Should you dive into tax pooling?

Diving into tax pooling

Okay, let’s be honest – paying provisional tax can be tricky. The amounts change from year to year, and bigger payments sometimes coincide with periods of low cashflow. Not to mention that if you underpay your provisional tax, you will likely be charged use of money interest (UOMI) by Inland Revenue (IR).

Tax pooling is designed to help solve this problem and smooth out your tax payments. Let us tell you how.

What is tax pooling?

A tax pool is a fund of money created by many taxpayers paying in their provisional tax. It’s organized by a registered intermediary, which works with both taxpayers and the Inland Revenue. We have partnered with Tax Traders and believe you will not be disappointed by the benefits they can bring.

When you join a tax pool, you pay your provisional tax into the fund. You can make a regular fixed monthly payment, for example, so it’s easier to manage your cashflow.

Your tax is then paid out of this fund on your behalf. The funds are held in an Inland Revenue account, which transfers them against the name of the members of the tax pool as instructed by the intermediary.

If you haven’t paid enough into the pool to cover your tax, the tax pool lends you the money at a cheaper rate than the IRD’s UOMI rate. If you have overpaid, the extra money is lent to other people in the tax pool and you earn interest.

How can you find out whether tax pooling is right for you?

The advantages of tax pooling are lower costs on late payments, earnings on overpayment, and generally making it easier to manage provisional tax payments.

If you’d like to know more about tax pooling, and whether it could work for you, get in touch.

We can help by answering your questions.

Growing pains: expanding a one-person business can be a challenge

Expanding a Business

Awesome, your business is growing! You have more clients, or your clients are spending more. Maybe you’re offering more products or services; hopefully you’re also making more money. It all sounds like you’re moving in the right direction.

 

But with growth comes growing pains. You might also be working longer hours, struggling with cashflow, losing track of invoicing and starting to occasionally drop the ball on jobs because you’re so busy. This is a critical point: how can you manage your business so you don’t lose control of your growing workload?

 

These are some of the challenges we often see facing our clients. One-person businesses that expand too quickly can seriously struggle. Wages and taxes must be paid, while outstanding debts can pile up rapidly. The business owner is stressed out and overworked, invoicing gets forgotten, clients start complaining and the quality of work begins to deteriorate. All this adds up to leave the owner short of cash and scrambling to survive.

 

However, with some planning, a little research and a bit of investment, you can grow a one-person business into a thriving enterprise with a happy team.

 

Our client Bruce is a great example; he’s an electrician who decided to go out on his own in mid-2020 as the demand for electricians (or any tradie for that matter) ramped up. There’s no shortage of work out there for Bruce – he’s reliable, friendly and reasonably priced, so he’s hugely in demand (we’ve changed his name to protect his privacy). In fact, he’s so popular that he’s busy all the time. He doesn’t even have time to reply to queries he gets from new clients and his phone rings all day. He’s trying to manage three new contractors and a couple of employees (including an apprentice) across up to 20 different job sites each day. He doesn’t always manage them as well as he could, so Bruce often ends up back on the tools doing basic work.

 

We’ve been working with Bruce to try to help him get things back under control. He’s identified some of his strengths: dealing with customers and council, quoting, and onsite problem-solving. Those are the jobs we want him to keep doing, while handing off the jobs he likes less to other people and systems. We’ve helped him sign up for simPRO field management software so he can keep track of his team, progress on jobs, and generating quotes and invoices. Bruce has hired a part-time bookkeeper to send and chase up invoices and quotes. He’s come up with a system of pre-written reply emails to keep new enquiries under control.

 

You can grow sustainably and successfully – just don’t be afraid to ask for help. Investing in the right advice will almost always pay dividends; you’ll have the support you need to build a thriving team and a valuable business.

Planning how to navigate seasonal dips in income for 2021

Cashflow Management

In any normal year, seasonal dips in income can be highly challenging when you’re a small business. But, fortunately, SME Financial has some proactive ways to predict, plan for and overcome these dips in revenue.

The key to dealing with seasonal dips is to know when they’re most likely to occur, and to have measures in place to spread your income and revenue pipeline over the course of the year.

Understanding seasonality in your sector

If your business is seasonal such as pool supplies, or a ski gear specialist, you’ll be used to the peaks and troughs, but many ‘non-seasonal’ businesses experience times during the financial year where sales and revenue peak – and, on the flipside, where sales and revenue experience a pronounced dip.

When income is low at certain times of the year, it makes for challenging times.

So, what are the key ways to plan for this kind of seasonality?

  • Forecast your seasonality – it’s vital to know WHEN you’re most likely to experience any seasonal dips. Looking at benchmarking reports for your industry is one way to predict the seasonality in your niche or sector. But you can also use your own accounting data to great effect. Look back through your profit & loss reports and spot where the peaks and troughs have occurred over preceding years.
  • Charge a premium in peak time – one straightforward approach is to apply premium pricing for your products/services during the busy season. By increasing your pricing, you boost your overall revenue, giving you more working capital to see you through the leaner months when sales and income are at their lowest.
  • Offer additional peak-time services – offering added extras and other additional service lines during peak time is another way to maximise the season. In the months where customers are most engaged, look to upsell these premium services and offer more value. Satisfied clients will be more inclined to pay for added extras, giving you an increased revenue stream from the same number of customers.
  • Target other markets – exploring other related markets is another useful tactic. When you’re experiencing downtime, look for other ways to monetise your existing assets, products or services. For example, if you’re a hotel where sales peak in summertime, offer discounted conference space in the winter months to boost revenue.
  • Diversify your products/services – if one product/service has a known seasonal dip, look at adding an additional product or service to offset this downtime. For example, a a ski resort could promote bike-riding or hiking breaks during the warmer summer months to keep revenue constant. Likewise a pool maintenance firm could establish an outdoor fireplace business for the colder months.
  • Have a regional e-commerce strategy – If you’re dependent on a small local market, broadening your marketing and e-commerce strategies can help to attract a wider customer base – and bolster sales. Paid advertising through Facebook, LinkedIn or Twitter can easily target new geographical markets, bringing in new customers and giving your revenue a much-needed uplift during seasonal troughs.

Talk to us about planning for seasonality

If your business is struggling with seasonal dips, and the resulting impact on cashflow, come and talk to us. We’ll help you identify the timing of your seasonal downtime, and come up with a clear strategy for stabilizing your income across the year.

Get in touch with us today and talk to one of our experienced business advisors.