The end of the financial year can be a tough time for small business owners. It requires time, energy and information that you might not have. So how can you be better prepared when tax time rolls around?
Sophia Tong is an independent advisor with Service NSW Business Connect with experience helping small businesses, start-ups and entrepreneurs. She offers 6 tips to help you manage taxes for your small business.
1. Choose the right business structure
'It's important to know what structure to operate your business in,' Sophia says. 'The more complex your structure is, the more complex the tax strategies are.'
Operating in the right business structure may also help you avoid unnecessary tax costs. So how can you get it right?
Sophia notes that 'there's no right answer.' The best structure for you depends on your needs and circumstances, such as your family situation and your priorities regarding asset protection, tax minimisation and estate planning.
Seek advice early in your business journey, including from a local accountant. If you're already running your business and unsure if you're in the right structure, a Business Connect advisor can help you explore whether restructuring is the right move.
2. Understand business tax
Sophia says it's crucial to learn the basics of your obligations to avoid confusion at tax time.
Some common things to stay on top of include:
- understanding the difference between your business activity statement and your tax return if your business is registered for GST
- meeting payroll obligations such as PAYG withholding and employee superannuation contributions if you have employees
- knowing what expenses you can claim, including deductions for motor vehicles or working from home
- keeping business and personal finances separate
- understanding industry-specific tax implications.
For online tools and learning resources about small business tax, visit the Australian Taxation Office.
3. Master your bookkeeping
Sophia notes 3 key practices to good bookkeeping:
- Start early. Be proactive about bookkeeping to make your tax preparation run more smoothly.
- Update your books regularly. Sophia generally recommends businesses update their accounts monthly, or more frequently if your business has many transactions and a lot of paperwork.
- Seek professional expertise. Sophia recommends small businesses employ a tax agent to help guide them, ensure accuracy and work through any challenges.
4. Track your finances
Using digital tools, such as accounting software, can make tracking your finances easier. When you keep them up to date with all transactions, you can see a clear picture of your profit and loss in real-time.
For businesses that are unable to access these tools, Sophia encourages using the resources you have. 'I recommend downloading your business statements as spreadsheet files from your bank account and manually tracking your finances.'
5. Have a support network
A solid support network can help reduce tax-time stress. Sophia suggests the following ideas:
- Surround yourself with people in a similar situation. For example, you can join social media groups with other business owners or listen to entrepreneurial podcasts for tips and support.
- Have a good relationship with your tax agent. Sophia says not to underestimate how well you gel with your tax agent. 'If you don't trust them or what they’re doing to benefit you, it's not going to work.' She also suggests that changing accountants can be beneficial to get a fresh perspective.
- Seek out tailored advice for your situation, through services such as Service NSW Business Connect. ‘There’s no other place that really provides free resources in terms of a business advisor, which can be expensive,’ Sophia says.
6. Remember last-minute tax wins
Staying on top of your finances throughout the year is best practice for your cash flow. However, Sophia notes some quick wins you can take closer to the end of the financial year, including:
- claiming deductions by purchasing equipment, prepaying expenses such as rent or insurance, or paying your employees’ superannuation contributions before 30 June
- encouraging your clients to pay recent invoices in the next financial year if you're in a position to wait for their payments
- doing a stocktake of your inventory before 30 June – 'the lower the value of your stock, the less tax you have to pay,' Sophia explains.
Looking to be better prepared for tax time? Find an independent advisor to discuss strategies for your small business. You can also attend events and access online resources for practical tips and industry guidance on business finances.