No one likes being caught off guard by a tax bill with an outrageous amount to pay to the ATO, especially when cash flow is already tight.
It’s stressful as a business owner to have to fork out a huge lump sum that was completely unexpected. But it’s often completely avoidable with the right strategies in place to prepare for these circumstances.
At Growth iQ, we regularly see businesses scrambling in the final weeks of the financial year because tax hasn’t been factored into their day-to-day operations. However, with a bit of forward planning and cash flow discipline, you can stay ahead of the ATO and avoid the panic altogether, while still maintaining a healthy cash flow.
This blog covers practical ways to manage your money more effectively throughout the year so tax time doesn’t come with an extra sting to your cash flow.
1. Factor Tax Into Your Weekly Cash Flow
One of the biggest traps we see is business owners treating tax as a once-a-year event. Your tax bill builds up across the whole year, so your planning and cash flow forecasting should too.
If you’re not already setting aside a portion of your revenue each week or month for tax, you’ll likely feel it when those ATO notices arrive.
A good starting point is to allocate a percentage of your revenue to a separate “tax” account so it’s not accidentally spent elsewhere.
Your accountant can help you estimate a suitable figure based on your business and income type.
2. Build a Cash Buffer to Handle Tax (and BAS)
GST, PAYG instalments, super, and income tax all add up quickly. And if you’re not careful, those quarterly or annual payments can create a very large hole in the company’s bank account.
For example, if a small construction business generates an average of $50,000 per month, the business owner should set aside 20% of that monthly income into a separate tax savings account. That $10,000 buffer helps cover GST, PAYG instalments, superannuation, and income tax.
By treating tax as a regular operating cost rather than a quarterly surprise, the business is less likely to face cash flow pressure when the ATO payment deadlines roll around.
3. Keep a Close Eye on Timing
The timing of income and expenses matters more than most businesses realise. Deferring or bringing forward certain costs can help you manage your taxable income in a way that eases pressure.
For example, you might consider:
- Prepaying subscriptions or insurance policies before 30 June if you’ve had a strong year
- Delaying certain invoices until the new financial year if you’re nearing a higher tax bracket
- Review your debtors and write off bad debts before EOFY to reduce your taxable income
Just make sure any changes are commercially justifiable and within ATO guidelines.
4. Regular Check-Ins With Your Accountant
We recommend talking to your accountant and scheduling in quarterly or even monthly check-ins to review your numbers, update forecasts, and plan for tax ahead of time.
This helps you spot problems early, like overdue BAS, income spikes that will affect your instalments, or missed deductions, and gives you time to take action.
5. Tighten Up the Areas That Affect Cash Flow
It’s hard to plan for a tax bill if you don’t have a clear picture of what’s coming in and going out of the business.
A few small changes that can have a big impact:
- Automate invoice reminders and shorten payment terms to speed up incoming payments
- Cancel any recurring software or supplier costs you no longer use
- Renegotiate payment terms with suppliers to delay outgoings
- Use tools like Xero and cash flow add-ons to track trends in real time
Clean, accurate data leads to better planning. It also puts your business in a stronger financial position when those tax bills roll in.
6. Don’t Let Tax Debt Snowball
If you do end up with a tax bill you can’t pay straight away, it’s wise not to ignore it. The ATO has intensified its efforts to collect unpaid debts, and is now deploying stronger collection tools, including Director Penalty Notices, garnishee notices, payment demands, even wind-up and bankruptcy notices for those who don’t engage. These enforcement actions are already impacting businesses, with a 50 % spike in insolvencies tied to unpaid tax debts.
If you’re under pressure, we recommend consulting with your accountant early. Options like payment plans, deferrals, or reviewing your PAYG instalments can help you avoid further penalties.
ATO payment plans: the pros and cons
Setting up a payment plan is a common and practical way to manage tax debt, but it’s not always the right solution. Here’s a quick look at the pros and cons of ATO payment plans:
| Pros | Cons |
| Financial Relief Spreads out your tax debt over time, easing immediate pressure on cash flow so you can continue running your business or covering personal expenses. |
Interest Charges
General Interest Charges (GIC) still apply, meaning you could end up paying more overall compared to paying the full amount upfront. |
| Stay Compliant
Helps you meet your tax obligations, avoiding legal action, penalties, and damage to your credit rating. |
Ongoing Obligations You still need to meet all future tax obligations. Falling behind again can put your payment plan at risk. |
| Flexible Options The ATO offers a range of plans tailored to your situation, including online self-service for debts under $200,000 or more, as well as customised arrangements for more complex cases. |
Takes Longer to Clear Debt
Smaller payments over time can extend the repayment period, keeping the debt on your books for a longer period. |
| Reduced Risk of Penalties Setting up a plan can help you avoid additional penalties and legal action. In cases of natural disaster or severe hardship, the ATO may even waive interest. |
Not Always Available
Not every taxpayer qualifies for a payment plan, especially if you’ve defaulted in the past or don’t meet ATO criteria. |
Plan Ahead with Growth iQ’s Tax Accountants
Tax is never enjoyable, but it’s something every business must deal with. But with a few changes to your cash flow, regular check-ins, and support from a proactive tax accountant, you can avoid surprise tax bills and stay in control of your money.
That’s exactly what we do at Growth iQ. We help small businesses build simple, forward-thinking strategies that keep tax under control and cash flowing all year round.
If you’re ready to stop getting caught off guard, book a session with our Adelaide tax accountants today.