We often come across circumstances where we see a business that is profitable but are having cashflow difficulties. Often the answer lies on the balance sheet.
Here is a quick example. Let’s say the company’s profit and loss looks like this:
|Profit before tax||
This looks like a fairly good business, but consider the following:
|Company Tax at 30%||
|Car loan repayments, say $1,250 per month||
|Business loan repayments (principal), say $3,000 per month||
|Old ATO debt, say $1,500 per month||
The result? A negative cash balance of $1,000.
It is good business practice to prepare a cash-flow forecast each year and continually monitor and manage your cash flow throughout the year.
by Scott Sharp
Scott is a Senior Accountant at Insight Accounting advice. He has a Bachelor of Commerce and is a registered tax agent. Scott’s experience covers all facets of accounting but he specialises in small businesses and SMSFs.
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