and the previous 6 months, for comparison.

The post Profitability appeared first on Xenon Connect.

The score and issue count is taken from the Bookkeeping Health Check pages.

Upon being clicked, the “Review Issues” button takes you directly to the Bookkeeping Health Check pages within Xenon Connect.

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The Cash Health Check feature in Xenon Connect provides an early warning system for liquidity (cash flow) problems in your business.

The premise of the check ignores any balances owed by your customers and considers whether merely the cash held in your bank accounts is enough to pay your upcoming outgoings, on its own.

Upcoming outgoings are weighted, with more emphasis placed on the importance of being able to pay short-term outgoings (such as supplier bills, staff wages, VAT bills, etc) compared to longer-term outgoings (such as corporation tax bills, bank loans, directors’ loans, etc).

Health Indicator

The overall cash health indicator chart provides you with a percentage indication as to the health of your current cash balance.

A higher percentage figure means that your business is better equipped to withstand short-term cash flow problems.

A lower percentage figure means that the business is currently more susceptible to short-term cash flow issues.

Important: A high cash health indicator percentage does not mean that the business cannot suffer cash flow issues. No software tool can look into the future and provide such assurance.

Recent Cash Movements

The “recent cash movements” section shows whether the actual total combined bank balances have increased or decreased during the current and previous 3 months.

Current Cash Balance – This figure is the sum of all bank balances, at the current date (as per Xero). It relies on all unreconciled bank items being explained and reconciled regularly.

Upcoming Outgoings – Future outgoings (per Xero) are shown in the “Enough cash to pay?…” section. By default, the various balances reflect the current balances on the applicable liability account in Xero.

The general outgoing categories are as follows:

• Suppliers
• Net Wages
• PAYE & NIC
• Pension Contributions
• Credit Cards
• VAT Bill
• Corporation Tax (including estimated values of unrecorded future corporation tax bills)
• Loans & Other – (includes any other liability accounts).

Settings

There are various settings that can be amended to tailor the Cash Health Check further, based upon your own business.

Include? – By default, all future outgoings (liabilities) recorded in Xero are considered when comparing them against the current cash balance. However, you can choose to disregard certain categories of outgoings by disabling the “Included?” toggle for particular categories, as required.

Cash Requirement – An automatic calculation of the total value of each category of liability, taken from Xero.

Override automatic calculation – If you want to override the value for a liability category, you can do so by enabling the “Override?” toggle. For example, if you know that you pay approximately £8,000 in net wages each month, then you could override the value shown (as it will often merely show a value of nil for most of the month if using the liability shown in Xero – assuming that salaries are paid around the same time that the payroll journal is posted).

Select Accounts – Xenon Connect automatically places accounts from the default chart of accounts in Xero into a suitable outgoing category. However, if you have created additional liability account codes, then you are given the ability to choose in which outgoing category the account is placed (just as you can for any other liability accounts).

Note: Liability account codes that have been created in Xero (that do not fall within the default chart of accounts) are placed in the “Loans & Other” outgoing category at the bottom of the list by default.

Also, any liability account codes that have not been assigned to an outgoing category can be assigned to any category using the green + icon. Again, unassigned liability accounts are added to the “Loans & Other” category.

Disregard Bank Account Balances – If there are bank accounts that have been set up in Xero but should not form part of the cash in bank figure for the purposes of the Cash Health Check feature (for example, personal bank accounts), then you can disregard those bank accounts using the “Disregard the following bank accounts from the current cash balance” green + icon on the settings page.

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The Sales Tracker feature allows you to easily create automatic dynamic or manual sales targets in a flash, as well as measuring actual Xero sales figures against the targets.

Monthly Sales Chart

Actual Sales – The blue bar charts show the actual total monthly sales figures for the current and previous 4 months.

Target Sales – The green bar line shows the target sales value for the current and previous 4 months.

Hover over a chart bar or line point to view its value.

Current Month Sales Analysis

The right side of the Sales Tracker feature provides a high-level analysis of the current month’s sales progress versus target, showing the following:

• Status narrative – A motivational status update based upon actual sales progress versus target sales, and number of days remaining in month.
• Actual sales value (so far) – in currency value and also percentage of target
• Target sales – value of the sales target set for the current month
• Remaining – additional sales value required to reach the monthly target, and number of days remaining until the end of the current month
• Sales bar line – Graphical view of the actual sales progress versus target
• Time bar line – Graphical view of number of days elapsed already in current month versus total number of days in month

Creating Sales Targets

Monthly sales value targets can easily be created (either automatically or manually) by visiting the Sales Tracker section of the Xenon Connect Settings Page.

Sales Target Options

• No Target Set – Select this option if you do not wish to set any sales value targets in Xenon Connect.
• Previous Month – Base the current month’s target on the previous month’s actual value and increase/decrease it by a percentage value.
• 3 Month Average – Base the current month’s target on the average actual monthly sales value of the previous 3 months (with the ability to increase/decrease by percentage).
• 6 Month Average – Base the current month’s target on the average actual monthly sales value of the previous 6 months (with the ability to increase/decrease by percentage).
• 12 Month Average – Base the current month’s target on the average actual monthly sales value of the previous 12 months (with the ability to increase/decrease by percentage).
• Same Month, Previous Year – Base the current month’s target on the actual value of sales in the same month 1 year ago (with the ability to increase/decrease by percentage). Great for seasonal businesses looking to track their sales against their previous season’s value.
• Xero Budget Values – Pull-in monthly sales target values automatically from your budget sales figures created in Xero.
• Manual Monthly Target Value – Specify a value for target sales. The amount specified will be applied as a target for every month.

Notification – When a monthly sales target is achieved, a notification is created within Xenon Connect to inform the user.

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