No one could have predicted what 2020 held for us. With the year over, it is essential now more than ever, to take a step back and focus on the bigger picture for 2021. This article details 4 vital accounting tips for 2021 that will ensure you remain prosperous through the year.
1. Claim instant asset write-offs
Small businesses can usually claim instant asset write-offs. These are immediate deductions for the business portion of the cost of an asset, which is applicable in the year the asset is first used or installed ready for use. Instant asset write-offs are $150k for business assets in 2021, up from $30k last year. There are certain eligibility requirements to access this $150k instant asset write-off threshold.
The instant asset write-off can be used for:
- multiple assets as long as the cost of each individual asset is less than the relevant threshold
- new and second-hand assets.
Cars used for business is the big question on everyone’s mind. They are included but have limitations, the car limit for the instant asset write-off threshold is $59,136 for the 2021 financial year.
2. Forecast sales for 2021
After 2020, this initially may seem like an impossible task, but there’s now 6 months’ worth of data on how the pandemic and associated lockdowns have affected small businesses. It is particularly important to look at your own revenue in the past few months, so you can start to formulate a plan for this year. If you have clarity on how your business has been affected, you can make some educated guesses on where the business will go. When sales forecasting, you cannot expect to be 100% accurate, you can only make approximations using your own sales history and observing external circumstances.
3. Create a budget
Once your forecasting is done, you can look at your costs to create a budget that determines how much you should be spending for the year. Creating a budget will bring your attention to areas that may require more expenditure than others.
You can start by running a 12-month profit and loss statement from the previous year to see your regular expenses. Then you can categorise these costs as fixed or variable costs. Fixed costs stay the same regardless of business activity or size, whereas variable costs will vary with sales. You can then estimate your fixed costs based on your monthly expenses, and your variable costs as a percentage of sales.
4. Establish a cashflow forecast
Once your budget is complete, you will be able to create a cashflow forecast to determine when to keep cash in the business and when to use it.
Typically, a cashflow forecast will have an opening bank balance and show cash inflows and outflows for each period, usually by month. This can be determined by regular operational costs and will include things like loan repayments, rent and asset purchases. The number at the end of each month is referred to as the closing cash balance and this number becomes the opening cash balance for the next month. Managing your cash is imperative for small business and ensures that all your payment obligations are met.
If you would like some assistance with instant-asset write-offs or need some guidance on budgeting/forecasting, contact Link Advisors and we can guide you through the process.