Empower Your Business

Accounting is Just the Beginning

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KiwiSaver Questions in New Zealand Answered

Watch this video on KiwiSaver as we answer some of your more common questions:

Why is it important to make my contributions by 30 June each year?

Should I have a KiwiSaver account if I have a mortgage to pay?

What if I don’t start my KiwiSaver until I am older?

KiwiSaver Accountants Hastings

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Can you take a holiday on the IRD?

I had a question from a client a week or so back who mentioned that a friend of his had been told by his accountant that he could claim all his holidays against tax and asked me if it was true. As usual where tax is involved, it is not straightforward, but yes it is possible to offset the cost of a holiday against your tax in the right circumstances.

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.

A couple of examples will help you understand the rules, click here.

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Keys to Business Success – Adequate Working Capital

Keys

They say that over 60% of businesses that go bust are still profitable. I’m not so sure about that myself but one way or another, lack of working capital is a major cause of business failure. But well before that, and especially on set-up, having enough working capital is absolutely vital in business.

Normally, there are only three sources of working capital available for small to medium businesses:

  1. Owner’s Funds. This could be funds initially invested into the business on set-up, or monies subsequently loaned to the business, maybe from undrawn remuneration.
  2. External Borrowing. This could be from banks, relatives, or finance companies.
  3. Retained Profits. These are undrawn profits from prior years, the cheapest and best source of working capital.

It doesn’t matter which source you use, providing overall you have enough available to fund your business. Even a well-run small business requires a substantial amount of working capital, but if the management of that business is sloppy e.g. inventory or accounts receivables levels get out of control, the amount of working capital required will balloon to impossible levels which, after a while, will inevitably lead to a business crises.

So what can you do to safeguard your working capital?

  1. Never underestimate the working capital required in a business.
  2. Always use cash flow forecasts to forewarn of periods of peak demand.
  3. Make sure you have adequate reserves of working capital, whether cash in the bank or an under-utilised borrowing facility.
  4. Keep on top of the management of your business at all times. If, for example, you slip behind on invoicing or don’t collect your debts it will soon run away from you.
  5. Make sure you use decent accounting software (nowadays as cheap as chips) so you can keep track of assets and liabilities.
  6. Restrict your drawings to a level which allows the accumulation of retained profits. There is an obvious and strong relationship between the level of drawings and retained earnings!

Managing your working capital well is a key business skill. If you need help with yours contact nick on 0800 ASK NICK or nick@abac.co.nz.

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Employer Changes From 1 April 2013

photo credit: http://www.sxc.hu/browse.phtml?f=view&id=253947

If you’re an employer watch out, there are important changes which took place on 1 April 2013.

KiwiSaver Contribution Rate Increase

The minimum contribution rate for employers and employees will increase from 2% to 3% of gross salary or wages from the first pay period starting on or after 1 April 2013. The changes will affect your payroll calculations and the details you enter on your Employer monthly schedule (EMS).

Primary and Secondary Schoolchildren

As part of the Government 2012 Budget, the tax credit for children was repealed from 1 April 2012. This tax credit covered the tax on the first $2,340 of income from employment for employees under 18. If you pay salary/wages or schedular payments to schoolchildren, you must now deduct tax and record their details on your EMS. If your employee or Inland Revenue request you to, you will also need to deduct KiwiSaver employee contributions for existing KiwiSaver members under 18 years of age. You don’t need to make employer contributions.

Employees under 18 are not subject to automatic enrolment.

ML And ML SL Tax Codes Can No Longer Be Used
PAYE should be deducted using the M or M SL rates from 1 April, unless the employee provides a new Tax code declaration (IR 330).

Tax Code Declaration (IR 330).

These have all changed, so throw all the old ones away and order some new ones from the IRD.

Student Loan Repayment Rate Change

The repayment rate for standard student loan deductions will increase from 10 cents to 12 cents.

What This Means for You.

Your old PAYE tables are of no use, so if you’re still in the Dark Ages get some new ones. If you’re using payroll software, this needs updating.
Perhaps it’s time you used an expert to process your payroll, it’s cheaper than you think!

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7 Things To Support You in Retirement

blogging

Retirement is the last thing you worry about when you’re young and carefree. However, as the years pass by quicker and quicker, you begin to realise that perhaps you need to put some serious thought into it, especially if you plan to retire at a reasonable age.

But just how are you going to fund your retirement in these days of increased life-expectancy and ever-increasing living costs?

Read the full article on The Pulse

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Understanding GST

Illustration credit: http://www.sxc.hu/photo/1222896Many small business owners (even those who’ve been in business for many years) get themselves worked up about GST but it’s generally pretty simple here in NZ providing you keep good business records.

The thing to remember about GST is that it’s NOT your money, it is merely additional monies you’ve collected from your customers and have temporary care of. In return for this duty, you are permitted to claim the GST added to your purchases and costs. How good is that? You are being paid to collect the GST!

Of course that’s easier to accept for those of us who issue sales invoices and then add GST to the value that we’re billing for. For those who charge a GST-inclusive price like retailers and cafe owners it becomes easier to get confused and think that the GST belongs to them, especially when the selling price of the goods or services is set by market forces and would be the same whether you were GST-registered or not.

In other countries (like the UK and India) GST is called VAT or Value Added Tax, the reason being that you are only being taxed on the value you add as the goods and services pass through your business or get created. I think this is a better name as it better explains how it works.

GST is becoming popular across the world as governments love it – easier to collect, hard to avoid, and unlike Income Tax it’s hidden in the cost of what you’re buying.

Business owners complain about their GST bills, but in general, the higher your GST bills, the better, as this means your sales are high in relation to your costs (unless or course say your wage bill is out of control).

With only a very few exceptions you have to add GST to virtually everything you sell and can claim GST on virtually everything you buy or every service you use. The main exceptions on the sales side are:

  • Exports
  • Rents on residential property
  • Interest
  • Land transactions (but watch out for the necessary conditions)
  • The sale of a business as a going concern (likewise watch out for the required conditions)

On the outgoings side watch out for:

  • Bank fees and interest
  • Wages
  • Drawings
  • Suppliers who are not GST registered.

Now there are some complicated areas, like for example on entertaining where its 50% claimable, assets used privately or where you sell both GST-able and non-GST-able items, so you will need to seek help with these.

Going back to good business records, many and varied are the ways that people try and account for GST. These range from third-hand corrupt spreadsheets which don’t add up, to adding up the ins and outs on their bank statements to using 10 year old accounting software which still calculates the GST at 12.5% but there’s no substitute for some simple to use, cheap accounting software. The software I find business owners get to grips with quickest is Banklink – no accounting knowledge required, very cheap, and very easy to use.

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6 Things To Do Before the End of the Tax Year

The end of financial year brings a lot of extra work as well as some potential trouble if you don’t go about it the right way. To avoid that trouble, there are 6 things that you can do now to ensure a smooth end of year for you and your accountant.
Read the full article on The Pulse

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SmallBiz: What’s the Best Business Structure?

unprepared

Choosing the best business structure for your startup is vitally important. But many business owners stumble upon their business structure by accident without any planning at all.

I know a case where a successful business owner trading as a sole trader who—out of the blue—was slapped with an uninsured legal claim of $390,000. Bye bye business; bye bye house; and hasta la vista wife!

When choosing a business structure, it’s normally a compromise between conflicting objectives. Here are a few pointers to help you choose.

Read full article

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10 Ways to Increase your Profit Margin

 

Many business owners think you need to increase sales substantially to make more money. But often that’s too difficult, especially in the short term. So how to go about it quickly and easily? Here are 10 tips…
(Full Article)

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Control your financial mess

Last year a banking contact referred me to a business that was in what can only be described as a total financial mess. Although their accountant was preparing their GST returns, she never went to meet them and hadn’t helped beyond that. Things were dire. This is some of what I found: The client was borrowing heavily, not just from the bank, but from suppliers too. They were over their borrowing…

Read the full article on The Pulse