EOFY measures could be risky in the absence of adequate cash flow

Measures such as the temporary full expensing extension are there for SMEs’ benefit, but taking advantage of such measures requires good cash flow, Mr Sutton has said. 

“It’s no good using the instant asset write-off measures to buy a piece of equipment if making that purchase puts a severe dent in your cash flow,” he explained. 

“Embedding cash flow forecasting into the business and securing funding that ensures good cash flow will help SMEs navigate any risks around their EOFY and new financial year initiatives.

“Putting in place a flexible capital structure, offered by funding options such as invoice finance, means a business can act when opportunities arise."

Tips for EOFY

ScotPac has the following tips for SMEs as the financial year comes to a close:

Tip 1 – Understand the exact cash needs of your business. Having a clear idea of how much cash you need to maintain your business-as-usual activities allows you to:

1. Identify if you have excess cash which may be better invested or even used to take advantage of available incentives such as the instant asset write off; or
2. Identify if there’s a shortfall which will impact your ability to meet obligations as they fall due – this is particularly important when considering outstanding ATO liabilities.

Tip 2 – Think about what fixed assets, if any, your business needs now and into the future. Providing you meet the eligibility criteria, your business should be entitled to an immediate tax deduction for the cost of the asset. Remember for this to hit your FY21 tax position, the asset must be installed and ready for use before 30 June.

Tip 3 – if you haven’t already done so, book in with your adviser and chat through your business ambitions for the next 12 months. Partnering with a trusted adviser such as an accountant, bookkeeper or broker now will help give you the best chance to position your business for success in FY2022.

Getting on the front foot with ATO

Mr Sutton had a word of caution for businesses who had relied on the ATO’s lenience over the past 12 months with COVID-19, by not keeping up to date with lodgements or not making their BAS payments.

“The ATO has been very lenient during the pandemic, allowing the small business sector a lot of leeway and time to recover,” Mr Sutton said.

Pro-actively approaching the ATO and working out a payment scheme is much more advisable than simply putting your head in the sand about ATO debts and waiting for them to approach you.

“It all comes back to careful cash flow management – if you have imminent ATO debts, work out how much realistically you can afford to pay and have an open dialogue with them about repayments,” Mr Sutton said.