Have you got good cashflows coming in and ultimately, what are the best ways to use this cashflow?
As you read this article, Western Australia has just come through the wettest July in many years.
The rivers are flowing, dams are full, tanks are full, and the crops are just waiting for some sun. It’s just another tick in what can only be described as ‘unprecedented’ times.
I’m sure I can be proven wrong, but when in history have we had high demand, high prices, high yields, high rains and to top it all off, tax breaks?
What does all this really mean? It means that we better make the most of this opportunity and make hay while the sun shines!
It’s a great opportunity to start making an indent into some of the debt that has crept its way up over the years from the bank. Currently, with tax breaks your tax liability might be low or nil, so technically it’s not going to cost you anything to pay down some debt.
One important factor to consider before we go reducing a bit of debt here and a bit of debt there is Good Debt vs Bad Debt.
Good Debt is where the interest is deductible to you, while Bad Debt is where the interest is of a private nature and not tax deductible. If you have the choice, always choose Bad Debt to pay off first.
This is also a great time to look at machinery upgrades. A good operating cashflow could be the answer to that old tractor that spends more time with the mechanic than it does in the paddock.
Perhaps we can finally afford that upgrade, but how do we fund this purchase? Do we pay cash for it or do we utilise equipment finance?
That’s a question for your accountant.
Just remember there is a significant demand on equipment now, and it can cost you a fair amount of cash, so you might want to start the plan early to make sure you get what you want, when you want it.
Don't forget YOUR LONG TERM nest egg
Building yourself a nest egg would be the third option to consider, as we all know what goes up must come down.
If you can build up a few off-farm investments or business activities, these investments might be able to provide a cashflow when times get tough again. The other reason for a treasure chest is that all good things come to an end. The tax breaks available now will eventually end, and the impact of this is the inevitable position of paying tax, so don’t spend it all now.
In summary, let’s wait for the sun to come out, some good crops to yield, and let’s make some hay while the sun is shining. Hopefully, that will lead to a smile when you look at your cashflow statement. Good times like this don’t come around every year.
If you have any questions regarding your business cashflow, please get in touch with your local RSM office today.