So, I’m going to be open and upfront. I work for a registered bankruptcy trustee firm. When I meet my clients for the first time, they’re usually stressed out and under a lot of pressure financially.
I deal with a lot of professionals in my day-to-day work. When I assist professionals who are self-employed, we’re often looking at ways to tackle tax debt.
The reality is that racking up an ATO debt is relatively easy to do. A couple of years of not paying tax and/or lodging returns and before you know it — you owe tens of thousands (sometimes hundreds of thousands) and the possibility of manageable repayment plans are long gone.
But let’s take a step back.
You see, the life of an entrepreneur has been glamourised in recent years. Promises of flexibility, freedom, a “laptop lifestyle” and a four-hour work week are numerous. It almost sounds too good to be true. Sometimes, it is.
As the more seasoned — the entrepreneurs who’ve been around the block a few times — will know, the glamour of running your own business instantly disappears when you get your first complaint, lose your highest-paying client or you’re struggling to make ends meet month to month.
Getting your pricing right while juggling varying clients — and their needs — and any contractors and employees you may have working for you takes an incredible amount of hard yakka. There can also be inconsistencies with workload and even clients or customers paying you on time. The income and expenditure you have one month may look markedly different to the next.
Then you have taxation to deal with. If you’re like most small business owners I know, you’re probably not well versed in accounting. While that’s not a prerequisite for running your own business, provisioning for taxation is something we all have to do.
So, how can you stay up to date with the ATO?
There are a lot of things you can do.
- First, you could put a percentage of what you earn into a savings account or any other account, preferably where you can’t see it or access it until 1 July.
- Second, get some advice from a good accountant. They may be able to provide you with tools you can use to track your expenses and estimate your tax liabilities.
- Third, get appy! Seriously, there are a heap of apps (both paid and free) that you can use to help you manage the financial side of your business. Even the ATO has it own app, which is free.
- Fourth, pay your taxes each year. From my point of view, that’s the biggie. It can be a life-saver to delay paying taxes sometimes; however, if your plan to put aside income or profit in the future doesn’t eventuate, “Houston, we have a problem.”
- Fifth, try to have contingency in the bank. Many work off the three-month rule, i.e. three months of living expenses kept as savings in your account, to help with the months when there may be a shortfall, especially when you’re a newbie to solo life.
- Last, if you’re struggling with a huge tax bill or maxed out credit cards and loans to keep yourself afloat, start exploring your options as soon as possible. In my experience, the longer you leave it, the fewer choices you’ll have.
If you do need to explore insolvency options such as bankruptcy, be sure to seek help from registered professionals.
John Papadopoulos is a CPA accountant at Aravanis, with over 15 years’ experience in personal insolvency.