Is your business running efficiently, or is it running off the rails? It is often said that small business owners are so busy working in the business that they don’t work on the business. But, with economic conditions softening, it is a good time to take action.
According to the ATO, simple habits like managing your cash flow effectively and apportioning your private and business expenses accurately help ensure you are running your business efficiently.
Findings from the ATO’s Small Business Random Enquiry Program show that businesses operating well and complying with their tax obligations tend to keep good records and conduct thorough reconciliation processes. They also take time to understand their tax and super obligations.
Using digital tools
In a digital world, technology helps businesses to streamline many processes and reduce overheads.
Digital tools can also increase the efficiency of your business systems, products and services and help track and manage customer data and employee records.
Introducing digital tools can support business growth. Don’t forget that some of the associated costs (such as hardware purchases and subscription fees) are tax deductible.
Good cash-flow management
Over the years, the ATO has noted effective business owners tend to use cash flow projection or budgeting tools.
With cash flow problems often the reason that small businesses fail, clear insights into your cash flow position and careful management of income and expenses is essential.
Having a good handle on your cash flow position makes it easier to meet financial commitments such as tax and employee super payments and allows you to check whether you are trading profitably, or just working to pay your bills.
Cash flow projection or budget tools can be off-the-shelf products, or talk to us about how we can work with you to use the ATO’s Cash Flow Coaching Kit.
Careful tax management
Well-run businesses also declare all their income – including cash income – in their tax returns.
Businesses omitting income by depositing it into private accounts or mortgages, or not declaring cash sales and incorrectly recording director’s fees and drawings are not on top of their tax obligations.
The same goes for failing to account correctly for private use of the business’s assets or funds.
With the ATO returning to a tougher stance after the COVID disruptions, these practices are likely to attract attention.
The ATO’s online Record Keeping Evaluation Tool can be helpful in assessing how well your business is maintaining its required business records.
Lodging paperwork on time
The ATO considers late tax returns to be an early indicator of a small business not actively engaged with the tax system and a red flag for a poorly run operation.
If your business has run off the rails a bit, it’s worth noting there is currently an tax amnesty in place (until 31 December 2023), for small businesses with overdue income tax returns, fringe benefits returns or business activity statements.
These returns and statements must have been originally due between 1 December 2019 and 28 February 2022.
Eligible businesses had an aggregated turnover of less than $10 million at the time the original lodgement was due.
Getting advice from trusted sources
Seeking professional advice is another key indicator of a well-run business and is particularly important at the moment to help navigate the uncertain business environment.
Over the years, the ATO has commented how small businesses that have regular contact with a tax professional are more likely to be reporting their tax position correctly.
The ATO itself also provides assistance and information to small businesses, including online tools such as the Employee or Contractor? tool, Tax Withheld Calculator and the Home Office Expenses Calculator.
To simplify making super contributions for your employees, check out the Super Guarantee Charge Statement and Calculator and the Small Business Superannuation Clearing House.
Properly managed small businesses seek advice from their accountant in relation to a range of issues. We can work with you to improve your business operation as a whole, not just to meet your tax obligations.
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