30 June is fast approaching and for small businesses it means tax time – if you haven’t already started, planning begins now writes Roger Mendelson, CEO, Prushka Fast Debt Recovery.
Pre – planning is key for SMEs ahead of 30 June. Many small businesses (SMEs) might delay or avoid looking at taxes until after 30 June – but as an SME what you might not realise is that by putting off tax time, you are actually missing out on the many financial advantages of getting ahead.
But what can you do to maximise tax gains and improve overall tax efficiency so close to tax time? The answer is the adoption of cohesive, coherent and cost-effective strategy that will help improve processes and ensure your business is as tax efficient and profitable as possible.
I have one golden rule when it comes to tax and that is – tax deferred is tax saved. As we know cash is king for small businesses, and deferring tax to the following year will likely be of benefit to your cash resources.
My five very simple steps for SMEs can be quickly adopted in the final few days of June. All of these steps will lead to tax savings, and ultimately improve your cash flow.
- Evaluate upcoming expenses
If you find your business has been highly profitable this financial year, prepay your expenses, including things like rent or any other significant expenses, before 30 June. This will allow your business to receive the tax deduction in 2018. Additionally, deferring billings until after 30 June will allow your business to receive the income the following year.
If you are planning on placing any orders for major business purchases, do so now, and ensure you receive the invoice prior to 30 June to pick up the expense. That way you can claim the expense now, and by negotiating deferred terms with your supplier you won’t pay until the new financial year, saving your valuable cash resource.
- Review your debts
It is important to go through your debtors’ ledger and physically write off debts that you believe are unlikely to be collected, including all debts older than six months. Writing off this amount will reduce your income in 2018 – and will likely result in a GST credit.
It is critical that you actively record the write-offs before 30 June, as this can’t be done retrospectively after June. You must make the decision that the debts are bad debts (e.g. not likely to be collected). Any money recovered by the agency will then be brought in as income in the financial year it is collected.
- Old written off debts
Go back and analyse your business debts that have been written off from your books within the last five years. Despite them being written off in your accounts, it doesn’t actually mean they are not legally owing by your defaulting customers. You have nothing to lose in referring these written-off debts to a collection agency, but only if they offer a no-recovery no-charge service. The enforceable life of debts in Australian states is usually six years from the date the debt was due for payment.
Negotiate with your suppliers for deferred payment terms. You will be surprised at how many will agree with this in order to retain your business. If their standard terms are seven days, try them out for 60 days.
- Never overlook the ATO
Don’t forget or avoid your payments to the Australian Taxation Office – this is a dangerous tactic that will come back to haunt you.
It’s important to note that it’s never too late to get your small business processes in order, but as 30 June approaches it’s the perfect time to at least do the minimum steps required to reduce your short-term tax exposure.
Roger Mendelson is CEO of Prushka Fast Debt Recovery and principal of Mendelsons National Debt Collection Lawyers.