Start off 2020 on the right foot
Welcome to 2020, new year and a new decade. Let’s start your business off on the right foot by taking control of your cash flow. This post will focus on 3 steps you can take to help with cash flow.
Disclaimer immediate cash flow issues are hard to manage. If your business is struggling to pay this week’s wages or taxes. These steps may not help you right now. Cash flow is looking 3 months ahead, not next week.
Having a cash strategy means to have 3-months operating cash sitting in the business bank account or perhaps to forecast the time you need to get funding for the business before you hit the red.
This should be the goal of every small to medium business. Think about this! If your sales stopped in the morning, could you operate for 2-3 months? While you look to generate sales in a new market.
What closes businesses is a lack of cash flow.
- Know the dates the large payments are due.
January is one of the hardest months for small business, not only does it mean less sales as customers who wait patiently for their credit card bills from Christmas are less likely to spend, there are two large taxes to be paid. These are VAT and PAYE.
Let’s get out ahead of theses bills in 2020.
Write out the 12 months Jan-Dec.
Then highlight the months that both VAT & PAYE are due to be paid, and what you paid last year. Next, add the month Income tax is due October 2020, final filing date 12th November 2020 and finally, add Corporation Tax if applicable.
After the taxes are listed add in any monthly deductions, such as loan repayments, leases.
Finally add the annuals such as Insurance renewals, professional subscriptions Etc.
Key dates for each tax Available here from the Reveue Website.
2. Get the tax money out of your bank account
It seems the opposite to what we want to achieve, but remember this money is not yours. Why not set up a standard DD to Revenue and pay a fixed amount each month. If you know your VAT bill is around 10k every two months, pay €5K each month. This way you have stripped out the tax money. You can do the same for Employer PRSI, Since January 2019 you can opt to pay the full amount outstanding Via DD, not just a standard amount each month.
By using this tool the money you have remaining in the bank can be used for the business. You can avail of this facility if your Bi-monthly VAT Liability is less than €50,000, there is no limit on the Employers PRSI if you opt for the Variable DD.
Pay more Preliminary Tax.
By paying higher preliminary tax you are safeguarding against future cash flow problems. Therefore reducing tax liabilities when these are due to be paid.
3. Open a second bank account
What is the best way to lose weight? Use a smaller plate. The same thought process is relevant with cash flow. If you have the funds available it becomes easier to spend.
Transferring money into your second bank account, which is your 3-month survival blanket. You are protecting your business for the future. Start slow, this requires baby steps.
Give yourself 12-18 months to achieve this.
To get €50k moved into the survival account in 18 months that equates to €641 per week,
€50k over 24 months is €481 per week.
Set your target, and buld slow.
The next post will look more indept in to cash flow ownership.
Any qustions be sure to let me know email@example.com