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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.

Before you go down the path of seeking capital from outside your business or borrowing funds, identify any other ways of raising capital. If you need funds then sometimes it’s not a loan that you need.

Identify areas in the business to make savings

There’s a good chance that you can generate at least some of the capital you need by using business savings. If you can generate the cash internally, it’s often a better option that increasing your debt or taking investors on board. Look at how much you’ve got available in cash reserves or what contracts or payments are due.

Then look at ways you can make savings and increase your cash flow, such as selling equipment you don’t use very often (and leasing it when you do need it), cutting down on travel expenses, moving some staff from full-time to part-time roles, re-negotiating deals with suppliers for better credit terms and reducing your own salary.

It’s also important to chase up any late payers. Make sure you have robust systems in place for handling debt and collecting what you’re owed.

You’ll be surprised at how much all these savings can add up, generating more cash in the business that can be used to reinvest in business growth.

Shorten Cash Cycles

Shortening your cash cycle will increase your cash reserves, keeping your business going and providing a buffer in times of financial uncertainty. The longer your business goes without cash, the longer it takes you to pay your creditors, and the riskier your business becomes. Encourage your customers to pay using online and mobile payment options – the cash is then in your account immediately. If you have to invoice, do it immediately and incentivise your customers to pay early, such as offering discounts. You can also shorten your credit terms.

Focus Your Attention on Sales

Increasing sales is one of the best ways to improve profitability and bring more cash into the business. There are a number of different ways you can improve your sales numbers, such as making sure you and your staff are all trained in how to cross-sell and up-sell, investigating new distribution channels like an online store, implementing a professional sales system so that you can track customer buying behaviour and predict their needs, or even look into franchising your business if demand warrants it.

It’s important to remember the 80/20 rule: 80% of your sales will come from 20% of your customers, so look into ways you can sell more to your existing customers while still trying to gain new customers through your marketing strategies.

It’s always worth considering a price increase too. There are ways to increase your prices without losing sales, and it’s something that should be done now and again, even if it’s just to keep up with inflation.

Alternatives to Capital

Before you jump into researching the different sources of capital that are available, first consider the alternatives. It could be that, depending on what your growth goals are, you don’t actually need extra capital, you just need to be thinking a bit more creatively.

Raising Capital to Grow Sales

If your main goal is to increase sales, you don’t always need extra cash to be able to do this. There are other options that can help your sales numbers and it’s worth looking into them before you go borrowing money.

Strategic alliances are often worth checking out. Business owners are increasingly discovering the advantages of joint ventures and strategic alliances and many experts see strategic alliances as one of the best paths to rapid growth. There are many ways in which you can work with other businesses or people, ranging from short-term joint ventures to more formal long-term commitments. You can form strategic alliances with suppliers, with customers or with complementary businesses or with non-profit organisations such as charities. Think of how often you see a Subway attached to a service station.

It might also be worth looking at updating your business model. A change in your business model might help you find new opportunities for growth to increase your business’s revenue. Direct selling is the shortest route between your business and its customers. It involves buying directly from you without any go-between. It’s probably the simplest and certainly the most direct business model.

Like many businesses, you might currently sell some items through the web but is it time to make a bigger investment in the online world? Global e-commerce is rising daily and the opportunities for growth are significant.

Whether you want your goods distributed widely through wholesalers or via carefully selected retailers, the tweaks you can make to your distribution channels are almost limitless. If you’re a retailer, you might consider also selling at the wholesale level, and vice versa.

Raising Capital to Expand

Your goals may be more focused on expanding your business and you’re considering how to increase your capital to do this. Before you borrow the funds you need, consider other ways of achieving expansion.

For example, look into leasing equipment instead of buying it. If you want to boost your capacity so you can handle more orders, that doesn’t necessarily mean you have to fork out for the additional equipment you’ll need – you can lease it. The monthly lease payments are often less than what loan repayments would be. You can also lease equipment only when you need it, rather than having it sitting around gathering dust and being unproductive when you don’t.

It’s also worth looking into contracting out some work, especially for large projects. Contractors will often have all the resources they need to handle work, and when you bring them on board you’re getting access to those resources.

You could also consider forming partnerships to jointly produce your goods. For example, if you manufacture coffee tables, you might align your business with one of your suppliers, making it cheaper to get the raw materials you need.

Talk Through Your Options for Raising Capital

There is a lot to consider when looking at raising capital. To talk through all your options, get in touch with an MBP Business Partner. You can book in a free 30 minute chat with us HERE.

Dealing with a sudden cash flow crisis, even if you’re working hard to avoid shortfalls, is hugely distracting. A formerly reliable customer might take much longer to pay than anticipated or a large consignment might fail to show up, leaving you out of pocket. If you’re starting a business, it could simply be taking longer than expected to turn a profit.

Red Light Warnings for a Cash Crisis

Develop red light systems to warn you automatically if something needs querying:

  • Check as early as possible if leads, orders, or sales, fall below a certain threshold, or if planned sales are delayed or a substantial customer stops buying from you.
  • Key indicators such as profit margins, liquidity ratios and stock ratios deteriorate beyond an agreed limit. Make sure you have regular feeds of how your business is performing.
  • You also need to know about any substantial invoices that are in dispute, particularly late debts and customers exceeding their credit limits.

Building productive relationships with your key suppliers is important, so they are prepared to extend extra credit to you when you need it.

If you have accounting software then it should be relatively easy to view your red flags weekly, monthly (or any period you set).

Identify the Causes of a Cash Crisis and Take Action

Below are some common causes and possible solutions of a cash crisis you may need to solve:

  • A major customer hasn’t paid on time. Implement stricter credit control and better debt collection procedures. Contact them to ensure you have the right purchase order and the invoice has been sent to the right person. Even check if your contact has gone on holiday and forgotten to pass on your invoice.
  • A rise in the cost of production has eroded your profit margin. Try and source less expensive materials or supplies or decide if you need to raise your price. Monitor your gross profit margin for any further profit slippage.
  • Your business overheads have blown out. Identify specific expenses that have increased and see how you can reduce them. Regularly monitoring your net profit margins to spot any out-of-proportion increases so you can take timely action.
  • Your business is growing faster than your capacity to fund the growth (your working capital). There’s usually a time gap between selling goods or services and getting paid by customers. Meanwhile there are bills to pay. See if you need to slow down to avoid failure through overtrading or raise the necessary working capital to get you over the temporary cash shortage.
  • Sales have been slower than predicted. Review your marketing plan and sales campaigns. Alternatively, if you can’t see any future improvement in immediate sales, consider other markets and targets.

There may be other causes such as the failure of a major contract or you bought a large asset at the wrong time and you now need that cash reserve for working capital. In each case, understand the cause and the action you’re taking to avoid a repeat, such as diversifying your customer base or using your cash flow statements and forecasts to time purchases more appropriately.

Sourcing Finance in a Cash Crisis

If you do find yourself in a cash crisis (it’s a temporary hitch and the business is still sound), there are a number of funding options to consider, ranging from self-financing or bank loans to finding a business partner. The relative attractiveness of each option will depend on the size of your cash flow shortfall and how long you’re likely to need the cash.

Internal Funds

Before you look for external sources of funding however can you free up cash from within your business? For example:

  • Offer customers a discount for early payment or ask them to pay immediately.
  • Offer for customers to pay by credit card when usually you don’t.
  • Hold a sale of surplus or slow-moving stock to raise cash quickly.
  • Ask suppliers to take back excess stock and a credit or give you longer credit terms.
  • Sell underused assets and rent the equipment instead, as and when required.
  • Downgrade or sell vehicles and lease instead.
  • Reduce your drawings from the business until revenues improve.
  • Your accountant and advisers may be able to suggest other ways to release the locked-up cash in your business.

Bank Loans

If you need a business loan and have a good banking track record, it could be little more than a formality to get a higher overdraft facility or access to a business loan to tide you over. If you’re going to need quite a lot more money, you’ll likely have to present a more detailed business plan and financial forecasts.

Invoice finance

If you have cash tied up in unpaid invoicing, you might qualify for invoice finance. This facility enables you with immediate access up to 80 per cent of the value of any unpaid invoices that your business might have. It helps free cash flow by releasing money from unpaid invoices as and when you need it.

Partners and Investors

If your business can’t afford to service loan repayments out of surplus cash flow, then it may need more capital so you could consider taking on a business partner to invest in your business. There are advantages but also pitfalls to avoid. Get expert advice first from your accountant and your lawyer – they may know of suitable investors. Be aware that you’ll need to share the ownership of your business if you go down this path.

Family and Friends

You could ask family, friends or business colleagues to help out with a temporary or longer-term loan. It’s best to put the agreement in writing and get everyone to sign it, so that both sides are clear on what has been agreed. Be aware that this sort of agreement could strain personal or working relationships if things go wrong, so treat it as a last option.

Summary

Managing cash in a crisis is stressful for any business owner, but you do have options starting with preventative measures such as cash flow statements and forecasts and sourcing finance.

Need to talk about your cashflow and options? Book in a free chat with the team at MBP here.

If you’ve been reviewing your business’s financial position and are looking for ways to improve your cash flow, one of the first things to look at are your expenses. As your business grows, so will your costs, but there are things you and your employees can do to keep them down as much as possible and so improve your cash flow by optimising overheads.

It’s important not to rest on your laurels. Continually thinking of ways to reduce your overheads is essential for a healthy cash flow, so conducting regular reviews of your business expenses should be a regular task.

Reducing Expenses

Although there’s no getting around paying for things like phones, internet, power, office equipment and rent, there are ways to optimise these overheads and keep these costs to a minimum. Review these expenses and consider the following:

  • Communications – with fierce competition in this industry, it should be easy for you to negotiate a better deal for phone and internet use. Talk to your current supplier about a new deal and if they won’t come to the party, shop around for a new one.
  • Energy costs – some of this is obvious, such as turning off things when they’re not in use. Green energy options are worth looking into, especially if you’re shopping around for a new energy supplier.
  • Rent – if your business is not client-facing, you might consider working from home. Not only can you claim your home office as a business expense, but not paying commercial rent is a huge saving. More and more businesses are becoming virtual – it’s worth considering if yours can be as well.

It’s worth joining industry associations relevant to your business. They often organize discounts for their members. And the networking contacts you make will often have ideas about savings or deals they’ve made that are reducing their expenses.

Outsourcing

The great thing about outsourcing is that it frees you up to spend more time in activities that grow your business. This is especially true of administrative tasks, so you could look at outsourcing:

  • Payroll – this is time consuming and often stressful, especially if you make mistakes. Outsourcing this task eliminates those factors and frees you up for more profitable activities.
  • IT systems – unless you’re an actual IT-based business, retaining someone to look after your IT needs is a very costly expense. Outsourcing your IT often means you can negotiate a contract that’s almost as good as having someone on site because there’s lots of competition in the IT industry.

You might also want to consider reducing your staff expenses by converting some of them to part-time instead of full-time employees, especially if the workload justifies it.

Ways to Save

There are a number of things you can look at here, tried-and-true methods for keeping costs down. Some of the most effective are:

  • Business taxes – talk to your accountant or a business tax specialist about ways you can legally save on your taxes. For instance, can you claim an area of your home as an office, which is a legitimate business expense?
  • Importing – you could look at importing your business’s raw materials. It could be that they’re cheaper to buy from an overseas supplier than the one you’ve been using locally.
  • Make the most of technology – moving your accounts to a cloud-based system, reducing manual paperwork processes and communicating with your customers over Skype or Zoom instead of visiting them face-to-face will all help reduce costs. You can even have your staff work from home and, as mentioned above, save on renting a commercial space.

Summary

As with most things in business, optimising overheads comes down to planning and creative thinking. Talk to your staff as they might have ideas on savings, and it’s important to make sure that they’re doing what they can on a regular basis to keep costs down.

It is also important to keep in mind that cutting expenses can often lead to a slower recovery for your business following a cashflow crisis. Making smart choices in what to save on so that you don;t limit your ability to scale back up in the future is essential to your long term survival.

Optimising overheads by cutting costs is a short-term solution to what may be a long term issue. If you need some advice and support, reach out to the team at MBP for a free 30 minute consultation. You can book a chat with us HERE.

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.