You pay your mechanic to diagnose problems with your car before they become serious or cost more to fix (or even worse – potentially dangerous).  Equally, when problems are evident with a business, much bigger issues (and potentially threatening the business’ existence) can be averted. 

My team and I at Business Advisory Accounting & Tax Services pride ourselves on being more than accountants.  For many of our clients, we provide monthly management accounts to help them perform their own “business health checks” and help them project cash flows and profits.  Correctly timing some financial transactions can affect a company’s bottom line quite dramatically.

Another misconception is that using an accountant is expensive.  A small business, operating under the benefits of a limited liability structure, should be able to have monthly management accounts, annual financial statements and tax returns prepared for less than the cost of a latte & biscotti in a swanky Auckland cafe. 

Isn’t it worth investing less than $5 a day to eliminate the hassles and stress of maintaining your books?  Wouldn’t your time be better invested growing your business, rather than crunching numbers?  It’s well known that businesses that do not use an accountant are more likely to be “selected” for an audit.

The final misconception is that business owners think that they can do their own accounting.  And in many cases, they aren’t qualified to do so.  I know that as New Zealanders we are famous for our DIY approach.  But there are some tricky jobs that are best left to professionals. 

I wouldn’t attempt to build a new extension on my home, so why would a builder handle their own book-keeping?  The person who carries out the same job, day in-day out, will have the proper training, skills and tools and complete the work more efficiently.  My extension would probably fall down or leak after the first storm.  At the same time, the builder’s business may be “leaking” cash or is unprofitable. 

Just as I may not detect a small leak in my roof for a while, a small business may “leak” cash and it may be too late to fix.

I hope this article has dispelled a few common misconceptions about accountants.

If our monthly management accounting service sounds like something that you might be interested in, Mark Gwilliam can be reached at 09 449 0417.

Let me elaborate with some examples:

Scenario 1: You pay $3,250 during the year for monthly management accounts and statutory tax returns. Over the year, you’ve made a couple of ‘phone calls and been given some practical business advice. After following some of the advice, you increase your profit margins by 15% p.a. with very little extra effort.

Scenario 2: The only time you talk with your accountant is at tax time and your accounting fee is $1,750. You receive no monthly management accounts to identify any early warning signs and you receive no advice at all.

Which accountant do you recognise? Which accountant will give you more value?

I am often asked how people can receive even better value from their accountant.  Here’s a list of just a few things you can do:

* Get them to explain how you could organise your financial information better and how accounting software would help you.

* Most accountants charge for their time (in 6 or 12 minute units) and therefore if they have to contact you to locate missing records your accounting fees will increase. Retain your bank statements, invoices, cheque stubs and deposit books and keep them neat and tidy and in order as your accountant will need them.

* Keep it simple.  If you simply need a basic set of financial statements and tax return, tell your accountant.  We are often instructed to prepare detailed financial statements using a client’s complex chart of accounts. This additional work adds to their accounting fees and is often unnecessary for most small businesses.

* Separate your personal and business spending. Open a new account with your bank and pay all business expenses from that account as much as possible. Try to avoid paying cash for your business expenses and personal expenses (drawings) as these can add to your accountant’s time. Try to remember to keep receipts and write on each one a brief description of what you spent your cash for.  Consider putting yourself on your payroll as it’s a good financial discipline to get into.

* If accounting is not your strong point, consider getting someone else to do your book-keeping.  If you don’t need someone full time, hire someone on a part-time basis or maybe your accountant has book-keeping staff who can help you.  Accountants often have junior staff doing book-keeping work at reduced rates.  You’ll often find that paying them will save you money as their accounting fees are tax deductible and they should do the job in less time than you will.

* Discuss decisions that will have a major financial impact on your business with your accountant before making them.  Poorly considered business decisions that affect your business’ financial performance may be very costly to rectify after you have made them.

* Speak with your accountant every few months or so to establish feedback on your business’ performance.  The stability of your business and its future health is way too important to take uncalculated risks.

Don’t be tempted to save a few hundred dollars by going to a “cheap” accountant because it is sure to cost you in the medium to long term. If it’s just number crunching you want, there are plenty of accountants out there to help you. But you should view your accounting fees as an important investment.

If it’s value for money you’re after, I hope you’ll use these tips to ensure your Chartered Accountant gives you more than bean counting.

I see more and more business owners turning to credit cards to help finance their working capital until cash flow improves.  With credit coming back into fashion, this article discusses whether using a credit card to finance your business is a good option?  If you’re thinking of using one, here a few things to consider: 

If you’re operating a new business, it’s unlikely that it will have established any reliable “credit history” with a credit card company.  On the other hand, you may already have your own credit card and it’s highly likely that you have operated your own bank account.  Consider using these to your advantage as you may be able to obtain credit in your own name and “lend” your business this money. 

If you’ve got an excellent credit record with your bank and/or credit card company, consider using your own credit record to benefit your business.  But be careful if you’ve missed loan or credit card payments as your credit score may be damaged and make it harder to you to obtain the credit you need.  If you have a poor credit record, your application may be declined.  Keep your business’ financial health strong to ensure that it develops its own positive credit history.  But you may have to look for alternative finance sources in the meantime.   

I firmly believe that every business needs cash forecasts and budgets.  This is just as important (if not more so) for new businesses.  As the owner, you’ll need to know when payments are due and how much as well as having an idea of when you’ll be paid.  If you have no idea of your cash flow cycle, you’ll be in the dark and you may not be able to meet your credit card company’s monthly minimum payments.  Credit cards should be used with a degree of caution until your business’ cash flows and profits are stable and the company can meet its obligations.  Alternative finance options will include: loans from family and friends, personal loans or a small business loan.

When “more means less”
Most new business ventures I’ve been involved with experience a torrent of activity and financial disarray.  Filled with excitement, the “newbie” entrepreneur “must” have the latest office equipment and gadgets and then quickly runs out of the start up capital they had saved or borrowed.  You must be disciplined and frugal – otherwise you’ll have no cash left to pay your suppliers and other essential outgoings.  Schedule big capital expenses or large purchases and fight any temptation to make “impulse buys” until you’re confident that your business can afford (and needs) the item.  Laying the right foundation at the start will make a big difference to your credit history.

Do not under-estimate your financial obligations.  Many businesses have “gone to the wall” due to their owners shying away from them.  Don’t fall prey to using the business solely as a means to fund your new “self employed” lifestyle.  By all means make sure that you have a work/lifestyle balance but operate your business as a business.  Review how you’ll operate your business – it’s possible that incorporating your business will provide good tax planning opportunities as well as providing the basis to separate your business and financial affairs.  It should also give your business the opportunity to develop a separate credit history. 

Consult your accountant to make sure that you’re structured right.

Who else can substitute for your accountant in understanding your financial affairs? Who else is more knowledgeable about the performance of local business in your community and similar businesses in today’s market place?

Every business owner has their own way of establishing a business relationship with their chartered accountant.  Unfortunately, many of them do not seek to draw on the range of skills and services that their accountants offer.  Many only visit their accountants only once or twice a year to drop information off for their tax returns.

To help achieve genuine long term success, business owners should set their expectations and discuss them in detail with their accountant.  Many accountants not only prepare their clients’ financial statements and tax returns but are also experienced business consultants as well.  It has been proven, that in a business where the owners and accountants work closely together tend to see revenue improvements and greater financial control.

The good thing is it is not too late to establish a good relationship with your accountant.  Make a list of the names of the accountants available in your area and research them. Ask your friends and colleagues’ if they have suggestions.  Establish what services the accountant offers and whether or not they serve the purpose of your business.  Then develop a short list of 2 or 3 accountants who you think you can build a strong working relationship with and telephone them.  You should quickly gauge if you want to work with them.

Remember, choosing  the right accountant may make all the difference.  At Business Advisory Accounting & Tax Services, we aim to make the difference.

Unfortunately, if you have selected the wrong kind of accountant for your particular requirements, unless you do something about it immediately, it becomes exceedingly difficult to switch at a later date. Your accountant becomes familiar with your financial affairs and the cost of switching can be high. There is also the problem of inertia because you are reluctant to disturb the status quo. It makes sense, therefore, to choose the right accountant from the outset.

Many experts announce that selecting the most appropriate accountant is equally as important as selecting the right doctor.  The most appropriate accountant should help you structure your business properly; benchmark your business with similar types of businesses and ‘diagnose’ problems that have been known to cause so many other small businesses to fail.  The right accounting firm should be able to help you determine the most appropriate financial strategies to follow.  Integrity is an important consideration because you would expect honest unbiased advice.  Some people believe that 60% of your chosen accountant’s business should come from the same type of business as yours.

Find a chartered accountant to whom you can relate.

While professional skills and quality of advice are important, personality is equally important and you should feel comfortable discussing your financial affairs. Your accountant should also take a genuine interest in your business and be pro-active in all the services that they render. Ask for a free consultation with several accountants to determine your degree of comfort.

You also need to be clear in your mind as to exactly what kind of support you are seeking. Some accountants will only provide accounting and taxation support while others will include a wide range of business consulting services. Generally speaking, a small accounting firm that can provide personalised service is the best fit for a small business.

Ask what your chartered accountant can do for you.  Because this is a two-way business relationship, don’t feel shy about establishing exactly what your accountant can do you. At the very least, they should save you enough money to justify your investment in their fees.
Ideally, they should be able to do a lot more – such as introducing you to potentially useful contacts from their network, such as lenders for your business. They should also be providing ongoing business advice to optimise your business operations. If your entrepreneurial style is aggressive, find an accountant with a matching style. 

Above all, don’t choose the accountant with the lowest charges. You want a competent professional and not a glorified bookkeeper. Keeping in mind that this is an investment and not an expense, look for the maximum return on your investment from your accountant.

If you are a small business owner, no day seems long enough to accommodate all that you want to do. In all probability, you are a “one-man band” who wears many hats and has to handle everything from sales and marketing to purchasing and administration. The best way to tackle this problem is to prioritise and decide what you need to do yourself and what is best done by outsourcing work to other specialists – such as an accountant.

Almost certainly, you are unlikely to have accounting and tax expertise and this is a job that you should immediately trust to an outside expert. No matter how small your business, the right accountant is an invaluable business partner who can add value in many ways, beyond the obvious services of accounting and tax.  They will be a highly competent professional and examples of the areas where they can assist you are:

Accounting services. Like many small-business owners, you may have considered maintaining the books of accounts yourself and this is no bad thing because it will give you hands on familiarity with every aspect of your business.  However, it is wise to consider outsourcing – simply because it might take up a good deal of your time that would be better used elsewhere.  One way to handle this problem is to ask your accountant to choose a good accounting software package that is easy to operate and implement.

Tax services.  A good accountant will be pro-active about your tax planning and, well before the end of the year, they should be consulting with you to structure your business for maximum tax efficiency. You should, however, ensure that they do not flirt with the limits of tax laws and use dubious tax loopholes that could land you in trouble later.  They could save you quite a bit of money on tax that you might have otherwise unnecessarily paid.

Business advisory services.  An accountant can be a great help when it comes to designing and implementing business systems so that your business can run more smoothly.  They can help you carry out a cost benefit analysis to ensure that any investment in your business will have a positive impact on your bottom line.  They can help you draw up business plans that will serve as a blueprint and a guide. Finally, they can help you identify sources of finance and assist you when negotiating and finalising your funding.

As you can see, building up a mutually rewarding and fruitful relationship with your accountant will have immense long-term benefits. As they gain better understanding of you and your business, encourage them as part of their accounting services to be pro-active in suggesting ways to improve your bottom line. On your part, for any decisions that have major financial ramifications, you should seek to consult your accountant before making them.

What does your liability for tax actually mean? Let us for a moment places your tax payment in perspective with your other expenses. Some statistics from the US suggest you spend about 17 percent of your income on housing and a little over 11 percent on medical expenses. Food and transportation will cost you roughly eight percent each. All this is however dwarfed by your tax payment which accounts for fully 32 percent of your income. If you feel that you are getting a raw deal, you are absolutely right because the government takes away in taxes as much as you spend on housing, transportation and food combined. When you talk about economising, you generally look at items of expense but shouldn’t you really be looking to save money on the #1 culprit-your tax payments?

Change your attitude about taxes. Do you want to continue to do nothing about your taxes because that is what is the fellow next door is doing? Or do you hate these unnecessary payments with a vengeance that makes you determined to do something. Recognizing that you can do something about paying unnecessary taxes is the first step to solving your problem. Are you now worked up enough to read on?

Saving on taxes pays long-term dividends. Let us assume that you find some tax saving strategy that will save you $4000 every year. If you invest this money every year for 30 years and you can manage an annual return of 11.5 percent every year you will accumulate over $1 million at the end of 30 years. Even if you can save only $2000 every year, you will still end up with a retirement nest egg of over half a million dollars. Certainly nothing to be sneezed at. Even more important, you have not cut your spending because the money has come from the government who would otherwise have taken it as taxes.

Devise your tax saving strategies: there is plenty of information available on how to save tax either on the Internet or in your local library. It is worth your while to do your research so that even if you identify several small savings, the cumulative effect on your financial position justifies spending time on it. Or you could simply go to a tax expert who will devise these strategies for you.

In this case, it is no exaggeration to use the old cliché that time is money. Get started on your efforts right away by hiring a quality tax expert and then let your savings multiply out of your taxes.

However, even the best accountant is no magician, and unless your financial affairs are recorded and documented properly, there is not much that they will be able to do. You should also remember that the New Zealand IRD prefers that you appoint a tax agent (normally a chartered accountant) to administer your tax affairs.

The first step is therefore to organise your accounting and recording system in a manner that will minimise the difficulties of preparing your tax returns.

Here are some simple tips on how to organise your paperwork instead of stuffing it into the nearest available shoebox or desk drawer:

• Prepare and label folders for each month of the year. Place every piece of relevant paper in the appropriate folder. Whenever you have a little time, you can arrange the contents of a folder, and itemise income and expenses.
• Consider acquiring a corporate credit card to which you can charge all your expenses. The credit card company will present you with comprehensive and neatly itemised bills, in effect doing your dirty work for you.

Let us now consider a few ways in which you can reduce your tax bill.  A chartered accountant is the best guide, so rely on their advice.

Bring forward planned expenditure: If you happen to be planning to spend money on marketing or refurbishment and redecoration, incur the expenditure immediately. You need to spend the money anyway and doing it immediately will give you a nice little tax break.

Take advantage of capital deductions: Bring forward expenditure you plan to incur on items such as machinery or other fixed assets. In consultation with your chartered accountant, pick items that will give you the highest possible depreciation benefits. If you plan well, it is possible to find items that will give you tax benefits of 100 percent.

Do you really want to go on paying more tax than you should? If not, employ the services of a high-quality accountant and start planning your New Zealand tax.

The New Zealand Inland Revenue Department (IRD) expects you to submit a properly completed tax return every year and this is in turn based on your annual financial statements. The department prefers you to have a tax agent (normally a chartered accountant) to handle your tax affairs. If this is the case, they will normally allow you an extension up to 31st of March of the following year to file your return.

If you fail to meet this deadline, you will find yourself in an unpleasant situation with the following consequences:

• You could face penalties and “Use of Money Interest”.
• You will probably lose your “Extension of Time” with your tax agent.
• If you continue to flout IRD regulations, you could face stiff monetary penalties and possibly criminal charges.

Instead of delaying or being paralysed by fear, take decisive action and contact your accountant or your tax agent immediately. The process is not as complicated as you think. And you should let your accountant take charge of the process. Here is a sample of the kind of information you should provide to your accountant for the preparation of the tax return.

• The details of any major property transactions
• Complete bank records and bank statements
• The details of all cash transactions
• Your general ledger, if you have one
• The details of your accounts receivable and your accounts payable
• Details of the inventories, fixed assets and motorcars

Your accountant will have more detailed requirements which you should fulfill scrupulously.  We generally send our clients checklists that help them collate the information we need and keep our fees down.

How to select a tax agent

Planning your tax affairs to minimise the strain on you and maximise your tax efficiency depends almost entirely on your choice of the chartered accountant to act as your tax agent. What you need is pro-active and efficient advice. Your accountant should:

• Stay in touch with you to inform themselves of how your business is going
• Provide you with input on major investment and financial decisions to maximise your tax advantage
• Help you to prepare a business plan and to monitor the progress in accordance with the plan. This will ensure that you can take timely corrective action as required.
• Help you to maximise your operating efficiency and streamline your cash flow.

Stop spending sleepless nights worrying about your tax affairs.  Find yourself a top-flight accountant who can shoulder some of your worries and assist in efficient management of your tax.

Ninety percent of these enterprises employ less than 20 people each. This is not surprising, as New Zealanders are highly entrepreneurial and willing to give new business ideas a go. However, many of these entrepreneurs will lack knowledge and experience in business planning, and should turn to an accountant for help.  An accountant will provide input on a variety of issues and will express your ideas in meaningful financial terms.

A business plan is both a route-map and a blueprint. You can plan the best possible route to your objective and use milestones to measure your progress. Some people believe that business planning is akin to crystal ball gazing but this is not strictly true. If you can create a proper business plan with the help of a chartered accountant, you will be prepared for any unpleasant surprises or eventualities along the way.

Reaching the milestones that you created will let you know whether or not you are on course, and if not, what corrective action is required and when.

Business plans may be created in various ways depending on the advice of your chartered accountant but the following three elements will need to be addressed:

• Business Objective: This is what you are trying to achieve.  Since the purpose of starting a small business is to make money, a business objective should best be defined in financial terms. Common measures of business objectives include return on investment, return on capital employed, return on net worth, growth and so on. Your chartered accountant will help you to devise the appropriate measure.

• Business Strategy: Strategy is one of the most misused terms in business terminology, so be sure to understand it clearly.  If the objective is what you are trying to achieve, the strategy is how you are going to achieve it. Clearly, strategy has no meaning without an objective and vice-versa. If you cannot find a strategy to achieve your business objective, there’s a good chance that your objective is over ambitious.

• Business Behaviour: It is important to recognise that businesses behave just like people, and the objective and strategy must be in consonance with the behaviour. For instance, there is little point in forcing aggressive objectives and strategies on a highly conservative business.  If you must be aggressive, make sure that the right people with the right attitudes are in place first.

You can see for yourself that a sound business plan is an essential prerequisite for success. Why don’t you get started today by hiring a good firm of accountants?