It’s your first year in business: How you can avoid nasty surprises

Your first year in business is an exciting time. You’re building your dream, seeing your ideas come to life, and laying the groundwork for success.

But with the thrill of running your own business comes the inevitable challenge of staying on top of your finances — particularly when it comes to taxes. Many new business owners are caught off guard by unexpected tax bills and financial obligations they weren’t aware of.

The good news? By consulting with your accountant  or advisor early in your first year, you can avoid these nasty surprises and set your business up for long-term success.

Here’s why getting the right advice is crucial and how MYOB can help you stay on top of your tax obligations.

Understanding your tax obligations as a new business

One of the first things new business owners need to get their heads around is their tax obligations. Depending on your business structure — whether you’re a sole trader, company, partnership, or trust — your tax responsibilities will vary. Here’s a quick breakdown:

• Sole Traders: As a sole trader, all your business income is treated as your personal income. You’re required to report this on your individual tax return, and you may need to make Pay As You Go (PAYG) instalments to prepay your tax throughout the year.
• Partnerships: Partnerships don’t pay income tax directly. Instead, each partner declares their share of the partnership’s income on their personal tax return.
• Companies: Companies are separate legal entities and must lodge their own tax returns and pay tax on their profits.
• Trusts: Trusts distribute income to beneficiaries, who are then responsible for paying tax on that income.

As a new business owner, it’s essential to understand your tax obligations from the start. Failing to set aside enough money for tax payments can leave you scrambling when tax time comes around.

PAYG instalments: What you need to know

One of the key tax obligations new business owners should be aware of is PAYG instalments. According to the Australian Taxation Office (ATO), if you expect to owe $500 or more in tax at the end of the financial year, you may need to start making PAYG instalments. These instalments allow you to prepay your tax throughout the year, spreading the financial burden and helping you avoid a large bill at tax time.

PAYG instalments are particularly important for sole traders and businesses earning income from sources outside of regular employment, such as side hustles or investment income. The ATO will notify you if you’re required to make PAYG instalments, but you can also voluntarily register if you want to stay ahead of your tax obligations.

“If you’re a new business owner, it’s critical to understand your tax responsibilities right from the start,” says Leanne Berry, Community Relations Manager (Partners) at MYOB.

“Setting up PAYG instalments ensures that you’re making regular tax payments throughout the year, rather than facing a huge bill at tax time. It also helps smooth out your cashflow and gives you a better handle on your finances.  

“Whether you register for voluntary PAYGI or save these funds into a separate account you need to make these decisions from day one to avoid unnecessary stress and cashflow issues.

“Don’t wait until the last minute to lodge your first tax return. It’s also very important to have your tax returns prepared as early as possible so you then have more informed information about your future liabilities as well.”.

The importance of consulting an advisor

Navigating the complexities of tax laws and financial obligations can be overwhelming for first-time business owners. That’s why consulting with an accountant or tax advisor early in your first year is crucial. A trusted advisor can help you understand your tax obligations, set up PAYG instalments, and create a financial plan that ensures you’re meeting all your responsibilities while keeping your cash flow healthy.

“Getting professional advice early on can save you from a lot of headaches down the track,” says Leanne.

“Your accountant or advisor can help you structure your business in a tax-efficient way, advise on whether you need to register for GST, and guide you through setting up PAYG instalments. The right advice can make all the difference in keeping your business finances on track.”

Your advisor can also help you determine the right amount to pay in PAYG instalments, based on your expected income. This is important because overpaying can tie up cash that could be used elsewhere in your business, while underpaying can result in a large tax bill at the end of the year.

Leanne also states “having a professional bookkeeper on you team from the start is a wise investment in your continued success.  They can help you streamline your accounting software, integrate all your platforms and help you lodge other compliance such as BAS/IAS and payroll obligations.”

How MYOB helps at tax time

Managing your tax obligations as a new business owner doesn’t have to be stressful, especially when you have the right tools in place. MYOB is designed to take the complexity out of tax time, helping small business owners stay on top of their finances and avoid surprises.

“Our software makes it easy for new business owners to track their income, manage their expenses, and stay on top of their tax obligations,” explains Leanne.

“Our platform automatically calculates your tax and super liabilities and helps you determine what to set aside to meet these obligations.  

“If I can give a new business owner one simple, yet vital tip,open a second bank account and on a weekly basis transfer all these obligations to that account, away from your main working account. 

“Doing this will ensure that you will be able to meet your obligations as they become due and payable.. MYOB’s comprehensive suite of tools allows you to manage everything from invoicing to expense tracking, making it easier to maintain accurate financial records.

Additionally, MYOB integrates seamlessly with your accountant’s systems, allowing for easy collaboration and ensuring that your tax filings are accurate and up-to-date.

“Tax time can be overwhelming for new business owners, but we help simplify the process,” says Leanne.

“With real-time financial data at your fingertips, you can make informed decisions and ensure that you’re always one step ahead when it comes to your taxes.”

Plan ahead for a successful first year

Your first year in business is a time of excitement and growth, but it’s also a time to be vigilant about your financial management. By consulting with your accountant, bookkeeper or advisor early on and setting up systems to manage your tax obligations, you can avoid the common pitfalls that many new business owners face.

“Don’t wait until tax time to start thinking about your tax obligations,” advises Leanne.

“By being proactive, seeking advice, and using the right tools, you can ensure that your first year in business is financially sound and free from nasty surprises.”

Take control of your business’s financial future today by consulting your advisor and using MYOB to streamline your tax management. You’ll thank yourself later when tax time rolls around.

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Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.