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Accounting Software Made Easy  

These days, given the truly powerful accounting software available for the price of a weekend away for two, even a micro-business would be crazy to carry on with manual bookkeeping.  Here are some pointers:

  • Don't be swayed by fashion e.g. I meet people who say on-line software is great without the knowledge to comment.
  • Keep it as simple and user-friendly as possible and don't over-specify but on the other hand, think carefully about what you will need in 5 years time as changing later can be expensive.
  • Don't just leave it to your accountants who typically just want a system which suits them and not your business.
  • Unless you are a simple cash-based business avoid cash-based software as any financial reporting will be worthless as this ignores Accounts Receivable/Payable or inventory.
  • Does the software give you what you need in terms of invoicing, customer statements, analysis and reporting and not just recording bank transactions or producing GST returns?
  • Ensure the software has a decent customer database facility which can be used for mail-merges etc and can synchronise with Outlook. I still meet business owners with three different customer lists e.g. part on the software, part on Outlook & part on Excel.
  • Does it allow add-ons e.g. budgeting, CRM or debtor management?
  • Don't worry about not understanding accounting or double-entry General Ledgers – you don't need to and the benefits of a system which incorporates a General Ledger are huge.

Accounting software is not a cost but a vital investment and tool to improve your efficiency, effectiveness and profitability.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or Contact Us. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


Asset Protection Made Easy

Nick Roberts
 

It normally takes many years and a lot of hard work to build up wealth. Why then, would you not take some steps to protect your assets?

  • Personal Guarantees. There are many business owners with huge personally guaranteed trade debts. These are not inevitable and often can be negotiated away, side-stepped, or capped.
  • Business Structure. It just doesn't make sense to trade as a sole trader and fully expose jointly owned assets. A partnership is even worse - why would you risk taking on the liabilities of your business partners? A limited company is inexpensive and still enables you to remain self-employed.
  • Don't ignore your advance account to your company. Is this secured on the company's assets? Should this be owned by your trust.
  • Don't just (as many do) set up a trust and think that you're sorted as there are many issues to consider. For example, how do you separate riskier business assets from your debt-free family home or investments? Should the trust own the shares in your trading company?
  • One of the biggest problems with a trust is the debt created when your assets are transferred to the trust which more often than not takes many years to gift. Did you know that there is a local lawyer who can help you eliminate settlor debt within a few weeks?

The sooner you start planning to safeguard your future, the sooner your assets will be protected.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Book Keeping Made Easy

Nick Roberts

Book and record-keeping are rarely popular yet keeping good records is a matter of key importance.  Without good records, you will have no idea whether you are making money and nor will you know who owes you money.  Furthermore, a recent survey shows there is a strong correlation between survival and frequent reporting which is only possible with good records:

Monthly reporting          80% survival rate
Annual reporting           36% survival rate

So what are the options:

  • Utilise the long suffering other-half.  The traditional approach but not to be recommended unless one wants to explore the complexities of the Property Relationship Act in depth!
  • Struggle on with manual books or a home made Excel system as many do.  No way - why would you turn your back on 25 years of progress in Information Technology which has made information gathering and storage so cheap and convenient?
  • Buy some cheap accounting software.  Better, but you will still have to go through some pain to get to grips with it and allocate valuable time which would be better spent elsewhere.
  • Hand the whole lot over to your accountant.  Subject, of course, to choosing an accountant who passes on the cost savings from accounting software which imports the transactions on your bank statements, the investment required is modest.  This is by far the best option as then, your GST returns and monthly trading figures can be produced as low cost add-ons.

An ex-client of mine made an annual profit equivalent to $1.3m yet insisted on keeping his own manual books where were awful.  Why waste time on a task to which you are not suited and is best delegated to an expert.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Break-Even Analysis Made Easy

Nick Roberts

The term "Break-Even Point" refers to the level of sales necessary to cover all expenses i.e. the point of no profit or loss. To calculate this, you need the following:

  • Your expenses
  • Your sales
  • Your gross profit percentage which is your gross profit (sales less your cost of sales) expressed as a percentage of your sales.

Your break-even point is calculated by dividing your total expenses by your gross profit percentage and then multiplying by 100/1 e.g. if your sales are $180,000 and your gross profit $90,000, your gross profit percentage would be 50%. Your expenses are $60,000. 

Expenses

     60,000

Gross profit percentage

        50%

Total costs divided by 50

      1,200

Multiplying this by 100/1 equals the break-even sales

$120,000

Complications include:

  1. Just breaking even means that there is no return on investment for the owners, so add the required net profit to the expenses to give you a more realistic break-even point.
  2. Variable costs. Not all expenses are fixed e.g. if your sales vary your business expenses may also vary.
  3. Proprietor's costs. Your expenses may exclude remuneration for the business owners which needs to be adjusted for.

Every business operator should know what the fixed costs and unavoidable variable costs are for them to open their doors and should be aware of their gross profit so that the break-even point at that level of operations can be determined.  This will enable them to monitor their actual sales performance as against their break-even figure thereby motivating them to achieve sales beyond the break-even figure.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Business Structures Made Easy

Nick Roberts 

 

Every business is different, whether in terms of size, trade, level of gearing, objectives or its stage in the business life cycle and selecting a business structure is often a compromise between conflicting objectives:

  • Minimising Risk
  • Practicality
  • Cost
  • Tax Minimisation
  • Asset Protection

What are the main options?

 

Sole Trader
Unless you are a micro-business on a minimal budget, don't even go there. No protection of any kind and not tax efficient.

 

Partnership
No, käo, non & nein! Not only are you personally liable but in addition, you are liable for your partner's share of business debts as well! Let me know if you want some horror stories!

 

Limited Company
Getting better. A limited company offers (subject to reckless trading or personal guarantees) the benefits of limited liability protection, reasonable tax efficiency, and practicality. 

 

Trusts
Well, yes and no. Whilst a trust offers total flexibility for distributing profits, tax efficiency and confidentiality they are not particularly practical for trading businesses and under attack by the IRD.

 

Company/Trust Combinations
Now we're really talking! At the simpler end, get the family trust to hold all bar two shares in the company to enable the distribution of profits above a certain level to the trust. For bigger businesses, consider at least two trusts, one for business assets and one for the family home and/or passive income generating assets. Any borrowings in the family trust should be repaid as soon as possible.

 

Whatever business structure you choose, the important things are, firstly, that you have consciously decided to adopt that structure, and secondly, you are comfortable with the risks involved. Business can be risky - why take any more risks than necessary?

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Business Systemisation Made Easy

Nick Roberts

 

Many clients I speak to are turned off when business systemisation is mentioned, thinking that it only applies to bigger or manufacturing businesses or is too complicated to worry about. However, this is a topic that can be of key importance and is relevant to businesses of all types and sizes.

 

Often, the lack of systemisation only shows up when things go wrong. Some common examples include:

 

  • Forgetting to invoice for a sale which is surprisingly common.
  • Not taking trade references or personal guarantees when allowing substantial credit to new customers.
  • Paying supplier's bills for goods and services not received.
  • Employee fraud.
  • Not taking references for prospective employees.
  • Forgetting to acknowledge or reward a referral of a good customer which I always find amazing, given the cost involved in obtaining a customer through advertising.

What you need to do is to stand back, have a good look at how your business operates, and then develop management controls and systems for each part of your business. Your systemisation tools should include:

 

  • Checklists e.g. when a new customer is obtained.
  • Scripts e.g. for selling.
  • Standard letters e.g. for debt collection.
  • Templates e.g. for quotes.
  • The icing on the cake, a detailed operations manual which would record all aspects of the operations of your business.

Think about a franchise. Whilst not all have worked, it is generally accepted that the systemisation involved in a typical franchise makes it a success.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Cash Flow Made Easy

Nick Roberts 

 

One of the biggest challenges in business right now is having enough cash to pay the bills. So what can you do?
  • Know how much cash you have today, how much you will have tomorrow and next week/month as well. You cannot make business decisions without knowing exactly how much cash you have.

  • Don't manage cash from your bank balance, manage from your "cash" balance, your true spending power after all pending payments have cleared.

  • Better still; determine your real spending power after adjusting for known outgoings and any definite receipts within the period under review. Now you are forecasting your cash position.

  • All these are easy when you have proper systems or accounting software in place, the latter being so affordable these days. I find that 90% of business owners can cope with accounting software these days, despite what their accountants tell them!

  • Know what your cash position will be in six months or a year from now. If you really can't forecast your cash receipts, turn it around the other way by working out your outgoings over the next six months or year, then calculate how much you need to receive from your customers, not forgetting your drawings! If the amount you need looks impossible, at least you can panic now. If the amount you need is short but not too bad, you now have the time to do something about it.

Next month I'll cover some things to do to actually generate some cash. Until then, keep warm!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Coping With Competition Made Easy

 Nick Roberts

A motel owner who was not covering his huge rent asked me for help recently. The problem was that even from his window you can see seven other motels, all offering the same types of room at similar prices. People wandered around until they found the cheapest room and Yellow Pages confirmed that each motel was offering virtually identical features. So what can you do to survive and thrive in a competitive market place?

 

Most importantly, you MUST differentiate yourself from the competition. If I asked you for five reasons why I should deal with your business what would you say? Write them down now - go on - it'll only take you a minute or two. What did you come up with? The same as your competition, do you think, or a series of powerful compelling reasons of why you are different?

 

Thinking up a powerful USP (Unique Selling Proposition) is not easy in a competitive industry but here are some guidelines: 

  • Your USP must focus on what is important to your customer, not you.
  • The cleverest USP's are often just articulating what everyone in your industry does but doesn't tell the customer.
  • Some of the most effective USP's have been based upon the key frustrations experienced by customers. For example, builders who clear up after themselves or turn up on time.
  • Otherwise, your USP can be based on price, quality, product ingredient or contents, great customer service, positioning, size, location, hours of operation, product range or so on.

Write down every conceivable fact, promise, idea, feature, benefit, or claim, about your line of business. Then work through the items, eliminating those that are no good until you have prioritised the best in terms of importance to your customers and their likely contribution to differentiating you from the competition.

 

If you're not sure about an idea you've come up, e-mail it to me for objective comment. Good luck!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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CRM Made Easy

Nick Roberts 

 

So what exactly is CRM (or Customers Relationship Management)? One of the best definitions is "a method of selling products and services by recognising the value in building a relationship with prospects and customers".

Building an effective relationship requires trust, consistency, honesty, a willingness to give, doing what you say you are going to do and in particular, frequent contact and communication.

In these tough economic times CRM matters more than ever, so what can you do to ensure your prospects turn into customers and your customers keep coming back?

  • Send personally addressed and signed thank you letters to new customers so that they will feel good about you and will remember you the next time you contact them

  • Send customers information relevant to their needs

  • Send only personalised emails or letters individually addressed

  • Collect customer information at the time of sale

  • Contact all customers who have not bought from you in the last so many months or years depending upon your business

  • Advise your best customers of special offers or new products before the rest or non-customers

  • Use just one database to collect information about your prospects and customers which allows effective communication on one-to-one basis

  • Send special, personalised greetings on special occasions

In my next article I shall cover a couple of useful CRM tools at the lower end of the market cost-wise since as usual, automation and systemisation are the keys to saving time and money and effective and consistent implementation!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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CRM Tools Made Easy

Nick Roberts 

 

In my last article I talked about the importance of Customer Relationship Management (CRM), a way of selling products and services by recognising the value in building a relationship with prospects and customers.

There are a large number of CRM tools on the market which will help you build a relationship with your customers. These will enable you to maintain contact details throughout your company, create e-mail, telemarketing or mail-merged marketing campaigns, automate your sales process (by setting up pre-designed e-mails, tasks or appointments with automatic follow-ups), synchronise jobs and quotes on your accounting software to boost your business pipe-lines and automate your sales reporting to ensure you never run out of work as well as maximising each sales opportunity.

However, the better systems allow you to "harvest" the data on your accounting software to instantly create communication-ready contact lists of customers. For example:

  • Identify all customers who've bought a particular item, have spent over a $1,000 with you over the past year and offer them an exclusive price on a complimentary item.

  • Identify all customers who've spent more than $5,000 with you and invite them to a function to say thanks.

  • Identify all customers who haven't bought from in the last two years and then lure them back by offering a special package of added-value benefits with a time-limit.

 

Given the benefits they bring, CRM packages are not expensive and enable you to work more efficiently on increasing your revenue. In the current climate, there are not many business owners who don't need to do that!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Databases Made Easy

Nick Roberts 

In previous issues I've talked about CRM and CRM tools but perhaps I put the cart before the horse, as CRM requires an up-to-date and accurate database of customers. So what are the secrets of a successful database?

  • Just keep one database, not one on Outlook, one on your accounting system for invoicing and one on Excel for mail merges, otherwise they'll all be different and updating them will be a nightmare.

  • Your database should also contain prospective customers and useful contacts such as referrers. You may send them something different but at least they'll all be in the same place.

  • Keep it as simple as possible but decide whether you want a list just for mailing purposes or whether you want to record sales information against customers. The latter will be much more useful but if for example, you're a retailer you'll have to invest in a decent Point of Sale system.

  • Keep it up to date. Harder than it seems as you probably won't be told that customers' contact details have changed!

  • Use it effectively. If it's just to remind your customers you still exist keep in contact at least six times a year by sending out useful and targeted information. Don't overdo the adverts as these are a real turn off!

  • If you're emailing invest in a web-site or email marketing software to avoid using blind cc's or even worse, showing everyone's email addresses to everyone else! Outlook is not enough!

I've heard loads of excuses over the years but they're starting to wear thin now. No database = no customers = no goodwill = poor business resale value! 

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Debt Collection Made Easy

Nick Roberts 

 

One of the unfortunate side effects of a recession is the slowdown in bill payments such that the typical small business that just waits for the cash to arrive by itself suddenly finds that it has tens of thousands owing over 90 days. Sending in the debt collector is way too late!
  • Invoice immediately rather than waiting until the end of the month to invoice, more frequently or take progress payments.

  • Insist on payment immediately on completion of the job. Take your invoice book with you when working and write out the invoice right then and there. Ask your client for a cheque on the spot after letting them know in advance this is how you expect to get paid.

  • Discount for prompt payment which is the only kind of discount you should be offering.

  • Make it easy to pay, offering a variety of payment methods including by instalment. For example, not putting your bank account number on your invoice is plain crazy!

  • Attitude and consistency. Your customers will take their lead from you so educate them that you won't put up with any nonsense. Monitor who messes you around, add late payment charges, fees, or interest or fire them if they're wasters.

  • Anticipate problems in advance. Do credit checks, set credit limits, take trade references and personal guarantees, and get terms of trade signed.

As is usually the case, investing in a few simple systems will produce a handsome return here. Why earn your money twice over?

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Debt Finance Made Easy

Nick Roberts 

Today, there are few who cannot borrow what, historically, would have been considered huge sums of money. Used appropriately, debt finance can be exceedingly useful - however, get it wrong, and your life could be in ruins:

  • Plan your borrowing well in advance. Unauthorised or temporary facilities cost more.
  • Do not borrow from the IRD. It's true that (for some) they will allow surprisingly long periods of credit but the overall borrowing cost, when you add penalties, is usurious.
  • Think tax. Many have no business borrowings but a large mortgage and often, private borrowings can be converted into tax-deductible business debts.
  • Structure the facilities properly. Often, loans for private purposes are advanced to a company or a borrower has a loan in his or her personal name but treats this as a company liability, resulting in all sorts of problems.
  • Always compare alternatives and find out the true interest rate - if in doubt, seek advice from an impartial source.
  • Ensure the facility is appropriate to your circumstances e.g. an overdraft will typically cost more than a loan but can save you money if your cash flow really does fluctuate. On the other hand, if there is core debt in the overdraft convert this to a loan.
  • Reduce your interest costs by reducing risk for the lender by providing them with reliable and regular financial information and good security.
  • Avoid credit card debts like the plague and don't be tempted by gimmicks.
  • Lastly, repay all debt as soon as you can.

A final thought – how many Kiwi's would be better off retiring debt than investing in KiwiSaver, especially those in conservative funds held in cash?

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Doing Something Made Easy

Nick Roberts

 

I'm still surprised at the lack of positive action from business owners who are facing trading difficulties. One reason I've found is that people think they can't afford to undertake any marketing, assuming this means expensive advertising to attract new customers.

 

That is not the answer. It's 5 times easier to sell to your existing customers than people who don't know you, as you already have a relationship with your existing customers, they trust you and tend to be less price sensitive. Here are 6 ways to increase your sales to existing customers or prospective customers which will cost you nothing:

  1. Increase your conversion rate for face-to-face selling. Measure this on a test basis (individually as well as collectively) and then try some different strategies to see which work best. Copy the best salesperson you have and learn to counter objections e.g. "I'll think about it".
  2. Deal with telephone enquiries more effectively. When someone 'phones up and says "how much are your wotsits" don't just say the price, ask a few key questions e.g. who's paying, where have they bought before or make an excuse to go and see them.
  3. Educate your customers as to your full range of goods & services.
  4. Look for opportunities to build recurring revenue e.g. preventative maintenance or service contracts to tie them in.
  5. Cross-sell or up-sell. A checklist is a great idea in many businesses e.g. if you're buying paint, what else do you need?
  6. Upgrade your product knowledge. I have walked out of shops a couple of times recently because I wasn't sure what was on offer would suit my needs and staff didn't know either.

It's no good sitting around blaming the global credit crunch. There are dozens of strategies you can adopt at little or no cost, so be proactive and do something before it's too late. If you need help, ask, as there is plenty of free confidential advice available.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Effective Reporting Made Easy

Nick Roberts

 

Hands up all of you who get all excited about your annual financial statements and think these useful in managing your business? I suspect not many, especially where you don't see these until many months after your year end! What about regular management accounts? Yes, much better, assuming of course they are prepared on an invoice or "accruals" basis (that is, not just reporting cash received or spent) including inventory but still not enough.

 

Effective reporting should also focus on those areas in your businesses which are critical to your success and growth. These vary from business to business but let me give you a few examples:

 

  • Your average $ sale. Once you know what this is you can work to improve this.
  • Margin analysis across various divisions, product or service lines, customer segments, or suppliers which is critical to profitability.
  • The number of new leads your marketing efforts are producing. Why waste money on expensive advertising which may not be working?
  • The cost of acquiring a new sales lead comparing your different marketing methods to enable you to concentrate on the least costly.
  • Your conversion rate of new sales leads. You've gone to all the trouble of getting a new lead, so why waste one?

Don't put up with useless annuals or bi-monthly cash reports produced as a by-product of GST return preparation designed to suit your accountant. Accounting software is fantastic value, straightforward to use and is easily set-up to produce really useful business information BEFORE it's too late to make a difference!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Entertaining Expenses Made Easy

Nick Roberts

The tax treatment of entertainment expenses is a tricky area and is an easy source of additional revenue in interest and penalties for the IRD, as they consider it to be a common area where taxpayers deliberately attempt to conceal private expenditure as business.

There are basically two types of entertainment expenses from the tax angle:

 

  1. Private expenses. Not surprisingly not deductible. Examples include lunches with friends or your business partners, or where the business aspect is incidental. 
  2. Expenses which are 50% or 100% deductible. To be deductible, the expenses must be incurred primarily in connection with business transactions entertaining a business contact e.g. customers, clients, suppliers, or your financiers.

So, if it is not private, is it 50% or 100% deductible? One way that some use is that if the event giving rise to the expenditure is enjoyable then it's only 50% deductible! However, that is not a reliable method and the more common expenses which are 100% deductible are:

 

  • Meals whilst travelling on business
  • Food and drink on courses and conferences
  • Meal allowances for employees working overtime
  • Dining/lunches for senior staff and morning or afternoon teas for all
  • Off-shore entertainment
  • Monetary sponsorship
  • Expenditure liable to FBT

I find that people often complain about their tax but then almost voluntarily pay more through lack of planning, failing to seek advice or just trying to ignore it! If you want to keep more of your profits then more positive action is required!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Financial Difficulties Made Easier

 Nick Roberts

 

I was going to follow on from last month's article on competition but having recently met several business owners in difficulty, I think that some comments on what to do if things are not going well are appropriate. You'll note I haven't said "easy" in the title.

 

  • Face facts. It's no good ignoring your situation - seek advice. It won't necessarily cost.
  • It's never been more important to have good financial systems to be able to determine your financial position. It is a temporary cash flow blip or are you haemorrhaging cash like AIG? What are your results for the year to date? What are your overall liabilities?
  • If you're quiet use the time to get some low-cost but effective accounting software so you can produce monthly figures on an accruals basis. It's no good waiting for your accountant.
  • Your financial systems also need to identify poor performing product or service lines, departments, customers, jobs or processes. Customised properly, accounting software for under $500 can produce this information as by-product of day-to-day bookkeeping.
  • Still paying Provisional Tax? If you're not doing well, the chances are you're making a loss. Get this estimated down to nil. Similarly, don't draw a salary attracting PAYE if you have an advance account.
  • If you're in arrears with the IRD or your suppliers it most likely means you're making significant losses. Is it really practical to expect to cover current outgoings as well making up the arrears? Do you know your break-even turnover? Have your margins slipped? Be realistic in your planning. A couple of extra customers here or there probably won't be enough. Extra business normally means more working capital is required.
  • If you're thinking of getting out by selling the business, don't expect the price you need to clear all your debts. Any prospective purchaser will be expecting a bargain and certainly won't pay top $ if he can see you struggling.

Whether it's you, your other half, a friend or a relative, seek help now from someone impartial from outside the business. Options include Business Mentors NZ, The Chamber of Commerce, or an experienced accountant who is not just a bookkeeper or focuses on Tax Returns - you owe it to yourself and your family.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

 

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Financing Your Business Made Easy

Nick Roberts


You probably saw the recent headlines that more than 75% of SME's were using credit cards to stay afloat and that credit cards were now the most widely used form of business finance. Whether this is good or bad depends on circumstances as it can be a clever way of getting an extra 55 days free credit or a very expensive short-term fix.

So what are the things to avoid when using credit cards in your business?
  • Don't use them to finance Provisional Tax as Tax Pooling is a much better and cheaper way (contact me for details) with a much longer credit period.
  • Get a specific business credit card rather than using your personal cards as intermingling business and private is messy.
  • Make sure you record all the expenditure properly in your books as many business owners get in a mess with credit card expenditure. I'll be happy to advise you here, client or not.
  • Don't draw cash which just incurs extra fees and interest.
  • You don't need me to point out why credit on credit cards is so readily available so don't be tempted just to pay the minimum payment.
  • Plan in advance so you don't get caught out by black holes in your cash flow by preparing a simple budget and cashflow forecast. If you can't predict your sales work out your break-even point and use this in your projections as a starting point.
  • Don't use credit card finance in substitution of pre-arranged longer term traditional business finance which is going to be far cheaper.

Getting your business finances in order is key to your survival. If your accountant is not interested in helping you or you're too frightened to speak to them because of cost get yourself one who cares you can afford!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

Franchising Made Easy

Nick Roberts

 

Someone commented the other day that the failure rate of franchised businesses is much higher than non-franchised. I've certainly met a lot of unfortunate franchisees going bust in the Free Business Clinic I run (I recently met a franchisee who is the 26th franchisee to go bust out of the 28 in NZ) but a good franchise can have its advantages. If you're tempted: 

  • Make sure the franchisor has a successful business model which has been running successfully for some time.
  • Seek advice from a decent accountant and a lawyer beforehand.
  • Fully understand the franchise agreement and the restrictions it will place on you. Rather than help the remaining franchisees or spend the massive unspent advertising fund the franchisor in the 28 franchise example above is suing the 25th ex-franchisee for trying to eke a living out of the remaining customers!
  • Recognise the business might be taken away from you in the future as has happened in HB more than once.
  • Recognise also your area might be split in the future.
  • Be careful of the amount you finance which could place you under unsustainable financial pressure. I've seen huge sums paid for franchises in very competitive business areas.
  • Compare the cost of the franchise with starting a business from scratch - just how much of a brand are you acquiring?

Apparently, a huge increase in the claims against franchisors is expected but it's a bit late by then. Remember the 7 P's we used in my Territorial Army days "Proper preparation and planning prevent p*ss poor performance". You probably only have one house!


If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Generating Cash Flow Made Easy

Nick Roberts 

 

In my Cash Flow article I mentioned some tips on cash management. But how do you get enough cash to manage? Top tips:
  1. Shoeboxes are not for business records. If you don't keep good records you'll never know who owes you money, who you owe money to and cannot track your income and expenses.

  2. Speed up the receipt of cash. E-invoice immediately, don't let customers take liberties, make friends with whoever pays your bills, don't give them any excuses not to pay by pre-empting or dealing with any queries early and offer early settlement discounts if you need to.

  3. Make it as easy to pay you as possible by asking for direct credits, automated payments and accepting eftpos and credit cards. Why wait for a cheque to be posted?

  4. Put customers on retainers. You may have to offer a slightly better deal but you get security and can forecast your income.

  5. Always be on the lookout for ways to cut costs or improve revenue. If something or someone doesn't save money or boost income, do something about it or them.

  6. Monitor your inventory closely as overstocking can tie up huge amounts of cash.

  7. Know what your break-even point is. If you're not achieving this and you can't currently increase your cash inflows cut your drawings or costs until you do.

There are many other ways to improve your cash flow. If you need help to boost yours I have developed a useful 60 point Cash-Flow Generation Checklist, just let me know.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Getting on Made Easy

Nick Roberts


I received a newsletter recently from an outfit in Auckland saying that "business is booming" up there. I've been wondering since whether I ought to be telling some of my clients to move up there but wait - fabulous news - no need, business confidence in Hawkes Bay is picking up they say!

Now I know that a lot of business owners in Hawkes Bay will be sceptical about this, but many are far too reactive, just being carried like flotsam on the tide. If you want to get on in business, you have to be proactive and get control of your business, not sit back and wait for things to happen. Here are six things to get you started:
  • Goals. You must set goals and know where you want to get to.
  • Solid experience. You cannot beat many years of experience in your line of business, working perhaps for competitors so you can see the good and the bad and what works and what doesn't.
  • Key frustrations. You must understand the key frustrations suffered by customers in your line of business which is hugely helpful to establishing a successful business and will help you come up with a point of difference to set yourself apart from the competition.
  • Break-even point. You must know your break-even point (including drawings and tax) at all times.
  • Hard work. Growing a successful business is hard work. You can delegate all you like but there is nothing to match the enthusiasm and energy of a committed entrepreneur.
  • Going the extra mile. Lastly, give more than you need and do it cheerfully, it will pay off handsomely!

Now don't tell me it can't be done - I have several clients who have established successful businesses in the depth of the recession - it just takes dedicated persistence and a dogged enthusiasm to succeed! If you need help to get on, let me know, I will introduce you to those who have made it before you.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

The Here and Now Made Easy

Nick Roberts
 

I think we all now realise that there's not going to be any quick fix to our economic woes. What this means is that we have to learn to grow our businesses in spite of things like a shrinking market, tough competition and flat prices. To do so, we need to get our businesses in the best possible shape by:

Iron discipline on budgeting and spending. Preparing a budget to control your spending is vital when cash is tight. It also pays to review your suppliers to ensure you are getting value for money (e.g. do you have a fixed quote from your accountant?) and to check all their invoices carefully.

Effective yet low-cost or free marketing. Even when you have a full customer or client base you still need to be marketing to replace those lost by attrition. Effective marketing can be totally free or carried out at low cost so find out how at www.marketingmadeeasy.co.nz.

Top-class systems. It's no good working hard and then falling flat by forgetting to send out invoices, collect your debts, paying your suppliers twice or keying in all your supplier invoices twice into your POS as well as your accounting software - all of which are common!

Regular and up-to-date reporting so you can make early decisions on how to improve in areas where things are not going well and are not just guessing on the areas which need attention. For example, your average $ sale so you can work on ways to improve this or your labour productivity rate which will probably identity too many unproductive hours.

But look on the bright side. Just think how easy business will be when things finally turn around!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail me at nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Identifying Your Business Fundamentals Made Easy

Nick Roberts

 

I find alarmist reports in the media about poor business conditions very frustrating. Now I appreciate that losing your job or your business is very unpleasant but often, in my experience, a downturn is just the final straw (or a convenient reason to shake out workers who don't fit) for businesses which haven't identified and properly managed their business fundamentals:

 

  • Liquidity. No cash equals no business! Most businesses tie up a substantial amount of working capital in debtors, stock or work-in-progress all of which have to be funded. The best businesses focus on reducing their "Cash Collection Cycle" to the point where some e.g. Dell and Starbucks, have negative collection cycles.
  • Good Customers. A poor customer can sap your enthusiasm and drain your business of cash. Even if you've no capacity for more business you should always welcome new business to enable a gradual improvement in customer quality. If they can't be "trained" to fit in, in time, they must go.
  • Systems. One business survey says that successful businesses pay their bills on time. To me, this indicates they have good systems which save you time, eliminate mistakes, and enable you to work consistently & efficiently.
  • Avoiding Risk. Some risk in business is inevitable but excessive risk is best avoided, as we know from recent events! Excessive borrowing, no insurance, lack of planning - there's plenty of opportunity!
  • Growth & Profitability. Profitability is obvious but business surveys indicate a business needs growth to thrive, probably because stagnation follows through customers lost by natural attrition, poor profitability or just falling behind through lack of innovation and failing to meet the needs of customers. 

To conclude, if you're managing your business fundamentals correctly and you're in a business that people need, you're in a good position for 2009 and beyond!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Internal Controls Made Easy

Nick Roberts

Now you may be thinking that internal controls are some strange abstract concept that only accountants get excited about and only big businesses need to worry about.  However, according to a recent survey more than half of New Zealand businesses continue to be the victim of fraud. So what can you do to prevent some of the more common problems?

  • Many employees involved in fraud have a history of dishonesty with previous employers.  Check references for ALL prospective employees and obtain a police check for those handling money.
  • Controls over bank accounts including dual signatories, not pre-signing cheques, regular and timely bank reconciliations and not forgetting to implement controls and passwords over internet banking arrangements which typically only require one-person authorisation.
  • If you have stock, keep track of and record stock receipts and issues promptly, carry out regular stock takes and investigate variations, measure stock-turn by product line and make sure you have arrangements in place to authorise and dispose of supposedly slow moving stock, ideally returning to the supplier.
  • If your business has cash takings, complete a daily cash register summary form, make sure under and over balances are investigated, bank cash received daily intact, ensure that large sums of money are not left lying around the premises and that separate cash floats are used for petty cash expenditure.
  • False invoicing is another favourite. Here, raise official orders for all supplies, match actual receipts to orders, only use a small number of approved suppliers, and get the relevant person or department to approve the invoice before payment.

A major fraud can break your business. The key to successfully preventing fraud, as with many areas of business, is systemisation. With a system, everyone knows what to do, you don't have to reinvent the wheel every time and it will be second nature to do things right. Get started today!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Investment Made Easy

Nick Roberts

The other day I was asked one of those perennial questions by a prospective client:

"I have a large mortgage, a personal loan and surplus income of $200 per month. Should I invest the surplus or repay debt early?"

For the majority of us, the answer is unequivocal - repay debt. There are two reasons why:

  1. Risk. With debt repayment, there is no investment risk, you will be in a better position to cope with sickness etc and also have the ability to borrow more later should the need arise.
  2. The interest costs on debt are almost always higher than the after-tax and charges rate of return from investments. There are some useful tables around showing the break-even gross returns before charges depending upon your tax & interest rates but as an example, if you're on 33% tax and your mortgage rate is 9% the break-even gross return required is 13.4%. Sorted says that on medium-risk investments we should expect an average return before charges of 8.2%. Whoops?

Of course, as always in life, there are exceptions:

  • Emergency cash fund
  • Greater but more risky investment returns are available e.g. business or investment property
  • Tax-deductible interest
  • Inflexible borrowings
  • Employer subsidised superannuation scheme
  • The government subsidies on Kiwi-saver

Investment decisions and saving for retirement are one of the trickiest issues we face and it's no wonder that people put off doing anything. A well-off friend of mine commented the other day that he wished he was on the national average wage so that when he retired he could actually live on NZ Super. What he meant was that he could then cope with the target level for NZ Super "65 at 65" i.e. a net 65% of the net national average wage at age 65 and buy more espresso's now!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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It's So Easy to Change Accountants These Days 

Nick Roberts


It's a myth that it is difficult to change accountants these days. People think that it's too much hassle, it costs too much, you can't get the necessary information from your old accountant and your new accountant wouldn't know anything about your business or personal finances.

Well, the good news is that it is no longer necessary to put up with mediocre service or rip- off fees. Changing accountants these days is easy because:
  • Your old accountant is obligated to supply any necessary information about your business or your financial affairs;
  • The Accountancy + Business Advice Centre Limited doesn't charge set-up or transfer fees;
  • Don't worry about receiving an extra large going away present from your old accountant in the form of a bill. It is very rare that an existing accountant will charge for providing the necessary changeover information and even if they do, the time taken cannot be more than 30 minutes at the most which means the cost will be insignificant;
  • Even if they have carried out work that was unbilled prior to the date they were notified of the changeover, if the bill looks high or unjustified they are obligated to provide you with a detailed time and cost analysis of their fees. If you prefer, to save you the hassle (at no cost to you) we will be happy to take up the challenge on your behalf to dispute the fees and achieve a satisfactory outcome;
  • You may out of courtesy want to notify your old accountants personally, but otherwise, we will take care of all the necessary formalities on the your behalf, including contacting the old accountants to request professional clearance and all relevant information and documents which we will require. To make it even easier, we even have a standard letter which you can sign thanking them for their work on your behalf but that your needs have changed and you consider it appropriate to appoint a new accountant (which can be prepared on your letterhead is required). We will also notify the IRD and the Companies Office;
  • It really is very easy for us to quickly pick up the necessary background information to act effectively on your behalf. We are trained to analyse and absorb information rapidly and more often than not, can suggest improvements and highlight potential problem areas that have gone unnoticed for years.
So, don't delay, change today!
If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or click Contact Us on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Keeping Customers Loyal Made Easy

Nick Roberts 

Following on from last month's article, one way you can cut your costs is to hold onto your customers for longer. The longer a customer stays with you, the more that customer tends to be worth. Established customers buy more, take less of your time, are less price-sensitive and refer others. In some industries, reducing customer defections by as little as 5% can double profits. So how can you keep your customers coming back?  

 

  • Know who your customers are by keeping an accurate and up-to-date database
  • Don't just make special offers or offer discounts to new customers
  • Keep in regular contact with your customers and use every excuse to contact them
  • Build relationships in depth with all of the customer's team, whether it's the owner or the office junior
  • Deal with any complaints quickly and honestly as a complaint is a great opportunity to show that you really do care
  • Every now & then, offer them a little something extra, of low cost but of high perceived value
  • Respond quickly to their queries, don't keep them waiting and make sure your premises are geared up for visitors not staff
  • Introduce a loyalty scheme which rewards long-term customers - this could be discounts, preferential treatment or exclusive product or service opportunities
  • Always follow-up a sale to make sure they are 110% happy with their purchase and know how to care for or use whatever they have bought

Your objective is to move your customers up what has been called the "Loyalty Ladder", from casual one-off buyers to frequent repeat-purchasing friends through to advocates whose mission in life is to refer you to others.


If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Keeping Your Bank Happy Made Easy

Nick Roberts
 

The recession has put financial pressure on many businesses. Debt covenants established in stronger trading periods are stretched and positive cash flow has proved critical as equity ratios have been eroded and higher profit multiplies on interest cover have been more difficult to achieve.

Not surprisingly, banks have changed their approach when reviewing facilities. They now assess four key risk areas:

  • Trading strength;

  • The industry and the expected timeframe for that industry to recover;

  • The level of debt and servicing required;

  • The management team driving the business and their capacity to practice strong corporate governance.

For management risk, bankers are assessing the following qualities:

  1. Preparation of monthly management accounts on a timely basis;

  2. The ability to provide annual financial statements within 90 days of year end which is common in many banking covenants but rarely been enforced;

  3. Regularly updated financial modelling which reflects current trading and extends out for at least 2 years allowing the identification of high's & low's.

  4. Whether strategic and business planning has been undertaken, is fully documented and relayed to the team for implementation; and

  5. The business has made changes to create efficiencies, improve cash flow, reduce unnecessary overheads and stay competitive.

 

In the current financial environment these are going to become the norm and are a strong signal to the bank of whether good governance is being practiced. Furthermore, given the availability of experienced advisers and cheap accounting/modelling software no longer are such requirements the preserve of bigger businesses! How many of the five has your accountant helped you achieve?

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Knowing When to Call it a Day Made Easy

Nick Roberts

 

Looking at people being turned away from the HN cafés the other Sunday started me thinking. Just how bad are things? Will the latest cut in interest rates bring relief?

 

Cash Flow Difficulties

For the business owner faced with cash flow difficulties, trying to decide how to react is not easy. Not many would want to give in without a fight but there comes a time when continuing is stressful, pointless and financially irresponsible. If the business is a company the directors must not carry on the business in a manner likely to create a risk of serious loss to the company's creditors (so-called "reckless trading") through insolvent trading.

 

Insolvent
Insolvent trading means that the Company continues to trade and continues to incur further debts, whilst the Company is unable to meet its existing debts or will be unable to pay the current debts being incurred. As soon as the directors become aware the company is insolvent, they need to decide whether the company should continue to trade or appoint a liquidator or otherwise, they are placing themselves at risk of being made personally liable to creditors.

 

Your Future

In practice, when one's livelihood is disappearing and being aware that personal guarantees may cystallise, knowing when to call it a day is difficult. If in doubt at all, seek early advice from an experienced accountant or an insolvency practitioner who won't charge you for the initial meeting. What you do now, or don't do, could be under scrutiny later on and may be critical in determining your financial future.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Marketing Budgets Made Easy 

 Nick Roberts

I am often asked how much clients should spend on marketing. Some advise rules of thumb - say 3% of turnover. Others use benchmarking and here the average is 1 - 2%, less, in many cases than the annual telephone bill.

 

Typically, an accountant will say marketing is an expense and should be minimised. However, if you know the secrets of successful marketing, you can spend lots!

 

Firstly, calculate the lifetime value of your customers. Multiply the gross profit per average sale by the number of times they buy from you annually and then by the number of years they stay with you. This tells is how much a customer is worth to you. This may change your view on customers forever!

 

Secondly, you need to know how much it costs to acquire a new customer by determining the exact cost of each of your marketing strategies and how many new customers each brings, by recording the source of each new customer. When you know just how many customers were obtained from each strategy it's simple!

 

Now, hopefully, you're in business to make a profit. In the context of marketing, this means acquiring a new customer with a lifetime value in excess of the cost of acquiring that customer. Armed with this knowledge, and having thought about cash flow, you now know how much you need to spend on marketing to obtain a given number of customers. And, of course, that's before you've even thought about the many ways you can maximise the value in every customer.....

 

But ..... don't do anything without testing and measuring all your marketing strategies first on a small scale. Adjust your approach, if required, drop any that aren't effective and keep doing those that work. Then, get ready to expand your business!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Maximising Your Gross Profit Margin Made Easy

Nick Roberts


Many business owners think it's too hard to improve their profits and blame others for their predicament. It's true some just don't have a strong enough core offering or are straight-jacketed by their business model but if you're not, you need to look at the individual components of your business operations to see how each can be improved. Your gross profit margin, in particular, is vital to your business success so what is important here?
  • Understanding mark-up and margins. I met a retailer recently who still didn't how to calculate these after three years in business.

  • Pricing. What is your value proposition? How do you set your prices? Are you able to calculate the turnover and margins you can gain or lose by changing your prices?

  • Inventory Control. Many retailers have no idea of their stock levels or how many months worth they have collecting dust!

  • Discounting. One of the quickest ways to go out of business.

  • Buying and Supplier Incentives. Do you budget and use an order system? Are you receiving all the incentives you are entitled to?

  • Security. I visited a retailer recently with no inventory control with boxes of stock stacked just inside the back door which is habitually left open.

In these days of cheap systems and accounting software there are endless tools available to monitor and analyse your gross profit margins so any excuses for doing nothing will be wearing thin! For example, if you're a retailer or wholesaler I have a very useful Checklist and Action Plan I can go through with you.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz.

The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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More Sales Made Easy

Nick Roberts

Our well-loved President of the Hawkes Bay Chamber of Commerce Murray Douglas says that the biggest constraint on HB business over the years has been generating and maintaining sales. Responding to my Tweet that selling was easy if you get your marketing right, a contact commented that's all very well but no one's buying.

Reflecting upon that, it seems to me that the trick is to get the extra business from your competition who are still selling. Easier said than done?

Analyse your competitors and look for their weaknesses and then focus on their weak spots e.g. if they do a good job but are expensive base your selling on price. If their prices are competitive but their service is poor, focus on adding value. These days great customer service is not enough - you must reduce all the costs of doing business with you, not just monetary, but time, effort and emotional costs e.g. automated answering!

Avoid your competitors' weak spots, but build upon their strengths. What are they doing well? Why have they got to where they are today?

To analyse your competitors do some research, mystery shop them or organise an on-line or pavement survey. Get out and about and talk to customers, prospects and your trade association. Ask me for my Competitor Analysis worksheet.

If you do the same as everyone else, you'll be perceived as the same. Don't be put off by people saying it won't work - if you don't try, you'll never know and the worst that can happen is that you will learn how to do it better next time. Otherwise, you'll be left behind by others with more imagination!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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The Numbers Made Easy

Nick Roberts

 

The only numbers many business owners see are the year-end financials and few, unfortunately, understand them. If you want to be successful in your business it's vital to both understand and focus on the numbers:
  • Work out your margins on every product and service in your business and across divisions, branches, salespersons, projects, customer segments, or suppliers. This information is critical to profitability since it enables you to eliminate or improve poor performers and can now be extracted automatically from cheap accounting software.

  • Prepare a cashflow forecast for the year ahead and a monthly cashflow statement so you know exactly what working capital you will need and where your cash is going.

  • Know your costs. Reduce these where possible, prepare a simple budget, and import this into your accounting software. Any costs over budget will need attention.

  • Learn to understand your financials.  Get your accountant to explain them to you and make them the first step in the financial management of your business, not the last.

  • Produce a concise monthly management report. Get yourself into the routine of analysing your figures every month by sitting down with your accountant. The report should include monthly P & L's, cash flow, aged debtors and creditors plus other key factors such as prospect conversion rates, labour productivity rate or your average $ sale.

If you want earn more but work less you will be well on the way if you can get to grips with your numbers.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz.  The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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(Not) Discounting Made Easy

 Nick Roberts

 

Several clients have asked me what to say when asked for a discount as it seems customers sense easy pickings. Knowing how to handle such an enquiry is vital to maintain your margins and indeed, could ensure your very survival.

 

Financial Ruin

At a typical gross margin of 40%, a discount of 10% means that your overall turnover would need to increase by 33% to compensate. For most, their turnover would drop below break-even point leading to financial ruin.

 

Immediate Discount

What message are you sending to the customer if you discount immediately? You think your prices are too high yourself? You were going to rip-off the customer? You have no confidence in your service or product? You will drop further? Next time they can ask for a bigger discount?

 

A Better Way.....

  • Offer them a cheaper product or take out an item to get the message across that value has a price
  • Agree to a discount if they pay there and then
  • Agree if they buy a different product or service where your margin is higher
  • Agree if they sign up for a regular or extended purchasing programme or offer a retrospective discount if they buy a minimum quantity  over a year
  • Agree if they can refer you to a new customer

What to Do Now 

  1. Test some scripts (practicing thoroughly) and don't discount without getting something in return.
  2. Always know your margins across your product or service range so you know when you have the freedom to discount.

I am always surprised when I'm offered a discount when I haven't asked and would have been quite happy to pay the full price.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Payroll Made Easy

Nick Roberts
 

Most small businesses struggle to cope with payroll processing. Whether you have 1 or 100 employees, it is has to be 100% correct as nothing can undermine an employee's confidence more than if their pay or leave has been incorrectly calculated. As with all areas of business, you need a system to follow:

  1. Ensure timesheets are signed off at the time.  Many queries from staff are regarding hours worked or not.
  2. Understand KiwiSaver and especially automatic eligibility, as KiwiSaver forms must be completed correctly before the first pay run.  Although it's been around a while now it's still causing problems.
  3. Enter exceptions e.g. sick or annual leave, during the relevant payroll period and make sure you keep clear, detailed and eligible records.  Deductions which have to be made later outside the relevant payroll period can easily be forgotten about.
  4. I'm still meeting business owners without employment contracts. Ignoring the law for the moment, not having written policies leads to uncertainty and regular claims against employers.
  5. Be aware of the rules on annual and sick leave. Many are still treating employees as casual, not paying holiday pay at all or calculating annual leave based upon standard pay ignoring the last 52 weeks.
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Point of Sale (POS) Systems Made Easy

Nick Roberts
 

I'm always surprised just how many retail businesses still measure their performance just by comparing current turnover with previous periods and cash in the bank. A successful business these days needs effective systems and up-to-date information and a POS system is just the job:

You can maintain control when you're not there just in case your staff think you're not paying them enough!
Totally consistency in prices (especially in different locations) and no more guessing prices or wandering around trying to find the price while the customer gets impatient.
Much better control over discounting, sales and store promotions e.g. you can look instantly at the cost price if someone asks for a discount.
Day-to-day control of gross profit margins, so important in any business e.g. why stock products with lower margins?
Less shrinkage and theft of stock e.g. obsolete stock can be identified along with stock which has gone missing.
Inventory control so you know exactly what items you have on hand or have been ordered and can access historical sales data.
The ability to start building a customer database for more effective and targeted marketing.
Quicker and more accurate transaction processing e.g. with bar code scanners you don't keep customers waiting.

However, before you rush out and buy one, get advice from a decent accountant with experience in POS systems and speak to other retailers first - there are, unfortunately, some poor systems out there!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Proactive Accountancy Advice Made Easy

Nick Roberts

 

Is your accountant reactive or proactive? Take our simple 10 question test:

1. Do you have to call them when you have an issue or do they call you to "check-in" to see how things are going regularly?

2. Do you visit them only when you have to or do they ask to see you or visit you frequently?

3. It's almost a surprise when they contact you or do they have a regular communication programme that does not cost you anything?

4. Do they charge you by the hour for everything they do or do you know in advance what it's going to cost you?

5. Do you receive surprise bills from the IRD or are you advised in advance of the tax due?

6. Do they tell you what to do or do they explain what to do and how to do it?

7. They only offer you what you legally have to buy (tax returns and annual financials that add minimal value) or do they offer you a range of business improvement, systems and marketing services to help you get on?

8. They do not understand your business and take little interest in you or do they understand your situation and are very interested in your welfare?

9. They never explain your annual financials or do they take the time to explain these to you and use these as the starting point to help you better manage your finances and business?

10. Do they effectively say "good luck, you're on your own" or do they offer you real help to plan and achieve your goals, financial and otherwise?


More about recognising reactive/proactive accountants in this article.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Protection Planning Made Easy

Nick Roberts

Supposing you die, you have an accident, a major family conflict occurs, you are sued, your marriage breaks down, you can't meet your debt obligations, laws change that adversely affect your business, fire breaks out or you lose all your business records? Successful businesses have a disaster recovery plan, a risk identification process and a protection plan which includes:
  • Up-to-date wills, enduring powers of attorney and memorandum of wishes

  • Business insurance including loss of profits

  • Utilising the best business structure designed specifically for your circumstances

  • Making sure your ACC cover is appropriate

  • A strategic and succession plan

  • Life, medical & trauma cover

  • Regular health checks

  • Sickness and accident cover

  • Back-ups, security and controlled access for business records

  • A disaster recovery plan

  • Taxation planning for death, sale or succession

  • Open and clear communication with potential successors or beneficiaries

  • A matrimonial agreement

  • Regular meetings with proactive knowledgeable professionals as a team

Far too many business owners do nothing or only take action in response to an incident or occurrence, a knee jerk reaction to something that is forced upon them such as a breakdown in a personal or business relationship or a visit to a medical professional who conveys bad news. Why would you put your loved ones or your business at risk, something into which you have invested so much energy, effort and time?

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or click Contact Us on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Provisional Tax Made Easy

Nick Roberts

 

In my experience mentioning "provisional tax" brings forth a groan. Unfortunately, it cannot be ignored if you are looking to minimise your outgoings, especially given the changes to the system as from the tax year 2008-2009.

Provisional tax is not an additional tax, but just a way of getting you to pay your tax early if your "residual" tax (effectively your final end-of-year tax after credits and rebates) is more than $2,500 in the previous tax year. For many taxpayers there is now going to be another option to work out how much to pay in addition to the existing standard (residual tax for the previous tax year plus 5%) and estimation options. The new GST ration option uses a ratio based upon the residual tax and GST taxable supplies for the previous year which can be advantageous for some.

The payment dates for provisional tax are changing and will be dependent upon which option you use, your balance date, whether you are GST registered, and if so how often you pay your GST. There may be two, three or six instalments per year, payable when your GST is payable. In practice this likely to lead to complexity, confusion, probably mistakes and many taxpayers being charged interest and late payment penalties.

To minimise your interest costs and avoid IRD penalties, seek advice now. Unless you are  a very small business and if you don't do so already, get organised and produce reliable monthly financials to get a better idea of your profits. The benefits will go far beyond provisional tax.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice. 

 

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Recessions Made Easy

Nick Roberts
 

Apologies for the title of this article but I thought I had better keep the "Made Easy" theme going! The effects of the current economic conditions seem to be mixed but whether you are thriving or finding business tricky it is always prudent to prepare for tough times:

 

  • Get your systems in order and produce regular financial management reports. There is a very strong correlation between the frequency of financial reporting and business survival.
  • Prepare budgets and cash flow forecasts and compare actual results with budgeted.
  • Concentrate on generating cash flow - get your invoices out promptly, keep the cash tied up in your working capital to a minimum and stay on top of your aged receivables.
  • Keep your drawings from the business to a sustainable level.
  • By all means look at your reducing your outgoings but you will gain far more by concentrating on the income side of your Profit & Loss account.
  • Submit all your IRD returns and pay the IRD on time. Not only are the IRD an expensive source of finance but you may need their goodwill if things get tough.
  • Look at your financial advisers critically. If your accountant just does your year end financials and offers no pro-active business find one that does.

Set half a day aside next week to have a think about your position. Planning ahead to minimise risk will always pay dividends - if you're not sure how to proceed seek advice.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Reducing Outgoings Made Easy

Nick Roberts
 

There's been a lot of discussion recently about the need to cut business costs. I read an article the other day that maintained you could cut your costs by up to 75%. I just don't understand where such figures come from - how can you cut your rent, rates, power or telephone bill (or even wages in many small businesses unless the proprietor works 24/7)?

 

However, there are some practical things you can do:

 

  • Check all your supplier bills personally before they are paid even if you have a large number of staff. After a while you will get a feel for costs and whether everything is correct.
  • If you have staff, check their time sheets carefully to make sure they are accurate. If they are used as a basis for invoicing customers look at their productivity and down time.
  • Fraud, both substantial and petty, is on the increase. A few simple steps will prevent fraud occurring in most cases.
  • Don't forget to invoice customers for all work completed. I'm always surprised by how common this is and talk about daft!
  • Get your staff sick & holiday pay right. I know it's tediously complex, but in my experience, the majority of small businesses are not working these out correctly, often leading to excess leave being taken. They will soon tell you when it's wrong in their favour but ...
  • Don't pay the IRD or suppliers who charge penalty interest late, you will just be throwing money away - the IRD rate is equivalent to 25% plus.

It's difficult to run even a small business without simple systems and procedures and it shouldn't take a downturn for business owners to realise this!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Slashing Your Accountancy Fees Made Easy

Nick Roberts

 

Fed up with high accountancy fees and not getting much in return? Slashing your accountancy fees is as easy as pie!

Firstly and most importantly, make sure you get a fixed quote and don't put up with hourly billing where you take all the risk and the accountant is actually rewarded for taking longer to complete the job! If your accountant says he or she can't give you a fixed quote find one who can!

In addition, the following will all help to reduce your accountancy fees:
  • Be organised. If all the information your accountant needs to prepare your financials and tax return is easy-to-read, clear and well-arranged you won't need to pay your accountant to sort it all out for you.
  • Supply all information required promptly and in full - accountants are not clairvoyants - and the biggest problem in accountancy is getting all the information we need to do the job.
  • Use accounting software - it's now as cheap as with loads of additional benefits - customer database, invoicing to customers, aged accounts receivable etc all at the touch of a button.
  • Take an interest in your own affairs and show some enthusiasm - accountants are only human and will tend to reflect the interest you show.
  • Ask to pay in monthly instalments. Most accountants will give you a better deal in return for certainty and regularity of income.
  • Systems, systems, systems - are your bank accounts reconciled regularly, do you know who owes you money, who you owe money to, what you have in stock, what cash you will need next month or the month after?
  • Be nice to your accountant. It's natural for them to try harder for someone they feel positive about.
  • Use an appropriate firm. Size is not necessarily a guide to costs but you don't need an international firm if you have a small business in provincial NZ.

To conclude, make it easy for them not hard, as otherwise you will be the loser.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Successful Business Made Easy

Nick Roberts


If you're taking all the risks of being in business you may as well maximise your returns, so what are the factors that lead to success? These are the characteristics which show up in research with my own views on what these mean in practice:
  • Relationships. It's vital to build good relationships with customers and suppliers and in fact, everyone you meet in business, no matter how lowly they are. Relationships will keep you afloat when others are sinking, whether it's with the CEO or the tea lady.

  • Persona. If you take your bad mood out on your employees or customers you will soon have neither. It's vital to remain positive no matter what is happening and as they say, the fish rots from the head down. Are people drawn to you by your enthusiasm?

  • Attention to Detail will lead to success in all areas of your business. Yes, it will take longer to complete a task but you are setting the norms in your business for your staff as well as showing your customers you really do care about them.

  • Adding Value/Going Beyond the Norm. Great customer service is no longer a point of difference - nowadays you must think about ways to help your customer's customers and always give a little extra.

  • Ethics/Honesty. Nothing gets round quicker than tales of doubtful ethics or dishonesty. There's no point in making a quick buck in the short-term if in the long term your reputation is being irretrievably tarnished.

If you think these are obvious, well done, you're probably an experienced business owner. But how many business owners don't put these into practice?

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.


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Tax Efficient Motoring Made Easy

Nick Roberts

The tax benefits of "9 to 5" or "flip" leases were phased out by the IRD nearly two years ago but avoiding FBT on motor vehicles is still a very popular question.

The main alternatives for shareholder-employees are: 

  • Charge the equivalent value of the FBT to your current account. This is good but you are creating taxable income for the company and it is non-deductible for you.
  • Cash allowances. These are treated as salary so are taxable. Not tax efficient.
  • Reimbursement for a privately owned car using the tax free IRD rates is simple and effective.
  • Reimbursement with AA or similar mileage rates. Also tax free and getting better, but not as clear cut as you might at first think and you still require regular salary payments.
  • Tax free reimbursing allowances if the vehicle is individually owned. Here, the company can reimburse you for the actual costs incurred but only for revenue costs, not depreciation. Since depreciation is the highest cost by far of running a vehicle this is not tax efficient.
  • Tax free reimbursing allowances if the vehicle is individually leased under an operating lease for tax purposes. Since the lease cost incorporates depreciation there can be significant tax benefits from the use of these leases and there are one or two additional strategies available as well. However, don't forget the commercial aspects of the lease.

As always, tax is complicated and there is no substitute for individual what-if calculations.

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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YCDBSOYA Made Easy

Nick Roberts
 

No, the title is not a spelling error; it comes from a great marketing book "The Ultimate Marketing Plan" by Dan Kennedy and stands for "You Can't Do Business Sitting on Your A___". Dan describes a business that went bust because its owners did nothing, in contrast with a young chiropractor who was wildly successful by taking effective positive action.

 

Whilst battening down the hatches in a recession is common it can be a great time to expand and grab market share whilst others are laying low. This doesn't mean spending loads of money, but instead using any extra time whilst quiet to undertake low cost marketing. For example:

  • Put some referral strategies in place. Referrals should be your most cost effective source of leads.
  • Do some networking. I tend to find that the non-business groups generate more leads than the business ones but unless you try you won't find out.
  • Focus on your ideal customers. Work out who these are, and why, and only target prospects of this type.
  • Look at joint ventures with related businesses e.g. Office cleaners, an office supply company. They probably already have a sizeable customer base which has taken years and many $ to build so why not piggy-back on each other?
  • Look for opportunities created by the recession e.g. outsourcing and contract work when firms are cutting back or seek out government departments or not-for-profit groups which tend to keep spending.

It's not the first recession we've had and it won't last forever. Keep positive, take a long term view and take advantage of your competition that are all doom and gloom!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Making Decisions Made Easy

Nick Roberts
 

Being in business entails making endless decisions, some minor, and others which could have catastrophic consequences if the wrong decision is made. In my business mentoring role I find it's a very common situation as the typical small business owner is often on his or her own when it comes to managing their business. So what can you do to make those tricky decisions easier?
  • Don't make decisions off the cuff, mull things over beforehand. I invariably find that it's never as bad as I first thought and I nearly always think of a better way to do things after a while.

  • Get the facts and as much information as possible beforehand. Guessing or working in the dark just increases the chances of getting it wrong yet this is something I find frequently.

  • Talk it over with someone else. You don't have to be influenced by their view but more often than not, it helps having an objective view. A business mentor or coach is good.

  • Don't avoid taking a risk if necessary, but avoid excessive risks where the outcome if it goes wrong would lead to disaster.

  • Gut feel can be a great guide as to what to do, even if you're being tempted by cold logic!

  • There are a number of financial tools available which will show the effect of different choices. For example, what happens to your overall gross profit if you cut prices by 10% or improve your AR days by 10.

What if you still get it wrong? Well few bad decisions will change your life and in addition, remember one of my favourite quotes "If you aren't making any mistakes, it's a sure sign you're playing it too safe" by John Maxwell. If that doesn't cheer you up, do a Google search on bad business decisions - my favourite one is the record label Decca that turned down the Beatles!

 

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Disaster Planning Made Easy

Nick Roberts
 

The consequences of the Christchurch earthquakes continue in more ways than one and not just in Canterbury, as the recent headlines about what would happen in Wellington demonstrate. How many local business owners have stopped to think about what would happen to their businesses should Hawkes Bay draw the short straw?

  • Insurances. Do you have sufficient cover for site and equipment, vehicles, electronics, furniture and fittings, stock, wages and salaries, loss of profit, the additional cost of operating your business, claim preparation costs and reinstatement of records?
  • Documentation. What are you doing to reduce physical documentation? What do you currently store in hard copy that should be scanned onto your server or kept via a 'cloud' based backup solution?
  • Back-up Procedures. Have you tested these recently? Review these too to see if they are adequate.
  • Internal Safety. Have you looked at your premises to be sure they are safe? Is the fit-out safe and are items secured? Do you have the regulatory fire equipment? Do you keep food and water stocks on-site? First aid? Do you have a clear and documented evacuation plan?
  • Vital Documents. Do you have the originals stored in a safe location as well as electronic 'soft' copies? Examples include: insurance policies, key client and staff contracts.
  • Remote Working. Which of your staff could work remotely with minimal disruption? Why not investigate the required IT infrastructure in the short term rather than as a reaction to a disaster? It's also easier than it seems and for some industries it's becoming the way of the future.
  • Staff Contact Details. Do you have the mobile 'phone numbers and addresses of all your team members stored in your mobile phone? Having this information readily available is vital to coordinate your staff remotely if your premises are out of action.
Take a day out of the daily minutiae of business and do some research, review your policies and procedures and then prepare a simple risk management plan. It could be the most valuable thing you do this year!

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Escaping Your Business Made Easy... Or Isn't It?

 

Nick Roberts

Like it or, business failures are a part of life, from a combination of an increasingly get-tough attitude from the IRD, those businesses which have been hanging on finally throwing in the towel and the shortage of working capital and credit out there.

Unfortunately the title of my article this month is an oxymoron and for many business owners, it's anything but easy to escape from their business because of:
  • If the business has premises, the lease will be personally guaranteed, so if even if the rent has been paid up to date this alone could be a financial nightmare.
  • If supplier bills remain outstanding and personal guarantees have been signed on the suppliers terms of trade they won't go away either.
  • There are still one or two lucky business borrowers with unsecured bank borrowings but not many, so the bank will soon be sending out a plethora of demands in all shapes and sizes, as I've been receiving regularly for a client (where my office is the registered office) recently who is in difficulty!
  • If there is outstanding finance on vehicles or plant or there are lease rental deals on equipment like photocopiers with unexpired terms they need to be sorted too.
  • The IRD doesn't like to lose out either, and in fact are at the head of the queue, and so even if the business trades via a limited company the business owners may still be pursued for unpaid Income tax, not counting all those sole traders and partnerships who will remain fully liable for GST, PAYE, and Income Tax.
Now if you think this is all obvious and this article is unnecessary, in my experience you are in the minority as many business owners just don't realise how exposed they are to business liabilities. Makes you think, doesn't it, about whether to keep your business small or buy a house to trade from instead of renting and whether not wanting to pay your lawyer to set up a trust was a good decision at the time?

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Learning the Hard Way... Made Easy!

Nick Roberts
 

Picture this happy scene in Spring 2013. The green shoots of recovery have finally arrived in HB and you're optimistic about the future, having survived the recession poorer, battered and hopefully wiser! If you could turn back time what would you do differently to get yourself in a much better position to survive and even thrive during hard times so that next time, you can laugh it off?
  • Get to grips with marketing. It doesn't matter how good a plumber or designer you are, if you can't "sell' yourself or your business you're in trouble, no matter how long established your business is! Customers die, move away, or just stop buying so need to be replaced.

  • Know your true break-even point at all times. At the very least know what you need to turnover in a week or month to cover ALL your outgoings and update this regularly.

  • Better still, find out whether you're making or losing money regularly, not just once a year by preparing regular internal/management accounts. Nowadays accounting software is as cheap as dirt and easy to use so there's no excuse.

  • Adequate working capital. If you've no cash reserves set up some borrowing facilities, whether at your bank, other lender or "soft-loans" from family or good friends.

  • Don't expect to get all your new business from advertising. This is a mistake I see time and time again, especially with start-ups. It can be part of your overall marketing effort but it's expensive and mostly ineffective, especially if it's just your name and a list of what you do.

  • Don't sit back and wait for business to come to you. Times have changed - we now have the internet, customers are more discerning and looking for deals and expect you to add value, not just offer average customer service. They won't chase you, you have to pursue them!

  • Find your niche. There's any number of businesses doing what you do. Why should they use you and not your competitors?

Who knows, perhaps you'll be so successful you can sell your business for a tidy sum before the next recession starts!


If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Getting Business Advice Made Easy

 

Nick Roberts

I recently met a new client who had prepared a list of skills required in her business start-up. All the necessary skills were ticked except business planning, finance and marketing where she had written "Seek professional assistance". What a refreshing change, thought I, just concentrating on familiar areas and shying away from others to avoid getting it wrong.

So what advisers should you be listening to in your business?
  • A modern accountant who has the time and inclination to help you in your business and not just focus on historical annual financial statements, one that's prepared to roll-up his or her sleeves, come and see you and doesn't charge you for every minute. That accountant should have a minimum of 20 years experience and also run their own or other businesses.

  • A good commercial lawyer who is a bit of a generalist is also invaluable. Whilst they may look expensive they will save you far more in the long run, and when you've established a good working relationship, made them executor or trustee (and maybe referred a friend or two) they'll become good value. Like a good accountant, a good lawyer will be frank at the expense of his or her fees!

  • A local friendly and experienced bank manager is very worthwhile too. If your bank manager is wet behind the ears or operates out of Auckland it's time to move on!

  • A business mentor or coach can also be very worthwhile as accountability (often lacking in owner-managed businesses) is a huge motivator. Be wary of business coaches as quality varies so try a volunteer Business Mentor through Business Mentors NZ, see www.businessmentors.org.nz. There's some truly excellent advice available in HB from a number of extremely experienced individuals, all for free (once you've paid the registration fee).
I'm always amazed at what poor level of service and advice those in business put up with, complaining but never taking action, often through blind loyalty. If you'd like to be put in touch with some excellent and honest advisers, just ask.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Dealing With Bad Debt Collection Excuses Made Easy

Nick Roberts
 

Does it sometimes feel like you have to earn your money twice, once when you do the work and then again to actually collect the money? Getting paid can be hard work with some customers or clients.

The best thing to do is establish a debt collection system, and one part of any effective debt collection system is to chase your debts by telephone, with either a diary at hand or using the notes section on your accounting software so you record exactly who said what and when. Here are some common excuses and what to say in response:

Excuse

Response

We haven't received your invoice/we've lost your invoice/the dog ate your invoice

I'll e-mail/post/deliver the invoice today and call you tomorrow to make sure you received it and check when you're going to pay

We've paid your invoice already

Oh when was that? How did you pay?

The cheque is in the mail

When was it posted? What was the cheque number?

I'll post it tonight

Can you pay us via electronic banking? If not, I'll collect it this afternoon

The accountant has the cheque book

Who is your accountant? Can I meet you there tomorrow?

Oh yes, I'll get Marion to pay it tonight via electronic banking

But you said that last Tuesday, and the Monday the previous week. I'll call by this afternoon to collect a cheque

We can't afford to pay you yet

How much can you afford to pay? I'll call by tomorrow to collect a down payment and bring you an AP form so you can pay by instalments

We're waiting to get paid ourselves by a big customer so we can pay you

When do you think that will happen? I'll call in and get a post-dated cheque

Just remember this. If you don't chase and hassle your debtors someone who does chase up their debtors regularly and systematically will get paid before you. Can you afford to let that happen?



If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Profit Improvement Made Easy

Nick Roberts
 

Despite the recession some businesses are still very profitable. So why are some businesses profitable and others loss-making? What can you do to make sure you're in the right category?
  1. Monitor your profitability no less than quarterly. No, this doesn't mean getting your accountants to prepare costly interim financials, just get some cheap but effective accounting software which works on an "accruals" basis and copes with things like inventory. Failing that, if you're a smaller business ask your accountant for bi-monthly profitability reports when they prepare your GST returns
  2. Know your current, true break-even point at all times, which takes into account your current gross profit margin and all your outgoings including drawings, tax & ACC.
  3. Ensure all your prices are set correctly and take account of all your costs. In addition, work out your gross margins on every product or service in your business. Nowadays this is easy with good but low-cost software.
  4. Keep track of and know all your costs. Set a budget and check all your supplier invoices and expenses personally.
  5. Keep your salary and personal expenses to a reasonable level. Pay your personal bills from your personal bank account not from your business bank account.
  6. Spend more time working to boost your income than reducing your costs. Short of changing the whole way you operate often there is little you can achieve on cost-savings but on the income side the possibilities are endless.
  7. Monitor regularly the things which are critical to the success of your business e.g. prospect conversion rates, labour productivity, average $ sale, average job size etc.
There's no magic silver bullet to make one business profitable over another, it's just a matter of common-sense and getting good systems in place. Getting into the habit of monitoring your profitability is the first, most vital step to improving your profitability.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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Mark Up and Margin Made Easy

Nick Roberts
 

Understanding mark-up and margin and the difference between the two is essential if you're a business owner, yet I find that many, even those with many years experience, still don't.

Mark-up is the amount (the profit) you add to the cost of a product to arrive at the selling price and it's normally expressed as a percentage. To find the mark-up, divide the profit by the cost price and multiply by 100/1.

Thus if the cost was $4 and you add $1 profit: 1/4 x 100/1 = 25%

On the other hand, the margin is the profit you make on each sale. To arrive at the margin, divide the profit by the selling price and multiply by 100/1.

Thus if the selling price was $5 and you make a $1 profit: 1/5 x 100/1 = 20%

You can also work out the margin from the mark-up and vice versa if you use fractions. Cast your mind back and you may remember that the numerator is the top part of a fraction, whilst the denominator is the bottom part.

To find the margin from the mark-up take the same numerator to be the numerator of the margin, then for the denominator of the margin take the total of the mark-up's denominator plus the numerator:

Mark-Up

Margin

I

I

=

I

4

4 + I

5

2

2

=

2

11

11 + 2

13


To find the mark-up from the margin take the same numerator to be the numerator of the mark-up, then for the denominator of the mark-up take the figure of the margin's denominator less the numerator:

Margin

Mark-Up

I

I

=

I

6

6 - I

5

3

3

=

3

13

13 - 3

10


Setting your prices and ensuring you make a decent profit should now be easy!



If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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