Han Solo: Kid, I've flown from one side of this galaxy to the other. I've seen a lot of strange stuff, but I've never seen anything to make me believe there's one all-powerful force controlling everything. There's no mystical energy field that controls my destiny.

Get the BASICS Right

You know what, THERE IS a mystical force that controls your business destiny.   It is called CASHFLOW.  If you don’t get a grip on how to manage it, you will be spat out of the airlock like space junk!  The reason it is mystical, is that there are several factors involved, and you need to get them all lined up to keep your stress levels down and your bank balance up.  Here are three tips to get the basics right:

1. Separate YOUR money from the money that doesn’t belong to you.  

- If you are registered for GST, you are being paid 10% extra that doesn’t belong to you.

- If you are paying wages to employees, you are withholding THEIR money to pay to the ATO for them – it doesn’t belong to you.

- If you are paying wages to employees, you will need to allow for statutory superannuation to be paid.   This is THEIR money, not yours.  It doesn’t belong to you.

- Get THEIR money away from YOUR money...or else you run the risk of using it to run your day-to-day affairs.  It is tantamount to stealing...and that is why the ATO come down hard on you, if you don’t pay it – it doesn’t belong to you.

- Don’t overthink this.   We ask all our clients to put aside a set percentage of what they bank into a separate account, to cover all of the above.  It is a very imprecise way of doing it...but it is very effective because of its simplicity.  Once the BAS or IAS is paid, you know if there is any money left over...it is yours.  Happy days!

2. Understand the levers that you need to pull to control your cashflow

- As mentioned above, you can work out a set percentage of what you bank – to cover all the tax and government payments.

- However, there are other factors, such as how quickly you get your work done, your quality control measures, how soon after the job is done do you invoice your customers and how well you have spelled out (and followed up) your payment terms.

- Use suppliers that match your payment terms – don’t give your customers 45 days to pay if you have to pay your creditors and suppliers in 30 days.

3. Plan ahead and keep yourself accountable

- Most people spend more time planning their next holiday, than they do planning the next 12 months of their business life. 

- We encourage our clients to undertake an annual planning session where they can

Set the goals for the next 12 months

Compare against industry and banking benchmarks

Set the key performance indicators (KPI) to use to achieve those goals

Work out how much you can pay yourself, how much to hold aside for tax and what your profit will be

-  Keep yourself accountable with regular meetings/updates so you know you are on track

If you want to be able to sleep better at night, it is critical that you paint a picture of what you are aiming for, put money aside for tax, plan ahead and keep yourself accountable with regular updates/meetings to review your progress against your plan. 

For more information on our Planning Session Program, contact the team at Rise.  

 

Dom Papaluca @Dompapcpa

Since 1990, Dom’s focus has been on providing proactive tax planning, accounting and strategic advice to farming and business clients in and around Perth. He has a reputation for being the ‘go-to’ guy for solving problems of tax minimisation, cashflow, succession planning, business sale/purchase, business structures and business growth strategies.