Why Small Business Owners Should Make And Keep These New Year's Tax Resolutions
OK, so doing taxes doesn’t blow everyone’s hair back, especially if you’re a small business owner with more exciting stuff to do. But the reality is if you don’t keep your books in order, you’re just making life difficult for yourself -- and potentially costing you more.
Prosperity Advisers Group business services and taxation director Siobhan Sellick said small business owners should be making strict New Year’s resolutions about their financial situation and, unlike the usual pledges to quit the ciggies and jog more often, really stick to them.
Here are a few promises small business owners should start to keep.
1. I promise to be nice to the tax man Tax -- it’s a dirty word, but ignoring it can be very costly. Sellick said the biggest issue small business owners faced was not having enough cash to pay their tax bill -- because they spent it.
“So the cash comes in the door and business owners forget to plan for the fact that it isn’t their cash, so they utilise that money for other business expenses and forget about the tax debt,” she told The Huffington Post Australia.
“Then the quarter rolls around and they don’t have the cash to pay it so they have to go on a payment plan. The worst creditor you can have is the Tax Office. So this concept of paying all your other creditors and leaving your tax to the last is probably the worst strategy you can employ.”
Sellick said the best way around this was to regularly set aside a portion of your revenue.
“As soon as the GST hits your books, put it away in another account,” she said. “You can’t think of it as your money.”
2. I will keep a closer eye on my cashflow According to a report commissioned by Prosperity last year cashflow was the number one concern for small business.
But, just like the contraband cookie jar, often owners were their own worst enemy because they dipped into the business account whenever they wanted, Sellick said.
“Business owners find it difficult to separate business from personal, so even if they are operating through a company they think of that money as their own rather than the business’s,” she said.
“So you get into this cycle of thinking this way and guess what happens? You run into cashflow difficulties.”
Sellick said to start treating yourself as an employee and pay yourself a wage. That way you could budget your own expenditure without lifting from the business.
Siobhan Sellick says now is the time to shed bad business habits.
3. I resolve to make a strategy and stick to it Many small businesses get off the ground without in-depth strategy for the future -- almost like a health kick that suffers a swift death around February. The Prosperity report revealed only 23 percent of small to medium firms had a business plan and only 26 percent actively spent time thinking about where their business was headed.
Sellick said a business plan didn’t need to be War and Peace.
“There can’t be too much planning, but it’s not about having a 90-page document about what your business is going to do and what you want to achieve, it’s really a short-form budget of what your plans are for the short, medium and long term point of review, and reviewing that regularly,” she said.
A broader strategy about where the business is headed should be reviewed every 12 months, but shorter-term goals mean you need a cashflow and revenue budget which should be revisited as often as every week.
“It’s just a critical part of any success for a small business,” Sellick said. “Owners are all getting to the lull of the Christmas and NY period where if you haven’t checked in on your cashflow budget they seem to come unstuck.”
4. I pledge to make accounting technology my new BFF It’s much easier to check in with your finances on a weekly basis with new and affordable technology. The cloud is here, people. And it’s here to stay.
Every client with Sellick’s firm is linked up to a cloud accounting system including Xero or Myob Online because it offers greater flexibility, accountability and data about your business at your fingertips.
And if you’re not moving up into the cloud and understanding how it can work to help your business, you’re going to become a dinosaur.
“If you don’t do it, you will be left behind, especially for small business it is so critical to have that information regularly to know how you’re doing,” Sellick said.
“And many of those who have already moved on to cloud accounting are not utilising the benefits that come with that. You can get it on your phone on the go, you can have all these add-on functionalities that can give you some really snapshot data of how your business is doing.”
There are also a myriad of smartphone apps to help with your invoicing, stock control and even reminders to ensure you’re stashing enough cash for tax time.
Always pay the tax man first to avoid dangerously low cashflow levels -- and undue stress.
5. I will ask for help even when I don’t want to According to the report, 61 percent of small business owners had a trusted professional adviser, whether it was an accountant who helped to monitor operations and complete BAS and tax returns or a business advisor.
Just like telling a friend when you’re on a weight loss program so they’ll make you accountable, a paid professional can help keep small business owners on their toes in terms of tax, compliance, cashflow and strategy.
And if you don’t want to do your own bookkeeping -- outsource it.
“You don’t have to do it all on your own and this is where you get your accountant involved,” said Sellick.
“Any good business advisor should be monitoring your operations on a regular basis anyway and that’s a benefit of cloud accounting, to be proactive. There is a cost involved with having a business advisor but you’ve got to incur that cost to generate the value that you need to make sure you sustain your business.”