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In line with common practice in the payment industry, Afterpay uses a tool called a reserve with some merchants in order to help customers and merchants use our platform safely and securely.&nbsp;

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Afterpay currently uses two different mechanisms to hold a reserve when required;<ul><li>a fixed, upfront amount provided at the time of initial onboarding.</li><li>a “rolling reserve”, where a percentage of each transaction is held in a reserve and released on a rolling basis.</li></ul>

We may apply reserves if, for example, a merchant takes pre-payment for goods or services delivered at a future date, sells goods or services more prone to disputes, or based on the tenure of the merchant on our platform, among other factors.These funds always belong to the merchant and are only used by us if the merchant is unable to cover any amount owing under the terms of their agreement with us. If the reserve is not used, it is returned to the merchant in full.We share details about this process on our <a href="https://help.business.afterpay.com/hc/en-au/articles/4841976740377-How-does-a-reserve-work-with-settlements-" rel="noopener noreferrer" target="_blank">website</a> and in our merchant agreements, which a merchant needs to accept when onboarding. We also communicate to our merchants the general reasons for, and the terms of, any reserves, so that merchants can make informed decisions based on their own business needs.&nbsp;We know this process may at times feel frustrating for merchants, but it is one that is aimed at helping reduce risk for our customers while also providing a platform for our merchants.Our relationships with our merchants are incredibly important. Any merchant that raises a concern with us receives a response from our merchant services team in a timely manner, regardless of what the issue is or the outcome.

Why Afterpay Uses Reserves

The Federal Government’s&nbsp;<a href="https://budget.gov.au/" rel="noopener noreferrer" target="_blank" style="font-size: 20px; color: var(--color-link);">2022-23 Budget</a>&nbsp;provides support aimed at helping small businesses go digital and invest in their employees.

Keep reading to find out more about what is in this year’s Budget for your small business: 1. Deductions for investments in business technologyIf you haven’t already, now is the time to invest in technology. Small businesses with annual turnover of less than $50 million will be able to access a new bonus 20 per cent deduction for the cost of expenses and depreciating assets that support digital uptake.Eligible digital expenses include portable payment devices (such as Square hardware), ecommerce platforms, cyber security systems, subscriptions to cloud-based services and other investments.The deduction will apply to any purchases made between 7.30pm on March 29, 2022 and June 30, 2023, up to a limit of $100,000 in expenditure per year. 2. Boosting apprenticeships and investing in trainingThe Budget extends the current wage subsidy programs around apprenticeships, including introducing a new streamlined Australian Apprenticeships Incentive System.Small businesses will also be able to access a 20 per cent bonus deduction for eligible external training courses for upskilling their employees. This means that for every $100 a small business spends on external training courses for their employees, they will get a $120 tax deduction. 3. Cutting red tape and better regulationDoing your taxes and navigating business administration is set to become easier. Australia’s PAYG system will be streamlined to enhance short-term cashflow for small businesses and support the prefill of some income tax returns and activity statements.Support for small business employers to better navigate their workplace obligations is also on the way. The Government will establish a dedicated small business unit in the Fair Work Commission, and enhance and redesign the Payment Times Reporting Portal and Register. 4. Instant asset write-off extensionThe Government’s instant asset write-off scheme’s eligibility criteria will be extended to encourage business investment.The scheme has been extended until 30 June 2023, allowing businesses with annual turnover or total income less than $5 billion will be able to instantly write-off the cost of purchasing new capital items, helping businesses fund new purchases and investments in their growth. 5. Cost of living measuresIn addition to the direct benefits for small businesses, the Budget provides indirect stimulus through a number of cost of living measures.Roughly six million Australians will be eligible for a one-off payment of $250 to meet the rising cost of living pressures. Pensioners, carers, veterans, job seekers, self-funded retirees and concession card holders will be eligible for the payment which will appear in their bank accounts in April 2022. An additional one-off payment of $420 will be available for the 10 million taxpayers eligible for the Low and Middle Income Tax Offset.The cost of fuel will also be cut with the Government slashing the fuel excise in half for the next six months.

Find out more about what is in this year’s Budget for your small business.

The Federal Government’s 2022-23 Budget provides support aimed at helping small businesses go digital and invest in their employees. Find out more about what is in this year’s Budget for your small business.

2022-23 Federal Budget: Five Ways Small Businesses Can Benefit

The Federal Budget: Five ways small businesses can benefit

Your profit margin tells a story about your business’ health. Here’s how to work it out – and avoid common mistakes 

Whether you’re Amazon, Alibaba, or running an organic skincare business from your home office, you need to be clear about your profit margin at all times because it’s a fundamental indicator of business performance.

<h2>What is profit margin?</h2>Profit margin is the percentage of every dollar you keep from each sale.&nbsp;As MYOB CFO Caroline Rawlinson explains, “Profit margin is calculated by dividing your business’ net income by your revenue, then multiplying by 100.”So, in other words, if your revenue was $100,000 and the cost of your product was $70,000, then your gross profit margin would be 30 per cent.&nbsp;

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“Important investment and operational decisions should be made based on profit margins, so ensuring it is accurately calculated is vital,”

<h2>How do you monitor your profit margin?</h2>Producing a monthly profit and loss statement (a ‘P&amp;L’) is a key part of monitoring profit margins.&nbsp;Most modern accounting software packages can do this for you and are relatively inexpensive and easy to use. Or you can visit<a href="https://business.gov.au/finance/accounting/how-to-set-up-a-profit-and-loss-statement" rel="noopener noreferrer" target="_blank">&nbsp;business.gov.au</a>&nbsp;to download a template and create your own.“Take time each day to keep your records up to date so your profit and loss statement is accurate. Think about it as your daily banking – an essential administration task that must be done,” says Richard Harling, a senior retail consultant at Retail Life.

<h2>What is a good profit margin?&nbsp;</h2>In short, it depends on your industry.<a href="https://corp.vendcdn.com/Vend-Files/Vends-Retail-Benchmarks-Guide-2019.pdf" rel="noopener noreferrer" target="_blank">Vend</a>&nbsp;reports that the average Australian retailers’ gross profit margin (their profit margin before expenses) was 53.3 per cent in 2019. However, net profit margins for US retailers generally sit<a href="http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html" rel="noopener noreferrer" target="_blank">&nbsp;below 10 per cent</a>. Some US industries have much higher margins;<a href="http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html" rel="noopener noreferrer" target="_blank">&nbsp;alcoholic beverages</a>&nbsp;can command net profit margins of more than 20 per cent, while<a href="http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html" rel="noopener noreferrer" target="_blank">&nbsp;healthcare technology businesses</a>&nbsp;deliver around 13 per cent net profit margins.To find out how your profit margin is tracking against your competition, it’s helpful to find out your industry benchmark. A good place to start is with the<a href="https://www.ato.gov.au/Business/Small-business-benchmarks/" rel="noopener noreferrer" target="_blank">&nbsp;ATO’s Small Business performance check</a>.

<h2>Want to improve your profit margin?</h2>Read Afterpay Access stories about how to boost your business’ profitability and the three money mistakes small businesses often make.

<h2>And lastly, don’t make these four mistakes when it comes to calculating your profit margin...</h2>

Not having a full picture of where your money is going:&nbsp;“The most common mistake – especially for anyone new to business financials – is not including items such as depreciation and interest in expenses. This makes profit artificially high.” Rawlinson points out.&nbsp;

Not paying yourself a wage&nbsp;“Some owners don’t cost their own labour but you have to include this when calculating your overall business expenses,” Rawlinson says.

Incorrectly pricing goods and services&nbsp;“Knowing your profit margins will help you clarify what margins to place on your goods and services so you make a profit,” Harling states.

Lack of processes&nbsp;“When a business is starting out there is often a misconception that setting up proper accounting or business systems isn’t worth the time, cost or effort, but doing so is a&nbsp;great way to set it up for long term success,” Rawlinson adds.&nbsp;

Download your profit margin glossary below:

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All references to any registered trademarks are the property of their respective owners. Afterpay does not endorse or recommend any one particular supplier and the information provided is for educational purposes only.

The information in this article is general information only.&nbsp;It should not be taken as constituting professional advice.&nbsp;Afterpay is not a financial advisor.&nbsp;You should consider seeking independent legal, financial, taxation or other advice to check how the article information relates to your unique circumstances.

Afterpay is not liable for any loss causes, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly by use of this article.&nbsp;

Your profit margin tells a story about your business’ health. Here’s how to work it out – and avoid common mistakes.

How to calculate profit margin | Afterpay

How to calculate profit margin - and why it’s important 

Experts share the financial traps they see entrepreneurs and business owners fall into, time and again

Small business ownership comes with the promise of financial freedom and a better lifestyle. But, too often, poor money management can sabotage the success of even the most talented entrepreneur.With<a href="https://www.uts.edu.au/sites/default/files/Start_me_up.pdf" rel="noopener noreferrer" target="_blank">&nbsp;40 per cent</a>&nbsp;of small businesses closing within the first four years, we’ve explored three common money mistakes so you can stay on the path to growth.

<h3>Mistake 1: Cutting costs rather than increasing revenue</h3>As the saying goes, it costs money to make money, and there’s a finite limit to which expenses can be cut.So, rather than cutting costs, business owners should consider how to grow revenue.Alan Manly, an entrepreneur, company director and author of&nbsp;The Unlikely Entrepreneur,&nbsp;says that business owners need to get clear on how they will manage <a href="https://www.afterpay.com/en-AU/business/access/boosting-profitability/cashflow-management-tools" rel="noopener noreferrer" target="_blank">cash flow</a> and where their revenue will come from, early on. While retaining customers is crucial, business owners also need to focus on new prospects.&nbsp;“I’ve seen small businesses bend over backwards to serve their customers, giving more service than was required, which takes you away from serving the next customer.”Rather than reducing costs, he recommends:<ul><li>Increasing the number of customers that you’re trying to bring in the door.</li><li>Increasing the average transaction size by upselling.</li><li>Increasing the frequency of transactions per customer.</li></ul>

“I’ve seen small businesses bend over backwards to serve their customers, giving more service than was required, which takes you away from serving the next customer.”

Manly adds that bringing on an accountant or bookkeeper can bring phenomenal value to a business, he says. “Having access to actual cash flow can be priceless, because it means you can make quick decisions.”

<h2>Mistake 2: Mixing&nbsp;business and personal finances</h2>Failing to separate business and personal finances remains one of the biggest mistakes that small business owners make, experts agree. While it might seem tempting to make personal purchases from your business account or vice versa, failing to keep accounts separate will make the financial reconciliation process complicated at tax time – which can lead to higher accountants’ fees.Financial separation can also be important when trying to secure a business loan - as financiers will need a true picture of financial turnover - and it can also offer tax benefits and the ability to shield your personal assets in case the business fails.Scott Harrington, a director at William Buck Accountants &amp; Advisors, has helped hundreds of businesses with their financial affairs. “The mistake many make is seeing the business as theirs and therefore any income as theirs. But the income needs to be offset for many reasons, including tax minimisation,” Harrington says.It's a similarly common mistake for business owners to underpay themselves. "You'd be amazed at how many business owners work for their staff rather than the other way around," says Sandy Chong, the CEO of the Australian Hairdressing Council and a director of the Council of Small Business Organisations Australia. "A lot of small business owners would own less than their staff."<h2>Mistake 3: Not having a back-up funding plan</h2><a href="https://www.afterpay.com/en-AU/business/access/boosting-profitability/cashflow-management-tools" rel="noopener noreferrer" target="_blank">Cash flow</a> is vital for small businesses, and Harrington says that it’s important that business owners know where they can turn for funding during lower trading periods.He recommends that businesses set up a separate savings account, which can be used as an emergency fund if needed. Start by putting money into your emergency fund as soon as cash rolls into your business bank account. This will allow you to survive slow periods and will keep you one step ahead.Many accountants recommend that your emergency fund should cover three to six months of operating costs, depending on the business type and the potential for revenue fluctuations.And while that might not be realistic for some businesses – especially in fashion where long production cycles can tie up cash for months – even having a little up your sleeve to get you through the inevitable peaks and troughs of business will help, Harrington says.Setting up an automatic transfer that sweeps money into a separate account each time your business receives revenue is a great way to get into the habit.Harrington adds that a seasonally adjusted cashflow forecast can be a valuable roadmap for any business.“It can also be valuable to identify what can be switched off in your business for a period of time if revenues dry up. This was a valuable lesson for many last year during Covid-19,” he says.

All references to any registered trademarks are the property of their respective owners. Afterpay does not endorse or recommend any one particular supplier and the information provided is for educational purposes only.&nbsp;The information in this article is general information only.&nbsp;It should not be taken as constituting professional advice.&nbsp;Afterpay is not a financial advisor.&nbsp;You should consider seeking independent legal, financial, taxation or other advice to check how the article information relates to your unique circumstances.&nbsp;Afterpay is not liable for any loss causes, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly by use of this article.

Help grow sales at your small business by avoiding these common financial traps.

Help grow sales at your small business by avoiding these common financial traps