If you see money in your business account, it’s easy to assume you can spend it. But some of that balance may be sales tax collected from customers or payroll taxes withheld from employees. In this episode, you’ll learn why those funds need to be accounted for and how to avoid a cash-flow surprise when tax payments are due.
Why your bank balance can be misleading
Your bank account shows one total. It doesn’t separate money your business earned from money you’re holding until it can be remitted.
For example, you might have $50,000 in the bank, but some of that could be sales tax collected from customers and payroll taxes withheld from employees. That money is already committed, even if it’s still sitting in your account.
Review business tax liabilities regularly
Look at your sales tax and payroll tax liability accounts. Compare those balances with your tax returns and payment records so you can see what has been paid and what is still owed.
If your accounting records show a liability that doesn’t match what you believe you owe, investigate it. Accurate records help you understand how much cash is actually available to use.
Set aside funds and plan for deadlines
Once you know what your business owes, consider keeping tax funds in a separate bank account. Moving the money when it comes in can make it easier to avoid spending it on other expenses.
Include upcoming tax payments in your regular cash-flow planning, too. Knowing what’s due and when can help you avoid discovering too late that the funds aren’t available.
If you use committed tax money to cover other business expenses, you may not have enough cash when the payment is due. Late payments can lead to penalties and interest, and catching up can be difficult when cash flow is already tight.
Watch the full episode
Before deciding your business has extra cash, find out how much of the money in your account is truly available to spend. Watch the full episode to hear more about reviewing tax liabilities, setting funds aside, and planning for payment deadlines.
