Is my business ready for End Of Financial Year?
In the lead up to June 30th, there are a number of steps small business owners can take to prepare themselves for this end of financial year and for the future. The first step is to ensure that all of your financial affairs are in order, which is obviously something that is often easier said than done. Check that all your finances have been reconciled and are accurate, and review your balance sheet to get on top of any possible future problems with cash flow.
Step 1
Reconcile your receivables, which will involve chasing down any outstanding payments from customers. If you can’t recover some debts and then are able to write them off as bad debts, you will be able to claim a tax deduction.
Step 2
Consider your inventory to see whether you can write off or write down the value of any stock. Review your investments—can any be sold to offset losses or have any other positive impact at tax time?
Step 3
One strategy business owners can use is to pre-pay for services and supplies in order to be able to claim a tax deduction. In fact, bringing forward tax deductible expenses and deferring income can work to reduce your taxable income for the financial year.
Step 4
When it comes to superannuation, make sure you are on top of all your superannuation obligations. You will receive a deduction for all employee superannuation obligations which you pay. As super is such a tax-effective method of investing, you may also want to look at investing your personal assets in super.
Step 5
The end of a financial year is also the ideal time to plan for the future. Develop realistic profit and loss forecasts for the next 12 months, and set business goals for the next five or ten years. Review your insurance cover—are you protected against all the risks facing your business? Do you have an effective risk management plan in place?
Step 6
If you’re in business with other people, consider developing a business succession plan. A buy/sell agreement, for example, can help ensure a smooth transition of ownership in the future.
End Of Financial Year tax minimisation mistakes
In an effort to minimise the amount of income tax they will have to pay, some businesses can fall into traps and make common mistakes. The trap business owners most regularly fall into is simply not keeping up with the changes to tax compliance. The ATO is regularly introducing changes to laws and regulations, so it’s essential you and your accountant are aware of any changes that will affect your business.
A failure to adequately prepare is another downfall for many. Keeping on top of your accounts and records right throughout the year is the best plan of attack, ensuring all your accounts are reconciled and everything is where it should be. This can take a lot of stress out of tax time and ensure that all of your reporting is entirely accurate.
Similarly, don’t leave your tax paperwork until the last minute. Get on top of it early to minimise the hassle and guarantee that you’ll get the most out of your tax return.
Other businesses fall into the trap of spending money simply to get a tax deduction. This is not the right approach to take and can lead to financial trouble in the long run. Make sure your spending is only for essential business purposes and if you can actually use it for a deduction, that’s simply an added benefit.
Reviewing your business insurance plan
Insurance cover is a vital consideration for all businesses, and the end of a financial year is the ideal time to review the insurance cover you have in place. Do you have an adequate level of cover or are there risks which you are not protected against? Could you be saving money on insurance by switching providers or by bundling two or more policies together?
It’s also possible to get a tax deduction for some forms of insurance. For example, it’s often more tax-effective to purchase insurance through your superannuation fund, so you might want to look at the possibility of moving cover to your super fund or taking out a new policy inside super.
In addition, if you have income protection insurance, if you pre-pay 12 months’ worth of premiums you can bring forward a tax deduction. As a result, you’ll have to pay less tax overall for the current financial year.
Though it can be a stressful time for some small business owners, the end of the financial year is the perfect time to review your financial situation and make plans for a successful business future. Taking the right steps at this time of year can help ensure the strong financial position of your business for many years to come.
