How a Company Can Have a Negative Net Income and a Positive Cash Flow?

The situation seems to be a bit counter-intuitive but it is very common and is not that difficult to comprehend. Breaking down the factors at play for examining more closely will help you to understand better how it is possible for a company to have appositive cash flow but a negative net income.

When people talk about net income, they talk about the number, which has been computed by their accountants and reported on the income statement of the company. In a simple way, it can be said that the annual net income of a company is its revenue minus all the applicable expenditures in the given year. When the company’s expenses become greater than the revenue that it has earned, it incurs a loss for that given year, which needs to be reported on the income statement.

Let us have a closer look at the various kinds of expenses a firm can incur. The income statement may include expenditures like depreciation, usage of prepaid expenses, losses recorded on the paper for bad debt expenses. These kinds of expenditures are not the type of expenses the firm actually pays cash for.

Now let us say that a company in Auckland had a net loss of $200,000 for a given year. It recorded about $200,000 in depreciation for that year and used up about $100,000 of the prepaid expenses and wrote $150,000 of the bad debts it knew it will never be able to collect. The cash flow for that year is then $450,000, which is more than the net income that’s reported on the income statement by their tax accountant in Auckland. This means the cash flow is positive but it is not going to pay any income tax for that year because it has recorded a net loss. However, in reality the company has more cash on hand than it had at the beginning of the year.

Before investing in bonds or stock of a company, investors must be aware of the cash flow and the net income of the entity. What good is it going to be for a shareholder if the company has got a cash flow that’s positive but is hit with net losses repeatedly?

How You Can Benefit By Hiring a Tax Consultant?

Importance of a tax consultant is always vital in any kind of business. Tax consultants are the persons who are certified to handle taxes of any individuals and company according to the state and country laws. They are the ones who can guide the company and individuals through proper steps to become eligible for tax rebates or tax refund.
 

Duties of a tax consultant:

The major duty of a professional tax consultant is to reduce the tax levy of an individual or a company as minimum as possible. A tax consultant assists its clients to compute their tax on by own or they do on half of the company. Professional tax accountant in Auckland will go through all the rules and regulations imposed by IRD and make the assessments according to that.
 

Benefits of appointing a tax consultant for your business:

Taxation policy is different for every country. It is also very difficult to understand by a normal person. Hence there is a need of an adept consultant to make the work easier for everyone. A consultant knows the laws and the tricks of preparing tax return very efficiently than a normal person.

Each consultant has gone through a training process from a good financial institution. This means they are certified and trained. It makes them eligible to provide right consultation to various companies and individuals. Hence you can be stress free and relax as your consultant takes care of your taxation process.

Computing taxation is a critical job to perform. It takes a good amount of time. Most of the companies especially mid sized and small enterprises do not like to spend that much of time into tax filling and computing it. Rather they prefer to hire a tax consultant to do the job for them.
 

Taxation structure is not constant every year. A professional tax accountant will keep himself updated with the latest updates. It becomes easier for any company or individual to leave entire responsibility on them to file company’s taxation.
 

A consultant apart from computing and filing taxation also provide advices and suggestions how to save tax by doing minor activities like giving donation, paying for health care etc. 

How to Utilize the Savings from the Tax Refunds in NZ

The New Zealand Inland Revenue Department (IRD) handles the all taxation affairs paid by individuals. A tax payer may pay more than the amount of tax that he has to pay from his income in advance. This phenomenon will make that individual liable to be eligible to get tax refunds. Many people are interested in getting their tax refund.

The calculation of refund is done by IRD on the basis of personal circumstances. On an average an individual gets about $500 tax refunds in NZ from the amount he pays. Some of the tax payers utilize this amount for paying extra payments like going for a vacation, doing Christmas shopping etc. But there are some other ways to save these extra bucks in a more fruitful way. Below I have discussed some great ways to spend your tax refund in New Zealand.

Paying off the high interest debt:

Look to pay off all the debts that you have pending.  You might find that the refund amount is not sufficient to pay off the entire debt amount. Try to use it for the account which is having higher debt interest. Paying off debt will be the best idea to enjoy your Christmas holidays with free set of mind. 

Pay the extra mortgage:

If you pay the extra amount on mortgage of your property that you have you can save a good amount of money for future interest. Paying extra amount on mortgage usually gets credited on the principal amount. By this way you can get the equity of the house as soon as possible. 

Save it for the future:

Save this extra money for the future. If you are having a saving account put this extra money into that account instead of keeping it in current account. Doing this you can get increased amount of interest. Keeping some reserved money can be handy when you or your family may come under any emergency. If there is any sort of financial crunch, this amount will be beneficial for that purpose. 

Spend wisely on repair and upgrades:

If you are planning to repair the engine of your car this is the right time to do it. Also you can upgrade your old Harley Davison by this extra amount gained from tax refund. Look into the aspects of any small repairs and maintenance works that you may require to be done for your house or office. Utilize the money and do it. This idea will also save your money for bigger expenses in future.

Above all are the different ways to use your tax refund income wisely. If you follow them, you need not have to be worry for your future. 

3 Ways of Proper Financial Management for Better Business Cash Flow

If you are into a business you need to think about this deeply. To make a business survive one need to put consistent flow of cash into the business. A good financial planning helps to maintain a good cash flow for a business. Here are some points that I have discussed on good financial planning for proper cash flow into the businesses. 

Make a proper budget:

Effectively prepare a budget for your business. Combine the actual, estimate and historical figures to ascertain the exact value for the budget. Make a list of all the expenses that took place in previous year, eliminate those which are not going to take place this year. Add cost of all promotions, campaigns that are going to take place in this year. Do not forget about the tax requirements of this year. Compute your tax from an expert tax agent in NZ to save extra bucks. Now calculate the revenue that you are going to incur during this year from the existing projects.

Review the terms of trade: 

Before commencing the business, the owner must decide the terms of trade. You may have terms of trade for 7 days, 14 days or 30 days. This is the time which you give to the buyers to pay the bills. It must be clearly mentioned on the invoice. Make your terms of trading written in simple language to avoid any confusion.  You need to mention it in the invoice 7 days after getting the product or 7 days after getting the invoice. Eliminate these kinds of petty confusions so that you have a clear idea of the time of getting your money. 

Check debtors’ accounts and impose good debtor control system:

Do you have regular late payers and payment dodgers? This system can harm your business a lot. Hence you need to apply a good debtor controlling system. Consult with a professional financial planner to imply some strategy to counter this. You can use automated reminder system on a periodic time for the clients. You or your assistant can send gentle reminder e-mails or mails to the clients asking to pay off some of their money now and rest can be paid later on.