Kicking Off The Financial Year Right
New Zealand’s construction boom means contractors are busier than ever, but throw in the demands of tax time, and running a small business in the construction sector quickly becomes a juggling act, says Fergus job management software founder Dan Pollard.
While the end of the financial year can add to your workload, it is also an opportunity to get a detailed picture of your business and put healthy financial habits in place that will save you from repeating mistakes in the future.
These tips can help you avoid the most common tax time mistakes.
Make invoicing a daily habit
The new financial year is a chance to examine your overall cash collection and invoicing process and identify where you can make improvements. Running a trades business, it is crucial to ensure that invoicing is completed on a daily basis rather than attempting to tackle days, weeks or even months of receipts and invoices at one time.
If you can’t set aside a small amount of time every day (or every other day) to raise and follow up on invoices then consider delegating or outsourcing the task to someone else or automating it. Having up-to-date info will give you a better picture of your overall financial position, and allow you to write off bad debts early to avoid paying tax on revenue that won’t ever arrive.
Spreading these tasks across the entire year might feel like you’re adding more work to your day-to-day running of your business, but with the right systems and processes in place this approach will ultimately save you time, money and headaches. So ask yourself, what can you do so your business can invoice every day? Do your systems and processes support you in achieving this?
This daily habit will make the rest of the financial logistics, such as GST organisation and holiday and PAYE planning, much easier to stay on top of.
Get ahead of GST
When it comes to GST, the role for businesses is simply to collect it and pass the GST on to the government. However, for small business owners with tight cash flow, it’s easy to see that money as their own. Unintentionally spending GST payments on other business expenses can quickly add up, placing a significant liability on your books.
To avoid being caught short, put money aside weekly in a separate bank account to cover GST costs. Fortunately, GST is fairly consistent and you can easily calculate how much money you need to allocate by looking at the GST you paid last year and working out a weekly average. Filing your GST returns every two months also helps keep you on top of your GST requirements and keeps paperwork up to date.
Plan for PAYE
There can be serious consequences for incorrectly calculating pay-as-you-earn (PAYE) tax and employee holiday pay. This money is considered part of an employee’s wage and if not paid correctly, it’s classified as theft.
Seek professional advice and work with an accountant to make sure you are meeting your obligations. In practical terms, a good way to stay on top of PAYE and holiday obligations is to put the necessary funds away each pay cycle, similar to the ‘GST-only’ account. Reliable online platforms can also help you manage your payroll obligations on auto-pilot.
A financial fresh start
This period is a great opportunity to reflect on how your small business performed in the year just gone and identify what changes can be made to make tax time simpler in the year to follow.
A fresh start to financial management can also reveal business opportunities. Once you have a clear, up-to-date picture of your numbers, then you can take note of where your business is performing well and where it is not. Look for patterns in jobs that generated good profit returns and use what you learn to decide what work you take on in the future.
Tax management for small businesses can become complex, particularly in busy periods when tasks like bookkeeping are replaced on the to-do list by the day-to-day of running your business. But taking time at the beginning of this financial year to put in place the smart financial process and tools will lead to less paperwork and more time working in your business.
Plumber turned tech entrepreneur, Dan Pollard launched Fergus in 2014. Having done the hard yards as a plumber for over 20 years, Dan was determined to come up with an easier way to manage the end-to-end operations of his trades business. Dan has a passion for helping tradies realise their own true potential and is a wealth of knowledge when it comes to what it takes to run a successful trades business.