“We don’t ever have enough cash flow to pay or manage taxes’’
As a Business Coach in the industry, I have heard many of my clients say that they never have enough cash flow to pay taxes. This can be a bit concerning.
Tax planning and management are important to establish business legitimacy, whether the business is small or big, every business must ensure to keep the tax man happy.
There are several reasons why businesses fail to do so. Some of which may include:
- The Lack of Funds
- Incomplete Documentation
- Confused with the process of paying Taxes
For new business owners or growing businesses, one of the most common stresses is cash flow, and one of the hardest things to manage is the Tax bill.
If you are new to the business you forget that you collect taxes for the tax man, in Australia your business is registered for Goods and Services Tax (GST).
From paying tax on your income and the income you pay your team- you will eventually notice that tax is everywhere!
This reminds me of one of the most famous quotes said by America’s founding father Benjamin Franklin:
And when the tax bill comes in every month, quarter or annually it is often one of the largest bills to pay – and the worst of it is that if you don’t pay it they shut you down!
Now, if you do not want to pile your taxes and end up losing your business, I have just one expert tip that will help your business to manage tax like a pro.
Just imagine never having to stress about Cashflow or a Tax Bill!
Mike Michalowicz in his book “Profit First’’ reminded me of the system that my Mum used to manage our household bills when I was a kid – and luckily you can steal their idea.
There is a percentage of the money you get paid that must be paid to the Tax Department. It will vary based on the size of your business, how many people you employ and the profit you make.
A simple way to go is to ask your accountant for the percentage of tax that you will have to pay when you get paid. If you don’t know yet – then start with 20%.
So let me break down my one tip into 7 simple steps so that you can create a strategy to keep the taxman happy!
Step 1 : Re-name your Current Bank Account
Let’s start with your current bank account where all your payments are collected. This stays the same, and all you have to do is give this account a nickname and call it – “Cash in’’
Step 2: Create a Secondary Bank Account
Create a second account, give it a nickname and call it, “Tax”. This is the account from which you will manage tax credits.
Step 3: Create a Third Bank Account
Create a third account and give it a nickname and call it, “Operations”. This is the account that will pay for all of your business’ financial activities that includes all of your costs and other bills.
Step 4: Identifying Direct Debits
Identify any direct debits from your current bank account and get them taken from the account you have called Operations.
Step 5: Keep Track of your Bank Account
Once a week go into your bank accounts. Look at how much money is in your “Cash In” account and transfer a percentage after discussing it with your accountant. If you don’t have a percentage then it’s always better to transfer 20% from the cash in the account into the account called Tax and the rest goes into the account called Operations. This will help you not touch the taxman’s money.
Step 6: Pay your Business Costs and Expenses.
Pay all your costs and expenses from the Operations Account. If you don’t have enough money in this account then your business is not making enough money and you need to talk and take action – a coach or your accountant should be able to help you identify what actions to take.
Step 7: Pay your Tax on Time
Pay your Tax from the Tax Account – you will now always have enough money to pay the tax bill. This means your business will have many happy days!
Using this strategy can also help you start making profit in your business immediately, but that’s a topic for another day.
If you want help setting this up then comment “help” on this post and we will reach out to you!