How to assess the effects of sales tax on cash flow

Everyone in the business world knows that managing cash flow can be an exhausting task. It's also important to understand that there are many factors that can influence cash flow today, sales tax being one of them. But how do we assess the effects of sales tax on cash flow? Managing your cash flow effectively and forecasting are your bets bet for planning for things such as sales tax effects on your cash flow.

What is a cash forecast?
If you are familiar with the term forecasting then you are halfway there to understanding what a cash forecast is. A cash forecast budget is a presentation of cash results based on the assumptions of conditions and actions expected to exist or occur during the forecasted period. The four most important parts to understand about cash forecasting are:

1. You have to define the time period in which you make the cash forecast. When you come up with a plan it must be within a specific period of time.


2. Assumptions about what will happen in the future have to be made and documented to project the cash result. This can be scary for some as no one is every sure of what the future will hold, but just taking the time to think about it can help you asses such things as changing sales tax. Think about everything, hiring new employees, increases in salaries, sales tax, etc. Thinking about the future will prepare you in taking control of your cash flow.


3. Your cash forecast must be prepared in written form; understandable and complete. It needs to be this way so it can be reviewed and corrected if need be. There needs to be an organized way of evaluating your forecast so you can make improvements and changes when necessary.


4. Specific action for your cash forecast assumptions must be taken in order to actually reach your goals. If you want something to occur you have to do something about it; make it happen or active management.

What's the point in making a cash forecast?
The biggest reason for making a cash forecast is so that you ensure that you don't spend more money than you have or expect to have. Cash forecast can help

• Ensure that your cash balance remains above zero or at your desired minimum level


• Help predict when cash levels will rise sufficiently above minimum levels

When it comes to things such as assessing the effects of sales tax on cash flow, it becomes quite difficult. Sales tax should normally stay the same but because the economy is continually changing, sales tax may go up or down depending on where the market is. As a business this can have huge effects on your cash flow and can throw you for a loop if you're not prepared for it. Results of good forecasting techniques sometimes cannot be measured as they pay for themselves. Some common positive results of cash forecasting are:

• Financing seasonal business fluctuations


• Planning debt reductions


• Capital Expenditures


• Short term and long term financing needs


• Increasing investment options

And these are only a few of the great benefits of forecasting in order to manage your cash flow.

There is no definite way to asses the effects of sales tax on cash flow since the economy fluctuates and there is never a guarantee when it comes to the economy. You can however plan for the future by creating a cash forecast so that if things go bad or start to turn into the negative you will have a plan of action to fall back on.

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Categories: Cash Flow, Taxes,

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