SURVIVING THE RECESSION - some tips 

There are three key factors that can help business survive and grow - good business planning, good systems and a good culture.

Business Planning

Spending a lot of time and having a lot of help putting a business plan together helps provide a road map.  It's the best investment you could make.  The plan means you are very clear about what you want to do, and how, before you start.

Of course, what you want to do and what actually happens is not always the same thing.  Every month you should sit down, revisit the plan and compare what you said you'd do against what you actually did do.  Then you make changes and tweak the plan as you need to.

For example, by changing your ordering process (including the number of items they order at the same time), you can make savings on freight costs.  And by replacing the large water heating tank with a smaller one that suits your needs better, reduces energy costs.  Small changes on their own - but they all add up.

Systems

Investment in systems is vital as they provide the information you need about how the business is going so you can make changes when you need to.  Having good systems saves a lot of time and effort.  They also help from a service perspective.  For example, all the data for your customer loyalty programme can be held on your system, so it doesn't matter who serves the customer they will always be able to get a loyalty discount.

Culture

In a service and product business you should strive to create a pleasant environment that your customers enjoy.  The key thing is that every customer's important, it doesn't matter whether they spend a lot or a little.

Not everyone's looking for an expensive, high end product.  A lot of customers are just looking for a good product they can use to meet their needs.  Having a culture that aims to take the problem away from the customer, so they can get on with their life and business reflects great customer service and repeat sales.

Another reason for success is passion for what you are doing.  If you know your product or service, care about it and the customer, people will trust you.  That's something you can't replicate.

Tips on Managing Cashflow

Cashflow problems are one of the biggest causes of business failure - particularly in the current environment.  We look at some basics of cashflow management and how they can help you stay afloat.

Most business have "lumpy" income.  That's why you need to actively manage your cashflow.  You need to make sure you can bridge the gap between when the money comes in and when it goes out.

Cashflow is a particular issue right now, in a challenging trading environment.  But you can also have cashflow problems when business is booming - for example if you don't have the money on hand to fund replacement stock.  In fact, many businesses are actually profitable when they fail.

Typical indications of cashflow problems in your business include:

1- Struggling to meet your business expenses and wages

2- Finding yourself going into overdraft "unexpectedly" to meet expenses or pay a tax bill

3- Having to ask for special funding arrangements to meet commitments.

Like most things in business, the key to managing these and other cashflow problems is to plan ahead.  Every business owner should be able to put together a cashflow forecast.  It's essentially just a spreadsheet that lists all the cash you think you'll get in over a particular period, and all the money that's likely to go out in the same period (on wages, drawings, GST and tax payments, supplies, etc).  It allows you to see where you have have problems meeting your commitments.

Once you kow where and when you may have problems, you can start to plan how to overcome them.  For example, you may be able to defer major purchases until you're likely to have more cash on hand.  Or you could consider not purchasing the item at all and leasing it instead.  Another solution may be to reduce or defer your personal drawings.  There are usually a number of approaches that could work - the main thing is to anticipate potential problems in the first place, rather than having them take you by surprise.

One common cause of cashflow problems is forgetting about GST and tax payments, or using money set aside for tax to fund other business costs.  There are two reason why you shouldn't neglect your tax obligations.  First, there are penalties for late payment of tax, which can be onerous.  Second, it simply masks any underlying cashflow issues.

There are a number of ways to improve the cashflow in your business to help avoid problems.  One of the most important (but often neglected) is to put money aside in good times, to give you some breathing room when things are tighter.

Another is to get paid faster, so they money comes in earlier.  For example, review your terms of trade - many businesses ask for payment by the 20th of the month.  But there's no reason why you shouldn't reduce that.  Depending on your business you could even ask for payment on completion or on delivery.  Make sure your terms of trade are clearly stated and your customers know what you expect.

Chasing up debt is also important - many business owners feel uncomfortable doing this and let it slide.  But you're simply giving your customers free credit.  Communication is the key.  Even when customers are having real trouble paying, you can often work out a solution that works for both parties.

Make your money work for you

As a business owner, you work hard - and so should your money.

In your business you have to manage a lot of different things - your overheads, your staff, your customer relationships, and your workflow.  But how closely do you manage the money in your business?

Because they're focused on building their business, many owners simply dump business funds into a current account until they're needed.  But they could be doing much more.  Here are some tips to help you get the best from the money in your business.

Day to Day Money

It's well worth taking a few moments to ensure the fee plan you're on for your Business Current Account reflects the way you actually use your account.

For example, if you make relatively few transactions, a Pay as You Go plan may be more cost-effective as it has a low monthly account fee and you pay for each transaction.  If you make a lot of transactions a better option may be the more transactions you make, the lower the transaction fee.

Check out the "Business Transaction Account Fee Calculator" on the National Bank website (www.nbnz.co.nz).  Simply enter your information and the calculator will work out which fee plan suits you best.

Rainy Day Money

Make sure you regularly transfer "rainy day money" out of your current

account and into an account where you earn higher interest but can still access your money when you need to.  Don't let it sit in your current account doing nothing.

Investments

Too many business owners have all their personal wealth tied up in their business.  That's a risk as it means they're not properly diversified and their personal finances are overly exposed to business fluctuations.  While you obviously need to keep enough money in the business to finance day to day operations and growth, its also important to regularly transfer money out of the business for your own wealth creation.

Transferring it out of the business is one thing, managing and protecting it is another.  If it's just going to be sitting in your personal account instead of the business current account, you're not much better off.

There are a range of investment opportunties outside your business - the best options for you depend on your goals, your timeframe, and your level of comfort with different types of investments.  Please contact us to review your investment needs.

However you decide to invest money outside your business, one thing is certain - the sooner you get a plan in place and start, the better off you'll be.

IRD's Audit/Compliance Focus for 2009/2010

In a welcome move, the IRD recently published "advance notice" of areas of focus in its compliance management programme for 2009/2010.  Given the current economic crisis its is not surprising that key areas of focus are managing tax debt and identifying the "hidden economy" to combat fraud.

While the document (some 40 pages) outlines a number of areas the IRD intends to focus on the current year, some items of interest include:

• Property transactions, the IRD's focus appears to continue to be on property acquired with the intention of resale.
• Income from offshore investments (calculation of FIF income, overseas data matching exercises to identify unreported income).
• Artificial tax losses - more focus on investigating substantial tax losses.
• Online traders not reporting income.
• Hidden economy, including GST fraud, focus on the hospitality industry and on agricultural/horticultural contractors.
• High wealth individuals - global wealth structures.
• Misusing charity tax-exempt status.
• Transfer pricing - importing offshore losses through non market pricing, potential gaming of interest rates, advance pricing agreements, continued monitoring of limited risk distributor structures and compliance with the thin capitalisation rules.
• Aggressive tax planning, including business restructures, hybrid financial instruments, imputation structures and structured finance.

The identified areas of focus are not anything new.  However, the fact that the IRD has publicly announced its compliance strategy does provide greater certainty as to what the IRD is viewing as "high risk", and therefore which transactions and areas warrant further care and attention.

If you would like further assistance on any of these issues, please do not hesitate to contact us.

Matley Housekeeping

Just a few reminders:-

• We have moved house.  Our new physical address is 758A Horotiu Road, Te Kowhai and our new postal address is PO Box 10318, Te Rapa, Hamilton 3241.  Our new phone number is 07 829 7086 and our new phone number is 07 829 7084 or 0800 MATLEY.

 

• We have now closed our bank account that we held with Westpac Bank.  If you are still paying into this account, you will find that the transactions will fail.  Please keep an eye on this should you find that you receive statements for amounts that you think that you have already paid and contact the office if you are unsure.

 

• From the 6th July until 20th July Maggie is away from the office, so please be nice to the boys!