Despite the end of the financial year coming round each and every 12 months, we still get lots of questions about how to best prepare for it.
From reviewing cash management processes to general financial housekeeping, we’ve put together this helpful guide to how to approach the EOFY and how to kick off the new financial year in as strong and confident a position as possible.
Cash Flow Review
The end of the financial year is the perfect opportunity to conduct an internal review of your cash flow situation.
Paying attention to your cash flow is critical for ensuring ongoing operations and informing sustainable long-term strategies for your business.
It’s important that as part of this review, you liaise with different internal and external stakeholders. This includes management staff and teams within the organisation, as well as financiers of your business, brokers, accountants and even independent, trusted advisors.
How to approach your cash flow review for EOFY
Step 1: Reassess your company’s cash position
The start of a new year in general presents a great opportunity to take stock of the past year and look ahead to what’s coming. The end of the financial year is similarly an appropriate time to consider what sort of strategic goals your business is working towards and what financial solutions may be required to achieve them.
Access to working capital, either due to healthy cash flow or due to business finance solutions, is critical to this success. If, as part of your cashflow review, you determine that you do not have sufficient working capital for your needs, you may need to consider alternative options.
Trade and invoice finance are two options that businesses throughout New Zealand can access through ScotPac. By working with our team of experts, for example, you can prepare your business financially for the upcoming financial year.
Crucially, both trade and invoice finance are dependent on business performance and do not require any personal assets, such as real estate, to be held as collateral/security. This advantage means that your business has greater flexibility to expand and grow.
Step 2: Update all income-producing assets
Structuring finances and repayments in a tax-effective way can help both small and medium-sized businesses to reduce ongoing costs and improve cash flow.
Keeping any income-producing assets up to date will also ensure your business’s operations aren’t disrupted and that you can continue to maximise as much revenue and thus cash flow as possible.
Use the opportunity that the EOFY presents to review the tools and tax assistance you use to avoid unnecessary expenditure, cut ongoing costs and ensure your assets are all updated.
The second part of your new financial year preparations can be broken up into three different types of general financial housekeeping.
- Comply with KiwiSaver commitments before March 31.
- Review any relevant changes to tax.
- Write off bad debt.
Part 1: Comply with KiwiSaver commitments before March 31
Small-to-medium sized enterprises in New Zealand may not automatically be contributing to their employees’ superannuation funds, called KiwiSaver.
For those of you with employees who have not opted out, and therefore remain automatically enrolled at the standard 3% or more, it’s important to ensure you’re up to date on your contributions before the end of the financial year as there can be a few tax implications.
Apart from positively affecting your tax bill and ensuring your staff receive their entitlements, it’s the smart way to meet obligations in a timely way. If you are concerned that you may not have the cash flow to do so, it’s important to take the opportunity to look into different forms of funding and business finance solutions.
Part 2: Review any relevant changes to tax
Tax laws and the relevant implications can be confusing at the best of times and that’s without all of the inevitable and ongoing revision, reviews and changes.
The EOFY is a perfect opportunity to take stock of recent tax authority announcements and upcoming changes. There can often be various implications from tax changes that can affect your business.
Working with your financial advisors, who will be across tax updates you may not be aware of or understand, will give you peace of mind that you’re best positioned to take advantage of positive changes and make plans for negatively impacting changes.
Write off bad debt.
Chasing old invoices and unsettled accounts can be holding your company back from moving forwards and focusing on growth/future sustainability. In many cases, there are even other reasons why writing off bad debt before the end of the financial year is a good idea.
Your bad debt may be tax deductible and can be used to offset some of your taxable income. Crucially, only bad debt written off during the financial year in question can be considered as deductible. That’s why it’s important you write off any bad debt you intend on writing off in time for the new year, i.e., before 1 April.
We recommend speaking with your tax accountant or financial advisors accordingly.
ScotPac – the leading non-bank provider of business finance solutions across Australia and New Zealand
The team at ScotPac are experienced and passionate about providing you and your company with a greater chance at success. We view our clients and introducers as partners and work with them accordingly to ensure they’re able to access tailored and flexible business solutions that work for them and their cash flow needs.
Whether invoice finance or trade finance is better for your particular situation, our experts are always here to help you conduct your end of financial year capital review and provide solutions for moving forwards.
To find out more about our financial solutions capability, contact the ScotPac team today!