A small business guide to managing cash flow and planning for tax

Posted on March 07, 2022

Managing cash flow is a common challenge for small businesses. When you are busy running your business, it can seem like an administrative task that is easy to put off. Before you know it, a great month can quickly be derailed by an unexpected expense or tax bill. A healthy cash position will ensure you can stay on top of your expenses, grow your business and easily meet your tax and superannuation obligations.

Tax is an inescapable business expense, but you can reduce it with effective planning. By being organised, you can be proactive about your tax obligations rather than reactive. Effective tax planning strategies will not only reduce your tax obligations but allow you to take advantage of government incentives that can help you grow your business.

Effective cash flow management and tax planning can be the difference between your business thriving or just surviving. Tax accountants are experts in helping businesses plan for the future, and using an accountant is a tax deduction in itself!

Plan for success

You are probably familiar with the saying ‘a failure to plan is a plan to fail’. This sentiment is especially true when it comes to effective cash flow management for small businesses.

A cash flow plan is an essential tool for a successful business. Start by forecasting your income and expenses for the year ahead and track it against your actual income and expenses. As you start to build up data, you will be able to identify seasonal peaks and troughs so you can plan for them.

Costs of doing business

There are all kinds of expenses related to running a business. Some of these you will have to pay regardless of how much income you have earned. These are called fixed costs, including things like rent, insurance, interest payments and depreciation. You also have variable costs that vary depending on your productivity. These include materials, wages, shipping expenses, and GST.

Regularly managing your cash flow will help you make sure you can meet all your obligations when they are due or at least identify problems early before they become serious.

Planning for Tax

No one enjoys receiving their tax bill. However, planning ahead can take the sting out of it and ensure you have the cash available to meet your obligations. It is important to understand the types of taxes you are obligated to pay and how much each will be. They may include goods and services tax (GST), company tax, fringe benefits tax (FBT), capital gains tax (CGT), pay as you go withholding (PAYG), land tax, fuel credits tax, to name a few.

A tax advisor will implement strategies to minimise the amount of tax you pay and make sure that you have enough cash to cover your tax bill when it is due.

Ways to minimise your tax obligations include:

  • Maximising tax deductions
  • Fully utilising depreciation measures
  • Prepaying expenses
  • Making extra superannuation contributions
  • Reviewing the timing of your invoicing
  • Writing off debts
  • Ensuring you have taken advantage of government incentives and schemes

Keeping your records organised

The ATO requires business owners to keep a record of their income, expenses, and deductions for five years. Having a system in place to keep track of your tax receipts will put you ahead of the game when it comes to planning for your future tax obligations.

Under Australian Tax Law, you can only claim a deduction if you have the record to prove it. Keeping on top of your cash flow naturally leads to staying on top of your record keeping. Of course, as a business owner, you are busy managing your business, so investing in software or systems that can take of your record keeping is a wise move.

How will a tax accountant help me?

A tax accountant will provide unbiased advice on your current financial situation. They will work with you to develop strategies to help you meet your business goals, including areas for improvement, advice on restructuring, and reducing costs.

A JSA Tax Accountant will help you manage your cash flow and reduce your tax obligations. We will also help implement practical strategies to put you in a healthier financial position so your business can thrive. Call us on 8322 5088 for a friendly chat today.

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