The majority of income tax payers in New Zealand have a standard balance date of 31 March, which means that their terminal tax is due by:

*  February 7 2012 if their return wasn’t prepared by us or other tax agent with an extension of time agreed with the IRD;

*  April 7 2012 if their return was prepared by us and we have an extension of time agreed with the IRD to file their return.

If the total of your provisional tax payments made during the year are more than the tax owed at the end of the year, you have overpaid your income tax.  The IRD will refund the excess balance unless you choose to transfer it to another year or tax liability or they transfer the balance to other debts you have with the department.

On the other hand, if your provisional tax payments were insufficient to cover your tax liability, the difference is called “terminal tax” and you have to pay the difference by the terminal tax due date.

The date that you need to pay terminal tax is therefore determined by:

*  Your balance date; and

*  Whether you use a tax agent who has an agreed extension of time arrangement with the IRD.

Your goal should be to match your provisional tax payments to ensure that you are not faced with any unpleasant surprises when it comes to paying your final income tax liability.  The IRD will charge penalties and interest on underpayments.

I’m not keen on tax payers paying penalties and interest to the IRD so please feel free to contact us to discuss your options.

Provisional Tax

If you know that your income is or will be much higher than 2010/2011, you may need to review your final provisional tax instalment, which will be due on May 7 2012. If you’re concerned, please call us and we’ll carry out a quick review of your position.

Trading Stock

If you carry more than $10,000 in stock, you must undertake a physical stocktake on March 31 to confirm the value of it. Your stock should be valued at the lower of its cost or realisable value and you should identify obsolete stock. If you carry less than $10,000 stock you can decide to value it your opening stock value and will not need to carry out a stocktake.

Business Expenses Paid From Personal Funds
It’s very easy to overlook business expenses that you’ve paid from your own funds. Now is a good time to identify these and ensure that you’ve reimbursed yourself or have recorded them.

Bad Debts

Review your accounts receivables (“debtors”) as you’ll only be entitled to claim a bad debt write-off if you have actually written it off in your books BEFORE 31 March 2012. Further, you must retain suitable evidence that you’re carried out reasonable steps to recover the debt before you write it off.

Employee remuneration

Amounts owing to your employees as at 31 March 2012 (which may include holiday pay, bonuses, etc) may be claimed as deductible in the 2012 income tax year. But you must pay them within 63 days of March 31, which will be June 2 2012.

Review your balances now as delays in paying these balances beyond June 2 could have a surprisingly dramatic impact on your 2011/2012 income tax liability.

Shareholders’ salaries and bonuses must be paid by 31 March to be deductible. PAYE on these payments must be included in your March 2012 payroll schedules and paid to IRD by April 20 2012.

Fixed Assets

Review your fixed assets schedule to ensure they are up to date and accurate, ensuring all purchases, disposals & scrapped assets are included.

You do not need to include purchases you’ve made for less than $500 plus GST in your schedule. They can be treated as a “low value asset” and treated as an expense.

You can write off any assets that aren’t used in your business anymore; and you do not intend to use it in the future; and the cost to dispose the asset exceeds its disposal value.

Repairs & Maintenance

If you have any repairs or maintenance work that you’ve been contemplating, consider getting it started before 31 March 2012 so you can claim the deduction in the 2012 tax year.

Shareholder Current Accounts

If you operate as a company, check to see if your shareholder current accounts have overdrawn balances as they could cause FBT issues. Although we usually look at this when we prepare your statements and tax returns, if you’ve taken substantial drawings from the business, please contact us know so we can advise you on how to deal with them before 31 March.

Donations & Childcare Expenses

Start collating your donation & childcare receipts for the 2011/2012 income tax year as you’ll be able to claim for approved donations over $5.00 if you have a receipt. You can also claim a deduction for some childcare costs.

Prepaid expenditure

You may have already paid for some expenses in this income tax year, even though a portion of the expense relates to the 2012/2013 income tax year. IRD allows some types to be claimed in full in the year that it was incurred, even though the goods or services won’t be used in that year. Examples include: Stationery; insurance, etc. Therefore you may want to consider prepaying some of your expenses before March 31. If you’re GST registered and on a cash-based system, you’ll also be able to reclaim the GST sooner.

We recommend that you collate your accounting records promptly after 31 March 2012, whilst it’s fresh in your mind. Ensure that you reconcile your bank accounts with your cash book if you’ve kept one; list your debtors, creditors, work in progress and stock at 31 March 2012; file your GST returns & working papers and record any home office expense details. Finally, ensure that your documentation such as bank & credit card statements, sales invoices & creditors’ invoices are filed methodically.

Disclaimer: This article is of a general nature only and covers only a few of the items needed to consider in year-end tax planning. You should not rely on it as specific tax advice or as a comprehensive guide and it should not be relied upon for that purpose.

There are many issues to consider before March 31.  Please contact one of our business advisory services team before then.

Many budding entrepreneurs, with aspirations of succeeding, dive headfirst into their new business venture. Some triumph; others fail.  With so much uncertainty in the current economy, many hopeful entrepreneurs may have to toil hard just to keep their business viable, let alone make it thrive.

3 fundamental factors to succeed in business

There are myriad factors to consider when starting a small business.  Many will agree that three critical factors will help facilitate success. They are:  Having a viable idea; relevant skills & attributes; and adequate capital to invest in the business to sustain it until it generates income on its own. 

How viable is your business?

It may seem obvious, but one critical aspect is to test your business’ viability before your start.  Having a good idea is not always enough.  You must have a market and customer base that want your products or services and will pay your asking price. 

To begin, do some research to determine if there is a specific market need that is not being satisfied by others and then form a market niche using your results.  This will provide a solid platform for your business with opportunities for it to grow into a viable enterprise.  Solicit feedback from potential customers to determine if there is a market for your products or services and what price they’d expect to pay.  This feedback is an essential part of building your business.

Acquire a good measure of the competition you’ll face, since it will give you a clearer understanding about what demand exists for your products & services.  If you can’t use the information you gather to gain an “upper hand” against your competitors, you’ll find it much harder to turn your business idea into a viable one.  Your data gathering will enable you to create your business plan – tailored to you and your customers’ needs.  You might make minor adjustments, major changes or even abandon your business idea altogether.  But the exercise will be worth it and will set you on a path to achieving success.
    
Consider your skills & attributes

It’s essential that you have “what it takes” to turn your business idea into a sustainable business.  Your knowledge & experience, as well as your personality, skills, attitude & commitment to your business will add great weight behind your quest for success.

But if you are lacking in some areas, don’t panic.  Admittedly, having natural ability will be a huge advantage for many aspiring entrepreneurs.  But that doesn’t mean you have to start off with all of these attributes.  You can acquire experience & knowledge as you go, and seek advice, support and resources from others.  Many will argue that other qualities such as; ambition, passion, drive, resilience, commitment, self-confidence, belief & discipline are just as vital and separate the losers from the winners.

Can you afford to start your own business?

To earn money, you may need, at first, to invest or spend money.  Having adequate funds at the outset is likely to be essential to pay for your business’ overheads and your own living costs until your business produces a livable wage for you.  A few achieve success almost instantly – but most do not. 

Use the 3 tips in this article to give yourself a “head-start” and make your business the success you dream of.

Do you take notes?

Great questions can generate great ideas & insights, provide much needed clarity and help stay focused.

Here’s a quick summary of some questions that you could ask yourself:

What have I been putting off (procrastinating) recently that I could/should begin today?

>>  By asking yourself this, you’ll be taking a giant step towards something better.

What’s the BEST use of my time right now?

>>  Delegate those tasks that you can get someone else to do more cost effectively & focus on the important tasks that’ll propel your business forward.

What tasks or jobs could I eliminate or do much less of, so that I can achieve MORE in my week?

>>  Many business owners become obsessed with looking busy (I call this busyness).  But being busy can be akin to laziness – taking the easy route and not the hard one!

What MUST be done in my business?

>>  George Bernard Shaw wrote “Doing what needs to be done may not make you happy, but it will make you great”

What can I do right now to create more value in my business?

>>  Rather than complaining about falling income, demanding customers, etc, ask yourself this searching, but powerful, question to help you produce some great ideas.

I believe that the quality of the question generally dictates the quality of the answer & many great things are achieved by asking a question.  Ask any 4 year old with a thirst for knowledge!

A lot of businesses take pride in being excellent at customer acquisition.  Some business owners even use this as a primary measure of their success.   It’s probably a good time to ask yourself how much time and effort you actually spend in acquiring new customers, formulating marketing strategies, regulating lead generation expenses, finding lead distribution channels, and controlling conversion rates.
 
There’s no doubt that prospect generation is essential in running a business.  But if you think about it, having your best people running around winning new customers does not necessarily differentiate you from your next competitor. They are most likely doing the same things as you – devising new strategies to acquire more customers and converting your existing customers as their own.
 
You have to be wary of just chasing the next best customer.
 
Ask yourself the following:
 
*  Do the people in my company truly understand that their job is to keep existing customers?  Standard customer service isn’t always enough – You have to be certain that your team is dedicated in retaining your existing customers, to help ensure that they continue to do business with you. 
      
If you answered yes, there should be a direct connection between your team’s compensation and the positive or negative outcome of retaining customers – How will they feel the loss if one of your customers cancels their business with you? 

*  Do you have clear-cut retention goals incorporated into your business plan? Have you made these retention goals clear to all your team and how these goals may affect your business if they are not achieved?

*  Do you have a reporting process to determine if your company’s performance meets its goals? Are your managers regularly updated about the company’s performance against the current business plan?
 
Every dollar spent on customer retention generally exceeds the benefits and returns of money spent on acquiring new customers.  This is especially true in today’s challenging economic environment.  However, that’s not to say that you should not invest in customer acquisition as well. 
 
Finally, you need to distinguish the difference between retaining customers and providing customer service.  Customer service is the process of providing your customers’ needs with high levels of competency, efficiency, and customer satisfaction. There is an emphasis on customer satisfaction, which underscores the pleasure to serve rather than being a chore.
 
On the one hand, customer retention is about valuing customer relationships; finding ways to serve them better; or offering something more to ensure their loyalty and satisfaction.
 
How can you enhance the service you’re currently providing your customers?  Do your customers have needs which they haven’t realised they needed? 

If you don’t ask yourself these questions now, you may find your competitors enticing your customers away by fulfilling their needs!

Fortunately, all is not lost.  You can stay strong in lean times and help is often at hand to help you keep your small business operating during tough times.  Here are 4 tips that I have put together for you to survive a downturn:

Reduce overheads

Cash flow is the number one killer for small businesses and the last few years has seen record numbers of bankruptcies and liquidations.  It’s crucial to manage your cash flows, at all times.

Reducing overheads means finding ways to keep more hard earned cash in your bank account.  Look to trim off some of your administration overheads – can you email quotes, invoices, etc, rather than pay for postage?  Look for opportunities to produce your product or deliver your service more cheaply – do you need to produce as much?  Review your rental and loan agreements – could you renegotiate better terms?

Staying solvent is crucial and trimming the fat on some discretionary overheads will help.  Use your time effectively. 

Maintain good lines of credit

I recently wrote about maintaining good business relationships with your Bank Manager.  Banks also have to adapt to market conditions and regularly change strategies to survive.  One way they do this is by reviewing their lending policies and tightening their belts. 

Don’t give them any reason to terminate your loan.  Make your repayments on time.  If you have a good track record with your bank, you’ll probably be an ideal customer for them, so you should still be able to open lines of credit with them if you need a “helping-hand”.  Lines of credit can give you a financial buffer to ease cash flow.

Revise your marketing

I’m not suggesting that you slash your marketing budget.  But you should look to make sure that your marketing budget is used wisely and that you’re not wasting money on advertising that doesn’t work for you.

What is your target market?  Sit down and review your current marketing strategies.  Look to tailor your marketing efforts so that your money and effort is allocated towards your preferred customers.  Consider using the internet more – with the correct approach you’ll be able to focus on targeting the right customers for your business.

Seek out an Online Publishing & Media Distribution firm who specialise in designing highly focused, marketing campaigns.  

Seek help

Government departments know that small business entrepreneurs are finding it tough at the moment.  They understand that small businesses contribute significantly to the economy and want to do whatever they can to help. 

If you’re finding it difficult to honour your tax and payroll commitments, don’t be afraid to discuss repayment options with them.  Or better still, ask your accountant to liaise with them – you’ll find that a good chartered accountant or business advisory services specialist will have skills and experience to negotiate on your behalf.

Many small business entrepreneurs do survive economic downturns.  The successful ones take responsibility and seize the opportunity to analyse their situation and then act appropriately. Keep your Bank Manager happy, stay in touch with chartered accountant and use a small business advisory services specialist when necessary.

In the past, we may have regarded this relationship as a partnership, where each party stood to gain something – a classic win/win situation.  Sadly, as the credit crunch continues, this is becoming less so as banks are tightening their belts.  But for many business owners, especially ones who are feeling the pinch, or seek funds to help grow their businesses, this relationship is important.  It needs to be fostered.  If your bank has lent you money for your business, it’s important you create the right environment so they continue to lend to you.    

Lenders hate surprises.  Keep communicating with your bank even if you are irritated by its approach.  Ensure that your correspondence and communication remains cordial – remember that honey and sugar catches more flies than salt and vinegar.  Inform them of any major plans you may have for the future and don’t be afraid to ask your bank manager for advice and help.

Most banks want to be confident that:

*  You will be able to meet loan repayments from your business’ operating activities (or net profit before interest and tax)

*  You have adequate security – banks are continuing to decrease their loan to value ratios (LVRs) regularly and will regularly adjust asset values, which continue to decrease.  Banks will rarely value your assets at book value or open market value and will take a very defensive stance by valuing them at “fire sale” values.

*  Your business will remain solvent and continue to trade, profitably.  Build some “margin” into your financial projections as most lenders will adjust your financial assumptions as a precaution

It’s important that your bank manager knows your business.  Do you rely on sales at peak times of the year?  Do you understand the market you’re in?  Bank managers are likely to have dozens of lenders to look after and can’t be expected to understand each customer’s markets thoroughly.  But look to ensure that they know yours, as you’ll find it much easier when you need their help.

Remember that maintaining a healthy business relationship with your bank may be the difference between success and failure.  They are a business too – don’t give them a reason to seek an alternative for your custom.

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.

You may have made resolutions or goals to do things differently for the next 12 months.  And for many of you, many of those resolutions will be broken by the end of January. 
 
Understanding that most people break their resolutions is not a good basis for not even trying, is it?
 
To help you prepare for the year ahead, I’ve compiled 4 tips for 2011 for you to think about:

Focus on adding value
The last couple of years have forced many small businesses to reduce debt, review costs, be more efficient, trim stock levels and much more.  Make 2011 a year about adding value to your customers, as well as adding value to you, your family and to anyone else connected to your business.  Ask yourself why you are in business and why your company is in business.  If you or your business is not adding value, you’re going to find 2011 a difficult year.

Take nothing for granted
I’m certain you already know but the world and the economy are constantly changing.  You must be ready to adapt.  Becoming complacent by assuming that your customers’ needs are the same as they were a few years ago will result in you being on the scrapheap sooner than you think.  You must innovate and be prepared to modify your product or services.

Learn, up-skill and utilise your strengths
Identify and enhance your top 3 strengths.  Competition is likely to become even fiercer, so you must find a way to stand out from the rest.  Your best option is to review what you already excel at and then build on those strengths

Take a calculated risk once in a while
Entrepreneurs have always taken risks.  They just don’t take silly risks or gamble with their livelihoods.  Think outside of the square as risk and innovation may mean the difference between success and failure.   

For me, resolutions symbolise optimism and goals.  I applaud anybody who makes them…and I challenge you to stick to yours! Transformation can occur and often does; it’s achievable for you to stick to your resolutions.

Whatever you choose to do in the next 12 months, I wish you and your families a healthy & prosperous year ahead.