Just because there’s money in your business bank account doesn’t mean it’s all yours to spend.
One of the biggest challenges business owners face is managing cash flow while making sure there’s enough money available to cover upcoming tax obligations.
It’s easy to look at a healthy bank balance and feel confident about your finances. But some of that money may already need to be set aside for the ATO or other business commitments.
Depending on your business, these obligations could include:
• Goods and Services Tax (GST)
• PAYG withholding for employees
• Income tax or PAYG instalments
• Superannuation payments
• Other upcoming business expenses
When these payments become due, they can put pressure on your cash flow if you haven’t planned ahead.
So, what’s the solution?
One simple strategy is to open a separate bank account specifically for tax and other upcoming obligations.
Rather than waiting until your BAS or tax payment is due, you can regularly transfer money into this account throughout the year.
For example, if your business receives a large customer payment, you could transfer an appropriate amount into your tax savings account before using the remaining funds for everyday expenses.
This helps you build up the money you need over time, rather than scrambling to find thousands of dollars when a payment is due.
How much should you put aside?
There isn’t one percentage that works for every business.
The amount you need will depend on several factors, including:
• Your business structure
• Your income and expenses
• Whether you’re registered for GST
• Your payroll and superannuation obligations
• Your expected taxable profit
Your accountant or bookkeeper can help you estimate these amounts and work out a practical savings plan.
It’s also important to remember that GST collected from customers isn’t necessarily the amount you’ll owe the ATO. Your final GST liability will generally take into account eligible GST credits on business purchases.
The goal isn’t just to save money. It’s to avoid unnecessary financial stress.
Having a separate account can make it easier to see how much money is available for everyday business operations and how much has been reserved for upcoming payments.
It also encourages better financial habits and helps you make more informed decisions about spending, investing and growing your business.
At PLH Accountants, we help business owners plan for their tax obligations, understand their cash flow and avoid unexpected surprises.
Because your bank balance might say $80,000, but that doesn’t necessarily mean you have $80,000 available to spend.
If you’re unsure how much your business should be putting aside, contact our team. We can help you create a plan that works for your business.