Welcome to the new financial year! Got all your tax done for the past year? Great! Now’s the best time to prepare your business so it’s in better shape when the next end of financial year rolls around.
First up, look at the Small Business and Jobs Package that was part of the Budget 2015 measures.
It includes tax breaks for small business, professional service deductions for start-up costs, and changes to the Fringe Benefits Tax designed to reduce red tape. Make sure you seek specific tax advice for your business.
As well as these new Budget measures, there are plenty of activities you can do to keep your business in good financial shape during the year. This will put you in a better position to weather any unplanned changes that come your way and reduce headaches at the end of financial year.
Here are some tips to consider, although keep in mind that these are provided as a general guide only and it’s important for you to seek your own financial and tax advice.
CLAIM YOUR SHARE
Most small businesses know the tax deductions they’re entitled to claim. Even so, it pays to check you’re claiming your fair share. This is especially important in light of the Budget 2015 measures.
END OF FINANCIAL YEAR DEDUCTIONS
The Australian Taxation Office (ATO) advises you can claim a tax deduction if the expenses are directly related to earning your income.
You should consider how the deduction rules apply to your business to ensure that you are claiming tax deductions correctly.
And don’t overlook expenses that have been paid for with petty cash – make sure you keep receipts – not just those that are put through your transaction accounts.
Stock taking is a big feature at end-of-financial-year time. By checking your stock on hand you can write off any lost, damaged or obsolete items to reduce your taxable income.
You can make it less of a rush by reviewing stock levels throughout the year. With time on your side, you can decide whether to dispose of old or slow-moving stock well ahead of the June 30 deadline. And if you have excess stock, you can review your procurement processes to avoid over-purchasing in the future.
Consider contacting slow-payers early in the piece, and refer bad debts to an external agency for collection. Invoice promptly and reconcile payments regularly to find and resolve any discrepancies.
Put some time into regular reconciliation of your major accounts including bank accounts, debtor’s ledger, GST, and equipment & fixed assets. For high-volume cash businesses, a daily reconciliation is essential. Plus, it’s an idea to get a person who didn’t handle the cash to do the reconciliation. This makes the process more transparent and secure.
Review your payroll system including outstanding annual leave, superannuation, and long-service leave. Make sure you’re complying with legislation such as fringe benefits tax and payroll tax. And, of course, check you’re complying with legislation regarding superannuation payments and reporting.
Here are some other activities you can schedule throughout the year to keep your finances in order – not just at the end of financial year.
The beginning of the new financial year is a good time to set financial performance targets. The previous fiscal year is fresh in your mind, so setting key performance indicators and budgets is easier. Also review your year-on-year financial statements. Key indicators such as working capital ratio and employee profitability can help you gauge how your business is performing in comparison to the previous year.
It’s important to create a contingency plan by considering critical risk factors that can impact your business beyond the end of financial year. Take into account:
- Cash flow forecasts
- Profit and loss budget
- Existing loans/debt level
- Strategic plan
- Terms of trade
- Leasing arrangements
- Sales or production targets
A key aspect of financial management is having the right software to capture and report financial activities. So assessing your IT environment regularly is important. Have you got the right financial software to capture and report on your business? If not, select a better system to suit your needs. Then take the time to ensure you enter all the data accurately and promptly. This includes transaction dates. And do it well before tax time.
With regular reviews and planning, you can reduce the pain that can surround the end of financial year and build for the future.
Looking for communication solutions for your business? Contact an Optus business specialist.