Session 3 - 02 ATO Repayment Plan Budgeting & Cashflow

Summary

The 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

00:00

📊 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.

05:02

💼 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.

10:03

🔄 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.

Keywords

💡ATO (Australian Taxation Office)

The Australian Taxation Office is the government body responsible for administering tax laws and collecting taxes in Australia. In the video, it is mentioned in the context of lodging BAS (Business Activity Statements) and dealing with GST (Goods and Services Tax). The ATO also offers repayment plans for businesses struggling to pay taxes on time.

💡BAS (Business Activity Statement)

A Business Activity Statement is a form submitted to the ATO by businesses to report their tax obligations, including GST, PAYG (Pay As You Go) installments, and other taxes. The video explains that BAS can be lodged monthly or quarterly, and is essential for businesses to stay compliant with their tax obligations.

💡Repayment Plan

A repayment plan is an agreement with the ATO allowing businesses to pay their tax debt over a period of time with added interest. The video discusses how this option helps businesses manage cash flow when they cannot meet their tax payment deadlines, although it also highlights the potential risk of increasing debt.

💡Cash

Cash refers to physical money such as paper bills and coins. The video highlights the difference between legitimate cash transactions and those that might be used to evade taxes, such as paying employees in cash without declaring it to avoid tax obligations.

💡Budget

A budget is a financial plan that outlines expected revenues and expenditures for a certain period, typically a year. It helps businesses set targets and strategies for achieving them, and is crucial for governance and managing company finances. The video emphasizes the importance of accurate budgeting and monitoring to ensure financial health.

💡Balance

Balance refers to the ending amount in an account or on a financial statement at a given time. In the video, it is explained as the closing figure for various accounts, such as bank accounts or credit cards, which is critical for understanding a company's financial position.

💡Reimbursement

Reimbursement is the process of paying back someone for expenses they have incurred on behalf of the company. The video explains how employees might need to be reimbursed for business expenses paid out of their own pockets, emphasizing the importance of treating these as business expenses.

💡Deduction

A deduction is an expense that can be subtracted from gross income to reduce taxable income. The video discusses how business expenses are deducted from revenue to calculate taxable income, and also touches on personal tax deductions for individuals.

💡Trial Balance

A trial balance is a report that lists all the general ledger accounts and their balances at a specific time. The video describes it as a summary document that helps ensure the accuracy of financial records by showing the opening and closing balances of all accounts.

💡Cash Flow

Cash flow is the movement of money in and out of a business, crucial for its day-to-day operations. The video stresses that cash flow is the 'lifeblood' of a business, more important than profitability alone, as it ensures that the business can meet its obligations and avoid bankruptcy.

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