You’ve probably heard the saying: Cash Is King. It’s also an undisputed fact. Understanding the financial position on your business on any given day is not only smart, but might save your business from financial ruin. Having cash will help you pay bills, grow your business and also meet your tax and superannuation obligations as an employer. Managing your cash flow will also help you plan for the future.
Tax is a business expense that can be reduced when it is managed properly. It’s best to be organised rather than reactive. Tax planning strategies not only help you plan to reduce your obligations, but helps you save over-paying, as well as taking advantage of government schemes designed to help businesses grow.
As a business owner, you’re busy with the day to day running of your business, let alone adding in GST, PAYG, company taxes, fringe benefits tax and personal income tax into the mix. Understanding your real-time cash position, ability to indentify fluctuations, plan for tax payments and major expenses will keep your business running smoothly.
Time
A good cash flow plan incorporates your annual projected income and expenses, but it can also cover smaller periods of time. There are no strict rules governing time. As your business grows and changes, you’ll need to track and change your cash flow. Watch out for differences between your budgeted amounts and actual results. Once you have an idea of your regular weeks and months, you can include seasonal changes and patterns, as well as one-off events in your budget. Don’t forget to factor in differences in cash-to-cash cycles, or if you buy and sell on credit
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Costs Of Business
The cost of doing business can be categories into fixed and variable expenses. Fixed costs are expenses such as rent, mortgage payments, insurances, property taxes, interest expenses and depreciation. You’ll need to pay these expenses regardless of sales.
Variable costs depend on sales and will vary in proportion. They will rise as production increases and fall with any decreases. Examples of variable costs include raw materials, shipping expenses, direct labour costs and utility costs. You’ll also need to factor in the increase in GST you may have to pay on materials, as well as labour costs with these increases.
When you’re just starting out, it’s worth your while estimating your expected income and tracking your cash flow regularly to keep track of shifting expenses. When you’ve been running your business for a while, you will get a better idea of the fluctuations and seasonal changes that may affect your sales and costs.
Taxes And Planning
Planning to pay your taxes will help you manage your cash flow, especially when it comes to lodging your Business Activity Statements (BAS) and claiming your Goods and Services (GST) credits. You’ll need to be aware of the types of taxes you will be obligated to pay as well as estimate how much they will work out to be. It’s best not to leave these expenses until the last minute. Planning will help you set aside money in order to meet that obligation when it comes at tax time, as well as work out ways in which you can minimise these costs.
There are many types of taxation that your business will be obligated to pay:
- Company tax
- Capital gains tax (CGT)
- Fringe benefits tax (FBT)
- Pay As You Go Withholding (PAYG)
- Goods And Services Tax (GST)
- Fuel tax credits
- Wine equalisation tax
- Luxury car tax
- Payroll tax
- Land tax
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Record Keeping
Don’t forget, under tax law, you can only claim tax deductions if you have the record to prove it. Keeping on top of your cash flow will help you keep on top of your record keeping, receipts and tax invoices which will help you reduce your expenses. The Australian Taxation Office (ATO) can also ask to see your business records for up to 5 years if you’re audited, so a good software accounting package is a must.
When it comes to planning for tax, it’s important to set systems up that can be performed throughout the year. A tax advisor will look at your businesses cash flow and set up strategies to ensure you’re minimising the taxes you’re obligated to pay, and also make sure you’ll have enough in your bank account to cover your tax bill.
Some of the ways in which a business may minimise taxes include:
- Maximising tax deductions
- Prepaying some expenses
- Taking advantage of depreciation measures
- Expensing items
- Reviewing and postponing invoices
- Using your superannuation fund and making extra contributions
- Reviewing debtors and writing off debts
- Deducting start-up costs
- Bringing forward invoicing
- Purchasing equipment instead of leasing
- Claiming tax losses
- Accounting on a cash versus accrual basis
- Setting up a new business structure
- Making sure you’ve accepted all eligible government schemes made available during the year
What Will A Tax Accountant Do To Help Me Plan?
A tax accountant will offer feedback and insight into your current financial state as well as review your year-to-year performance compared to previous years. They will offer advice on trends, earmark areas for improvement, and also offer advice about how you might restructure your business to reduce costs.
They will help you understand your business profits and losses as well as projected profits and losses and help you prepare for these projections. They will also offer ways you can implement any changes that may need to be made. The ways in which your business can plan for and reduce tax are unique. It’s not a one size fits all strategy.
The ATO states that you and your business have the right to plan and reduce the taxes you’re obligated to pay. So much so, that hiring a consultant or a bookkeeper, as well as the costs of managing your taxation affairs is a relevant tax deduction. Not only do you get expert advice that saves you time and money, it’s also an effective tax planning strategy.
ITP Accounting Professional will help you understand the ways you and your business can reduce tax and well as offer insight and a greater level of surety to implement strategies to place you in a better and healthy financial position. Call 1800 367 487 and chat with a friendly professional today.