The three best ways to get prepared for tax time
Tax time! It’s enough to strike fear into the heart of any business owner. Yet it doesn’t need to be that way. By setting aside dedicated time a few months out from the end of the financial year you’ll be in a much better position and have your business ready for tax time.
I’ve set out three ways for you to get your business prepared for the end of the financial year.
1. Up to date bookkeeping
In an ideal world your bookkeeping would always be up to date. Realistically few business owners have a perfect set of books all the time.
Take time now to get your bookkeeping up to date as this will allow you to make better decision before the end of the financial year.
Also consider why you haven’t been able up to keep your bookkeeping up to date. Was it simply a case of being away on holiday or is there something else needs to be improved to make your bookkeeping easier? Is it time to stop doing your accounts on the weekend and hire someone to do your bookkeeping for you? Is the way you send your invoices and receipts to your bookkeeping taking up too much time and you need an easier system?
By taking the time to step back from your business you’ll make it easier to run in the long term.
2. Estimate income and expenses for the rest of the financial year
Do you set your budget in stone at the start of the financial year? Or is your budget a living document that you constantly update?
If you prefer the “set in stone” approach, it’s worthwhile reviewing your budget at least once during the year. Is it still realistic? Is your income on track or is it likely to be higher or lower than expected? Are your expenses accurate? Or have you added new expenses or taken some expenses away?
Having an up-to-date budget will help you to manage your tax during your financial year, rather than waiting until it’s too late and potentially getting an unpleasant surprise at tax time
If you don’t yet have a business budget, then read this blog post: “6 steps to easily create your business budget”.
3. Review cashflow
It’s a good idea to review your cashflow a few months before the end of the financial year. Knowing exactly what your cashflow is will help you when considering if there are any decisions that you need to make before the end of the financial year.
The kinds of decision you could be considering are:
· Do you have any purchases to make before the end of the year? For example, do you want to replace your laptop that takes an age to start up each morning?
· If business profit is less than expected, are there any purchases you need to delay? Or are there purchases that could be spread out over a number of months? For example, if you’d planned on paying in full for your new laptop but your cashflow isn’t sufficient you could finance the purchase to spread the payments.
· Would you like to pay an employee bonus this year? Do you have the funds available to do this and at what level?
· Do you want to increase salaries this year or shortly after the new financial year begins? What level of cash reserves will you need to make this happen?
· What are the amounts you’ll need to pay for employee superannuation in the new financial year? Can any of those payments be made in the current financial year? Payments for employee superannuation are deductible when they’re paid so it could be useful to pay them before the end of the financial year and claim the deduction.
· How much do you want to put into owners' superannuation? Is that figure realistic given that you’ll still need to cover the running costs of the business?
Having your numbers up to date will mean that preparing your tax return will take less time. You’ll also be able to use those numbers to make better decisions. If your numbers aren’t current, you could end up making decisions that affect your business negativity in the long term.
If you want your business to be better prepared for tax time, and need support to get you there, book a 20-minute call with me to discuss how I can provide that support for you. Book your call BELOW.