Session 3 - 02 ATO Repayment Plan Budgeting & Cashflow
Summary
TLDRThe video script discusses financial management concepts such as the Australian Taxation Office (ATO), GST, B.A.S.S., and the importance of timely tax payments. It touches on repayment plans for businesses in financial distress and the significance of cash in business transactions. The speaker also covers budgeting, its role in setting targets and governance, and the importance of accurate financial forecasting for maintaining cash flow, which is essential for a company's survival. The script emphasizes the need for strategic financial planning to avoid bankruptcy and the benefits of direct debit for improving cash flow.
Takeaways
- 🇦🇺 The Australian Taxation Office (ATO) allows businesses to lodge their Business Activity Statements (BAS) monthly or quarterly through the BAS portal.
- 📅 Businesses in financial trouble can enter into a repayment plan with the ATO, which involves interest charges and equal repayments spread over a period, such as 18 months for a $50,000 tax debt.
- 💡 The speaker suggests that the government should not be in the business of extending credit to businesses that continue to operate in a manner that leads to further debt without changing their practices.
- 💰 Cash is often referred to as paper money and paying employees in cash can imply tax evasion, but paying for legitimate expenses in cash is not illegal as long as it is properly accounted for.
- 📊 A budget is a financial plan set at the start of the financial year, outlining targets for sales and spending, and is used for governance and strategic planning within a company.
- 📈 The speaker's company creates budget templates that dynamically adjust based on input variables, providing a more accurate and useful tool for financial planning.
- 🔄 Balance refers to the ending amount in an account, such as a bank or credit card, and is an important figure in financial statements.
- 💼 Reimbursement is a process where employees are reimbursed for business expenses they have paid out of pocket, which are still considered business expenses for tax purposes.
- 📋 Deductions are expenses that can be subtracted from a company's revenue to calculate the taxable income, and they also apply to personal tax situations.
- 📝 A trial balance is a report that lists the opening and closing balances of all general ledger accounts, ensuring that the company's financial records are accurate.
- 💧 Cash flow is described as the lifeblood of a company, emphasizing its importance for survival, even over profitability, as it represents the actual money coming into the business.
- 📉 The speaker's company offers cash flow forecasting services to help clients predict and manage their financial health, including strategies to improve cash flow, such as direct debit payments.
Q & A
What is the purpose of the ATO's repayment plan?
-The ATO's repayment plan allows businesses that can't afford to make their tax payment by the due date to enter into a repayment arrangement. This plan is similar to getting credit, where the business pays the tax owed in installments plus interest over a set period.
Why might the speaker believe that the government's repayment plan is not always beneficial for businesses?
-The speaker believes that allowing businesses to continue accruing debt without changing their operating methods doesn't do them any favors. It may lead to more debt without addressing underlying issues in their operations.
What is the general understanding of 'cash' as mentioned in the script?
-Cash generally refers to money, particularly paper money. Paying employees in cash to avoid taxes is illegal, but paying bills in cash is legal as long as it's done legitimately.
What is a budget, and why is it important for companies?
-A budget is a financial plan that a company prepares at the beginning of the financial year to set targets for revenue and spending. It helps in setting strategies, measuring performance, and delegating authority within the organization.
How can budgets be used in corporate governance?
-Budgets allow the board to delegate authority to the CEO and other executives. For example, a CEO may have the authority to spend within the budget but must seek board approval for expenditures beyond the budget.
What is a balance in financial terms?
-A balance is the ending amount on a financial statement, account, bank, or credit card.
What is a reimbursement and how is it handled in a business context?
-A reimbursement occurs when an employee pays for a business expense with their own money and then gets paid back by the company. It's handled through various systems depending on the company's policies.
What is a tax deduction?
-A tax deduction allows a business to subtract certain expenses from its revenue, reducing the taxable income. For example, if a business earns $100,000 and has $80,000 in expenses, it only pays tax on the remaining $20,000.
What is a trial balance?
-A trial balance is a report that lists all general ledger accounts with their opening and closing amounts, providing a summary of the company's financial position.
Why is cash flow considered the lifeblood of any company?
-Cash flow is the money coming into an organization, necessary for paying expenses. Even a profitable business can fail if it lacks sufficient cash flow to meet its obligations.
What is the purpose of cash flow forecasting?
-Cash flow forecasting helps predict future financial positions, allowing businesses to make informed decisions, plan for potential cash shortages, and secure funding in advance if necessary.
How did the speaker's company improve its cash flow?
-The company improved its cash flow by switching all clients to direct debit payments, collected weekly. This ensured a steady flow of income and reduced delays in payment.
What role does a finance manager or CFO play in managing cash flow?
-A finance manager or CFO not only deals with past financial data but also forecasts future cash flow, devising strategies to maintain business viability and avoid financial problems.
Outlines
📊 Australian Taxation Office and Business Debt Management
The speaker discusses the Australian Taxation Office (ATO) and its practices regarding the Goods and Services Tax (GST) and Business Activity Statements (BAS). They mention the ATO's provision for businesses to enter into repayment plans when they cannot afford to make their tax payments on time, allowing for staggered payments over a period with interest. The speaker expresses skepticism about the government's approach to allowing businesses to accumulate more debt without changing their operational methods. The paragraph also touches on the concept of cash, distinguishing between legitimate cash transactions and potential tax evasion, and the importance of legitimate cash payments for business expenses. The speaker introduces the topic of budgeting, explaining its role in setting financial goals and targets for companies, and how it serves as a tool for governance and strategic planning.
💼 Understanding Business Finances: Deductions, Reimbursements, and Cash Flow
This paragraph delves into various financial concepts relevant to businesses. The speaker explains the importance of recognizing business expenses as tax deductions, which reduce the taxable income of a company. They clarify that expenses are deductible regardless of the payment method used. The concept of a trial balance is introduced as a report summarizing all general ledger accounts, which includes details of every transaction within a company. The paragraph also covers manual journals, which are used to adjust accounts for accuracy according to accounting standards and the matching principle. The speaker emphasizes the critical role of cash flow in business survival, likening it to oxygen for a company. They discuss the importance of cash flow forecasting for anticipating financial needs and avoiding bankruptcy, sharing personal strategies used in their first company to manage cash flow effectively.
🔄 Enhancing Cash Flow Through Direct Debit and Strategic Planning
The final paragraph focuses on the strategies employed to improve cash flow in the speaker's own business. Initially, they allowed customers to pay at the end of the month, but recognizing the importance of timely payments, they transitioned to a direct debit system with weekly payments. This change significantly improved their cash flow. The speaker underscores the importance of strategic planning and testing future decisions to ensure the financial health of the business. They highlight the role of cash flow forecasting in making informed decisions about hiring, investment, and managing the business's financial future, offering insights into the proactive measures a finance manager or CFO should take.
Mindmap
Keywords
💡ATO (Australian Taxation Office)
💡BAS (Business Activity Statement)
💡Repayment Plan
💡Cash
💡Budget
💡Balance
💡Reimbursement
💡Deduction
💡Trial Balance
💡Cash Flow
Highlights
The Australian Taxation Office (ATO) allows businesses to enter into repayment plans for unpaid taxes, spreading the payment plus interest over a set period.
The term 'cash' typically refers to physical money and is often used in discussions about tax avoidance when paying employees.
Budgets are essential for setting financial targets and strategies at the beginning of the financial year, similar to setting New Year's goals.
Budgets also serve governance purposes, allowing company boards to delegate authority and manage spending limits for CEOs.
Balance refers to the ending amount in an account or on a financial statement.
Reimbursements occur when employees use personal funds for business expenses and are later compensated by the company.
Tax deductions reduce taxable income by accounting for business expenses incurred to generate revenue.
A trial balance is a report listing all general ledger accounts, showing their opening and closing balances.
Manual journals are used to adjust accounts for accurate profitability according to accounting standards.
Cash flow is crucial for business survival, representing the capital moving in and out of the organization.
Cash flow forecasting helps businesses predict future financial health and manage potential cash shortages.
Implementing direct debit payments can significantly improve cash flow by ensuring regular incoming payments.
Effective cash flow management includes planning for new hires and significant expenses to avoid financial trouble.
Good finance management involves not only tracking past transactions but also predicting future financial needs and outcomes.
Cash flow forecasting is a vital service provided to clients, especially those needing to plan for significant growth or investment.
Transcripts
the ato
the australian taxation office if you
recall i spoke about that
um and i spoke about um gst
and the baz so we're lodging the baz in
the bass portal
to the ato every month or every quarter
now sometimes businesses get into
trouble and they can't afford to make
their payment by the due date the ato
allows you to uh enter into a repayment
plan it's a bit like they're giving you
credit basically
they charge you interest and they say
okay
you can you can pay that um fifty
thousand dollars tax
over uh two over 18 months
equal repayments plus interest um
i've got my own thoughts on on that
which i'll leave for another day
i think that yeah i just don't think
that the gov i don't think the
government does business as favors
by letting them continue to get into
more debt
if they're not and they're not changing
the way they're operating but there's a
whole other story to that
anyway cash i think if i think everybody
knows what cash is right
or do you how do you use i know you say
no that's yeah
cash is just money but usually
they talk about cash as being um
like paper money so
if somebody um you know says uh
i want to pay my employee cash that
means that they're actually
probably cheating and they're trying to
avoid paying taxes
but there's it's not illegal to pay for
a bill um in cash as long as
you've paid for it and it's all it's all
done legitimately
just so that you know if we're referring
to cash it's usually money
um budget uh
so a budget is something that a company
prepares
you know usually at the beginning of the
financial year and it's a bit like
when um you know new year's eve new
year's eve happens and everybody sets
goals i'm going to do this and i'm going
to do that and i'm going to do this
all the budget is is that they're
setting targets
of what they want to sell and what
they're going to spend
and then it's a case of measuring um you
know
did you really sell that much and make
that much revenue and did you really
stay within your spending budget did you
make the profit that you were
forecasting
um and so budgets are really beneficial
they're beneficial for many reasons one
for setting the targets
and and setting a strategy for how
you'll achieve those targets
but it's also um it's also used as a way
to um to do governance so
if your governance is um you know if you
have a board
a company board and then you have a ceo
and um you know people that are doing
the day-to-day work
by setting a budget that is how the
board can um
can uh delegate authority
so let's say that you've got a ceo and
you'll say okay this is your budget
you can spend within this budget but if
you want to spend more than this then
you have to come to the board
so that's another way that budgets are
being used as well so they're quite
they can be very powerful we build some
amazing budget templates
i'm talking where it's not just a case
of i'm plucking a figure out of the air
and i'm putting it in there
we're talking about okay what are the
drivers that make your revenue
you can change the numbers and you run
it and it changes everything
it's really amazing it's really it's
something that i really love
that we do but you don't have to worry
about that for now but i just thought
i'd let you know
um balance uh
balance is the ending amount
the ending amount on a statement the
ending amount in an account the ending
amount um yeah in a bank on a credit
card
uh you know whatever reimbursement
um this is another one that you'll hear
a lot of
so if an employee um
i think i spoke about this one actually
but i'll say it again if an employee
goes out and i remember i said it was
about a sales person
if a sales person um doesn't have a
credit a company credit card and they go
out and pay for parking when they're
going from
work to visit a client or a customer
and they take that person out to the
coffee and then they spend with their
own money they
um will then present a reimbursement
and then they'll get paid for that money
they'll get paid
as i mentioned before there's a lot of
different systems that we use
for different companies on how to handle
reimbursements and you'll just learn
case by case but fundamentally remember
it is a business expense
still a business expense doesn't matter
how it was paid
it could have been that you paid it or
someone else paid it and you paid them
it's still your business expense
and and it's a reimbursement a deduction
um when i talk to you about the expenses
you know go back to a hundred thousand
dollars revenue in a month
eighty 000 in expenses when those
expenses
were spent to make that
um 100 000 they are a tax deduction
so that that means that you are allowed
to deduct that from your revenue and you
only pay tax on the 20
on the 20 000 um so that's what they
mean by deduction
a deduction can also relate to um
your own personal tax in the same way so
in australia we we get paid um
uh we're working a gross salary so
bruto what our gross salary is
we then um get to deduct you know if we
paid for
um professional memberships whatever it
may be we get to deduct that
as well i'll talk about our tax system a
little bit later
um trial balance this is just a list of
all the general
ledger accounts um in one sheet
the general ledger i don't know if that
was in there but i'll tell you what the
general ledger is basically you know how
i was saying to you
um you know there's prepayments there's
accruals there's electricity there's
revenue every one of those accounts
whether they're an asset account whether
they're a liability
whether they're an expense they all are
accounts
that will be found in the general ledger
so the general ledger is like
it's a document a report that shows
every single account in the whole
company
and all of the transactions but what the
trial balance does
it takes the opening and the closing
amounts
of each of those accounts and has them
in one
report manual journal i've talked about
that
you know the reason why we have manual
journals is so that we can
adjust um you know the accounts so that
we can get them to a point where they're
showing us
accurate profitability according to
accounting standards
um and it's uh allowing us to
um to make sure that we're adhering to
the
or keeping um executing the
matching principle of accounting
cash flow this one's king so
cash flow is the lifeblood
of any company cash flow is
the the capital the money that is coming
into an organization
think about it as the oxygen uh you can
be
profitable but if your customers aren't
paying you for six months
and you're not getting that money the
business
it actually can't continue to survive
unless the cash flow is coming in
because if you've got outgoings money to
pay out but you're not getting money in
um even if your business is profitable
you
you could actually end up um going
bankrupt
you guys know what bankrupt is can i get
a thumbs up
bankrupt okay good
um all right so cash flow we
also um we also create really great
templates that
uh help us uh prepare cash flow
forecasts
for a client we can do short term and we
can do 12 months
and so we can look and go okay which
month are you going to run
into trouble one of the things that um
that really helped us build our first
company was
i i would continuously do my cash flow
forecast and i would know six months in
advance if we were going to run out of
money so from a short-term perspective i
would be able to go
okay we need this payment and i would
ring the people and say please could we
pick it up
on da da da da and we'd go and we'd get
the money so we're managing it that way
the other thing is i always knew if we
were winning a lot of work you need to
be able to fund that work
so i would be able to run my cash flow
forecast and see
that in six months we that we might have
um
problems because we've over invested in
too many jobs
so i would be able to start going to the
bank really early
and that's what you know basically a
good finance manager or cfo
does it you're not only dealing with
what happened in the past
that's good you need that but you're
actually doing that so that you can
predict the future
you're doing that so that you can come
up with strategies to keep the business
viable
i'll give you an example of what we did
in order to help
our cash flow when we first started
you know you start a business and you're
just happy that you're going to get
somebody that wants to work with you and
you're only thinking about how you can
make it easy for the customer so
we said okay we'll invoice you at the
end of the month
and then you can pay us in seven days
and sometimes if they didn't pay
we would like let it drag on but then we
got to a point where we said no you know
what we do really great work and we
deserve to get paid for our work just
like when somebody goes to their job and
they work they don't
just go home and not get paid by their
employer exactly the same thing for us
so we turned around and we said well
okay we don't want to work with
businesses that aren't going to pay us
we pay our bills as soon as we before
they're due
almost or when exactly on the due date
so why shouldn't we get paid so we
actually moved everybody to direct debit
and we said in our contracts
direct debits the only option and it's
weekly
so every seven and so the money is just
coming in on its own
we really improved our cash flow because
of that strategy
um so that's why it's important to be
able to look
into the future and be able to make um
test test what you want to do you want
to hire
nine new people you want to see that you
can afford it
as an example you want to make sure that
given all things the same
that the the decisions you're making
they hold water
they will pass the test that you're not
going to get yourself into trouble
you're not just blindly making decisions
that you know could could end up meaning
that you don't have money to pay your
employees or that you can't pay your
suppliers
and then somebody um potentially you
know sends you bankrupt
so it's really really important and one
of um you know we we do cash flow
forecasting for
you know some of our clients um not
every client
it's not for every client some clients
are smaller businesses they don't
need it sometimes it's not in the
package but generally speaking any
client that wants it we can do it for
them
تصفح المزيد من مقاطع الفيديو ذات الصلة
Financial Planning and Budgeting: Financial Budget
Session 2 - 05 ABA files + Other Bank and Economic terms
What is Cash Flow? | Cash flow management
6 Dicas para Melhorar o seu Fluxo de Caixa
Hack to Find Multibagger Stocks 🤑 Cash Flow Statement & Fundamental Analysis of Stocks | Harsh Goela
FA 45 - Statement of Cash Flows Explained
5.0 / 5 (0 votes)