If you’ve been to one of our business development events before, you’ll likely be familiar with the bucket analogy we often use. Put very simply, your business is like a bucket with holes in it: when you earn money, the bucket fills up. Running costs such as direct costs (COGS) and business expenses create holes, causing the bucket to empty. You need to keep the bucket filling fast enough so it doesn’t completely empty out, or you need to reduce the number of holes in the bucket. Some business expenses (holes) are mandatory, you can’t run your business without them. Others are controllable – and you can reduce the amount of money leaking out by managing these costs better.

It’s important to understand the different types of overheads, in order to know which ones you can control, and therefore manage better to keep your bucket fuller. Most people you speak to will tell you there are two types of overheads: Fixed and Variable. But I propose that a third type exists, the Optional ones – and my advice below is based on these 3 categories…

First, let’s clarify what a business expense is: Business expenses (also known as overheads) are indirect costs that don’t directly relate to the product or service you provide, but they do support your activity. For example, direct labor and materials wouldn’t be considered overheads but things like office rental and stationery would be.

Now let’s look at the different types:

Fixed Business Expenses

As the name implies, fixed overheads don’t change. They’re the non-negotiables you must incur in order to stay in business and they aren’t overly affected by changes in activity. Common examples include rent, insurance, phone, petrol, etc. Most fixed overheads don’t fluctuate all that much from year-to-year either, so the best indicator of what you can expect for the year ahead is to look at what you paid the previous year.

Working out your total fixed overheads for the year is a pretty quick calculation, but the trick to keep your head above the water and ensure you earn enough to cover your fixed overheads is to divide up the total amount by 11 months instead of 12. Why? Working on an 11 month year allows for the seasonal effects of Christmas/NY and Easter when you’re typically a lot quieter and work is hard to come by. After you’ve done that calculation, you then know how much Gross Profit you need to earn each month to cover your fixed overheads.

Variable Business Expenses

Variable overheads are the ones that do change month-to-month, reflecting changes in output. A few examples include advertising, sales activity, gear for the staff, etc. While they are variable, and you can’t strictly control them that much, you’ll generally know enough to be able to budget fairly accurately if you look at your previous year – and this will help inform your decisions re optional overhead spend.

To work out variable overheads, again do the 11-month calculation and then add this amount to the Gross Profit figure you need to earn each month.

Optional Business Expenses

This is where things get interesting and the bit I really want to talk about because these are the overheads you have the most control over. They’re the overheads you don’t need to spend to keep your business running, but they’re things you want to do.

Without question, you can always spend more money in your business – new carpet for the office, a better website, replacement tools for the staff, another office support person, health and safety improvements, business mentoring and coaching… There is literally no end to how much money you could spend.

But there aren’t endless jobs, nor endless amounts of time to do those jobs, which means there isn’t endless money to pay for these overheads either. So what do you do?

You have to budget. Make a wish list. Prioritise the things you really want to do and work these into your budget. The combined total of your fixed, variable and optional overheads must be covered by Gross Profit. So you have to realistically work out how much Gross Profit you can earn each month, then deduct the amount you need to spend on Fixed and Variable Overheads. Whatever’s left – if anything – is what you have available to spend on your Optional overheads. Or you could keep it and help increase your Net Profit… the decision is yours.

And finally, whatever you do, don’t spend more on business expenses than what you’re earning in Gross Profit. Do that and you’ll be back looking for a new job within months.

Need Some Extra Guidance?

If you need some extra guidance or training on exactly what to look for, the team at MBP have a range of solutions to help. Our Financial Awareness Coaching can help you to develop the skill to manage your business finances like a pro. Also, keep an eye out on our Facebook page as we share updates on the timings for our Know Your Numbers and other key business education webinars.

For many years, the low value asset threshold for depreciation had been set at $500.00. This meant that everything over $500.00 had to be capitalised and depreciated as a fixed asset. The cost of many business items has increased significantly since the rules were last reviewed. At the same time, the useful life of the items has decreased. This is why the government was reviewing the rules and planning to increase the threshold.

The pandemic came along and the under review low value asset rules were a perfect option to allow some quick action to help stimulate business investment. The updated rules were one of the first COVID-19 Business Response measures, announced in March 2020.

The New Low Value Asset Rules

From the 17th March 2020, the low value asset threshold for depreciation has been increased to $5,000.00.

This is a ten-fold increase from the previous threshold of $500.00. The governments intention for this is to spur business investment. It is hoped that businesses will be encouraged to spend more in order to take advantage of the ability to expense items costing up to $5,000.00. This was a direct reaction to the drop in business confidence as a result of COVID-19.

12 Month Time-frame for New Rules

This new threshold is strictly limited and expires on the 16th March 2021. In order to expense a low value asset costing up to $5,000.00, you must purchase it on or after the 17th March 2020 but before the end of business on the 16th March 2021.

There was initially some confusion around when the rules would come into effect. This was largely due to the chaotic situation in the early days of the pandemic and the requirement for the rules to be amended by legislation. The 12-month period is as outlined above and is not in line with the standard 2020-2021 tax year.

Low Value Asset Rules from March 2021

From the 17th March 2021, the low value asset threshold for depreciation will be $1,000.00.

This is double the old limit of $500.00 and is in line with the original uplift intentions signaled before COVID-19.

There is no time limit on this adjustment. It will remain effective until varied by future legislation.

Benefits of the Adjusted Low Value Asset Rules

Benefits for Small Business Owners

If you have been put off investing in your business because you would have to wait years to claim the full tax benefits, this may be the opportunity you have been waiting for. Need a few new computers? Now’s the time to invest. Need to refresh the workspace to make it a bit more inviting and productive? Now’s the time to invest. Need to optimise your online presence for post-covid growth? Now’s the time to invest.

If you run a small business selling to other businesses, this is a perfect opportunity to market the tax deduct-ability of your products. For many savvy business owners, it might be just the sweetner they need to convince them to spend up to $5,000.00 with you.

Benefits for Residential Property Investors and Landlords

The Healthy Homes Standards are a potentially costly burden for may landlords and property investors to bear. These changes offer the ability to implement the required expenses and claim the full tax deduction in this tax year.

This means that you can invest in the new heatpump, glazing or insulation and claim the full amount as an expense (as long as it remains under $5,000.00).

The requirement for you to include a statement of compliance with the Healthy Homes Standards has also been extended by the government. You were required to comply with this new regulation from the 1st of July 2020. This has now been delayed until the 1st of December 2020.

There will not be a better time to get the required upgrades done.

Depreciation Adjustments Announced with Same Legislation

The government also announced changes to the commercial investment property depreciation rules in the same package of tax changes. This will allow depreciation in much the same was as prior to the 0% rules which were passed in October of 2010. If you would like to view the IRD information on this announcement, click here. This depreciation rule may apply to your AirBNB properties.

 

If you would like a run-through of the new rules and how they may benefit your business, feel free to get in touch with us. You can book in a free chat with one of our team or simply flick us an email.

New Zealand’s Budget 2020 was promised to be the “jobs budget” by the Prime Minister just prior to its announcement.  Unfortunately, it is difficult to see how this budget saves or creates many jobs in the short to medium term.  Of course, it must be noted that there is $20Billion+ in COVID-19 recovery spending yet to be announced and some of this additional funding could be well-targeted.

There are a few announcements that will certainly save or create jobs in the long-term.  These include:

An existing $12Billion infrastructure fund has been increased by an additional $3Billion. This $15Billion will be used to fund soon-to-be-announced infrastructure projects.  Some 1,500 projects, totaling $136Billion, have applied for a share of this funding. This suggests we may see less than 200 projects actually break ground nation wide.

This additional $3Billion will help to plug the gap that will inevitably be left by private and council infrastructure schemes that are deferred or cancelled. So this will likely save jobs as opposed to create many new ones.  However, while changes are being made to the Resource Management Act to fast-track these projects, it is still safe to assume that it will take some time for these projects to commence. This will add to short-term pressures in the infrastructure sector with skilled workers in high demand globally.

8,000 additional public/transitional homes will be built. This will undoubtedly help save the jobs of builders as some private sector projects will likely be delayed. We have already seen some developments delayed till next year at the earliest based on the prospect of falling house prices making them less economical in the short term. Like with the infrastructure boost, this will not happen overnight. The government has already demonstrated how difficult it is to build even 1,000 homes over the past two years. This suggests we may be waiting at least 8 to 16 years to see the outcome of this announcement.

11,000 “green jobs” will be created in the regions.  These will be for the likes of pest and predator control and in upgrading DOC tracks and huts.  These initiatives will add real value to the nation, but again these jobs will not be created overnight. Many of these jobs will also not be long-term. With predator free targets in place and limited land for planting trees, once the work is done what will these jobs evolve into?

$1.6b towards training – a significant investment will be made in training.  Long-term this will definitely benefit New Zealand, but it will do little to solve the immediate problems created by the pandemic.  It is also questionable whether jobs will exist for these newly up-skilled people in a potential recessionary environment. The infrastructure spending and target of 8,000 homes will give some work. However, policy and legislative pressures on other sectors to benefit from the training boost, like farming and the primary sector, will likely see less demand for jobs in this sector over time. This investment needs to be targeted to the future of work or the government needs to change its legislative agenda towards the primary sector if it wants these trainees to have somewhere to work.

Policy consultants and bureaucrats. While very little funding has been allocated towards assisting the private sector, the Government sector has been sprayed with “helicopter money”.  This will certainly support the Wellington job market and economy.

What is in Budget 2020 for Small and Medium Businesses?

Disappointingly, there is very little in this budget in the way of near-term support for businesses. However, Government spending is stimulatory and there is certainly no shortage of new Government spending in Budget 2020! There is no doubt that this additional spending will help support the economy in the long term. However, it will take some time for the stimulatory effect of that spending to filter down into the wider economy and many small businesses are crying out for help now.

In terms of short-term relief, there really isn’t much for businesses (yet).  However, here are some of the measures that were announced:

  • An 8-week extension to the Wage Subsidy for businesses that have suffered a 50% decline in revenue for 30 days prior to applying for the extension when compared to the same 30 days last year.  See below for more detail on this.  This will be a welcome relief to the accommodation, hospitality and tourism sectors who are really hurting.
  • A $400m tourism recovery fund.  This seems to be aimed mainly at accessing advice around adapting tourism businesses towards domestic and Trans-Tasman markets. There also appears to be a focus on marketing New Zealand to Kiwi’s. Unfortunately there was limited detail in the budget announcements and it seems this fund is destined to be ‘working grouped’ over the coming weeks.
  • $150m in loans to R&D providers.
  • Additional funding for WINZ to place 10,000 primary sector jobs.
  • Financial support for businesses to retain apprentices.

Overall, the $50Billion COVID-19 recovery fund includes just $4Billion in business support. With $3.2Billion of this being consumed by the extension to the wage subsidy there is certainly not a lot to be optimistic about in the short to medium term. These announcements have simply bought the government a few more weeks to come up with some targeted, practical support for the sectors most damaged by the economic shutdown.

Extension to the Wage Subsidy Scheme

From the 10th June 2020, businesses who continue to be severely affected by COVID-19 will be able to apply for another 8 weeks of Wage Subsidy. Applications will be open for the extension for 12 weeks from the 10th June 2020.

The qualifying criteria around turnover has been substantially tightened from the first phase of the scheme. To qualify, a business must have suffered a 50% turnover reduction for the 30 days before the application is made compared to the same period last year (or a comparable period for a business that is less than 12 months old or experiencing high growth before COVID-19).

The same full-time rate of $585.80 and part-time rate of $350 will apply. At this stage, we understand that all other criteria will remain broadly the same.

Hospitality and Tourism Sectors

It goes without saying that two of the worst affected sectors are tourism and hospitality.  The shift to Level 2 is only a partial relief in these sectors so the extension to the wage subsidy will be much welcomed news for these businesses struggling for survival. While the wage subsidy scheme is not without its flaws or critics, there is no doubt that so far it has saved jobs and businesses, especially in the hospitality and tourism sectors. However, many employers in these sectors are going to need more than just the wage subsidy to survive long enough to be around for the recovery.  Presumably, there will be some more targeted relief in the coming weeks, but what these sectors need the most is some certainty about when restrictions will be loosened so that they can properly plan ahead and take necessary steps to mitigate the losses until they can begin trading again.

Tax Changes in Budget 2020

No tax changes were announced in budget 2020. However, New Zealand’s debt is forecast to balloon from $118Billion to over $317Billion in the next 4 years. Core crown debts alone will be well over $200Billion, 54% of GDP. This massive increase in Government debt and makes future tax increases a very strong possibility, if not ineviatble.

Where will the Additional $20Billion+ in Spending Go from Budget 2020?

As we mentioned earlier, there is still approximately $20Billion+ in funding to be allocated. The Finance Minister suggested that there will be further announcements in the residential housing space but hasn’t really signaled where the rest will go.

Perhaps the Government wants to stand back and get a feel for how much of a positive impact shifting to Level 2 has before deciding how to spend this money.

Considerable Room for Improvement

While the government has moved quickly with things like the wage subsidy to help save jobs in the immediate term, the recent announcements in budget 2020 have very little impact where it is most needed. We will continue to monitor announcements closely to see if some targeted, long-term relief is announced to support the hundreds of thousands of small and medium businesses across New Zealand. These businesses are a lifeline for countless families and the backbone of local communities across the country. While large organisations benefit from hundreds of millions in loans and large infrastructure projects, the government has so far overlooked the little guys in their long-term plans.

We’re Here to Help

At MBP, we’re here to help. The government’s additional COVID-19 funding for the regional business partner network has already dried up after helping less than 1% of the businesses desperately in need. That’s why we partnered with local business leaders to fully fund a range of our services that are essential for business survival and success in the face of the challenges we are presented with.

If you and your business need a hand, reach out and book in a chat with our team. We’re happy to help however we can.

As a small business owner, you’re probably keeping a close eye on every cent you spend. You need to have a good eye on your income and expenses to manage your cashflow, so that’s a good thing. However, it might mean that you are wasting time micro-managing your finances and not hiring people to help give your business a boost. Hiring a bookkeeper can be a great investment fro any small business.

What Does a Bookkeeper Do?

A Certified Bookkeeper will take care of your daily business financial management. They’ll make sure your books are up to date, balanced and reliable so they can support the best possible decision making. They’ll manage your invoicing (accounts receivable), track your receipts and general expenditure and reconcile your accounts payable.

All of the frustrating daily and weekly financial tasks that you hate or that just sucks up half your day, they love doing. Not only do they love that work, they are likely a lot faster and more efficient at doing it than you are.

Hiring a Bookkeeper Saves You Time

Unless you’re a bookkeeping whizz and love those debits and credits, you might find your bookkeeping to be a headache-inducing waste of time. Chances are, you’ll put off your bookkeeping until its a massive chore. This means it takes up more time and you like it even less. Even if you do enjoy it, doing this day-to-day book work is dragging you away from the parts of your business where you should be focusing your energy and passion. Your time is valuable. You’re much better investing your time in value-adding activities like sales, networking and marketing your business.

The time you spend trying to understand your financials could be better spent on tasks you’re good at. A Certified Bookkeeper will be more efficient than you, they won’t spend all day reconciling bank accounts and attaching invoices and receipts. They’ll have it done in minutes. They won’t have as many errors and overall, they will save you a mountain of stress.

Your time, and your sanity, are worth investing in a Certified Bookkeeper.

A Bookkeeper is on Top of Your Cashflow

Hiring a bookkeeper means that you’ll always have someone with an eye on your cashflow.

They’ll help you get paid. Many small business owners have a hundred things to get on and do. It’s easy for things like invoicing and accounts receivable t fall down the list. It is essential to your business survival that you send out invoices as soon as possible. It is equally as important to follow up with late payers to see what’s going on. These are harassing calls, just a friendly, personal reminder that the invoice is outstanding and due for payment. You might feel bad doing this, which is why its the perfect task for your friendly, professional bookkeeper.

Your bookkeeper will also ensure that you don’t end up getting any of those calls from your creditors. They’ll ensure that your bills are paid on time.

Id there any better investment in your business than one that makes sure you’ve always got cash flowing and money in the bank?

Hiring a Bookkeeper Prevents Costly Errors

A Certified Bookkeeper knows their stuff. They are committed to professional excellence and undergo ongoing professional development to make them experts in their field. They won’t make the same mistakes that you’ll make, either because you’re rushed or because you haven’t got around to reading the latest 53 page IRD tax bulletin.

Some mistakes might seem small and insignificant at first. However, data entry errors, mixing up expenses and mis-claiming GST, can all quickly add up. These mistakes cost you more time and more money.

If you are doing your bookkeeping and then relying on your accountant to clean things up a year-end, you’re burning money. What you are doing is then getting your accountant to be your bookkeeper, at accountant’s hourly rates! It also takes a lot longer to unpick and re-reconcile transactions that happened months or even years ago.

At the worst end of the scale, consistent mistakes, even little ones, could flag you for an IRD audit. An audit can cost thousands to resolve, and that’s even if things are nice and tidy!

It’s best, and cheapest, to get it right from day one. Get in an expert to keep your books in order.

Certified Bookkeepers are Experts

Are you up to date on every movement in tax law? Do you understand how small changes to the rules effect your business? A Certified Bookkeeper is. They can advise you about any changes that are coming that may impact on your business and can offer insight into how to prepare and minimise any impact or maximise any benefit.

Hiring a bookkeeper can also provide you with insight into your company’s financial position. If you’re short on cash, overspending in certain areas or struggling to collect accounts receivable, your bookkeeper will tell you. They can also work with you to help remedy these issues. If there is something you don’t understand about your business finances, your bookkeeper can help to explain it to you. Because they are slightly more human than accountants, they can even explain it all in plain English, not accountantese. So your business financials will never be a mystery again.

Hiring a Bookkeeper is an Investment in Your Business

With a Certified Bookkeeper on board, you can sleep easy knowing your business books are in the hands of a professional.

Not all bookkeepers are created equal. At MBP, all of our bookkeepers are trained professionals and are Certified Bookkeepers with the Institute of Certified New Zealand Bookkeepers (ICNZB). The ICNZB ensure that they are professionally competent and that they uphold the highest standards of continuing professional development and ethics. And the best part, our Ceritfied Bookkeepers are about half the cost of an accountant, so you get exceptional value from your investment.

Want some help with your bookkeeping? Get in touch with the team of Certified Bookkeepers at MBP, or book in a chat with us today.

The government’s latest COVID-19 support package includes further measures to try and ease the pain of the lockdown. It includes ‘tax breaks’, business advice funding and guidelines for tenants and landlords.

At first glance it seems this package, unfortunately, may not do a lot for small businesses and leaves a lot to be desired. There are no in depth details available yet, so we will have to hold on, likely until 27th April.

Tax Loss Carry-Back Scheme

A large portion of the package is the tax loss carry-back scheme which will allow some businesses to access previous tax payments as refunds. Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from the prior year. Basically 2 tax years become 1 year.

This scheme relies heavily on perfect forecasting for more than 11 months into the future. Any mistakes in the calculations or forecasts will result in Use of Money Interest being charged by the IRD, likely back to early in the 2020 tax year when the adjusted provisional payments will have arisen originally.

This scheme has the potential to help some larger, more established businesses with steady monthly turnover year to year, but really does nothing for growing or smaller businesses with less certain profitability.

We recommend that in the short-term, your efforts are much better spent looking at ways to make your business thrive after lockdown. Don’t distract yourself with this poorly thought out policy until it actually has some usable detail or some tweaks that make it more applicable to the businesses its supposed to help.

Commercial Landlords and Tenants

The Government has announced its intention to put in place some temporary law changes to support commercial tenants and landlords impacted by COVID-19. The goal is to make it easier to keep lease arrangements and get back to business as usual after the epidemic. Many businesses have been unable to operate due to the level 4 lockdown alert, so they may have difficulty payment rent. Landlords, in turn, may have trouble making mortgage payments.

Important Note: Landlords and tenants will not receive financial support in the form of cash payouts.

The temporary bill that is set to come is designed to give commercial tenants more time to catch up on overdue rent before a landlord can take steps to evict them.

Some details:

  • For the next three months, landlords can’t apply to end the tenancy for rent arrears unless the tenant is at least 60 days behind in rent.
  • Landlords will have to give 30 days notice to cancel a lease, up from the current 10 days.

The official advice for tenants that can’t pay their rent is to let their landlord know right away. Be honest about the situation and get a payment plan in place.

If you will continue to have trouble, you may be able to access financial support from the Government’s Wage Subsidy and Leave Payment scheme that is available to eligible employers and workers.

We hope to have more details on this after April 27th, but please get in touch with us if you have any questions.

The business.govt.nz website is regularly updated with the latest COVID-19 news and announcements for businesses.

Are you Worried about Cashflow?

If you’re worried about your cashflow, please don’t hesitate to get in touch with us.

We will do all we can to help you implement cash management processes and forecasting techniques to help. There are also some finance options available to you as well. Facilities may be provided quite quickly, so just ask if you need some help and we’ll work out what’s best for you. Remember, we are in this together.

We have the ability to provide you with FREE cashflow forecasting software for the next three months. Reach out to the team to talk to us about your options.

Thank You

Thank you for your continued support and patience as we work to wade through government packages, announcements and updates each week. Please get in touch if you have any questions.

We are in this together.