How to beat tax debt with cashflow
CURRENT reports from the ATO suggest two things are happening: they are getting tougher on people who have not paid their tax debts, and they now have the right to hold onto the refunds of businesses for no particular reason.
You've gotta love them!
If you have a tax liability that has been outstanding for many months, you can expect to receive increasing interest from the ATO debt collectors, unless you have a payment arrangement (and stick to it!).
For people who religiously pay their fair share of tax, the idea of the Tax Department getting serious about collecting outstanding debts will probably be met with applause.
Having dealt with many small businesses over the years, I have been able to view this issue from both sides of the fence.
It is amazing the situations that people can get into (through no fault of their own) and find themselves short of cash.
Sickness, divorce and death of family members can all conspire to derail the finances of any business owner, and on the flip side, so does unexpected growth in the business.
However, in most situations, the problem is simply a failure to effectively manage the business's cashflow.
And unfortunately, to meet your tax obligations, cash is a very necessary thing.
Here's a quick list of do's and don'ts:
1. Don't buy a boat.
I have seen many situations where a business owner has used business cash to purchase a boat (or a jet ski, jet boat, motorbike, and so on…), thinking that there was an unending supply of cash.
This is rarely true, and judgement day arrives far too soon, leaving you with a depreciating asset and cranky creditors.
2. Do keep good records.
If you are a regular reader of my column, you will recognise this as a recurring theme - but it really is so important!
Without good records, you will be operating your business by looking at the bank balance, and this is notoriously unreliable.
You need to know the profit of your business at any time, and how much of the bank account balance really belongs to you.
3. Do plan.
Again, a recurring theme! We all know that unexpected events will happen, and by their nature, cannot be built into any cashflow budget or business plan. However, if you have planned for the expected results, and allowed for some contingencies, you'll be in a far better place to cope with the unexpected. You might not be the world's best planner to start off with…but practice improves performance.
Following these tips will help you maintain a healthy cashflow, which ultimately will reduce your stress levels!
If you find that you are struggling with tax debt, there are many options available to help you.
Talking to your accountant is absolutely the first step - and don't delay, the ATO's interest rates are exorbitant!