8 tips to close the floodgates and improve your cash flow

Cash flow is definitely the lifeblood of every business. One of the biggest challenges while running a small business is cash flow management.

Read on to find out how you can close the floodgates and improve the cash flow of your business.

Insist on down payment:
This way, it is your customers and not you that fund projects. Also, ensure that you are paid in full upon completion of the project, without any 30 or 60 day extensions.

Prompt billing:
In case of long-term projects, make sure you negotiate in advance for regular payments.

Incentives for faster payments:
Offering a discount for quick payments reduces the time spent in waiting for payments.

No-pay customers are a strict no-no:
Make enquiries about a new customer. If they have a reputation for not paying on time, avoid them like the plague.

Reduce inventory:
Money spent on inventory does not create any interest or savings for you. So don’t keep too much product on hand, and make sure your inventory turns over at a regular pace.

Cash cover for expansion programs:
Expansion plans should be initiated only if you have the requisite cash to cover them.

Buy time for payables:
Wait for about 30 to 60 days before you make payments. If suppliers press hard, ask for discounts for early payments.

Cushion for the future:
Make sure you are adequately prepared to face a cash crunch in the future.

Implement these options depending on the needs of your business and watch your cash flow improve dramatically.

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Tax on private boarders

In the current economic climate, you may be tempted to take in some private boarders or student homestays to top up your income.

This article aims to give you an overview of the tax implications if you do so.

If you receive income from private boarders, including student homestays you can choose one of 2 methods to work out whether you have to pay tax on the income:

1. The standard-cost method

The standard-cost method uses an average price for basics such as the cost of food, heating, power and transport. The amount is an average across the country and is inflation -adjusted annually.

If your income from boarders is less than the standard cost allowed, you will not have to file a tax return, keep records of related expenditure, or pay tax.

For the year ended 31 March 2009, if you have 1 or 2 borders, then the standard cost is $227 a week for each boarder.  For 3 or 4 boarders, the standard cost is $227 each for the first two boarders, and then $185 for each subsequent boarder.

Let me provide a couple of examples:

Example 1: If you have two boarders and they pay you $215 each a week, you do not need to file a tax return or pay tax.

Example 2: If you have two boarders each paying you $250 a week, you may need to file a return and pay tax, depending on your circumstances.

Note: If you have five or more boarders you cannot use the standard-cost method.  You are required to complete a tax return and include all payments received as income. You may claim actual allowable expenditure but you must keep records to support your claim.

2.  Actual-cost method

You may choose to keep full records of your actual income and expenses (i.e. food, etc) for the year. If you choose this option you will need to complete a tax return to declare any profit or claim any loss.

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