End of Financial Year – Is it ‘Crunch Time’ for Your Business?

The months of May and June of each year are really crunch time months for many business owners.  I am seeing evidence of this with many of the clients I work with.

End of May is generally the deadline for small businesses to submit their income tax returns for the previous year.  In other words, May 2012 was the ATO deadline for businesses that have not as yet submitted their year ending June 2011 tax returns.

The result of submitting these returns 11 months after the year they relate to is that Pay As You Go (PAYG) instalments have been paid during the year, based on their 2010 tax return, and therefore 2010 profits.  If a business had a “not-so-awesome” 2010 and therefore profits where relatively low, then the PAYG payments they would have paid to date, would be based on the business predicting a relatively similar 2011.  That would be fine, if this was the case!  But, with many businesses experiencing a much better profit in 2011 year and also 2012, it can be pretty obvious that the PAYG they “paid” towards tax is NOT going to be enough to make a big impact on the tax bill outstanding.  The result: an assessed 2011 and a business owner that has the ATO breathing down its neck to “pay-up!!”

What could be even scarier is that if 2012, which is pretty much NOW, has been better profitability wise, it’s relatively easy to see that once 2012 is assessed, the PAYG instalments paid towards that tax bill….. will also be “simply not enough”.

This has a major impact on cash flow and therefore allocation of profit to business growth, employing additional staff to keep up with customer demands, marketing campaigns and more importantly the business owner drawing out sufficient or even ANY (in some cases) take-home-wage.

So what can you do about this?

The best thing to do during the year is to action a tax saving system on a monthly basis based on profit. So if you know that 2012 has been an awesome year or if you know that even just each month has been an awesome month in terms of profit, put some money aside.  At the end of the day, we all have to pay tax and there is no getting away from that!!! Instead of waiting until you get an assessment and freaking out about the catch up game you are going to have to play as your business is more successful and earns more profit, take control of the situation.  You don’t necessarily have to pay these savings TO the tax man, put it aside in a high interest bearing savings account.

The last thing we want is for your business to be making lots of money and making lots of profit and then to go broke because you don’t have the cash flow to pay the tax man.

If you are unsure of what amount you could “save” for these tax savings, contact your accountant.  He or she will easily be able to do a quick estimate of what would be a good amount to put aside.

To your success!

 

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