How a startup runway model is rebuilt to include provisional tax
A runway model becomes wrong in two specific places: it reads cash received for annual contracts as revenue earned, and it provisions provisional tax on last year's much smaller liability. Fixing both usually shortens the runway. This is an illustrative example of how Salt approaches virtual CFO work, using a pre-Series A New Zealand SaaS company as the profile.
Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.
The business shape it describes: New Zealand SaaS, 9 staff, pre-Series A.
- Scenario covers
- Virtual CFO: runway and cash forecasting, provisional tax provisioning, board reporting
- Jurisdiction
- New Zealand
- Sector
- SaaS
- Take a nine-person Auckland SaaS company preparing to raise, modelling runway in a spreadsheet built during the seed round and never rebuilt since.
- Revenue has grown sharply. The model treats that purely as good news, without carrying the tax consequence of a larger year through to cash.
- Provisional tax instalments sized under the standard option on the prior year's residual income tax, which is far smaller than the current year's liability. The shortfall does not disappear; it lands as terminal tax with use-of-money interest attached.
- For a 31 March balance date, the standard three instalments fall on 28 August, 15 January and 7 May. None of them was in the cash model.
- A seasonal peak month annualised into monthly recurring revenue, overstating MRR and therefore overstating runway.
- Deferred revenue not separated, so cash received up front for annual contracts is read as earned.
- GST held in the operating account rather than treated as money owed to Inland Revenue, which flatters the cash balance every period between returns.
- Separate deferred revenue so the model distinguishes cash collected from revenue earned, then rebuild MRR from the recurring component only.
- Provision provisional tax against the current year's expected liability rather than the standard option's default, and decide explicitly whether the estimation option or AIM is a better fit given the growth rate.
- Put each instalment date into the cash model as a dated outflow rather than an annual accrual.
- Move to a rolling thirteen-week cash forecast reviewed monthly, kept separate from the P&L.
- Build a board pack that ties the management accounts to the forecast, so the two cannot drift apart again between meetings.
- Telling a founder mid-raise that the runway is materially shorter than modelled only works if the provisional tax and deferred revenue figures underneath it will survive an investor asking where they came from.
- The provisional tax option is a live decision for a fast-growing company, not a default. Staying on the standard option through a high-growth year is how the interest charge gets built.
- The founder would be able to state a runway figure that already carries provisional tax, GST and deferred revenue, and defend each of the three.
- The board pack and the management accounts would come from one ledger, so a question about the forecast can be answered from the accounts.
- The company would know which provisional tax option it is on and why, rather than discovering the consequence at terminal tax date.
What we'd flag
This is usually unwelcome news at a bad time. A correctly modelled runway is nearly always shorter than the spreadsheet version, and the value is in finding that before an investor does rather than in it being pleasant.
How a startup runway model is rebuilt to include provisional tax
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