Empower Your Business

Accounting is Just the Beginning

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8 Vital Things You Need To Know about Your Business – Each and Every Month

Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you’re going to make it through to retirement or maybe even successfully selling your business.

These are my top eight favourite things each and every one of us business owners should know about our businesses: Read More

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Importance of Online Security

For some years now we have been told repeatedly that we must get online for just about everything, whether for software, apps, shopping, communication, data storage – you name it – we must do it online! It’s worrying then when there are regular headlines about the latest hack into someone’s data or whether someone has seen someone else’s data online accidentally. Read More

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Take control of your finances now

Unusually I was channel-surfing the other night and came across a repeat of that show where they try and sort out people who are still spending money like it’s going out of fashion despite already being deeply in debt. Fascinating in a terrifying sort of way, it should probably be compulsory viewing as a warning to the rest of us as to how finances can get horribly out of control. Running your finances wisely is vitally important whether you’re in business or not.

Good Debt/Bad Debt. Whilst the wide availability of credit is a good thing in many ways (how else could the great majority of us buy a house?) in other ways it’s a curse as it’s so easy to borrow money nowadays. Credit cards, personal loans, overdrafts, store cards, hire purchase, interest-free credit – many and varied are the ways we are encouraged to spend money we don’t have.

Good debt is debt used to buy assets which increase in value or are essential to life, like a house or a good business. Bad debt is that used for depreciating assets or short-term expenditure such as boats, holidays or unnecessary luxuries.

So with that in mind let’s look some of the more common issues and questions which arise with debt.

Interest Rates. We know (don’t we?) that normally, longer term borrowing secured on property borrowing is going to cost us less but good interest rate management is all about getting the right borrowing in place for the right purpose. For example, putting short-term expenditure like a holiday or new furnishings on a 25 year mortgage wouldn’t be sensible as it’s going to cost a lot more over the long mortgage term. Similarly keeping core or substantial debt outstanding on a credit card or even a personal loan is going to bleed you dry. Here are some simple guidelines:

  • Always find out the true interest rate
  • Shop around for the best deal – we’ve learnt by now that loyalty is not rewarded in the world of finance!
  • Look to family or friends first who will give you lower interest rates and be more repayment friendly
  • Choose as short a repayment period as possible
  • Match the borrowing type to the purpose of the borrowing e.g. credit cards for convenience only and pay them off in full or hire purchase for a vehicle
  • Don’t overstretch yourself
  • If your outgoings on debt repayments are high and you have no savings, look to insure yourself against the unexpected.

Fixed-Rate Borrowing. Over the years I’ve been asked many times if clients should fix their mortgage or loan rates or stay on variable rates. Not, unfortunately, possessing a crystal-ball means that it’s very hard to advise in specific cases and even highly paid economists haven’t got a clue! However, there are a few things to remember. Firstly, the banks are there to make money and so won’t offer you anything that doesn’t suit them. Secondly, it depends upon the gap between your income and expenditure in that if you have little discretionary net income, an increase in your mortgage repayments could be the straw that breaks the camel’s back. In consequence, you would probably be prepared to pay more as a form of insurance for protection against future rate increases. In addition, a fixed rate loan can be a disincentive to early repayment (see below).

You can also hedge your bets by choosing part-fixed and part-variable which I think is a good option. Many borrowers now split their mortgage into three or four parts all with different interest rates. There is a useful calculator on our website for working out the repayment costs in these circumstances, see http://www.abac.co.nz/tools/calculators.

However, the worst dilemma is whether to fix short-term or long term. Short-term is cheaper but you then run the risk of your fixed period expiring just when interest rates have increased! And of course break fees tends to be very expensive if you later change your mind. I had a client some years ago with two fixed rate loans of 100,000 each, one at 16% and one at 8% when current interest rates were 5%. Both seemed a good idea to him at the time!

The website www.interest.co.nz (a great site which should be in your favourites) has a useful tool which will help you decide between fixed and floating:

http://www.interest.co.nz/calculators/55377/should-you-fix-or-stay-floating

KiwiSaver v. Early Mortgage Repayment. Whilst saving for a rainy day and retirement is very important should one save using Kiwi-Saver or pay off mortgage debt early? Even with lower interest rates the interest costs on debt are almost always higher than the after-tax and fees rate of return from investments which, of course, have not been anything to write home about in any case. There’s no way very many of us are going to get a better return from our Kiwi-Saver funds so are the taxpayer subsidies the only reason to invest in Kiwi-Saver if you have a mortgage?

There’s a great article on www.superlife.co.nz on whether to save or pay off debt which includes a table setting out the break-even points on various interest rates depending upon your tax rate. For example, say your mortgage rate is 7% and you’re paying 33% tax you’ll need to achieve a gross investment return (year after year) of 10.4% (before fees) to be better off investing. Yeh right I hear you say! The full article can be found here:

http://www.superlife.co.nz/paying-off-debt.html

Accelerating Mortgage Repayments. If you can afford to and assuming you’re not on a fixed rate (although depending on the lender and current variable rates sometimes it is possible without incurring penalties) increasing the size of your regular repayments even by a small amount can save you many thousands in interest. Work out how much you can save using this strategy by using the Extra Loan Repayments Calculator on our website http://www.abac.co.nz/tools/calculators.

Interest-Free Credit. Now there’s an oxymoron for you! It can work but watch out, as the deals offered by retailers normally have some nasty little traps built in which can be triggered by early repayment, taking up one than offer or trying to pay it off early. See this story in the NZ Herald for an example of how it can go wrong:

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=10672728

Credit cards are also much celebrated as a clever way of getting interest-free credit but again only a few benefit whilst many pay dearly. There’s a great article on the dangers here on http://www.interest.co.nz:

http://www.interest.co.nz/personal-finance/54922/avoiding-credit-card-minimum-payment-trap

What to Aim For

The best thing to do with debt? Yep, get rid of it as soon as you can. Debt is not a good bedfellow and as long as you have outstanding debt you are at risk, will have much less disposable income and are not in charge of your own destiny, not even taking into account that your personal financial details are available to anyone who can do a credit search on you.

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Income Tax – Getting it Right

‘‘There are only two certainties in life – death and taxes!’.  Although it is difficult to tamper with the sand flowing though the hour-glass of life, good habits can slow its pace.  Good taxation planning can ensure that taxes can be managed so there are no nasty surprises resulting in urgent phone calls to the bank manager a few days before due date or suffering unpleasant IRD penalties. Read More

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What to do when negativity catches you unawares

We all have an Achilles heel. Sadly, negativity can take us unawares. Negativity is productivity cancer. Heavy words but, in truth, it can hugely hinder success. It saps your energy and the team’s. It’s deadweight in all your dealings with customers. And if you never want to have a great idea again, negativity’s the way to do it. But by being mindful of negative thoughts, we can change our thinking and prevent the effect it has on how we operate.

Here are some of the biggest hindrances to our thought patterns. Read More

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How to cope with business competition

In the area of business competition, there’s one thing I’ve learnt over the 32 years I’ve been at the coalface of advising SMEs and that is, no matter how many other competitors there are in your line of business, you can still be successful if you get your core business activities working the right way.

The best example for that locally are cafés, which are springing up all over the place. Some are busy all the time, some are deserted. Yes, location and being on the sunny side of the street are both important, but there’s a lot more to it than that, especially when the deserted ones are in good locations! Read More

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5 reasons accountants make great business owners

I have made a career out of helping accountants run better businesses themselves and then helping their clients run better businesses.

In working with those accountants, I’ve observed that many of them suffer from confidence and self esteem issues and tend to forget that they themselves are running a business. Strange as it seems, I have heard of accountants who pack up their bags and go home with their tails between their legs when a client challenges them by asking ‘what would you know about running a business?’ Once we work through those issues, however, there are five very good reasons why accountants make great small business owners and why their clients should listen to them to improve their own businesses.

  1. They not only run their own businesses, but they are dealing with business owners every day
  2. They understand the numbers
  3. They understand the difference between profit and cash flow
  4. They are well educated
  5. They are well respected and trusted

Click here to read more detail on the five reasons.

By Colin Dunn.

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Biggest accounting scams

In the world of large-scale capitalism, corporate accountants shoulder huge responsibilities: They must monitor, analyze, and report the financial health of their organizations to both owners and stakeholders alike.

These reports, when positive, can be the catalyst for investments. For investors, supplying capital or purchasing stock in a business involves careful assessment of risk and benefit, of loss and gain. This insecurity is something that can be measured and analyzed.

But when a corporation provides false information – manipulated earnings, inaccurate invoices, or other misleading financial statements – investors have no idea what they’re getting into. And sometimes, with so much on the line, it can be tempting for accountants to make a business appear more financially sound than it actually is.

From accelerated revenues and shifting liabilities to Ponzi and pyramid schemes, we’ve compiled an overview of misleading accounting plots and provided insight on how you can identify them.

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Part 2 – Four Vital Things You Need To Know about Your Business

Last week I shared four of my eight vital things you need to know about business each and every month, here are the final four:

Rolling 12 Months Turnover. It’s no good keeping an eye on your monthly or weekly sales and comparing these with last year or the year before, nor your sales for the year to date, you need to monitor your sales over the last 12 months (or 52 weeks if you prefer) and compare with the previous year. Not only does this prevent you getting depressed in your down season when it’s easy to forget just how poor trade can be, but in addition, it irons out the seasonal kinks in your turnover and provides you with the real picture of how your business is tracking.

Your Sales Pipeline or the Number of Prospective Customers Thinking About Becoming Customers. No matter how busy you are, you still need to be thinking about next month’s, the next quarter’s or next year’s business and where it’s going to come from. Now some of my clients just get one-off jobs and it’s vital if you’re like them to think at least six months ahead about how you’re going to keep your sales pipeline topped-up. To find out more about your sales pipeline click here.

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Four Vital Things You Need To Know about Your Business – Each and Every Month

Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you’re going to survive the ongoing recession (just how do they work out those GDP growth figures by the way?) and make it through to retirement or maybe even successfully selling your business.

Here are four of my eight favourite things each and every one of us business owners should know about our businesses:

Whether you’re exceeding your Current Break-Even Point
Whilst all the other things listed in this article are very important, knowing whether you’re exceeding your current break-even point is just about THE most important thing about your business you need to know. Even if you have a cash reserve stashed away, sooner or later you’re heading for trouble if you don’t sell enough to cover your outgoings. And I stress the current, not a historical figure based on your costs two years ago or a gross profit margin you haven’t achieved since the start of the last recession!

If you’d like to know how to calculate your break-even point click here and to make sure it’s the full picture click here.

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