Managing your cash-flow when the market changes

So much has been said about how to prospect, list and sell and very little about how to manage the cash-flow when the market changes.

Whilst the market is still positive and the business is there for those who know how to operate in this phase of change ñ Buyers seeing more choice and sellers still seeing golden prices - it is a market that will see some in the industry adjusting to lower incomes.

Whether last years income was used to store away savings or investments or to reduce debt, one hopes you came out of it with a greatly improved net asset position.

For those salespeople who are good cash managers there wonít be any problems but I am seeing many who have forgotten to provide for some pretty vital issues. Perhaps with a change in the wind it is a good time to address some cash management issues.

Income Tax:
In good times, unless you are a great cash manager it will have paid to have instructed your manager to deduct a higher percentage than the minimum 20% with-holding tax. Yes itís great to think we can save and keep the funds aside but remember that the market is not always there to make up lost ground for those who donít have the discipline or steady cash-flow.

It pays to know your taxation levels before confirming a With-holding Tax rate with your manager unless you are a good money manager.

Current Tax rates are:

Up to $38 000 19.5 cents
$38 001 to $60 000 inclusive 33 cents
$60 001 and over 39 cents

As taxable income up to $38 000 is taxed at 19.5 cents you donít have to earn a lot more to be in an under-paid position. But you might say no problem as you have a year to find that money.

So maybe you had a great year last year and earnt $200 000?

If you left your With-holding Tax @ 20 cents you will have paid $40 000 already in tax.
Maybe you had some expenses of about $10 000.

Your taxable income would now be $190 000 and in round figures the tax on this is about $65 000 plus any ACC levies.

So you now have a year to find $25 000 in Terminal Tax by April 7 2005. I guess you arenít anticipating any problems in saving @ $2000 a month.

If this salesperson had instructed their manager to deduct say 30 cents with-holding tax they would be almost square.

Many salespeople find that as their income varies greatly with the market, it is more sensible to either:

Increase their with-holding deductions to a more realistic level to avoid finding Terminal tax later in a different market, or

Having a percentage of their income placed in a deposit account alongside their GST received. This money can then be used for GST payments and give comfort that the tax is saved, whilst earning some interest.

Some have found that by placing an extra 10% of their income plus all their GST receipts in a separate account, and then making any GST payments due to IRD from this account, they quickly build a surplus that provides a growing marketing or conference account.

Having been put in a position to pay Terminal Tax in April next year, does that now put you in a position of having to pay 20 cents With-holding Tax plus Provisional Tax at 3 dates during the year as well.

After a good year, where you have under-paid as above, there is not only the $20 000 terminal tax to pay in April 2005, but three Provisional Payments of around $6500 each as well - on July 7, November 7 and March 7 2005.

So thatís now $4000 a month!

The best solution maybe to ask your manager to increase the With-holding Tax rate and take care of the Provisional Tax that way? If that sounds like your position it may pay to speak to your tax advisor soon and make provisions now. But still the Terminal Tax remains due.

GST
Isnít it amazing how this builds up with a couple of good months?
The best cash managers I see simply place this in their 02 business account as they receive it, and make all GST payments from this account. They leave a surplus to build up to assist in leaner times or with any additional tax or Acc payments. This is a discipline that is great to establish from day one in your sales career. With on-line account management now it is easy to transfer the funds direct to IRD rather than transferring back to your 00 account and sending a cheque. The key is to resist touching the surplus.

Marketing
When the market changes it is crucial to maintain your marketing profile. It is tempting to reduce costs by eliminating marketing from your expenses. It does not make sense to try to increase or maintain income whilst reducing your investment in marketing you and your prospecting programme. It might just be a case of supporting this marketing with more follow-up calls and face to face meetings to reinforce the message. Look at it, as getting more bangs for your buck. As many competitors may weaken their approach in slightly slower times there is no better time to increase your profile. This is another great reason to justify taking a levy of each commission payment and placing it in your 02 account. It means the funds are there!

Training and Conference
If your group or network has a conference or workshop, my best advice is to book now. If you had a cash management programme like the one outlined above you may well have the funds set aside already. If not make this a priority! When the market changes there is nothing like learning from experts ñ from being inspired by others who can show you how to prosper indifferent markets. All the best salespeople go ñ but then they arenít procrastinators are they?

It is not that I am predicting a market crash ñ simply that we need to manage our cash flow and be aware that we have taxation responsibilities. Managing them in a manner like described above can leave your focus on prospecting, listing and selling and remove any energy sapping stress caused by a lack of cash-flow management.


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