It’s hard to find the cause of cash flow problems if you use your business bank account for your personal spending. Is your business under performing? Or is excessive personal spending the problem?
Separating your personal and and business bank accounts helps you control your cash flow and reduces the time and cost of preparing your GST and income tax returns.
Follow these three simple steps:
1. Set up at least three bank accounts – personal, business and saving for income tax.
2. Plan your personal and household spending. Divide this into a weekly or monthly amount. Set up an automatic payment for this from your business account to the personal account. This is your “net wage”
3. Calculate the income tax on the “net wage”. Set up an automatic payment for this from the business account to the tax account. The payment should be the same day you pay yourself the “net wage”.
An easy way to calculate the tax is IR’s PAYE calculator. (Go to Inland Revenue and type PAYE calculator in the search box. Select “Net” where asked to choose Gross or Net).
You will now be able to quickly find where cash flow problems arise. And your income tax money will be sitting in your tax account on tax payment day.