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3 Reasons why increased spending at EOFY might not be your best plan


Welcome to the EOFY spending frenzy

The End of Financial Year (EOFY for short) spending frenzy is upon us yet again.

We see it every year – first starts all the advertising of deals on big ticket items (eg motor vehicles) and office equipment.  

Then come the questions from our clients pondering if they should go out and buy stuff (many include items they never thought of buying for their business, just 2 months ago). 

But is this last minute spending frenzy really your best option at year end or is it just another form of impulse buying – targeted at small business by big business?

In this week’s episode of Catalyst Plus TV, we investigate three alternative options for you:

  • Why paying your existing creditors will maximise your position (without spending any more)
  • Assess what you can afford v what you need
  • Buy only you will use in the next 3 months


EOFY spending frenzy

All the advertising is out there encouraging you to spend more money now with massive savings on asset purchases (some you may not have been thinking of in the first place) – all at the same time to increase your business tax deductions.

All these big companies who are advertising all the specials are really doing you a big favour – right?

In this week’s episode, we investigate whether or not this increased spending at year end is really your best option.

Here are three alternative options for you:

1. Pay your existing creditors to maximise your position

Most small business will have their tax prepared on what we call “Cash accounting basis”. This means that you claim expenditure when paid against income that has been received in the financial year.

This differs from your accounting system that records income when invoiced and expenses when you receive the supplier invoice.

If you have suppliers with outstanding bills at year end – usually for stuff you need on a daily basis – you’ve already incurred the cost, but you won’t get to claim it as a deduction in the current financial year unless you have paid the invoice before 30 June.

Provided your tax returns are being prepared on this cash accounting basis, by paying as many of your supplier invoices before 30 June as you can afford, you’ve already increased your deductions without the fear of over spending.

2. Assess what you need v what you can afford

We ask our clients to make a wish list throughout the year. Assets and purchases that would be nice to have – but not essential to make the business run smoothly.

Depending upon your industry, this list might be tools that you use once every 6 months (but make a job half the time), equipment, or extra cupboards for storage etc.

The next step is to review your profit & loss to see how much profit you’re currently making and are willing to ‘forgo’ for minor asset purchases. Make a budget of how much expenditure to spend, and then prioritise the list and find EOFY deals for those assets.

ONLY BUY those within your budget.

3. Buy only what you will use in the next 3 months

Third, only buy what you’ll use in the next three months. This is especially important when it comes to stock and stationery.

Often times we see clients spend ‘big’ on stock and stationery at year end, and that stock is still there in 6 months time.

It is always better to have cash in your pocket than stock or stationery sitting on cupboards not making you money.

For those of you worried about paying tax – perhaps we can help with a little twist of what paying tax actually means:

If you are paying tax – you are moving forward financially.

If you aren’t paying tax – you are moving backwards financially.

I don’t know about you, but I’m happier when I’m moving forward financially…


Just because it’s EOFY doesn’t mean you have to go out and buy stuff in a spending frenzy

Now, everybody’s business is different, and the above strategies will work best for 

To have specific, tax advice tailored to your business and circumstances, it is ALWAYS best to consult with your tax advisor. Hopefully, the above will help you to have an increased understanding of what the available strategies are, so that your conversation can be more meaningful.

If this topic was helpful for you – please share on social media.


 

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