The period following on from the festive season is a particularly challenging time for any SME business. It is easy to get caught out after a long, slow period from a cash flow perspective over the post-Christmas and New Year lull. Then, to make things even more difficult, the first BAS tax payment is due in late February or later depending if the business has opted for quarterly reporting , catching even the most experienced business owners out. It’s important for SMEs to regularly review their tax position and to set up strategies to improve their cash flow issues in order to stay on top of their tax obligations. We have outlined strategies that you and your business can incorporate to help navigate your way through this tough period and ensure your cash flow position is as strong as it can be.

1. Work out your working capital

One of the smartest ways to get through this challenging period and set your business up for success in the year ahead is to ensure that you have sufficient working capital now. Put simply, working capital is the difference between your current assets, such as cash and accounts payable, and your current liabilities, like accounts payable and any debts due within a year. Take the time to work out your company’s working capital now, as it can tell you a lot. The larger the working capital, the healthier your levels of liquidity, and the better you are positioned to navigate your way through slow and unavoidable periods.

2. Improve debtor days by speeding up your collections cycle

It may sound like an obvious step, but speeding up payments of your invoices from your debtors can have a drastic impact on cash flow. For example, a business turning over $10 million, reducing debtor days from 60 to 55 days achieves a cash inflow in excess of $135,000. Simple actions such as ensuring invoices are issued early and having all the relevant information required by the customer to make a payment, and sending diligent reminders to allow your debtors plenty of notice to pay their receivables, will improve your cash flow position. Act now and ask your clients to pay earlier. Look to bring forward expenses that can be used as deductions and help to offset your taxable income sooner rather than later, potentially reducing any tax bill you will receive.

3. Consider debtor finance

If cash flow is limiting your working capital, it is beneficial to look into alternative forms of financing such as debtor finance. Debtor finance providers can pay up to 80% of outstanding invoices usually within 24 hours and also follow up your debtors for you, helping to take control of your cash flow and grow your business more quickly. Increasing working capital through debtor finance can help your business to successfully meet your tax obligations, avoid burdens and penalties, and also ensure that you can focus on increasing sales and expanding your business.

4. Get your tax administration in check

We understand that administration can be tedious and often pushed aside, however it is a crucial step in keeping your tax affairs in order. Get ahead now and organise your documents and records. Keep a track of your daily transactions and make them as detailed as possible. It might be worth investing in electronic software or a cloud based solution which will reduce efforts in collecting cash flows and allow you to concentrate your time on your business. Ensure that you file your tax documents on time to avoid being hit with a failure to lodge on time (FLT) penalty. This may be applied when you are required to lodge a return, statement or other document such as a BAS with the ATO by a particular date.

5. Set reminders

Time flies by fast, especially for busy SMEs, and it is easy to lose track of deadlines in the middle of tax cycles. Get organised ahead of time by creating a calendar that will remind you of important tax schedules and tax payments that will ensure you avoid unnecessary tax penalties. Year-round tax planning can help aid in easing your taxable income for the year and will also help you to review strategies regularly.