Nearly 35% of Australia’s gross domestic profit comes from small businesses, and 44% of the workforce is employed in it.
Total businesses in Australia are nearly 877,744, out of which 93.8% (823,551) are small businesses.
The greatest challenge for a small business owner is to manage the finances. However, there is no set formula to manage the finances. If you don’t have enough experience managing it, you may get caught up in bad financial habits that can ultimately harm your business.
And there are many instances when managing taxes for your company can become daunting for you. You don’t want to face such a situation. Right?
Thankfully, you can follow some good practices to tackle this. So, if you are a small business owner in Australia finding it difficult to manage taxes and finances, you have come up at the right place. Dig deeper and let yourself fetch all the answers.
Check if your business is a small business entity – If you are operating a small business entity, you are accessible to tax concessions from the Australian taxation office. And if you want to acquire the status of a small business entity, you must have a total turnover of less than 10 million dollars.
Tax rates for small businesses – If your business has a turnover of less than 50 million US dollars, the tax rate would be 27.5%. And if you want to cap your tax rate at 27.5%, you can allocate the profits to a “bucket company.” It is the company that is set up as a beneficiary to a trust.
Why is the term “bucket” used then? Because the company sits below your trust and is eligible to pay money to reduce tax. And this, in turn, allows you to cap your tax. Now, let us tell you these capped tax rates –
If you use the bucket company for corporate tax rates, it would be 27.5%.
On the other hand, not using a bucket company can cost you a rate of 49%.
Note: A “bucket company” must be able to qualify as a “base rate” entity to get the benefit of a 27.5% tax rate. Plus, the corporate rate for the financial year 20-21 is 26% (reduced from 27.5%). It is 25% for the financial year 21-22.
A business bank account is necessary – If you are a sole trader, then legally, there is no need to have a separate account. Still, to make things easier and track your expenses, open a separate business account. If you are a small business or into a partnership or trust, it is necessary to have a separate business bank account to ease out the tax procedures.
Don’t forget a bookkeeping system – The availability of various manual and electronic bookkeeping products can make the functioning of your organization seamless. If you have access to a tax and accounting company in Australia, you can chat with them about the various products and bookkeeping expertise that they are providing. Why should you adopt a bookkeeping system?
It keeps track of your business as a whole, thereby driving good-decision making.
Bookkeeping makes you successful in meeting the tax and superannuation obligations easily.
Management of cash flow becomes easy.
Outline your budget – It is needless to say that preparing a budget holds supreme importance to any organization. It helps you divide the funds for particular activities. Separate your fixed and variable costs and keep tracking them from time to time.
Invoicing templates – For organizing finances, it is a must to decide on terms and types of payment that your customers can use. Adding an invoicing template and receipts is also an added advantage to give to the consumers when selling the product or service.
Remember to provide the correct invoice to the customers. It should include a well-written due date plus follow-up on payments that fall behind. If you provide subscriptions and membership to the customers, setting up an automatic system of payments is a good choice to consider. This will make you free from the hassle of getting payments on time.
Manage the cash flow – No business can work without finances. Hence it is very important to keep a tab on the income and expenses of your company. The easiest way to do so is with the help of a cash flow statement. With this, you can check the seasonal trends where you need to have additional money to make payments. Hence, it simplifies your planning.
Clearly write the opening balance, incoming cash, outgoing cash, monthly cash balance, and closing balance. Besides, it is also important to state whether the figures are inclusive or exclusive of GST.
Sort and digitize the hard copies – Dealing with tons of paper is quite an intimidating task. But you still can’t go entirely paperless. You need to have the space for paperwork and receipts.
Create separate files for each distinct part like Bank records, permits and licenses, Intellectual property, such as trademark applications and patents, employee records, and a few more. Get these documents digitized as it will give you a huge payoff when the due tax date is near.
A business credit card is also beneficial – If you have a debit card linked with your business, try going for a business credit card. It provides you many advantages. For instance – you can earn cash rewards through this; it comes with lower liability and the ability to float expenses.
Additionally, it loads you up with travel and purchase protections. Many business credit cards include trip cancellation, interruption insurance, cell phone protection, and don’t have any foreign transaction fees. So, get one such card for your business and reap the benefits.
To Sum It All Up
You can’t run away from the taxes if you are into the corporate world. There is no denying the fact that maintaining physical and mental health is necessary for a peaceful life. But knowing how to manage taxes and proper financial planning is also required for a successful business in Australia.
If you are finding any difficulty with the accounting, tax, or financial planning of your company, you can always rely on financial advisors and experts. You don’t want to compromise the financial health of your company, right? So, save your taxes and organize your finances right away.
Thanks for reading! Let me know your comments below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.