According to H&R Block, 60% of small businesses (SMBs) in Australia stop operations within the first three years.
H&R Block's Director of Tax Communications Mark Chapman has shared five common mistakes that contribute to this high rate of failure:
1. Failing to keep track of cash flow.
"Don't bury your head in the sand. Keep your books and records up to date."
2. Putting bookkeeping off because there’s always something else to do.
"Don't neglect your bookkeeping. Not only will you struggle to complete your Business Activity Statements (BAS), you also won't understand your businesses profitability and cash flow position.
"Remember to keep all your books and records for five years! Keeping good records helps you stay on top of your business."
3. Failing to engage with your tax or BAS agent or - even worse – failing to engage with the ATO.
"While a lack of cash flow is indeed the number one business killer, there are simple ways to get on top of it. The first is to understand your tax obligations, and I recommend engaging a professional to do so."
4. Failing to realise your business needs to register for GST.
"There are a plethora of services available to ensure SMBs, start-ups, and sole traders have financial reassurance, continue to upskill, and that they get the best possible outcome, not only at tax time, but throughout the year."
5. Not getting professional help with your Business Activity Statements (BAS).
"Use a tax or BAS agent to complete your BAS. Not only will they make the process of lodging a BAS easier, but you’ll also have more time to lodge."
"Now more than ever, small businesses need trusted partners in the form of strong tax advisors."
Surprising items SMEs can claim
Another strategy to combat financial pressure at tax time, is to claim tax depreciation on income-producing assets.
BMT consultancy firm Chief Executive Officer Bradley Beer said that many existing assets owned by a business can be depreciated, and there could be thousands of dollars’ worth of unexpected tax deductions held in surprising items.
"As a general rule, if an asset is used to produce income, it can be depreciated. And in more than twenty years of operation, the team at BMT has seen it all," Mr Beer said.
Mr Beer said that BMT reviewed all the depreciable business assets its site inspectors have seen and noted some of the most specific – and obscure – items identified.
Banana ripening bags were listed as specific and little-known assets that yield significant deductions for banana plantation business owners, while one of the most significant, yet obscure, deductions BMT has found was a theme park ride.
"A banana farm can claim a surprising amount of depreciation on their banana ripening bags. The average first full year deduction comes to $16,000, and the cumulative five-year deduction comes to $37,333," Mr Beer said.
"A pirate ship theme park ride produces an average first full year deduction of $119,987 alone, while its cumulative five-year average deductions come to $535,940."
Image by Kelly Sikkema via Unsplash