Tax planning season is upon us

Each year we all go through the motions to assess how we can reduce our tax bill, after all, who goes to their Accountant and says you’d like to pay more in tax?

In most firms, they’ll ensure they comply with company standards, share their advice and then give clear instructions about how and when to make payments.

Sadly, the conversation typically ends here. This blog has been written because, in my opinion, this should be just the beginning.

Stop and think for one second about the importance of cashflow to a business. It is far more valuable that your Accountant solves this “pain” for you, rather than any tax savings. Every accountant is talking to their clients, or you, about tax. It’s their bread and butter…

If you are a large, corporate and cash is flowing, don’t switch off and think forecasting isn’t applicable because the money’s in the bank. Cash flow, and how cash is used in your business, is where a great Accountant comes in. You can overlook the cash required for your pending income taxes and this could place negative cash flow implications.

The bigger picture

Each year your business will go through so many changes, with highs and lows putting pressure on cashflow. Are they aware of this? Do you understand that looking at the P&L alone isn’t enough? What KPIs are you monitoring? How have they performed versus your budget? Do you even have a budget? These are the conversions you should be having every time you speak with your Accountant. If you’re not there yet, fear not, we can help.

Tax Planning: Q&A

  • Do we have adequate cash flow to pay our income tax by the due date?
  • Have we paid correct instalments during the year? Do we have the cash flow to fund any tax saving options?
  • Will there be any seasonal fluctuations or changes in the business in the near future that will affect cash reserves?

If you know someone, still working with an accounting firm that assesses their position by using an Excel spreadsheet (to extrapolate the Profit and Loss to 30th June, run the calculations then prepares a letter of recommendation), then you need to recommend us…

Firstly, we can speed up this entire process to make huge time savings.

Tax Planning is our opportunity to show you that our knowledge and experience is worth far more than an immediate tax saving. This is the “foundation” work for which we use to demonstrate the bigger picture. For example, we can run some scenarios to show you how each option would impact the tax payable and then, even more importantly, cash flow. We can help you make your decision making clearer.

Can you afford our recommendations?

It’s not something you probably want to admit but it has happened to us all at some point. You were advised to take certain options to save tax but then realised that you don’t actually have the funds to cover their recommendation or, alternatively you do have the funds now but this will cause, cash flow issues following this.

We run your scenarios regarding cash flow using the prior period’s performance to project how the next year will look and what these scenarios could mean should you take these tax savings options. With our team and Xero or Quickbooks this is a breeze, we can create forecasts based on past performance quite quickly for you. We can however easily add non-Xero or Quickbooks data in as a comparative trial balance…not as quick, but easy enough.

You may be caught up in this idea of paying as little tax as possible, but be aware that forecasting should also be a continual part of your financial processes. Not only are you being proactive, but also ensuring that any recommendations won’t adversely affect you… (just so that they could save X in tax); you are also gaining an educated decision as to whether that tax saving is worth the potential negative impact on future cash position.

Let us help you today with a forecast…