Early tax planning discussions provide small businesses with better choices.

Traditionally, small businesses and their advisors have started discussions on tax planning towards the end of the year. For some clients, it’s very close to the end of the year (or even after the end of the year when they realise how much profit they’ve made and how much tax they’ll need to pay). Even for the best businesses, it’s something that happens in March or April (for those with a June year end).

So here are some thoughts of doing things against the grain and help businesses to improve their positions.


The old way of doing things

We provided some tips a couple of years ago on how you can use Calxa to manage this kind of tax planning quickly and easily. The executive summary is:

  • Create a budget based on the current year actuals.
  • Select the remaining months of the year and base the budget on the previous year actuals.
  • Use the Spreadsheet P & L report to show the projected income, expenses and profit.
  • Adjust the budget for the remaining months.
  • Repeat until satisfied.


This process works but, as we all know, the later in the year you leave this planning, the fewer choices you have, the less time your client has to implement new plans. It’s time to do things better!


The New Way of Doing Things

Leaving the planning to the last minute made sense in a world of manual, disconnected systems. One of the beneficial side-effects of GST implementation was that it required all businesses to have up to date financials at the end of every quarter (we’re still waiting for it to fix the cash economy…). The advent of cloud-based accounting systems and the automation of data entry means that many businesses are up to date even more often – and daily is quite possible.

This means that by the end of June we can have a pretty clear picture of the business performance for the year. Even if not everything is reconciled and ticked off, if there are still some adjustments to be made, for the practical purposes of management reporting and planning for the future, the information is accurate enough.

We can then spend time in July working with the client on a budget for the new year. Start by projecting this year forward (the Budget Factory makes this simple). The purists may argue for zero-based budgets but what’s important is to produce something quickly, efficiently and at a reasonable cost. This budget will provide the starting point for a conversation with the client on what they will do differently in the coming year.

Will they be expanding? Are there new projects in the pipeline? How optimistic are they? What additional expenses will there be? Put this all together and you have a projected profit for the year and you can start early on the tax advice – while there is plenty of time to act on it and your client can implement their plans.

You’ll need to monitor the performance to the budget during the year and check if it’s straying from the initial plan. This gives you a great opportunity to make modifications to the tax advice if necessary. Tax planning is the perfect starting point for accountants to engage more closely and regularly with clients, to get to know their business better and dip their toes in that mysterious advisory service that everyone is talking about.