Good Habits for Small Businesses

Below are a few useful tips on how to start building good habits inside your business. They will help you avoid common pitfalls down the road. Business is dynamic, so you have to be ready for anything. A safety net goes a long way.

Save at least 10% of each invoice for tax

Most small business owners do not factor provisional tax (due in August and February) into their day-to-day finances. Get into the habit of moving at least 10% of every invoice into a separate savings account when payment arrives. By the time the income tax payment is due, the funds are sitting there waiting, which makes cash flow much less of a headache.

Claim every legitimate business expense

The standard income tax rate on a registered company is 28% of net profit. Keeping a complete and accurate record of every claimable expense lowers what you owe. If your tax liability ends up below your savings, you have the money to pay tax and spare cash to invest the following year. The lesson is simple: the more you save, the better.

Separate your VAT

The current VAT rate is 15%. This is not your money. A lot of small businesses fall into the trap of treating the VAT portion of their invoices as working capital, then come unstuck when the payment is due. Move 15% into a separate account linked to your business account, where it cannot creep into daily cash flow. With input VAT to offset, you will often have a surplus, which protects you against unexpectedly large VAT bills at the end of a two-month cycle.

Ask your bank about linked savings accounts

Most banks offer pocket savings or transmission accounts linked directly to your business account at no extra monthly fee. They only allow transfers between your own accounts, which makes them a clean way to ring-fence your tax and VAT reserves. Ask your bank for the most cost-effective option before you open a new account that carries fees.

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Written by Derryn Brigg, Business Advisor at ActivPro Business Solutions.