Every company, large or small, needs ‘cash’ in order to exist. It is therefore important to have insight into your cash flow, when will there be money your business inside and when leaving it your business. You have to take this ‘when’ literally and you must therefore know at what times your liquid assets (money that is immediately available to you) increase and decrease. You can use amake liquidity budget.
The Right Insight for You Here
If you don’t have this insight, you can be faced with unpleasant surprises and you can get into trouble. You will not be the first company that is commercially successful, has a full order book, has various invoices outstanding, but has a low bank balance (or even red).
However, we give you a number of examples that show how things can quickly go wrong. Based on these examples, we will name a number of ‘cash killers’ that can cause a shortage of liquidity.
Cash problems for freelancers
We take a self-employed person with an annual turnover of € 75,000. He (but you can also replace that with ‘she’) rents out himself and sends invoices for his services every month with an average total amount of € 7,000. He withdraws € 4,000 in salary from his company and fixes another part in a bank savings product for retirement. In addition, he drives a lease car that costs him € 750 per month, has € 250 in fuel costs and spends several hundred euros per month on accountant and insurance costs. Use the taxfyle.com/sales-tax-calculator in this case.
Ergo: of the monthly turnover of € 7,000, a small part ultimately remains that can be put aside (the so-called reserves).
The tax return
The monthly turnover is of course increased with VAT, which is almost € 4,500 after 3 months. In the worst case, however, this VAT has not yet been received in full because the payment by the client is late, but this VAT must be paid in the VAT return.
Transfer VAT received to a separate account and tries to agree on a payment term of a maximum of 30 days so that you have already received as much VAT to be paid as possible
Income tax return and provisional assessment
An (unpleasant) surprise for starting freelancers in particular: after the first year with fluctuating turnover, an income tax return must be filed for the first time. In the best case, money has been set aside to meet the income tax, in many cases any reserves have been used to absorb setbacks in the run-up year. If a provisional assessment follows immediately after the tax assessment for the previous year, many freelancers will run into (cash) problems.
Set aside part (30–40%) of your turnover for the income tax to be paid. Is your turnover reasonably stable and do you know what your annual profit will be? Then request a provisional assessment for the current tax year and pay your income tax and premiums monthly.
Cash problems for SMEs
SMEs can also run into liquidity problems. For this group, insight into the money flows and the management thereof is often even more important, but also more complex. As an SME you have to deal with higher, ongoing costs and the difference between the moment that investments and expenditure are made and the moment of the income received is greater.