4 tax time tips for small business owners
We asked three small business owners and an accountant to share their top tips for tackling tax time – here’s what they had to say.
Small business owners have a lot on their plate. Add tax time to the mix and it can start to feel overwhelming.
Indeed, the latest research shows concern about economic and regulatory factors increased from 23% in November 2022 to 33% in November 2023, making it now the number one challenge for small businesses.*
Concern about business demand and cash flow has also seen significant growth. With an increase from 15% to 25%, it’s the number two challenge identified by small businesses.
So how can small business owners prepare themselves for tax time and alleviate the associated pressure on cash flow? We asked three small business owners and an accountant to share their tips
1. Boost your cash reserves
“The main thing is to never leave your paperwork until the last minute,” says Marleen ‘Mrs Pete’ Suy of Pete’s Natural. “Don’t put it off because it’s something you don’t like doing – that will just make things harder when it comes to tax time. “Unfortunately, tax time comes at what is usually a dip in our year. If that’s likely for your business, make sure you put money aside during the year so you don’t get caught short. “Try a user-friendly accounting software that gives you a real-time snapshot of your business finances. And even if you’re doing most of it on your own, it’s worth consulting with an accountant regularly so you know you’re on the right track and can get expert advice when you need it.”2. Do your tax diligence
“Put away more money than you need to pay your tax obligations and enjoy the delight of having money left over rather than more to pay,” suggests motivational business speaker Glen Sharkey. “It’s about creating a safety buffer for your business. “Don’t [tire] yourself trying to do everything. Understand your financial skills gaps and either ‘school up’ to fill them or hire someone to help you, otherwise you’ll just get buried in the weeds. If you’re worried you can’t afford it, ask yourself the more important question – can you afford not to?”3. Don’t forget to forecast
“Starting out, I forgot about tax time until the bill arrived – the horror!” says Boost Your Learning’s Amy Johnson. “Be prepared for what’s coming up by forecasting. Running a business means being proactive about tax and finances, not reactive. “I use a cash flow forecasting spreadsheet to anticipate lean times and accounting software to help me classify spending appropriately. My bookkeeper and accountant help make sure expenses and assets are itemised correctly to maximise profits. A good accountant can help you manage invoicing and payments to better time big investments. Paying for expert advice has saved us a lot of money and mistakes in the long run.” “Remember, paying tax means your business is profitable. That is something to celebrate!”4. Open a business account
“Assembling accurate records is critical for tax time,” Mike Pirovich, Director of Bare Bones Accounting. “Your account becomes your prime accounting record so it’s important you have a dedicated business account and associated debit or credit card. “In all but the simplest situations you should use accounting software and make sure it’s linked with your account. You or your accountant can then use it to prepare for tax time with financial statements at year’s end, a depreciation schedule, a director’s certificate and AGM minutes if the business is a company. “The tax department places the responsibility on the taxpayer to get everything done correctly. If you get it wrong, it can cost you in penalties. Getting professional help will help you avoid that risk. “The most important thing is to put funds aside throughout the year for tax. Many people like to set up a separate account for this purpose. If you fall behind on paying tax, it can be very difficult to catch up.”
If you would like to understand these tips better or are unsure about how they might apply to you, reach out to a qualified tax adviser.
*RFI New Zealand SME Banking Council, November 2023
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