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Chartered Accountants &
Business Advisors

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Non-Profit Accounting and Tax Tips 101

24 Jun 2022 | Biz Finances, Non-profit

People are yearning to be asked to use the full measure of their potential for something they care about. – Dan Pallotta, author

We continue our series on non-profit organisations, with tips to help you navigate the rewarding venture of running a charitable operation for a cause you’re passionate about. If your non-profit is still new, or you’re still considering whether to start one, read What You Should Know Before Starting a Non-Profit in New Zealand first. 

Now let’s look at the accounting and tax-related aspects that are unique to non-profits. Since the purpose, goals and needs of non-profits are different from those of conventional businesses, there are some aspects of their accounting that are handled differently too.  

Because the purpose of non-profits is to serve their cause, they are accountable to their supporters and contributors. The most important bit to understand is that there should be a money trail for all money that comes in and flows out of the bank account.  

Here are a few more tips that will help you run your organisation smoothly, and legally. 

Record All Your Income

You need to keep different sources of revenue separate in your accounts, because not only will it be easier to track and report on, but some income could be taxable.

Types of Revenue:

  • Donations – People donating to your organisation can get a tax deduction, so it’s both important to keep a proper record, and you need to send donees a receipt which they can include in their tax return.
  • Pledges – Some pledges could be conditional, like matching a future pledge from another donor, so track these accordingly.
  • Membership Dues – Subscriptions could be recurring monthly or annually and are usually for some type of service in return, like educational material in the form of magazines, webinars, or other events.
  • Special Events – These could include entrance fees to attend fundraisers or other occasions.
  • Grants or Other Lump Sums – There may be grants available from local or federal government agencies or from the private sector for your industry.
  • Volunteer Time and In-Kind Contributions – The donation of time and non-monetary services or goods also needs to be accounted for. This could be services from skilled professionals such as counsellors, tradesmen, marketers or bookkeepers, or someone gifting your organisation with a free piece of equipment such as a new computer.

Choose the Right Accounting Software

We don’t recommend you compromise when it comes to the engine that drives your accounting. Look for these must-have features:

  • Designed for Non-profit Organisations – Choose a package that features this customisation to handle the unique features that charities need, and even better, was developed with the input and recommendations of other non-profit entities.
  • Robust Reporting – Don’t settle for minimal features here, but look for the ability to track and report on multiple statistics that you can customise, such as debtor days, asset to debt ratio, expense cover trends, and liquidity graphs.
  • Supports Your Growth – Choose software that can grow with you and can be scaled up for extra add-on apps, additional users, or other features at a higher level of usage than what you might first start out with.
  • Other Handy Features – These could include donation tracking, donor management, third-party app integrations, and easily accessible customer support or FAQ forums.

We recommend using Xero for your accounting, with Spotlight Reporting for creating your monthly or quarterly reports. Xero has a great function to track different types of income and expenses with tracking codes, so you can report on each individual income stream separately. You need to set it up correctly from the start, so make sure you get in touch so we can help you with that. Spotlight Reporting has great reporting functions and a template specific to non-profit organisations, which we find useful.

 

What About Tax?

One of the great advantages of having non-profit status is that you don’t generally have to pay tax on your income, which will leave more money in your accounts to put towards running your organisation and providing a better service to your cause.

However, some forms of income are taxable. These include:

  • Business-related revenue, such as income from op shops (e.g. Salvation Army);
  • Investment income, such as interest on a term deposit, shares or real estate transactions.

Some non-profits could qualify for an exemption on the first $1,000 of taxable income from business activities or investments, so make sure you get in touch with us for more guidance.

Even if you have no taxable income, you will still have to file a tax return each year with the IRD, and you still need to deduct PAYE from your employees’ salaries as with any other job.

 

Do I Need to Register for GST?

As with for-profit businesses, if the income is above the GST threshold – if turnover is/or expected to be more than $60,000 in 12 months – you will need to register.

If you’re unsure whether you should register, or if you need help with registering and completing your GST returns, get in touch with us.

 

Partner With the Right Accountant

Operating a successful non-profit organisation requires professional support, as the reporting is distinct from conventional businesses. It’s vital to hire an accountant who not only understands your vision and goals and can give unbiased advice, but also understands the compliance and legal obligations specific to non-profits. Contact the team at BW Miller Dean to see how we can keep you on top of the finances in your non-profit.

What You Should Know Before Starting a Non-profit in New Zealand

27 May 2022 | Biz Strategy, Non-profit

The entrepreneurial spirit of business ownership goes hand-in-hand with the desire for making an impact on the world. What better way than launching a non-profit organisation?

Although getting started might seem overwhelming, it doesn’t have to be. If you want to start a non-profit, this post will guide you in what you should consider when creating your plan, with links to support your research. 

 

Step 1: Know Your Legal Obligations

A good starting place is to understand the legalities for non-profit entities and how that differs from conventional businesses.

Who Can Qualify? 

Whether or not your organisation will be granted non-profit status depends on a number of factors. Ask yourself:  

  • Purpose – what is its motive and purpose? For instance, do you want to relieve poverty, advance education or health, protect the environment, or something else? Learn more about determining your organisation’s purpose here.
  • Revenue – where will it come from? Will income be sourced from donations, membership fees, fundraising, grants or investment income?
  • Similar Organisation to Model After – are there other non-profits with a similar structure as an example to help your process? 

Documents and Structures

When applying for registration, the government assesses your organisation’s rules document.  The rules should satisfy the following criteria: 

  • they should be the legally binding rules for your organisation
  • they should clearly set out the charitable purpose
  • they should not assign powers that further non-charitable purposes, or profit any private or individual cause.

Continue learning more here.

Choosing an Appropriate Legal Structure

Incorporated or unincorporated? Accountable to many people or to a few? Whether social, charitable, sporting or otherwise, you’ll need to consider which legal structure will be most suitable. 

There are a number of different legal structures to choose from, and first you’ll need to determine what your organisation’s role in the community will be and how you intend to operate. Also, you need to consider the requirements in several key areas such as its size, culture and values, activities and other operational factors. Learn more about choosing the right legal structure for your non-profit here.

Register with the Companies Office

With no national association that governs non-profit organisations in New Zealand, your registration requirements will depend on the legal structure you choose. For example, organisations that qualify for registration under the Charities Act need to register with Charities Services. 

If you incorporate a company, society or charitable trust board, you need to register with the Companies Office. 

Register with IRD and Apply for Tax Exemption

As part of your setup process, you need to get an IRD number. From the 2020-2021 year, any person or organisation that wants to get or keep an income tax exemption must be registered with Charities Services. This tax-exempt status applies to business income used for charitable purposes in New Zealand. 

 

Step 2: Prepare to Launch

What’s next? Once you have your legal obligations sorted, you can start preparing for launch. Here’s where your vision, creative inspiration, and a bit of realism are needed for crafting solid plans.

Create a Business Plan

Without a well-thought-out business plan, you could have a harder time obtaining loans and grants, attracting corporate donors, or keeping your organisation on track. Even a simple one-page business plan helps you to polish your message. Also create a forecast, with a few different scenarios, to explore whether your plan is feasible. There are non-profit accounting programs available that can help you with this, and always seek help from your accountant at this stage to test your numbers and assumptions.

Create a Fundraising Plan

Get a clear plan of action for how you’ll raise money. This may include memberships, sponsorships, grants, or even selling products or services. A solid fundraising plan will get cash flowing in.

Explore Financing Options

As a non-profit, you may be able to apply for government and other types of grants. Explore the Charities Service’s Community Resource Kit for more information on raising and applying for funds.

Structure Your Expenditures

You’ll need a budget to determine what you can afford to spend, and to ensure your outgoings don’t exceed income. This is where accounting software or the guidance from an accountant can help you to create a solid and realistic budget.

 

Step 3: Put On Your Entrepreneur Hat

‘Not for profit’ doesn’t mean ‘for loss’, and just like a regular business, if you run an efficient operation, you’ll be able to provide a much better service to the people or cause you’re trying to serve. Here are a few tips: 

  • Hire the right staff. Your team can make the difference between failing and thriving in business, so make sure you hire well. Check out our blog Rockstars vs. Superstars: Get the Right Bums in the Right Seats for insight on building a great team.
  • Spend less than you earn. Although a profit isn’t technically what you’re striving for, if you make a surplus, you can reinvest that into the organisation or allocate to a new project.
  • Network. Making connections and setting up partnerships with the right people can help the organisation to raise more money, increase exposure, or improve your operations.
  • Know your ‘customers’. Just like with a for-profit business, you need to understand the members of your club or the people you’re providing charitable services to, so that you can tailor your organisation to meet their needs.
  • Get professional support. As with any other business, a non-profit is most successful  when you have an accountant to keep you on track and compliant with tax obligations. Partner with one that has experience with and a passion for helping non-profit organisations, like BW Miller Dean. 

We understand the unique challenges non-profit organisations face and can help you to put a business plan in place that supports your vision. We’re also good at being a sounding board for your ideas and give you unbiased advice. Contact us to see how we can help you make your vision a reality.

Building a Profitable Business is Not a Race to the Finish Line

12 May 2022 | Biz Strategy

Great things are not built in one giant leap – it’s built through the power of incremental steps.

You can achieve your dream lifestyle through your business, and that requires making reliable profits. But dreams take time to come to fruition and call for patience, perseverance and resolve. Rushing to the end goal creates the risk of building a business on a foundation made of sand.

Besides, the creative process of the journey to whatever your finish line may be, is part of what fuels your entrepreneurial spirit. Without that, business would be pretty boring.

In our blog Why Making Profit is a Good Thing, we discussed the uncomfortable topic of ‘profit’ and why businesses need to be designed for achieving it. Let’s now consider why it doesn’t have to be, and perhaps shouldn’t be, a race.

The Realistic Formula for Profit

The Tortoise meanwhile kept going slowly but steadily, and, after a time, passed the place where the Hare was sleeping. But the Hare slept on very peacefully; and when at last he did wake up, the Tortoise was near the goal. The Hare now ran his swiftest, but he could not overtake the Tortoise in time. – The Hare & the Tortoise

We live in a time of rapid innovation. We often read stories of entrepreneurs launching their way to instant growth that they could barely keep up with. It’s tempting to get lured into the appeal of quick profit (or what appears to be quick), but is it realistic to demand this of your business? Or to hold that expectation for yourself? If you’re relying on campaigns going viral – only to get caught in a hamster wheel of going from one launch to the next, burned out from exhaustion or disappointment – it’s time to reconsider your approach.

Most often, the formula for building a profitable business comes down to focusing on one or two things (your products and services) and making it great, with the consistent quality your loyal customers can rely on. This is not something that happens overnight.

By properly building your ‘signature’ product or service with steady, incremental steps, supported by consistent and reliable processes, the quality will stand the test of time and changing trends. Your well-earned 5-star customer service ratings, or valued service or product(s) that continue to meet their needs, will stand out from the competitors as solid and reliable.

How to Build a Stable Profit

 “Success is not final, failure is not fatal: It is the courage to continue that counts.” – Winston Churchill, former British Prime Minister

With the combined years of experience our BWMD team has, we understand the journey to building a profitable business, and the pitfalls along the way. Here are tips that we recommend every business owner be familiar with. In addition, we suggest reading our blog Why You Need to Work On Your Business – Not In It.

  • Work smarter, not harder. What does this mean for you? It could be prioritising tasks better, adjusting your strategic plan, restructuring your team, updating processes or upgrading equipment for better efficiency.
  • Learn the art of delegation. Working smarter requires delegating, to free you up for leading, building, and growth. Approach delegating like the success of your business depends on it. It’s that important.
  • Build replicable processes. Like a well-oiled machine, systems and processes are the structure for any business to run well. Be sure to read How to Build an Effective Management System for a deeper dive into this.
  • Seek expertise. Don’t leave your business to chance. A compliant and growing business needs the solid support of accounting and legal professionals and business advisors. Invest in continual learning and self-development to hone your entrepreneur and leadership skills.
  • Be patient. Set short and long-term goals to stay focused. Rome wasn’t built in a day, and tracking your progress with milestones and achievements will keep you inspired, faithful, and persevering.
  • Don’t sacrifice your health and relationships. Pace yourself. Hustling 24/7 is not sustainable, and burning out is not necessary to build a profitable business. Of course, delegation and prioritising play a part in avoiding burnout, and if you’re in need of upgrading some bad habits, check out our blog Ten Tips to Improve Your Habits and Business.

Need Help to the Finish Line?

The team at BW Miller Dean guides business owners to reach it, by providing reliable support and solid expertise. We help business owners like you to design your business in a way you can achieve your profit and revenue goals. Contact us today to see how we can help you.

Why Making Profit is a Good Thing

31 Mar 2022 | Biz Finances

Let’s talk about profit.

Do you feel uncomfortable already?

How about ‘sales’ or ‘revenue’ – are those easier to deal with instead?

It’s interesting how words can be loaded with a negative association. Too often, the media’s unsavoury portrayal of profit makes it a dirty word, with headlines slanted toward their story angle such as “putting profit before the customer”. With the portrayal of taking something away from someone, the subtle (or not-so-subtle) messaging around ‘profit’ in a shameful or negative context has a powerful impact on our psyche.

For many reasons, the topic of profit has become stigmatised and associated with greed, or attained only at the expense of customer service, quality products, and employee wellness.

Whatever your comfort level is with it, we’re tackling the taboo topic of profit, and why it’s a good thing. Without it, none of us would be in business.

Businesses Need to be Designed for Profit

“I was mentoring some graduate students at a local university recently, and I sensed that profit seems to be a dirty word these days to many aspiring entrepreneurs. I’m certainly not a fan of customer rip-offs, but even non-profits have to be cash-flow positive, or have deep pockets, to help anyone for long. Every business needs to develop a revenue model even before a product.” – Martin Zwilling, Founder and CEO, Startup Professional

The definition of ‘profit’ is a financial gain. That’s it. Not financial gain as a result of the suffering of another. Although that can and does happen, it is only one of many ways to approach getting a profit. As with money, profit in itself is neutral, but the attaining of it and use of it has a higher and lower expression.

At its highest expression, striving for profit fuels the entrepreneurial spirit, innovation, creativity and invention, and produces excellence. It’s not only good to strive for profit; it’s the fundamental driving force for society to progress and move forward.

As a business owner, you take risks and work hard. Therefore you deserve to make money! It’s not about getting filthy rich and walking over people to get there. Rather, the positive attributes of profit should be recognised. It gives you more options for things like:

  • Growing the business so you can create more value for customers, and have a positive impact on your community.
  • Creating prosperity and opportunity by employing more people and helping them have a better life.
  • Contributing to causes you care about.

Ironically, often people who aren’t making profits are driven to unscrupulous actions to save a dime or make a buck. Being constantly stressed because of no profit results in a stressed working environment, and is harder on employees.

Profiting Unapologetically

“A great merchant delivers both joy and profit. Then profit gets reinvested in more joy.” – Andy Dunn

Businesses and organisations need to profit to exist, create employment, and continue making a difference in the world.

As an entrepreneur, being in business is your opportunity to do something meaningful, provide products or services to customers that value them, and succeed on your terms. The more profit or surplus you can create, the better value you can deliver.

The team at BW Miller Dean can help you design your business for profit by putting processes in place to steer it in the right direction so you can achieve your revenue goals. Contact us today to see how we can help boost its profitability.

Do You Have a Reciprocal Relationship with Your Staff?

24 Feb 2022 | Relationships

The best relationships in life are reciprocal – and that counts for the workplace as well. When you help your employees to achieve their dreams, they in turn help you to achieve yours.

In the last few years, businesses have been put through the wringer, and on top of that, we’ve seen a worldwide trend of employees quitting their jobs in droves. Last year, the HR software company, Employment Hero, conducted a survey in which 48% of employees in New Zealand indicated that they’re planning to change jobs in the next year. It is crucial, more than ever, to make sure you retain your best employees.

 

How Can You Support Your Employees?

There are many ways you can support your employees, but here are a few tips to get you going:

  • A comfortable workspace: Whether it’s a comfortable chair, the right tools to do the job, a clean break room, or support when they need to work from home, a comfortable workspace will make your employees feel supported and increase their productivity.
  • Acknowledgements and rewards: It’s certainly not coming as a shock – everybody loves being recognised for their hard work and achievements. People need to feel that they have a purpose, and when they’re being acknowledged for their good work, your staff will feel like they’re living up to that purpose.
  • Open and honest communication: Your employees want to know where they stand with you. They want to know what is expected of them, and whether they’re meeting those requirements. They also want to feel comfortable being able to say what they think and share their ideas.
  • Growth opportunities: Whether it is getting better at their jobs, or having the opportunity to climb the ladder, your staff wants to be able to develop and grow their skills. Without the possibility of growth, they’ll soon become disconnected and bored with their work.

And thanks to Covid…

  • Support when sick or having to self-isolate: With Omicron in the community, we’re going to see a lot more self-isolation needed in the next couple of months. For staff that can work from home while they’re isolating, helping them to set up their remote workspace and calling every so often to check in with them would go a long way in solidifying their commitment to their work.

Of course, as an employer, the financial burden on you can be quite significant if a bunch of your employees need to self-isolate, especially if they can’t work from home. To help with that, the government has introduced a leave support scheme. Additionally, they’ve introduced another financial support scheme for businesses struggling because of Omicron. Check out this article for more details.

How Strong Is Your Relationship with Your Team?

It can be a challenge to stay competitive in today’s job market. Maybe your star employees are quitting in search of greener pastures, and you don’t know what to do about it. Well, that may be a sign that your organisation is lacking one of these supporting elements. It may be a good time to give these ideas a chance, and chat to your employees to hear what other ideas they have. Together, you can build a stronger, open, and more reciprocal relationship with each other.