Empower Your Business

Accounting is Just the Beginning

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Can keeping good books make you rich?

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Can keeping good books make you rich? Well, maybe not by itself, but it’s what you can do with the information in your books that just might, especially if you use modern and flexible accounting software. Here are five ways you can use MYOB accounting solutions to succeed in business.

See full article here.

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6 Ways to Reduce the Cost of Running Your Business

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While prospects for SMEs may be looking better, many cash-strapped business owners still need to be cautious and look for ways to reduce the costs of running their businesses. Here are a few ideas:

1. Analyze your premises.

Do you really need to be in the CBD? Could you work out of town from a cheaper (maybe industrial) area or from home? Perhaps you could encourage staff to work from home or hire contractors responsible for their own work space. Technologies such as the cloud, Dropbox or Skype mean it’s never been easier to keep in contact with remote team members.

Can you cut down on inventory so you can downsize your premises?  Rather than renting premises, can you buy a house in the right zone and use this instead? This way, you would be investing for yourself rather than helping someone else with their retirement plans.

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Is this tax-deductible? Home office & travel questions answered

home_office2There are two questions I get asked time and time again when I’m talking to clients about tax:

  1. I work from home. Can I claim all my home expenses, including 100% of my large mortgage repayments?
  2. I am going overseas to visit my relatives/friends, but while I’m there I’m going to do a bit of business too. Can I claim all my airfares and travelling expenses?

So let’s look at both.

See Full Story Here

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Don’t Be Blasé About Tax Debt

T&C's are perceived as some of the most boring part of businessWhen it comes to paying bills, we often tend to be blasé and put our financial responsibilities into the too hard basket.  Ignoring debt is the easy option at the time but eventually things catch up with you.  When it comes to paying tax, it is even more important to stay on top of your obligations to avoid potential tax debt.

So what happens if I do get behind?  You should try to avoid getting to this point, but it is likely the IRD will contact you if you miss your payments.

In most scenarios, tax debt will result in the following charges:

  • late filing penalties and interest
  • late payment penalties
  • non-payment penalties

If you do receive a letter from the IRD, it pays to act quickly.  There may be a variety of payback options available to you. If you want to know more, let Nick know and he can work with you to get back in the black.

Tax due in April and again in May…  A bridge too far?

Many taxpayers get a terminal tax bill due 7 April 2015.  Then IRD insist you pay again on 7 May 2015 for provisional tax.  This could well be a bridge too far’ and your Cashflow just can’t take it.

We at the A + BAC have found a very easy and risk free funding option which is only for provisional tax and the IRD have approved it.  It is called Tax Finance.

By using Tax Finance (see Table below), you decide when you want to pay your tax (maximum delay of 10 months for 7 May).  The tax intermediary arranges your payment into their tax pool which is a special account with the IRD.  All you have to do is pay the interest cost upfront. Then there’s nothing to pay until your selected maturity date.  You can even use this as a form of instalment such as arranging tax finance for 6 months and then paying 1/6th to Guardian Trust tax pool each month.  You won’t get any late payment penalties or IRD interest.

Tax finance for 7 May 2015
The finance rates are subject to change
3 Months 6 Months 10 Months
Provisional Tax Amount $5,000 $5,000 $5,000
Provisional Tax Due Date 7 May 2014 7 May 2014 7 May 2014
Maturity Payment Date 22 Aug 2014 22 Nov 2014 24 Mar 2014
You pay only $120 $198 $315
Payment of interest due by 3 May 20145
Provisional Tax Amount $10,000 $10,000 $10,000
Provisional Tax Due Date 7 May 2014 7 May 2014 7 May 2014
Maturity Payment Date 22 Aug 2014 22 Nov 2014 24 Mar 2014
You pay only $240 $396 $630
Payment of interest due by 3 May 2015

nick@abac.co.nz or on 0800 ASK NICK are the best ways to contact Nick to see how Tax Pooling can help you.

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7 Tips To Organize Your Small Business Finances

organize_financeBeing organised with your finances is a sure path to success and profitability in business, so here are 7 tips to help you get there:

1. Maintain Adequate Working Capital

One of the problems I see time and time again in business is the lack of adequate working capital. Even a small business can soak up money like a sponge when buying equipment, investing in inventory or funding work-in-progress or Accounts Receivable. If you lack the necessary cash yourself to plough into your business, there are only two other ways to get it: external borrowings or by leaving profits in the business to build up cash reserves, which means keeping your drawings to a manageable level. Don’t struggle on month after month — get your working capital sorted now!

See Full Story Here

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Reviewing Your Business Progress

When was the last time you checked performance against your business plan?

The business plan needs to be under continual review to make sure you are successfully implementing each planned stage. It won’t be any use to you unless you use it.

By writing a business plan you’ve taken the time to plan in detail what your business goals and objectives are – it’s a living, working document, not something to be filed away and then dusted off for review in a couple of years’ time.

This concentrated thinking, discussion and debate is the key to the formulation of a workable and achievable business plan. And as long as actual performance is monitored against it, the plan should significantly assist in the long-term survival of the business.

Ideally you should review performance on a regular monthly basis, or at the very least on a quarterly basis. Ask the fundamental questions:

  • Where are we?
  • Are we heading in the right direction?
  • Will we achieve the goals and objectives of our business plan?
  • Should we review pricing structures?
  • What has been the effect of the consumer price index increase?
  • What has been the effect of price rises in our particular business?
  • Should we raise our prices?
  • Should the gross profit percentage be higher?
  • Have we got empathy with customers?

On an annual basis you need to compare actual financial performance to the budgets and cash flow forecast. Ask:

  • How did we perform?
  • What went wrong?
  • Have we learnt from the mistakes?
  • Did we exceed budget expectations anywhere? Why?
  • Can we capitalise on these improvements?

A valuable assessment is to compare your business figures to industry statistics (ask your accountant about obtaining this information).

You’ll also want to know: What is the general business climate in your area? Is it conducive to your type of business? Should you be expanding, drawing back or diversifying? What is the status of your investment in stock?

Don’t forget that the business review should also include an appraisal of what has been happening within your team. You need to look at:

  • Recruitment
  • Training and development
  • Meetings
  • Employment agreements
  • Wage/salary reviews

Use your business plan as a day-by-day, week-by-week, month-by-month reference point to compare where your business is against what you planned it to be. If there are any deviations, immediately investigate them and try to take corrective action.

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

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How to save tax AND sleep at night

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I once had a client in the UK who used to save tax by never paying any of his takings into the bank. He was a sort of cross between Arthur Daley and Del Boy—a loveable rogue—but I liked him a lot, as he was always cheerful and smiling, no matter what scrapes he got into. Eventually, however, he came to grief; his wife left him because she never had any money to pay their bills and the IRD bankrupted him when they caught up with him!

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How to self audit your business every quarter

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You may think that auditing is something only accountants should care about and only big businesses need to worry about. But in fact, self-auditing is an effective way to safeguard the future of your business and maintaining or improving your profitability.

According to a recent survey, more than half of New Zealand businesses continue to be the victim of fraud, both petty and major. A local — not large — business here in Hawkes Bay was recently defrauded of $660,000. Imagine the difference that would have made to their profit!

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It’s Easy to Buy a Business but not so Easy to Sell One

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I still meet far too many business owners who bought an existing business and paid far too much for the business. Carried away by hope and enthusiasm, they typically don’t investigate the business properly beforehand and fail to seek proper and honest professional advice.

After a while they often find themselves struggling in a very competitive environment without sufficient sales to support their financing costs or ever-increasing overheads and more often than not, lacking business experience or finance skills, gradually lose heart and enthusiasm to the point where after a while, they just spiral into decline or try and sell on in turn to a new hopeful, always optimistic business buyer.

Now this doesn’t have to be the case,

  1. For a start, getting a good honest, accountant to look at the business before it’s bought will sieve out the worst businesses for sale. Don’t take things at face value and never rely on any accounts or figures prepared especially for selling the business.
  2. Negotiate some vendor assistance. I’ve seen people buy businesses with no experience in that line of business and get just a 30 minute hand-over. Come on now, be realistic!
  3. Next, prepare some projections as to whether the business will support you and your level of costs. What is the break-even point and is there any leeway between that and existing turnover?
  4. Then, way before you go into business, make sure you get some experience in that line of business. If necessary, work for someone else first and learn the ropes.
  5. Get to grips with marketing. Read some books, look at what others who are successful are doing and maybe do some training in or get some coaching in marketing. Prepare a marketing plan, a practical plan not all theory. Nowadays, being in business means doing a lot of marketing.
  6. And then finally, do some research on, take advice on and get some decent financial systems in place. It’s essential that you can keep track of your performance and know what’s going on in your business.

Then, and only then, if it all stacks up, and you are fully prepared and ready to go, should you proceed and buy the business. Once you’ve moved in, borrowed the money from the bank and personally guaranteed the lease it’ll be too late to back out!

If you’re thinking of buying a business contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Key Performance Indicators

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Many business owners completely in the dark, with no meaningful business information or management reports available to better manage their businesses. On the other hand, in my role as volunteer business mentor I meet many clients with reports from their accountants so detailed and complicated they just don’t understand or even read them. The best compromise is to focus on your Key Performance Indicators.

Key Performance Indicators monitor 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 your customers’ needs, which are often called your Critical Success Factors. Having worked out what these are, start measuring them because as we know, what you can measure you can manage and what you can manage you can improve. Often, these are few in number so it’s normally possible to restrict the reporting to 8 or 10 of these Key Performance Indicators.

In many business types, the Key Performance Indicators are going to be the same or similar e.g. in trade or professional services where you’re effectively selling time and parts, materials or disbursements.

Let’s use a real example, a trade client of mine whose systems had not kept up with the growth in the business and where sales invoices were being sent out to customers several months late (if at all). In addition, the business was running out of cash so creditors weren’t being paid and huge amounts of working capital was tied up in work in progress and inventory, job profitability was mixed at best and labour productivity has slipped badly.

After I had helped recruit a new administrator and suggested and assisted in setting up some decent systems including timesheets, automated billing, perpetual inventory and job costing all by-passing the business owner (who previously had tried to do everything himself) we started to monitor, amongst other things, the following:

  • Labour productivity. By setting up timesheets (linked to the invoicing module) and both chargeable and non-chargeable activity codes we were able to keep track of both overall and individual employee productivity. Having set a target level of productivity, this enabled the business owner to focus on productivity beneath the required target.
  • Work-in-progress. For the first time, the amount of money tied up in work-in-progress could be quantified which was an eye-opener in itself. Targets were set for both business-wide work-in-progress days and individual job work-in-progress which enabled not only prompt billing but also the identification of potentially unrecoverable work-in-progress so this could be investigated and then billed or written off.
  • Accounts receivable days. Customers over 30 days were reigned in or sacked.
  • Inventory days. We now knew what we had in inventory which enabled the business owner to reduce the overall level of inventory and identify slow-moving items surplus to requirements.

Needless to say, we also monitored cash flow and profitability and quite a few other things, but only by exception – for example, we only worried about the detailed and individual overheads if they exceeded budget or the gross profit is this dipped below target. The important thing was that we were able to focus on the most critically important things that made the business tick.

If you want help to monitor the Key Performance Indicators in your business contact 0800 ASK NICK or email nick@abac.co.nz.