Important note for all Directors

Following on from my blog last year and comments in our recent newsletter the new Health and Safety requirements come into place on the 4th of April 2016. You have probably seen various articles, including the one about Peter Jackson, regarding mass resignations of Directors in light of the new Health and Safety Requirements for Directors.

It is easy to read the headlines and pass it off as scaremongering, although in this case there is some substance to this and all Directors (as well as anyone else involved in business) should be considering their responsibilities under the new laws.


What are new Directors responsibilities?

All directors now have a responsibility to take reasonable steps to keep up to date knowledge of work health and safety matters and have an understanding of the business and its risks, ensuring it has appropriate resources and processes to eliminate or minimise risks.

This has always been the case for those involved in the running of the business but now extends to all Directors including those with no day to day involvement.


Do you need to resign as a Director?

As per the Peter Jackson article, in a lot of cases, if you don’t have regular hands on involvement in the running of the company it can be difficult to ensure that you maintain an up to date understanding of the business risks involved and the processes that are in place.

As a director you can be held liable if duties are not met by the company.


What happens if responsibilities are not met?

The Bill increases the penalties and creates three offence tiers relating to breaches of the health and safety duties:

  • Reckless Conduct – fines up to $3 million (or $600,000 and/or up to five years’ imprisonment for individuals)
  • Failure to comply with a Duty (that could cause death or serious injury) – fines up to $1.5 million (or $300,000 for individuals)
  • Failure to comply with a Duty – fines up to $500,000 (or $100,000 for individuals)


Worksafe
will still be required to work with you and help deal with risks, and has a number of codes and guides on their website to assist employers in managing specific risks.

At this time it is essential that you either get involved in the Health and Safety processes or consider your position as a Director and whether you are in a position to ensure the company is meeting the requirements.

Give Peta or I a call if you wish to further discuss your options.



The Profit & Loss Equation

Picture1

We all know that for any business to make an income it has to make Sales.

Many business owners closely monitor the sales, compare them to previous months, previous years and, if they can get hold of the information, other businesses.

But this isn’t the only thing to monitor. You have to make sure that out of those sales proceeds you can pay all of the costs of the business and have some left over for the business to make a profit.

And as the above picture shows the amount left over can end up being only a small percentage of the sale value.

Firstly you deduct Direct costs, the costs that if you didn’t sell that product or service you wouldn’t have to pay. This leaves your Gross profit. This is a much better value to monitor closely.

And you need to do so product by product, or service by service.

You may have an overall Gross Profit but it’s hiding the fact that you sell product A at a good margin, but product B at a loss. Reducing your overall gross profit. And it may even be that Product B is a higher dollar amount so you concentrate on pushing these sales, but there is very little point in selling something for less than it cost you to get to the point of sale.

The only time a business can justify this if it’s doing it intentionally as a loss leader. A marketing ploy to get customers to come in and buy other things as well.

Then, the total Gross Profit must be enough to cover all your overheads. The costs that would continue even if you didn’t sell those particular products or services e.g. your occupation costs.

Anything left after that is your profit.

You can also turn this around the other way, from the profit you want to make, or even break-even point, you can add your overheads and margins and calculate how much sales you need to make to achieve this.

 



Our Christmas Holidays

Holidays are always a great time of year- especially in summer! We all love to celebrate in different ways.

 

1 Peta Xmas Photo 05                1 Peta Xmas Photo 06                1 Peta Xmas photo 7

1 Peta Xmas Photo 04        Clayton Xmas Photo 01

Clayton Xmas Photo 02        Clayton Xmas Photo 03

aClayton Xmas Photo 04          aClayton Xmas Photo 05         Nicole Xmas Photo 4

IMG_6341        Jaime Xmas Photo

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The Christmas period and paying your staff

We’re heading into the silly season again. It’s referred to as that for a reason. In NZ with our annual close down of business we seem to go flat out to squash a months of work into 3 weeks in December. Unless you’re in retail and selling things people want for Christmas, these are never usually profitable months.

For those of us that are employers it’s a particularly expensive time of year. There’s 6 statutory days between Christmas and Waitangi day. That’s 6 days you pay staff not to turn up and do any work. Or, if you’ve got a business that’s open on those days you have to pay more and give them a day in lieu. Then when people return it always seems to take a few weeks for everyone to rev up into full productivity again.

A quick reminder on the statutory day pay obligations:  If someone would normally work on the day the holiday falls you have to pay them for it. If your business is open on the statutory day and your employee works on that day you have to pay them time and a half and give them a day in lieu. This year Boxing day, January 2nd and Waitangi day all fall on a Saturday. So these are all carried over to the Monday – Yes Waitangi Day is now Mondayised and is a statutory day on Feb 8th. If you want help working out any of your holiday pay obligations give Nicole a call, she’s our head bookkeeper and comes across all of these situations.

For some employers, you pay all the staff their annual leave as you close down at Christmas. Then there’s the GST and provisional tax payments due in January to fund as well – so a tough time of year for business cash flow.

Do any of these come as a cash shock to you and your business? If the answer is yes, perhaps your new year’s resolution should be to talk to us about helping prepare a budget and cash flow forecast for next year so you can enjoy that well-earned break.

The other side of this is we all get a chance to spend time with family and put our feet up, rest and recover for the new year. I always come back invigorated and keen to get into a new year.



Xero Tips and Tricks

This month we are talking about getting the most out of your Xero.

In Peta’s last blog she went over a few of the common areas people make mistakes in Xero. This time I want to give you some tips so you can use Xero as efficiently as possible.

Here at BW we all use Xero on a daily basis so across the whole team we have all picked up little tips and tricks here and there to make using Xero that much easier.

Here is a list of some of our top tips in Xero: Read More »



How to get the best from your Xero

Last month I talked about using your management accounts to tell the story of what’s happening in your business. And how important it is that those management accounts are timely and accurate.

And it’s that accuracy that’s also vital to help us in preparing your year-end Financial Statements. The more we have to change in your accounts the more time it takes us and the bigger the cost to you.

More and more of our clients process their own accounts. And systems like Xero do make this seem super easy. They make out it’s quick, simple and what’s more – fun. But at our end, we’re finding it’s a mixed bag as to the accuracy of the accounts we are given. And banks are often saying the same thing. Read More »



Interpreting your accounts – Part 2

In my last blog I talked about the benefit of understanding your accounts and having them prepared regularly.

Now I am going to explain this in more detail.

Following are two of the most common misunderstandings of business. Reviewing your management accounts regularly can help your business by understanding these two areas.

1. Profit is not Cash

It’s not uncommon for us to be going over annual accounts with a client, telling them the profit and they say “I don’t believe we made that profit – if we did, where is it? It’s certainly not in the bank.” Read More »



Understanding the story your accounts are telling you

Your Accounts tell the story of what’s happening in your business. They are the financial results of events that occurred and decisions you made. By knowing what that story is saying you can react to events more quickly and make better decisions.

The Profit and Loss Statement or Statement of Financial Performance is a summary of trading for a period of time, usually a year. It shows the sales that you made, and deducts off them the cost of those sales and your overheads to work out if you made a surplus from those sales.

The sales in your accounts are recognised at the time the sale is made; when you invoice it – not when you’ve got the cash in the bank for them. The costs offset against those sales are also recognised when they are incurred, not when you pay for them. This is the essence of accrual accounting.

The Balance Sheet or Statement of Financial Position is like taking a financial photograph on a certain day. It lists what you own – your assets and what you owe – your liabilities. The difference is the equity in the business.

We have an e-book on our website that explains in more detail what each part of the accounts mean.

The benefit of regular accurate management accounts

But really, how useful are the end of year accounts we prepare for you? Obviously they have to be done to correctly calculate the amount of tax you owe, and comply with the Companies Act, but in terms of helping you make useful business decisions they are often just too late. They are a summary of financial events up to the last balance date. If another six months have passed you can’t exactly react quickly to address any problems.

This is why having regular accurate management accounts prepared is vital for any business.

Very often a business owner gets the books done, just because they need to be done for the GST return to be filed. But they should be so much more than that. By reviewing those accounts and watching a few Key Performance Indicators you can understand what’s going on now and make decisions about what to do about it now.

And better yet – knowing how the business is going on a regular basis helps you plan for the future.

What story are your accounts telling you about your business? Do you review your accounts to find out? Do you even have regular accurate accounts prepared? We can help you with all of this. It’s what we love doing.



Peta and Pete from South America

As many of you know Peta and Pete are spending 5 weeks making their way around South America. They have been keeping us updated with some pictures on Facebook. See them below!

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Health and Safety Reform – Are you prepared for the changes?

Following on from the blog I wrote in the middle of last year, the Health and Safety Reform bill has just passed through Parliament and will come into effect on 4 April 2016.

You will have all heard the outcry from opposition politicians about high risk industries such as worm farms and mini golf while sheep and dairy farming are considered low risk. This has distracted attention a bit from the real purpose and impact of the new laws and how they will affect you.

Basically the implementation of the new regime will see more onus placed on people at every level of responsibility (in particular senior managers and company directors) who are required to understand and proactively manage health and safety in their workplace. There are now stronger penalties and wider enforcement tools for non-compliance.

I have gone through the Act and various articles including this summary from NZ Law Society on the implications and have tried to simplify them into a summary of the areas that everyone in business will need to be aware of.

This is not the complete Act so for further information about the legislation please go to Worksafe.


Who does the law apply to?

The new act widens the definitions of workplace and now applies to everyone who meets the new definition of a ‘Person Conducting a Business or Undertaking’ or a “PCBU”

Read More »



Property Investment

In my last blog I talked about the pros and cons of residential rental property as an investment. If you have the desire to invest in property but don’t want the hassles of tenants there are other types of property investment.

Commercial property is similar but aimed at the business market. Generally it’s a bigger investment as they’re more expensive buildings but the basic concept is the same. One of the advantages is that you can lock tenants in for a longer lease, and it’s usual to have a time to review the rent set in the lease. The tenants want the surety of both the time frame and the cost. However, it can take longer to find a tenant, especially if there’s plenty of property in the market or a down turn in the economy.

Commercial property is valued on the rental return, more so than residential property. Hence where a rent may be agreed, but an incentive offered to get a tenant in, rather than reducing the rent.

You also have to be clear who owns what, has the landlord provided the fit out, or has the tenant. Are you just charging rent, or do you get to pass on rates and insurance costs. Read More »



Residential Rental Property Investment

Residential rental properties are the classic Kiwi investment. We’re often accused of not diversifying our investments and being hung up on investing in bricks and mortar, which doesn’t really invest back into the money go round. There’s lots of media stories about the effects of this and the scourge of the middle aged mum & dad investors all competing to buy the housing stock, beating up the prices so the young can’t afford their first home.

There’s no question that the banks like people investing in them. They make money out of you owing them money and paying interest on that. So once you’ve paid off a reasonable amount of your home mortgage they’re keen to let you use the equity in your home to take on more mortgage to buy investment properties.

Investing in residential rental property is a long term proposition. The idea is that you use the income from the rental to pay off the mortgage. Effectively a forced form of saving. Read More »



Assessing Risk in your business

Being aware of what risks your business could face allows you to plan to mitigate them.

A risk assessment plan is a “what if…” exercise. You need to:

  • Identify what could happen to or in your business.
  • What would the impact be if it did?
  • How likely is it to happen?
  • Can it be reduced or eliminated?
  • Do you need to get insurance in case it happens?

We undertook a disaster recovery plan a couple of years ago. The whole team sat down and discussed what we would do if a disaster happened, what we expected of each other, how we would communicate, and whose job is it to get us up and running again and in what time frame. It was an interesting exercise and sort of funny. And when we had the quakes in Wellington a bit later we were all prepared; we were almost disappointed that we only had a filing cabinet fall over.

Most risks are not that dramatic. It’s far more likely that a business interruption actually comes as someone burning their lunch and setting off the sprinklers and destroying the computer system.

Any good insurance advisor will be able to walk you through a risk assessment plan for both material damage and business interruption.

We know a few good people so let us know if you’d like to be pointed in their direction.

The more subtle risks I mentioned in my last blog require building a strong sustainable business to mitigate.
Doing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis helps. As does having a plan, establishing policies and procedures, keeping up to date with your market and keeping your team healthy and engaged.

If you’d like help with undertaking this planning give us a call.



What is Business Risk?

Business Risk is defined by Wikipedia as uncertainty in profits or the danger of loss and the events that could pose a risk due to some unforeseen events in future, which causes a business to fail.

Business risks fall into several categories:

Strategic Risk – your market or environment changes drastically e.g. a big competitor comes into your market or you don’t keep up to date with technology changes and your customer moves on.

Compliance Risk – failure to comply with legislation, regulation and/or standards. For example the new Health & Safety Regulations will mean more compliance; failure to follow these could lead to fines.

Operational Risk – a failure in one of your day to day operations. Either technical, like your server dying, or people or process driven, like no one checking payments and an extra zero added onto a payment.

Financial Risk – refers to the cash flowing through your business. Like reliance too much on one supplier, who goes under owing you money?

Reputational Risk – negative publicity about your product or service could cause customers to desert you.

We can all picture the big externally driven physical risks to our business. Someone burning our building down, an earthquake destroying our town. Or even internal, theft by an employee. These are relatively easy to quantify, plan and insure for.

But some risks are more subtle, particularly for small businesses.

  • What happens if the owner or a key employee gets hit by the proverbial bus and can’t turn up to work for a few months, will the business be able to continue?
  • If your plan is to sell your business to fund your retirement, what’s the risk if that doesn’t work out? How do you ensure it will?
  • Negative cash flow leading to financial collapse.
  • High staff turnover, or in reverse an aging or out of date workforce.

Planning, spreading risk and, where need be, insuring are essential for all businesses. Too often we’re too busy working and wrapped up in our business to plan and set up safe-guards. That’s risky!



Marketing tools and technology

As I said in an earlier blog every business needs to do some form of marketing, no matter how small you are.

Once you’ve fully understood who you are, what your product or service is and who your target market is, you have to find a way to talk to them. My blogs are an example of this.

In this day and age this involves tools and technology. The array of these is overwhelming – just try googling it.

Plan

So, start with a plan. What are you going to say, who to and what media will you use to say it?

We used a consultant to help us come up with some structure around what we are saying (for example, this month is about marketing). Having a structure makes it a lot easier to make it happen and now I don’t spend hours sitting around trying to dream up what to say. Read More »



Running a great business

I spent a few days last month getting together with a group of colleagues who meet twice a year to work “on” our business’s. We’ve been getting together for 5 years now so we know each other very well. As one of them said “Its a bit like getting undressed together!”

Many Chartered Accountants call themselves “Accountants and business advisors”. To be honest, many of them have never really run a business themselves, or they have run a pretty sloppy one so I’m not really sure quite how they can advise their clients on how to.

I’ve been an owner of BW for over 20 years, and have many clients running small and medium businesses so I’ve gathered a bit of knowledge over the years.

Here are a few simple tips to running your business from me:
Read More »



Marketing in a small business

We, as accountants, used to be in the fortunate situation where we were a necessary evil for all businesses. We had an annual relationship with our clients where we did the scary stuff they didn’t want to do themselves. Times have changed, and the way we do business has changed. So I’ve had to learn a lot about marketing in recent years. What it is, and what it isn’t. It’s no longer just a letter head, a business card and an ad in the yellow pages.  We’ve done some courses and even employed a part time marketer for a while to get us on the right track.  It seems it’s now a great website, social media, public relations and many other things that you have to keep up with on an ongoing basis.

But as one of the courses we did said “there’s no point shouting out to the whole stadium when you’re only wanting to speak to a few of the people there.” So you have to know who your target client is and what you want to do for them. To know that you have to really understand who you are, what your brand is. And of course, what your product is.

I found the following great tips in the Dummies guide to marketing that sums it up:

Making Marketing Work in Your Small Business

You don’t need to be a rocket scientist to be a good marketer. But neither is there a silver bullet or one-size-fits-all solution. Every small business is different — the marketing plan and tactics for a mortgage broker are entirely different from those of a computer reseller. However, the process of building a plan, sticking to it and applying the time and resources it needs is the common secret to success in marketing. Read More »



Investment Properties – How does the 1st October law change affect you?

You will all have seen the media reports about the Government introducing a ‘Not a Capital Gains Tax, Capital Gains Tax’ on Rental Properties.

John Key announced on Sunday that the Government planned a law change for October 1: that will make residential property bought and sold within two years subject to tax on any profit on sale, unless it was the family home, inherited, or needing to be sold because of a relationship split.

In reality how does this affect you? The answer is that for most people it doesn’t actually make much difference at all.

The law already says that if you buy a property with the intention of selling it for a gain – That gain is taxable. The situation though was that everyone says that isn’t their intention.

Now intention won’t come into it if you sell within 2 years, it’s taxable regardless of your reason for selling. I guess the reverse will also apply. If there’s a crash and you sell at a loss this may be claimable!

Extra funding has already been provided to Inland Revenue to enforce this.

This new law and the policy change requiring overseas buyers to have a New Zealand bank account and tax number, are extra tools to ensure those looking for a quick profit are taxed on any gain.

If you have any queries about your own situation give us a call.