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Managing cash flow at tax time

June 2013

Cash flow is a vital part of your tax planning, because any decisions you make around bringing forward expenditure or deferring income will have cash flow impacts. You need to ensure that creating the best tax outcome doesn't put your business into a short-term cash flow crisis.

Calculate the impact
Calculating the funding impact of your tax choices will help you understand your position; if you are likely to need assistance or support from your bank it's best to talk to them early to map out your needs, how long you'll need it for and what the funds are being used for.

Don't leave invoice collection to the last minute
Keeping a regular flow of cash coming into the business is essential to manage the costs of running it and enables you to take full advantage of bringing expenditure forward if your cash flow is in a healthy state. The number one reason that most businesses fail is the lack of cash flow.

At tax time, unless you're planning to defer income, it's important to ensure you actively chase any outstanding invoices and payments. Many businesses are still doing it tough in the Australian economy thanks to long payment cycles, however it's important not to let revenue collection lapse.

The downside of deferring income
While deferring income may be a good strategy for reducing tax, it is only effective if you have sufficient cash flow in the business. If your invoices go out in July, it's possible you may not see the cash into your business until August or September, which can make meeting the costs within your business more challenging.

Save or spend?
While there are many advantages to bringing forward your business expenditure, there are downsides if you're not in good cash flow position. If you're already experiencing difficulties in clients paying invoices or your cash flow is unstable, then you can delay some payments until after 30 June, while still being deductible in the current tax year. Bonuses, wages, FBT and payroll tax paid after 30 June are still deductible in the current year.

The upside of bringing expenditure forward
If you're a small business with less than $2m with good cash flow, then it may make sense to bring forward some of your expenditure, particularly if the assets are valued under $6500.

Need help with your cash flow?
Call Bates Cosgrave on 02 9957 4033 before June 30 so that we can help you review your true cash position and therefore plan your taxation more effectively for your circumstances.

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Last updated June 2013. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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