Stop working for the tax office; start working for you
Do you ever feel like you’re working for the Australian Tax Office, instead of for yourself? Does your bank account empty every time a tax bill arrives?
You’re not alone. Thousands of Australian small business operators feel the same. Just when you get a small nest egg saved up and the bank account starts to look healthy, it all disappears in GST, with your Business Activity Statement, or in income tax.
It doesn’t have to be this way.
So, what’s the secret? It’s actually devastatingly simple: planning and budgeting.
Here are the top five mistakes small businesses make and how to fix them so you don’t feel like you’re forever in debt to the taxman.
Mistake 1: Not budgeting for tax
It’s far better to put the money aside as it comes in than it is to scramble around trying to find it once the tax bill arrives. Whether it’s GST, BAS or income tax, there’s one thing you can bank on — the bills will arrive regularly. It’s important to budget correctly and put the money aside, in a separate bank account if necessary, to make sure it’s there when the taxman comes knocking.
Mistake 2: Having no idea of your liability
It’s one thing to plan and put money aside, but it’s essential to make sure you’re putting aside the correct amount. No one wants to find themselves scrambling around for an extra couple of thousand dollars to make up for a shortfall.
Mistake 3: Not watching your numbers
Business booming? That’s great. But don’t forget this will affect your tax liability. Pay close attention to your revenue and top up the amount you’re saving for tax to make sure you have enough when tax time arrives. It’s surprising how often people forget this and get a shock when the ATO demands far more than they’d expected.
Mistake 4: The interest and fines trap
Paying the tax office feels expensive enough, without adding fines and interest onto your debt. If you have made no provision to pay the ATO, or haven’t kept your tax affairs up-to-date, you might suddenly find you owe a great deal of money to the taxman. If you’re late paying tax, the ATO will not only fine you, they will charge you interest on your debt — which means you’ll forever feel like you’re falling behind.
Mistake 5: Not knowing when your payments are due
Know how often your tax liability comes due. Is it monthly? Quarterly? Annually? Missing one payment can set off a chain of events that will leave you feeling like you’re never going to get out from under a mountain of debt. Six months’ BAS is harder to find than three months’, without the added fines and interest that accrue on top of it. It can feel absolutely crushing.
How to regain control of your tax life
If you’re managing your business’s finances yourself, consider getting a bookkeeper or accountant to manage your financial affairs instead. There’s a cost involved but it’s really an investment in your financial security. Giving oversight of your accounts to a professional means you won’t fall behind on your tax obligations ever again.
Another option is to seize real control of your finances yourself. With the right software and an investment of time and effort, you can absolutely get your tax life back on track. Set aside time each month to review your finances properly. Consider enrolling in a course to help improve your financial management skills to ensure you’re getting your tax right. And get the right software in place to ensure you’re budgeting correctly.
For help organising your finances and budgeting for your tax liability correctly, consider Reep. Reep provides online cash flow budgeting, forecasting and scenario planning software for small businesses.