Taxation, cash flow and the value of good accounting advice

27 Aug Taxation, cash flow and the value of good accounting advice

For many business owners, profit is the headline number. But in day-to-day business, cash flow is often what keeps the doors open.

A business can be profitable on paper and still experience financial pressure if customers are slow to pay, tax obligations are underestimated, expenses arrive at the wrong time or too much cash is tied up in stock and equipment.

Taxation and cash flow are closely connected. That is why regularly working with a qualified accountant can be an important part of running a sustainable business.

Cash flow is the lifeblood of business

Cash flow is simply the movement of money in and out of your business.

Money comes in through sales, invoices and other income. Money goes out through wages, suppliers, rent, insurance, loan repayments, equipment, tax and countless other operating expenses.

Problems can arise when the timing of these movements does not align.

You might issue a large invoice today, for example, but not receive payment for 30, 60 or even 90 days. In the meantime, wages, suppliers and tax obligations may still need to be paid.

Understanding what is coming in, what is going out and what is likely to happen over the next few months can help business owners make better decisions.

Tax should never be an unexpected bill

One of the most common cash flow challenges for businesses is treating money allocated for tax as available working capital.

GST collected, PAYG obligations, employee-related liabilities and income tax can quickly add up.

Separating or provisioning money for future taxation obligations may provide greater visibility over the cash that is genuinely available to operate the business.

Rather than waiting until a tax bill arrives, your accountant can help you understand what obligations may be approaching and how they fit within the broader financial position of your business.

Top 7 reasons an accountant can help your business

Better tax planningTax planning throughout the year can provide a clearer understanding of upcoming liabilities and available options. This is very different from simply preparing a tax return after the financial year has ended.

Cash flow forecastingAn accountant can help prepare realistic cash flow forecasts so you can identify potential shortages or periods of stronger liquidity before they occur.

Understanding your real profitabilityStrong sales do not necessarily mean strong profits. Your accountant can help analyse margins, overheads, expenses and business performance to identify where your money is actually being made or lost.

Keeping obligations on trackRunning a business involves numerous reporting, taxation and compliance responsibilities. Professional support can help you understand what needs to be completed and when.

Making better business decisionsShould you employ another person? Purchase equipment? Finance a vehicle? Expand premises? Increase prices? Your accountant can help you understand the financial implications before committing.

Choosing an appropriate business structureSole trader, partnership, company and trust structures can have different taxation, administration and legal implications. Professional accounting and legal advice can help determine what may be appropriate for your circumstances.

Planning for growth and the futureA good accountant should not only be looking backwards. They can also help you look forward by discussing budgets, business goals, succession, investment, debt reduction and longer-term financial strategies.

Advice matters

Modern accounting software gives business owners access to enormous amounts of information, but having data is not the same as understanding what it means.

Your accountant can provide context, identify potential issues and help you ask better questions about your business.

Taxation should not be considered only once a year, and cash flow should not receive attention only when money becomes tight.

Regular conversations with your accountant can help you understand where your business stands today, what obligations may be ahead and what actions may deserve consideration.

When it comes to tax, cash flow and business planning, professional advice matters. A proactive relationship with your accountant may help you make more informed decisions and build a stronger, more resilient business for the future.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

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