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Chartered Accountants &
Business Advisors

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WELLINGTON

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WELLINGTON

Is It Time to Pivot Your Business?

12 Jun 2020 | Biz Strategy

The pandemic made it difficult, or even impossible, to deliver on your promise to your customer. Whether your promise is quality, consistency, the type of service or product you deliver, or how you deliver it, chances are you were forced to break your promise.

And that’s okay. But no-one needs to tell you that it’s not a sustainable way to do business.

If your business model is not working for you or your customers anymore, it may be time to pivot and find new ways to do business. This can be a short term shift just to get through the worst, or you may find a new model that would suit you better in the long run.

We’ve decided to look at some examples of how other businesses handled the changes and came up with a few ideas that may help you if your business is in need of a pivot.

 

Example 1: Going Online

If you provide in-person lessons, you can turn your lessons into online classes. Similarly, if you provide services, you can turn your skills into online courses to teach others how to perform those services themselves. 

Think creative arts, like music, painting, pottery making, dancing, but also other types of services, like dog grooming, language teaching, and how to colour your own hair. The opportunities are endless. 

One of our clients operating a gym launched an online website within a week and started running their normal classes online. They also have a library of training sessions available to their members.

The face-to-face aspect of these types of service are often very personal and the very reason why people pay for them. But online classes don’t need to be impersonal. For instance, if you provide online tutoring, you can still do your classes one-on-one for a personal touch, you can chat before or after the lesson as you’d normally do, and the feedback you give can still be catered specifically to that person.

If presenting classes online is new to you, it may be difficult to adapt and to get your head around the technology, but it will pay off. It doesn’t need to be complicated either – video calls made with WhatsApp works perfectly – and videos you record don’t need to be Hollywood-quality. It is the content that matters. If your lesson plans are top-notch and students get results, that is what will make you successful, not how well you package the course.

Going online is a huge opportunity for those who are willing to take the plunge because many of your competitors won’t. And as an added bonus, you can reach more people – across the globe. 

 

Example 2: Going Postal

It’s no secret that shops with an online ordering system, especially supermarkets, did well during the lockdown period. But what about other products and services?

For instance, a service like clothing alterations usually happens in-person. But what if you can still alter people’s clothes without meeting them in person?

Picture this: You get onto a WhatsApp call with your client where you guide them through taking their own measurements. They can also wear the clothing item and record a little video showing you where the problem areas are. They then courier the clothing item to you. You work your magic, altering the item, and then post it back to them. Yes, it would take longer and cost a little more, but it’s very convenient.

Another example is picture framing. You can have your consulting meeting with your clients over Zoom, they can choose a frame from your online catalogue, and send the item in through the post. After you framed the picture or painting, you can send it back again. If the client has photos they want to frame, they can even send the digital file to you which you can then print.

Other businesses that had great success using the postal service are Dollar Shave Club and Stitch Fix. For a monthly subscription, the Dollar Shave Club sends, you guessed it, razors to their subscribers. Stitch Fix puts together a box of clothes they think you’d like based on your style preferences; you keep what you like, and send the rest back.

The selling points of these companies are price and convenience. Another selling point you can add now, is necessity. 

A recent example of a similar business that was in the news is that of a Wellington-based couple who usually keep vending machines stocked with candy. Because they couldn’t get to their vending machines and the stock they had at home was nearing expiry date, they started to sell and deliver boxes of candy during lockdown. Many people used this service to send care packages to loved ones or medical personnel working in hospitals during lockdown. 

Can you turn your products into care packages? For instance, imagine if you could send care packages to your loved ones filled with Marino scarfs or beanies to keep them warm for the winter?

 

Example 3: Exploring Different Markets and Uses 

Another way, which needs a bit more thinking out of the box, is targeting different markets or looking at different ways to make money from your products or equipment.

For instance, if you own trucks that are used as pop-up shops at events, music festivals, or fairs, you can rent out your trucks to use as pop-up COVID-19 testing clinics.

If you’re a hotel owner, and you’re concerned about when international travel would pick up again, you may want to consider turning some, or all, of your units into rental apartments. (Note that the change-of-use rules for GST may apply.) With the housing shortage in Wellington, this may be a more secure way of making money at the moment.

Other examples we’ve seen are gyms renting out their equipment, like treadmills, to their clients during the lockdown period. Many clothing designers started making face masks and cosmetics manufacturers turned their focus on making hand sanitisers.

Most of these ideas are more of a short term solution to help through the crisis, and many would go back to their core focus once things are back to ‘normal’. 

 

Example 4: Developing New Products

For some businesses, what you’ve done before may never be in demand again. Or there may be a gap that opened up which was never serviced before.

One of our clients in the supermarket industry found that people were buying more chicken nuggets and oven fries than before. This was most likely to satisfy their craving for takeout, but also people who aren’t that comfortable with cooking. Meal kit companies, like Hello Fresh, have become very popular over the past few years. While these companies focus mostly on healthier food, people still want to eat junk food from time to time. So a focus on creating pizza kits, for instance, where you provide the raw dough for the base plus the fresh ingredients and instructions of how to bake it may be popular.

On the Edx online learning platform, a host of new courses were introduced related to COVID-19, most of them in the medical science fields. But one that caught our attention was a course by The University of British Columbia called “Re-imagine work: Strategies during COVID-19 and beyond. This course teaches students how to adapt to working from home and how to set up your office or shop to meet social distancing requirements.

 

Are You Considering a Pivot?

Whether you are forced to pivot in your business due to changes in the market, or you’re seeing new opportunities that you want to pursue, pivoting can be a scary but exciting venture. It’s also important to plan ahead while still being flexible. 

Get in touch with BWMD to help you to create a business plan and the necessary forecasts from the start so that you can be prepared for what’s to come. We can also help you on an ongoing basis to review your performance and adjust your plan as needed. 

Why You Should Hit the Reset Button on Your Business

22 May 2020 | Biz Strategy

The country is slowly starting to wake up from the slumber it has been in for the last two months. Every day, a few more shops and businesses are opening their doors again. And although we still need to keep our distance and use hand sanitizer a gazillion times a day (ask anyone who’s shopping for winter clothes), it’s good to be around people again.

That doesn’t mean our businesses are safe yet; most took a huge knock to their income, many closed their doors for good. But maybe the scariest thing right now is the uncertainty. We know things are going to be different, but we don’t yet know how things are going to play out.

When we’re faced with this level of uncertainty, we typically fall back on one of these common reactions:

  • Getting lost in feelings of overwhelm and frustration. In worst cases, paralysis can set in and instead of thinking ahead and planning for problems, we just react to them as they happen, or ignore them completely and hope they go away. 
  • Playing the blame-game. It’s easy to want to blame someone when things get out of control, whether you’re blaming yourself, someone else, or external forces you have no control over.
  • Just carrying on with a business-as-usual mindset. This doesn’t sound like such a bad idea, but it is. The world has changed – in many ways that we don’t even realise yet – and to act as if nothing changed can be devastating to your business.

So, what is a better way to handle the road forward? 

 

Look at Your Business with Fresh Eyes

The crisis gave us the opportunity to take a step back and evaluate what is really important to us and our businesses. To think about how we can do things better. 

Now is not the time to handle your business with kid gloves. You may need to rip things apart and stitch them back together again, in a completely different way. This is not easy to do, so here’s a step-by-step process to help you to reevaluate your business and come up with a plan for a lean, resilient business that can weather the storms.

 

Step 1: Distance Yourself from the Business 

Before you do anything else, you first need to remove your feelings from the equation and look at your business as if it’s someone else’s. Forget about the blood, sweat, and tears you already invested – as long as you view your business through the lens of its history, you’re not going to come up with fresh ideas for its future.

This is often hard to do on your own; we’re too near to our own creations. If you need help, set up a meeting with us so we can help you work through the change. We may not understand your business and industry the way you do, but we can ask the right questions to trigger the light bulbs to go on in your head. 

 

Step 2: Do Your Homework

What is broken in your business? Think about your day-to-day processes, the way you serve your customers, or the products you currently offer that don’t serve a post-corona world.

Also, look at the trends in your industry. Will similar businesses turn to online shopping? Will there be a bigger focus on exports? Which new products will be manufactured locally that were previously imported? 

Countdown recently opened the first purpose-built e-store in the country, and many are following. In the recent budget speech, more money was allocated to boost the export industry and to help small businesses who want to incorporate e-commerce into their business models. Maybe these are trends worth exploring.

 

Step 3: Define Your Vision and Goals

Once you’ve done your homework, you can start to paint the picture of where you want to take your business. What do you want to achieve? How do you want to do business? Do you, or your staff, want to work from home more often? Do you want to add online shopping or meet with your clients through Zoom? Which products or services do you want to offer?

Break your vision down into actionable goals and put a date and numbers around your goals. If you need help creating your forecasts, let us know.

 

Step 4: Create a Step-by-Step Roadmap

The next thing you need to do is to put a more detailed A-Z plan together. What are the steps you need to take to go from where you are now, to where you want to be? 

Think about where the gaps are in the business. What do you currently have in place that doesn’t serve the new direction; what is not aligned with the new vision?

Also consider the new business risks – both specific to your plan, but also the industry and economy as a whole. What do you need to do to mitigate these risks? 

 

Step 5: Implement, Test, and Refine

Once you’ve created your roadmap, you need to implement it. But remember, the version you put in place now will not be the final version. It will change, and that’s okay.

Be flexible, and make changes as and when you need to. The quicker you can react when you see something is not working the way you expected, the more resilient the business will be.

 

How Are You Rewriting Your Story?

A change is as good as a holiday. But a disruption, like we’re experiencing now, allows us to completely rewrite our destiny – for the better. 

Relaxation of Insolvency Provisions in the Companies Act

12 May 2020 | Legal Updates

According to the Companies Act, directors can be held liable personally should they trade or take on debt if there’s a significant risk that they won’t be able to repay their debts when they become due. 

The uncertainty the Covid-19 pandemic brought has many directors wondering whether they should keep going, or rather throw in the towel. To avoid premature liquidations, the Government announced some relaxation from the insolvency rules.

If a company keeps trading and take on debt over the next six months, they will not be in breach of the Act, if: 

  • they believe the company will be able to keep trading, despite the difficulties
  • the company was able to pay the debts that fell due on 31 December 2019, and
  • the directors expect that they’ll be able to repay their debts within the next 18 months.

That’s the change in a nutshell. There are more intricacies and exceptions, so if you’re concerned about the going concern of your business, come chat to us first before you pull the plug, or just keep on trading.

Tax Payments: Separating the Myths from the Facts

24 Apr 2020 | Tax Updates

As with everything relating to COVID-19, there is a whole lot of information circulating about tax payments that sounds too good to be true. And some are.

We want to clear up a few of the common misinterpretations about the recent tax reliefs announced and make sure you understand which are actually available to you so that you don’t get into trouble with the IRD.

 

Myth #1: I Don’t Have to Pay Tax at the Moment

All core taxes are still payable as due and you still need to submit your returns on time. However, the IRD has indicated that they would be more lenient with late payments.

This doesn’t give you the green light to ignore taxes altogether. If you’re in a position to pay your taxes, you should do so. If you could have paid, and you didn’t, the IRD is not going to act favourably towards you.

If you are struggling to make any tax payments, there are some options available to you. Contact us so we can discuss those options and help you work out a payment plan that best suits your cash flow and keep you off the IRD’s black book.

 

Myth #2: The IRD Won’t Charge Any Interest or Penalties If I Don’t Pay

This is partially true. The IRD has relaxed the eligibility requirements for remitting interest and penalties, but these will still be imposed automatically by the IR system.

To have these reversed, you will need to apply for remission to the IRD as soon as practicable. You will also have to jump through all the standard hoops and provide them with financial information to show that your financial difficulties, and the reason you didn’t pay, were related to COVID-19. Financial information may include bank statements, management accounts, and cash flow forecasts, and we can help you to get these together.

Read more about the remission requirements here.

 

Myth #3: I Can Get the Tax Back That I Paid in the Prior Year

You may have heard that the IRD is allowing businesses to ‘carry back losses’, or in other words, that you can get a refund for tax you paid in the prior year if you’re making a loss in the current year.

It sounds great, but it’s only partially true. As always, the devil is in the details.

The first problem with this statement is that the IRD hasn’t issued any details on how they’ll apply this rule. They promised to give us more clarity on the 27th of April.

What we do know is that, in order to claim back taxes that were paid in the 2020 year, you’ll either have to wait until your 2021 annual accounts are completed, or you’d need to do some pretty accurate forecasting to estimate your losses for 2021. This is difficult in the best of times, but even more so now with all the uncertainty around the economy. It would take a pretty good crystal ball to forecast losses for the rest of the year. If you make a claim based on an estimate, you would have to prove your loss at the end of the year once your final accounts are completed.

If you made a loss in the 2020 year, claiming back taxes that were paid in the 2019 year would be a bit easier. If that’s you, please get in touch with us about getting your 2020 accounts completed earlier so you can take advantage of this relief sooner than later.

 

Final Provisional Tax Payment for 2020

The provisional tax due on 7 May is the final instalment for the year ended 31 March 2020. The shut down didn’t happen until the end of March so many of you had a good, or normal, year in 2020. The full impact of the lockdown won’t really hit us until the 2021 tax year.

If you have made normal profits for the year ended 31 March 2020, then remember that the tax thereon is still due.

So, the question of whether or not to pay your last provisional tax payment for 2020 comes down to…

  • your cash flow situation, or
  • whether you’re pretty certain that you’ll make a loss in the 2021 year.

In either case, please reach out to us to discuss your options.

 

You Can’t Get a Refund on Taxes You Didn’t Pay

Another question we sometimes get from clients is whether they can get a tax refund, even though they never paid any taxes. When messages about tax reliefs and refunds are all over the news, it’s easy to get swept up in the excitement and forget the simple principles of how the tax system works.

Remember, the IRD can’t refund something that you never paid.

 

Summary: Assessing Your Situation

As you can see, nothing is straight-forward and what applies to one business may not be relevant to another. Here’s a quick summary of the most important points to consider when deciding whether to pay your tax now or if you should apply for a tax refund due to future losses: 

  • If you’re in a sound cash flow position and it looks promising that you’ll make a profit in the 2020 and 2021 years, pay your taxes.
  • If cash flow is tight, come talk to us about your options. We can introduce you to working through Tax Traders, a tax financing company, which gives you cheaper and more flexible payment options. Alternatively, we can help you to arrange a repayment agreement with the IRD.
  • If you made a loss in the 2020 year, but in prior years you made a profit, you can apply to the IRD to carry back your losses. Ask us to help you complete your annual accounts earlier.
  • If you expect to make a loss in the 2021 year, and you want to request that the loss is carried back to prior years, you’ll need an accurate cash flow forecast. Get in touch if you want us to help you to create a realistic forecast — we can’t see into the future, but we’re as near as you could get to a crystal ball.

 

The tax rules and interpretations are constantly changing. We’ll keep you informed of these changes via our newsletter.

5 Mistakes That Will Cause Your Business to Die a Slow (Or Quick) Death

15 Apr 2020 | Biz Strategy

If you’re feeling like a rabbit caught in the headlights, you’re not alone. We’re on the phone every day with clients who are concerned about the future of their businesses.

But, there’s hope. Many successful companies were started during or just before a recession or depression, including FedEx, Disney, Pizza Hut, Google, and Facebook. 

There’s no doubt that the world would look different after we come out of this crisis, but instead of focusing on the challenges, we should grab onto the new opportunities this would bring. And the first step is to make sure you don’t sabotage your business with decisions made out of a state of panic. 

 

5 Mistakes to Avoid during a Crisis

Let’s look at the five biggest mistakes we see business owners are making right now. 

 

#1: Thinking Its Business as Usual 

Your current business model may not be relevant anymore. The way we work and how people shop may change, there may be broken links in your supply chain, and you may spend time and money on things that bring no value to your business. There has never been a better, and more urgent, time than now to rethink your business strategy. 

 

#2: Burning Your Bridges

It’s easy to make rash decisions that would help you in the short-term, but destroy relationships that you’ve built up over the years. Not paying your landlord or suppliers, retrenching staff prematurely, or ignoring clients who need to get confirmation from you that you’ll still fulfil your obligations, even if it’s only after lockdown – these actions could break their trust in you.

 

#3: Fixating on Cutting Costs 

If you cut too much, your business may no longer be able to function properly. If you retrench all your staff, who’s going to get the work done? If you cancel your lease, where will you service your clients? If you cancel marketing, how are new customers going to find you? 

 

#4: Focusing on Problems, Not Opportunities 

It’s easy, and understandable, to get stuck in survival mode in a time like this, but you need to start looking for the opportunities this crisis is creating. Maybe all you need to do is to make a few tweaks to your business model, or maybe you need to pivot completely. If you find it challenging to see the opportunities for your business, the next point is for you.

 

#5: Being the Lone Wolf 

We’re in uncharted waters; the biggest mistake you can make right now is thinking that you can do it all yourself. Thinking that you can dig yourself out of a hole, make decisions you’re not skilled at making. There’s never been a more urgent time to (maybe virtually) surround yourself with people who have your back, advisors who can support you in areas that you don’t have the expertise in. And if you’re thinking that an advisor is too expensive right now, not getting help may be a lot more costly. 

 

Navigate the Road Forward

We know that it’s not always easy to think out of the box when you’re in survival mode, which is why we want to help you to navigate the future of your business. Let’s help you to understand your current situation, evaluate your options going forward, and guide you through this crazy time.