Managing Cashflow Can Keep the ATO at Bay

The start of the 2011 has been tough for many businesses, with lower than expected trading results and an economy that has not yet recovered from the impact of the Global Financial Crisis.

The cash flow of many businesses has been under strain for many months. With recent BAS obligations, your business may be struggling to come up with the cash needed to keep the Tax Office at bay.

In the past, businesses under cash flow pressure have often put their ATO obligations last. During the GFC, the ATO was somewhat empathetic to small businesses facing short-term cash flow difficulties.  However, according to information on the ATO website, firmer action will be taken with those taxpayers who demonstrate an unwillingness to work with the ATO, have escalating tax debts or are unable to meet outstanding tax or superannuation guarantee debts.

Firmer action can include recovery options such as garnishees, director penalties, statutory demands and wind-up or bankruptcy proceedings. Garnishees can be served to a company’s debtors to demand payment of invoices directly to the ATO, or to a business’s bank which imposes withdrawals directly from their trading account.

Director Penalty Notices give the ATO power to collect outstanding taxes by making directors liable for the unpaid taxes or unpaid super guarantee.

Preparing cash flow forecasts and responding to any issues early, are critical to ensuring your business meets its obligations and prevents the additional pressure of falling behind in BAS or other payments.

Ways to help ensure that your business has the cash it needs to meet its statutory obligations?

  1. Understand your cash flow. Analyse your cash flow and create projections based on when money will come in and go out including your statutory obligations (GST, PAYG withholding, income tax, super guarantee).  Try to plan 12 months ahead.
  2. Review your finance arrangements.  Think carefully about the way in which your business is financed, especially the interest paid on loans and overdrafts.  If possible, try to ensure that you have access to a back-up source of capital if and when required.
  3. Review your credit policies. Make sure that you have credit policies and that your customers understand them.  Most importantly, make sure that you enforce them. If need be, chase up outstanding debts daily and commit debtors to an agreed time to pay.
  4. Keep cash in your business. Keep money inside your business by drawing as small a wage as you can.  If possible, try to keep a separate fund to use at times when income (and cash) isn’t coming in.
  5. Keep a separate savings account for GST, superannuation and PAYG withholding tax commitments.
  6. Change how you engage with suppliers. If you can, try to negotiate discounts for early payments.  Alternatively, keep cash in your business for as long as possible by not paying invoices until their due date.

If you’re doing all of the above but still finding it tough, you could also consider obtaining cash flow with debtor finance, a form of credit based solely on receivables.  But be aware, this can be very expensive and, like using a bank overdraft, is often difficult to get out of once you have obtained finance.