Tag Archives: NZ Business

SUCCESSFUL PLANNING FOR BUSINESS GROWTH

Posted on October 27, 2011 | Leave a comment

I was privileged recently to help a fabulous small business owner in my role as business advisor.

This switched-on business owner had already grown his business to employ 24 full-time staff and doubled, yes, doubled his turnover during 2010 and now wanted to grow further. His business objective was to take on as many staff as practical, whilst maintaining profitability. What impressed me even more was his policy on staff training. He made it a high priority, even though in his line of business training would normally come last because of the low skill level required. What’s more, the business growth has been financed out of cash flow – how good was that?

Now we already had one of the three key factors for success in place: accountability. Taking on a business mentor is one of the best ways to ensure that your keep on track of your business plan. So we just needed two more success factors: a defined goal and some practical and effective business planning.

Setting the goal was easy – we agreed to 100 staff within 5 years. Now growth of that magnitude and rapidity requires detailed planning as all the different parts of the business have to dovetail together (working capital, HR, marketing, operations, new premises, more plant and equipment etc) so the next task was to complete a detailed set of financial projections covering the next 5 years.

To complete the financial projections, we needed to firstly work out the average turnover that one employee could generate. That way, we would know what turnover we required for 100 employees. Having done that, we then needed to work out the annual growth in turnover required (having regard to current turnover) which turned out to be 32% – a piece of cake when you’ve doubled yours in one year!

From there, it all fell into place into place: required monthly sales, cost of sales, overheads with the new premises, wage costs with the gradually increasing number of employees and how and when to recruit them, what supervision they would need, cash flow requirements, new vehicles and plant needs and the required marketing activities.

If you want to grow your business by enlisting the help of an experienced Business Mentor with key finance and marketing skills contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Posted in Business, Finance, New Business

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HOW KEY PERFORMANCE INDICATORS CAN TRANSFORM YOUR BUSINESS

Posted on October 6, 2011 | Leave a comment

I once assisted a business in the UK that couldn’t understand why they had no money in the bank and couldn’t pay their bills. 

The business owner used a traditional accountant, who just prepared the annual financials some months after the year-end, and as is typically the case, the excellent accounting software purchased was used solely for the GST returns. What does that mean? Yes, you guessed it – no management information or regular reporting of any kind which means the business owner was, totally unnecessarily, operating completely in the dark with no idea of what was happening in the business

After discussing things with the business owner I said that what we needed was a two-fold approach, firstly to work out what the current trading figures were, and secondly, if things had gone wrong, why.

To start-off with, easy-peasy, interim management accounts (which was like falling off a log) comparing the trading results for the current year-to-date with the comparative period the year before. These were produced not on the accountant’s externally located accounting reporting software, but on the client’s accounting software (which was more than capable) to save both time and cost. This showed a substantial decline in sales, a reduction in the gross profit margin and overheads which had not been reduced fast enough to cope with the decline in sales and gross profit.

So far, so bad! But why had things gone so bad? Reach for your Key Performance Indicators (KPI’s) which measure the key elements in any business, those which are critical to business survival and success. These are the things that MUST go right for your business to be able to deliver your core products or services in a cost-effective manner which meet or exceed the customers’ needs, which are often called your Critical Success Factors. Having worked out what these are, you need to start measuring these since what you can measure you can manage and then work out how to improve. Often, these are few in number so it’s normally possible to restrict the reporting to 8 or 12 what are known as Key Performance Indicators.

In any trades business, the Critical Success Factors are normally very similar, so I knew what to look for and so I produced a KPI report highlighting the areas where I thought the problems were occurring, a simplified version of which is reproduced below. No budget figures of course, because at that point we hadn’t set targets, but at least these could be filled in later when we had worked out what we wanted to aim for.

XYZ Ltd
Monthly KPI Report for Feb 2011

For the Month YTD

Actual Last Year Budget Actual Last Year Budget
Sales $74,554 $104,889   $887,656 $1,201,876  
Cash Collected $65,222 $93,445   $796,101 $1,180,665  
Gross Profit % 52% 53%   52% 55%  
Overheads $38,101 $46,123   $481,774 $571,331  
Net Profit $667 $9,468   $20,192 $89,700  
Labour Productivity % 81% 86%   82% 89%  
Value Added on Parts $6,512 $7,998   $84,116 $106,117  
Average Labour Hourly Charge $47 $53   $46 $52  
Number of Jobs Completed 199 233   2403 2711  
Average $ per Job $375 $450   $369 $443  
No. Of Customers *


6421 5158  
Average Sale Per Customer


$138 $233  
Job Enquiry Conversion Rate 74.00% 84.00%   81.00% 93.00%  
AR Days Outstanding 52 44   51 42  
Work in Progress Days Unbilled 43 34   41 37  
* Invoiced in the last two years

And what did the KPI report show us? That there had been a serious decline in virtually all the key areas:

  • Whilst the number of customers had increased significantly, the average sale per customer and the average $ per job had reduced substantially, meaning a lot more running around, more administration costs, and more working capital tied up in the business.

  • The job enquiry conversion rate had reduced by 12% meaning that more time was spent talking to customers with nothing in return.

  • Both labour productivity and the average labour hourly charge had reduced which indicated the business had become much less efficient.

  • More working capital was tied up in the business as both Accounts Receivable days and unbilled work in progress days had extended outwards.

  • Not surprisingly, cash collected had reduced substantially too.

The next step was to set some targets to get the business back to its former level of profitability by implementing a number of specific strategies for each problem area such as billing work in progress more frequently, collecting Accounts Receivable quicker, working to improve the job enquiry conversion rate by scripting and improved quoting techniques and moving the customer’s focus away from price to the benefits of using the business in the longer term, as well as introducing a powerful guarantee and re-inventing the USP (Unique Selling Proposition) of the business.

So, all this just from a quick, inexpensive look at Key Performance Indicators – a truly simple, but powerful, underutilized business improvement tool you can use to transform your business to success!

If you need help with yout business performance contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Posted in Accounting, Business, Finance, Systems

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CASH FLOW MANAGEMENT

Posted on September 1, 2011 | Leave a comment

Virtually all of us will know of recent business failures, some of which will have had a direct impact on our own businesses. Sadly, many of these failed businesses will have been profitable and failed simply because they ran out of cash. The importance of cash to a business can easily be compared to the importance of air to a human – cut off the supply and the end is imminent.

In a typical business the cash cycle looks something like this:

Ideal flow of cash in your business

Cashflow management

In the above model you start your business by using cash to purchase stock. You then sell some stock (hopefully for more than it cost!), converting your stock into debtors. Once you are paid by your debtors the cash returns to you and the cycle begins again. Obviously in some businesses (for example a service business), stock in the above model can be replaced with work-in-progress and in others there may be no debtors as all sales may be paid for in cash. However, regardless of the business, a variation of this model will apply.
The more you can accelerate the cash cycle outlined above, the faster you turn your profits into cash and the easier it is to manage your working capital position.
Aside from the obvious issues, such as generating sufficient sales and having suitable margins, the areas that typically cause cash flow problems are the following:

  • Carrying Too Much Stock – ideally a business should carry no more stock than it needs in order to maximise sales. Slow moving or obsolete stock needs to be liquidated and turned back into cash. Monitor stock turn rates, create sound relationships with suppliers to shorten lead times and know your market so that you don’t end up with hard to move items. It is also worth noting that there is a proven link between high stock levels and an increase in both stock theft and damage.
  • Inadequate Debtors Control – take a look at the way you manage debtors and where the payment process can be tightened up. Monitor your debtors’ days and implement a robust collection system. Late payers need to be brought under control now to minimise the impact on your cash flow. In this market customers will take every opportunity to delay payment and those businesses without tight credit controls are invariably the last to be paid. Don’t forget that it’s costing you money every day to fund your overdue debtors, so charging interest is a valid option.
  • Capital Expenditure – be wary of paying cash for any significant capital items unless you have robust cash flow forecasts in place that show the purchase can safely be done. Many businesses run into trouble because they used their cash to fund asset purchases and then later couldn’t pay their tax bills or their suppliers. Remember, you can finance or lease your equipment purchases so that you are not putting pressure on your cash flow. A good rule is to match the life of the loan with the life of the asset.
  • Drawings – as a business owner, how much money are you taking out of the business on a monthly basis? Many business owners are shocked to see the annual level of drawings that they take and are unaware of the pressure that this can put a business under. Set yourself a budget that is acceptable to both you and your business and stick to it.

One of the simplest and most valuable business tools you can have is some solid cash flow projections. For some businesses they find that they can operate on projections that show a month end cash position only while others need weekly or even daily cash projections to keep things on track. Projections let you see potential cash flow problems in advance and deal with them before you reach a crisis point.

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

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Posted in Accounting, Business, Finance

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GIFTING TO SLASH YOUR TAXES

Posted on August 18, 2011 | Leave a comment

Gifting Free For All!

With the abolition of gift duty set to come into effect from 1 October this year, consideration needs to be given to how this will affect your gifting going forward.

What are the current rules?

• Gift duty is currently applied to gifts totaling more than $27,000 over a 12-month period.
• Many people would have sold assets to their trust(s); the trust in turn owes them for the value of those assets. They would then proceed to gift $27,000 a year to the trust to reduce the amount owing.

So what does the abolition of gift duty mean for you?

For many people the obvious course of action would be to do a one-off gift i.e. divest all personal assets into a trust all at once. Unfortunately it is not that simple and there is no “one size fits all” solution. The best course of action is ultimately determined by individual circumstances.

A one-off gift may well be the best course of action for an individual in a risky business venture where creditor protection is important, or where the debt could be subject to property relationship or other such claim.

However, there are equally many situations when a one-off gift may not be appropriate. An example of this is where a settlor of a trust is reliant on the trust for living expenses. While there is a loan in place, the settlor has an absolute right to call on this loan for funds. With no loan in place, the settlor/ beneficiary is at the mercy of the trustees.

There are also a number of fish hooks to consider. Any gift made can be cancelled where the donor was insolvent at the time of making the gift. A one off gift may also preclude entitlement to a future residential care subsidy.

On the flipside, a one off gift may avoid immediate family contesting a will, as there would be no estate assets to claim against.

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

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Posted in Accounting, Tax

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FREE YET EFFECTIVE MARKETING

Posted on August 11, 2011 | Leave a comment

As those who read my blog posts will know by now, effective marketing can be carried out totally for free and keeping in touch regularly with prospects, customers, clients or patients is essential to growing your business. One effective way to keep in touch is to send out newsletters and few businesses are so downright boring that even an occasional newsletter can’t be made interesting and give out tips and useful information. Providing you avoid adverts and talking too much about you or your staff – no one really cares about Deidre’s OE or your new reception desk – they really will keep your customers coming back more often.
Leaving aside the debate about whether physical or electronic is best, sometimes it takes a little trial and error to discover the best way to deliver the newsletters electronically in the most eye-catching or interesting looking format.
You could try Business Contact Manager on Outlook. Available as part of the package so effectively free, a friend of mine finds this works well. I didn’t have much luck with it, as for no apparent reason about half the newsletters just disappeared into the ether! In addition, it is limited on formatting and you get no dashboard reports on just how many have opened your newsletter or what sections they have read.
Much more useful is an on-line marketing tool called Mailchimp. Mailchimp is totally free to use (up to 2,000 subscribers and 12,000 emails per month which should do for most of us!) and has a number of really useful features:

  • It stores your contact list safely and securely. They categorically guarantee not to share or use your contacts.
  • You can categorise your contacts e.g. between customers or prospects or between different types of customers.
  • You can clearly see who has subscribed or unsubscribed.
  • It shows you, for each newsletter or mailing, just how many recipients have opened the newsletter and in addition, the “click rate” or ‘click through rate” which measures the number of times recipients click on a link to access an article or your website.
  • You’ll get a very good idea of how you’re doing as your results are presented side by side with your industry average. For example, a 40% open rate may not look good to you, but when compared to the 15% average achieved by people in your industry, it’s actually awesome.

So what are you waiting for? It’s free, easy to use even for novices and a really effective way of marketing.

If you need help with your newsletters, Mailchimp or your marketing contact Nick on 0800 ASK NICK or email nick@abac.co.nz. If you’ve gone to all the trouble and expense of being in business you may as well maximise your returns!

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Posted in Marketing

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SLASH YOUR TAXES – CONVERTING PRIVATE EXPENSES INTO INCOME TAX DEDUCTIONS

Posted on August 4, 2011 | Leave a comment

The IRD think that those in business get away with murder by claiming all sorts of expenses that are denied to those in a job. Leaving aside the fact that those taking the risks of fueling the economy, paying business taxes and creating jobs deserve something in return, if they think that (and they do, as one IRD official told me this the other day) you may as well do your best to live up to their expectations! Here are six easy ways to convert what are normally private expenses into legitimate tax deductions:

  1. Interest/Finance Charges. Many business owners have no business borrowings but large mortgages or private loans, overdrafts or credit card debts. Most also have invested large sums of money in their businesses and where they operate through a limited company, typically the company owes them a substantial amount of money by way of an advance account. All you have to do here is re-finance your advance account and use the proceeds to pay off your private loans or debts. As any interest paid by a normal limited company is tax deductible hey presto, you’ve now reduced your tax by a lot! There are a couple of other variations too you can use if your circumstances are slightly different so just give me a call to discuss your specific circumstances.
  2. Travel. The key to success here is the purpose and motive for your trip. If the primary purpose of your trip is for business, and any holiday aspect incidental, then you would be able to claim 100% of the cost of the trip (providing you paid for the accommodation, food and any activity costs yourself on the non-business days). If, on the other hand, there are two purposes for the trip, business and a holiday, then you would need to apportion the cost of the airfares/hire car etc. There is a third potential purpose, where the primary purpose of the trip is a holiday and the work aspect is incidental. Here, there would be no deduction for the airfares/hire car but you could claim for the accommodation and meal costs on the business days. With a little forethought and planning, many trips can be built around a business purpose – conferences, fact finds, checking out the competition, and looking for new suppliers to name a few – even the whole purpose of the business (like UK clients of mine who used to travel around the world every year on a round-the-week air-ticket with unlimited stops) can be designed around tax-deductible travel!
  3. Motoring Costs. In these days of high motoring costs a little subsidy from the IRD could come in handy. There are many options and it depends on what business entity you operate, your private v. business mileage, whether you work from home, have another car available, how expensive your vehicle is and how you work or operate, but either which way there is normally scope to get some GST back or a tax subsidy on your running costs or depreciation. There are also a lot of myths and half-truths floating about out there, and worse, many business owners (often, I’m embarrassed to say, encouraged by their accountants) stick their head in a bucket of sand and just ignore all the rules, so if it sounds too good to be true, it probably is! Seek advice from a practical accountant who isn’t afraid to tell you what you can & cannot get away with!
  4. Use of Home. Just about the biggest grey area of tax, those with high outgoings e.g. a substantial mortgage, can reduce their taxes significantly if they work from home and even if they have business premises but still work from home by a little. How much of your home do you use for business? A dedicated office and/or workshop? Your garage or sheds for a business vehicle or for storage? Toilets, kitchens, hallways or dining rooms for both business and domestic purposes? Maybe even a bedroom if you’re in the right business? Do you have a cleaner or gardener to keep things looking spruce for visiting clients or customers? Sometimes it’s obvious and sometimes a lateral approach is required, as often. For example with mortgage interest or rent, rates, power, repairs and maintenance the tax saved can be huge. Sometimes it’s a smaller saving that you make each time but that will add to quite a bit if you do it consistently, like claiming for a portion of your refuse cost (either the service you pay for or the orange sacks you buy).
  5. Entertaining/Meals Out. A 50% deduction is better than nothing! Providing there is a clear business motive and you keep good records e.g. identifying the individuals entertained you can claim for corporate boxes or marquees including entry costs at outside events, accommodation, pleasure craft and food and drink or coffees.
  6. Sponsorship can be a good way to get a tax deduction for your hobbies or interests, providing there is a clear intention to promote your business and you are not gifting the money, as otherwise it will be a donation or gift and not sponsorship where no deduction can be claimed. You will need to show a real connection between the outgoings and your business in terms of the benefits to your business and how it is heavily and effectively promoted. The expenditure should also be part of your overall marketing strategy and ideally, related to your actual products and services. If you get it right, any private benefit you receive will be incidental and therefore ignored. As always, seek advice from a good accountant who will always tell you what you might not want to hear!

Tax is tax and a necessary evil, but why pay more than necessary? If you need help to reduce your tax bill contact Nick on 0800 ASK NICK or email nick@abac.co.nz. If you’ve gone to all the trouble and expense of being in business you may as well maximise your returns!

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Posted in Accounting, Tax

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MARKETING, MARKETING, MARKETING

Posted on July 28, 2011 | Leave a comment

If location, location, location is key to real estate then marketing, marketing, marketing is key to business. It matters not how good or skilled you are at your chosen trade or profession, if you can’t market yourself or your business you just aren’t going to make it.

Now don’t, as many business owners do, confuse marketing with advertising. Wikipedia says “advertising is is a form of communication used to persuade an audience (viewers, readers or listeners) to take some action with respect to products or services”. Marketing has been usefully defined as gaining, delighting and keeping customers, whilst making a profit and building the value of your business. In other words, marketing is virtually everything you do in your business which works and is effective.

Many business owners put marketing in the too hard basket, saying there’s too much to learn, it’s too expensive, it’s just not their thing or they can’t afford it. But you don’t need to spend loads of money on marketing, as many of the most effective marketing techniques are free, see here for some free marketing tips ad ideas.

Nor do you need an expensive marketing consultant who, mostly being ex-journalists will most likely focus on PR (public relations) activities which can cost a lot. Read some marketing books – the best marketing book is written by Dan Kennedy “The Ultimate Marketing Plan”. Don’t be put off by the title, it’s not a dry, dusty book about planning, it’s a very practical book with loads of practical examples – furthermore, you can get this for free  (click here). Have a go at the worksheets in the back of the book (ask me for a better copy of the worksheets) which will guide you to come up with loads of low-cost, practical and effective marketing strategies.

Further help with your marketing here or contact Nick on 0800 ASK NICK or email nick@abac.co.nz. If you’ve gone to all the trouble and expense of being in business you may as well maximise your returns!

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Posted in Business, Marketing

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THE MOST EFFECTIVE REFERRAL STRATEGY EVER

Posted on July 21, 2011 | 1 Comment

Using effective referral strategies is absolutely key to business success yet the great majority of business owners don’t use any.

The most effective referral strategy ever is very simple yet costs very little. This is how it works:

  1. Get out there and meet people
  2. Find out what they do and then what problems they have and what challenges they face
  3. Work out how you can help them and what you can do for them, NOT focus on what they can do for you. DON’T charge them for your help.
  4. Prove your credibility by putting into practice what you said you were going to do and showing them how good you are at what you do
  5. Introduce them to others that can help them too but only those who share the same values as you and are really good at what they do.

What you’re doing in a nutshell is creating your reputation as someone who cares and who wants to help people, not someone who wants to take it all and give nothing in return. We all know people like this who are always looking for work – I can think of a few right now! Ever wondered why they’re in this position?

When you’ve done all that, sit back and wait for the referrals to roll in. Now remember, it work won’t work for everyone, it never does, but that doesn’t matter as that’s just life. What are you waiting for, get started?

If you need more business and help with your referral strategies contact Nick on 0800 ASK NICK or email nick@abac.co.nz

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Posted in Business, Marketing

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SENSIBLE BUSINESS PRINCIPLES ARE THE ANSWER

Posted on July 14, 2011 | Leave a comment

Being back in the UK brings forth a feeling of déjà vu. Apart from being too many people, too much traffic (with more and more traffic restrictions) and being just too busy, just like here in NZ there is an ongoing debate about how to make ends meet.

Although necessary, the funding of educational and welfare systems, the building and maintenance of infrastructures or national defense (to name a few) are a huge financial burden to the taxpayer.

If business owners ran their finances like the UK or NZ governments, we would have gone bust long ago. It is not pretty basic? If we spend more than we earn, someone else has to provide the necessary funds and if we borrow too much, we become insolvent, in which case we become a financial risk both to ourselves and to others. Indeed, the law says that when we can’t make ends meet anymore, we should stop trading and give up. Why should a government or country be any different?

In the old days local councils used to be run by businessmen who understood budgeting and how to run an organisation within its means and yes, even to make a profit to enable expansion and capital infrastructure projects and expenditure. I reckon there’s quite a number of my business owner clients in NZ (and previously in my client base in the UK) who could get to grips with running the economy and country, slash the budget deficit and stop wasting our money paying excessive interest charges much better than any politicians.

Applying sensible business principles, when running a business or a country really is key to success and prosperity.

If you need help in applying common-sense business principles in your business, contact Nick on 0800 ASK NICK or email nick@abac.co.nz

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Posted in Opinion

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WHERE TO GO FOR BUSINESS ADVICE?

Posted on June 23, 2011 | Leave a comment

A recent business survey had an interesting section on where business owners go for advice:

64% Accountant/Bookkeeper The score this option gets is well-deserved, subject to the accountant being an experienced old-hand with SME’s and not just one who churns out tax returns!
32% Business
Associates/Other Business People		 If they’re experienced and running a successful business, yes a good idea. However, in some cases it’s a case of the blind leading the blind! (I hope that saying is still OK to use these days!)
26% Bank Managers/Advisers Traditionally this was a good option, as bank advisers see the good and bad in all sorts of businesses and also know trusted advisers to refer to.
However, they are still employed and therefore lack that key experience of running their own business. In addition, given the banking
industry’s desire to reduce their payroll costs many bank managers are a bit wet behind the ears these days!
17% Business
Mentors/Advisers/Coach		 Excellent idea, provided they are providing value-for-money advice and are suitably experienced. The best are often free (other than the $100 registration fee).
See: www.businessmentors.org.nz I am a volunteer Business Mentor with this excellent government sponsored body.
17% IRD On tax, yes, and even then with a slight bias one would have thought! There is no grey with the IRD, just black and white, until they do an about face and change their minds about something! Are they going to point out all the deductions you haven’t claimed?
13% Don’t ask for help Knowing small business owners well, I’m surprised this is not higher. Fear of incurring costs, too laid back, an attitude of what is going to happen will happen anyway – they’re all alive and well!
8% On-line Interesting this, as it’s bound to grow leaps and bounds over coming years as the amount of useful information on the internet doubles every few years. US web-sites in particular have a huge amount of useful business advice and tips on hundreds of business topics, all for free.
6% www.business.govt.nz Yes, there is some useful information on here but it’s a bit basic and too impersonal.
6% Chamber of
Commerce		 Useful, especially as the Chamber of Commerce will be able to put you in touch with trusted advisers in all fields of business.
4% Software
Provider		 A strange one this! On their software, yes, but otherwise?

If you need advice in your business contact Nick on 0800 ASK NICK or email nick@abac.co.nz

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Posted in Business, New Business

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