Lesson 1: How to prepare for tax time
In today’s lesson, it's all about preparation. It's time to get ready for the end of the financial year and figure out how you can get the most out of it when it arrives.
Every business is different. However, no matter if your business is a niche market stall or several commercial warehouses, tax time is something we all have in common.
But here's the thing: this time of year can be an exciting process which you can use to grow your business. This way, you can ensure that your future won't be like everyone else.
Before it kicks off however, it's crucial to know how to put your business in the best position to succeed when the end of financial year happens. That's what today's lesson is all about.
Step 1: Organise your records and your (digital) receipts
Before EOFY arrives, it's important to know where every dollar has gone over the past twelve months. The best way to do this is to collate and file your receipts and bank statements.
Daily record keeping is the easiest way to make this happen. If you start now, then EOFY will be much less stressful.
- Gather your paper receipts and organise them chronologically in a central location.
- Make sure everything matches up to keep your books clean and tidy.
- Go back through your emails for any digital receipts (you might want to make this the normal process from now on so they're easier to track).
- Start taking photos of every paper receipts so you won't lose them. MYOB's Capture app can help with this.
- Cross-check receipts with your online bank statements to line up every purchase to ensure everything makes sense. Ask yourself - Where else has your money gone? Have you rented equipment? Hired temporary staff? Have you made or received cash payments?
This may seem a little overwhelming at first. But trust us when we say if you get this all straightened out today, tomorrow will be easy. Start with one receipt at a time instead of going through all your paperwork at once.
Keeping careful track of your finances bit by bit every day will take no time at all and save you tons of hassle in the future. You'll be the master of your money and stay way ahead of your competitors!
Step 2: Become an expert in Single Touch Payroll (STP) and Business Activity Statements (BAS)
There's going to be a lot to cover in this course but we thought it would be best to put a couple of important parts right up front. This way you can get the money ball rolling for your business before it gets away from you.
SINGLE TOUCH PAYROLL
Single Touch Payroll (STP) is a government initiative that requires all employers to report payroll information to the Australian Taxation Office (ATO). It simply means businesses don’t need to complete payment summaries and group certificates at the end of financial year.
STP software automatically sends your employees’ tax and superannuation information to the ATO.
It's dead simple and saves you time and money. If you haven't already made the switch, get on board. Talk to your employees about the benefits of STP and how it can cut down on tiresome admin for everyone.
BUSINESS ACTIVITY STATEMENTS
A Business Activity Statement (BAS) is a government form that all businesses must lodge to the Australian Tax Office (ATO). It’s a summary of all the business taxes you have paid or will pay to the government during a specific period.
Most Australian businesses will lodge their BAS monthly, quarterly or annually.
A BAS outlines the amount a business pays of the following taxes:
- Goods and services tax (GST)
- Pay as you go (PAYG) income tax instalments
- Pay as you go (PAYG) tax withheld
- Fringe benefits tax (FBT) instalment
- Luxury car tax (LCT)
- Wine equalisation tax (WET)
- Fuel tax credits
- Instalment notices for GST and PAYG instalments
We'll cover more of this in a later lesson...
Step 3: ACTIVITY - Create a cash flow statement
Hey, remember how we were talking about keeping track of every dollar? We weren't joking. Now that you've (hopefully) gathered up all your receipts and expenses, it's time for you to take a good look at where your money goes and why.
Download this cash flow worksheet to get started:
Step 4: Finalise your end of year plans and outline your new budget
Now that you've estimated your current income, expenses and costs - what do you think those will be over the next year? Will they grow or stay the same?
- Figure out your goals for the rest of 2020 and the start of 2021. It doesn't matter how small they are - Hire an employee? Branch out with different stock? An awesome new coffee machine? They all have value and if you start thinking about what you want now, you can spend the rest of the year ticking them off.
- If these goals happen, how will they figure into your budget? Allow buffer areas for overspending or unexpected costs. But try to be realistic as you can.
- Where do you see your business in 2021? It might help to create a flowchart that tracks the months between now and EOFY next year. This might sound crazy to be thinking that far ahead but planning can only result in big steps, achievable goals and less surprises. So we vote yes on that one.
This process will be a worthy investment for the future. Do it this year and next year will be a breeze.
And this is just the start!
In the next lesson
We'll look at the difference between an accountant and a bookkeeper and why you might need one.