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Budgeting and cashflow forecasting

Stewart, Tracy & Mylon • Nov 14, 2019

WHAT THE TAX?!!

Is budgeting and cashflow forecasting necessary for businesses?

 

It is recommended that every business prepares an annual Budget and Cashflow Forecast.

 

Analyse previous year's performance to prepare budgets

 

When preparing a budget, you should firstly analyse the previous financial year's performance. What you need to consider is whether you propose to increase turnover during the forthcoming 12 months, whether you will employ the same number of staff or increase your staff and what other events are likely to occur in the next 12 months.

 

Detailed consideration to all aspects of the business

 

This will require you to give detailed consideration to a number of separate areas, including:

• Sales

• Production Forecasts

• Labour Productivity Budgets

• Gross Profit Percentages that you believe are achievable Investments in Stock

• Investment in Debtors

• The payment of Creditors

• Key expenses such as advertising, wages and salaries, rents and superannuation contributions.

 

Cashflow forecast

 

In preparing the Cashflow Forecast you should have regard to:

• Loan Repayments

• Taxation Payments

• GST Payments

• Income tax instalments

• Any Capital Expenditure that you wish to undertake

• Any funds (dividends) that you wish to withdraw from the business.

 

Blueprint for the next twelve months

 

The whole concept of preparing a Budget and Cashflow Forecast is to prepare a blueprint for what you would like to see your business achieve during the next 12 months.

 

Budgeting should highlight potential troublespots

 

If you are realistic in your estimates, then the forecast should highlight any potential troublespots during the year, eg you may be going to experience a shortage of funds from the payment of income tax in March or from stock build-ups in November for Christmas trading. There could also be other times during the year when you anticipate problems due to seasonal conditions.

 

Measure actual performance against Budgets/Cashflow Forecast

 

You will then have Budgets and Cashflow Forecasts against which to measure your actual performance during the year, so as to determine whether you are on track in your business performance.

 

Budgets help you get a clear indication of where you are

 

No one expects you to be able to actually achieve budget estimates in every segment of the business. That is a virtual impossibility. What the budget does give you is a blueprint against which to measure your actual performance. This will give you a clear indication as to where you actually stand on current day-to-day trading as compared to your expectations at the beginning of the year when the budget was prepared.

 

Budgets give businesses a better chance of success

 

There is no doubt that the businesses which prepare Budgets and Cashflow Forecasts and compare this to their actual performance, give themselves a far greater chance of business survival.

 

Information sourced using CCH iknow

By Stewart, Tracy & Mylon 01 Apr, 2021
WHAT THE TAX?!! Shortcut to claiming work-from-home deductions in 2021 The ATO has reminded taxpayers about the temporary shortcut method still available to those claiming working from home deductions this year. Taxpayers that opt to use the shortcut can claim a rate of 80 cents per work hour at home for all working from home expenses. The temporary shortcut method can be used by multiple people living under the same roof and, unlike existing methods, does not require a dedicated work area. The shortcut is all-inclusive, meaning taxpayers cannot claim expenses under the shortcut method and then claim for individual expenses such as telephone and internet costs. The alternative existing methods are also available for a taxpayer to either: • claim a rate of 52 cents per work hour at home for the heating, cooling, lighting and cleaning of their dedicated work area and the decline in value of office furniture and furnishings; then calculate the work-related portion of their telephone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device, or • claim the actual work-related portion of all running expenses, which needs to be calculated on a reasonable basis. Irrespective of the method used taxpayers cannot claim: • personal expenses that are not directly related to earning income • expenses related to children's education • assets that cost over $300; these claims should be spread out over a number of years, and • occupancy expenses such as rent, mortgage interest, property insurance, land taxes and rates. All claims require the taxpayer to have not been reimbursed for money spent, the expense must be directly related to earning income, and the taxpayer must have kept the necessary records. Information sourced using CCH iknow
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