Paying provisional tax – do you want it to be easier?

Kiwi business owners are all too familiar with the concept of provisional tax, and for many, paying it can be a bit of a chore. 

One of the biggest issues people face is the IRD’s inflexibility. The IRD sets the dates you have to pay, and you’ve got no choice but to follow their lead.  

No consideration is given to the time of year, business cash flow, or seasonal circumstances. After all, no one wants to pay a big lump sum when cashflow is tight.  

The IRD model doesn’t consider whether businesses are light on cash, have an urgent need for money, or a better use for their funds. You simply have to pay up or face the penalties — with IRD interest on top of late payment fees. 

But there’s one thing you should know about paying provisional tax. There is a better, easier way: tax pooling.  

Tax pooling gives you more choice over your tax and lets you make payments on your terms without incurring the IRD’s wrath. 

The option has been available to New Zealand provisional taxpayers for more than two decades.  

Since 2003, thousands of businesses have been paying provisional tax through tax pooling providers like TMNZ. We let you pay what you owe at a time that suits you.  

The best part? Tax pools are IRD-approved.

So, how does a tax pool work for paying provisional tax? 

A tax pool is all about balance. Some businesses in our pool may end up overpaying their liability. These overpayments help other businesses in the pool that need more time to pay. A collective approach. 

Users of our tax pool do have to pay some interest, but it’s charged at a much lower rate than the IRD’s interest or the rates you’d pay for taking out an overdraft with the bank. There are also no late payment penalties to think about.  

All you have to do is tell us the tax amount due and when and how you’d like to pay. We’ll take care of the rest and notify the IRD. 

Why haven’t I heard about this before? 

While tax pooling isn’t common knowledge among small businesses, it is considered best practice among many accountants and tax advisers.  

How can I start paying provisional tax with tax pooling? 

Discuss tax pooling with your accountant (or with one of our Premium TMNZ Accounting Partners) ahead of your next provisional tax instalment or if you’ve struggled to match business cash flow with your past payments. 

Ask your adviser to download this free guide that provides simple information on how tax pooling works.  

Want to learn more about tax pooling? 

Talk to our customer support team on 0800 888 829 or send us an email. 

How can you attract an investor to your business?

Image: Business partners high five

Some investors argue they are only interested in businesses that sell widgets rather than services – they want a product, not bodies. Others say that their investment is in the people leading the company.

Either way, you can take hope because it's clear that no investor is alike, and that means there are no hard and fast rules.

The sale of Jack Millar's Unfiltered – a business education platform – for $60,000USD is a case in point. New Zealand investors poured millions into a business that was defined – at least publicly – by videos featuring successful entrepreneurs. In the end, they were left out of pocket, and as one investor shrugged, 'you win some, and you lose some'.

Writing in The Spinoff, journalist Jihee Junn put it best when she wrote: 

“Over the last five years, many of New Zealand's most highly respected businesspeople lent their names, status and millions of dollars to help Unfiltered chase the dream of becoming a global company. They were motivated not by the prospect of a windfall, but because they liked Millar and they liked what he was trying to do.”

Perhaps Millar is unique, or maybe the story of Unfiltered – although not exactly a happy ending – is that when an investor puts his or her money into your business, they are first and foremost making an investment in the person or persons fronting the enterprise. There will be other requirements for most savvy investors, but you won't get off the starting blocks if you cannot inspire investor trust in you and your team.


The charisma of people like Millar aside, passion, personality and liking may play a part in an investor’s decisions, but trust often comes from track record and performance.

One of the first things investors look for in a start-up is the successes and failures of the company itself or the person leading the company. If the company has been around for a little while, they'll want to see consistency and opportunity in the financials.

Competitive advantage

Warren Buffet calls it a durable competitive advantage: "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

In Buffet's books, competitive advantage may be low-cost of production from economies of scale or a robust business model, better margins than competitors or the promise of continuing demand.


To attract investors, you'll need to show them how you intend to give them a healthy return on their investment and what that return is likely to be.

If you can establish trust in you and your business, demonstrate a clear competitive advantage and show investors how you intend to ensure they realise a return on investment, you'll be off to a good start.

Provisional tax 101 — making things easy

Provisional tax breaks up the income tax you pay Inland Revenue (IR). It is paid in multiple instalments instead of one large sum at the end of the year.

You may have to pay provisional tax if you earn income where tax hasn't been deducted before you receive it. When your residual income tax (RIT) for the previous year was more than $5000, you will have provisional tax to pay. Residual income tax is the amount of unpaid income tax for the year minus any tax credits such as PAYE that you are entitled to.

Generally, you will pay provisional tax three times a year. For example, if you have a 31 March balance date (your end of financial year). In that case, your three provisional tax instalments are usually due on 28 August, 15 January, and 7 May. These dates can change by a few days to avoid public holidays and weekends. They can also differ according to how you have calculated your RIT, so it's best to check in with your accountant or myIR to confirm your payment dates. 


What if you miss your provisional tax payment?

When you file your income tax return and calculate your RIT for the year, you deduct the provisional tax you paid earlier. If you have paid more provisional tax than you owe, you will receive a refund from IR.

However, suppose you have underpaid your income tax for the year. In that case, you must pay the remaining balance or risk late payment penalties (LPP) and interest accruing on what you owe. IR interest is calculated daily on any outstanding amount that you owe. You can check the current interest rate here.

Don’t worry though, TMNZ can help. Read about our flexible ways of paying tax below.


Late payment penalties and interest

Penalties and interest on missed or underpaid tax may be charged as follows:

  • one percent the day after the payment was due.
  • an additional four percent if the tax amount (including LPP and accrued UOMI) remains unpaid after seven days.
  • UOMI may be charged from the day after the payment was due - UOMI will be charged daily until you have paid your total tax amount, including late payment penalties and any accrued interest.


Special IR interest rules under the Safe Harbour Provision

If you have used the standard uplift method to calculate your provisional tax:

  • and your RIT for the year is less than $60,000
  • and you pay all required provisional tax instalments on time and in full

Then you don't have to worry about incurring IR interest if the tax you have paid during the year is less than your actual RIT total. This is because you fall under what's known as the Safe Harbour Provision. Any final balance to settle your tax bill will be due by your terminal tax date. IR interest will only apply from your terminal tax date if you don't pay your balance by then.

The rules work slightly differently if the actual RIT is $60,000 or more.

In that situation, if you have paid all your instalments on time and in full, you will incur IR interest on the remaining balance until you have paid in full. IR interest is calculated from your final instalment date for that year. 


Flexible ways to pay your provisional tax

With an IR-approved tax pooling provider, like TMNZ, you can smooth out your tax payments up to 75 days after your terminal tax date, so you have up to 22 months longer to pay your tax bill.

With TMNZ Flexitax, you can pay in small regular payments or lump sums when it suits you. There is no up-front payment, and as long as you settle your arrangement by the date TMNZ provides, your IR account will show as paid on time. It's called ‘Flexitax’ for one very important reason. It's flexible. Meaning you can make tax payments on your terms. Regularly or in lump sums. On top of that, you'll never have to worry about LPP or high interest rates again (ours are extremely competitive). And of course, it's all tax deductable.

If you know when you'll have the funds to pay your tax, you can also choose a date in the future using Tax Finance. With Tax Finance, you can look ahead and match your tax payments to seasonal highs. Meaning you can avoid things that have the power to set you and your business back – like bank overdrafts and loans. 

With Tax Finance, you choose a date or dates in the future when you know you can pay your tax. You'll lock in a competitive interest rate that you pay upfront. You can rest easy knowing that as long as you settle the arrangement by the date TMNZ provides, your tax will show as paid on time with IR. No late payment penalties, and you will have saved considerably on interest.


Better for your cashflow, better for your business.


What if I've missed my provisional tax payment?

TMNZ can help to wipe late payment penalties and reduce your interest cost if you have underpaid or missed your provisional tax. Contact your accountant or tax agent and let them know you want to pay your missed or underpaid provisional tax using TMNZ tax pooling. Or get in touch to see how we can help.

As always, we recommend you speak to your accountant with any questions.


Information correct as at 01/03/2023 

Image: Bart Taylor

Syncing provisional tax to cashflow

As a self-employed painter and decorator, Bart Taylor knows full well how business owners can get themselves into strife if they don’t plan for their tax obligations.

He speaks from his own personal experience.

That’s why Bart is happy to talk about how Tax Management NZ (TMNZ) enables him as a self-employed tradesperson to take the stress out of having to pay provisional tax on dates dictated by Inland Revenue (IRD).

TMNZ offers Bart the flexibility to make the payments when it suits his cashflow.

As someone who doesn’t always get paid every week, that’s important because it offers his business some breathing space while he waits for the money he’s earned from completed jobs to land in his bank account and ensures that other important invoices can be paid in the meantime.

A bit about Bart

Bart owns and operates his own business in Christchurch.

He’s a one-man band and that’s the way he likes it. Plus, most of his work means he does not require a crew, although he will occasionally use contractors when required or on larger jobs.

Bart has been his own boss since 2013, when, at the age of 24, he decided to make a go of this painting lark on his own. The market in the Garden City was awash with painting gigs during the rebuild and becoming self-employed seemed like a low-risk move.

Fast-forward nearly eight years and his gamble has paid off. He is enjoying the benefits that come with self-employment and, as a husband and father in a young family, the better work-life balance he has achieved.

Tough tax lessons

Yet that’s not say that everything has been a bed of roses during that time.

“Becoming self-employed has been a bit of a rollercoaster. Lots of learnings, lots of difficult times, hard times,” says Bart.

“First and foremost, I’m a tradesman, so I am a worker. The back office, the organisation, the financial side of things is not my strong point. With the tax side of self-employment, I managed it very poorly for years because I was so young.”

Like other business owners, Bart wasn’t as prepared as he should have been and was “stung” in his second year of trading. That was when two years’ worth of tax was due. Ouch.

He admits having to pay provisional tax was “rough for a little while”.

“In the trade industry, you don’t always get paid every week and you need cashflow to run your business,” explains Bart.

“My accountant saw there was a risk of if we paid that tax bill in full, that I might fall short in other areas and he wanted to make sure that my relationship with my trade suppliers stay good and that the invoices I need to pay get paid on time, not just the IRD ones.

“He recommended Tax Management NZ and that freed up cashflow.”

Breathing space from IRD to manage cashflow

That’s because TMNZ gives Bart the flexibility to pay his provisional tax when it suits his business, without the consequences of steep IRD interest and late payment penalties.

It operates with the blessing of the taxman, too.

TMNZ makes a date-stamped payment to IRD on Bart’s behalf on the date his provisional tax is due. Bart pays TMNZ at a time when it suits his cashflow.

TMNZ transfers the date-stamped payment to Bart’s IRD account and IRD treats it as if Bart himself has paid on time. This eliminates any IRD interest and late payment penalties showing on his account.

“Sometimes the option of TMNZ, to be able to borrow some money for a short period of time, to make sure you hit that IRD deadline, frees you up with your cashflow until that payment [you are waiting on] comes through,” says Bart.

“The fee of using Tax Management NZ is so low and affordable in comparison to the failings of if you ran out of money in that time, or the scramble and the stress, so it’s definitely worth it.

“It’s changed my perception around making these tax payments. It takes the stress off of it.”

And how does dealing with TMNZ compare to dealing with IRD?

“You get a bit more of a personal touch with Tax Management NZ because you get a prompt response and it’s not a cookie-cutter [reply].”

Bart is one of many small business owners throughout New Zealand who benefits from the provisional tax flexibility TMNZ offers. Feel free to contact us for more information about our service or if you have any questions. We're happy to help. Alternatively, you can register with TMNZ here.

Image: Tax refund

Easy money for business not always the best option

Image: Easy money

Not long ago, one financial adviser was heard to lament the Kiwi habit of using the mortgage to fund the business. Others turn to bank overdrafts or their personal savings – all of which some might argue are easy choices to make but not necessarily the best.

Putting one's house on the line to help the business through a tight spot may be less risky in times when property prices are at an all-time high, and interest rates are low.

However, blurring personal and business finances can cause sleepless nights. Business is unpredictable. Interest rates will go up at some point.

Research by YouGov, commissioned by small business lending specialist Prospa, found that 69 percent of SMEs use personal finances for business purposes – including credit cards – and one in four borrows from family or friends.

Approximately 21 percent had drawn down on the mortgage.

The difficulty of securing business finance from banks in New Zealand is well documented. Even at the height of COVID-19 lockdowns, banks kept their hands in their pockets after the Government stepped up with the Business Finance Guarantee Scheme. Associate Finance Minister at the time, Shane Jones, suggested the banks were jeopardising their 'social contract'.

It would not be surprising to find that this kind of publicity, coupled with a widespread perception among SME owners that banks don't lend to small businesses, creates a general pessimism about finance that drives Kiwis to put their houses up as security, borrow from friends or swipe the credit card. Utilising personal resources is a shortcut, but easy is rarely better.

Before you borrow or mix personal and business finance, consider the options below.


Consider reducing your costs as a way to self-finance your business. 

Businesses incur costs, such as small but regular payments that slip beneath the radar. Work with your accountant to identify unnecessary expenses and ways to save on costs — review operational details like slow collections, bad debtors and redundant or excessive inventory.

One consequence of tight cashflow is the failure to pay taxes on time. This leads to expensive IRD interest and penalty payments. Tax pooling offered by Tax Management NZ will help save you money in the long term because you avoid interest and penalties.

Research alternatives

Tax pooling is an alternative and financially cost-effective way to meet your tax payments on time, but there are also many other ways to get business finance. 

The Government's Small Business Cashflow Loan Scheme, if you have experienced a 30 percent decline in revenue due to COVID-19), discount invoicing (you administer your sales ledger) or factoring (the factoring company administers your ledger) merit thought.

Other options may include attracting investors or turning to a second or third-tier lender who is more expensive, but you may not be required to put your house on the line.

Review payment terms

Together with your accountant, consider negotiating better terms with your debtors while also reviewing your current payment terms. Simply changing your terms to, for example, seven days with all new customers – or getting the agreement of existing customers – could make a big difference to your finances.

Ultimately it may be that mortgaging your house is your best option but get expert advice first because easier isn't necessarily better

Image: Cashflow chart

What is a cashflow forecast, exactly?

Image: Cashflow chart

Most people nod in agreement when they hear the fable of the ant and the grasshopper – the ant worked all summer while the grasshopper lazed about, only for a starving grasshopper to come begging at the ant's door in winter.

However, it's surprising how few business leaders apply the common-sense lessons the fable teaches.

Many could be forgiven for thinking that the fable is about the value of hard work, and it is to an extent, but it is also a story about prediction and preparation – know what's coming and prepare for it.

Your stock standard cashflow forecast is an essential tool for this purpose.

In its most basic form, a cashflow forecast is a table that 'predicts', over a specific time, a) the money the business expects to receive, and b) the money the company expects to pay out – in essence, how much money you expect to have on hand in any given period.

The benefit of a cashflow forecast is that it allows you to predict the lean times, like winter for the ant, and the good times, like summer for the grasshopper. Summer and winter are pretty straightforward, but real-life business is far more complex and needs to consider, for example, factors like seasonal variables, capital expenditure and increases in expenses like rents.

A cashflow forecast is not a sales forecast, which concerns itself with predicted sales in the coming period and sometimes errs on the side of optimism.

The cashflow forecast should include expected sales but err on the side of conservative – sales aim for the stars, the cashflow forecaster settles for the moon.

1. Determine the period

The ant and the grasshopper concerned themselves with summer and winter. Business leaders will often prepare an annual cashflow forecast, but some argue it's best to take the ant's lead and forecast for a shorter period – even six months, or at least plan to review your cashflow forecast quarterly.

2. Predict your income

Look back over the last couple of years to get a handle on averages as well as the ebb and flow of cash, accounting for seasonal fluctuations and unforeseen variables that have impacted you in the past. Some would argue that basing your cashflow forecast on past performance is looking back, not forward, which is why using your sales forecast is important. Your historical financials may help you temper the optimism of the sale forecast towards realism.

3. Add your costs and outgoings

Don't leave out the small expenses because they quickly add up. Remember that not everybody pays on time. Kiwi SMEs wait on average 24.1 days to get paid, according to Xero's Small Business Insights for December 2020. Consider the risks associated with cost increases, like telephones and other fees. Plan for the best, expect the worst.

4. Put your cashflow forecast to work

A good cashflow forecast will give you an idea of what to expect so that you can prepare now to address any issues. If, like the ant, you note that the winter months of June, July and August will be tight, take steps to prepare better or improve the situation.

In the words of Sir Richard Branson, “Never take your eyes off the cashflow forecast because it's the lifeblood of the business”.

Tax Management NZ has produced a guide called Better Cashflow Management. You can download your free copy here.

Image: Pouting

Handling chronic complainers in the workplace

Image: Child pouting

When a leader in the financial sector is confronted by challenging behaviour – like a persistently complaining employee – it is best to avoid attempting to turn the 'complainer' around with 'positive' or 'motivational' speak.

Negative complaining (an expression of dissatisfaction or annoyance about something) is not the same as reports of deviant behaviour. Complaints about theft, bullying or sexual harassment, for example, are serious and should be treated differently from complaints about IT issues and air-conditioning. 

Possibly one of the most common responses to complaining behaviour, unless it becomes common, persistent and strident, is to ignore it.

Glossing over perceived trivial complaints can lead to low morale and lower productivity. It could also result in complainers airing their views elsewhere. As far back as 2016, Human Resources Director magazine reported that 80 percent of New Zealand job seekers are influenced by online comments – commonly posted on employee review sites – about a potential new employer. 

"Chronic complainers survive and thrive in environments where the manager tends to operate at a distance, but struggle to gain traction where the manager is closely involved with team members." – Art Petty, management author and speaker.

Standard leadership advice suggests a manager or business leaders listen and assess whether there is a real need. The advice ignores the fact that as far as the complainer is concerned, the need is real. 

Leaders also don't want to respond negatively to negativity because the only way is down. Neither is a positive response going to be well received by the complainer because it can be seen as argumentative.

Another common leadership mistake is to take the complaint 'from whence it comes,' but as an African proverb advises: “Examine what is said and not who speaks”. In other words, avoid personalising your response to complaining behaviour.

Peter Bregman, author of Four Seconds(Stop Counter-Productive Habits), suggests you take these three steps to turn complainers around:

1. Understand how they feel and validate it

“It's not agreeing. It's simply showing them that you understand how they feel.”

2. Find a place to agree with them

“If you share some of their frustrations, let them know.”

3. Find out what they are positive about and reinforce it

“Nobody is completely negative,” says Bregman. “The idea is to give positive attention to positive feeling and to offer concrete hope based on the positive feelings that they do have.”

As the managing director of Hays New Zealand, Jamie Walker, told HRD Magazine, current and former employees now control the messaging when reporting what it’s like to work for a particular organisation.

“You want to make sure they leave with a smile on their face and a willingness to talk positively about their employment experience at your organisation.”

Dealing with complainers appropriately and constructively will not only improve performance and morale – not to mention the workplace environment – it will also help make your business attractive to good talent. 

Image: Productivity

How hurry sickness is killing productivity in professional services

Image: Productivity

The fable of the hare and the tortoise and the wisdom of 'slow and steady wins the race' holds some deeper truths for those of us who work in professional services.

Perhaps the real reason the hare lost the race was that it was suffering from ‘hurry sickness’ – much like many of us rush through the day, only to find that we didn't get done half of what we planned to accomplish.

Matthew Kelly, the author of the book The Long View, makes the point that “we tend to overestimate what we can do in a day and underestimate what we can do in a month; overestimate what we can do in a year, and underestimate what we can accomplish in a decade”. As Hofstadter's Law states: ‘It always takes longer than you expect, even when you take into account Hofstadter's Law.’

It's normal for professional services and other business leaders to have high expectations. We seem to think that success is achieved by running towards it. We believe that if we can cram just a bit more into our day, we'll be closer to realising our goals and ambitions – significance will finally be within our grasp.

However, your brain has a very different perspective.

The moment you put yourself under pressure by cramming too many tasks into one day – when you know deep down you have no hope of accomplishing them all – and start moving as fast as you can, your brain releases the stress hormone cortisol. 

Beneficial for many things, like alertness, cortisol is best in moderation. Prolonged cortisol levels, which are what you get if you keep rushing through the day, can cause anxiety, depression, headaches, heart disease, difficulty sleeping, weight gain, and, significantly, memory and concentration problems. The faster you go, and the more you try to get done, the less you accomplish.

It's no wonder that the media frequently publish headlines like, ‘Mid-career burnout is real’ and ‘Professional services face losing junior staff to burnout’.

Locked in ‘overstimulation mode’, you quickly get tired and irritable. Some call it ‘hurry sickness’. Addressing hurry sickness is less about prioritising tasks better, automating certain work functions and learning to say no – your typical time management tools – and more about cultivating a greater sense of self-awareness.

Indeed, adding 20 or 30 percent more time to each task – sort of like a time markup – will mean you have fewer tasks for the day. It will slow you down and give you a better chance of completing your list, but old habits quickly re-assert themselves. The answer is to introduce new habits that encourage you to slow down and take stock. 

For example, a lunchtime walk for 30 minutes as a scheduled, daily appointment, or even a 20-minute nana nap early in the afternoon can help refresh and re-energise you for a stronger finish. If the idea of walking or napping is anathema for you, consider pacing your day more evenly. A good tool for this is The Pomodoro Technique.

Invented by Francesco Cirillo in the 1980s, the Pomodoro Technique uses a kitchen timer to pace your day better (there are also dozens of apps you can download). 

Essentially the timer breaks your day down into 25-minute intervals separated by short breaks that grow in length as your day goes on. For example, the first break is five minutes long. After four pomodoros, you take a break for 15-30 minutes and then reset. 

Pace your day, take time to rest and cultivate self-awareness because to work smarter, you need time to stop and think.

Image: Process planning

How to set up processes that can help relieve your cashflow pain

Image: Process planning

There's a parable about a man who built his house on rock and a man who built his house on sand. When the rains came, the latter lost everything. It seems evident that only a fool would build on sand, but you will be surprised by how often all of us resort to the easy way out – shortcuts and compromises – all the while telling ourselves we'll sort it out later. 

Putting in place a good cashflow structure for your business is like giving yourself a solid foundation for the future, but it's not unusual for the process to be plagued by compromises.

The good news is that it's never too late to start.

Businesses have a way of starting small and evolving organically. In the early days of a company, customer relationships may be more personal and unique. You may be tempted to agree to special arrangements like payment terms and methods. You tell yourself you need the business, but this can quickly become messy and will most certainly impact your business further down the line.

If you have been in business for some time but you're tired of struggling with cashflow, or your company is relatively new, it's never too late or too early to start with setting good cashflow policies and processes. The most important thing is not to be wishy-washy about your policies and structures but to act consistently and firmly, no matter how tempted you may be. Like most temptation, giving in brings pain later.

Reminder emails and texts

Spark does it. A day or so before your telephone bill comes due, you will most likely get an email reminder from Spark. If a big corporate like Spark can send reminder emails, why can't your small business? A common reason for not sending reminders is that we want to protect our customer relationships. Remember the man who built his house on the sand?

Set in place a reminder email to go out the day before your invoice is due. If you can implement the policy at the start-up stage or if you are already in business and are worried about ruffling feathers, apply the reminder email or text rule to all new customers moving forward (at the very least).

The Spark email reads: 

Hi there,

This is a friendly reminder that your bill is due on 21 April 2021. If you haven't already, please pay $xx.xx on or before the due date.

Very easy, very simple. Do the same with your business.

Past due invoices

When an invoice becomes past due, do you put off calling to follow-up? Do you tell yourself that you'll wait a couple of days because you're sure they'll sort it soon enough? The truth is that most late payers do eventually pay, but that doesn't mean it's the right thing to do, and it does nothing to help your cashflow. If the bill is past due by one day, pick up the phone or at the very least send an email reminder. Opening up a dialogue sooner rather than later gets you paid quicker.

Consider automating past-due follow-up emails to save yourself the time and the angst of doing it yourself.

Set clear payment terms

Corporate clients may resist your payment terms, or you may choose to adopt standard industry payment terms, and that's all acceptable – so long as you have payment terms that will spare you cashflow pain. Agree on these with your customers upfront and get it in writing either in your contract or email. 

One cashflow enabler you might want to try is putting a deposit condition into your payment terms, like 25 percent or even 50 percent upfront.

Invoicing is not an afterthought

Set aside a specific day to do all your invoicing and stick to it. 

Business owners can get so caught up delivering the work that they leave their invoicing to the last minute. Sometimes if, for example, a client hasn't signed off on a piece of work, you may want to delay sending an invoice. However, if the client is the reasonable reason for the delay, then you should invoice regardless on the day you are due to invoice.

Processes and policies, particularly those related to cash inflows and outflows, are the bedrock of your business. Build on them, and you will have a solid foundation when those rainy days come.

Tax Management NZ has produced a guide called Better Cashflow Management. You can download your free copy here.

Image: Cashflow chart

How active observation of the world around you can help cashflow

Image: Cashflow chart

Researchers in Italy have found that farm animals like dogs, cows and sheep can detect an earthquake up to 20 hours before it occurs. Perhaps it is ionisation of the air caused by rock pressures or that animals can smell gases released from quartz crystals before the quake. The lesson business owners can take from this is that actively tuning into the world around you can help detect and manage cashflow challenges before they occur.

Good cashflow management is more than formally monitoring, analysing, and optimising the net amount of cash receipts minus cash expenses in your business.

It is also about actively observing your customers, sector and community.

In a recent blog post, the director of the Newmarket-based accountancy practice BetterCo Advisory & Accounting, Alister Siew, warned business owners to be vigilant in the community because rising property prices were causing changes in neighbourhood demographics (usually towards the more affluent). For example, where once fast movers like a 'pie and an energy drink' were the go, a more affluent market may want gourmet pies and smoothies. 

Siew's advice was not to wait until the changes reflect in the cash register. Too often, businesses owners become aware of differences when it's too late because they are not actively monitoring the world around them. If a once-popular product or service suddenly slows down, investigate why this may be the case. It could be that your market is changing or a new competitor is on the scene.

You may find that a once regular and reliable client suddenly starts paying late, ignores your emails or changes their payment or buying patterns. It may be time to put trust aside and start taking action to mitigate your risk. Meet with them to find out what's going on. Speak to other suppliers.

The PESTLE Analysis

The PESTLE Analysis is one useful active monitoring tool to help you protect your cashflow and your business from a broader perspective.

Briefly, PESTLE is an anagram for Political, Economic, Social, Technological, Legal and Environmental factors which may impact your business. It helps identify threats and opportunities before they become significant.

Political factors: Politically, the Government of the day may be under pressure and looking for some wins. Is this an opportunity for you?

Economic factors: A slowdown in the construction industry, for example, may signal trouble for one or more of your clients. Step up your communications with the client and keep an eye on their accounts for any changes.

Social factors: The #MeToo movement, Black Lives Matter, working from home, rising anxiety and an ageing population are examples of social trends that may impact your business, your marketing or other business activities. Be aware and respond accordingly.

Technological factors: The digitisation of business, an increase in cyberattacks, and remote care solutions bringing doctors into the home are examples of tech factors that offer both threats and opportunities.

Legal factors: Changing legislation, for example, a shift from minimum wage to living wage and the Government's crackdown on property investors and speculators, will have implications for some. What will you make of it?

Environmental factors: It's not so much the effect that global warming, recycling and stainless steel straws or polluted waterways could have on your business, but how your markets, suppliers, and Government will respond to those developments that may impact your cashflow and your business. 

Keeping your finger on your cashflow is not only understanding your income and expenses. Understanding what's going on in the world around you positions you to plan better, respond faster and detect threats and opportunities before your competitors.