Thoughts on getting through Janu-worry
The period before Christmas and the summer holidays is a time to enjoy the festive season, connect with friends and family, and celebrate the successes of the past year. For some small businesses, it’s a crucial period where they attempt to maximise the benefits of increased trade. In these instances, business resources can be stretched, often necessitating business owners to work in the business, rather than work on the business. This can leave business owners feeling more fatigued than festive.
As the dust starts to settle, business owners can recharge their batteries but more importantly look to re-engage with the business books and consider how the festive trade has affected the business’s financial position. Understandably, being on the tools during the busy period may have led to a lack of focus on some vital key areas that ensure the business’s continuing viability. For those that close during the Christmas period and have a slow January, the lack of income compounded with unavoidable outgoings (such as rent and annual leave for permanent staff) can really increase pressure on cash flow.
High in mind should be the special timing of tax obligations during this period.
As the Australian Taxation Office (ATO) allows until 28 February to lodge and pay the December quarter Business Activity Statement (BAS), the next BAS obligation for March is due two months later on 28 April, rather than three months in-between each of the other quarters. Essentially, the ATO allows an extra month for BAS payments on the December quarter. It may be tempting for business owners to dip into the tax funds set aside to cover some Christmas debts, but that would be risky business considering the short turnaround in BAS payments in February and April.
If business owners and their advisors are concerned that the business can’t meet these deadlines, it is crucial, now more than ever, that they engage with the ATO to manage their tax debt. As readers may recall from Engage with the ATO on outstanding debt or risk 5 years of bad credit! the ATO will soon be able to disclose business tax debt information to credit reporting bureaus where those businesses are not engaging effectively with the ATO, at least $10,000 is owing, and it is over 90 days overdue. This black mark on a business’s credit rating can severely impact the business’s access to finance.
Now is also the time to prioritise the debtor’s ledger and chase payment especially those debtors that have taken advantage of the holiday period. Tight processes around collecting outstanding debtors ensures a healthy cash flow and sets an expectation for customers that overdue payments are unacceptable. For businesses that bought increased inventory for pre-Christmas demands, this is critical as they may need to settle some large invoices. And on the point of inventory, it is worthwhile to check that the levels are steady after the irregularity in sales over the holiday period.
Clearly, it is the ideal time to review cash-flow budgets and set realistic expectations on future cash flows. Business owners who are really feeling the post-Christmas squeeze should proactively engage with qualified advisors to explore all available options. Having these discussions as early as possible gives the business its best chance to thrive and survive.