BAS Obligations And Cashflow Issues

Cashflow is the lifeblood of virtually every business and cashflow management is one of the most common pain points we come across when working with our business clients, large and small.  Cashflow issues are not unique to small, struggling businesses either – profitable, rapidly growing businesses often have the biggest cashflow pressure of all.

One of the most common mistakes we see is a failure to plan ahead for large cash outflows, particularly Business Activity Statement lodgements.  This leads to businesses utilising payment arrangements with the ATO as a source of short term, but very expensive, working capital.

Most small businesses with annual turnover under $20m report GST to the ATO on a quarterly basis.  The ATO is kind enough to give us 4 weeks after the end of the quarter to lodge and pay any GST owing, or up to 8 weeks if you lodge via a BAS agent or tax agent.

What this means is that GST you collected from your customers on January 1st, may not be payable to the ATO until almost 5 months later on May 25th.  In the meantime, the GST you’ve collected sits in your bank account, hiding cashflow issues until you get an email from your accountant many weeks after the end of the quarter, notifying you that a large amount of GST is payable imminently.  Realising you can’t pay on time, you then call the ATO requesting a payment arrangement and spend the next 6 months paying off a debt you should have had the cash for in the first place!

There are a number of reasons to avoid ATO payment arrangements wherever possible:

• It’s expensive! The current ATO General Interest Charge rate is 7.04% – far higher than bank lending rates
• Banks hate ATO debt. Having ATO debt on your balance sheet makes accessing bank funding extremely difficult
• It’s an administrative headache. Missing a payment by a day or two can mean having to renegotiate an entire new payment arrangement, leading to more time spent on hold by you or your tax agent.

Ok, so how do you avoid this situation?  Here are our top 4 recommendations for avoiding GST related cashflow problems:

Create a cashflow forecast and don’t sugar coat it. Be realistic in your assumptions and pay particular attention to large and irregular outflows like BAS & IAS payments, superannuation, insurance & workcover renewals and income tax payments. Forecast out for at least the next 13 weeks and update your forecast regularly.
Keep your accounting records in good order. If your accounts are clean and up to date, you can review your net GST liability at any time, so there should be no big surprises when it comes time to pay your BAS.
Get your BAS done as early as possible each quarter. This way you know how much you owe and have time to plan before payment is due. At Rockwall Partners, we prioritise completion of monthly and quarterly BAS’ so our clients know their BAS liabilities as soon as possible.
Set up a separate bank account to provision for GST. I If you’re struggling to plan your cashflow this can be a useful strategy.  Set aside an amount each week or month to be transferred into this account for future BAS payments.

Managing cashflow can be tough, but with careful planning and utilisation of some of the above strategies, you can make the task easier and lose less sleep over your next BAS payment.  I If you’re not sure how to set up a cashflow budget or monitor your GST liability, talk to your accountant or get in touch with us here at Rockwall Partners.