When cash flow gets tight, we all look for ways to delay payments, use financing that is available, and do everything possible to ensure the business (and household) keeps on running.
Sadly, the IRD is sometimes seen as a potential financier. In NZ we rely on self assessment, and the filing of returns is seen as something separate to the payment of the tax. In my experience, some tax payers believe that this provides a possible avenue of funding when things get tight.
Unfortunately, the cost of this “finance” is almost always the nail in the coffin for a struggling enterprise. As the following graph indicates, your debt grows at a rate most likely faster than the profits you retaining the cash has created resulting in a bigger car wreck in the end.
From the graph you can see that sometime during the 3rd to 4th year, your debt will have doubled. Thats expensive whatever way you look at it.
If you are getting in to difficulties with your cash flow, talk with your professional advisor about what you could be doing differently, the sooner the better. If you are already behind with the IRD, get in touch with us and we can talk about strategies before things get out of hand.
Till next time.
Lincoln Sharp - Thinking Forward 