June 2011
I often refer to my belief that our treasure ships come in over calm seas. Within this context, below I explain how to build cash and things to be aware of that may prevent this from occurring.
WHY is Positive Cash Flow so important?
Well, ask anyone who has experienced both positive and negative cash flow. Get them to list out the impact negative cash flow has on them and compare this with when cash is easy. Negative cash flow can be really stressful, impacting performance, stress, happiness, relationships, ability for the business to grow, or benefit from opportunities that need cash. Extreme negative cash flow in cases where someone’s house is on the line can attack a person’s most basic of human security needs and /or their health, relationships etc.
Equally important is the ability to act like a squirrel and ‘save nuts for winter’ by accumulating an appropriate level of cash for later. In most cases this means having a beginning goal of one month’s operating expenses always being available. Over time and depending on the size and type of business, this is often best to build to three months expenses. With some seasonality and business types, sometimes even more is valid.
Cash flow is only ever a symptom of how the business is going - an output, an indicator that something else is not working well enough. Profit is another output that has a high correlation with cash. Profit should occur every month unless there is a seasonality aspect. Somebody should “make this necessary”. You won’t have cash unless you first have profit.
Cash is King, it affords you the ability to do what you want – the person with the cash always has the ability to make choices - that others otherwise may not.
Doesn’t matter which one of these reasons resonates for you – only one is needed. Think how your life would differ if cash was more readily available to you. Act on that feeling to apply the following suggestions.
How to Build Cash
Working to your money style is important in approaching the best way to generate cash. One of the most common things I have come across over the past 20+ years is people that get stuck in the “How”, often also feeling constrained by negative cash flow, feeling like they have little choice in how they pay their commitments and/or themselves when there is simply not enough. The general steps to building cash are listed below.
I realise that some of these may almost seem insulting, as they are so obvious – I list them for those of you that realise these things, but aren’t actually doing them.
- Ensure your business makes a profit, every month unless it is part of your plan not to yet. Know whether it is achieving the planned position. Btw, if it isn’t making a profit get some help with that. Seriously
- As long as your business is making a profit, pay yourself first. Gradually increasing your own pay to ensure you get to market levels as soon as possible
- Know the dollar figure you need for a fortnight or month’s expenses
- Have a business and personal budget
- Live within 90% of your personal income ( know whether you are or not ) Find a way
- Apply the other 10% to debt reduction or an increase to savings
- Once you have built up at least a fortnight’s expenses in savings, start to put easy, small amounts aside into a savings account every time you are paid anything
- Increase the amounts you save gradually over time - small steps can be important to achieve consistent sustainabiity
- Hugely important to work on the above gradually rather than trying to transition all at once – always remind yourself that the habit is more important than the amount
Your Core beliefs underpinning your finances
The above are all important steps to operate under – what I believe is more important however, is whether there are financial issues connected with attitudes about yourself, money and your business. I believe that your financial situation is a direct reflection of your wider world – if there are areas of your life that are unresolved from your past, not in sync now, or out of integrity with your core beliefs and values, I believe your cash position will be the mirror that reflects the area that needs work. I know, sucks eh. Doesn’t mean I’m wrong though.
Clearly it is important that the business “plans the work and works the plan”. There are many other reasons for business failure – sometimes people just don’t want what you’ve got – i.e. it is just not viable financially. If your business is not progressing as much/quickly as you want, answer the following questions for yourself.
Then in cases where the answers are not what you truly want for yourself, consider what is the root cause? The business itself may be fine, it may be you as the owner that has the issue most needing work. We all have blind spots. They are called that for a reason.
Questions to ask yourself if your finances are not what you want them to be.
This only works if you are truly honest and open with yourself:
- How much money would make you feel significantly more in control of your finances - let’s say $100k for this example.
- If I transferred that $100k amount into your bank account, what would you want to do with it?
- How much of it would be to pay off debt? How much would be for savings?
- How much would you leave in the bank account?
- How much additional money would feel like too much for you personally to cope with?
- What fears do you have around money if any?
- What goals do you have around money if any?
- On a scale of 1-10, how much certainty do you want around money issues?
- What relationships do you currently have with people about money issues – how often do you change advisors? i.e banks, accountants, financial planners, insurance agents. Why do they change? Is there a common theme as to why?
- Have you ever had investors in your business? Do you still, how long for? How often have these people changed ? Why? Is there a common theme as to why?
- On a scale of 1-10, how do you rank your competency around money issues?
- On a scale of 1-10, how do you rank your self-discipline around money issues?
- Are you getting the most return on your investments? How do you stay informed about that?
- Do you save regularly ? For what purpose? How much of your income in percentage terms?
- On a scale of 1-10 to what extent to do you buy things because you deserve to have them?
- How often would you buy something you don’t really need, but just want for the fun of it?
- How often do you buy something that results in you being stretched financially?
- Do you feel you really struggle with your finances? How long has this been the case?
- What do you believe is getting in the way of your finances being better? What could you do differently to change this?
- Is your perspective on money different to that of your partner’s? How if so?
What to do with the answers to the above questions
The purpose of the above is to get you to have a really close look at your money style. All of us have differing issues to address. I believe most people can identify with one main money style, sometimes two. I call these styles Savers, Severed, Self Saboteurs and Spenders. Each style has a key element to look out for and work within for improvement .
Answers to the above questions will help you identify which style you are likely to be. One of the names is possibly likely to immediately resonate. If you seriously have no clue, you will most likely be a severed style.
Savers tend to need high levels of control, normally based in some type of fear. The flow of money is therefore best assisted when there is a slight release on its grip - sometimes these people strangle their financial lives in the need for certainty ( compared with what it may otherwise be ).
To improve your money situation, try living a little more, just a bit. Don’t be reckless with that ( I know you won’t be ). Just for fun, practice taking a small risk every now and then. One suggestion is to not pay for parking and risk getting a parking ticket – or only put a few cents in, so if you do get a ticket, it doesn’t cost as much. Take small calculated risks often and your need for financial control may well lessen.
By allowing a higher level of trust in things outside your own control, this also allows money to flow to you from places that aren’t totally constrained by your own abilities. Release the grip just a bit and see what happens to your cash ( and also your enjoyment in life ).
Savers are also at risk of being too safe in their investment choices at times - so learn to understand the need to have your eggs in more than one basket. And be at peace with the fact that over time, the result is that at least one basket may go bad. Understand though, that done correctly, your investments overall are still more valuable than if you just have them in the safest place you can find. Get a really good financial planner and listen to them.
You are the easiest style to work with cos you have most things sorted, just a few things to improve around the edges. Deal to your control and fear issues and you will be sweet. I do believe that fear and control stops the flow of money more than anything else. The other styles also have fear and control elements underpinning them often, so you are not alone.
Severed money styles tend to be disconnected and don’t really know, nor care where money things are at. You tend to be very easy to work with if you have a goal and you also live within your means. Set up a savings A/P for that specific purpose. Get bank statements delivered in paper form so you get reminded how your savings are going. Take an interest in this.
Once a month look at your bank account transactions and notice for yourself where you are spending and how much. Change it if it’s not working for you. Job done.
Importantly, then work out what it is in your life that created a sense of disassociation and consider working on improving that dynamic. Money like anything, tends to lose interest if the relationship you have with it is non descript or disinterested. Your life can often also have far less colour as a result. Increase the vibrancy in which you explore money issues and your life will also reflect this - it does actually work both ways I believe.
I believe it is far less common for a severed money style to not live within their means – these people are more likely to be self saboteurs.
Self Saboteur money styles tend to be the most fun for me to work with, cos we can get the best results – well for a while at least before they “do it again”. The trick with these people is to allow them to do so!
Don’t resist your own self sabotage tendencies – but do budget it in! Give yourself a play account to self sabotage with – after a while you may get sick of this btw. But if it doesn’t hurt that much, you may not.
So, every now and then, give yourself the freedom you so desperately need, ( but please, do so within your budget ). It doesn’t take long to decide a different game when you have an increased awareness of what you are actually doing to yourself financially. Have a mentor – this is critical. The time to listen most is the day you want to fire them.
Remind yourself of what you are missing out on by not living within your means. There are many tricks for these people. Such as putting your credit card in a plastic cup of water and keep it in the freezer – that way you need to defrost it before using it – allows at least some means of decision making and cooling off period. Bit different if you do online shopping and like every good retail therapist you can remember your credit card number – so put a post it note on your computer to not do that. And reference to what you are instead striving for.
A really important thing is to do the same activities as you would like to do, but consciously decide to do it in a cheaper way – see your friends via a pot luck dinner instead of via an expensive restaurant – be honest about why you want to and they are likely to agree and thank you for it. It’s about them, not the venue. Buy an OJ or get water instead of a wine – half the cost and better for you. You can still do things, but spend less at the same time – by doing similar activities just a little differently or slightly less often.
You are the style voted most likely to buy something because you have a sense of self entitlement, instead of whether you can afford it. You “deserve” the thing, so you go out and get it – doesn’t work that way – gotta be able to afford it first. If you respect money it will respect you back. If you don’t, it won’t . Financial things will go wrong until you learn this. The law of compensation, although slow, is very thorough. And it applies itself with a high level of accuracy. So honour it. It’s a choice and it will repay you in kind.
Spender money styles are similar to self saboteurs but they consider themselves to be slightly more sophisticated – which they are. And this level of sophistication can be their downfall. They sabotage in a much more subtle way – they are the Queens/Kings of justification. Making every decision they make seem valid.
Self saboteurs at least have the decency to admit their failings. Spenders always find a way to make it the “right thing to do”. They plan for it as well, often really well. None of this is a problem unless it is a problem. If you are a spender that lives within your means, well done. After all, we can’t take it with us.
I would suggest however also adding a long term view to your perspective and ‘check in’ on whether your retirement is going to be as much fun as your current life – change that a little and hang out with a saver for a bit to see what their views are on the same topics. Allow them to rub off on you – and you on them – you create a good balance for each other.
If you are a spender that does not live within your means, you also are instead a self saboteur. So see above and start living within your means, so your long term position is both protected and maximised.
If you want to be more like a different style ( they each have fabulous positive attributes as well as challenging aspects) hang out with one of them and ask them what the answers to their questions might be. You may be really surprised.
What’s Next
I believe it can take a year of focus to achieve the right balance for your business and personal goals financially, working within the strengths of your money style. Once you have mastered the various strengths of each style and compensated for the weaknesses, it is much easier to draw on the attribute needed for any financial situation at hand.
Increasing the flow of money, is first about removing the blockages you have mentally that are mentioned above. Then it is about widening the width of the channel in which money flows to you. Then increasing the speed in which it flows down that channel. It is important to learn to live within your means as a very first step and to do this at a very modest level. Once this is done, no matter what occurs in future, you can always revert to the lessons learned when you were in a more modest financial stage of your life.
In each moment you will choose whether you want to be defined by the financial state you have moved to. It is handy to learn how to return to your more humble roots whenever the situation warrants it for a month or so (or whatever) during lean times. Humility can be critical.
Being able to shift yourself up and down the “spend ladder” as needed is important. Your level of debt is therefore an important aspect to not over commit, so you do not become overly constrained by it. As your money increases along with your age, the level of appropriate debt to equity will change. Increase your savings/investments accordingly. Get advice on the specifics for your own situation from a really good registered financial planner.
Please contact me if you would like some assistance in applying any of this in practice.
29th April 2011
I thought I would explain some of the “Why and What” of numbers management. Which numbers are important to focus on and how can you tell if the numbers start to falter. How to regroup quickly.
Why is focusing on the right numbers so important?
Check out my email “Keeping the Score – Why?” (15 .10.11 – or else under announcements on our website)
If a business doesn’t know ‘the score’, it can have a picture of the results that is very different to reality. In addition, the hunger with which one approaches things can be massively different to the level needed to achieve the results desired.
We all need to track our results, no exceptions, no months off. Only a few of the key numbers normally need to be top of mind. The core drivers of the business are generally far more important to track on a regular basis. Outputs also need tracking, sometimes less often, sometimes more often, depends which one. Every business has specific areas that are most important - but there are also some general rules of thumb.
What are the most important numbers to manage in your business ?
Every business has specific needs, but here is a general list that all businesses should be well across. Specific needs should be discussed cos some of these may be more important than others.
- Targets – the plan for annual and this month targets for customer numbers, average value sale, $ Sales % margins, $ expense levels, $ profit, cash, debtors days, creditor days. Many other items such as stock turn, churn rate etc are case specific.
- Actual results – for the same target items above –to provide actual results and comparison of the variances – active inquiry into the cause of the variance is critical (and often not done I might add). Human nature can be to far too easily dismiss the cause, which can result in a critical error of judgement sometimes.
- Profit – always make a profit – every month. Not just most months. ( January can sometimes be an exception). Start up or heavy investment phases can be different yes - but I would invite you to consider how long you wish to tolerate losses before requiring the results you want. Step one is know the monthly results - some businesses don’t even know that. Have a monthly reporting calendar that is adhered to and report to somebody - with explanations for budget variances. We often take that role as the internal CFO.
- Personal interface – know your personal budget ( most people don’t, when we first meet them) and also know whether your business can sustain it ( heaps can’t, when we first meet them). Change something if needed. Increase profit or reduce the personal need - but always live within your means. Have a reality check if you are not and get some assistance to improve the situation. Bleeding your business is way too common. Tax first, a habit of savings second, eat third. (I’m not joking). But it can sometimes need to be a gradual shift.
- Cash – is always King. Those with the cash, are always those with the leverage. Know :
- How much you need for the next six months minimum – at all times.
- Your minimum level of working capital to stay afloat - and never go below that – delay spend activity if needs be - That said, it far better to instead turn the results around, so you can “have it all “, but there will be a bottom $$ threshold that you never allow yourself to fall below. One month’s expenses is a good initial guideline with a goal to increasing this to three months. This can be very business specific though and highly dependent on goals in play and knowledge of upcoming income streams. It can be lower than this sometimes.
- Remember that cash flow is only ever a symptom – it is only a mirror into the other aspects of your business – if cash flow is a problem, it will always be because there are core business issues not being addressed somewhere.
- Balance sheet management – this is also very case specific - but here’s some general guidelines:
- Working capital management is critical and the relationships between your current assets ( bank, debtors, fast moving stock) and current liabilities ( creditors, gst, short term tax due) is really important . Have a CFO review with us to check if these are best practice levels or not.
- Paying bills on time is a no brainer, yet many businesses don’t/can’t at times. Best way to approach this is to decide what your standards are, so these are in line with your business values. Stick to your standards and don’t over commit within the boundaries of your working capital. Not rocket science, but I also suggest independent perspective re your working capital levels. We all make mistakes sometimes, forgive yourself and immediately move to improve.
- Recognise if your cash based actions are out of alignment with the rest of your business values – change something to bring them back in. This may impact your management of your debtors and creditors going forward.
- Debt management - align long term debt with long term assets – so your cash doesn’t need to work too hard. Short term debt can be for short term assets.
- Emotional debt management - This may be a contentious one - I believe that if you want to be prosperous and sustainable long term – learn how to only go into debt for assets that are going to increase in value. Resist the need for instant gratification. If you spend on something that is going to reduce in value, only spend what you can afford (and afford to lose). Most times your business itself will increase in value – but not always- so have your eyes open. Excessive spend on your business itself is best “value” and “return on investment” based. I’m not saying don’t spend, much more to have your eyes open about it. Some things are critical granted, many can wait another month until you do have the cash.
- Manifest cash – you get what you expect – have a belief system that cash will not be a problem and it seldom is – allow that belief system to bear fruit before you commit funds though Remember that belief without action is dead. Ensure you have an appropriate amount of activity around your sales, systems and reporting to ensure your activities actually warrant the cash arriving when it needs to. Remember cash flow, good or bad, is only ever a symptom of the rest of your business. That said, it can also simply be a symptom of your own fear based beliefs which can create a block on any aspect of the system working properly. Allow the cash to flow without emotional impact and as long as your activity supports it, it normally flows as needed.
- Pay and save for yourself first – I am not advocating bleeding the business. You always need to live within your overall means. I am however, advocating you require the business to pay you what you are worth - perhaps gradually over time - but if you are not doing this, I suggest checking in with your expectations and tolerance levels. There is only one person that is in charge of making it necessary for your business to achieve this. Remember though, tax first, the habit of savings second, eat third. Savings could be $5 per month for all I care, just get a permanent savings habit in place. Have one less coffee. The dynamics shift when you start a habit, the amount is far less important.
What to do after the above is sorted
There is a significant sense of achievement that can be gained from applying the above snippet of the wider picture. Once this is consistent, the fun can really start. Some ideas:
- Give yourself a small ( or large) pay rise every month.
- Share your profit with your team really generously
- Significantly reduce debt ( within good tax planning of course)
- Pay yourself a bonus or dividend on every birthday, wedding anniversary, other important dates so you can do whatever helps you thrive
- Invest into your own business expansion more, or other businesses
- Increase charitable activities
- Increase your legacy for your relatives if you want, or travel or play or whatever
- Buy back some of your time and reduce working hours
- So on and so on….
How to Regroup Quickly
How big a game do we each want to play and are we prepared to apply the things needed in order to play at that level? We all have access to the skills needed – either through our own knowledge, or by asking others. We have a choice to achieve what we want, and if relevant to move on from temporary defeat. Question is whether we want to.
To provide perspective, I know I benefit massively from allowing myself help from other experts. Anything I cannot do by myself, I know I can do as part of an expert team. I believe that as business owners, we each simply consider what we want to achieve and then sort out the right team. For our part, it is always such a privilege to take a CFO role in any business that is seriously wanting to achieve.
It is the team that will assist whenever there are challenges – have a great team, have a great business. The answers are always found in the combination of the member’s skills. Let us know if you would like to discuss any aspect of this further, we know a number of great experts who could help you.
Happy New Year! Now what should you be doing?
1st April 2011
Happy New Year – today, 1 April, is the first day of the March 2012 income year. Awesome huh. Like every good achievement based business owner, it’s important to reset any goals that may not yet have been achieved yet.
Why? So you can achieve the fun you want this year! We want to help you enjoy your business to the max.
What should you be doing for the next 12 months?
Well… remember that saying “if you fail to plan, you plan to fail”. Yeah, well, it’s kinda right huh. Remember that the sequence of any important business decision should cover the following steps ( in this order)
think it – uses imagination
plan it - uses analytical skills
skill it – uses social interactive skills (often training is the main aspect)
drive it - achievement drive and is a multiplier effect for results
Here’s a list of what is best to do ( well done if you have already!)
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Firstly if any of you with stock, didn’t do a stock take yesterday, do it now. Wait, finish reading this first. Then do it.
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Work out what amount of cash ( after tax ) you need to have each week or month at your disposal. We have worksheets if you want one. Ask Rupert.
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Get us to tell you what that profit number is before tax – a quick email to one of the accountants will do that.
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Do the same thing for how much you want to earn each week or month and again get one of our accountants to tell you the amount before tax.
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This amount before tax is the minimum profit amount your business needs to earn. Do you know that number – if you don’t, find it out. We can help if you like. Btw, this is all part of the “think it” step
How can we help?
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Book a CFO meeting so together we work out the best way to achieve that profit number and how to extend it - to be even better.
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Which numbers are most important for you to track each month – there should only be a few to think about. Rupert rings people periodically to suggest a meeting so if we don’t hear from you, we will ring you sometime if we believe a meeting will be beneficial for your circumstances.
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We will also cover off your balance sheet management – the relationships between the various parts of your cash, debtors, creditors etc. This is part of the “plan it” step.
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Part of this work involves seeing ‘who should do what’ in your business – what training is needed and how to be more efficient. This is part of “skill it” Other advisors of differing disciplines can also be helpful about now – marketing, HR etc.
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Once we together work out the plan and start to skill people up, then you can “drive it”.
A word of caution
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Entrepreneurial business owners often tend to go straight from “Think it” to “Drive it”, missing out the “plan it” and “skill it” steps. And then they might wonder about 6-12 months later why they run out of cash or internal competency or something.
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Look above at the key skill needed for each step (eg “think it” needs imagination). If you know your skills are not strong in a particular area, that will be the step you most likely miss out. We suggest you get outside assistance for at least that step.
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A lot of what we do at L2G is found in the “plan it” and “skill it” steps. My own general management skills and way to approach problems is evenly balanced across all four steps, so we believe we can help brain storm discussion on all areas. Remember that once you know the numbers and know the plan, you can then grow the numbers.
So the first main step for your plan for this coming next year, is work out the numbers needed in each part of your business. We’re happy to help you with any aspect of this.
After all, if you wanna have fun in the next year, you’ve gotta have the right amount of cash and the right amount of time.
LAQC Changes - What we need to discuss
3rd March 2011
This is an important one to read fully please – will only take 5-10 mins. I’m conscious it got a bit long; I’m providing insight into the LAQC work we are starting for you ( as relevant). I have sent to all clients in case you know others that could benefit from knowing these issues. We would be happy to help them once we assist you all first.
The rules are changing... if you have an LAQC (or if you’re thinking of buying an investment property)
Most of you would be aware the rules in relation to Loss Attributing Qualifying Companies (LAQCs) rules are changing from 1 April 2011. LAQCs often relate to rental properties, but there are also trading LAQC companies impacted.
The transitional rules have associated decision dates needed of 31 March 2011, 30 September 2011 or 30 September 2012, depending on your individual circumstances.
Questions we need to ask in the next ten days
LAQC companies will no longer exist, so a recommendation is needed to protect your tax position. The date chosen to change your existing LAQC will in part depend on answers to the following questions:
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Are you expecting to sell your property in the next 2 years? If so, what’s your best guess of when? Do you expect to make a capital gain?
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If you are going to hold the property, how much money do you expect to personally fund into the rental each year going forward?
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Are you expecting/wanting any shareholding changes in the near future for other reasons?
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Are there personal guarantees in relation to the property ( most likely yes)? How much is the guarantee? This can impact the level of expenses one may be able to claim in future.
Other things we need to check
Some information needed is already at hand. We will be looking at the following.
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Whether the current shareholding is appropriate under the new rules
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Your shareholder current account balance
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Whether we need to simply revoke LAQC status, or apply for a new entity status.
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Will a ‘do nothing’ approach for either of the next few income years be a good idea
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Depreciation on buildings is no longer available from 1 April 2011. We will be see whether this change results in a shift from loss to profit – and how many years before a profit is expected
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We need to populate a spreadsheet we’ve developed to see whether 100% of expenses can be claimed in future years – this is not automatic and highly dependent on a new concept called the “Owners Basis “ which can sometimes restrict the amount claimed
Which Option is Recommended – working it out for you
Your individual circumstances will highly dictate the best option. Your LAQC will change to one of the following :
Timing – pre 31 March decisions, shareholding changes
We will deal with you individually to ask relevant questions, agree your best approach, and in most cases we will be able to conclude this within a few hours of our time. Each client will be contacted by one of the senior accountants and part of this process will also involve an internal peer review to ensure all bases are covered.
Once we know the desired approach, most of the actions can wait until closer to either 30 September 2011 or 2012.
But, the timing deal breaker is when we can see shareholding changes before transition would be best. If so, these need to occur within the next four weeks ( by 31 March 2011). So we therefore need to do the review now, to check this aspect.
The option recommended can impact the following:
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Whether you should consider a change in shareholding of the LAQC company
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Whether you can continue to get a capital gain from the sale of the property out tax free (without needing to also wind the company up)
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Whether you can continue to deduct 100% of your costs such as interest, rates etc and if so, for how long - before the percentage you can claim reduces
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Whether the losses (and profits) are required to be applied to your personal tax returns going forward
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Whether you would need to change the official ownership of the property and therefore incur legal costs in doing so
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What consequences there will be from a desired change in shareholding in future
Planning & Timing
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There are transitional rules for the March 2012 and March 2013 income years, with the cut off for making the decision on entity type either 30 September 2011 or 30 September 2012 respectively. This choice effectively allows changes in circumstances to occur and the decision on when to switch entity type, whichever year is better for you overall.
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Another point is there are concessionary rules in relation to revoking LAQC status that would otherwise not be the case under the normal LAQC rules. This is to allow people to get out of the LAQC regime without too many consequences.
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Whether you could benefit from any shareholding changes prior to 31 March 2011.
Consequences of having new rules
Each of the options has different rules when compared with the old LAQC rules, and also different rules compared with each other.
We realise applying new tax law is part of the cost of being in business and acknowledge it is important to keep costs down for this one off situation. We will keep our fees in relation to this advice as low as possible. That said, we believe it is critical to undertake this work on your behalf, especially given the value of tax at stake. We will ensure your tax position is both protected and optimized.
Wgtn clients - Workshop with FSB4 – Tues March 22nd 5.30-7.30pm
On 22nd March we are hosting a seminar to explain more specifics about the rules with one of our affiliates, FSB4 who are financial planners. I will be emailing an invite out to relevant people separately next week. Please rsvp to Rupert if you would like to attend.
Auckland clients – March 17th /18th
I will be in Auckland on these dates and can meet if you prefer to discuss our recommendation. Please ask Rupert to schedule a time with you.
Our discussions/emails with you individually will cover off specifics of your situation in the next ten days. In the meantime, please think about your answers to the above questions we need to ask you.
Merry Christmas!
22nd December 2010
We wish you a fabulous Christmas and holiday.
We have one or two things still to do and then we’re having a break from Thursday 23rd Dec to Jan 14th inclusive.
Love to you, from Love to Grow!
Keeping the Score - Why?
15th October 2010
Think of the Silver Ferns
Hands up who saw them win Gold last night? Magic wasn’t it, 47 all at full time, still even after two periods of extra time. In total it took an hour and a half for them to get 2 points ahead.
Question for you: How many of those players do you think knew what the score was (I mean, as it was happening?) Every one of them right?
Did you see the reactions the second the last goal went in? Nobody had any doubt they had made it.
Now think about this, what impact would it have made on the game, or any individual player, if the only person they had ‘keeping the score’ was a ‘numbers person’ on the sideline? And God forbid, that numbers person ( might be an accountant even J ) only told them the result months after the game finished?
Do you believe that maybe, the result may have been different? How about if only one team knew the score, do you think that would have been an advantage over their competitor? It’s not hard to see that huh.
How critical would that information about the score have been on the way they played do you think? Think about the level of effort they were putting in, the anxiety they may have felt from a sense of not knowing, or else the ‘she’ll be right’ approach that may sneak in, only to realise too late that they missed the result they wanted cos they were relying wrongly on instinct too much.
What impact might this have had on the way the team played and the results they got? If only one team knew the score, would you sooner be in the team that knew, or not mind being in the team that didn’t?
You probably see where I’m going with this, replace the game with your business (and include your staff btw). Do you (and they) know the score, as it happens? Or are you either guessing, or waiting too long to find it out? Do you know which numbers are important to score – which results are important and which other stats are important? How often do you review them ?
At my BNI group this morning, we were asked to speak about what our business “doesn’t do”. I explained this analogy and mentioned that one thing we try really hard to not do at Love to Grow, is to discuss your numbers (the score) months after the game has finished. (Some clients still prefer this and that’s okay, it’s their choice J)
CFO Meeting
We do suggest however, that we discuss your numbers as they happen, during the year.
So we offer to meet with you ( every now and then, often quarterly or as needed) to discuss the numbers and general management of your business. We call this a CFO meeting ( CFO = Chief Financial Officer, who is normally the CEO’s right hand). Basically to discuss how your numbers are tracking and any general management issues . Which numbers are most important to know, so you get the results you need, e.g. for profit, cash and balance sheet interrelationships. Also wrapped up in some tax effectiveness, of course.
We believe that if you know the right numbers, you can better grow the numbers. And have a jump ahead of your competitor ‘teams’.
Let’s chat soon J Remember that we also do those free 5pm meetings if you want one of those instead.
How to Be Better When You Have Less Resources than Ever
Love to Grow and FSB4 proudly present…
IT’S TIME TO GET HUMAN AGAIN…
Despite the great technological advances we all experience today, our planet still revolves around Human Beings. The ability to successfully interact with and influence people remains paramount to successful and rewarding business and personal lives.
For 60 minutes we are going to work on the most valuable asset you have – beside your family and health – and your business prosperity…YOU!
In this fast paced, interactive and fun workshop we’ll equip YOU with simple tools to utilise immediately to help you achieve more in your business better and faster… without any extra resources.
Developing Dynamic Recall: Information is only power when you can remember to use it at the right time. We will tap into your potential in this area.
Time Management: How to create an extra hour in every day to meet those deadlines and to gain balance in your business and personal lives.
Be your best in any Presentation: The business reality today is... we have less time to communicate to the masses. When we do, we need to be at our best - often we only get one chance.
Leadership Skills: Gain ideas on how to get willing cooperation and learn skills of how to handle customers and staff with different attitudes.
Learn the timeless principles of almost a century that have helped people capitalise on change throughout the world.
Conducted by Annette Cater, Franchise Owner of Dale Carnegie Training.
Dale Carnegie was the pioneer of workplace learning starting what is now the largest training organisation in the world, located in 80 countries and bringing a global reach with a local touch. Annette has a background in Human Resources, Sales, Marketing and Management, she is passionate about people and improving their performance, productivity and profit.
Details:
Tuesday 12th October, 5.30pm for drinks and a 6pm start at:
FSB4
Level 3, Saatchi & Saatchi Building
101-103 Courtenay Place
Wellington
Followed by drinks, nibbles and a chance to network. Please email us at rupert@lovetogrow.co.nz or call 04 972 4182 to confirm your place.
We’re looking forward to seeing you there.
Trish
NEW Tax Rates 1 Oct 2010
What does it all mean and how can you make things get better?
30th September 2010
I’ve put some facts first for your information, and then further down some food for thought. Please let me know your views.
Income Tax/ PAYE Information
Tomorrow ( 1 Oct ) everyone’s income tax rates reduce, at the same time as the GST rate rises. Some things to know…
Full Year Tax Rates
A reminder of the full year income tax rates below. The current year shows the transitional composite tax rates ( these apply April 2010 – March 2011).
Old Current New
Income $ Tax Rate Tax Rate Tax Rate
Y/E Mar 2010 Y/E Mar 2011 Y/E Mar 2012
0-14000 12.5% 11.5% 10.5%
14,000- 48,000 21% 19.3% 17.5%
48,000- 70,000 33% 31.5% 30%
70,000 + 38% 35.5% 33%
Company 30% 30% 28%
PIE rate 30% 28% * 28%
Trusts 33% 33% 33%
GST Rate 12.5% 15% * 15%
* from 1 Oct 2010
There may be a need for some wash ups at 2011 year end as a result of things such as bonus timing or pay increases – we will cover this all off for you when we complete your tax returns.
We’re a phone call away if you would like some help with anything.
What I believe these changes will mean
Public Opinions
Hasn’t there been some interesting commentary about the tax benefits going to the wealthy and how this isn’t fair. I had a good discussion with a colleague today and we think that’s rubbish. And in case you didn’t know, 2/3 of the $ value of the tax cuts is being used to give more cash to people on the bottom two tax rates – so most of the allocation for these changes is going to the lower income earners. That does make sense I reckon. Let’s face it, costs are going to rise.
These tax changes were an attempt to get people to save and /or reduce debt. This is good, but there also seems to have been an underestimation of how much people would resist spending, which has changed the dynamic a bit hasn’t it.
Cash Flow
Talking with a number of business people, some have little room to move with their cash flow. That’s tough and this demands very good decision making in order to ride things out. The GST rises are likely to impact in areas of necessity (which people cannot hide from). Concerning for business, as well as your personal world. I believe things are going to get tougher before they get easier. Some will still fair badly. But there will always be opportunity to be gained by the astute.
Timing
Costs may rise and demand may fall I envisage. (Or it may not!) Timing will be interesting as well. For example, please plan for your first GST return with the new 15% rate being due on 17 January 2011 (the 15th is a Saturday) . It’s due the same day as 1/3 of your annual provisional tax bill and 3 days before the PAYE on all of your staff holiday pay – and this is after being closed for Christmas for x weeks. Nice. Better to know than bury your head though.
Decision Making
We need to be extra smart about the decisions we make. Everything should pass the value proposition test. But it is also important to not ignore or delay the areas of spending that obviously do pass that test. Subject to individual circumstances around cash flow of course.
What’s fair?
I believe that the more one earns, the more one should continue to be incentivised for doing so. Strong leadership in business and the economy is needed. Aspiring towards higher incomes is critical to foster a society of self starters and entrepreneurial spirit. Isn’t it? What else will promote enough sustainable businesses to employ those that do want to stay employees?
Where do you stand?
As an individual, we each need to choose whether we want to be part of the problem or part of the solution. Most of us will make critical mistakes and many of us will fail in part along the way. So what!! It is the path we travel that is most important and the results we achieve in the end I reckon. As long as we each have enough ‘ownership’, ‘accountability’ and ‘responsibility’ and avoid the ‘blame’, ‘excuses’ and ‘denial’ traps. Can I suggest that as a minimum you get help if you need it.
Many businesses want customers to spend more with their business, not least of which so they have enough cash to pay their staff’s wages. So someone needs to have more cash to be able to do so huh.
Is the best report card we can hope for a “could do better”?
I think it is an absolute disgrace that 72% of our income earners manage to earn less than the average wage (and it’s weird how the calcs work out eh). Do we as a group really lack that much achievement drive? If my simple maths is correct, that means 28% of the population earn enough to fund the rest – what an embarrassing statistic.
My goodness, have we no self respect? Do we really have such little business acumen between us all that as a country we can’t even make it 50/50? Are we such a group of self absorbed “control freak, she’ll be right” business owners that we prefer to work by ourselves, rather than build bigger businesses for the benefit of both more, and better paid employees (as well as ourselves)? How are we going to get enough real competition at the medium sized business levels if we do not grow our businesses?
Who is best placed to enable improvement?
Hands up who believes that people who are really struggling financially are the ones that are best placed to lead us out of a recession? So, if my point follows, shouldn’t the business leaders be the ones to receive the tax breaks ?
Why shouldn’t an individual who earns more, earn more? Especially when remembering as a group, the two lower paid tax bracket individuals are receiving 2/3 of the cash from these changes Tall poppies for sale anyone? Or is this just me thinking that?
How to start to improve things
Don’t get me wrong, none of us ever have all of the answers, and we all mess things up some of the time (sometimes catastrophically, but hopefully not). There is that saying about failure creating the foundation for success. Please pick failures that steer, instead of failures that sink.
So, I believe that when we take a team based approach, we can make a very real difference to help New Zealand business have less failures and thrive more. If you allow us to help.
If you want to come through the recession better and need some help, (or what you offer can also make a difference for clients), please give me a bell.
Remember that we offer free meetings at 5pm if you prefer this approach. And btw, feel free to pass this on to anyone else you think would benefit from a catch up.
GST changes - Important things to know
23rd September 2010
Here’s some final things to know about the GST changes – pls contact us with any queries...
If you are on payments basis for GST, please pay particular attention to the adjustments needed.
At midnight Thursday 30 Sept, GST changes to 15%. The time of supply rules govern when the rate is 12.5% or 15%.
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If you have leases, instalments, lay-bys, hire purchase agreements, insurance payments, please contact us if you are unsure of the rate to use when.
Dates & adjustments
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From 1 October, all receipts and payments will get accounted for in your GST return at 15% even though some had a 12.5% GST content associated with them. These adjustments at 30 Sept are needed to front load the difference, so future returns can take a standard 15% approach – as much as possible anyway. We will contact you nearer 28 October to check you know how to do these adjustments.
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If you invoice upfront with a payment plan, or instead invoice via progress payments, the GST may well differ between the two approaches. So ask us about the time of supply if this sounds relevant for you.
Calculations
Accounting systems
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MYOB, Quickbooks, Quicken, and Moneyworks all need some adjustment or upgrades depending on the version you have. Please contact us asap if you have not already addressed this issue and we can discuss this with you. We have written to many of you separately and we know your software suppliers have as well.
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In many cases, Xero is the system that we recommend for coping with the GST changes the best. Their GST returns automatically calculate the Sept adjustments needed and also deal with subsequent return adjustments. Other systems appear to need a manual adjustment for this issue. Love to Grow secures a 25% discount on some of the Xero plans - and we fully pass this on to you as long as you subscribe through us - so if you want to discuss Xero with us, pls call Kirsten and she can set you up. At times a simple upgrade may still be best though.
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There are some GST law changes to accommodate things such as insurance that is spread across periods, leases with a finance component entered into prior to 30 Sept - even though some of the amounts might not be paid until after 30 Sept. Your accounting system needs to be able to cope with continuing to claim GST at 12.5% on some things. Depending on your circumstances, you may need both GST rates in your system for a number of years.
Quotes & prices
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Finalise the price points you are going to pitch at - this is less relevant for business to business clients - if a business is charged more GST, it simply claims the higher amount back, so it’s not of much consequence. We normally suggest you should not try to absorb the GST increase yourselves. Many businesses may use the timing to also increase their core prices as well.
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All documentation in relation to price notification (paper, electronic, systems, and websites) will need to be updated from the time you conduct any business from 12.01am on Friday 1 October. This may be especially relevant for web based transactions. Saying “plus GST” can be a handy workaround if you are a business to business client. More work will be involved for business that typically deal with end consumers.
GST return
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If you use our Love to Grow excel spreadsheet for GST return preparation, pls email it back to rupert@lovetogrow.co.nz by 5 October and we will adapt it for you so the GST calcs are correct - there are a number which have been customised at your end, so we recommend updating your one instead of us issuing a new standard spreadsheet.
Ask us if you are not sure how much GST to charge at what time.
Remember that on every $1000 the additional GST is $25. So although it is good to do things prior to 30 September in many cases, we suggest that you have fun without being silly - think of your cash flow requirements as well before you spend up large in the next week.
We’re a phone call away if you would like some help with anything.
How will all the tax changes affect you?
14th June 2010
I thought it would be good to have all these issues together for your future reference. Scroll down to the headings that impact you - check out our website as well; www.lovetogrow.co.nz for information about our business development, CFO and General Management services.
The amount of tax change affecting us all will be significant over the next year or so, and more changes seem to have just kept coming over this past month. We’ve had the 2010 Budget, an important Court of Appeal decision about Trusts, discussion documents on LAQCs, thoughts about abolishing Gift Duty, as well as suggestions to make PAYE a final tax. Some good things and some not so good things. Below I detail the changes and some of the impacts to be aware of.
Please take particular note below for the following that apply to you:
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You're registered for GST
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You have a LAQC
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You have a Trust (or want to know whether you should)
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You get Working for Families
The 2010 Budget - a plethora of change
The income tax rates are changing per the table below with transitional tax rates in this current year.
Old Current New
Income $ Tax Rate Tax Rate Tax Rate
Y/E Mar 2010 Y/E Mar 2011 Y/E Mar 2012
0-14000 12.5% 11.5% 10.5%
14,000- 48,000 21% 19.3% 17.5%
48,000- 70,000 33% 31.5% 30%
70,000 + 38% 35.5% 33%
Company 30% 30% 28%
PIE rate 30% 28% * 28%
Trusts 33% 33% 33%
GST Rate 12.5% 15% * 15%
* from 1 Oct 2010
Some points to note
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PAYE rates will change from 1 October and the Provisional Tax calcs will change as well. If you earn $100,000 as an individual, you will have $3,630 less tax to pay per annum under the new rates.
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In many cases we will be recommending that dividends are delayed until after 31 March 2011 – but not always, it’s a case by case situation.
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A family with two children will pay no income tax until they have income of more than $50,000 (because of working for families).
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73% of NZers will pay tax at 17.5% or lower.
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2/3 of the cost of the tax cuts is in providing changes to the bottom two tax rates.
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Our tax rates are now better than Australia, right up to $200,000 income. This is to encourage talented kiwis to stay here. The average wage in NZ will now be taxed at 17.5% which compares with around an average of 30% for most of our OECD counterparts.
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Keeping the company tax rate 5% better than Trusts and individuals is intended - to continue investment in businesses.
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The Govt wanted to encourage saving and the reduction of debt and also reduce excessive consumption – so they have given us incentives to save the tax cuts we get via the reduced PIE rate immediately (which is a final tax in most cases on investments). The consumer spending deterrent was the GST rise to 15%.
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There will be changes to whether a taxpayer is entitled to working for families – Trust beneficiary income may count, the details of which need to be ironed out cos this creates all sorts of problems in terms of where to ‘draw the line’.
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Existing imputation credits on dividends should try to be used by 2013 so they don’t reduce to the new rates. We will cover this off with you as relevant at the time we do your accounts.
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IRD have an extra $120 million to spend on audits to check budget change issues – and another $27m just for property issues. They want to generate $745m additional tax revenue from this spend.
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Compared with other countries the 2010 budget isn’t too bad. We’ve had an increase of UK immigration requests - with Greek ones expected to follow. Seriously though, we are in better shape than a number of our overseas counterparts.
GST Changes – things you should know
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Gst is 12.5% until midnight Sept 30th. Changes to 15% on Friday 1st October. The last time the rate changed was in 1989 (10% to 12.5%).
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The “Time of Supply” will be critical to know on each transaction as this is the date that triggers which gst rate to apply. We will help you understand this closer to the time. Normally it is earlier of invoice or payment, but there are some exceptions.
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IRD’s audit activity is set to increase (to ensure correct calculations are made).
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There will be adjustment forms to attach to the GST returns themselves – these amend the 15% GST return calcs to correctly show the relevant 12.5% transactions that occur after 1 October. Amounts received after 1 October will still have 12.5% GST if the ‘time of supply’ was 30 Sept or earlier. So there will additional admin for all GST registered people – likely to be for at least a few GST periods.
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Systems and trading practices have changed significantly since 1989 where the point of sale ‘workaround’ was often to have two different coloured price stickers placed on goods – one for “before” and the other “after” the change date. Now the back office systems obviously have to align as well.
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Computer systems will need to be able to cope with both the 12.5% rate and also the 15% rate simultaneously. System changes are not simply a case of changing the ‘GSTrate’ in one field.
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Online transactions, and all other communications around price both online and in the physical world will need updating on 1 October.
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Whereas the old GST ratio was 1/9th, the new ratio will be 3/23rds – just a tad harder to do in one’s head.
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Any quotes you are preparing should be “plus GST”. All internal costing systems, budgets etc should account for new GST cash flows.
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An automatic right has already been legislated to allow an increase in the GST you charge (unless contractually you have agreed to not do so).
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The basics, like monthly APs, lease contracts, and other periodic contracts will need to be reviewed, updated, payment amounts changed.
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Lay-bys, hire purchases, finance leases, second hand goods, bad debts (and recoveries), long term accommodation all have issues to cover.
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Price points will be a marketing issue . The ‘magical $9.95’ translates to $10.17 so business owners will need to consider whether to:
- Pass on the full increased GST cost;
- Take an opportunity to pass on additional price increases as well; or
- Wear the GST increase themselves and reduce their profit (not normally recommended, but there may be circumstances that warrant this).
We will keep you updated on specific impacts to address as we get closer to 1st October.
Property changes - an area the Govt wants to deter
Why is that? Bill English said, in a recent seminar I attended, that experience has shown them that job opportunities and other stimulus created from investment in the property market, isn’t as valuable to New Zealand long term, compared with the stimulus created when someone instead invests in a business. So they are trying to shift investment into businesses instead of property.
At least they didn’t go ahead a with land tax, or a wide reaching capital gains tax (capital gains on property are already taxed in certain circumstances). In a post budget seminar I attended, John Key reminded that he is wary of capital gains tax, so long may that continue I guess. We are unusual as one of the few OECD countries without a capital gains tax.
Some 2010 Budget property changes :
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Depreciation on buildings is no longer allowed from the 2011/12 income year, unless the building has a estimated useful life of less than 50 years (but the Commissioner has to agree).
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Fitouts are still able to be depreciated, but with exceptions where there is also a non taxable lease inducement.
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There will be tension on re-categorisation of expenditure into fitouts so ‘black hole’ expenditure is minimised. (This is where you miss out on depreciation as well as the general deduction – meaning it just goes into a ‘black hole,’ never to be claimed.
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LAQC changes are expected to be enacted (these are at discussion document stage, submissions close 5 July). These will affect all LAQCs, but will especially affect Property related ones. See below points on that. We need to discuss the impact of this with clients individually.
Other tax changes in the budget
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The 20% depreciation loading on all new depreciable assets no longer applies from 20 May 2010 – so taxable profits will increase.
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New fringe benefit tax (FBT) rates – to align with the new income tax rates.
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Thin capitalization thresholds changed. If you are an overseas investor in NZ, you can only claim interest if the loan is less than 60% geared (used to be 75% before you couldn’t claim the interest). Impact overseas based rental owners as well as normal overseas investors in NZ.
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Repeal of the redundancy payment tax credit (1 October 2010).
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Targeted R&D changes & science assist changes.
LAQC changes
This is an area of significant change, intended to be legislated, that isn’t yet.
The main point to note is we believe every LAQC client will need to be reviewed once the legislation is further drafted (each review to be done before 31 March 2011). There is a chance that we will recommend your LAQC revokes its QC/LAQC status prior to 31 March 2011. For others it will be best to continue having the QC status. Very case specific unfortunately.
The current perspective on what will happen is as follows, but please note that discussion documents have a habit of shape shifting significantly prior to becoming law. Given advice is therefore problematic at this early stage.
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There will no longer be any distinction between QCs and LAQCs.
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They will be treated as limited partnerships, meaning the profits (as well as any losses) will have to be transferred to the shareholders. (At present only losses need to be attributed, meaning there currently room to play re which party receives the profits). Normal companies will still have this choice.
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Interest will only be claimable to the extent each shareholder has ‘contributed’ to the company and a shareholder by shareholder test, (could be nasty). This means that Interest may not be deductible to the same extent it was previously, so again a review will be needed to ensure best results. Thankfully, guaranteeing a bank loan is expected to count as a contribution, so reasonable tax planning is likely to still be available.
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Any revocation of QC status after 1.4.11, will create a deemed sale of the assets of the company and immediate buy back, to the extent of the shareholding being changed. This would trigger depreciation recovered on buildings for example, with no actual sale to fund the resulting tax.
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Dividend and imputation rules won’t apply to QCs – don’t worry about this, we will have it covered.
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Capital gains and revenue income will keep its nature when passed through to the shareholders – can impact when a property is sold for example.
So what do we need to discuss?
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We will be discussing the following with you when we prepare your 2010 year end financials (once the discussion document is a bit further through the process though).
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How long do you think you will keep your property/ies?
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Are you expecting any shareholding changes in your company (e.g. change of investors, Trust shareholdings, personal relationship changes).
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Where the shares are not already owned by a Trust, whether you are interested in asset protection for reasons such as relationship property issues, business risk issues, beneficiary income planning.
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We will discuss how long it is likely to be before the property is profitable for tax – esp given no depreciation claims now. Profitability will impact the tax planning around best ownership.
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The extent to which the additional tax from depreciation changes can be covered by increasing rents – and therefore how much will be out of your own cash flow.
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Where Trusts are involved, the availability of beneficiaries above 16 years old – again tax planning issues, see below.
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Issues for LAQC companies that are not rental property companies.
Based on the above, we will be able to agree whether it is best to keep your LAQC status or revoke it prior to 31.3.2011. It will be difficult to provide a blanket response, so we will be contacting you to discuss.
One point, we believe that whereas previously, it used to generally be a situation of ‘have an LAQC unless there is a good reason not to’, that has now changed to ‘not have a QC unless there is a good reason to do so’. There are some good reasons to continue.
Trusts
The Trust tax rate is 33% which is the same as the new top personal tax rate .
So, is a Trust still a good idea? The answer in most business owner cases is still, definitely.
Profit to other beneficiaries (over 16 yrs), commercial asset protection, relationship property issues, future rest home protection, all still factor as valid and good reasons for Trusts – it was never only about the difference between 33% and the top 38% personal tax rate. However it is still a great idea to discuss issues about Trusts for your own specific circumstances.
How about the Court of Appeal orthopedic surgeon case? This is where IRD attacked the lack of market salaries being paid to the working shareholders, with most of the profit being distributed out to the Family Trusts instead. IRD won the second round in the Court of Appeal very recently (the taxpayer had won at the High Court).
We have always recommended that each year, we agree a ‘reasonable’ market salary prior to distributing super profits out to other shareholders (in most cases, Trusts). So we believe that our clients are likely to be far less affected than taxpayers who blindly only paid themselves $60,000 per annum (increasing to $70,000 when the thresholds changed). We recommend a ‘middle of the road’ approach which is expected to hold our clients in good stead. In my view this issue was always a ticking time bomb. IRD are already looking to apply this Court of Appeal decision via their increased audit activity.
As long as market salaries (or reasonably close) are being paid, the remaining profit can still be played with. Child beneficiary distributions (above 16yrs) or lower income spouse beneficiaries can be paid up to $70,000 per annum, creating a saving of up to $9,080 tax each year (compared with taxing it at 33% in the owner’s hands).
A saving of up to $9080 per beneficiary is still worth a little bit of additional admin each year. Commercial asset protection, relationship property issues and long term retirement planning are still valid.
To show other comparisons, distributing $14,000 saves $3150 tax overall per annum and $48,000 saves $8420 per annum.
Gift Duty
Peter Dunne has been recently mooting the abolishment of Gift Duty – this would be very welcome news, depending on how they would do this.
This could potentially make the forgiveness of debt when property or shares are transferred into a Trust very simplistic (rather than being forgiven at $27,000 per annum, which can take ages sometimes).
I imagine the rest home claw back rules would still apply and so would the claw back relating to liquidation rules etc. Watch this space to see whether this idea gets much traction and the actual rules being developed (if any). It may not fly.
Working for Families
The 2010 Budget referred to tougher rules around working for families criteria – Investment losses may not qualify and Trust income where someone is a beneficiary may reduce working for families' entitlements. How, and the extent to which one should apply beneficiary income may be problematic. It is designed to trap adult beneficiaries who own a business but don’t receive beneficiary income themselves. Where to draw the line though? For example, should my working for families' entitlement be impacted if I am the adult beneficiary of my elderly Parent’s Trust? How about if I don’t actually receive any beneficiary income this year from my elderly parents?
The business adjustments will also get more refined. All with the intent to reduce entitlements. Some business owners don’t fully utilize working for families anyway, out of a sense of social responsibility or similar, but there are also significant numbers who ‘work the system’ within the current rules.
There are a few things to iron out, so again we will need to watch this space.
PAYE being a ‘final tax’
They are also raising the issue of making PAYE a final tax, meaning it stays outside of a tax return at year end. I imagine this won’t affect anyone who has to file a tax return – business owners, rental property owners etc. It is designed to prevent the old IR5 employee still trying to file tax returns to get refunds that result from incorrect PAYE deductions – to save compliance costs.
A whole industry in checking employee tax positions has developed in shopping malls because the PAYE deduction system has some glitches – so in my opinion they will need to fix the glitches first. So we will need to wait and see whether this will get changed.
Let‘s have a chat
Drop us a line if you want to discuss any of the above. Rest assured we will be raising relevant issues with you as we go through your accounts anyway and also once the relevant discussion documents are more progressed. In the meantime, we will be happy to answer any queries between us.
Loyalty Offer with Atlanta Bar & Cafe
1st March 2010
We want to help just a little for the hard work businesses have made over the past 12 months.
Atlanta on 105 the Terrace is a favourite location for me, with excellent service and the quiet part round the back is a really good place for meetings.
Vic and the team want to say thank you to all of the custom we bring between us - from Love to Grow clients, affiliates and colleagues.
So, for 2 months, you can treat yourselves . . .
Buy a coffee and get 1 FREE (or choose a free muffin or slice)
Most cafes have a loyalty program that accumulates a number of coffees before you get a reward. Not this one. If you work with, are a client or potential client of Love to Grow, you are welcome to take up this offer. If you buy before 4pm, the second coffee or else muffin / slice is on Atlanta. Awesome!
So what do you need to do to get this deal?
That’s it! You will receive a FREE item of your choice. (within the available food range for that day).
Offer valid 1 March – 30 April 2010
Feel free to pass this on to business owners that have similar business values to ours. We know we won’t be able to prove someone is a Love to Grow associate, so please use your professional discretion in forwarding this to businesses that could benefit from dealing with Love to Grow (as well as getting great coffee.)
Your business card details will be saved, with your permission, to inform you of any future promotions by Love to Grow and Atlanta. (Going onto our newsletter lists.) Should you NOT wish to be kept informed of our collaborative programmes, please indicate this on the back of your business card.
It’s okay to use this offer more than once btw, Atlanta genuinely want to provide a benefit to all the Love to Grow clients/associates as often as you want for the two month period. If you have received this in an email from me, you definitely qualify. I hope you enjoy it.
Thanks Atlanta !
Give Vic a call on 499 5209 if you also like to discuss catering for functions or company meetings.
Btw . . . if any of you have other practical offers or collaborative opportunities you could offer through our network, feel free to drop me a line. As always we want to help businesses save costs and time, make more money and enjoy things more.
Cheers!
Trish
Atlanta Bar and Cafe contact details
Vic Hughes
Manager
Great beverage and food makers
ph 04 499-5209
email : atlanta@duo.net.nz
Loyalty Offer with Stationery to You Ltd
18th February 2010
Here’s an offer to help your business save money– become a Stationery to You customer and get great discounts on your business stationery. And if you’re a Love to Grow client or associate, you get even better discounts.
Also see below for an awesome giveaway if you order at least $50 before 31 March 2010.
What does Stationery to You do best?
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5 star focus on service and prompt delivery
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They don't just take orders, they recommend other options that add value, save money
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At least match, if not better a price that you’ve been quoted elsewhere
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Full range of business stationery
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No printing downtime if you’re caught short. If they can't get a cartridge to you in time, they will temporarily provide a laser printer instead
Special Offer for Love to Grow Clients and Associates
Hubert will provide a further discounted price if you are a Love to Grow client or associate. If you have received this email directly from me, you and your business qualifies.
Email Hubert@stationerytoyou.co.nz with your contact and delivery details. He can then fill out a quick application form so you can start to get the Love to Grow discounted rates.
Check out www.stationerytoyou.co.nz or contact Hubert Kuzel on ph 04 232-8548 for more information.
How easy is that !
We don’t want to exclude any Love to Grow customers, so if you’re a client that works for a Corporate, you and your employer also qualify. Forward this email to your relevant internal person and ask them to mention your name as the referral so Hubert can verify with me.
Extra OFFER if you order before 31 March 2010.
FREE Cookies from The Protein Bakery LTD . . . creators of The Protein Cookie, The Protein Brownie & The Grab ‘n’ Go Cookie
The Protein Bakery provides healthy, baked products to consumers wanting a healthy lifestyle without losing the chance for the occasional treat. Their Protein Cookie range is wheat/gluten free - high in protein, fibre, calcium and low in carbs.
Also, here’s your all day breakfast cookie!
Now, with the introduction of the Grab 'N' Go Cookie , boost thru your day with this delicious all day breakfast, bursting with jumbo raisins, diced apple and the goodness of whole grains & a hint of cinnamon ( This one has gluten).
Spend $50 or more before 31 March and Hubert will deliver you a 12 cookie box of The Protein Bakery Apple Crumble cookies totally free - check out www.theproteinbakery.co.nz......... That’s $42 worth of large, delicious and healthy …. and it’s free!
Trust me, these Apple Crumble cookies are big and yummy, 26% fruit, great as a breakfast or lunch ‘grab and go’.
So, what do Stationery to You provide?
Thanks for this offer Stationery to You!
We’re doing our best to help our clients have more profitable businesses. If you have any offers that could benefit our clients, we’re happy to discuss them with you.
Making your business improve your lifestyle
21st January 2010
Does your business give you the lifestle you want?
Happy New Year!
First week back for many, thought we’d contact you now that it’s time to get serious again, (but not too serious). We aim to help you with the serious bits, so you can do more of the fun parts of your business.
Freeing you up for that lifestyle you want (and deserve)
In my Xmas email, I suggested you think about the results you want most. We are doing a series of offers over the next few months, with many available at an affordable price range between $199-$599 plus GST.
The series is aimed at freeing you up to continue what you’re good at, and helping you with the bits that you don’t like, or find difficult. We can start with helping you work out what those areas are.
So tell me, what do you need most?
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How can you get more time?
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What can you do differently so your business just works better?
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What numbers in your business are the most important to know?
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What needs to happen so you have more cash?
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How do you get less stressed financially?
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Being able to take a break and know your business is in safe hands?
Give me a call on 972 4182 for a FREE chat about which of these are best suited for you.
Here’s some of this month’s ideas that might help you.
More Cash
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Finance Health Check - What are the most important tasks to improve your cash flow?
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Personal Budget requirements – What profit does your business need for you personally? What can be improved in your personal finances?
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Cashflow Model or review – What cash impact is there by changes in your sales, customers, staff, overheads, margins?
More Time
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Virtual Financial Controller . . . What aspects of your finances can you delegate externally to an expert who understands which numbers you have to get right?
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GST returns preparation . . . Do you want to delegate that boring financial admin so that you have more time to work on the areas of your business you enjoy most?
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Office efficiency review . . . Do you need an efficient way of setting up your files and internal process to improve information flow and communication?
Help with Business Management
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Virtual General Manager . . . Do you need someone to manage your business part time so that you can take time out knowing your business is in safe hands?
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Business Gaps Report . . . Do you know which areas in your businesses are a weakness? How important are they in impacting your clients? What perception gaps are there between you and the staff?
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Business plan/budget for 2010/11 . . . Do you have your goals sorted yet?
Better Tax Benefits
And okay, if you want us to . . . we can talk about how to get your tax bill down. Cos let’s face it, it might be boring, but it is much better to have the cash in your pocket. We know that for some, this time of year can be difficult with IRD grabbing Prov tax, GST and PAYE within a week. And then they do GST again in February as well!
Not to mention some tax changes in the wind you may have noticed in the paper.
So here’s some ideas this month that might help you with the Tax side of stuff....
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Business structure advice . . . Are your affairs well set up for your current plans?
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Negotiating IRD instalment plans . . . Do you need a breather from IRD without incurring penalties?
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Setting up a Company or Trust . . . Not sure how, whether it’s a good idea, or just want someone else to sort it for you?
So yes, we are saying that we do have some magic wands. We can give you some practical, grounded advice, that won’t cost the earth, but in areas that are very important to address.
Drop me a line if you want to chat about any of these - trish@lovetogrow.co.nz.
You don’t drown when you find yourself under water . . . you only drown when you stay there!
We want to do our bit to help ensure everyone thrives. And we don’t want the issue of price to interfere with your need for good advice. If there is an area of your business that needs help, we will help you work it out in a way you can afford.
Never let what you can’t do, interfere with what you can do.
Please forward this onto people who want better results. We are able to offer both of you a special discount as a thank you.
Here’s to a fabulous 2010!
How not to drown when you find yourself under water
17th December 2009
The few months after Christmas can be a real challenge, can’t it?
January 15th is the payment date for both your GST, as well as 1/3 of the year’s tax. Five days later the PAYE for your holiday pay is due and at the end of February another GST payment is required. That can be tough.
We all know that these payments are supposed to be waiting patiently in a savings account, but the reality is some businesses have been hurting just a bit, evidenced by how slow debtor receipt averages have become across the country. The small business community seems to be holding hands and hoping for the best, which frankly won’t be enough to make a positive difference in your results.
So, we are going to continue to do our bit to make a positive and lasting impact on improving your results. In January, we will be starting a series of offers with will include Health Checks and business reviews for under $600!
Why? We think the next four months are going to be the most critical business phase in many years for most SME businesses. We want to do our part to ensure you actually get the results you work so hard for.
If you know which area in your business can best change for most impact, you can focus your attention so much more effectively to get the results you need. Correct the cause, instead of just the symptom.
What you need to do:
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When you are doing your New Year’s resolutions, think about the type of life you want and importantly, the results your business needs to achieve that.
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Book a ‘business gap’ meeting with Trish to work out which type of health check or business review would be best for you (and your budget) during the special offer period. Do it after hours and it’s free, during work time it will still be cheaper than normal. Twice the value and much better than market price is our intent for Jan- Mar.
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Be open to getting some help. Seriously.
In January we will be letting you all know more, so in the meantime think about which parts of the business you would like to weave a magic wand across.
Remember, you don’t drown when you find yourself under water…. You only drown when you stay there.
Sometimes all you need is a hand to reach down and grab you back up to the surface.
Free advice and clinics
7th November 2009
In order to help our clients more, last year I floated some ideas around free advice such as focus groups and free clinics. We would love to hear from you as to whether this would work for you, and what kind of topics you feel would be of most interest.
As you all know, I enjoy the social aspect of meeting getting together for coffee, so if any of you wanted to chat at say 5-6pm on a Thursday or Friday, I tend to not charge for this ‘after hours’ meeting time. So if you want some help with tax, accounting or business development issues, feel free to book a time. The only catch is, I figure it might be fair for you to pay for the coffee! And given I like to use clients’ cafés/bars where I can (to also support their business); I might also reserve the right to suggest the venue.
“Free clinics” feedback from 2008
We got HEAPS of replies – all really good ideas thanks, much appreciated. We will be able to suggest a better concept as a result and will incorporate your feedback when setting these up. So watch this space.
Tania Davis Law won the $100 dinner voucher – well done They do all aspects of family law. If you need help at any stage with separation and disputes over property or children, Tania and her team are really awesome. Based in Porirua, they service all of Kapiti and the greater Wellington region. Their website’s good, check it out.
Contact details:
Tania Davis Law
Ph (04) 237-0501
Email: tania@taniadavislaw.co.nz
www.taniadavislaw.co.nz
Cash flow Improvements
28th March 2009
Although this doesn’t apply to everyone, thought you might know other businesses that might benefit. Not everyone knows this is an option.
With terminal tax due on April 7th and prov tax on May 7th, cashflow can sometimes be difficult at this time of year. Btw, if you haven’t had a letter from us recently about tax due on April 7th, it is because you don’t have any, so don’t stress.
If anyone is struggling with their cashflow, an installment option with IRD may be of benefit, which avoids late payment penalties. Important to note the following though:
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We can organize a instalment plan simply via a phone call with our IRD contacts as long as it is done before the due date.
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The repayment term for a phone call approach needs to be 24 months or less.
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Interest will be charged at the applicable use of money rates ( currently 9.73%, but subject to change).
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The interest charged by IRD is generally deductible – but talk to me about this.
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All other taxes ( e.g. income tax, paye, gst, fbt, etc) need to be paid as they fall due.
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Penalties ( as well as the interest) will be auto charged by the IRD computer throughout the repayment term, but IRD will manually reverse the penalties at the end, as long as the agreed terms are complied with. You cannot avoid the interest.
It’s always best to fully pay IRD as the amount becomes due, however I don’t think this is a good idea for everyone. If you are finding cashflow, this is an option that we could discuss. It avoids penalties being charged and keeps IRD at bay from the perspective of them taking legal action.
Key point is you need to enter into the deal before the due date and other tax types need to stay paid up on time. IRD prefers dealing with taxpayers who are proactive compared with those who bury their head in the sand. They have little tolerance with the latter and are generally very accommodating of the former.
Contact me if this is an area you may want to pursue - trish@lovetogrow.co.nz
Tax change enactments
28th March 2009
There are a stack of tax changes happening, and most, once enacted, will be effective from 1 April 2009. If you know other business owners who might benefit from this type of info, let me know and I can get their permission to add them to the list.
Tax changes expected to be enacted, are as follows:
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Safe harbour threshold for use of money interest on individuals rises from $35k to $50k ( from 2009/10 year)
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GST registration threshold raised from $40k to $60k (from 1 April 2009)
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GST payments status threshold raised from $1.3m to $2m (from 1 April 2009)
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PAYE once a month filing threshold raised from $100k to $500k (from 1 April 2009)
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Minor fringe benefits exemption raised to $300 per employee per quarter and $22,500 pa per employer ( from 1 April 2009)
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Standard uplift calculations of provisional tax changes from 105% to 100% and 110% to 105%
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Business with $10k or less of business related legal expenses will be able to fully deduct in the year incurred (from 2009/10 income year)
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FBT annual filing threshold raised from $100k to $500k ( from 1 April 2009)
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FBT annual filing will be able to include closely held businesses with one or two vehicles used by owner-employees regardless of their annual PAYE deduction levels (from 1 April 2009)
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Exemption threshold of low value stock raises from $5k to $10k ( from 2009/10 year)
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Six monthly GST filing threshold rises from $250k to $500k ( from 1 April 2009)
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Use of money interest rate on underpayments reduced from 14.24% to 9.73% and on overpayments from 6.66% to 4.23% ( already enacted from 1 March 2009)
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Allowing Companies and Trusts to use the cash basis person rules on financial arrangements and raising the thresholds for accounting on a straight line basis from $1.5m to $1.85m ( from 2009/10 year)
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FBT prescribed rate of interest on low interest employment loans lowered from 10.90% to 8.05% ( already enacted 1 March 2009)
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Personal tax rate changes will be effective from 1 April 2009. Check out an earlier email under “Notice Board” on our website for that - issued 1/10/08.
Collecting cash
March 2009
I had an interesting chat to Neil Budgen from Seriously Sorted Ltd the other day. He helps with exit strategies for businesses and like me, tries to keep business things simple. He has an acronym MDC that I liked. It refers to everything, any business, ever does. Stands for Make the sale, Deliver the thing (product/service) and Collect the cash. Whatever element you get wrong, is likely to be correlated to the reason a business struggles.
I want to provide my perspective on the “Collect the Cash” part, esp with this being very topical at the moment for most punters. As a lot of you know, I often have conversations with varied businesses about how well things are going. And they all seem to be saying the same thing.
Debtors days are stretching out a lot, for most businesses, stemming the flow of money from business to business and at the same time, banks are also getting a lot tougher. Some Govt Depts seem to be really bad at paying the small punters (which has an element of irony).
“Make the sale” is also an element of concern for some businesses right now, but I imagine the cause is not because the prospect doesn’t want the deal being offered, but because they are scared about not having the cash to pay for it. They seem to be worried about how quickly they will be paid by their own debtors. It may be helpful to Brain storm together on how to remove those resistance points before they even arise.
Here are some things to consider when you are looking at the “Collect the Cash” type issues.
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Have you done everything you possibly can to speed up your cash flow cycle? Invoicing sooner, more often, etc as appropriate. Are you actually chasing the debtors per your credit policy?
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Is any current business relationship absolutely critical to the future sustainability of your business? Understand that although a business relationship may be critical, no business relationship should more important than the sustainability of your own business. So take care to ensure your actions are consistent with this. Obviously continue to act under your same business values though and relationships are a very important aspect.
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Do you know what the most important item on your balance sheet is to ensure the sustainability of your business? What $ level should this be at?
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Do you know how close to the wire you can get with your cash, before your own business will be in cashflow trouble?
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Do you know your Companies Act responsibilities in terms of reckless trading, trading whilst insolvent etc?
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Do you have credit policy/procedures and is this consistently applied every month?
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Are your actual terms of trade appropriate, in writing and signed up to?
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Are you prepared to talk instalment terms with a debtor as long as they do what they say they will do? How easy are you prepared to be on them?
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To what extent are you prepared to act, if your debtor does not do what they say they will do, at the time they said they would?
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What do you need to do so you don’t effectively operate as a bank for other businesses, or just deal with businesses that understand your payment terms simply need to be enforced?
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Do you have someone else besides yourself to do follow up on the cash owed to you?
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Do you know who your “A”, “B” and “C” clients are? Every business has these, whether the owner realises it or not.
If these questions are difficult for you to answer for any reason, I suggest we meet at some stage to discuss. Easiest way is to email me to request a time.
Changes at Love to Grow
March 2009
As many of you know, Stephen Reid from Ramp has been an instrumental part in our Love to Grow branding evolution thus far. He made a passing comment to me ( quite a while ago now) which I have fairly regularly quoted ever since. It was along the lines of “Trish if you want people to think you are funny, what you can’t do is go into a room and say you are funny. What you need to do is go into the room, and tell a joke. So, using that analogy, in terms of Love to Grow™ teaching people how to grow their business, how does Love to Grow “tell the joke?”
There are many ways that we try to ‘tell the joke’ when helping clients grow their business. One of the most important things we need to do in my opinion is to ensure we consistently lead by example, especially with the things we consider to be critically important for the success of any business. It is also important that Love to Grow itself continues to appropriately manage its own growth stages. So that we, like you, do not get taken out by changes in the economy, or from our own clients’ inability to thrive, or pay us etc.
As part of managing our own growth, the main change is that on 1 April 2009, we will be changing to operate as Love to Grow ( Wgtn) Ltd, which I view as the first (existing) branch of a number. This structure will enable better investment, governance, growth and exit strategy and is an exciting phase for us, with a view towards continuing a positive outlook.
As part of this change, we will be tweaking our credit policy, but not significantly. From most clients’ perspective, we imagine that the changes will go unnoticed. There are some housekeeping items that need to be covered off, given at some stage we will officially have to change engagement letter entity and IRD tax agency to the company, which we expect to do at the time we commence your next work etc. Specifics will follow subsequently, via correspondence to each of you.
Terms of trade will change from 7 days following invoice to 20th of the month, which in light of the current economy, enables you more time to pay without consequence. We do expect to invoice a number of you via instalments, partly at we start and partly at the end of work, (rather than all at the end). This is designed to make your invoices individually smaller and more manageable, as a result of requested feedback to this effect. It will also still provide acceptable cashflow timing for us.
In this upcoming year, our hourly charge out rates are to stay the same as they have been this past year. Our new terms will include the right for us to choose to add interest on overdue payments and collection costs, should you not pay as agreed. And although this is a change, we hope we will not have to enforce this too often. I am hopeful that most of the Love to Grow clients will flourish and this will not even be an issue. But from the perspective of setting a good ‘leading example’, we consider it important to set down and apply a better credit policy and procedures all the same.
In summary
It may be some time before small NZ businesses are out of the woods, but I don’t think this is necessarily a bad thing at a holistic level. Business like water, will always find its own level. The good businesses that survive this period will rise stronger than before in relative terms, by virtue of having less or weaker competitors.
The trick is to ensure you are actively doing the right things, in the right sequence, with the right people, so you are on the right side of the situation. So please contact me if you think either us, or any people we deal with, can help out with any aspect of your business.
Fraud and staff theft on the rise
December 2008
Duncan Holland from ToTal Risk Management tells me they are seeing a noticeable increase in fraud and staff theft related issues – so keep an eye to this issue in your processes please. The increase can be a factor of more difficult times and also Christmas. Although you surround yourself with trustworthy staff, you still need to be vigilant that your systems mean you don’t need to. Human error is a reality, as well as bad intent at times unfortunately.
Please discuss with me your internal controls if areas of your business don’t seem to be working properly– that can be an indication that something is wrong. Doesn’t matter whether it is incompetence or intentional, losing cash needs to get fixed. Revenue is often lost due to inefficiencies more than anything, so a general review of your systems is also advisable periodically, to improve your cash and also business value.
We will be happy to discuss this issue for your place of work ( whether you are a client, L2G associate or employee of a corporate, as relevant for each reader). We can discuss options to improve your results and operations, potentially referring you to others, depending on the issues at hand.
Tax changes update
December 2008
The National Govt legislated a number of promised changes last week. Key points as follows:
Kiwisaver – changes from 1 April 2009
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Compulsory employer contributions will be 2% maximum
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The minimum member contribution will reduce from 4% to 2%
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Employer tax credit will be removed
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Employer superannuation contribution tax ( previously SSCWT) will be capped at 2%
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The member fee subsidy of $40 per year will be scrapped
There is going to be a new Independent Earner Tax Credit (IETC) for workers who don’t get either working for families or any benefit, and earn between $24,000 and $44,000 pa. $10 per week from 1 April 09, increasing to $15 per week the following April.
Fraud on the rise, free clinics and tax changes
IRD activity - LAQC properties
October 2008
IRD have today officially advised that the majority of property companies registered in NZ as loss attributing qualifying companies (LAQCs ) are going to receive a standard letter in October. ( I gather there are about 46,000 letters nationwide expected to go out)
Their letter will ask whether any Director or Shareholder personally lives in any property owned by their own LAQC. IRD has issued various types of public notices over the past year or so expressing concern where people live in their own LAQC property. You may recall that Love to Grow has also consistently advised against this situation because of the general anti avoidance aspects of the Income Tax Act. This has even more become the case in recent years since IRD has been making public statements in newspapers etc.
IRD state in their standard letter that they view this approach to be tax avoidance, even where market rent is paid. They further view some approaches as tax evasion ( which is much worse). The standard letter reminds taxpayers that tax evasion is a criminal offence ( can come with a jail term). They are suggesting that taxpayers make a voluntary disclosure to IRD if the circumstances relate to them. It is fair to say that IRD are expected to take a fairly hard line on this issue. Activity like this has not been witnessed to this extent for a long time.
Almost without exception, unless your circumstances have changed, we know you will have no need to do anything if you receive one of these letters because this situation does not apply to you. So please do not get concerned as a result of receiving this request from them.
However we would still like to be kept informed as you receive these please. If your circumstances do now include a situation where you live in your own LAQC rental, we strongly recommend that you allow us to respond to IRD on your behalf. Please contact me if this is the case so we can assist in managing the situation to minimise any penalties that may otherwise arise.
You may be aware that the Government has funded IRD $14.6 million to investigate general property related issues, which presumably includes these LAQC requests. It is widely anticipated that a much wider sweep of tax related property issues will also begin to unfold.
Seminars
October 2008
Upcoming Events
Trish is compiling a series of workshops to present on current issues topical for small and medium sized businesses. Please contact her on trish@lovetogrow.co.nz if you have particular topics you would like Love to Grow™ to address.
Recent seminars
I have done some seminars in the past few months. If anyone would like to get copies of the slides, please reply email for the ones you want.
Maus Business Development Annual Conference (Sydney)
“Teaching clients a Business Development Roadmap”
Women Creating Wealth Workshop
“Understanding the impact of the numbers in your business”
Wellington Chamber of Commerce
Small Business Expo
“How to Improve Cashflow”
Wellington Chamber of Commerce
“Understanding your Business Value”
Crombie Lockwood client series
“The next eighteen months – What should your business do?”
National Small Business Expo - National Bank Seminar series
“How to Grow your Business – what to focus on.”
MAUS Business Development Conference (Sydney)
”Important things to remember when teaching clients”
Personal tax rate changes
October 2008
These take effect from today. For those that have staff, use the new PAYE tables for any wages paid from now on. If you haven't received updated PAYE tables, please contact us if you would like us to send one to you.
Because the tax rate changes are being implemented part way through the income year, IRD have released composite tax rates for the March 2009 year so that an average is effectively applied. Below are the tax rates that will be used to determine your annual tax liability in your 2009 tax returns.
| Income |
Composite Tax Rate 08/2009 Year |
New Full Year Tax Rate for 09/2010 |
Old Income - Rates |
| $0 - 9,500 |
13.75% |
12.5% |
$0 - $9,500 15% |
| $9,501 - $14,000 |
16.75% |
12.5% |
$9,501 - $38,000 21% |
| $14,001 - $38,000 |
21% |
21% |
| $38,001 - $40,000 |
27% |
21% |
$38,000 - $60,000 33% |
| $40,001 - $60,000 |
33% |
33% |
| $60,001 - $70,000 |
36% |
33% |
$60,001 and higher 39% |
| $70,001 and higher |
39% |
39% |
The low income rebate has been removed and although there is a new low 12.5% tax rate, no new matching secondary tax rate has been introduced.
There will also be changes to the dollar thresholds in the 2010/2011 and 11/2012 income years. At the top levels, you will need to earn over $75,000 to pay 39% tax in the 2010/11 income year and over $80,000 the following year before the top tax rate applies. All of these changes have been legislated already. It remains to be seen how/if a National Government might suggest improving on them.
Ground Zero credit crunch
October 2008
You have no doubt seen in the news the impact that the US markets are expected to have on NZ. To provide some ground zero insight, in the past 6-8 months I have witnessed increasing information requests from banks whenever a client wishes to continue existing funding, or increase facilities. They have also been implementing much tighter credit criteria given economic occurrences over that time. Some applications are being refused where before they would have bolted in.
Very little funding has been reapproved without first completing a proper application that is accompanied by the latest set of financials as well as cashflow projections. Although we have found the bank personnel to be helpful as best they can, the feedback is that their hands are tied a lot more than they used to be. All of this is borne out in the news as well.
In the newspaper today, Gareth Morgan suggested that those with mortgage funding up to 90% may be requested to reduce this to 80% before too long and to try to attempt paying off debt at least down to that 80% level before the bank forces your hand. Sound advice from my perspective.
Easier said than done for some punters, but I think it is fair to say the writing will be on the wall for some and assets may need to be sold in time if cashflow issues worsen at an individual level. Not the best time to sell assets over the next period either, so it may result in a double whammy unfortunately. So it is important to actively manage this situation.
As a chartered accountant I am unable to give financial planning advice about where to place your spare funds (if any), but one thing I do generally suggest is that you consider your own debt positions carefully and ensure you live within your means. Ensure that your businesses only have to fund a market salary level for the work you do (if either you or your business starts to experience financial difficulty at any stage). Advice should be sought from financial planners that are very competent I suggest. It is also very important for legal reasons to not personally bleed your business of its cash.
If either your business or your personal cashflow is struggling, I suggest you discuss this with me sooner rather than later. There is often a better way to structure things, generate more cashflow or reduce expenditure. And if there isn't, it is far better to understand this properly soon, before it gets worse to the point of no return.
We all know that very good businesses can sometimes be the cruel casualty in difficult times because their own customers start to struggle. So I suggest that managing your own customer base in terms of credit criteria and cashflow management may be critical in times to come. There is that saying, "When waters are rising, all ducks float. It is only when the waters fall that you see which ones are dead". Acceptance criteria for your new customers and debtor management may be critical over the next 18 months I suggest.
If you would like to gain my perspective on any business issues you may be facing please contact me. I have a number of key professionals that I can recommend in many business areas, so even if I cannot assist personally, I may know someone who is best placed to help.
I hope this doesn't come across as too much doom and gloom. :-) It is important at Love to Grow™ that we do the best we can to help our clients prosper and grow to the extent they wish. It is therefore equally important to provide advice in relation to protecting the businesses you have already built up to date. And provide some general advice just in case you need it now or in the next period of trading. I would hate to see any of you suffer at the hands of your customers getting into financial trouble. It is important to take things by the neck and manage the situation before it manages you.
Showing Clients how to Grow
Dominion Post
Sept 2008
What does a Chartered Accountancy firm and a Brand Elevation company have in common?
Besides being the start of a joke with an Irishman in a bar, in this case the answer is they both show their clients how to grow.
Trish Love from Love to Grow™ started her business around ten years ago. Stephen Reid from Ramp has been a client ever since.
In growing her business, Trish regularly adapts Love to Grow’s™ strategy, operational structure, staffing, systems and cashflow. The firm helps clients combine practical strategies with a focus on key drivers to create cashflow. Bringing these elements together, they lower risk, increase sustainable profits and value.
Five years ago Ramp helped change their branding to better communicate. Trish says this was a critical step, directly increasing the firm’s value.
Trish has found that any credibility questions on growth advice are best answered with action, working on growth opportunities for clients, rather than just discussing the theory. Experiencing her own business growth has been critical to assist in understanding how to best do this.
Stephen says that “Love to Grow’s™ approach helps us seek opportunities based on realistic goals and a real understanding of where we are at, at any given time. It is accountancy with an eye to future growth, rather than retrospective bookkeeping.”
Although their businesses are different, much of their focus is similar. And they can even tell the occasional Irish joke.
How about saving some money when you meet for a coffee?
I thought I would explain some of the “Why and What” of numbers management. Which numbers are important to focus on and how can you tell if the numbers start to falter. How to regroup quickly.
Why is focusing on the right numbers so important?
Check out my email “Keeping the Score – Why?” (15 .10.11 – or else under Announcements on our website)
If a business doesn’t know ‘the score’, it can have a picture of the results that is very different to reality. In addition, the hunger with which one approaches things can be massively different to the level needed to achieve the results desired.
We all need to track our results, no exceptions, no months off. Only a few of the key numbers normally need to be top of mind. The core drivers of the business are generally far more important to track on a regular basis. Outputs also need tracking, sometimes less often, sometimes more often, depends which one. Every business has specific areas that are most important - but there are also some general rules of thumb.
What are the most important numbers to manage in your business ?
Every business has specific needs, but here is a general list that all businesses should be well across. Specific needs should be discussed cos some of these may be more important than others.
Targets – the plan for annual and this month targets for customer numbers, average value sale, $ Sales % margins, $ expense levels, $ profit, cash, debtors days, creditor days. Many other items such as stock turn, churn rate etc are case specific.
Actual results – for the same target items above –to provide actual results and comparison of the variances – active inquiry into the cause of the variance is critical (and often not done I might add). Human nature can be to far too easily dismiss the cause, which can result in a critical error of judgement sometimes.
Profit – always make a profit – every month. Not just most months. ( January can sometimes be an exception). Start up or heavy investment phases can be different yes - but I would invite you to consider how long you wish to tolerate losses before requiring the results you want. Step one is know the monthly results - some businesses don’t even know that. Have a monthly reporting calendar that is adhered to and report to somebody - with explanations for budget variances. We often take that role as the internal CFO.
Personal interface – know your personal budget ( most people don’t, when we first meet them) and also know whether your business can sustain it ( heaps can’t, when we first meet them). Change something if needed. Increase profit or reduce the personal need - but always live within your means. Have a reality check if you are not and get some assistance to improve the situation. Bleeding your business is way too common. Tax first, a habit of savings second, eat third. (I’m not joking). But it can sometimes need to be a gradual shift.
Cash – is always King. Those with the cash, are always those with the leverage. Know :
How much you need for the next six months minimum – at all times.
Your minimum level of working capital to stay afloat - and never go below that – delay spend activity if needs be - That said, it far better to instead turn the results around, so you can “have it all “, but there will be a bottom $$ threshold that you never allow yourself to fall below. One month’s expenses is a good initial guideline with a goal to increasing this to three months. This can be very business specific though and highly dependent on goals in play and knowledge of upcoming income streams. It can be lower than this sometimes.
Remember that cash flow is only ever a symptom – it is only a mirror into the other aspects of your business – if cash flow is a problem, it will always be because there are core business issues not being addressed somewhere.
Balance sheet management – this is also very case specific - but here’s some general guidelines
Working capital management is critical and the relationships between your current assets ( bank, debtors, fast moving stock) and current liabilities ( creditors, gst, short term tax due) is really important . Have a CFO review with us to check if these are best practice levels or not.
Paying bills on time is a no brainer, yet many businesses don’t/can’t at times. Best way to approach this is to decide what your standards are, so these are in line with your business values. Stick to your standards and don’t over commit within the boundaries of your working capital. Not rocket science, but I also suggest independent perspective re your working capital levels. We all make mistakes sometimes, forgive yourself and immediately move to improve.
Recognise if your cash based actions are out of alignment with the rest of your business values – change something to bring them back in. This may impact your management of your debtors and creditors going forward.
Debt management - align long term debt with long term assets – so your cash doesn’t need to work too hard. Short term debt can be for short term assets.
Emotional debt management - This may be a contentious one - I believe that if you want to be prosperous and sustainable long term – learn how to only go into debt for assets that are going to increase in value. Resist the need for instant gratification. If you spend on something that is going to reduce in value, only spend what you can afford (and afford to lose). Most times your business itself will increase in value – but not always- so have your eyes open. Excessive spend on your business itself is best “value” and “return on investment” based. I’m not saying don’t spend, much more to have your eyes open about it. Some things are critical granted, many can wait another month until you do have the cash.
Manifest cash – you get what you expect – have a belief system that cash will not be a problem and it seldom is – allow that belief system to bear fruit before you commit funds though Remember that belief without action is dead. Ensure you have an appropriate amount of activity around your sales, systems and reporting to ensure your activities actually warrant the cash arriving when it needs to. Remember cash flow, good or bad, is only ever a symptom of the rest of your business. That said, it can also simply be a symptom of your own fear based beliefs which can create a block on any aspect of the system working properly. Allow the cash to flow without emotional impact and as long as your activity supports it, it normally flows as needed.
Pay and save for yourself first – I am not advocating bleeding the business. You always need to live within your overall means. I am however, advocating you require the business to pay you what you are worth - perhaps gradually over time - but if you are not doing this, I suggest checking in with your expectations and tolerance levels. There is only one person that is in charge of making it necessary for your business to achieve this. Remember though, tax first, the habit of savings second, eat third. Savings could be $5 per month for all I care, just get a permanent savings habit in place. Have one less coffee. The dynamics shift when you start a habit, the amount is far less important.
What to do after the above is sorted
There is a significant sense of achievement that can be gained from applying the above snippet of the wider picture. Once this is consistent, the fun can really start. Some ideas:
Give yourself a small ( or large) pay rise every month.
Share your profit with your team really generously
Significantly reduce debt ( within good tax planning of course)
Pay yourself a bonus or dividend on every birthday, wedding anniversary, other important dates so you can do whatever helps you thrive
Invest into your own business expansion more, or other businesses
Increase charitable activities
Increase your legacy for your relatives if you want, or travel or play or whatever
Buy back some of your time and reduce working hours
So on and so on….
How to Regroup Quickly
How big a game do we each want to play and are we prepared to apply the things needed in order to play at that level? We all have access to the skills needed – either through our own knowledge, or by asking others. We have a choice to achieve what we want, and if relevant to move on from temporary defeat. Question is whether we want to.
To provide perspective, I know I benefit massively from allowing myself help from other experts. Anything I cannot do by myself, I know I can do as part of an expert team. I believe that as business owners, we each simply consider what we want to achieve and then sort out the right team. For our part, it is always such a privilege to take a CFO role in any business that is seriously wanting to achieve.
It is the team that will assist whenever there are challenges – have a great team, have a great business. The answers are always found in the combination of the member’s skills. Let us know if you would like to discuss any aspect of this further, we know a number of great experts who could help you.
Thought I would explain some of the “Why and What” of numbers management. Which numbers are important to focus on and how can you tell if the numbers start to falter. How to regroup quickly.
Why is focusing on the right numbers so important?
Check out my email “Keeping the Score – Why?” (15 .10.11 – or else under announcements on our website)
If a business doesn’t know ‘the score’, it can have a picture of the results that is very different to reality. In addition, the hunger with which one approaches things can be massively different to the level needed to achieve the results desired.
We all need to track our results, no exceptions, no months off. Only a few of the key numbers normally need to be top of mind. The core drivers of the business are generally far more important to track on a regular basis. Outputs also need tracking, sometimes less often, sometimes more often, depends which one. Every business has specific areas that are most important - but there are also some general rules of thumb.
What are the most important numbers to manage in your business ?
Every business has specific needs, but here is a general list that all businesses should be well across. Specific needs should be discussed cos some of these may be more important than others.
Targets – the plan for annual and this month targets for customer numbers, average value sale, $ Sales % margins, $ expense levels, $ profit, cash, debtors days, creditor days. Many other items such as stock turn, churn rate etc are case specific.
Actual results – for the same target items above –to provide actual results and comparison of the variances – active inquiry into the cause of the variance is critical (and often not done I might add). Human nature can be to far too easily dismiss the cause, which can result in a critical error of judgement sometimes.
Profit – always make a profit – every month. Not just most months. ( January can sometimes be an exception). Start up or heavy investment phases can be different yes - but I would invite you to consider how long you wish to tolerate losses before requiring the results you want. Step one is know the monthly results - some businesses don’t even know that. Have a monthly reporting calendar that is adhered to and report to somebody - with explanations for budget variances. We often take that role as the internal CFO.
Personal interface – know your personal budget ( most people don’t, when we first meet them) and also know whether your business can sustain it ( heaps can’t, when we first meet them). Change something if needed. Increase profit or reduce the personal need - but always live within your means. Have a reality check if you are not and get some assistance to improve the situation. Bleeding your business is way too common. Tax first, a habit of savings second, eat third. (I’m not joking). But it can sometimes need to be a gradual shift.
Cash – is always King. Those with the cash, are always those with the leverage. Know :
How much you need for the next six months minimum – at all times.
Your minimum level of working capital to stay afloat - and never go below that – delay spend activity if needs be - That said, it far better to instead turn the results around, so you can “have it all “, but there will be a bottom $$ threshold that you never allow yourself to fall below. One month’s expenses is a good initial guideline with a goal to increasing this to three months. This can be very business specific though and highly dependent on goals in play and knowledge of upcoming income streams. It can be lower than this sometimes.
Remember that cash flow is only ever a symptom – it is only a mirror into the other aspects of your business – if cash flow is a problem, it will always be because there are core business issues not being addressed somewhere.
Balance sheet management – this is also very case specific - but here’s some general guidelines
Working capital management is critical and the relationships between your current assets ( bank, debtors, fast moving stock) and current liabilities ( creditors, gst, short term tax due) is really important . Have a CFO review with us to check if these are best practice levels or not.
Paying bills on time is a no brainer, yet many businesses don’t/can’t at times. Best way to approach this is to decide what your standards are, so these are in line with your business values. Stick to your standards and don’t over commit within the boundaries of your working capital. Not rocket science, but I also suggest independent perspective re your working capital levels. We all make mistakes sometimes, forgive yourself and immediately move to improve.
Recognise if your cash based actions are out of alignment with the rest of your business values – change something to bring them back in. This may impact your management of your debtors and creditors going forward.
Debt management - align long term debt with long term assets – so your cash doesn’t need to work too hard. Short term debt can be for short term assets.
Emotional debt management - This may be a contentious one - I believe that if you want to be prosperous and sustainable long term – learn how to only go into debt for assets that are going to increase in value. Resist the need for instant gratification. If you spend on something that is going to reduce in value, only spend what you can afford (and afford to lose). Most times your business itself will increase in value – but not always- so have your eyes open. Excessive spend on your business itself is best “value” and “return on investment” based. I’m not saying don’t spend, much more to have your eyes open about it. Some things are critical granted, many can wait another month until you do have the cash.
Manifest cash – you get what you expect – have a belief system that cash will not be a problem and it seldom is – allow that belief system to bear fruit before you commit funds though Remember that belief without action is dead. Ensure you have an appropriate amount of activity around your sales, systems and reporting to ensure your activities actually warrant the cash arriving when it needs to. Remember cash flow, good or bad, is only ever a symptom of the rest of your business. That said, it can also simply be a symptom of your own fear based beliefs which can create a block on any aspect of the system working properly. Allow the cash to flow without emotional impact and as long as your activity supports it, it normally flows as needed.
Pay and save for yourself first – I am not advocating bleeding the business. You always need to live within your overall means. I am however, advocating you require the business to pay you what you are worth - perhaps gradually over time - but if you are not doing this, I suggest checking in with your expectations and tolerance levels. There is only one person that is in charge of making it necessary for your business to achieve this. Remember though, tax first, the habit of savings second, eat third. Savings could be $5 per month for all I care, just get a permanent savings habit in place. Have one less coffee. The dynamics shift when you start a habit, the amount is far less important.
What to do after the above is sorted
There is a significant sense of achievement that can be gained from applying the above snippet of the wider picture. Once this is consistent, the fun can really start. Some ideas:
Give yourself a small ( or large) pay rise every month.
Share your profit with your team really generously
Significantly reduce debt ( within good tax planning of course)
Pay yourself a bonus or dividend on every birthday, wedding anniversary, other important dates so you can do whatever helps you thrive
Invest into your own business expansion more, or other businesses
Increase charitable activities
Increase your legacy for your relatives if you want, or travel or play or whatever
Buy back some of your time and reduce working hours
So on and so on….
How to Regroup Quickly
How big a game do we each want to play and are we prepared to apply the things needed in order to play at that level? We all have access to the skills needed – either through our own knowledge, or by asking others. We have a choice to achieve what we want, and if relevant to move on from temporary defeat. Question is whether we want to.
To provide perspective, I know I benefit massively from allowing myself help from other experts. Anything I cannot do by myself, I know I can do as part of an expert team. I believe that as business owners, we each simply consider what we want to achieve and then sort out the right team. For our part, it is always such a privilege to take a CFO role in any business that is seriously wanting to achieve.
It is the team that will assist whenever there are challenges – have a great team, have a great business. The answers are always found in the combination of the member’s skills. Let us know if you would like to discuss any aspect of this further, we know a number of great experts who could help you.