The Worst Advice About Cashflow We’ve Ever Heard
If you have a Cashflow Challenge
Definitely Don’t Do This!
Businesses often engage in well meaning but sadly misguided activities, but this week there was a Doozie that took the cake. It can be hard to know what to do when cashflow is tight, but we recommend you NEVER put this on your To-Do List!
The Worst Cashflow Advice: Don’t pay your Taxes
This was the advice from a client’s bookkeeper – “let’s not pay our tax!”. So for several years my client has accumulated larger and larger tax debts as they continued to meet their lodgement requirements, but not hand over any cash. Now, your “tax man” may be ladies, or called the Tax Office or Inland Revenue Service or Department of Tax or whatever, but regardless of how your Government collects its taxes there are several reasons why this is such bad advice, here are my top 2:
A. You’re messing with the Government
To state the obvious – the Government is much bigger and more powerful than all of your other Creditors.
If you are in the habit of paying your suppliers late, or not paying them at all – you will probably get away with it provided your suppliers are small and don’t have the time and cash to chase the debt through costly court proceedings. On the other hand the Government is strong they have plenty of time and money to collect every cent you owe. How else will they be able to afford to provide hospitals, and roads, and police, and all those other things taxes pay for?
Governments create their own methods of preferential standing and in many countries (especially Australia) are able to instruct your Bank to hand over the money directly. Garnishing your heard-earned is common practice – the Tax office simply sends a letter to your bank with instructions for the transfer and the bank must comply. Now this can REALLY mess with your cashflow, one day you seem to have plenty of money, the next it is all gone!
The other big problem with a Garnish is it immediately impacts your credit rating – the bank is notified by the Tax Office about your “financial non-compliance” and will generally “demote” you to a bad payer category – with related interest increases; even if you have never been overdue with a single repayment.