(photo credit: Bloomberg)
Going into business in Israel can be enormously satisfying if it results in the
development of a new or better technological product. But the business must
generate cash flow if it is to flourish and make you a living.
must be actively managed – it doesn’t just appear on demand. And if you don’t
pay your taxes on time, the Israel Tax Authority’s computer system doesn’t
forget or go away – it starts adding interest, indexation and penalties to your
This article was written after two unrelated businesspeople
complained they couldn’t pay their taxes but didn’t know where the cash had
gone.What is cash flow?
Cash flow is the total movement of cash in a
business, including receipts and payments, both known and expected. You must
also take into account receipts and payments that are past their due date but
haven’t yet been received or paid. You should take into account the full
amount of each receipt and payment, including VAT, allocated time-wise according
to their due date.What use is cash-flow management?
offers many advantages, including the following: • It is a tool that facilitates
proper financial control over a business.
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• It helps you plan and
• It gives you broader future vision of your
business vis a vis total anticipated expenses payable over time: salaries,
suppliers and taxes.
• It helps the business owner or management
negotiate desired payment dates and payments on account with customers and
• It helps the business budget ahead; i.e., hire more
personnel, buy or sell fixed assets, more R&D, more marketing.
may warn of cash-flow shortage periods, so you can prepare; e.g., by requesting
temporary bank borrowing.
• In an extreme case, it helps the business
owner consider postponing payments (but generally not tax
To achieve the above benefits, a cash-flow
forecast needs to be prepared. Often this is done as a spreadsheet model. This
should be done as accurately as possible in the circumstances and updated
Sometimes it is prudent to build several versions; for
example, “optimistic,” “pessimistic” and “best estimate.”
PowerPoint summary is also prepared if investors or potential investors need
just the highlights.Past or forward-looking?
Past results should be
available from accounting records and financial statements of the business, and
you should use these as a basis for understanding how the business has performed
to date. But cash-flow management helps plan your cash flows in the present and
future so you can consider what action is needed.
Forecasting the future
is never completely accurate, but it is usually possible for the near future and
still partly possible as you project further ahead. A good businessperson should
de-risk things as much as possible by collecting relevant information, and
cash-flow forecasting is part of that process.How is a cash-flow
• Record opening bank balances.
• Enter all receipts,
known and expected.
• Enter all payments, known and expected.
Calculate closing bank balances at the end of each relevant period (daily if you
are really serious; at least weekly or monthly).What receipts are
• Business revenues.
• Loans received or expected.
Equity investments received or expected.
Should VAT or income tax refunds
due be included? Probably when received, not before. Although the tax
laws contain time frames for refunding taxes, they can usually be overridden if
tax officials want to check things first; this is how bureaucratic delays are
usually “explained.”What payments are included?
• Loan repayments • Fixed-asset payments.
compensation, etc.To sum up
Cash-flow management is an important tool
for achieving success and avoiding failure in business. Making an accounting
profit or breaking even is not always enough – cash is king.
reason for cash-flow difficulty in businesses is a mismatch between the due
dates of expenditure and the dates that receivables are collected. Cash-flow
forecasting and management can help minimize these risks.As always,
consult experienced professional advisers in each country at an early stage in
Aneta Zamir is an adviser and
lecturer on accounting and cash-flow management at Numerus Advice &
Financial Management and at Harris Consulting & Tax. Leon Harris is a
certified public accountant and tax specialist at Harris Consulting & Tax
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