Business Advisory Services https://www.bizadvice.co.nz Business Advisory, Accounting & Tax Tue, 09 Jun 2020 21:27:24 +0000 en-US hourly 1 https://wordpress.org/?v=5.4.2 https://www.bizadvice.co.nz/wp-content/uploads/2019/06/cropped-bas-logo-32x32.png Business Advisory Services https://www.bizadvice.co.nz 32 32 5 Important Questions to Ask Your Accountant https://www.bizadvice.co.nz/important-questions-to-ask-your-accountant/ https://www.bizadvice.co.nz/important-questions-to-ask-your-accountant/#respond Tue, 09 Jun 2020 21:27:22 +0000 https://www.bizadvice.co.nz/?p=2177 Do you dread going to see your accountant and dropping off your annual tax records?  Is it intimidating because you don’t know what questions to ask your accountant? This article explains how to develop a valuable business relationship with them and the types of questions to ask them. A good accountant will be a key […]

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Do you dread going to see your accountant and dropping off your annual tax records?  Is it intimidating because you don’t know what questions to ask your accountant?

This article explains how to develop a valuable business relationship with them and the types of questions to ask them.

A good accountant will be a key player on any successful business’ team.  They’re offer more than a layer of defence against IRD’s prying eyes and scrutiny.  They should become a trusted advisor, a reliable business “partner”, and dare I say it…a friend.

They should be able to demonstrate: a professional education; knowledge, skills and experience; and impartiality.

An accountant with these attributes should provide value to any business.  They enable small-business owners to focus on running their business, knowing their business is in capable financial hands.  

I’d like to share some important questions to ask your accountant.  You’ll then be better prepared, which should help you save time and money.  You’ll also set solid foundations to establish a solid business association with your accountant.

1. HOW AM I AND MY BUSINESS PERFORMING?

Having enough cash in the bank to pay bills on time means you’re doing well, right?  Not quite. Small-business owners constantly struggle to gather useful information to answer this question or to evaluate their business’ financial health.  

An accountant is trained to sort the “wheat from the chaff” and make sense of all this data.  They will illustrate how well your doing by carefully analysing your numbers.

Ask your accountant these following questions in regards to your businesses performance:

Do I have sufficient cash?

It’s vital you know precisely how cash is received and spent in your business.  Accountants often use the expression “cash should arrive quickly but leave slowly”.

Am I being rewarded for all my effort?

Second possibly to the pride of running their own business, many entrepreneurs start their businesses to make money.  For many, it’s the primary reason. Either way, small-business owners deserve to be rewarded for their investment and efforts.  

How can I generate more profit?

Accountants have an arsenal of tips and insight to help improve a business’ profit.  Ask them for advice. You don’t have to follow every recommendation so choose the ones that suit your needs.   

Is the tax department happy?

Your accountant should help you keep your tax affairs in order.  They should advise you how to maintain proper accounting records, file your tax returns, and remind you to pay tax on time.  If your tax department audits you, your accounting records should stand up to its scrutiny.

2. “CAN I ACHIEVE MY GOALS?”

A key element when setting goals is to be able to measure them.  Business owners often set financial goals or milestones. For example, it’s relatively easy for them to monitor if they are on course to achieve $100,000 revenue by the end of the year.    

Developing specific, measurable, goals will help your accountant help you.  They’ll be able to provide feedback on your first three questions – am I being rewarded for all my effort?; “How Should I Grow My Business?” and “Where Can I Reduce Costs?”.  

When you know your goals, it’ll be easier to ask for your accountant’s advice to help you achieve them.

3. “HOW SHOULD I GROW MY BUSINESS?”

Growing your business is likely to be vital to you being successful.  You must continually cultivate interest in your services or products and convert prospects into customers.     

Ask your accountant to explain the difference between good and bad growth.  Do you know there’s a big difference? Bad growth is likely to inhibit or stunt your business growth more than losing customers.

Ask your accountant to help you determine the right growth strategy for you by knowing the following:

Calculate the total cost of staff

It’s important to understand the true cost of recruiting a new employee before you take them on.  Their “true” cost may include your business’  Kiwisaver contributions, the cost of new equipment and office furniture for them, as well as their salary. 

Knowing this will help you evaluate whether the benefits they will provide you outweighs their salary and associated expenses.  

Determine the quality of your plant and equipment

Using outdated plant and equipment can be inefficient and detrimental to your business.

Your accountant should be able to advise the best time to buy or replace old plant and equipment.  They will also be able to advise you if have enough funds to invest in new plant and equipment. And of course, they will know what tax advantages buying and selling it may bring you. 

4.   “WHICH AREAS CAN I REDUCE COSTS?”

Becoming too closely attached to your assets (such as a vehicle, office and staff) can be a disadvantage.  How will you know if they continue to provide you good value for your investment? “Breaking-up” is often hard to do but if you don’t, it could be bad for your business.

Ask your accountant to review your expenses.  A regular review can highlight unnecessary expenses and give you the chance to significantly reduce your expenses.  For example, identifying recurring monthly subscriptions to software you no longer use.

5. “IS THERE SOMETHING ELSE I CAN DO?”

It often needs a “different set of eyes” or independent review to identify areas to improve.  You’re probably an expert in your field of expertise and knowledge but you’d be superhuman if you were an expert at everything.  

And if you claim to be, many would argue that you may be a “jack of all trades but master of none”.  That could be highly damaging to your business.

Ask your accountant to look at your end to end business’ financial processes.  They can recommend alternatives, such as how to manage and optimise your debtors, payroll and bill payment processes, amongst others. 

CONCLUSION

View your accountant as an investment, not a cost.  Their advice and support will be valuable to your success.  As they saying goes, “the quality of the answer is often dictated by the quality of the question”.  

Follow these important questions to ask you accountant during your next visit.

If you’d like to discuss further accounting queries, please contact us.

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Budgeting and Forecasting Process Roadmap https://www.bizadvice.co.nz/create-budgeting-and-forecasting-process/ https://www.bizadvice.co.nz/create-budgeting-and-forecasting-process/#respond Wed, 27 May 2020 02:28:53 +0000 https://www.bizadvice.co.nz/?p=2295 Can your business succeed without a budgeting and forecasting process?  The answer is…probably, yes.   Good budgeting and forecasting processes are two important steps to skilfully run your business and achieve your financial goals.   The recent COVID-19 pandemic has put many businesses under significant financial pressure.  Here are nine ways to help you develop a simple […]

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Can your business succeed without a budgeting and forecasting process?  The answer is…probably, yes.  

Good budgeting and forecasting processes are two important steps to skilfully run your business and achieve your financial goals.  

The recent COVID-19 pandemic has put many businesses under significant financial pressure.  Here are nine ways to help you develop a simple budgeting and forecasting process and how to use them to your advantage.

A budgeting and forecasting process is important to achieve your business’ goals.

1. Stay Flexible

As the old adage goes…change is constant.  Budgets are often based on historical information and incorporating assumptions many months in advance.  

Like most businesses, your circumstances will probably change.  The plans you made a few months ago may now be out of date.  

So sticking to a highly rigid budget and forecasting process is potentially damaging.  You could end up making poor decisions that cost you a lot of money and time to resolve. 

Be prepared to adjust your forecasts and factor in changes evidenced during the year.  Being flexible will reward you with greater accuracy and better results.

Be prepared to reset your team’s goals.  The original targets you set them may be unachievable if your revenues slump.  Or alternatively, revise them if you’re predicting better results.

2. Use Rolling Forecasts and Budgets

Avoid many of the issues that arise from preparing budgets and forecasts which use assumptions you made several months ago.  Adopt rolling forecasts and budgets instead.  

Dwight Eisenhower said, “Plans are worthless, but planning is everything.” Even though he was talking about WWII, the same principles apply to businesses and forecasting.

Refine and update your forecasts regularly, perhaps quarterly, and adjust them to reflect recent events or changing circumstances.  We encourage clients to use rolling forecasts to review and realign their financial strategies to their new or existing business goals.

3. Say Adios to Spreadsheets

Although we know many people still love to use spreadsheets, we recommend using cloud-based accounting software.  Xero is fast and easy and you’ll have 24-7 access from anywhere with an internet connection.  

Manual spreadsheets are notorious for hiding data entry mistakes.  Xero has useful budgeting features which remove much of the time-consuming manual process.  It’ll allow you to generate budgets for different parts of your business.  It’ll even allow you to generate reports with monthly, quarterly and annual views.  

Use accurate and effective accounting software during your budgeting and forecasting process.
Use accurate and effective accounting software during your budgeting and forecasting process.

4. Adapt Your Budget To Fit Your Plan

Be rigid about your plan, but be flexible with your budget.  Determine specific goals based on sales, such as increasing them by fifty-percent, or generating twenty-percent profit margins.

Taking decisions based on sales, rather than guesswork, will encourage you to determine how your spending habits impact your bottom-line.  

5. Estimate Sales

Understanding which levers increase your revenue is a key element in your budgeting and forecasting.

Forecasting sales isn’t easy.  You’re estimating the unknown. 

Determine your previous year’s sales and predict how much it’ll grow this year.  Or better still, review several previous years’ data  and use averages to forecast growth.

Investigate why your revenues increased to help you identify levers you can use to further increase them.  Did certain marketing methods work better than others?  Did you launch a new service or product?

Checkout our article on how to Uncover 6 Secrets to Grow Your Business 

6. Forecast Overheads

Forecasting your overheads gives you a solid basis to scrutinise your profit margins.  It’ll help you find ways to reduce expenses while maintaining or increasing sales.  Either way, your profits will increase.

Forecasting overheads is easier than estimating sales.  Many of your expenses will be fixed costs, such as salaries, rent and utility bills.  They’ll increase according to your growth.  For example if you estimate your sales will increase by ten percent, your material costs may also increase by the same percentage.  

Use your forecasting processing to identify if changing suppliers will increase your profit margins.

Don’t underestimate how the smaller expenses can impact your business’ financial well-being.  Even if data seems minor, such as stationery price increases, keep a note of it.  Stay on top of market trends and what clients and your competitors are doing.  

Check out our article called Is it Time For Your Business To Diet?

7. Involve Your Team in your Budgeting and Forecasting process

Involve your team during your budgeting and forecasting processes.  Collaborate, rather than impose, and you’ll increase the chances you’ll succeed.  You’ll give them a sense of ownership and responsibility, which will help motivate them to attain the goals they helped to prepare.  

Seek their perspectives and feedback to avoid key missing elements of your business you may have overlooked.  Encourage your team to exchange ideas with each other, which may create further opportunities or input to change your strategies.  

Everyone's affected by the budgeting and forecasting process, so involve the whole team.

Everyone’s affected by the budgeting and forecasting process, so involve the whole team.

8. Know Your Goals

Budgeting and forecasting helps project your business’ financial future.  It will help you make business decisions and help forecast what impact your decisions may have on your business, before you implement them.      

Businesses often fail to understand what resources they need.  They don’t know how many staff they need, or when and how much cash will be required.  Without proper attention to this, they rely on random guesses.    

Forecasting will help you set clear goals.  It will help you determine what resources you need, when you will need them, and how you’ll pay for them.

9. Consider Different Scenarios

You can’t see the future.  But you can take steps to plan for what you might do in the case of events you didn’t expect. 

Research what’s going on outside of your business and stay in touch with the market.  Use this knowledge to plan for things that may impact the business. This is another great reason to use rolling forecasts.  You could update your plans, such as each quarter, based on any known events. 

If you’d like to discuss your budgeting or forecasting process with an accountant at Business Advisory Services, please contact us.  We’ve designed our outsourced CFO service to help you align your budgeting and forecasting process with your business’ strategies and goals.  

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Why Cashflow is Critical for Your Business https://www.bizadvice.co.nz/why-cashflow-is-critical-for-your-business/ https://www.bizadvice.co.nz/why-cashflow-is-critical-for-your-business/#respond Tue, 07 Apr 2020 23:52:23 +0000 https://www.bizadvice.co.nz/?p=2240 Managing your business without a cashflow forecast is like driving with your eyes shut. You’ll probably be able to survive a short distance. But it’s dangerous and you won’t notice the danger until it’s too late. So what is cash-flow, why is it so vital, and how can you ensure you stay on top of […]

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Managing your business without a cashflow forecast is like driving with your eyes shut. You’ll probably be able to survive a short distance. But it’s dangerous and you won’t notice the danger until it’s too late.

Prepare your cashflow forecast with accuracy and make business decisions with confidence.

Prepare your cashflow forecast with accuracy and make business decisions with confidence

So what is cash-flow, why is it so vital, and how can you ensure you stay on top of it?

Let’s start with a definition for cash-flow.

Cashflow is simply the cash (cash-equivalents) that’s transferred in and out of your business. Positive cashflow is good. It means you have more cash flowing into your business than is flowing out. Negative cashflow is the opposite and means you’re spending more than you’re receiving.

Most business owners understand this concept. It’s a simple one that must not be ignored.

Why should I prepare a cashflow forecast?

Negative cashflow can signal a “red-flag” or indicate a significant warning sign. Most businesses will suffer if cashflow is negative over several weeks or a months and cash reserves are depleted.

Staff wages and salaries aren’t paid, vendors demand payments, loan payments are missed, and landlords repossess their properties.

Prepare your cashflow forecast with accuracy and make business decisions with confidence

It’s easy to see why managing cashflow is critical. To help, businesses need reliable cashflow forecasts. Businesses will have regular monthly fixed payments to make (cash that “flows” out), such as rent and wages.

These may easily represent a significant portion of a business’ overall expenses. Added to these may be raw materials and stock; as well as utility bills, office and factor consumables, and unplanned overheads.

Businesses can only pay these when there’s cash in their bank accounts. Knowing the sources and certainty of cash receipts is vital to sustain healthy cash-flows.

Grow your business

You may have developed robust sales funnels which result in steady flows of enquiries and new customers. If you have, congratulations. Your prospects look good, in theory.

Sadly, businesses can’t pay their bills with theoretical cash. They need cleared and readily available funds sitting in their bank accounts, ready to use. If they don’t, unpaid bills can quickly pile up.

This is why it’s vital to estimate or forecast your cash-flow requirements. You’ll need to identify when you’ll have shortfalls and take action to address them. You need to know when you’ll have cash coming in and when you need to pay your bills.

Ideas to improve cashflow

We’re always keen to share tips to help improve cash flow. We’ve previously written articles sharing some insights we’ve observed from working with our clients.

Here three tips for managing cashflow:

Optimise cashflow receipts by invoicing your customers promptly. Customers will rarely pay before you’ve invoiced them. Prepare invoices promptly and circulate them as soon as you’ve shipped your product of completed your work.

Control cash exiting (or leaking from) your business: Concentrate first on your essential outgoings. Have you compared other suppliers’ prices? Consider shopping around for cheaper subscription or utility service providers.

Think about spreading cost of large purchases, such as motor vehicles and computers Consider lease options rather than pay one-off large amounts.

Develop your cashflow forecast. Invest in one of the many good small business accounting software packages. Reliable, accurate and prompt financial forecasting will be one of your closest allies. It removes much guesswork out of forecasting cashflow and highlights early warning signs so you can take swift action.

Prepare cashflow projections for the next week, one month and three months. It’ll give you the information to take action. You’ll know when to follow-up overdue customer payments, plan your outgoings and when to seek additional short-term funding.

Conclusion

There are many advantages to preparing cash-flow forecasts. Least of all they will give you greater insight and confidence to help you achieve a prosperous future. Prepare your cashflow forecast with accuracy and make business decisions with confidence!

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COVID-19 GOVERNMENT SUBSIDIES https://www.bizadvice.co.nz/covid-19-government-subsidies/ https://www.bizadvice.co.nz/covid-19-government-subsidies/#comments Thu, 26 Mar 2020 02:44:42 +0000 https://www.bizadvice.co.nz/?p=2207 I hope you and your families are safe and well.  On day 1 of our national lock-down, many of you are wondering how the New Zealand’s government’s wage subsidy will work.  This article tries to give you a summary, although please don’t shoot the messenger as we are all trying to understand these new measures. […]

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I hope you and your families are safe and well. 

On day 1 of our national lock-down, many of you are wondering how the New Zealand’s government’s wage subsidy will work.  This article tries to give you a summary, although please don’t shoot the messenger as we are all trying to understand these new measures.

If you employ staff, many of them will be unable to work from home.  Basically, you must pay them a minimum of 80% of their usual pay. 

COVID-19 WAGE SUBSIDIES

COVID-19 wage subsidies are available to support employers pay their employees if their businesses are significantly impacted by COVID-19.  If you’re considering either reducing your staff’s hours or terminating their employment, the subsidies will help.  They have been introduced to ensure everyone receives income to help pay their normal day to day expenses.

If you’re an employer, sole-trader or contractor, you may qualify for the COVID-19 wage subsidy.

Qualifying Criteria

To qualify:

  • Your business must operate, and be registered, in New Zealand.
  • Your employees must be legally entitled to work in New Zealand.
  • Your business’ actual sales (or forecasted sales) must have declined by at least 30% for a period of a month when compared with the same month last year.  The decline must be related to COVID-19.
  • You must have made steps to reduce COVID-19’s impact on your business.
  • You must make every effort to retain employees and, during the subsidy period, pay them a minimum of 80% of their normal salary.

Amount of Subsidy

The COVID-19 Wage Subsidy is $585.80 for full-time employees working at least 20 hours per week.  It’s restricted to $350.00 for people working less than 20 hours per week.  The following examples might help:

  • Example 1: You employ Bill Durr, full-time, and his gross salary is $1,000 per week.  You must pay them at least $800 gross salary per week.  As the government’s subsidy is restricted to $586 per week, you must top-up Bill’s gross salary by at least $215 ($800 less $586).
  • Example 2: You also employ Anne Other on a part-time basis and pay her $600 gross per week.  The government will subsidise her salary by $350 per week.  Anne is entitled to be paid at least 80% of her normal gross salary (80% x $600 = $490).  You therefore must top-up Anne’s salary by at least $130 per week ($480 less $350).  

The payment will be made as a lump sum for a period covering twelve weeks.  This means employers will receive $7,030 for each full-time employee and $4,200 for each part time employee.

Businesses can only get this subsidy once.

Tax and COVID-19 Wage Subsidy

Tax Treatment

  • The amount that you “top-up” is tax deductible, whereas the government wage subsidy is exempt from tax.   
  • The subsidy isn’t subject to GST.
  • Salary and wages paid to employees form part of their taxable income and are subject to PAYE, Student Loan and Kiwisaver deductions.

Payments to employees are non-deductible to employers, up to the amounts of subsidies received.  Employers will need to distinguish how much they have paid employees that’s been derived from wage subsidies.

Despite the current situation, you must continue to meet your regular Payday Filing obligations. 

How to Apply

You apply online for COVID-19 Wage Subsidy here

Our Suggestions for Recording Wage Subsidy Payments

  • Ensure you pay your employees at least 80% of their normal pay.
  • Continue to pay your employees via your payroll software.
  • Code the subsidies you receive to a suspense account.
  • If we prepare your annual financial statements and income tax returns, we’ll adjust your accounts when we prepare them.
  • If we don’t prepare your annual financial statements and income tax, make sure your accountant adjusts for the government subsidy.

Our Suggestions for Funding the “top-up” Payments

  • Continue to pay from your “normal” day to day cash-flow, if possible.
  • Consider deferring paying your GST, PAYE and Provisional Tax, or at least talk with us to arrange instalment options.
  • Take advantage of the government’s guaranteed loan scheme which is available up to $500,000 if your turnover is more than $250k.
  • Approach your bank (six-month mortgage holidays may be available).

Inland Revenue COVID-19 Update

IRD’s front-office services are all now closed and its staff will work from home.  The most effective way to contact IRD is online via MyIR.  IRD’s telephone support is likely to be severely stretched.


Leave and Self-Isolation Support

From 17 March 2020, the COVID-19 Leave Payment has been available.  It’s available to anyone who has had self-isolate, can’t work because they have contracted COVID-19, or are caring for dependents who needed to self-isolate or who have contracted COVID-19.

Employers can apply for the payment more than once.  Leave Payments will be paid to employers who have eligible employees.  Employers must pass the payment onto their employees in full.

The COVID-19 Leave Payment will be available for eight weeks from 17 March 2020.

Qualification Criteria

If you’re an employer, self-employed, sole trader or contractor, you may qualify for the COVID-19 Leave Payment.  Contractors, full-time, part-time and casual employees who are employed legally in the country are covered if they:

  • Must quarantine themselves as per Ministry of Health guidelines and have registered with Healthline, can’t work from home, and have not left New Zealand after 16 March.
  • Are unable to work because they have contracted COVID-19.
  • Can’t work because they are caring for dependents who must self-isolate or have contracted COVID-19.

How Much Can You Get?

The COVID-19 leave payment is $350.00 for someone working part-time (less than 20 hours per week) and $585.80 if they are working at least 20 hours per week. 

Payments to employers are valid for 14 days for employees who must self-isolate. As employees may need to self-isolate more than 14 days, employers may also be able to apply for the subsidy more than once.

The leave payment can be paid for the entire period an employee is sick (or looking after a dependent person who is sick) with COVID-19 but the employer must apply every 14 days.

How to Apply

You apply online for COVID-19 Leave Payment here


The road ahead may be a long and stressful one. Let’s be kind to each other. Please contact us if you require assistance and look out for our regular updates. Our Business Advisory Services team are here to help you.

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Why retailers need to understand financial metrics https://www.bizadvice.co.nz/financial-metrics/ https://www.bizadvice.co.nz/financial-metrics/#comments Tue, 02 Jul 2019 00:46:12 +0000 https://www.bizadvice.co.nz/?p=2100 If you operate in the highly competitive and fragile retail landscape you’ll need more than a basic grasp of accounting. You must know which financial metrics affect your business and how to measure and monitor them. This article highlights four common financial metrics that every retailer should be reviewing every month. It also explains what […]

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If you operate in the highly competitive and fragile retail landscape you’ll need more than a basic grasp of accounting. You must know which financial metrics affect your business and how to measure and monitor them.

This article highlights four common financial metrics that every retailer should be reviewing every month. It also explains what they mean.

Cash Flow

Cash flow will often indicate how well a business is doing. Positive cash flow and healthy bank balances will support this. Erratic cash flow and significant fluctuations in bank balances may be a red flag that a business is facing problems.

Managing your cash flow is critical to your success and is an essential skill to be learned. Many retailers have significantly cash based businesses. Customers buy and pay for goods at the point of sale. Suppliers request payment soon afterwards.

A liquidity ratio called “the current ratio” highlights your ability to repay short-term debts. It’s calculated by dividing your current assets (cash and bank, debtors, stock) by your current liabilities (creditors, wages, etc).

A ratio exceeding more than 1 indicates you are likely to have more readily available cash than you do debts.

Many retailers evidence strong trading periods with high sales volumes and good cash flow, followed by the opposite. Retailers with seasonal or cyclical sales (such as florists, retailers relying on Christmas trade, etc) will quite often experience significant fluctuations.

Regardless of a business’ sales performance and bank balance, fixed costs, such as rent and wages, will still need to be paid. For many operators, GST, payroll tax and income tax obligations will further strain cash flow.

Budgeting and forecasting will help you to predict the potential peaks and troughs in your cash flow.

Stock Turnover

For many retailers their stock (also called inventory) is a significant asset. Consequently, knowing how quickly you sell your stock (stock turnover) is vital. Lower gross profit margins are often signs that stock is not being sold quickly enough. High storage and warehousing costs, discounting and obsolescence drive down profit margins.

Stock turnover is measured in days. Divide your average stock values by your cost of goods sold and then multiply the figure by the days in your reporting period. A low figure is likely to indicate that you are selling your stock quickly. For even better results, perform the calculation for different products as stock turnover will differ across your product mix.

Measuring stock turnover is vital for retailers who have significant funds invested in inventories

Measuring stock turnover is vital for retailers who have significant funds invested in inventories

Gross Profit Margin

A gross profit margin highlights how much (profit) margin you earn on every dollar you make before deducting expenses. For example: A 40% gross profit margin means you earn $40 for every $100 you sell. The $40 contributes to paying your other expenses.

You calculate it by subtracting your cost of sales (typically, purchases) from your sales to give you gross profit. You then divide your gross profit by your sales.

Gross profit margins will vary for different products, business sectors and industries. Comparing your margins with other businesses in your industry (“bench-marking”) will provide useful insight to how well you are doing.

Comparing your margins with other businesses in your industry

Compare your margins with other businesses in your industry

Regardless of whether you sell more or sell less, your gross profit margins shouldn’t vary too much. Paying more for your cost of sales and discounting your prices will adversely affect your gross profit margins.

A client recently advised us that they were frantically trying to increase their sales. Whilst we fully supported and applauded our client, we also advised her to ensure she also maintained her gross profit margins.

If you increase your revenue but your margins deteriorate your extra effort may not be compensated.

Net Profit Margins

Accountants love profit metrics. Earnings before interest and tax (EBIT), operating profit and net profit are some of the more common ones. Knowing what each one measures is vital before selecting one to monitor consistently.

For example: net profit measures how much income remains after expenses have been deducted. Divide net profit by sales to give you the figure. A 12% net profit margin gives you $12 profit for every $100 income you earn. The figure can be calculated before or after tax is deducted.

Your profit margins will deteriorate with increasing expenses or overheads. I recommend that you regularly analyse your main expenses. Determine whether they are required or can be trimmed a little to maintain your profit margins.  We recently wrote an article that suggested putting business on diets to boost net profits.

The retail industry will remain highly competitive and margins will come under increasing pressure. To survive, retailers must understand their numbers and have a proficient standard of financial literacy.

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Rental Property Accounting Basics https://www.bizadvice.co.nz/rental-property-accounting-basics/ https://www.bizadvice.co.nz/rental-property-accounting-basics/#comments Thu, 13 Jun 2019 22:18:28 +0000 https://www.bizadvice.co.nz/?p=1986 The post Rental Property Accounting Basics appeared first on Business Advisory Services.

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Do you own a rental property or even a portfolio of them? Do you use a rental property accountant or leave your administration and bookkeeping to chance? For many property investors, day to day bookkeeping and administration is something that is often overlooked.

Like most investments, having good accounting processes is essential to keep track of income and expenses. But just as important, investors can quickly identify missed rental receipts and evaluate their return on their investments.

Many investors know the importance of knowing a few basic accounting terms. They also know that efficient accounting processes give them more time to focus on higher value tasks.

Rental Property Accounting

It’s useful for rental property investors to familiarise themselves with the differences between bookkeeping and accounting.

Bookkeeping is the process to record and categorise financial transactions. Accounting is the process that analyses this information to report a business’ (or a rental property’s) financial performance.

If you own or manage rental properties, you’ll need to decide how you’ll keep up to date with your income and expenses. How will you manage your tenant’s payments? How will you manage your rental property agent’s invoices or receipts for repairs and maintenance?

Staying on top of your rental property accounting is not difficult with the right processes

Staying on top of your rental property accounting is not difficult with the right processes

Staying on top of your rental property accounting is not difficult with the right processes. Follow these tips to help implement a simple bookkeeping and accounting system.

  • Separate rental property income and expenses from personal ones.
  • Open separate bank accounts for each rental property.
  • Use a virtual bookkeeper and accounting software to record and track income and expenses.
  • Plan for irregular or annual payments.
  • Add an experienced rental property accountant to your team to structure and optimise tax planning opportunities.

Separate Rental Property Income and Expenses from Personal Ones.

Successful rental property entrepreneurs don’t mix personal income and expenses with their properties’ transactions.

Ask your bank to open a separate bank account for your rental property. Open up a savings account and set aside money for future rental property expenses.

Do you know how you’ll pay for unexpected repairs during a bad winter? How will replace a number of appliances at the same time? As chattels depreciate, set aside a percentage of your rental income every month to provide a buffer.

As your portfolio increases, open separate bank accounts for each rental property. This’ll make it easier to establish and compare their financial performance and the returns they provide you.

Record and Track Income and Expenses

As mentioned earlier, many rental property investors overlook the importance of recording income and expenses. It shouldn’t be confined to an annual exercise for your rental property accountant.

If you have only one rental property, a simple spreadsheet might be enough. Talk to your chartered accountant. If you have more than one, considering using good cloud based accounting software. This’ll help you track your income and expenses in real time.

And cloud accounting software is regularly updated to comply with IRD’s rules and accounting best practices. It’ll also make tax season easier. Ask your virtual rental property accountant to enter your bank and credit card transactions and prepare financial reports for you to review.

For less than the price of a round of drinks, they’ll quickly free up your time so you can focus on other things. You’ll also be able to provide your rental property accountant with their own login. They’ll be able to collaborate with you throughout the year and provide advice and support.

Consult a Qualified Rental Property Accountant

Engage a rental property accountant to help safeguard your assets.

An experienced chartered accountant and tax advisor will be a valuable member of your team. They’ll help set up the right structures, explore tax planning opportunities and analyse your portfolio.

Choose one that has their own portfolio of rental properties. When done properly, rental property accounting offers many benefits to busy rental property investors. Benefits include saving time or tracking performance by outsourcing routine tasks to a virtual rental property accountant.

Additional benefits will include protecting your assets if they are optimally structured. If you invest in rental properties, always consult with an experienced rental property accountant. If you choose wisely, you’ll quickly be able to focus your energy and effort in other activities that benefit your bottom-line.

Whether you choose to do your own accounting or engage a rental property accountant, I’d welcome your comments below.

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New GST Rules for Offshore Suppliers https://www.bizadvice.co.nz/new-gst-rules-for-offshore-suppliers/ https://www.bizadvice.co.nz/new-gst-rules-for-offshore-suppliers/#comments Sat, 01 Jun 2019 22:47:43 +0000 https://www.bizadvice.co.nz/?p=1915 The number of non-resident businesses selling products and services via the internet is increasing. Recently introduced legislation seeks to preserve a sense of fair play for Kiwi retailers. Kiwi retailers have suffered because many New Zealanders have bought goods and services from offshore suppliers free of GST. The “GST Offshore Supplier Registration and Remedial Matters” […]

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The number of non-resident businesses selling products and services via the internet is increasing.

Recently introduced legislation seeks to preserve a sense of fair play for Kiwi retailers. Kiwi retailers have suffered because many New Zealanders have bought goods and services from offshore suppliers free of GST.

The “GST Offshore Supplier Registration and Remedial Matters” Bill introduces new rules. Imported goods worth less than $1,000 are now subject to GST.

Goods exceeding $1,000 will still be subject to GST being charged by NZ Customs.

GST is not currently collected on imported goods exceeding $400. Commencing 1 October 2019, offshore suppliers must register for GST when their sales exceed $60,000 in any twelve-month period. The threshold is identical to the one set for New Zealand businesses.

Buying goods on the internet from overseas suppliers will become less attractive for Kiwis. The extra fifteen percent domestic consumers need to pay will make internet shopping a little more expensive.

How will the new changes affect you?

Goods bought costing less than $1,000 GST will have GST added at the time they are purchased. GST will be added on any insurance and transport expenses.

If GST isn’t added at the time of purchase, NZ Customs will collect when the goods enter New Zealand.

Goods costing more than $1,000 are not affected by the new legislation. NZ Customs will continue to collect GST on these items.

GST will not be charged on goods costing less than $1,000 sold to New Zealand GST registered businesses. However, these businesses must provide the offshore suppliers their GST numbers to qualify for the exemption.

GST will be added to goods exceeding $1,000. New Zealand GST registered businesses would be able to claim it back via their GST returns.

Redelivery-based businesses and internet-based marketplaces may need to charge GST on sales to Kiwi consumers.

From 1 October 2019, they must add GST to all supplies made to Kiwi consumers if their sales exceed $60,000. Businesses providing online shoppers with mailboxes or offshore address facilities will be subject to these rules.

Non-resident suppliers can engage a Chartered Accountant (CA) or IRD approved Tax Agent to handle their GST.

The CA or Tax Agent would be able to register the supplier for GST. They would also be able to prepare and submit GST returns on their behalf.

Similar to domestic suppliers, overseas suppliers will be able to claim GST back on any GST they have incurred.

Redelivery businesses need to be particularly careful and should seek professional tax advice. They will need to know when GST liabilities are created.

Inland Revenue (IRD) penalties can be severe if GST if not reported or paid correctly.

Offshore suppliers must submit quarterly GST returns to IRD from 1 October 2019. IRD offers a concession in the first six months. Offshore suppliers can choose to file one six-monthly GST return for the first six months ending 31 March 2020.

The clock ticks. We recommend offshore suppliers plan well ahead of 1 October 2019 to comply with the new rules.

Domestic retailers welcome the changes and the opportunities to operate on level playing fields. The new rules mean they no longer have to watch their offshore competitors avoid adding GST to their goods and services.

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Accounting doesn’t have to be a chore https://www.bizadvice.co.nz/accounting-not-a-chore/ https://www.bizadvice.co.nz/accounting-not-a-chore/#comments Fri, 17 May 2019 23:46:12 +0000 https://www.bizadvice.co.nz/?p=1812 Chances are that you’ll not perform cart-wheels if I mention the words virtual accountant or accounting! Unless you enjoy working with numbers or you’re either a bookkeeper, accountant or virtual accountant, you’ll probably turn your nose up at the very sound of the word. That’s okay.  You’re not alone.  A high percentage of small-business owners […]

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Chances are that you’ll not perform cart-wheels if I mention the words virtual accountant or accounting!

Unless you enjoy working with numbers or you’re either a bookkeeper, accountant or virtual accountant, you’ll probably turn your nose up at the very sound of the word.

That’s okay.  You’re not alone.  A high percentage of small-business owners dread accounting.

But it’s a fundamental area of your business that you can’t overlook and requires some of your attention.

Let me offer a definition for accounting.  It’s simply a process to record accounting data and then turning it into information and reports.

This is useful for two key reasons.  Firstly, we need accounting to help us calculate and report our tax obligations to the tax authorities.  

The second reason is often overlooked.  When done correctly, accounting is an important strategic tool.  Regular, quality, reports help entrepreneurs make key medium and longer-term strategic business decisions     

Regardless of whether it’s done for tax or decision-making, both examples deserve your attention.  It’s important to maintain complete and accurate accounting records on a regular basis.

Let’s discuss four tips you can adopt to keep up to date with your accounts.  

# 1 Accounting Software

Choose one of the well-known accounting software packages to help you record your accounting transactions.  

It doesn’t really matter which software you choose.  If you need help choosing one, ask your accountant to help you.  They probably have a preferred one that they recommend to their clients.  At Business Advisory Services we recommend Xero as it’s easy to use and generates good reports.

# 2 Use a Virtual Accountant to Record and Track Everything

business owners

The next one is one that many small-business entrepreneurs frequently ignore.  You must record and track all of your income and expenditure in your accounting software.

For many small business owners, this task is worse than visiting their dentist.  If this also applies to you, I strongly recommend that you outsource this task to an accounting professional.

You probably don’t need anyone full-time or even employ anyone.  Hire a virtual bookkeeper to record your transactions and hire a virtual accountant to help with more advanced accounting and reporting.  You can slash your accounting fees by up to 50% with many virtual accounting service providers.

#3 Financial Reports

As an entrepreneur and small-business owner, you should be interested in two key financial reports.  

Your profit and loss (P&L) report will highlight how much profit you’ve generated.  Your balance sheet will illustrate if your assets (what you own) exceed your liabilities (what you owe).

I recommend either you or your virtual accountant prepare these reports monthly.  This way you’ll be able to react much sooner to any negative trends. Or better still, exploit any positive trends.  

#4 Tax Returns

Use your accounting software to help generate your tax returns.  How frequently you must prepare and file your tax returns will be driven by your business’ size and the business sector you operate in.  

Typically, bigger businesses and those in highly regulated business sectors need to file more frequently.  If you’re unsure, ask your accountant to advise you.

Summary

Accounting or bookkeeping may seem a tedious chore for many small-business owners.  But it needn’t be.

A good virtual accountant will be worth their weight in gold as they alleviate much of the pressure by processing and recording your transactions for you.  

You’ll be left with more time to focus on the areas of your business that you enjoy most.

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Considering Bringing On A New Business Partner? https://www.bizadvice.co.nz/considering-bringing-on-a-new-business-partner/ https://www.bizadvice.co.nz/considering-bringing-on-a-new-business-partner/#respond Mon, 25 Mar 2019 06:14:02 +0000 https://www.bizadvice.co.nz/?p=1558 There are myriad reasons why you might want to introduce a new business partner.  Among these reasons are: You may be planning to retire; They’d provide additional funds to expand the business; They may bring skills and experience that you don’t have; You want to share the workload. It’s a big step, particularly if you […]

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There are myriad reasons why you might want to introduce a new business partner.  Among these reasons are:

  • You may be planning to retire;
  • They’d provide additional funds to expand the business;
  • They may bring skills and experience that you don’t have;
  • You want to share the workload.

It’s a big step, particularly if you don’t know how to value a small business.  If you’re considering bringing on a new partner, we’d encourage you to consider the following advice before you agree anything.

How to Value A Small Business

Unfortunately, your prospective business partner may not value all your hard work as much as you do.  They may not even share the same vision that you initially had.

Many people wouldn’t know how to value a small business.  Many cash based businesses are often undervalued as their financial statements do not reflect the true reality and extent of sales achieved.  

Why waste time on tyre kickers?  Get your business valued to understand your business’ market value before you start negotiations?  

Lack of Transparency Causes Issues

We cannot emphasise enough that well-documented agreements are important.  Think of them as the equivalent of marital pre-nuptials!

Ambiguity may lead to future issues and conflict.  It’s typical for both parties to be full of optimism and therefore reluctant to tackle some difficult conversations.   

Why would you think about discussing future exit processes so early in the partnership?  Without clarity, you could end up working with someone you don’t even know!

What rights will either of you have when it’s time to leave the business?

Procedures should be clear so both parties understand the process. For example: how much notice will you need to give each other?  Who can you sell your shares to? Will your new partner have to give you first option to buy their shares if they decide to sell?

Relationships can quickly deteriorate if roles and responsibilities are not agreed or clearly defined.  Inequity can arise when one person undertakes more responsibilities than the other without be duly compensated.  To avoid this, make sure you discuss remuneration, bonuses, profit-share and other benefits before putting pen to paper.   

How Well Do You Know Your Prospective Partner?

You’ll be giving up some control (and therefore power) to someone else, so don’t underestimate how important it is to do some background checks.  It’ll be much easier to walk away before becoming partners than it will be later.

Your new partner’s history may come back to haunt you.  They say that a leopard doesn’t change its spots. The actions of your new business partner may directly impact you.  Have they been banned as a director? Have they run a business that was liquidated for failing to pay its bills?

Help protect yourself and talk with your chartered accountant or solicitor to form the right agreement and appropriate business structure.

Tax, Tax and More Tax

You’ll need to determine the right business structure for tax.  How will introducing new business partner change your tax obligations?  Will your legal structure change, giving rise to potential tax liabilities?

Tax legislation makes it much more difficult to reverse a tax position when it’s been taken.  It’s much easier to determine an optimum tax position before you complete any sale.

Rules exist to determine how to deal with tax losses brought forward when new shareholders are taken on.  Thresholds can be inadvertently breached and tax losses extinguished.

Are you considering combining your business with someone?  You’ll need to consider that current market values for your assets may give rise to further tax obligations.

Summary

Taking on a new business partner to pool resources, skills and knowledge may be tempting in today’s market.  If you want to know how to value a small business, get in touch with us for more details.

We encourage you to make sure you do the necessary leg-work up front to help assure you that your decision pays off.

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End of Year Tax Saving Tips https://www.bizadvice.co.nz/end-of-year-tax-saving-tips/ https://www.bizadvice.co.nz/end-of-year-tax-saving-tips/#respond Mon, 11 Mar 2019 20:23:59 +0000 https://www.bizadvice.co.nz/?p=1726 The end of income tax year is fast approaching and will end on 31 March 2019.  It’s an opportunity to remind you of some tax saving tips and strategies you can take to help minimise your next tax bill.  Here’s a handy list of ways to save tax. The list is a summary only and […]

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The end of income tax year is fast approaching and will end on 31 March 2019.  It’s an opportunity to remind you of some tax saving tips and strategies you can take to help minimise your next tax bill. 

Here’s a handy list of ways to save tax.

The list is a summary only and is not intended to be exhaustive or complete.

However, I believe that there’s a reasonable chance that you’ll find a couple of tax saving tips and ways to save tax on your tax bill.

You can obtain a more detailed list with many more ways to save tax here.

FIXED ASSETS REVIEW

Identify and write-off assets you no loner use

Scrutinise your fixed asset register to ensure your fixed assets are correctly categorised and the correct tax depreciation rates are being applied. 

If you no longer use an asset and the cost to dispose it exceeds its disposal value, you can write it off.

Assets costing less than $500 (GST exclusive) can be written off immediately.  This assumes that it’s not an upgrade part of a wider acquisition of the same asset from the same vendor, with the same tax depreciation rate.

You may claim depreciation for a full month for any part of a month that you own and use an asset.

Consider buying replacement assets before 31 March 2019 to claim one month’s depreciation deduction.

If you anticipate making a loss on selling an asset, consider selling it before 31 March.

If you think you’d make a gain on selling an assets, consider postponing selling it until after 31 March.

Commercial fit-out

The tax depreciation rate for buildings with an economic life exceeding fifty years is 0%.

To maximise taxable depreciation deductions you need to separately identify, where possible, commercial fit-out expenses (so that depreciation tax deductions can be claimed) from the building itself.

BAD DEBTS

Write bad debts off before 31 March

You can claim a taxable deduction for bad debts that you’ve written off during the current income tax year.

You must be able to demonstrate that you have undertaken a process of determining that the debt is “bad”.

Individual trade debts should be reviewed.  They must be actually written off in your accounts receivables (“debtors”) ledger before 31 March to be allowed.

A debt is generally classified as bad if a reasonable and prudent person would conclude that the debt is likely to be repaid.

The length of time that the debt has been outstanding and what you’ve done to collect it will be key factors in determining if it’s a bad debt.

A debtor doesn’t have to be insolvent for the debt to be classified as a bad debt.  You can still pursue them for the debt.

EMPLOYEE WAGES, HOLIDAY PAY AND ANNUAL LEAVE

Employee expenses owed at 31 March 3019 (e.g. holiday pay, bonuses, long-service leave), providing payment is made within 63 days after year-end, can be claimed.

Therefore if you pay them before 2 June 2019 you can claim them in the period ended 31 March 2019.

CLOSING STOCK

Unsold trading stock (excluding livestock) at 31 March 2019 must be valued, subject to meeting relevant criteria, using one of the following methods:

Cost;

Discounted selling price;

Replacement price;

Market value if it’s lower than cost.

Obsolete stock or stock “write-downs” aren’t generally not tax deductible.

Before 31 March 2019 you should consider carrying a stock-take.  You must physically dispose of any obsolete stock or value it by using one of the four methods listed above.

If your turnover is less than $1.3 million you may value your closing stock at its opening stock value. 

But only if you can reasonably estimate that your closing stock is valued less than $10,000.

MIXED USE ASSETS

IRD’s attention has turned to taxpayers who own mixed use assets

Inland Revenue recently introduced new, stricter, legislation to determine income tax and GST obligations for assets which are used for both private and business purposes (“mixed use assets”).

Rules specifically focus on people with holiday homes, boats and aircraft.

If the mixed-use asset rules apply to you, ensure that you have kept complete and accurate records of relevant income and expenses.

We wrote an article last year on taxing mixed-use assets.

REPAIRS AND MAINTENANCE

Tighter rule for rental property owners

Broadly speaking, repairs and maintenance expenses are deductible only to the extent they have been incurred during the income tax year.

Tax legislation draws a very thin line between a tax-deductible repairs and maintenance and capital expenses (which are not tax-deductible).

Consider making repairs and maintenance before 31 March 2019 to bring forward the tax-deductible expense – especially if your rental property has losses. 

Losses will be subject to new loss “ring-fencing” rules with effective from 1 April 2019.

VEHICLE EXPENSES

Keep a log book

If you own a vehicle which hasn’t been used exclusively for business, you must keep a vehicle logbook.

The logbook must be used to determine a business use percentage for income tax, GST and fringe benefit tax purposes.

If business usage has significantly changed, you’ll need to recalculate it.

LEGAL FEES

Some legal fees are not tax deductible.

For example professional fees related to forming a new company or a trust and some capital expenditure are not tax-deductible.

WORK IN PROGRESS

At 31 March 2019 you need to review any jobs “in-progress”, to determine their values and a percentage of completion, income received, and expenses incurred to date, and anticipated profit.

This list of tax saving tips has been carefully prepared.  It has been written in general terms and should be seen as broad guidance only.

It should not be relied upon to cover your specific tax or personal circumstances or situation.  You should not act upon this list of ways to save tax without seeking professional advice.

Please contact us to discuss these matters in the context of your particular circumstances.

Minimise Accounting Fees with End of Year Checklists

Professional fees are affected by several factors, including the time and complexity due to special circumstances and the reliability of information supplied. Delays (and increased fees) are inevitable if key information is not supplied.

We’ve prepared some checklists to help save you time and money when you prepare your 2019 financial statements and income tax return(s). Grab your free accounting checklists here.

Business Advisory Accounting & Tax Services Limited, its directors, partners, employees, contractors and agents do not accept any liability from any action taken or inaction by anyone relying on the tax saving tips.

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