Preparing your Quarterly Report: This article is focused on Australian Sole Traders.
An income statement is a financial statement showing how profitable your business was over a certain reporting period. It shows revenue, minus expenses and losses. For the Sole Trader the relevant time periods are for preparing Your Quarterly Report.
Regardless of the size of your Business you need to keep records and report your profit or loss to the ATO for tax purposes on an annual basis.
The Australian Tax Office (ATO) collects income tax each financial year. The Australian financial year runs from 1 July to 30 June of the following year. (ie 1 July 2020 – 30 June 2021)
As a Sole trader you can fall into the stereotype of bringing out the Shoe box of receipts at the end of the financial year. Trying to recall all or any business deductions that might be relevant. Before heading off to see your Tax Agent to submit your tax return to the ATO.
DIGITIZED RECEIPTS
To avoid this stereotype, Digitizing your receipts removes a lot of the hassle involved in your recordkeeping procedures. Regularly scanning and storing your receipts means:
- When tax time comes, you won’t spend hours sorting through a pile of crumpled receipts wondering whether that $13 parking charge was for a client meeting or a trip to the theatre.
- You won’t miss any valuable tax write-offs.
- You’ll know exactly where your money is going every month—so you can reduce unnecessary spending.
- Printed receipts can also fade and become unreadable. Thus unusable. It’s good to know the ATO accepts that a digitised receipt is as good as the paper original (maybe better as it doesn’t fade.) I’ve had receipts less than a few months old unreadable and no idea what it was. So that’s a careless mistake for a small operation.
There are a number of Free receipt scanning apps and software. So do a little research to find the best one for your needs.
“End of Financial Year and preparing Quarterly reports”
When you are a Sole Trader there is no “End of Financial Year” (EOFY) group certificate to rely on. And if you haven’t registered for Business Activity Statement (BAS) status or planned Quarterly reconciliations as part of your schedule. You may have no system in place to monitor how your Business is tracking financially; or at regular intervals during the Financial Year.
That’s where Quarterly Reports help Sole Traders keep on track. As a result of preparing quarterly reports you are able to compare projections against actual income. This can also help reveal costs or financial drains you hadn’t foreseen in the planning phase.
Another important factor if transitioning from Employee to Sole Trader is you lose sick leave, superannuation and other benefits you may have taken for granted.
Sole Trader Journey & Quarterly reports
When we are investigating income alternatives the obvious options are “get a 2nd job” or “I’ll start a Business or side gig.” If you were a revenue producer as an employee that’s a logical conclusion.
If you have followed my Sole Trader journey you may know I was forced to leave the work force and the comfortable realm of income + commission. Meaning my efforts were rewarded according to the results achieved. The Commission component was always the motivation behind my drive. And numbers don’t lie.
So wouldn’t that translate into a home based Business?
If we are using Covid Lockdowns, unexpected unemployment & financial stress as a motivation to go into Business. A lack of planning and\or underlying financial concerns can stall progress. Leaving you vulnerable to market changes and overlooking important considerations.
With new unknowns in the marketplace it can be a tricky undertaking. So having a Business plan is crucial.
Although my venture into Business was an unplanned transition. I was fortunate to have assistance to prepare a Business Plan. The Business plan had conservative\realistic income & expenditure projections. The projections then become the basis of your cashflow summary in your Quarterly Financial Summary. This checkpoint quickly exposes if you have a viable enterprise, or not.
Budgeted & Actual – Income, Expenses, Balance
It is highly recommended when considering going into Business to invest time into a thorough Business Plan. As it is a useful reference to your short, medium and long term goals and targets.
These projections can be a crucial indicator of financial health – predicted versus actual. Also revisiting your Business Plan each quarter is a helpful reminder of why you went into Business in the first place. Helping re-motivate you if needed and get you back on track to reaching or surpassing your initial targets.
Months done the track I re-read my Business Plan to assist in the Business Mission Statement. By referring back to the original Business plan it creates a consistent message for branding. The Business Plan can evolve with time or changes in direction.
“The best laid plans”
But as we know … “The best laid plans”
(An expression used to signify the futility of making plans when the ability to execute them is uncertain.)
I prefer the more positive Benjamin Franklin quote of “If you fail to plan, you plan to fail.”
Because in March 2020 along came Covid Lockdowns & the world went into shock. We were forced to change Business and life in unplanned directions. So the best intentions of any Sole Trader can go awry.
Armed with My Business plan and quarterly prompters to complete my reports; processes were followed in the first 9 months. Keeping me on course by bringing the Businesses financial position in to reality every 90 days.
I had been reasonably diligent those first few quarters. So each time didn’t have too much “catch up” needed to complete a quarterly report.
As the Business had limited spending, running on a shoestring, it was quite easy to add most purchases on the day of purchase to my Financial tables spreadsheet.
Bundling receipts into months.
When Preparing Your Quarterly Report. Logging on to Bank statements for the period made it easy to transfer to the Expenses tab of the spreadsheet. This is where you can quickly discover any unexpected or regular Business costs you hadn’t planned for, which can quickly erode even the smallest of gains.
How is taxable income calculated when preparing your Quarterly reports?
The ATO calculates the individual or business income tax based on the taxable income using this formula: the assessable income minus allowable deductions. The result is the taxable income, or the amount that you are liable to pay tax on.
ATO – Due dates for lodging and paying your BAS
The due date for lodging and paying is displayed on your business activity statement (BAS). If you are registered for GST. (Criteria below)
If the due date is on a weekend or public holiday, you have until the next business day to lodge and pay.
Your GST reporting and payment cycle will be one of the following.
- Quarterly – if your GST turnover is less than $20 million – and we have not told you that you must report monthly.
- Monthly – if your GST turnover is $20 million or more.
- Annually – if you are voluntarily registered for GST and your GST turnover is under $75,000 ($150,000 for not-for-profit bodies).
So when do I have to prepare Quarterly reports?
Ref: www.ato.gov.au
Passion Ignites but Craft Sustains
Accounts & balancing the books is often the least liked aspect of running your enterprise. However it’s a fundamentally important part of growing a successful Business and necessary when Preparing Your Quarterly Report.
Business Owners are passionate about their craft, meaning backend procedures can be overlooked, trusted to others or simply fall due.
But we are ultimately responsible for any liabilities, so it is essential we get the basics right. And seek financial expertise to ensure we are complying with all the relevant requirements. Don’t forget all bookkeeping and Accounting is tax deductible. And the ATO can be helpful for all your tax related questions regarding Preparing Your Quarterly Report.
So it’s important to know the definition and importance of Bookkeeping when Preparing Your Quarterly Report.
Bookkeeping is the recording of financial transactions and information pertaining to the Business. This is done on a day to day basis. Income earned and what’s been spent. It ensures records of all financial transactions are correct and up-to-date. Bookkeeping provides the information which accounts are prepared.
Whatever your inspiration is to start a Business.
- Work for yourself
- Make money from home
- Say goodbye to toxic work environments
- Spend more time with your family
- Indulge in your hobby or passion
Remember the old expression “Do what you LOVE and the money follow.” Or“If you do what you love you never have to work a day in your Life.”
I honestly hope we all reach our goals no matter how humble or lofty they maybe. Just don’t forget to keep good records on the way.
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