WORKING FOR FAMILIES TAX CREDITS: NOT JUST A COMPLEX NAME

Posted on February 23, 2012 | Leave a comment

Working out your income for Working for Families Tax Credits (WFFTC) purposes has always been complicated, so much so that many big firms of accountants refuse to get involved in calculating their clients’ WFFTC entitlement.
Well as from the 2012 Tax Return season getting their clients’ income correct for WFFTC purposes is going to get even more complicated as:

  1. From 1 April 2011 clients will no longer be able to use investment losses such as from rental properties to reduce their income for WFFTC purposes (prior to that only those in the business of renting property couldn’t deduct losses).
  2. The definition of WFFTC income will also include an extra nine types of income:
    • Attributable trustee income e.g. trust income which hasn’t been allocated to beneficiarie
    • Attributable fringe benefits e.g. a car
    • PIE income other than registered superannuation schemes such as Kiwisaver and retirement benefit schemes
    • Passive income earned by children (includes interest, dividends and rent). Amounts over $500 per child will be included as family income, as per this IRD example: Johnny is gifted $15,000 from his parents in April 2011. This money is invested in term deposits. At the end of the year (31 March 2012) Johnny receives a letter from the bank showing he earned $600 interest. As the total interest earned by Johnny is over $500 his parents will need to include the amount over $500 (ie; $100) as part of their family income for the year 1 April 2011 to 31 March 2012.
    • Worldwide income received by a non-resident spouse
    • Tax exempt salary or wages under specific international agreements
    • Income equalisation deposits made by you, your trust, or a company controlled by you or your trust
    • Certain pensions and annuities – includes 50% of payments from life insurance policies or a superannuation fund (excludes NZ super)
    • Other payments received from any sources that are used for your family’s day-to-day living expenses (but only if the total amount from those sources is more than $5,000). An example of this might be board received, income from parents, or “soft-loans” from friends or family.

This last point is particularly grey and many accountants think totally impractical.

Having worked in tax for 30 years I suppose I shouldn’t be surprised but making tax this complicated is just downright crazy. The more you make tax law difficult to comply with, the less chance you have of taxpayers being able to follow the rules and the whole system falling into disrepute, especially given the IRD’s woeful lack of resources available to be able to police the system.

If you need help with your WFFTC, contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Posted in Accounting, Tax

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THE DANGERS OF CHANGING YOUR NZ COMPANY SHAREHOLDING

Posted on February 16, 2012 | 2 Comments

With the modern world we live in it’s all too easy to change the shareholdings in your company on a whim using the online services of Companies Office. Compare this with the old days when it was necessary to fill in various paper forms and resolutions which were so difficult to understand you had to bite the bullet and telephone your lawyer or friendly accountant for help.

Now when you telephoned your lawyer he or she would tell you to ask your accountant first because they knew that a change in shareholding could bring about dire tax consequences which can be very costly indeed. You could miss on  all your company tax losses completely. In addition, the tax credits which accumulate when the company pays tax (and which you can use to reduce your personal tax bill when you withdraw profits from the company) could be eliminated and if you own one of the new Look Through Companies (LTC’s) the flow of your losses can be adversely affected.

So what you thought may save a few $ in fees could in fact cost you tens of thousands of dollars. Better get your accountant to sort these things out for you. A good accountant will probably throw in this type of task for free, especially if they are your registered office, file your annual return for you, and make sure you comply with all of your statutory records requirements under the Companies Act so you can relax sure in the knowledge you’re in good hands.

Now if you don’t dare to speak to your accountant because they’re so darned expensive don’t just lie back and take it – find one who’ll give you a fixed price and build in all such minor but irritating duties!

If you need help with your company shareholding (or just want to reduce your accounting fees) contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Posted in Accounting, Business, Tax

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PERSUASIVE WORDS IN MARKETING

Posted on February 9, 2012 | 2 Comments

If you’re writing about your business or thinking up special offers you need to make sure your copy is as effective and as persuasive as possible, as leveraging your marketing efforts means you get a much better return for your dollar or time.

Some say there are 8 really persuasive words in the English language, some 10 or 12 and one or two even 108 or 120 but I like the 16 most persuasive words used in advertising & direct mail as below:

  • You/Your
  • Guarantee
  • Easy
  • Results
  • Fun
  • Now
  • Save
  • How to
  • Money
  • Love
  • Benefit
  • Proven
  • New
  • Health
  • Free
  • Safe

Now you might think you’re pretty good at writing copy or you may think so daunting a prospect that you’d rather take your mother-in-law out to dinner, but either way, using as as many of these words as you can will make it very easy – just build your sentences around the words – here, let me demonstrate:

“You will save money, love to use, have fun and enjoy proven results with the new super this and that now available in 6 new easy to use safe styles, guaranteed for 10 years, and comes with free accessories so healthy it’ll benefit you for years to come”.

There you are – easy peasy – used all bar one of the words in one sentence in a few seconds! And in addition, they’ll make sure you avoid the No. 1 mistake in advertisements. Which is, you ask? Putting your name at the top and then just listing out the services you provide. Is that persuasive? I think not! Who cares about your name unless you’re a global brand? And listing out your services? Come on now! I recently saw 15 adverts in one magazine for accountants. All bar two had their names and what services they provided. Tax returns? Accounts? You don’t say!

If you need help with your marketing contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Posted in Marketing, Uncategorized

THE LIFETIME VALUE OF YOUR CUSTOMERS

Posted on February 2, 2012 | Leave a comment

It’s vitally important to know the lifetime value of your average customer or client for two main reasons:

  1. If you know how much a customer is worth to you over the period they continue to buy from you it can makes a huge difference to how you treat and regard them. This helps us to take a long term view in doing the best possible job to look after and nurture customers and add value to each and every transaction with them rather than, like some badly advised business owners, maximising the value in today’s sale – in other words, screwing as much out of them as possible.

  1. In addition, if you know how much an average customer is worth to you, you know exactly how much you can spend to acquire a new customer. Say a customer is worth $20,000 to you. How much would you spend to get that customer? $5,000? $10,000? Now $5,000 may be the first two year’s worth of profit but wouldn’t that be worth it, assuming you could finance the loss of initial profit. So armed with that information you can now look at your marketing expenditure as an investment, not a cost, such that the MORE you spend the better off you are! Isn’t that fantastic?

To calculate the lifetime value of your average customer or client you need to know the average sale per customer, your gross profit margin, the number of times a customer buys annually from you and the number of years the average customer stays with you, as below:

Average $ Sale Per Customer ($)

Less: Cost of Sale ($)

Equals: Profit Per Individual Sale ($)

Multiply By: No. of Times Customer Buys Annually

Equals: Annual Profit per Customer ($)

Multiply By: No. Of Years as Customer

EQUALS LIFETIME PROFIT PER CUSTOMER ($)

Piece of cake right? Get out there and start investing in marketing!

If you need help with working out the lifetime value of your customer contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Posted in Business, Marketing

ESSENTIAL BUSINESS INFO

Posted on January 26, 2012 | Leave a comment

Many business owners operate completely in the dark, with no meaningful business information upon which to manage, let alone improve, their businesses. As trusted advisers (and with so much knowledge of our clients’ businesses) it’s our job as accountants to empower and enable business owners to get control of their businesses by giving them the tools to find out whether they’re making or losing money, growing or contracting and what they need to do to succeed.

So what sort of business information does a typical business owner need? These are the more common types which I normally recommend:

Information

Benefits

Easy or Difficult
Monthly or bi-monthly interim financials Can see whether you’re making money and can plan and react quicker to improve plus can minimise IRD interest Piece of cake but if you hold inventory you need the month end inventory figures
Perpetual Inventory Can keep a track of all your inventory and what cash you have invested in inventory plus identify old or slow moving stocks Difficult in manufacturing businesses where you use common items for different products but otherwise you just need good systems
Job Costing Can see whether you’re making money on individual jobs Not too bad if you’re keeping keep timesheets for labour costs and can record the allocation of inventory items to individual jobs (specific purchases for jobs are very easy to allocate) which means probably keeping perpetual inventory
Divisional Reporting Can see which parts of the business are losing or making you money OK if you can allocate overheads between divisions and can allocate inventory usage to individual divisions
Budgeting Can manage by exception, can identify over-spending and highlight sales shortfalls Easy if you have accounting software
Break-Even Point Analysis Probably the most important thing you should know about your business. Knowing whether you’re covering all your outgoings (including drawings and tax) is absolutely vital. Easy but you do need to know recent overhead levels and your latest gross profit margin which can slip when things get tough
Cashflow forecasting Can forecast cash crises and get peace of mind when expanding Easy. If you find it difficult to predict your sales work back up from overheads using your gross profit margin
Gross Profit Margin Analysis Can see just where you’re losing or making money If you keep inventory you probably need to maintain perpetual inventory or it’s too difficult
Key Performance Indicators Can focus on the key things in the business, those factors critical to success Easy if you have accounting software and good systems

What information do you have available in your business? Are you still just using the traditional measures of what cash you have in the bank and comparing turnover with that achieved in previous years? All this really useful information is easily available with good systemsand some decent accounting software, so come on, get up to date by contacting Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Posted in Uncategorized

JOINT VENTURE MARKETING

Posted on January 19, 2012 | 2 Comments

One of the most effective marketing techniques is Joint Venture marketing, whereby you find a non-competing business whose customers are the same type of people as your customers. You get this business to promote you or mail their customers promoting your product or service and then split the profits with the host business. It takes many years and many thousands of $ to build a customer base so why not take advantage of someone else’s hard work?

And the beauty of it is that it’s a win-win for both of you! Jay Abraham, the famous and successful US marketer, has a sound piece of advice when it comes to setting up “host” relationships: “Be generous with the host company when setting up the deal. If you can’t get the host company to pay for the mailing, offer to pay for it yourself. Or offer them 60% instead of 50%. Or offer them 100% until they double their money, and a lower percentage thereafter. Offer them whatever it takes to get them to do the joint venture with you. What do you care how much they make, since you’re investing so little up front and have so much to gain yourself”?

Over the years when I’ve explained this truly effective technique to clients I get many blank looks as they think it’s all too hard, despite the examples I produce from real businesses showing that in fact it’s like everything in life, it just takes a little effort and imagination. Now imagine how thrilled I was to see this pavement sign outside a local shop which I immediately captured with my mobile ‘phone:
Joint Venture MarketingIsn’t that fabulous? So simple, so low-cost and so straightforward and yet so effective! It costs the shoe shop nothing, not one cent, so they’re happy little bunnies. And neither, of course, does it really cost the pedicurist anything either, just their time. But the return for the pedicurist, if she does a good job, is huge taking into account the lifetime value of a typical customer – even at $50 per visit, monthly for even three years is $1,800! What a local and very simple example to explain joint-venture marketing to clients.

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Posted in Marketing

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EFFECTIVE BLOGGING

Posted on January 12, 2012 | Leave a comment

Blogging is one of the most effective yet free – yes FREE – ways of marketing yet few venture into this area. It can position you an expert in your field, build your profile and brand, and draw prospects to your website. Here are a few tips to get started:

  • If you don’t know what to write, don’t worry unduly, just pick on an area you know well, the sort of thing you’re probably discussing regularly with customers or staff. This could be the key frustrations customers suffer when dealing with suppliers in your industry, tips on how to get the best out of your product or service or how the customers can reduce costs or save time etc. Google is a great source of ideas and inspiration.

  • Blog regularly by getting into the habit. I’ve conditioned myself to blog in the same as I’ve conditioned myself to keep fit – if I don’t do it I start to worry and actually feel guilty! The more you do, the easier it becomes.

  • Keep them as short as possible. This isn’t easy and takes practice, but the less you write the easier it will be to read and keeping them short doesn’t mean you are short-changing your readers as writing concisely and to the point will be far more effective and informative.

  • Make your blogs as easy to read as possible without excessive technicalities or jargon as these will just confuse your readers. Youngsters are useful here as they will be able to pick out words they don’t understand. No children or nieces or nephews of 10 -14? Email them to me, I’ll get my younger two to read them through.

  • Write your blog as though you were speaking to a down-to-earth client or customer, not as you would have done whilst you were at school trying to please your English teacher. Not as far as text language maybe, but short easy-to-read sentences, bullets and “chunking”, breaking it down into small easily digestible parts.

  • Try and focus on areas of interest to your readers which may not be the same as yours. Initially, you may have to suck it and see, or look at other blog sites but when you’ve done a few blogs you’ll find that some topics or areas are much more popular than others, so write more on these.

Starting to blog is like going to the gym or for a run on a winter’s night – it’s a scary thought but once you get out there you enjoy it, so don’t delay or prevaricate, just do it! If you need help with your blogging contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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