Business Essentials: Money Matters for the New Financial Year

Small businesses are integral to the Australian economy. Together, they employ around five million Australians and contribute about 30% of all income tax collected per annum. As smaller businesses are beginning to bounce back from the economic impacts of the COVID-19 pandemic, increased business security should remain on top of the agenda moving forward. Weld Australia has compiled a series of practical advice and tips for small business owners to take the heat out of financial year planning and boost financial security in the wake of the pandemic.

The economic impacts of the COVID-19 pandemic prompted businesses to make decisions with cascading impacts in a short period of time. As COVID-19 lockdowns took place in all Australian jurisdictions to slow the spread of the coronavirus, 910,055 businesses had enrolled in the Federal Government’s JobKeeper program by May 2020.

By March this year, the Australian Bureau of Statistics found 46% of small Australian businesses said meeting their financial commitments over the next three months would be ‘easy or very easy’, when compared to just 23% in August 2020. In addition, 18% of small businesses expected to increase their staffing levels between March and the end of this financial year.

While these figures are promising, Senior Manager Business and Investment Policy at CPA Australia, Gavan Ord, believes smaller businesses should be aware of their capacity and security into the new financial year.

“With 2021 shaping up as a year of recovery tinged with uncertainty, small businesses should do a business health-check.”

“The diagnosis from this will give you a very good starting point for the year. It will tell you what you’re doing well and should do more of, and what issues may need to be fixed,” he said.

Ord explained that COVID-19 prompted an era of uncertainty and issues for businesses of all sizes. “COVID-19 created a range of new tax issues for many small businesses and individuals.”

Paying tax is a critical part of running a business. Mistakes with lodging a tax return can cost time, money, and lead to increased stress and financial uncertainty. However, there are a series of practical tips for small businesses to follow.

Plan Ahead

Forward planning cannot be underestimated. Australia may have moved past the height of the health crisis prompted by COVID-19, but the economic conditions will linger on for many years to come.

Therefore, it is crucial that small businesses plan accordingly. Take the time to update all business documents – from strategies to continuity and succession plans – as they will provide practical guides moving forward.

Importantly, these business documents should consider the current and future financial situation of the business, staffing levels, inputs and outputs, and future-proofing the organisation in the event of future lockdowns or rapid changes to the industry.

Ord said smaller businesses, which are vulnerable to COVID-related disruptions, should focus on three key areas of the business.

“Pay very close attention to your cashflow, expenses and any debts you incur,” he said.

Seek Advice and Support

As the financial year looms large, smaller businesses can access a range of support options.

A tax professional, such as an accountant or business activity statement agent, can help smaller businesses avoid costly errors and mistakes when lodging their tax returns. Businesses should report all financial details with complete accuracy, including cash takings or money transferred into a private account.

“Even with COVID-19 placing pressure on business cash flow, the onus remains on business owners to correctly report their income, claim their expenses and have the appropriate records. Payment plans are available to manage your tax debts with the Australian Taxation Office (ATO).”

JobKeeper recipients should pay close attention to their tax returns, and make adjustments where appropriate. Affected businesses should also consider consulting a professional for advice on how to build back better.

“Heading into the new financial year, if you’ve been relying on JobKeeper, chances are you’ve been more focused on survival than recovery.”

“Speak to your accountant about how you can build a better, more resilient business. Businesses that seek professional advice are more likely to survive and recover than those that don’t,” Ord explained.

Keep Records

Small business owners should keep accurate records for tax purposes, and to gain a better understanding of the company’s financial situation.

Importantly, all businesses should cross-check figures with bank statements and source documents, like tax invoices and receipts. In addition, technology – like point of sale software, accounting systems and smartphone applications – are efficient ways to run your business and ensure all figures are balanced.

Tax expenses and deductions can be lodged when completing a tax return, which will be a common feature for staff who were forced to work from home. The ATO urges all individuals who are claiming work-related deductions to ensure the money was spent by the worker and not reimbursed; and relates to earning income. Individuals should keep a record of the amount spent as proof.

“Make sure your deductions genuinely relate to your business, and that you have the required evidence to support your claims,” Ord said.

Take Your Time

In the lead up to lodging your tax return, take the time to crunch the figures and focus on making any necessary changes for increased security.

“Small businesses should use the lead up to the end of the financial year to get their books in order. This will put you in the best possible position to tackle your tax obligations,” Ord said.

During this time, it may also be beneficial to check your business structure, consolidate and internalise any processes and assess where budget cuts can be made if required.

Ord believes small business should think about their operations in a holistic manner, to ensure there are no gaps or future surprises. Financial security can be challenging to navigate, and while professional help is available, personal support can also be beneficial.

“Be mindful of the added financial stress you may be facing. Take advantage of the free mental health support programs on offer for small businesses,” Ord said.