Have you ever looked at your bank account and felt relief that you are “still in the black”. And then…. “SURPRISE” …. You are faced with a bill, one (or two or three or more) that you haven’t planned for and needs paying NOW!
These could be BAS, Superannuation, Income tax, and Fringe Benefits Tax (FBT).
Your first thought is “Where am I going to find the money to pay these?”
No matter who you are and what you do these bills have to be paid, and if not, it’s game over.
Referring back to a previous article I shared the importance of keeping business and personal accounts separate.
The Small Business Maxim for Bank Accounts is:
Business bank accounts are for business. Personal bank accounts are for personal…. And never should the two mix!
You know (and have hopefully!) ensured that your business and personal expenses remain separate!
Now it’s time to consider how to structure your business accounts to ensure that you maintain cashflow and are able to pay the monthly, quarterly and annual bills without the stress and overwhelm!
The challenge
For many small businesses, when starting up they are making enough money to pay their day-to-day bills. The thought of the quarterly, monthly and annual bills is in the back of their mind but not seen as a priority.
If you don’t manage the monthly, quarterly and annual expenses they add up quickly, they continue to add up and do not ever just “go away” AND you get even more (nasty) surprises of fees, fines and penalties.
The solution
Ensure you are ready for the “surprises” in other words – it is no longer a surprise!
By putting a percentage of all your sales deposits into a separate account you make it that extra “little bit harder” for you to spend it! If you can’t “see it” you don’t spend it! This enables you to save for your larger quarterly and annual liabilities.
The 4 questions we are asked on a regular basis are:
How much should I be putting away?
The percentage varies dependant on the business and the key elements to consider would be GST, payroll and profit.
How can I do this effectively?
In essence, you could effectively have 2 bank accounts. One for day-to-day trading; the other for the monthly, quarterly and annual expenses. Let’s call this the “GST account” for ease of reference.
How often and WHEN should I move a portion into that account?
We strongly suggest that each day you transfer a percentage of everything deposited into the “GST Account”.
Should I have more than one “savings account”?
Another option is to apply the “Profit first methodology” you could also set up multiple other accounts to put money away in, to earmark for other different items such as stock purchases, insurances, general savings, purchase of assets and so the list goes on! Although this IS an option – remember the more accounts you have, the more you have to manage, keep track of and reconcile!
Whichever option you choose, having your finances up to date, knowing the numbers and communicating with your bookkeeper will allow you the opportunity to predict how much you need to put away each month.
The result:
You avoid the “surprises” and the headaches of trying to rummage up money to ensure you remain compliant. In other words, “SURPRISE – there ARE no surprises!”
Is Your Bookkeeper playing their role?
Your bookkeeper should play a key role in assisting you managing your business cashflow by providing Certainty, Guidance and Plans.
- Certainty: keeping your records accurate and up to date so you have certainty around where your money is.
- Guidance: helping you establish how much should be put away per transaction so that you can make effective plans.
- Plans: work with you to see “where you are, where you want to go and how to get there.” Ensuring your saving enough money to cover our monthly, quarterly and annual obligations.
