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When is the best time to register for GST?   

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The Australian GST system can appear to be quite complicated for some small businesses just starting out, due to the different types of GST goods and services, such as input taxed, GST-free and GST taxable.

Input taxed items are commonly financial services or products and rent from residential property.

GST-free items are goods and services provided as a part of education, medical and health services, and unprocessed food and produce.

Goods or services that are not classified as input taxed or GST-free are considered to be taxable. These products or services must have GST included in their selling price if the business selling them is registered for GST.

A determining factor of whether a business should register for GST is whether or not they can pass on the GST in the price they charge, or whether their industry’s market determines their product price, meaning GST cannot be added to the price.

Another factor businesses need to consider is whether they are able to increase their selling price to include GST. Businesses who cannot increase price effectively lose one-eleventh of the selling price (which must be paid to the ATO).

Businesses that turnover less than $75,000 a year are not required to register for GST. These businesses receive an Instalment Activity Statement, rather than a Business Activity Statement, from the ATO that advises them of their PAYG tax instalments. The IAS also must have completed the details of amounts paid to employees and how much has been deducted as PAYG withholding tax.

Managing your cash flow over Christmas

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The holiday period can account for a significant amount of sales for some businesses. For other industries it may be a challenging time of the year, particularly in terms of cash flow.

Businesses can take a proactive approach to managing their cash flow by adopting some of the following strategies:

Invoice quickly
Stay on top of your accounts receivable by prioritising collections and invoicing your clients quickly to avoid chasing up overdue accounts in the new year. Contact problem payers early with a courtesy call to check they have the invoice in their system and remind them of the due date.

Tighten up payment terms
Consider shortening your payment terms or offering Christmas early payment discounts to encourage advance payments. For large sales, you may want to consider a full or part deposit to be paid up front.

Consider debtor finance
Debtor financing is an option for those business owners who don’t want to deal with the headache of chasing up accounts. A debtor financing company takes control over your accounts receivable and allows up to 90% of your invoices to be received immediately. Your customer then pays the debtor financing company and your business pays commision to the debtor financing company. The advantage of using debtor finance is the certainty of payments over the festive season to help create a healthy cash flow.

Managing your working capital

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Working capital is the money needed for day-to-day business operations and is often a measure of a business’s liquidity, efficiency and financial health.

To ensure your business has adequate working capital, the working capital cycle should be applied. The working capital cycle is the length of time from the purchase of inventory to the receipt of cash from customer sales.

The cycle consists of four elements: cash (funds available), creditors (accounts payable), inventory (stock on hand), and debtors (accounts receivable). Maintaining good cash flow requires control over each component. Ways to improve working capital:

Invoicing
To collect payments from debtors early, consider:

  • establishing a credit policy
  • invoicing early
  • reducing payment terms
  • stop supplying credit to debtors that do not pay
  • following up on overdue accounts
  • offering early settlement discounts

Inventory
Inventory can tie up a large sum of your working capital; reducing inventory through the just-in-time model can increase efficiency and eliminate waste. The just-in-time inventory model is beneficial as it allows for quick changes to customer needs and frees up working capital to better meet financial obligations.

Managing cash outflows
Managing the money you owe to creditors is just as important as managing your accounts receivable.

To ensure your cash outflow meets your obligations:

  • consider early payment discounts
  • prioritise suppliers
  • ensure the accuracy of invoices before making a payment
  • only make payments when they are due

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