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