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.

What's best for your business? Within the Covid levels there are a range of financial support options to get you through.

Available during Levels: 2, 3, 4

Does your revenue drop every time there’s a change in COVID-19 levels?

RSP is a payment available to support business or organisations that are facing a reduction in revenue created by COVID-19 alert level increases. 

Are you eligible?

If you have been in business for at least 6 months and have experienced a drop of 30% in revenue over a 7-day period after an alert level increase, not just covid in general, you may be eligible for this support payment.

What do you need to know?

RSP is not an automatic payment support, the government will decide whether to activate if the alert level increases from level 1 for at least a week. 
This payment is not a loan, so does not need to be repaid. The payment must be used to help cover business expenses such as wages and fixed costs. 
Applications will remain open for 1 month after the return to Alert Level.

The legislation introduced last year was designed to simplify and integrate tax processes with day-to-day business. The result is a new option for managing provisional tax through accounting software, the ‘Accounting Income Method’ (AIM), which will be available to start on April 17, 2018.

What is AIM ( Accounting Income Method)?

Accounting Income Method is a new provisional tax option for small businesses with annual turnover under $5 million.

How does it work?

MYOB, Reckon or Xero calculates the payment by using the information in your accounting software.  The system will calculate provisional tax if your business is making profit. The calculation will include basic tax adjustments for depreciation, Shareholder Salary, Private Use expenditure, Debtors and Creditors, Provisions, Trading Stock and Prior Year Losses.

Two key benefits of Accounting Income Method

1. No exposure to Use of Money interest if you pay what your software tell you to.
2. No Penalties , if you take reasonable care with your record keeping.

What are the other benefits of Accounting Income Method?

1. Refunds are available throughout the year and can be transferred to other tax account ( e.g GST or PAYE)
2. Refunds will be automatic and quick so ensure to enter your correct bank account information.

Use AIM if your business turnover is 5 million, growing and the sales are unpredictable or fluctuating.

Partnerships, Maori Authorities, Superannuation funds, Trusts and Portfolio Investment entities.

Keep up to date with tax changes. Follow us on Facebook to learn more. 

​
​