Guide to cash flow & budgeting in Hong Kong
We explain what cash flow and budgeting mean, what the government expects from you, and how to organise these processes
- Certified Public Accountants
- Chartered Secretaries
What Is Cash Flow?
Cash flow, simply defined, is the amount of cash or its equivalent that is being transferred in and out of the business. A cash flow is positive if a company has more liquid cash coming in rather than going out. It’s a show of company’s robust financial health.
Financial means of any business are distributed across many areas — for example, its assets, outstanding invoices, and investments. One of the surest ways to determine a company’s financial performance is checking its cash flow statements.
What is Budgeting?
A business budget is the financial plan of the company. It is an adjunct to the overall business plan which lays out, in numbers, what the company hopes to achieve that year in terms of money. It contains detailed and data-backed forecasts of annual projected sales, profits, revenue, and expenses of a company.
Why is positive cash flow important?
More cash in hand allows companies to settle their debts, pay shareholders and expenses, and invest in business growth. Every business must be diligent about recording and tracking its cash flow. Bills, expenses, invoices, instalments, premiums, or incoming payments – big or small – must all be appropriately tracked. Most companies use automated or freelance accounting services in Hong Kong to monitor and manage their cash flow.
Why should business owners track their cash flow and work with a business budget?
Budgets and forecasts are an essential tool for running businesses efficiently and expanding it. It is a monetary depiction of an organization's strategy. Using budgeting and forecasting strategies allows business owners and managers to identify the resources needed to meet their goals.
In fact, an integral and critical part of every business budget is a cash flow forecast that predicts future sales figures, or the likely cash flow into and out of a company’s bank account in a year. It consists of information regarding cash from operations, cash from investments, and cash financing activities.
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What are the budgeting compliance requirements for Hong Kong businesses?
Every Hong Kong company must submit an annual report called Profits Tax Returns or PTR. Here’s what exactly you need to file:
- Your balance sheet for the year of assessment
- Auditor's report
- Profit & Loss Account
- A tax computation that shows clearly how you arrived at the final amount of assessable profits or adjusted losses
- Report of Employers Return (ER) for year April to March
For newly incorporated companies, PTR is due within 18 months since the company registration. For others, the timeline depends on the accounting end date
Accounting Year End Date Due Date between 1 April to 30 November 2019 30 April 2020 between 1 to 31 December 2019 15 August 2020 between 1 January to 31 March 2019 15 November 2020
How can I manage my budgeting and cash flow?
Maintaining cash flow and budgeting information accurately is vital to ensure the smooth running of a business. And it can only be realized if the company invests in excellent bookkeeping practices. For this, you can either outsource your accounting services to freelance accounting and bookkeeping service providers in Hong Kong or pay for an automated budgeting app for your Hong Kong office. We do both: provide a software solution and a team of experts backing it up. You can always ask their advice on difficult matters while the platform provides accurate data and daily updates.