Did you find tax time a bit of a struggle? Would you like to make things a little easier next time round? 30 June 2020 is a long way off, but there are things you can start doing now that will make all the difference when tax time rolls around again. Here are our top picks to get your financial year off to a great start.
1. Use a good filing system for your financial records.
We’re all probably aware by now that accountants dread clients that keep their receipts in a shoebox, whether it’s proverbial or an actual shoebox. But it’s not just your receipts that need to be well filed. Make tax time easier on your accountant and yourself by setting up a good filing system for all your financial records now.
There are lots of systems to choose from, but all good record-keeping methods have the following in common:
a) All files for a single financial year are kept in their own folder — labelled something like ‘FY 2019-20’. It doesn’t matter whether it’s a physical folder or a digital folder, as long as you can easily file and access your records when needed. You also need to be able to easily share your records with your tax agent.
b) Records are grouped according to type. Examples of useful groupings include:
- Financial reports (e.g. balance sheet, accounts receivable, accounts payable)
- Bank statements (including interest statements)
- Receipts from cash purchases
- Invoices from online purchases
- Utility bills
- Receipts from donations
- Insurance documentation
- Motor vehicle records (e.g. log book and travel diary — start this as soon as possible you’ve got all the data you need)
- Asset register
- Inventory records
- Superannuation records (for you and your employees)
- Investment documentation
- Business activity statement (BAS) and PAYG documentation
- Documentation for any memberships or subscriptions
2. Open a high-interest bank account where you can keep funds for tax-related expenses
Tax time can hit small business bank accounts hard. You can lessen the blow though if you set tax funds aside on a regular basis. For instance, you can regularly transfer funds for super, GST and PAYG payments into your high-interest account so you can be sure you have the required funds available at tax time and still increase their value during the year.
3. Schedule ‘account-keeping’ time into your diary
You can make tax time much easier if you keep on top of your accounting tasks throughout the year rather than leaving them all to the last minute. We recommend you set aside a couple of hours each week to update your accounts and a few hours a month to review your accounts payable and receivable, inventory and payroll.
We also recommend you set aside another few hours each month to prepare and analyse budget and cash flow forecasts. These activities can enable you to better manage your working capital and leverage your assets.
4. Invest in software that enables you to generate running reports on your business’s performance
There are a range of financial ‘tools’ that can help you manage, maintain and grow your business. Examples include:
You can generate and track these values and reports (and more) using a basic spreadsheet program, or you can use accounting software, such as Xero, that will do it for you. The former requires a greater investment of time (to set up templates etc.) and the latter requires a greater investment of funds.
Regardless of the software you choose, make no mistake, the right software can make a huge difference to the way you run your business and how successful it is. And the right software can make a huge impact on the speed and accuracy with which you complete your tax obligations.
5. Take steps to improve the way you manage your business cash flow
Managing your cash flow throughout the year is a great way of reducing hassle and stress at tax time, particularly if you’re likely to end up having to pay tax once you submit your tax return (you’ll need sufficient cash flow to pay your tax fee). Yet managing cash flow continues to be one of the top challenges for small and medium businesses in Australia.
Here are some great ways of managing your cash flow and working capital:
- Negotiate better credit terms with your customers
- Collect late payments and do so efficiently
- Improve your balance sheet
- Sell unpaid invoices