Why you should embrace a high BAS as a good thing!
Paying GST is a good thing! What did I just say? I realise it’s a unique way of looking at your Activity Statement, but I get a little pang of excitement when preparing a BAS. Especially when comparing it to the previous period and see that it is higher or better still, your highest yet!
Why? How can paying tax be a good thing? Who do I think I am working for, you or the tax man? There are probably a lot of questions running through your head right now, but I want to challenge you to change your perspective.
Let's go through this together:
GST is not your income. It is an amount that you include on your invoices, that is in addition to your income that you are obliged to collect for the government. It may appear as money in your bank account for a few months, but it doesn’t appear in your financial statements other than as a liability to pay on your balance sheet. The better your business is performing, the faster this liability accrues. This is where some businesses come unstuck. We need to challenge the mindset that all the money in your account is yours.
You (or your BAS Agent) have checked your GST and BAS reports and everything is in order. Your amount payable is exceptionally high. Eeek! Wait - this is great, you’ve had a bumper sales quarter! Perhaps this is the highest quarter since you started your business. Well done, give yourself a pat on the back. Your business is a success! You are a responsible business owner who makes good decisions and is compliant with their obligations.
Your business pays GST on most purchases you make. You then claim this GST on your BAS. If you have a lot of expenses in your BAS period, the GST you claim back in that period will be high, intern reducing the amount you pay. If you have low expenses in the period, it will be low. The logic here is that if you have had low expenses, your profit margin is growing! Again, this is terrific for your business.
Fantastic, you’ve had a bumper quarter. How are you going pay this huge BAS liability and where is all that money? Is that excitement of being a success becoming a sinking feeling of dread?
There is an easy solution and we recommend each business gets into this easy habit. At the end of each week transfer the GST component that you have collected to a GST savings account and leave it there until it is time to pay your BAS. At the end of each payroll cycle, also transfer the PAYG liability to the GST savings account. Now the funds are sitting there waiting. I know you have heard this before, but do you actually do it? Get into the practice by putting a reminder in your calendar and make it happen. Even better, when you open the savings account, make it an interest bearing account and actually make some income while these funds sit there. Make it work for you. This way you won’t have any “Tax-iety” - that sinking feeling when it comes time to pay the ATO. You can rest easy, smile and enjoy your business's success.
Navigating the path of cash flow can be tricky but it doesn’t have to be. Setting up systems early prevents long term stress.
If you need some help, contact us. Your success is our success.