Cash flow management; it is the single biggest reason for small business failure. It’s not product, sales or service. It’s a lack of cashflow.
And what is the biggest single cashflow killer? Its not paying your taxes. Whether its GST, PAYG income tax or superannuation, they’re easy to miss. Miss your quarterly PAYG and the ATO isn’t going to ring you and threaten to cut you off. You won’t have staff walk out cause you missed three months GST payments in a row.
But, the ATO will eventually catch up. And when they do, they will pursue you harder and with more law behind them than any creditor ever has.
So, what to do? There is a simple solution I call the two bucket strategy.
The two bucket strategy
Think of cashflow like water. It flows into your business when customers and clients pay you and it flow out when you pay yourself, your employees, suppliers and taxes. If the amount flowing in the top is greater than the amount flowing out the bottom, then you’re building the cash (and value) in your business.
The two bucket strategy is a pretty simple strategy to implement. It starts with setting up two bank accounts, preferably at two different banks. One I called the operating account and the other is the tax account. I use a NAB business account, which is fee free, as the operating account and a savings account at a Neo-bank, which has a higher rate of interest, as the tax account.
All the cash that comes into your business flows into my NAB account. All my expenses, invoices and payroll are also paid out of this account. Then on a regular basis (I do mine every week), transfer any cash that relates to GST or PAYG from the operating account to your savings account. Then transfer a little extra to cover any income tax on profits you’re making.
Be religious about it. Make a transfer every week, fortnight or month. But make sure you do it.
Then, when it comes time to make your tax payment, simply uses the accumulated funds in the tax account to make the payment.
A simple strategy, yet one that will save you significant stress when to comes to paying your taxes.
Cash flow a problem in your business, but don?t know why? Sometimes a 20 minute chat can help you get unstuck. At other times, you might need something more substantial. Feel free to fill out the contact form or give me a call directly on +61 404 530 563.