Where did the cash go?

Date: 13 September 2013

Many clients say to us - "you are telling me I have made a profit, and I have to pay tax,  so why don't I have any money in the bank?"

One of the reasons for this is the nature of how income is treated for tax purposes - it must be accounted for based on the date the sale is made, not the date payment is received.  For many business owners who sell goods and services on credit, income is recorded many months before payment is received from customers.  This can have a severe impact on cash flow, particularly if materials, wages (and tax) have to be funded before payment is received.

Other payments such as owner's drawings, term loan repayments,
and purchase of new plant items are not recorded in the profit and loss (income and expenditure) section of the financial statements, but they do have an impact on the bank balance, reducing the funds available.

Our AGMplus, being our version of an informal AGM for your business will, among other things, reconcile your taxable profit to the cash you have in the bank. 

While our AGM plus is not compulsory, we think it is a good idea for your business.  You may be surprised where the cash has gone.  Once you know that, we can discuss some practical ideas on how it can be managed better in the future.

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