By Hilary O’Dwyer, CEO, Titian Consulting
Having got yourself to the point where you’re on top of your BAS because you know when it’s due and roughly how much you will have to pay, the next challenge is to know where the cash is coming from. There is one extremely effective tip that I use in my business and almost insist my clients all use too. And that’s a separate ATO bank account. And a savings account!
The psychology is simple. If you see it, you’ll spend it. I am literally blind to what is in my ATO bank account. And my savings account. What is in my main trading bank account is what is available as working capital for the business.
The mechanics of it are:
1. Transfer the PAYG due after every payroll to the account. This isn’t your money, it’s the employee’s tax. Your cost doesn’t change – it simply goes to two places, the ATO and the employee’s bank
2. Every time you get paid by a customer, divide the receipt by 11 and transfer that amount to the ATO bank account. This is the GST component. That may not be reasonable to do if you have a lot of sales coming in. But this could be done weekly or worst case, monthly. You can pull this from a cash summary report in your accounting system
3. If you have a tax installment (PAYGI), this is payable quarterly too. You need to stay on top of that and transfer it monthly also
4. Plan to build up your cash buffer. This could be a target of 3 months of expenses for your business. If you set up a direct debit to transfer something to your savings account every month, you won’t notice it as you don’t do it. It’s much harder to go into the bank and consciously move it back to your trading account.
The beauty of the GST transfer is that you will be transferring too much because you are basing it on your sales only and not adjusting for the GST you pay suppliers. But this is a sneaky savings plan and you can transfer the spare cash back to your trading account at the end of each quarter. It can be a little extra bonus!