Disclaimer: I am not a tax accountant. This is not tax advice but rather I make suggestions on how to use this time of collating your numbers for use in other areas of business.
Tax time. It often conjures up feelings of anxiety and the need to take a deep breath.. Even my closest action taking and organised friends procrastinate when it comes to putting together their tax information.
Why do we get so nervous about tax time? Perhaps we have a fear of having to pay tax (which, by the way is a good thing as it shows that your business is making money!) or not wanting to dive into something that we don’t fully understand.
Whatever the reason for procrastinating, I want to encourage you to start organising yourself this week. Because preparing your yearly numbers to hand over to an accountant or to DIY has so many benefits in other areas of your business.
I want you to remember that 30 June is just a data point. It’s a mark in the sand that can help you plan your year ahead. It’s a good thing, not a bad thing. To help you feel more comfortable, I’ve put together this Know – Do – Ask method so you’ll beat the tax time blues in no time!
Know
Let’s start with a few definitions so you know exactly what you’re looking at.
- Profit is sales less expenses. The aim is obviously for profit (ie sales value is higher than expenses), not a loss but there may be some months (even years) where this is not the case.
- Cash flow is cash in less cash out (does not = profit or loss because profit or losses include non-cash items like depreciation or income earned not yet paid)
- Balance sheet shows what you own vs what you owe. Cash is an item here but it also includes assets like cars, laptops, goodwill
- Tax is based off the profit you make, not cash flow or income
Do
Review your profit and loss statement, balance sheet and cash flow statement for the financial year. What you’re looking for are patterns in income that may represent something you can focus on next year. Where are your high income months? Are there months that income is always low? Can you focus your marketing efforts leading up to the low months? (Try this blog with cash flow tips, or here for tips on pricing)
Ask
Be confident to ask questions, whether of yourself or your advisers. Accountants and bookkeepers should be able to quickly identify trends and recommend changes to rectify any concerns.
If you don’t have an adviser (or even if you do), ask yourself what might be contributing to your results. Are you making too many impulse purchases for your business, not putting enough focus on your most profitable offer or taking on too many small clients?
Most importantly, how do you feel about the profit that you’ve made or the amount of tax that you need to pay. I’d encourage you to delve deeper into these feelings and use your findings to drive your strategy for next year.
And lastly, write down three things that you are going to change in the upcoming year so that your profit increases but doesn’t effect the design of your life. This will become your focus and help drive your financial decisions.
So, tax time shouldn’t be something that you fear or avoid, but rather an opportunity to reset, learn and grow by using your results to improve your understanding of how your business operates.
If you’ve collated all of your tax information but not sure where to start on the analysis, my Measure and Manage Package is the perfect solution. By working together on your data you’ll be able to make more informed and faster decisions and get regular feedback and ideas for your business. Contact me here for a chat about how this could work for you and your business.