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!

Provisional tax is due on August 28, 2022.
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Provisional tax helps you manage your income tax. You pay it in instalments during the year instead of a lump sum at the end of the year. You'll have to pay provisional tax if you had to pay more than $5,000 tax at the end of the year from your last return.

It's payable the following year after your tax return. For example, if your residual income tax from your 2022 return is more than $5,000, then you'll need to pay provisional tax during the 2023 tax year.

Provisional taxpayers often earn:

• self-employed income- extra income like Uber income and side hustle income
• rental income
• income earned as a contractor
• income from a partnership
• overseas income.

There are some situations where you may need to pay provisional tax on your reportable income.

Reportable income is income information that Inland Revenue receives regularly from a third party (e.g. an employer, a bank, etc) for an individual and a tax year.

This includes:

• PAYE income payments
• income payments
• ACC attendant care payments
• Prescribed Investment Entity (PIE) income
• Employee share scheme income with tax withheld
• NZ resident interest/dividends
• Non-Resident interest/dividends/royalties
• Taxable Maori Authority distributions

These can be due to:

• incorrect use of tax code or rate for PAYE, interest, or dividends
• lump sum payments that did not have tax deducted, or not enough tax deducted
• employee share scheme income that did not have tax deducted
• property sales subject to the bright-line property rule.

Please budget for your August 28, 2022 Provisional tax.

In order to calculate an accurate charge out rate there are many factors you need to take into account. From your target income to the amount of hours you can manage ANZ has all the tips and tricks. 

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.

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. 

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