Your business has every right to arrange its financial affairs in order to minimise the tax you pay, and this process is called tax planning. But if you run a business that turns over more than $200-250,000 a year and you don’t tax plan, you are at a major competitive disadvantage when compared to your more sophisticated rivals. Here’s why:
How can you expect to effectively compete with businesses who are implementing superior tax planning strategies, ones that effectively leave them with more money to invest in finding new customers, or buying new technology that makes them more efficient?
In a competitive market, these kinds of initiatives make differences to critical issues like ‘speed of turnaround’, the quality of your work, the price of production and your capacity to market your products, in other words, all the critical points that determine your competitive position.
You have to pay tax, it can’t be avoided. So doesn’t it make sense to use better tax planning to arrange your financial affairs in a manner that is strategically advantageous, especially when it can mean the difference between your capacity to compete effectively with your fiercest competitors, or not?
There are two primary reasons why Businesses Fail to Tax Plan.
What we are revealing below is based on our experience gained from working with business clients for over 15 years. We have found that there are two primary reasons why businesses fail to tax plan.
1. Their accountants don’t speak to them about it. In short, they don’t get appropriate advice! (That’s why we said it’s not your fault in the title of this post). This should never happen, but unfortunately it does. You might be wondering, what circumstances cause this to happen? Sometimes this happens because…
2. When looking for an accountant, many businesses have the wrong mindset. If your one and only concern when looking for an accountant is to try and get your tax done as cheaply as possible, let me assure you, you will not find an accountant with the knowledge and experience necessary to help you with proper tax planning.
What you will get is someone with the minimum amount of knowledge required to do your tax, who’s only concern is to process your tax return as quickly as possible, most likely, after the event. Real tax planning will not even be a consideration.
Let’s be crystal clear about this. Tax planning after the event is nonsense! How can you “plan” for something that has already passed? It’s really a tax post-mortem, not a tax plan, and the problem with it is that it leaves you with very few options.
There are literally hundreds of tax planning strategies you can implement prior to the end of the financial year, but there are only a few you can implement after it’s ended!
The best time to start tax planning is well before the end of the financial year (between March and early June).
Tax Plans, they are as Different as Every Business.
Many business owners believe that business tax planning is a simple one size fits all thing. This could not be a more erroneous assumption. No two businesses are alike, even when they are in the same industry, and that means that although there are certain basic structures and strategies that may work for you in your current circumstances, the manner in which they are executed will be critical to maximising your tax position.
Here are some really simple strategies that are available. Which one would be best for you depends on whether your business is a sole trader, partnership, company, trust and/or if you are considered as a small business taxpayer under the relevant guidelines?
Simple tax strategies include:
– Paying business expenses prior to the end of financial year
– Purchasing assets that can be depreciated (most small business can claim an upfront deduction for assets costing less than $20,000)
– Writing off any assets that are no longer used or have been disposed of.
– Choosing the best method to value stock (stock on hand at the end of year is assessable)
Tax Planning How to Go About it
As mentioned, it’s is important to ensure that you have your accountant prepare tax planning for your business well in advance the end of the financial year (between March and early June) and review your business needs in order to identify:
• Your current business structure, its deficiencies and the improvements and opportunities available, including options of making changes to your business structure based on the ever-changing taxation landscape.
• Your current profitability and significant business ratios
• Capitalising on expected tax breaks that are available and planning appropriately for future business expectations
• Looking at the implications of key tax liability issues, for example capital gains tax
We have found that the actions that can be taken in the course of just one day, from a tax planning perspective, can have lasting impacts on the tax position of your business for a number of years to come, and this can make a very significant difference to the competitive position of your business!
The Role of Forecasting & Business Planning
At Dendra we have developed a process of effectively and efficiently determining your most advantageous tax saving opportunities prior to the end of the financial year.
This process has two big advantages:
1. Firstly, it enables us to calculate (with a high degree of certainty) how much tax you will need to pay for the year, so there are no unexpected surprises and you don’t miss out on any tax savings that may be available to you,
2. It also allows us to look at your choices and options and present them to you, in other words, we can make recommendations and if you see the sense in them, we can make adjustments to your financial situation prior to the end of the financial year.
Armed with this information, you’ll have all you need to make the best decisions and as mentioned, this can have a significant bearing on your capacity to compete more effectively in your market.
Implications of Tax Planning on Your Choice of Accountant
Not planning your tax strategy prior to the end of the financial year is effectively not tax planning, it’s a tax post mortem, and it leaves you with few options and can often throw up unpleasant surprises.
If the question you have been asking yourself when looking for an accountant is not “how can I get my tax done cheaper,” you’re asking the wrong question. You should be asking yourself, “is my accountant experienced and knowledgeable enough to help me maximise my financial and strategic position through proper tax planning.” This is in fact why you have an accountant.
Where might your business be at the end of next year, or even more importantly, in five years, if you structure your tax in such a way that you are able to make the investments you know you should be making, but have been putting off because you think you can’t afford them? Proper tax planning often reveals that you actually can afford to make them, and this can turn out to be the competitive advantage that propels your business ahead.
If you would like independent expert advice on tax planning, contact Dendra.