Creative tax solution to fast growth

Creative tax solution to fast growth

Creative tax solution to fast growth TMNZ Blog

implications of fast growth

Fast growth can impose hefty pressure on a business’s financial situation, especially at tax time.

If a company has trouble finding the cash to pay and they’re late, the IRD hits them with high use of money interest on their tax bill at 8.4% plus there are late penalties as well. Smart companies plan ahead when they know this situation could arise by finding creative solutions to help get through the cash crisis.

Like many go-ahead New Zealand businesses, Teknatool, was hit by cashflow constraints when it embarked on a high growth programme in China, to be closer to its markets in 2006.

Fortunately, the successful tool machinery manufacturer discovered a clever tax pooling product called Tax FINANCE available from Tax Management NZ (TMNZ), which helped the company continue to take advantage of growth opportunities.

Tax FINANCE lets businesses defer their provisional tax payments by up to 18 months, to a time that’s more convenient for the business.  By leaving cash in the business for as long as possible, businesses  can spend money when it is needed to buy materials or develop without incurring huge tax liabilities in the form of the IRD’s use of money interest and late penalties.

Teknatool Financial Director Margaret Latimer explains: “When we were pouring money into a high growth path in overseas markets, we had to pay for raw material, mainly steel bearings and fastenings,  from Russian and Chinese suppliers.

“Many of our suppliers demand payment virtually straight away,” she says. “And other suppliers give us just seven days. It’s a very different market over there. It’s about really making sure you have cashflow so that you get the sales. Tax FINANCE makes it a lot easier.

“Tax FINANCE has given us opportunities we wouldn’t have been able to take advantage of. It’s definitely been of huge benefit to us. We can budget by putting a reasonable amount of money aside for tax each month and pay later. It’s incredibly easy to use. And it takes such a lot of hassle out of paying tax.”

1. If your business is developing quickly, remember that when you invest in stock or equipment you can’t deduct it for tax. Don’t think just because you’re investing that your tax bill will be lower. Plan for your provisional tax.

2. If your cashflow is lumpy due to seasonal or market fluctuations – look at options like Tax FINANCE to defer your tax.

3. Your final income might be hard to predict, so rather than locking into traditional debt, look at options where you can secure your tax ahead of time.

4. If have debt constraints – banks might be worried you are over-extending.  Consider  non-traditional ways of borrowing eg debtor finance, factoring or Tax FINANCE – a low cost option available from as low as 5.4%*.

To arrange Tax FINANCE or get a quote,  go to TMNZ call 0800 829 888 today.