Tax. The three-letter word that is not incredibly exciting and probably creates a sense of dread above everything else. Unfortunately, as one renowned politician once said, tax and death are the only things in life that remain constant.
Starting a new business can be exciting and exhilarating both on a professional and personal level. While it’s a new milestone in your life, challenges do exist and one of the most common problem faced by business owners, is the proper setup, administration and ongoing management of your finances and business accounts.
Building a business is hard work. Successfully maintaining it’s growth is another challenge altogether. As a business owner, running a business is incredibly overwhelming especially when you’re expected to be competent across all areas of operations.
Operating a small business can be a challenge, but one of the biggest difficulties is making the most out of your valuable resources: time, skills and knowledge. As experienced professionals in small business consulting, we often see business owners working harder and longer, but still failing to achieve their business goals and objectives.
Following on from our “Half Time” coach’s Pep-Talk in our December blog, here are some suggestions for you to make the most of January 2019:
Over the holiday break – or as soon as you get back to work with your team, ask yourself these four simple questions:
What worked well over the last six months?
What didn’t work so well over the last six months?
What have we learned?
What is the focus?
The 3rd quarter (January to March) is very important from a business-owners perspective because you will have a number of issues to deal with, namely:
Post-holiday lag – where everybody takes a while to settle back in and you may unconsciously slow down and under-achieve;
This post-holiday lag includes your customers – so you may be struggling for orders from them as well – which may adversely affect your cash flow;
Big Tax bills coming up in February and April (the December BAS isn’t due till the end of February…and the 2018 income tax bill is due in April, along with the 2019 PAYG quarterly tax in advance is also due in April, plus if you are paying your employee tax monthly…you’ll have one due in January, and March too;
On top of all that, you may have spent big over Christmas, and taken the family on holiday.
All of this will come home to roost in February, and you may still be struggling with the cash flow hit when the April tax bills come along.
The only antidote to this post-holiday lag is FOCUS.
Concentrate on doing what you did well in the six months prior – maximise your efforts in this area
Fix whatever isn’t working well – or put a plan in place to fix it asap
Use what you have learned, to plan ahead and not repeat the same mistakes next year
Focus on the most important things first, such as:
Finishing any work in progress (so you can invoice it)
Chasing up quotes (so you can invoice them)
Hitting up new leads – and planning the workflow for the coming six months (so you can onboard the clients and invoice them)
Working out how much tax you have to pay…and when it is due
Shoring up the cash flow
That last point is a doozy. We try to get as many tax returns done as possible by Christmas time, so you know what tax bills you have coming up (both the 2018 tax bill and the likely PAYG due in February and April). If you haven’t had your tax returns done yet, hurry up – so you can put the money away…or talk to the bank to get some help. Prior planning always helps you get the loan. Don’t leave it until the problem lands on your lap to call the bank.
Utilise your team to help you with the first 3 points, you may need some help from your accountant to work out the tax and cash flow planning side of things. Get into it early…you will give yourself a much better chance of success.
Don’t slow down and under-achieve, just because it is quiet at the moment.
You will be surprised to know that it doesn’t matter whether you are self-employed, work for wages or running a not-for-profit organisation when it comes to being selected for investigation by the ATO.
Occasionally, the ATO will target a specific group, but only if they find out that there is something dodgy about a particular segment – like FIFO workers claiming taxis to the airport or business owners not declaring cash etc. But on the whole, the ATO doesn’t bother anybody unless they look like they are doing something unusual. What is unusual? Well:
Lodging your returns late all the time. This is a big indicator that you’re not well organised, and you don’t mind flouting the law…so you’ll be on the top of their list.
Paying your tax late is nowhere near as bad as not lodging to start with. The ATO is usually quite happy to do a payment arrangement, provided you lodge on time, and YOU call THEM to put a payment arrangement in place BEFORE the due date. Capeesh???
Having said that, the ATO doesn’t like to be used as a bank. So asking for payment arrangement after payment arrangement wears a bit thin. It shows that you aren’t putting the tax money away (and let’s face it…it isn’t your money) so don’t use it for other stuff.
The ATO takes the view that most of the tax agents and the population at large are “doing the right thing”. They know this because they have years of historical data that they can look back on to compare to what you are lodging…and as long as you are “within cooee” of what everybody else in your industry is doing…then you are pretty safe.
Lodge on time, every time
Pay on time, but if you can’t…advise the ATO early (or through your tax agent) so you can put a payment arrangement in place.
Most of all, put the tax money away so you aren’t tempted to spend it. Talk to your own tax agent – I use this simple rule-of-thumb: If you are a partnership or sole-trader, with no employees…and registered for GST…you should be putting at least 25% of what you bank away to cover your GST and income tax. If your business has employees, you need to put at least 35% of what you bank away – to cover GST, your tax…and your employees’ tax. Note – I’m talking about what hits the bank…not the ex-GST invoice total. Don’t forget about superannuation on top of this too.
The 10% GST is not your money…and the PAYG deducted from your employees’ wages is not your money. Superannuation is a pay-rise that was diverted to super instead…so it is also not your money. Don’t mess with it. Get it as far away from you as possible, then you won’t be tempted.
Operate your financial affairs according to accepted norms. If you come across a friend or a tax agent that is promising something that sounds almost too good to be true – it usually is. There is no such thing as a free ride these days, so don’t get sucked in by somebody that tells you they have a scheme that results in you paying really low levels of tax. These people are usually nowhere to be seen if you get “pinged” by the ATO.
Work Christmas Party – beware the Tax Man! There are no separate rules when it comes to Christmas parties – and if you provide events, food, drink and gifts for free to your associates, employees or their spouses – you may end up paying Fringe Benefits Tax (FBT) on it. To be exempt from FBT:
Christmas is almost upon us – which from an accountant’s perspective – means we are half-way through the financial year. Now is a great time to have a mid-year check-in and review your performance to-date. This is not just financial performance – you should have non-financial goals in mind too.