Whilst there has been a significant focus on the Federal Stimulus packages as well as payment and lodgement deferrals, business owners should also be looking ahead and planning for a return to “normal” business (whatever that looks like).
Business planning and forecasting is critical as it provides a base line to consider and address alternative outcomes. As a result of the recent economic conditions businesses should consider reviewing financial assumptions and forecasts – we consider that a review of tax forecasts should go hand in hand with these reviews.
Tax forecasts can be as simple as 30% of accounting profit and applying the resultant tax liability evenly over the year, however, this does not really give you a true cashflow picture as to the timing of large income tax payments as well as other factors which may be important to the Practitioner. When reviewing your tax forecasts, we consider that a variety of matters should be reviewed which include but are not limited to:
- The timing of tax payments – calculation of instalment rates and understanding the impact of a lag in tax instalments compared to current performance. This then drives the need to examine the ability to vary and manage instalments within permitted tolerances to assist in cash management.
- Forecasting franking credits – understanding the timing of changes in tax payable and the impact that these changes will have on generating franking credits for companies within the group. Alternatively, has a deferral of tax or variation of instalments created a potential franking deficit position which could result in franking deficit tax arising?
Analysing factors like those above should assist a medico business manage its cashflow to ensure that when the right opportunities present themselves, it is more likely that the business is able to capitalise on them.
If you need assistance in forecasting or cash flow management, or if you’d like an expert to review the forecasts you or your team have done, please contact Maree Macphail, Partner from ESV Business advice and accounting on 02 9283 1666 or email email@example.com.