𝗣𝗿𝗼𝗳𝗶𝘁 𝘃𝘀 𝗖𝗮𝘀𝗵𝗳𝗹𝗼𝘄: 𝗧𝗵𝗲𝘆 𝗔𝗿𝗲 𝗡𝗼𝘁 𝘁𝗵𝗲 𝗦𝗮𝗺𝗲 𝗧𝗵𝗶𝗻𝗴
Did you know a business can be profitable and still run out of cash? It happens more often than you'd think, and it comes down to the difference between profit and cashflow.
𝗣𝗿𝗼𝗳𝗶𝘁
What remains after you subtract your expenses from your revenue. It lives on your profit and loss report and tells you whether your business is making money, but not whether that money is actually in your bank account right now.
𝗖𝗮𝘀𝗵𝗳𝗹𝗼𝘄
The actual movement of money in and out of your bank account, when it arrives and when it leaves. It's what keeps the bills paid day to day.
𝗪𝗵𝘆 𝗱𝗼 𝘁𝗵𝗲𝘆 𝗱𝗶𝗳𝗳𝗲𝗿?
One example is owner drawings. When you take money out of the business for personal use, your bank balance goes down, but it's not recorded as an expense on your Profit & Loss report. Your business can still show a healthy profit while the cash available in the bank has been reduced.
𝗪𝗵𝘆 𝗱𝗼𝗲𝘀 𝗶𝘁 𝗺𝗮𝘁𝘁𝗲𝗿?
A business that only watches its profit can be caught off guard by a cashflow problem, like not being able to pay suppliers, meet payroll, or cover everyday expenses. Knowing both figures and understanding the gap between them gives you a much clearer picture of where your business actually stands.
If your books are up to date, both numbers are sitting right there in Xero.
Xero Tip: The History and Notes Feature
When something doesn't look right in Xero, this is one of the first places I check.
Every transaction in Xero has a History and Notes section. It keeps a record of what happened to that transaction, including when it was created, who created it, and any changes made afterwards, such as edits, deletions, or recoding.
It's a useful troubleshooting tool when:
A balance doesn't look right
An expense appears to be coded incorrectly
A figure has changed since you last reviewed it
You need to understand who made a change and when
To find it, open the transaction and look for History and Notes, usually at the bottom right of the screen or under additional details, depending on the transaction type.
A recent example:
While reviewing a client's file, I noticed the GST figures in Xero for a past period didn't match what had been filed with IRD. Transactions can still be added, changed, or deleted after a GST return has been filed, and Xero won't automatically alert you when this happens. By checking the History and Notes around the filing date, I could see exactly what had changed and when, allowing me to identify the issue and correct it.
It's a good reminder that "reconciled" doesn't always mean "correct" or "final". Changes can happen quietly in the background and, unless someone investigates, those differences can remain unnoticed for a long time.
If something doesn't add up in your books, History and Notes is often the quickest place to start digging.
What Really Happens When You Miss a GST Deadline
It All Begins Here
We have all done it. A letter arrives from IRD, it looks official and a little intimidating, and it goes on the pile to deal with later. But when that letter is about a missed GST return, later can end up being expensive.
Here is what actually happens, step by step.
The First Time You Are Late
IRD is actually quite reasonable the first time you miss a GST filing. Rather than an immediate penalty, they send a warning. Many business owners breathe a sigh of relief at this point and assume they are off the hook.
In reality, that warning is exactly that: a warning. It is IRD letting you know that the next missed return will not be treated so gently.
The Second Time You Are Late
If you miss a GST return again within twelve months, the late filing penalty kicks in. It is $50 if you are on the payments basis, or $250 if you are on the invoice or hybrid basis.
That is before late payment penalties and use of money interest are added on top, and those keep accumulating until the outstanding amount is paid in full. What started as a missed deadline can quietly turn into a much larger bill.
The Mistake That Catches People Out
One of the most common misunderstandings is this: filing your GST return in Xero is not the same as filing it with IRD.
Your return is not actually lodged until it has been submitted through myIR, or by your bookkeeper on your behalf. Xero prepares the return, but a separate step is needed to send it to IRD. I see this catch business owners out more often than you would think, particularly those managing their own books without a bookkeeper to double check the process.
What To Do If You Know You Will Be Late
The good news is that IRD does work with people who communicate early. If you can see a deadline coming and know you are not going to make it, getting in touch with them before the due date is always a better position to be in than going quiet and hoping it sorts itself out.
A short conversation with IRD ahead of time can often prevent a situation from escalating into penalties and interest.
Not Sure Where You Stand?
If you are not certain whether your GST returns have actually been lodged correctly, it is worth checking before it becomes a bigger problem. Get in touch and we can help you check your filing status and make sure everything is in order.