Overlooking the importance of a positive cash flow in a business will lead to daunting consequences. Trigger events may occur, but positive cash flow can keep the business afloat.
Cash flow affects operational procedures, quality control, sales and marketing, and other daily activities. Without a positive cash flow, an otherwise successful business can fail.
In the ever-changing business environment, businesses must understand the impact taxes can have on their cash flow. Businesses need to consider the uses of tax services and tax professionals.
Their responsibilities revolve around changing tax laws to ensure tax compliance at every level. Considering the tax side of a business, it becomes clear how tax planning and tax planning services will affect your business.
This article will show how tax planning services can affect your business and the best ways to utilize them.
Importance of Cash Flow to Business
We already stated that cash flow is important. Let’s consider it and see how critical it is to your business.
1. It Helps You Stay Solvent.
The goal of every business is profit. However, profit is not the only criterion to determine a successful business. Cash flow, for example, gives a critical overview of your business. Having a positive cash flow means your business can stay solvent.
Here is an example: Suppose you start a hot dog business with $200. With this money, you buy hot dogs and other ingredients. A customer buys all the hot dogs you produced for $600 and agrees to make payment after a month.
In this case, you have earned a revenue of $600 and a profit of $400. You can see that after making sales, your cash in hand remains $0. It will mean you don’t have enough money to pay other bills, order more supplies, or run your business.
You remain in this situation until you receive cash from your customer at month’s end. In this case, your business closes because there is no cash flow.
2. It Allows Easy Access to a Credit Facility.
A credit facility is essential to make important business decisions for growth and expansion. If your business has a healthy cash flow, you will have higher chances of securing loans and vice versa.
Positive cash flow also makes it easier to negotiate terms of engagement with your suppliers. Thus they will be willing to grant you credit for extended periods.
3. You Can Make Better Business Decisions.
Sound decision-making is the most reasonable way to achieve short and long-term goals. Clear cash flow visibility lets you know how your money is coming and going.
Knowing your cash flow growth will help you make clear and informed decisions about your business goals.
Some Important Taxes to Know
- GST and PAYG on staff
- Company tax
- Fringe Benefits Tax (FBT)
- Personal income tax.
Tax Planning Services to Improve Your Cash Flow
1. Know Your Tax Obligation
Tax reporting methods apply to companies differently depending on the size and operations of their business.
For example, the tax planning structure for a brick-and-mortar retail business will be different from an eCommerce business.
A tax accountant or your accounting firm can advise on the reporting strategy that your business will apply.
Understanding your tax obligation based on your business operations will help you to plan your cash flow accordingly.
2. Set Up a Separate Account for Tax
Many tax accountants advise companies to put aside the projected money needed to fulfill the annual tax obligations.
You can open a separate bank account and start putting something away to match your tax projections.
If you are confused about what to put aside, meet up with your tax accountant and calculate some variables.
Sales and personal income taxes often take the bulk of the sum, so you can start by calculating those. If projections are right, you will have most of the money to pay your taxes.
Tax season will not require you to dip into your company’s pocket, and you can make up for any unaccounted sums.
3. Check Your Projections Regularly.
Most businesses have a wide idea of tax expenses based on projected sales and revenue, but things can change. The last thing you need at the end of the year is to be blindsided by your cash flow.
If your financial year is significantly different from projections, then you should then you may need to re-evaluate your cash flow analysis.
Your accounting team and tax professionals will need to regularly prepare tax forecasts to evaluate earlier projections as the year progresses.
4. Get a Tax Accountant.
A business owner’s challenges are enough to distract him from the taxes. You might focus on generating income, growing the business, or building the brand and forget tax planning and cash flow.
You can choose to utilize tax planning services to keep track of your tax projections and cash flow.
A tax accountant will give you a clear picture of your obligations and help you plan for tax season.
They will reduce the stress of facing the IRS with issues and give you more time to focus on the daily running of your business.
5. Know the Timing of Taxes
The other four listed items can help you to plan better for taxes and improve your cash flow. But all these will mean nothing if you miss tax season without filing your taxes.
Using tax planning services and a tax accountant will help you know the right time to pay your taxes. Working with tax planning services will also help you find strategies to reduce your annual tax expenses.
On the whole
Planning for your taxes is as important as paying the taxes too. Without utilizing effective tax planning services, you can easily affect the cash flow of your business.
It will be helpful to seek professional insights on how to apply tax planning services to your business model.
It will also help you to anticipate the annual tax expenses. Finally, tax planning services are a great way to ensure that the cost of taxes does not negatively affect the cash flow of your business.