Welcome to Business Advisory Accounting & Tax Services Limited

A few tips to finance your new business venture

As an accountant, I’ve been involved with hundreds of entrepreneurs setting up business for the first time.  If you are thinking of setting up a new business (or have recently done so) you’re probably full of excitement, but also anxious.  You’ll know that financing your new business is an important element of this process.  You may have secured enough working capital to get you going but have you thought about how you’re going to pay your ongoing expenses?

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.

 Print This Post    2 comments

Tips on Managing Your Accountants’ Fees

Quite often the professional fees that are charged by some accountants are seen as onerous to some small business owners.  Considering the current state of the economy, you might find the following tips useful to help you manage your overheads. 

*  Organise your books & record keeping.  Basically, if the information your accountant needs to prepare your tax return is clear and well-arranged they won’t need to spend additional time doing it for you.

*  Consult with your accountant and establish an appropriate system of book-keeping that suits your needs.  There’s no doubt that using spreadsheets or other book-keeping software should reduce your accountant’s bill.  But the extra time, effort and cost you’ve gone to will be wasted if your book-keeping is inconsistent or you input incorrect figures.  Remember the “garbage in – garbage out” adage. 

*  Identify and examine any obvious arithmetical errors & omissions in your records.  If you prepare your own cash book, reconcile it before handing it to your accountant.  Any time your accountant spends correcting your errors will result in higher professional fees.

*  Submit your records to your accountant earlier.  If you supply your records close to the filing deadline, your accountant may charge overtime or a premium to make sure your work is finished on time.  At busy times of the year, many accountants work on a “first come – first served basis” so discuss your needs well in advance.

*  Don’t forget that many accountants are also experienced business advisors.  Ask yours how you can improve or grow your business.

*  Be cautious.  Unfortunately in New Zealand anyone, even without professional qualifications, can be an accountant.  Many non-qualified accountants’ fees are “falsely” cheap.  There’s a good explanation for that.  Not only are these people un-regulated, but they are unlikely to hold professional indemnity insurance.  A fully qualified Chartered Certified Accountant or Chartered Accountant is trained to very high levels to help you reduce your tax liabilities but they can also help you manage and grow your business.  Likewise, qualified accountants are regulated by a professional body that sets very high professional and ethical standards.  You should also be assured that they hold adequate professional indemnity insurance.

At Business Advisory Accounting & Tax Services we’re very proud in our ability to offer top notch accounting and tax services under the watchful eye of our professional body.  We also hold professional indemnity insurance as you’d expect from a transparent firm of accountants.

 Print This Post    4 comments

How to get the best from your accountant.

If you are like many business owners, you out a great deal of trust in your accountant when managing your financial affairs.  But not only that, your chartered accountant provides information on what you must do to comply with the myriad of compliance and legislative requirements you need to follow.  They also play a vital role in improving your business’ performance as well.

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.

 Print This Post    1 comment

1 October 2010 GST rate change – a beginner’s guide

When the Government announced in the May 2010 Budget that Goods & Services Tax (GST) will increase, with effect from 1 October 2010, it probably seemed a long way off to you then.

But with that date fast approaching, you’ll hopefully have begun to consider the impact that it will have on your business.  These changes will affect your business and you’ll need to take action to ensure that you are prepared for them. 

The GST rate will increase 2.5% to 15.0% for all goods and services supplied on or after 1 October 2010.  Generally, there are no transitional provisions and all businesses should apply the new rate to goods supplied and services performed on or after October 1 2010. 

Filing your GST return
If you file GST returns monthly, 2-monthly or 6 monthly and your GST period ends on 30 September 2010, you’ll need to file your return as normal, accounting for GST at 12.5%. 

If you file GST every 2 or 6 months and the period straddles 1 October 2010, the IRD will send you 2 GST transitional returns – one covering the period ending 30 September 2010; and one covering the period commencing 1 October 2010.

Using the correct GST Rate
The correct GST rate that you must use will depend on what’s called the “time of supply”, which is the earlier of when payment for a supply of goods or service is made or the date an invoice is issued.

*  If the time of supply happens before October 1 2010, you must use 12.5%.  It does not matter if goods are delivered (or service performed) after 1 October

*  If the time of supply happens after 1 October, you must use 15.0%.

Payments based adjustments
If you account for GST on a payments/cash basis or hybrid basis, you must use the new 15.0% GST rate for payments you make and monies you receive after 1 October 2010.  To accommodate the rate increase, you’ll need to make an adjustment in your GST return that covers the September 2010 period. 

*  If you file monthly, 2 monthly or 6 monthly and the period ends on 30 September 2010, you will do this in your normal return for that period

*  If you file every 2 months or 6 months and the period spans 1 October 2010, you’ll do this in your transitional return.
 
The following examples may help:

Example 1:
You account for GST on a payments/cash basis and your payment terms are 14 days.  On 28 September 2010 you supply 100 widgets for $675.00, including GST.  Your customer pays you on 10 October 2010.

Using the old 12.5% GST rate, you would have calculated $75.00 for the GST component.  However, because you were paid after 1 October 2010, the GST component is actually $88.04 ($675.00 multiplied by 15/115). 

Of course, if you weren’t allowed to make an adjustment, you’d have to pay the IRD an additional $13.04 ($88.04 less $75.00).  You will be allowed to make an adjustment in your GST return for the period ended 30 September 2010 for the difference, so that you effectively pay only $75.00 GST on the sale.   

Example 2:
Again, you account for GST on a payments/cash basis.  Your GST return period ends on 30 September 2010.  On 1 October 2010 you identify that you owe your creditors $9,200 and you are owed $6,750 from debtors.  

The GST component of your creditors’ invoices is $1,022.22 ($9,000 multiplied by 12.5/112.5) under the old rate and $1,200.00 ($9,200 multiplied by 15/115) under the new rate – a difference of $177.78.

The GST component on the amount of your debtors’ balances invoices is $750.00 ($6,750 multiplied by 12.5/112.5) under the old rate and $880.43 ($6,750 multiplied by 15/115) under the new rate – a difference of $130.43.

In the above example, as your creditors’ balance exceed your debtors’ balance, you’ll need to account for an additional GST adjustment of $47.35 ($177.78 less $130.43) in box 9 on your 30 September 2010 GST return.  If your debtors were larger than your creditors, you’d need to account for the difference in box 13 on your 30 September 2010 GST return.

Entertainment expenditure
You are obliged to make an adjustment for any non deductible entertainment expenditure, for income tax purposes.  For GST purposes, any non-deductible entertainment expenses are considered to be supplied on the day that your income tax return is due or the date that it’s filed – whichever one is earlier, regardless of when you actually incurred the entertainment expense.

For the income tax year ended 31 March 2011, you may use the 12.5% GST rate for non-deductible entertainment expenses incurred prior to 1 October 2010 and the 15.0% rate for subsequent expenditure.  Alternatively, you may use the 15.0% GST rate for the entire entertainment adjustment.

Inland Revenue Audit activity
During the Budget, the Government also announced that it has allocated the IRD an extra $113.9m to fund more audits.  To ensure that you do not incur any unnecessary penalties and interest, I encourage you to thoroughly review your existing systems and processes to accommodate the GST rate change.

If you’d like to discuss any of the points covered in this article or discuss how the increase to 15.0% GST may impact your business, please don’t hesitate to contact us or visit www.ird.govt.nz/changes.

 Print This Post    1 comment

How to find an accountant that suits your needs

Small business owners often choose their accountant without doing the right kind of homework or even giving it careful thought.

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.

 Print This Post    3 comments

Business planning for small business

One of the most important pieces of advice that a business mentor will give you is the necessity for business planning.

A business mentor will also tell you that, as with all fashionable buzzwords, there is much nonsense talked about the subject of business plans and models. And your business mentor should clarify what the associated terms mean or do not mean.

First, you should understand what planning is not. Planning is not budgeting, and you do not achieve a plan by merely extending figures over a number of years. Budgeting is an invaluable short term management and control tool for a limited future period – normally the following year. 

Planning is the process of forecasting what would happen over the next few years.  The “normal” planning period is five years, which is a time span associated with many cyclical activities, such as elections.

But why would you want to try looking into the future when it seems akin to crystal ball gazing?  Many major decisions, such as capital investment or new product launches, have a long-range impact and the least you can do is to examine how these will affect your business. Unlike budgeting, this cannot be achieved by a mere straight line extension of past figures because you will require a number of “what- if” scenarios…

A business plan normally has three elements, objective, strategy and conduct.

A business objective defines what you’re trying to achieve and is normally expressed, in terms of value creation.  These measures would typically be return on capital employed (ROCE) and return on equity. Ideally, your business objective should be a single measure so as to provide focus.

Strategy is one of the most misused and misunderstood terms in management jargon. If objective defines what you want to do, strategy defines how you’re going to do it. It is evident that a strategy cannot exist in limbo and is meaningless without a well-defined objective.

So much for all that loose talk about strategy on its own.

Business conduct is not well understood and much writing on business planning makes no reference to it. I dislike the term business ethics since this seems to imply some lofty standard of behaviour. 

In real life, businesses can and do behave just like people. They can be intelligent, stupid, and so on. And it is surprising how a collection of otherwise sensible people can behave when organised collectively as a business. The importance of the people factor lies simply in the fact that they are the ones that will implement the plan. Any plan that does not take business conduct into account is guaranteed to fail.

In the process of business planning, you need an overall objective view of your business and you should certainly use the skills of your business mentor.

 Print This Post    1 comment

Why choosing the right accountant is critical for small business

The importance of choosing the right accountant cannot be over-stated.

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.

 Print This Post    12 comments

Implications for residential investment property owners

In the build up to last month’s budget, the government made no secret that it wanted to overhaul the tax treatment of residential property investments.

In his 2010 budget, Bill English summed up the property investment aspects of his budget as an effort to introduce a fairer tax system to ensure that the tax treatment for investment properties is consistent with other types of investment.

This article sets out a summary of the changes that will impact residential property investments.

Changes to depreciation
With effect from the 2011-2012 income tax year, residential (and commercial) landlords will no longer be allowed to claim depreciation allowance for buildings with an estimated useful life of 50 years or more.  Under existing rules, landlords, property investors generally claimed either a 2% or 3% deduction on the purchase value of the building. 

With immediate effect, the 20% loading on some plant and equipment (P&E) has been removed on all new P&E bought since 20 May 2010.

Changes in how Loss Attributing Qualifying Companies (LAQCs) are treated
LAQCs have long been a popular structure for many New Zealander residential property investors.  The main attraction has been that losses could be deducted to reduce LAQC shareholders’ taxable.  

These are going to be changed.  But, currently, there isn’t enough information available on how the new LAQC regime is going to work.  Bill English commented that, after after a brief consultation period, new legislation will be introduced so that, with effect from 1 April 2011, LAQCS will be taxed as limited partnerships.  Submissions will close on July 5 2010.

Tax losses will continue to be attributed to shareholders, but taxable profits will also be attributed to those shareholders and not retained within the company.  Therefore profits may be taxed at the shareholders’ top personal income tax rate of 33%, rather than at the lower company tax rate of 28%.

Changes to GST
With effect from 1 October 2010, GST will rise from 12.5% to 15.0%.  This will have a real impact on residential investment property owners as the cost of insurance, rates, property management fees, and professional services will increase.

As many residential investment property owners are not normally registered for GST, they will not be able to claim back the GST component of these expenses.  So unless rent is increased to offset these additional costs, residential investment property owners will see less cash in the bank.    

The changes to depreciation on buildings may have major cash flow implications.  Added to that, the changes to the LAQC regime are wide reaching.

If you are an investment property owner, you should contact us to review your property investment portfolio.  You’ll need to consider the implications these changes will have for you.  You should also seek advice before buying more investment properties or changing existing ownership structures.

The IRD has recently indicated that it intends to increase its audit activities on investment properties and will investigate these transactions more regularly.

 Print This Post    3 comments

The best way to save money on your tax

Everyone knows that tax, like death, is inevitable. Are you going to take the attitude that because it is inevitable, you are going to do nothing about it? Do you really know how much you shell out in income tax and other taxes every year? Nobody is suggesting that you evade taxes but wouldn’t you like to reduce them to the minimum? Do you know and appreciate the difference between tax avoidance and tax evasion?

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.

 Print This Post    Add a comment

How to avoid stress and save money on your New Zealand taxes

A good accountant can save you money on your tax by helping you to organise your affairs properly and to take advantage of all the possible tax deductions that are available. If you are running a small business in New Zealand, you are unlikely to have the knowledge or experience to manage your own tax affairs. When you consider return on investment, the fees that you pay a top-flight accountant will probably be one of the best investments you make.

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.

 Print This Post    Add a comment