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Cashflow Planning in Xero

November 1, 2018

 

Having current financial data can be powerful when it comes to managing your business cashflow.  Especially when having to plan for capital purchases, monthly rent, tax bills and wages. Xero’s “Account Watchlist” feature enables business owners to keep track of their selected accounts showing the movement for the month and balance for the financial year to date.

 

This is particularly handy for:

 

  • Watching expense accounts – So you don’t over-spend

  • To pay upcoming obligations i.e. remove “tax”

  • Tracking your sales growth as a monthly / yearly progress update

 

In this article we will focus on saving for your tax and superannuation debts.

 

Many businesses have a separate ‘savings’ bank account used to set aside funds for GST, PAYG withholding, PAYG instalments and superannuation which are payable on a monthly or quarterly basis.  The aim is to calculate the balance on a weekly basis e.g. payroll cycle.

 

In the future we hope there will be a feature on the Xero Dashboard specific to solving this problem, however in the meantime we are recommending the following.

 

Use the “Account Watchlist” in connection with “Invoices owed to you” and “Bills you need to pay” on the Dashboard.

 

Apply this formula to the amounts in the “YTD” column:

 

GST plus PAYG Withholding Payable plus Provision for Income Tax plus Superannuation Payable minus (“Invoices Awaiting Payment” divided by 11)
plus (“Bills you need to pay” divided by 11)  =  Cash in Savings account.

 

For Example:
 

1. Add totals GST + PAYG Withholding Payable + Provision for Income Tax + Superannuation Payable

 Answer: $29,230 (rounded)

 

2. Subtract (Invoices Awaiting Payment divide by 11) - cash basis GST reporters only

 Answer: $27,170 ($29,230 - $2,060)

 

3. Add (Bills you need to pay divide by 11) - cash basis GST reporters only

 

 Answer: $27,240 ($27,170 + $70)

 

4. Total $27,240 = Cash in Savings account

 

Your ‘savings’ bank account can then be topped up to match this balance.

 

Quick tip:

 

To display the Account watchlist panel, you need to edit an account in your chart of accounts and select the Show on Dashboard Watchlist checkbox. We recommend adding the following accounts to the Watchlist: GST payable, PAYG withholding payable, Provision for Income Tax (company tax) and Superannuation payable.

 

Disclaimer:

  • The formula should only be calculated when all bank transactions are reconciled

  • The formula does not allow for income tax that may be payable for a financial year that has not had a tax return lodged (company)

  • The accuracy of the answer from the formula is reliant on all transactions being entered to Xero to the correct accounts and with the correct GST tax rate

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