A look at managing cash flow with deferred income

Strategic business planning can be the difference between the long-term success or failure of your small business, as important as the great idea driving your business and the hard work of your team. Particularly in cases where your business rests on a skill set that isn't financial – maybe you're a dynamite chef or a brilliant clothes designer — it's key to make sure you have a business advisor on your team.

There are a number of tools in a business planning toolkit for planning your finances. When it comes to your tax bill — a good thing to have, because it means you're making money and contributing to the good of your community — it isn't smart or necessary to pay too much.

One way to spread out your tax burden and ensure good cash flow is deferred income.

Define deferring
You can think of deferred income as payments or monies you have not yet received or earned yet. They're usually owing to subscription fees, pre-orders or other forms of advanced payment. Creative services businesses, in particular, will likely see deferred income: for example, if a down payment is made for a media product.

This kind of income is essential to think about and manage well because it is so alluring to think of as cash to spend. But it isn't; it is a liability and must be thought of as such.

Implications
There are important tax implications for deferred income, making it a key topic to discuss with your accountant. You will be taxed when you receive income, not when you earn it. So it's ideal to spread out your subscriptions or any kind of pre-orders with an eye on your tax calendar, spreading out your obligations. Just a little bit of planning can go a long way to keep your cash flow smooth and steady.

If you are employing staff doing any kind of salary sacrifices — for example, providing living accommodations or a other benefits — you will also want to think how deferments impact payroll considerations such as superannuation.

Business losses are another area where the concept of deferment can be useful to consider; If you can't deduct your business activity loss in the current year, you can defer your loss for use in a later year.

Managing your cash flow or tax burden in a strategic way can be tricky. If you would like help or just want another perspective, WMC Accounting can assist. Our team has years of experience to leverage for the good of small businesses of all sorts, working to ensure you are putting yourself in position to take advantage of any and all opportunities for success. Contact us today.