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The Government’s Business Finance Guarantee Scheme has been an epic failure. Today, some welcome changes to the scheme have been announced by Finance Minister Grant Robertson.

The scheme has been too restrictive and there was far too much red tape for struggling businesses to jump through. The Government budgeted more than $6 Billion for the scheme when it was originally announced. However, to date, only $150 Million has been lent to just 780 businesses.

Today, the Finance Minister has announced some very welcome changes to the scheme.

What Has Changed:

  • The scope of the loans has expanded from supporting COVID-19 impacted cashflow to supporting businesses to respond to, reposition and recover from the impacts of COVID-19
  • The maximum loan amounts have increased from $500k to $5m; and
  • The loans can now be used for capital expenditure.
  • The maximum loan term has been extended from 3 years to 5.
  • There is now an ability to refinance other debt under the scheme.
  • The turnover cap for businesses has been expanded from $80m to $200m.
  • There are no establishment or early repayment fees.

The total funding available under the scheme is limited. Applications need to be made by 31 December 2020. More detail can be found here: https://treasury.govt.nz/information-and-services/new-zealand-economy/covid-19-economic-response/measures/bfg

The loans still do not apply to residential or commercial property investment. We think the Government has missed an opportunity here as a housing shortage looms with the significant number of New Zealanders returning from overseas.

Let’s hope these changes to the Business Finance Guarantee Scheme allow many more businesses struggling through their response to the pandemic to access the funds they need to secure their operations and thrive in the new normal.

How to Apply

Like the original scheme, applications are made through the participating banks (ANZ, ASB, BNZ, Heartland Bank, Kiwibank, SBS Bank, TSB, Bank of China and Westpac).

Normal credit processes apply, so if you intend on applying you will need to pull together information to support your application.

What the bank will require will vary case by case, but we suggest at a minimum they will want your most recent financial statements and up to date forecasts/budgets (ideally three-way).

If you need help with any of this, reach out to the team for help by emailing your regular MBP Business Partner or support@mbponline.co.nz.

As small business owners plan for how they will operate after COVID-19, there are some important business questions to be asked about the coming business recovery. These questions will help you determine what adaptations you want to keep, whether your business model is working, and if there are additional changes you want to make to keep your company operational through future economic downturns.

It’s not always fun to do this sort of examination, but the answers to these questions will help you to make the best possible decisions for the future.

What Worked and What Didn’t Work in my Business Model?

Almost all small business owners had to make changes to their business model. Whether it was hosting meetings with clients on Zoom, learning about encryption technology to allow employees access to sensitive information from home, offering restaurant food for take-out or managing dance classes online, most small businesses adapted in some way.

Ask yourself:
Have I have to adapt my business model? Did I alter my goods or services in any way? Have I changed how my premises are used? Do these adaptations enhance my business in any way? Do these changes highlight gaps in my business model that should be addressed? Should I make some of these adaptations permanent?

Maybe you have a lot of clients who would prefer to have meetings online rather than face-to-face. Perhaps offering classes online is a way to reach out to students or clients who can’t attend weekly sessions in person. There may be perfectly good reasons to continue with a revised business model.

Do I Need to Make Changes to my Supply Chain?

You have some control over your supply chain, but not a lot. Disruptions happen and they can drastically affect your business.

Review how the various components in your supply chain reacted to the pandemic and whether they helped your business or hurt it.

Ask yourself:
Did the suppliers in my supply chain remain open and transparent with me? Did they reach out to me to discuss revising our agreement? Were they reasonable in their expectations and willing to work with me? Do I need to have alternate arrangements or back-up plans in case there are future supply chain disruptions?

Your supply chain has a huge impact on your business. Trusting your suppliers and knowing you can work with them will allow you to feel more secure in the future.

How has my Team Adapted?

Your team has faced a great deal of stress and uncertainty during COVID-19, due to professional and personal concerns. Team members may have had to transition to new ways of working—at home, on a new schedule, or with new policies and procedures in place.

Ask yourself:
Are there changes to how my staff works that I could continue to implement? Should I provide additional training for staff? Have I communicated openly with them? How adaptable was my team?

One benefit from having employees work from home more days a week is that such opportunities for remote working can boost employee morale while saving you money. Now that you’ve invested in the technology to allow staff to work from home, is it worth it to allow this scenario to contine, even a few days a week?

Final Thoughts

In addition to looking at your business, take a look at your customers and clients. Were they supportive of your business during this time? Did they turn elsewhere? Did they respect the changes you made to your business or the policies you put in place?

Each of the above questions about your business model, your supply chain, your team and your customers, will help you make informed decisions about your business recovery as COVID-19 restrictions are lifted.

Get in touch with us to chat about your business recovery.

Have you given any thought to which business structure is right for your business? We’ll be honest and admits it’s not usually the first thing that comes to people’s minds when starting or buying a business. However, the way that you structure your business plays a significant role in how it functions down the track.

In NZ, there are three common business structures, along with some which are not so common. We’re sticking with the most common of these structures today, though if you think another type would be better for your business, get in touch and we’ll help you sort it out.

The three most common NZ business structures are:

  • Sole trader
  • Partnership
  • Limited liability company

To help you decide which one you should choose, we’ll work through them individually.

Understanding the Sole Trader Business Structure

A sole trader structure involves only one person: you. It is the simplest structure in which you are the only individual who is liable for every part of your business. This doesn’t mean that you have to do it all alone as you can hire employees to help you run it. You’ll just need to register yourself as an employer with the IRD and meet the required obligations.

As a sole trader, you use your IRD number for tax purposes, filling in a personal tax return. You can claim expenses to lower the amount of tax you pay and generally, any business losses can be offset against any other personal income. Trading under your own name is fine, as the operational life of this business structure simply depends on you.

The advantages of choosing to become a sole trader include:

  • it is quick to set up with no red tape
  • there are no legal fees to pay during the establishment phase
  • you receive all the profits
  • you’ll have total control of the entire business
  • no business name registration is required
  • you can change your business structure easily in the future

Downsides to being a sole trader are:

  • you are completely responsible for all debts and claims
  • your assets can be at put at risk
  • harder to get finance should you need it
  • more difficult to sell as a working business
  • can be harder to grow a business using this structure
  • there are no shares to sell to raise capital
  • you are responsible for your KiwiSaver contributions

For further advice and information about this business type, get in touch.

Understanding the Partnership Business Structure

The partnership structure is often used by two or more professional individuals who already have experience in running a business. There are no rules regarding how much each partner can own, meaning an uneven split of 95% to 5% is acceptable. What does happen though, is the profits you receive and amount of work you are required to do often depends on the ownership percentage.

Instead of the partnership paying tax, each of the partners themselves is responsible for paying tax based upon the profit share they receive. To avoid problems, it is seriously recommended that there is a legally drawn partnership agreement which sets out all the details on how the partnership will be run.

The pros of choosing a partnership business structure include:

  • everyone shares costs and responsibility
  • relatively simple and low cost to run
  • each partner can focus on their specialities
  • you can offset losses against your other income
  • partners can bring in capital investment to the business
  • the running tasks of operating a business are shared

The cons of choosing a partnership can include:

  • each partner has an equal share in the business’ liabilities and debts
  • you need to make decisions with your partners
  • disagreements amongst partners are common
  • you can’t sell shares
  • you are responsible for your KiwiSaver contributions

To discuss if this structure is right for your business, get in touch with us.

Understanding the Limited Liability Company Structure

Commonly referred to as a company, a business with this structure is separate from the business owners. In other words, a company is a separate legal entity.  Any money earned will belong to the company and will pay its tax at the corporate tax rate. The shareholders then receive the profit from the company, who then individually pay income tax on this.

The shareholders, AKA the business owners, have less exposure to any financial or legal issues relating to the business.  So, while the company has full responsibility for all its own financial and legal obligations, the liability of the shareholders is less. This means a shareholder is only responsible for any personal guarantees they have given and losses to the dollar amount of their shares.

The advantages of choosing a company business structure include:

  • less personal responsibility for business debts and liabilities
  • easy to sell or pass on ownership
  • shareholder profit distributes are flexible
  • lower tax rate than top personal rats
  • easier to get funding approved
  • seen as a highly credible business structure by the market
  • easy to keep growing

The downsides include:

  • more red tape and paperwork to do
  • need to register business through the Companies Office
  • more time consuming to get up and running
  • higher establishment and compliance costs
  • often require more investment to grow
  • you are responsible for your KiwiSaver contributions

It is important to note, that the limited liability company is only one of three company structures. It is the most common one though. Others include co-operative companies and unlimited companies. To discuss which company structure is best for you, get in touch with us today.

Where to Next When Choosing a Business Structure?

While there is a simple tool available on the MBIE website to help select a business structure, there is no substitute for personal advice. As accountants and business advisors, we deal with these structures daily, putting us in the best position to help you make an informed decision. To make a time to discuss your business with one of our business advisors, book your free 30 minutes chat with us via our website now.

At a time like this, money is tight for pretty much every business. Cutting costs can be a quick and easy way to improve the profitability of your business. Introducing well thought out cost saving tactics can bring immediate savings and ensure you remain profitable in the short term.

But it’s important that cost-control measures are carefully managed. Eliminating errant expenses is clearly beneficial, but indiscriminate cost-cutting could lead to a drop in quality, or poor morale if staff fear being made redundant or are not given the tools they need to do their job efficiently.

This risk is heavily reduced by identifying where you can safely trim costs, setting clear cost-reduction targets, and researching any cost saving tactics before making changes to your business.

Planning Effective Cost Saving Tactics

The first step towards reducing costs is identifying your major cost areas. These are likely to include:

  • Production
  • Purchasing
  • Sales and marketing
  • Financing
  • Administration
  • Facilities maintenance.

Start by assessing your profit and loss statement for the last six months and rank all your expenses from highest to lowest, working your way down the list and identifying areas where you can reduce costs. It’s a good idea to first focus on identifying cost-saving measures in areas where you’ll see the biggest return. For example, it’s smart to work toward saving 5% on a $200,000 expense rather than a slightly higher percentage on a lower-cost expense.

Trial New Ideas

You might find it’s difficult to anticipate savings without actually implementing new systems and processes. Remember that any changes you make don’t need to be permanent. If you aren’t sure if a cost-saving measure is suitable for your business, consider trying it for a few months then assessing the results. This way, you’ll soon get an idea of the real cost savings without having to commit long-term to new processes or changes.

Any new processes or systems should be benchmarked and frequently revisited to ensure they are still suitable for your business. Consider asking staff for feedback around any changes to make sure there are no hidden problems that could be costing you more than the cost-saving value.

If you are in doubt about any potential changes, ask an advisor. We are more than happy to chat through this with you.

Quick Savings

You might be surprised to find that significant savings can be made without having to worry about your quality and affecting performance. Here are the most popular ways to trim costs without making radical changes.

  • Eliminate unnecessary costs – start with waste reduction, heating costs, and utility charges.
  • Reduce inefficiency by identifying manual tasks that could be sped up with technology or completed less frequently.
  • Avoid frequent, small orders that cost more than larger orders and take additional time to complete.
  • Reduce travel expenses by booking air travel earlier and using cheaper accommodation on business trips.
  • Find alternatives to high-priced suppliers or negotiate better payment terms or discounts on purchased goods.
  • Revise your credit policies to encourage prompt payment.
  • Brainstorm quick cost savings with your staff – they might have some useful suggestions you may have overlooked.

Significant Savings

Once you have identified your major cost areas, you may want to investigate potential ways to save money by changing existing processes.

Some of the most common opportunities are listed below, but before adopting any changes you should be aware of any potential damage to your core business activities.

  • Cut payroll costs by outsourcing non-essential activities.
  • Redesign your existing processes to eliminate duplication, and cut time wastage.
  • Make use of current technology, or latest industry thinking.
  • Agree to long-term supply contracts, or guarantee a minimum purchase amount to secure better terms.
  • Trim back or revise your current product offering and remove poor-performing products.
  • Form strategic alliances with other businesses to buy larger volumes.
  • Consider subletting office space, or relocating to a more cost-efficient location.

There may also be other costs such as long-term, fixed-rate business loans or fixed-price contracts for raw materials that you may be able to reduce when these are up for renewal or tender.

Pitfalls to Avoid

Reducing costs can have a negative effect, so you’ll need to be sure that changes will not compromise your operational performance.

Some common pitfalls include:

  • Over-dependence on one supplier could put you at risk if your supplier fails.
  • Reducing your marketing budget could affect your marketing strategy.
  • Tighter control of business finances could leave you without a safety margin if cash flow becomes tight.
  • Cutting short-term costs such as training, research, and development, or advertising can lead to long-term weaknesses.

Employee Costs

Reducing employee-related costs is generally risky and counterproductive in the long-term. Reducing costs such as staff training or meeting times could lead to poor staff morale and reduced productivity.

Changing an employee’s terms and conditions can also create legal issues in some circumstances, so it’s always a good idea to get expert advice before making a decision. Making employees redundant could bring short-term costs and the risk of possible employment proceedings. It may also contribute to low morale.

These problems can be reduced by maintaining clear communication with employees. Introducing cost saving through improved practices and procedures will require a degree of employee ‘buy-in’ so it’s important your employees are aware of why you are making changes. Employees may need additional training and support over these periods.

Next Steps

  • Schedule a staff meeting to review your costs and brainstorm possible saving measures.
  • Commit to an ongoing cost-control and monitoring process (or delegate to key staff to manage the process).
  • Ask our advisors to assist you with cost-saving initiatives or brainstorm ideas.

Please get in touch with us to find out how we can help you to identify and implement some cost saving tactics. Click Here to book a free chat with an MBP Business Partner.

Selling a business is a bit like selling your home. You want to get the best price possible, with the least amount of effort and at the lowest cost to you. What you do need to be clear on are the reasons you want to sell, plus be 100% certain that a sale is the best option for you.

As accountants and business advisors, we regularly play a role in helping clients sell a business. We believe it is important to consult with professionals such as ourselves because selling a business is a specialist area. To demonstrate this, we are sharing some of the processes and knowledge required to achieve a successful, legal and profitable business sale.

What Are Your Reasons for Selling a Business?

There is most likely a lot of your blood, sweat and tears which have gone into your business. There is probably also a large amount of pride and emotional connections associated with it too. So, chances are that you have thought long and hard about whether or not selling your business is the right move for you.

The decision you have come to would have been based on one or more reasons, such as:

  • you are ready to retire
  • you don’t enjoy owning a business any more
  • there are health problems which are affecting your ability to manage your business
  • it is time for a change and you want to do something else
  • you want to release your equity locked within the business
  • there’s a financial downturn and you want to get out now
  • a partnership dispute is causing problems

It is always best though, to ensure that the one or more reasons for selling absolutely require the business to be sold by having a chat with us. For instance, a financial downturn can be beneficial for a business which can pivot and reach a new market. Or employees can be hired to assist when health problems force the owner to step back. If you are 100% clear about your decision, it’s time to move onto the next stage: collating all your paperwork!

Organising Your Paperwork When Selling a Business

It would be a fair assumption that one of the first things an owner considers when deciding to sell their business is what the purchase price should be. However, like with selling of anything, the purchase price cannot simply be plucked out of thin air. Instead it relies on having a solid understanding of and updated knowledge about the business first. This requires you to get all your paperwork in order, including:

  • up to date financial records for current and previous tax years, including profit and lost statements, personal drawings, balance sheets, and employee costs
  • list of assets
  • current business plan
  • supplier contracts are current
  • details about all leases
  • any debts the business has are paid in full or have a plan to be paid prior to the sale
  • any legal issues are resolved
  • all regulations and requirements are complete, including health and safety planning
  • full documentation of all business processes

Finally, you will need to prepare an information memorandum for potential buyers which include all the above items. It should also contain specific details about business growth opportunities and other pertinent information not included elsewhere.

If all of this sounds too challenging or you don’t have time or want to do it, we can help. Get in touch with us today and we can start planning the sale of your business. Next though, we’ll cover how to get a valuation for your business.

How Much is Your Business Worth?

Even if you chose to take the DIY option when selling your business, it is highly recommended that you have it valued professionally. After all, a business valuation completed incorrectly can cost you plenty of money!

When it comes to valuing a New Zealand business, there are three main methods:

  • asset valuation – when you calculate the total sum of assets on your balance sheet
  • market approach – the amount of earning potential your business has which is based upon the theoretical market demand
  • income valuation – projecting the future cashflows of your business

You’ll often find that there is a valuation calculation used too, known as EBITDA. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. Generally, it is used to identify a business’ operating profit, but can be unreliable when a business is close to break-even.

Now we need to have a chat about price and value. We can help you identify the value of your business, which is taking into consideration the EBITDA, to know how much to ask for your business. However, the price of your business is the amount someone is willing to pay to buy it. Like with calculating its value, there are factors which can affect the price of your business, including:

  • physical presentation of your business
  • current economic climate
  • lifestyle the business provides
  • a comprehensive operating manual ready for an easy takeover
  • condition of fixed assets
  • existing restraints of trade
  • business name and trademarking
  • additional clauses in the sale and purchase agreements

Once you have finished the valuation of your business, it’s time to start looking for a buyer and we’re going to share some tips on doing this with you next.

Where to Find a Buyer When Selling a Business

When selling a property, most people use a real estate agent to help them find a buyer. When selling a business though, you’ve got a few other options up your sleeve. These include:

  • hiring a business broker – a business broker helps connect buyers and sellers, and they usually have an area of expertise. A broker is likely to have a database of buyers, as well as have a solid understanding of how to attract other potential buyers to consider purchasing your business. A broker can help you with the valuing and marketing of your business and expects a commission upon completion of the sale.
  • talking with employees – you may have a current employee who is interested in purchasing the business from you. Already knowing how the business is run is a huge bonus for them, and with some help from you, they may be willing to take the next step.
  • approaching your competitors – instead of having to compete with you, your competitors could buy your business out instead!
  • customers – do you have some raving fans of your business? They may be ready to purchase and run the business themselves.
  • advertising – put ads on social media, radio and even print media asking for interested parties to get in touch.

With interest from buyers comes negotiations and contracts. This is another area where professional expertise is recommended. From business advisors to lawyers, it is best to have everything completed by those who know what they are doing. Yes, they will charge you for their services, but the financial price you can end up paying for mistakes at this time can be far greater.

We’d like to offer you our experience and knowledge as professional accountants and business advisors when selling your business. We can walk you through the process, ensuring you receive the best possible price with the lowest possible amount of stress and costs. Get in touch with the team here at MBP Advisors and Accountants today and let’s meet up for a chat.