Failing to properly prepare yourself financially at the beginning of your business is a costly and stressful mistake that I see all too often. Knowing it is all preventable but you have to start from scratch is bad enough however getting lumped with a fine from the ATO is just plain frustrating.
If you asked any of these businesses they would tell you they would do things differently if only they had known, so I can only surmise that the reason lies in a lack of basic startup knowledge.
Unfortunately, this lack of knowledge is all too common and happens to many entrepreneurs even those who are leaders in their industry.
I would like to share with you Joan’s* story today. Joan has a very successful business and was well on her way to living the life of her dreams.
She thought she has satisfied the ATO’s requirements by registering for GST but she had failed to lodge any Business Activity Statements in years. BAS can seem like just another annoying piece of paperwork but as Joan found out it’s one of the essential requirements the ATO insist on for GST registered businesses.
Joan received notification from the ATO that unless her outstanding BAS paperwork was lodged within 28 days, they were going to charge her $880, per quarter, for every missing BAS. Joan was devastated, this was not a sum that she could afford as a small business.
When Joan contacted me and we started the process of getting her up to date it quickly became apparent that whilst Joan was a successful entrepreneur her previous accountant had failed to make sure she had clarity about what her obligations were and how to complete them.
Sometimes, as women in business, we’re inherently capable of tackling just about anything with the right support, so when we find ourselves up against something we don’t understand, we can sometimes refuse to reach out and ask for clarification.
The process of BAS and GST is fairly simple when explained properly however if you are not financially inclined or just too time poor to get your head around it, it can be easy to put it in the too hard basket.
In Joan’s case the first thing we did was create an action plan, this is the place I start with all clients. We need to both know where we are at, where we are going and how we are going to get there.
The unlodged BAS paperwork was Joan’s most crucial issue however her bookkeeping process had also failed her so she had no idea where her business was at financially, an area which was also of great importance.
The ATO are generally quite accommodating if you contact them so our first task was to contact the ATO and request an extension so we’d have longer than 28 days to get on track.
It was then a simple process of lodging each BAS starting with the oldest and submitting each as soon as they were ready. A BAS is basically a record of how much GST a business has collected (by charging it on invoices to clients) and how much GST has been paid (on purchases) so it was a matter of collecting together bank statements, receipts and invoices and entering them into the accounting system.
Once this was done, Joan no longer had any outstanding issues with the ATO but she needed to keep up to date in the future. This is when we tackled the problem of her bookkeeping system.
I went over the benefits of bookkeeping, as well as giving her the tools to complete it on her own. I didn’t just send her on her way though, together we review her accounts on a monthly basis, so she knows she is always in control.
As part of the process we reviewed her products, we discovered that there was one product that was under-priced if fact it was costing Joan to sell it rather than making a profit! By fixing the pricing structure this alone made a huge difference to Joan’s bottom line.
It’s been a few months and in that time, she’s actually been able to bring on an employee. This has reduced her workload so she works fewer hours per week – and the timing couldn’t be better, as she’s expecting a baby.
Last but not least we organised lodgement of her tax return (for which she received a refund) and applied to have her penalties waived.
Joan came to me worried and stressed, with no idea how to move forward and meet her ATO obligations.
Her business was actively losing money and she was working ten times harder than she needed to be working, with the ATO breathing down her neck and preparing to drop a load of penalties on top of her.
Now that Joan has a handle on her bookkeeping, she is sure of her obligations and how to meet them. Her business is profitable, she has an employee, and she’s in the perfect position to be taking care of her first child.
Bookkeeping doesn’t have to be complicated and stressful, by getting the right advice and ensuring you have a clear plan you can meet all your obligations quickly and easily. If you would like to book your complimentary consultation to discuss your financial needs contact me here
*name changed for privacy reasons