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Do you Budget for your GST & PAYG Obligations?

Quite often we see Small Businesses dreading the end of each BAS Quarter, they know they’ll be up for a tidy little payment to the Tax Office for their PAYG Withholding & GST obligations.

These payments can be in some cases be around four figures and may cause a significant cash flow problem for the average small business.

How do you Budget for this?  Simple, put it away for a rainy day.

The 10% tax we charge on our goods and services doesn’t actually belong to us ,it belongs to the ATO, so in theory, we shouldn’t spend it (unless of course you’re lucky enough to get a refund!)

The benefit of using what we call the GST Provision method, is that your cash flow isn’t depleted at the end of each quarter.  You don’t have to scrape together $5,500 to pay your BAS and/or PAYG because you have already provided for it. 

Here’s what you need to do:

  1. Open an Online Business Saver/Cash Manager account with minimal or no account keeping fees (we went with the ANZ for our facility).
  2. Calculate the GST portion of your TOTAL sales for the month and transfer this amount to your provision account.
  3. Calculate the amount of PAYG you have withheld from employee salaries for the month, transfer this amount to your provision account.
  4. Finally, calculate the amount of Superannuation that is payable for the period and transfer that to your provision account.

Now, some may ask, what about the GST I can claim back? Shouldn’t I transfer the net amount of GST instead of the full amount?  This is entirely up to you, if you wish to work out the amount of GST you are eligible to claim and transfer the net amount to your provision account (deduct your credits from your debits) by all means do so.

The added benefit of transferring the full GST portion of your sales is that if there is a little left over at the end of the BAS Submission, you can save it up for a rainy day, a new printer or leave it there for emergencies (some lovely new office furniture arose out of our last quarter!)

By transferring your tax liabilities to a holding account each month, you’re reducing the burden placed on your cash flow each quarter, making managing your money, and your business, a whole lot easier!

Considering ramping up your Cash Management?

Have you heard of the Profit First System?  Sprout is an avid following and embraced this method of money management in January 2020 – with fabulous results.  

It’s essentially an advanced version of the GST Provision Method described above.  You can read up more about Profit First and how it helps small businesses Here.