BAS Cashflow

3 tips for handling BAS cashflow

3 Essential Tips for Handling the BAS Payment Cashflow

You know what it’s like at BAS time time. By the due date, you need to somehow come up with thousands of dollars to pay the ATO. And is the amount really increasing each quarter or does it just seem like that?

Many small businesses buckle under the cashflow pressure of a quarterly BAS payment. It’s no surprise, after all, the BAS payment is a combination of your GST obligation and PAYG withholding, along with a PAYG instalment in many cases. And it comes around at the same time as superannuation payments are due as well. The total can be very high. It’s the ATO’s intention to minimise the obligation frequency to at least quarterly for many small businesses so their compliance costs are kept to a minimum. If you feel the pressure of finding a lump sum of money to pay the ATO each quarter, you are not alone.

Please understand, however, if you let this monster get the better of you, it will snowball and you will find yourself on a repayment plan with the ATO, something that takes considerable effort to come back from.

By implementing these three simple techniques, you will avoid the BAS cashflow shock and feel a lot more confident at BAS time, you will be able to pay the bills when they fall due.

1. Set up an Interest Bearing Payables Account

This bank account can be linked via internet banking to your transaction account. It should attract a higher interest rate than your transaction account as money is likely to stay here for up to three months, a little like a term deposit account. Once you transfer money into this account for the payables, try not to use it for running the business (unless you cannot avoid it). Ensure you give it a meaningful description like ‘Payables Account’.

2. Transfer a Payables Amount Regularly

If your bookkeeping is done weekly, the bookkeeper should reconcile to the bank transaction listing each week. Ask your bookkeeper to calculate and report to you at the end of each week the total of your liabilities. Every business will have a different list but your liabilities should include where applicable:

  • GST liability
  • PAYG withholding payable
  • Superannuation payable
  • Any other payables applicable to your business such as WET, FBT etc

The total amounts should be for the current period (for example, in the month of May, the total would include all liabilities from April 1st to the current date). This way, you can ensure the balance is accurate in the bank account.

Your bookkeeper should be able to tell you if there is an Income Instalment Amount (PAYG Instalment amount) on your account. If there is, ask the bookkeeper to divide this amount by the number of weeks in the quarter.

Once you have a total amount of liabilities owing at that date, transfer this amount to your payables account. Each week, check the balance of your account and top it up to ensure you have the right amount in the account for when payables are due.

If your bookkeeping is completed monthly, ask the bookkeeper for the same amounts at the end of each month.

3. Pay your Liabilities from the Payables Account

When the superannuation and BAS are due, pay them from the Payables account you have set up in Step 1. The balance of the payables account should be equal to the amount of your liability to the ATO and superannuation funds.

Following this basic procedure will ensure your liabilities (which you incur as you operate your business) are kept separate from your business funds. They are debts that have already been incurred by the business and should be set aside for when they are due to be paid.

Sounds simple, doesn’t it? Many small businesses still have not implemented this basic procedure and their cashflow suffers enormously.

I have one client who was so sick of being caught out by taxes, she asked me to break her monthly liabilities into a weekly amount (her bookkeeping was done monthly) and asked me to liaise with the accountant to forecast her company tax debt and break this down into a weekly amount. It was a great idea. Her accountant created a spreadsheet for calculating the company tax in line with her business performance fluctuations  and she sets aside one amount each week to the Payables account and when her liabilities come due, she doesn’t batt an eyelid. We pay them out of the one account and she sleeps at night knowing there will be no tax shocks and the money in the business account is there for the business.

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