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Departments/Business matters By Tracy Hickman, Staples Rodway, Auckland
Taxing cash ow challenges
Keeping on top of tax payments can be challenging, particularly in the building industry where payments can be lumpy and some contractors unreliable payers. Avoid getting behind with a few simple strategies.
BUSINESSES may recognise their accounting income, but this doesn’t mean they have the cash to pay the GST, PAYE or provisional tax that may be due.
Often taxman at back of queue
Rapidly growing businesses usually require greater working capital to meet the demands of increased payments to suppliers, wages, taxation and capital expenditure. If additional working capital facilities have not been put in place, Inland Revenue (IRD) payments are often, dangerously, given a lesser priority. Business owners may focus instead on maintaining the supply of products or services and paying wages.
Similarly, the cash ow for underperforming businesses usually re ects insu cient revenue generated to meet costs. Business owners who haven’t scaled back production and overheads to match reduced demand are likely to face hard decisions around prioritising payments.
Always le IRD returns on time
In situations where cash ow has not kept up with tax obligations, it is best to contact your advisor and discuss notifying the IRD before a tax payment is missed. Keep in mind that tax returns still need to be led as they fall due, even if making payment by the due date is unlikely.
By contacting the IRD before the due date and continuing to le on time, the taxpayer may be eligible for reduced penalties and will
be in a good position to work with the IRD to get payments back up to date.
Start with cash ow forecasting
If you are behind with your tax payments, we strongly suggest that your rst step is to create a robust cash ow forecast, ideally covering the next 12 months. This should enable you to assess whether the nancial position is likely to improve or whether you need to take further action to address the problem.
There are several forecasting and budgeting tools that can help. Spotlight Forecasting and Modano are two examples of software that we use when helping clients in this area.
The key is to produce an integrated forecast cash ow, balance sheet and pro t and loss account. By preparing three-way nancial statements, you are less likely to miss important items. The output should help you decide whether you are likely to need to organise further funding or scale back operations to address the lack of cash. It also provides a monthly plan for the repayment of any outstanding principal amounts.
Look at the options
Once you have assessed the bigger picture, review whether the forecast cash ow issues are temporary or permanent. If the latter, talk to busi- ness recovery experts to determine the options, such as restructuring, re nancing, a creditor compromise, receivership or liquidation.
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