Take a guess at what the number one most common named cause of corporate liquidation is in New Zealand. Here’s another clue: it’s also the fourth most common named cause of bankruptcy for individuals. The answer? ‘Failure to provide for taxation’*.
I find that pretty scary, because many of the other causes on these lists are hard to control. Factors like illness, economic conditions and relationship breakdowns. But tax is not a random force of nature. It’s entirely predictable and manageable if you take a sensible approach. Obviously, that’s easier said than done. The number of small business owners who spend money that should be earmarked for Inland Revenue is startling – sometimes the immediate invoice gets the cash and the IR gets put to the bottom of the queue. It seems that most business owners find it a bit difficult to sort out exactly what percentage of each payment they can draw out safely.
However, as the statistics show, this is not a smart long-term approach. It only leads to problems – you either leave other creditors unpaid or you need to scrabble around for cash from your personal savings or credit facilities. This is probably happening every tax or GST payment date in hundreds or even thousands of small businesses up and down New Zealand. For those who fail to resolve the problem even after scrabbling around, the result is late penalty fees, fines, increased interest and massive levels of stress.
If you’re the kind of relaxed individual who doesn’t want to start creating spreadsheets to figure out how much tax to save each month, a virtual CFO could be the perfect solution. We can look at what you’re billing, what your expenses are, and your tax level. Then we can give you an amount to save each month to ensure you’re never caught short. It’s such a simple way to reduce your stress and eliminate late payment and other penalties.
It’s not only provisional or terminal tax, it’s also your GST. It arrives in your account and the temptation to spend it is strong, but you need to remember that it’s not your money. Not only can terminal tax come as a bit of a fright when you’ve just finished your first two years in business, but the year in which you switch from tax deducted at source from remuneration to provisional tax can be a tough pill to swallow.
Don’t let tax cause you stress or penalties – let a virtual CFO accurately budget how much to put aside.
*Download the latest insolvency statistics report here.