Introduction: Think of cash flow as the fuel for your business vehicle. Without it, just like a car, your business can't move forward. Let’s explore how to maintain a steady flow of this essential resource.

 Cash Flow: The  Business Fuel Cash flow is the money coming in and going out of your business. Positive cash flow, like a full fuel tank, ensures you can reach your destinations – paying expenses, growing your business, and investing in new opportunities. Negative cash flow, on the other hand, is like running on empty, putting your business at risk of stalling.

Strategies for a Better Cash Flow:

• Timely Invoicing: Send invoices as soon as possible, like refuelling before you hit empty.
• Expense Management: Keep a close eye on expenditures. Avoid overspending, similar to planning a fuel-efficient route.
• Inventory Control: Manage stock levels to avoid tying up cash in unsold products – think of it as removing unnecessary weight from your vehicle for better fuel efficiency.
• Budget for Future Needs: Forecast your cash needs just like you'd plan fuel stops on a long journey.
• Emergency Reserves: Keep a cash reserve for unexpected situations, much like having an extra fuel can in the trunk.

Your Navigation Partner is Apex Accountancy - we're like your GPS and fuel gauge combined, helping you maintain a healthy cash flow to smoothly drive your business forward.

Reach out to us for tailored strategies that ensure your business tank is always full.

In our December Newsletter we teach you about all the tax news and updates you need to know as a business owner in New Zealand. These include: 

Learn more about provisional taxes and payment due dates for 2023. What are the available payment arrangements, and how can you set set them up?

It's the holiday season, and it's time for the annual Christmas work party, gift giving, cash bonuses, and more. But do you know which entertainment expenses you can deduct for your business, and which may be subject to Fringe Benefit Tax (FBT)?

Our December newsletter has details about all these topics and much more too!

Calculating the breakeven point is a key financial analysis tool used by business owners.

Once you know the fixed and variable costs for the product your business produces or a good approximation of them, you can use that information to calculate your company's breakeven point. Small business owners can use the calculation to determine how many product units they need to sell at a given price point to break even.

The Breakeven Point

A company's breakeven point is the point at which its sales exactly cover its expenses. To compute a company's breakeven point in sales volume, you need to know the values of three variables:

• Fixed costs: Costs that are independent of sales volume, such as rent, salary of your employees
• Variable costs: Costs that are dependent on sales volume, such as the cost of manufacturing the product
• Selling price of the product

How to Calculate Breakeven Point

In order to calculate your company's breakeven point, use the following formula:

Fixed Costs ÷ (Price - Variable Costs) = Breakeven Point in Units

In other words, the breakeven point is equal to the total fixed costs divided by the difference between the unit price and variable costs. Note that in this formula, fixed costs are stated as a total of all overhead for the firm, whereas Price and Variable Costs are stated as per unit costs—​​the price for each product unit sold.

The denominator of the equation, price minus variable costs, is called the contribution margin. After unit variable costs are deducted from the price, whatever is left—​​​the contribution margin—​is available to pay the company's fixed costs.

Your credit record is an important part of your financial fingerprint in New Zealand and can affect how companies treat you, for example when you want to borrow money or get insurance.

​This month we talk about checking and correcting your own credit report. 

You can check your credit information for free, but if you want the information in a hurry you have to pay for a report.
​
The New Zealand government links to the main credit reporting companies in NZ. 

Credit reporters must take reasonable steps to ensure the information they hold is accurate, and promptly correct any errors they become aware of.

If you tell a credit reporter that your report contains an inaccuracy, the credit reporter must, if appropriate, take steps to correct it. They will usually check the information you provide with the source − for example, the credit provider who submitted a default.

​Learn more about how to do this on the New Zealand Privacy Commissioner website. 

The Inland Revenue have nearly completed the applications for the COVID-19 Support Payment and are now reviewing the accounts of a sample of their customers who received one or more of the following:

• Resurgence Support Payment (RSP)
• COVID-19 Support Payment (CSP)
• Small Business Cashflow Scheme loan (SBCS).

The review is to make sure customers met the relevant eligibility criteria and have used the payments in line with the terms and conditions. If the IRD find you were ineligible or have not used the payments in line with the terms and conditions, they may act to recover these.

To check the eligibility criteria visit the website by clicking the link. 

The message here is to ensure to send your expenses reconciliation to your accountant.

Inland Revenue started the campaign because a number of real estate agents appeared to be:

• claiming private expenses against their business income and/or claiming expenses without supporting business records
• using net versus gross values when reporting GST
• not including wage subsidy payments received within their annual income tax return.

The message here is do not claim personal expenses and common errors that real estate agents make. 

If you have questions about any of these issues please do not hesitate to get in touch with us here at Apex Accountancy.

Managing Your Cash Flow

They often say cash flow is king and well there quite right. It’s nice to have profit but cash flow is what will make or break your business. With the Pandemic causing chaos in the business world managing your cash flow is now more important than ever.

First off, cashflow often gets confused for profit, yet it’s a little bit different.

Profit – cash left over once your expenses from your sales revenue has been taken out.
Cashflow – Cash that flows in and out of your business and not into your pocket. Cash flow is used to cover your expenses, both current and future. It’s what grows your business.
           
What’s the secret to managing your cashflow?

Books – Make sure your records are up to date. Record all your cash flow information regularly. This is a big must as you need to know if you have more expenses than income or if you have enough cashflow happening to buy supplies. Setting up your bookkeeping and taking care of it regularly means you can check your not only your cash flow but your complete financial state at any time.

Cash flow forecast – Sounds intimidating I know. Simply put this an estimation of the amount of money you expect to flow in and out of your business. By forecasting your cash flow you have the chance to identify any potential or current issues before they turn into major ones.

What a forecast can tell you:

• Projected starting account balance
• Predicted income
• Estimated outgoings, e.g., bills, salaries, raw materials
• Projected ending account balance
• Any money left over

Don’t Forget the Tax Man – Tax sneaks up on you if you are not prepared. Make sure you work this into your forecast.

• Opening bank balance
• Cash receipts
• Cash payments
• Closing bank balance
• Surpluses and shortfalls in receipts over payments

Customers - Useful to have for every business. Invoices, a necessary customer payment prompt. Having a strategy will help make creating and sending invoices easier. Set up a system that works for you. How? Here are a few pointers:

• Use templates already created for invoices
• Use an online billing software. Have a look at Xero for more info on this
• Link invoices to quotes
• Track all your materials and time on jobs better
• Have a process in place for late payment. Don’t be afraid to chase these up.

Keep it separate – Don’t mix your personal and business finances together. Tempting I know. This will make it much harder to work out what your cash flow is. Also gives you a false cash flow forecast. Set up your pay properly so you can pay yourself, any excess cash can then be identified easier and used to grow your business.

Set up a cash reserve   - Is there a certain time of year where you struggle to pay bills? Save for that rainy day.  Start building up a cash reserve now, so you're prepared. Yes, it may mean cutting back a bit for now on what you may pay yourself, but it will be worth it to have that cash reserve.

Bonus too, if any unexpected events arise, for example COVID, you will have a little bit of cash to help you out. Plus watching the cash reserve grow will help build your confidence and strengthen finances.

Need an extra hand?
Business stuff can be complex, so if in doubt ask us for help that’s why we’re here.