The Trusts Act 2019 – how will it impact you?

The Trusts Act 2019 – how will it impact you?

Trusts are common in NZ and the reasons for setting them up vary. The Trusts Act 2019 comes into effect on 30 January 2021. Changes to the act aim to make trusts more accessible. There are increased compliance obligations on trustees and duties that ensure greater transparency for beneficiaries.

The changes to the act include:

  • The age of majority (the default age that a person can inherit if not specified) changes from 20 to 18.
  • The maximum duration period of a trust is extended from 80 years to 125 years
  • Obligations on trustees to keep certain information about trusts
  • A mechanism to request the court to review the decisions and actions of trustees
  • Flexible powers for trustees to manage trusts.

Trustee duties

Trustees must be aware of their obligations and duties under the law. These are set out in the Trusts Act 2019. There are mandatory duties that are essentially to ensure trustees take their role seriously. These are:

  • A trustee must know the terms of the trust
  • A trustee must follow the terms of the trust
  • A trustee must act honestly, and in good faith
  • A trustee must act for the beneficiaries of the trust
  • A trustee must exercise the powers they have for a proper purpose.

Optional duties for trustees – The act sets out optional duties that can be changed in the trust deed. If this happens, the advisor must point this out to the settlors.

Duties regarding information keeping and sharing – These duties are regarding the information trustees must keep, and the information that must be made available to beneficiaries (including of trust assets, trustee decisions, and changes to the trust).

The additional compliance duties for trustees within the act may mean that existing trusts are no longer cost effective. Greater transparency may also require trustees to disclose information that they previously did not share.

Get in touch to discuss how the changes impact you.

What Covid taught us…

Things were certainly thrown up in the air when COVID-19’s lockdown happened in March. For many businesses, the first, most visible effects of the pandemic quickly created a challenge to their operating and business models. A lot of things came into question, from how and where employees worked, to how they engaged with customers and how their business accounts and compliance were managed.

COVID-19 kicked GoFi8ure’s agility and response plan into place, allowing us to become more agile in how our GoFi8urine’s worked together and how we worked with our clients. Thanks to the amazing cloud online tools and software available, our team of superheroes were able to continue consistent service delivery without any impact on our clients.

Our success in working remotely during this time, whilst meeting client deadlines and requirements, was thanks to our tested systems and processes which allowed us to work with agility and resilience without disruption. It is because this experience, that we made the decision to not renew our Upper Hutt Headquarters lease.

Making the decision to not renew our Upper Hutt premise was hard to make because we love our Hutt Valley community and poured our heart and soul into branding and creating the Hutt office, however, it gave us an opportunity to offer more flexibility, versatility and remote working to our GoFi8urines. We would like to assure all our clients that the upcoming changes will not cause any disruption to our workflow or delivery of services. In fact, it will allow us to work closer as a team and continue to provide superlative accounting services for our clients nationwide.

Like the sound of being more agile in your business? GoFi8ure offers a range of services that can help ensure your business is agile and responsive, so you can remain competitive. Get a quote today or contact us to find out more.

If you ever need anything, our GoFi8urine’s are just a call or email away!

Kind regards

Your dedicated GoFi8urines

 

Don’t neglect your Balance Sheet

Don’t neglect your Balance Sheet 

Business owners tend to focus on increasing profit and driving down costs. While this is important, you must not neglect your Balance Sheet. Profitable businesses can and do go broke; your Balance Sheet is a key indicator of how solvent your business is.

Here are four key areas of your Balance Sheet to focus on:

1. Profitability.
There are seven ways to grow your business and increase profit:

  • Increase customer retention
  • Generate more leads
  • Convert more prospects
  • Increase transaction value
  • Increase transaction frequency
  • Reduce variable costs
  • Reduce overheads

Focus on one or two to increase the profitability of your business.

2. Cashflow.
Improving your cashflow helps build a cash war chest to help your business weather any future downturns. Remember, cash is king and the more cash you have in your business, the stronger it will be.

Focus on strategies to reduce your Cash Conversion Cycle; that is, the time your cash is tied up in your stock and accounts receivable. Negotiating better payment terms with your suppliers to preserve cash for longer, reducing inventory or work in progress, and minimising debtor days will all help build a stronger Balance Sheet by increasing your cash on hand.

3. Solvency.
Maintaining solvency is essential to the success of your business. There are two components of solvency:

  • The ability to pay your debts as they fall due; and
  • Having greater assets than liabilities
    To determine whether you can pay your debts as they fall due, calculate your current ratio by dividing your current assets by your current liabilities. A ratio less than 1 means you don’t have enough assets to pay your debts as they fall due and the business is insolvent.

The second part of the test is calculated by taking away your total assets from your total liabilities. A negative result means your business is insolvent and requires a short-term cash injection.

If your business is currently insolvent, action must be taken immediately to remedy this.

4. Shareholder Advance Accounts.
If your Shareholder Advance Account is a current asset on your Balance Sheet, the shareholders have taken more out of the business than what they’re entitled to. This is incredibly risky as, in the event the business fails, liquidators can call up this loan and your personal assets will be at risk. To avoid an overdrawn Shareholder Advance Account, revisit your personal budget to reduce the amount of drawings you’re taking from the business and stick to a regular amount each week or month.

It’s important that you secure any advances made to the business so that, in a liquidation, you stand a higher chance of getting your money back.

Have you been neglecting your Balance Sheet? Take some time to review your profitability, cashflow, solvency and Shareholder Advance Accounts. If you need help calculating your ratios or understanding what your Balance Sheet is telling you, get in touch!

Common GST errors will impact your business

Common GST errors will impact your business

Most GST errors are unintentional. Even so, they can have a big impact on your business as they may result in you paying too much, or not enough, GST.
Whether you file the GST return yourself or whether you use our services, it’s useful to understand some of the most common errors that can happen. So, here are some tips to help you avoid the most common GST mistakes.

Before filing your GST Return

If you file GST on Payments basis you will be filing GST based on when you have paid or received money, so it’s important that you:

  • make sure that all transactions going through your bank account have been allocated to the correct expense or income account in your accounting software
  • reconcile all bank accounts and credit cards to verify that the actual bank account balance matches the balance in your accounting software. This ensures that you haven’t missed or duplicated any transactions.

If you file GST on Invoice basis you will be filing GST based on the date of your customer invoices and supplier bills, so you need to:

  • make sure that all customer invoicing has been done in your accounting software for the GST period
  • enter all supplier invoices that are dated in the GST period into your accounting software as bills to pay
  • record any cash purchases and income
  • reconcile all your bank accounts (as above) to make sure that you have captured all income and expenditure
  • Enter any expense claims to account for any business expenses paid with personal funds

Preparing your GST return

Prepare your GST with plenty of time to manage cash flow obligations ahead of the GST payment due date. Set aside time to review the GST reports. Have a look through the detail or audit reports to double check their accuracy and to ensure that you haven’t inadvertently claimed GST on something that shouldn’t have GST in it.

Here are some of the most common GST errors we see:

  • Are you GST registered? Sounds obvious but you can’t add GST to your invoices or claim GST on purchases if you are not GST registered. You have to be GST registered if you carry out a taxable activity and your turnover was $60,000 or more in the last 12 months or will be $60,000 or more in the next 12 months, or if your prices include GST.
  • Bank fees, interest and credit card commissions, Stripe and PayPal fees (financial transactions) and donations are not subject to GST
  • Check overseas purchases — many well-known online vendors are now registered for GST in New Zealand, however many of the smaller overseas vendors may not be. Always refer back to the invoice or receipt to verify.
  • Payment gateway services may have GST on their equipment rental fees but not on the commission that they charge on every transaction. Again, refer to their invoice to verify.
  • Business insurance is claimable as a GST expense (but not your own perosnal or life insurance). Check with us if you’re not sure what’s claimable.
  • If you have bought a vehicle or asset you can claim the GST on the purchase but make sure you haven’t double-claimed GST on both the purchase and the repayments. Talk to us when you are purchasing assets such as cars and equipment to ensure they are treated correctly from an accounting perspective.
  • Check the GST registration of any contractors you pay and check that you have not claimed GST if they are not registered.
  • Check that transfers between bank accounts do not have GST included.
  • Although your business may purchase goods and services for private use, you may not claim GST on these.

Remember, you need a valid tax invoice for every business purchase over $50.00 including GST. Depending which accounting software you use, there may be other checks and balances to undertake to ensure the accuracy of your reports.

Once you’re happy with the accuracy of your return, lock the GST period so that any changes to a filed period are restricted or tracked (some software packages will do this as part of their finalising and filing process).

Filing your GST return with Inland Revenue

Filing due dates are usually the 28th of the month following the end of the GST period. The exceptions are at Christmas – November GST returns are due on 15 January – and at the end of the financial year – the March GST return is due on May 5th.

Many accounting software packages now include the option to file direct to IRD through their software which saves a lot of time and duplication of entry and reduces the chance of human error.

In all cases you will need an IR login as paper returns are a thing of the past now and filing needs to be done online.

Paying your GST to Inland Revenue

If you are manually entering your GST information into the IRD’s online form you can also choose to pay your GST by direct debit. If you want to wait until the due date to pay it then remember to select the correct date at the time.

Otherwise you can easily pay GST through your internet banking. Ensure you select the right tax type (GST), enter the correct IRD number, and the correct filing period so that it is applied correctly.

You can also go into a Westpac branch and pay any of your taxes with their tellers.

Most New Zealand businesses have the option to file GST on a monthly, 2-monthly, or 6-monthly basis. Unless you are diligent about putting money aside for GST and keeping your records up-to-date, a monthly or 2-monthly GST cycle may suit best.

In summary

There are many more potential issues with GST, but these are the most common and easily fixed.

If you understand your GST obligations, use accounting software and keep on top of your bookkeeping, you will find that managing your GST can be a relatively simple process.

Ask us for advice, if you are unsure about your GST position.

Understanding your numbers to improve your results

Understanding your numbers to improve your results

Understanding your financial reports, or knowing your numbers, is critical to business success. It allows you to make better business decisions, measure the impact of those decisions, take corrective action where necessary and, ultimately, enjoy better results.

By understanding your financial reports, you’ll:

  • Know if your business is growing or shrinking
  • Discover trends in your business and be able to respond accordingly
  • Compare your actual results to your expectations
  • Identify areas of strength and weakness in your business
  • Understand the value of your business
  • Make better decisions

How to maximise results from your reports:

1. Ask yourself, is the data ‘clean’? This means that all transactions have been coded correctly and bank statements have been reconciled. Do you have monthly procedures to ensure your data is clean?
2. Inspect what you expect. You must have goals for your business, or targets you expect to achieve. Inspect your financial reports each month to see if you’re on track to achieve your expected targets.
3. Know which reports to use. Each report tells you a different story. Your Profit and Loss Statement measures your income and expenses; the Balance Sheet measures your assets, liabilities and net worth.
4. Conduct both horizontal and vertical analysis. This means comparing the current period with previous periods (horizontal analysis) and calculating each item as a percentage of a base item (vertical analysis). For example, comparing this year’s Balance Sheet with last year’s and calculating each expense item as a percentage of Sales on your Profit and Loss Statement.
5. Understand the difference between ‘as at’ or ‘for the period ending’. An ‘as at’ report, such as the Balance Sheet, shows the balances at the end of a specific period. A ‘for the period ending’ report, such as the Profit and Loss Statement, shows the results over a period of time.
6. Choose the correct date range. Ensure you correctly specify the start and end dates for the period you want to measure. Choose a month end date, such as 30 June instead of 15 June, to ensure all income and expenses have been coded and reconciled for the period.

By understanding the fundamentals behind your financial reports, you’ll know more about your numbers and be able to use that information to make better decisions. Whether you want to grow your business or increase efficiency to free up your time, we can help you interpret your financial reports and set goals for improvement.

Get in touch for our complimentary Guide to Your Financial Reports to learn more.

GoFi8ure named ICNZB’s Bookkeeping Business of the Year 2020

GoFi8ure named ICNZB’s Bookkeeping Business of the Year 2020

We have some exciting news! GoFi8ure have been named Institute of Certified NZ Bookkeepers‘s Bookkeeping Business of the Year 2020! We are so proud of the team and what we achieve on a daily basis. Listen to the announcement here.

There are so many amazing Bookkeepers out there and we are honored to have been named a Finalist and then a Winner of this award. Congratulations to all of the Finalists and Winners #hugabookkeeper #communityovercompetition

The importance of Tax planning for Shareholders

The importance of Tax planning for Shareholders

calendar-plannerPaying Tax is something you are likely to see as a necessary (but not hugely enjoyable) part of running your business. But are you doing enough to plan your own personal Tax liabilities?

As a Shareholder, you will pay your income Tax annually on a self-assessment basis. But there are plenty of ways to make this a less costly and onerous task to complete.

Planning ahead when it comes to Tax

By taking a forward-looking approach to your own personal finances, and working with an experienced Advisor, you can start to minimise your Tax costs and maximise the value you enjoy from your own earnings and company profits.

Working closely with us helps you:

  • Know your future Tax liabilities – by looking at factors like expected dividend payments, pension provision and additional income to determine what you will owe.
  • Set up an annual Tax plan – with provision for when payments should be made and when to set aside the funds needed to pay your income Tax bill.
  • Make use of any Tax reliefs – so you can claim the relevant reliefs and Tax initiatives that are available, to bring down the amount of your overall Tax bill
  • Maximise your earnings – by taking your earnings in the most efficient ways and managing your own personal wealth in a proactive manner.

Talk to us about your personal Tax planning

If you are a Shareholder looking to achieve the best results from your earnings, come and talk to us. We can review your Tax situation, create a robust Tax plan, and make sure you are getting the maximum value from your business earnings,

Provisional Tax – how does it work?

Provisional Tax – how does it work? 

If you had to pay tax of more than $5,000 in your last income tax return, you may have to pay provisional tax for the following year. Provisional tax is like paying progress payments on next year’s income tax.

The amount you have to pay relates to your expected profit for the year. In practical terms, the amount of provisional tax you’re expected to pay is based on the tax you were liable for in the previous year, often referred to as residual income tax (RIT).

Even if you are not required to pay provisional tax, you may still elect to do so, to spread your tax obligations over the year. This can help you manage cash flow and take away the pressure of paying a lump sum at the end of the year.

For a new business, the first-year provisional tax payment can be tough. You must pay last year’s income tax at the same time as the first instalment of next year’s provisional tax. There are a couple of ways we can help you reduce the pain.

If you are self-employed or a partner in a partnership you may be entitled to a discount of 6.7% on your first year’s income tax. This is to encourage you to pay tax early and relieve the financial strain before you must pay provisional tax for the first time.

COVID-19 and provisional tax

In order to shrink compliance costs for smaller taxpayers and allow them to retain cash for longer, the government has introduced some tax relief measures that affect the normal rules for provisional tax:

  • The threshold for provisional tax increased from $2,500 to $5,000 from the 2020/21 tax year. This means any current provisional taxpayers with provisional tax payments of less than $5,000 will have until 7 February following the year they file to pay their tax bill.
  • Depreciation for commercial and industrial buildings is reintroduced from the 2021/22 income year. If you are a building owner, you will be able to adjust provisional tax payments immediately in anticipation of additional deductions that become available.
  • If your business is affected by COVID-19 and:
    • you need to re-estimate your provisional tax as your income falls short of the estimate and provisional tax has been overpaid, it may be possible to arrange early refunds.
    • if you are unable to pay tax by the due date, Inland Revenue has discretion to write-off penalties and interest. You may be eligible for a UOMI (use of money interest) write off.

It’s important to keep your tax plan current. If circumstances change for your business, we need to adjust your plan. Let us know as soon as you can about the situation for your business.

Please ensure you check with your Accountant regarding the information above – they are best to advise you on this.

Understanding working capital to maintain business success

Understanding working capital to maintain business success  

If cashflow is the lifeblood of your business, then working capital is the health check you should regularly undertake to keep your business alive. Regularly checking working capital will play an essential part in maintaining business success during these times of greater economic insecurity.

What is working capital?

Working capital is your current assets minus your current liabilities and measures the surplus (or deficit) you have to keep your business afloat without needing to sell assets, borrow more, or add your own money into the business. The more working capital you have, the easier it is to fund growth or weather any downturns.

To calculate your working capital: Cash + debtors + stock + work in progress – creditors – taxes owing

For example, if your business had the following balances:

Cash $150,000 Debtors $120,000 Stock $100,000 Creditors $45,000 Taxes owing $25,000

Then your working capital would be $300,000 ($150,000 + $120,000 + $100,000 – $45,000 – $25,000).

If the business had an overdraft of $150,000 rather than a positive cash balance, the working capital would be zero. This means the business would have no cash to cover any slowdown in debtor payments or a downturn in sales (which would lead to higher stock levels). Worse, the business could be in serious trouble for trading while insolvent.

It’s likely your working capital has taken a hit due to Covid-19. Now is the time to review your processes and boost your working capital. Consider the following strategies:

1. Build up enough cash to cover at least 2 months’ sales value.
One of the key learnings from lockdown was how important it is for businesses to have enough cash in the bank to get them through a shutdown. Use the average sales value for the last six months to calculate the amount you’ll need, then manage your expenses to build your cash stocks up to this level.
2. Renegotiate your debt.
If your business has an overdraft, could the core debt be negotiated into a term loan? Have you spoken to your bank manager about options for managing your debt as a result of Covid? We can work with you and your bank manager to determine your best finance options.
3. Negotiate with suppliers.
Speak to your suppliers and see if you can negotiate better terms. This might be a discount for early payment or longer payment terms. They’ll be suffering too, so work together to come to the best arrangement for you both.
4. Set aside money for taxes.
Calculate the percentage of sales you need to put aside for taxes and put this aside in a separate bank account so you have the cash to cover tax payments as they fall due.
6. Inject sufficient funds.
If the above strategies don’t boost your working capital sufficiently, you’ll need to invest your own funds into your business to cover your working capital requirements.

Even with the many challenges of a post-pandemic economy, undertaking regular working capital checks is an effective way to help increase your business’s cashflow. We can help you calculate your working capital requirements and identify strategies you can implement to increase your working capital.

“Change is not a threat, it’s an opportunity. Survival is not the goal, transformative success is.” – Seth Godin

Cash is not profit and vice versa

The purpose of a business is to make money, and that means you have to know the difference between profit and cashflow

Net profit is what you have left after you deduct all your business expenses from all your revenue. You change net profit only by changing the things that affect revenue and expenses.

For example, if:

  • You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
  • Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
  • You can roster staff differently, you may be able to run your business more efficiently.

Cashflow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on.

Note that a profitable business does not always have good cashflow. And a business with good cashflow is not always profitable. For example, you can have good cashflow, and loss-making expenses.

To work out how fast you can grow your business, you need to look at your projected cashflow. We can advise you on this.

Keeping cash crowned as King

Your business can’t survive without cash.

The following six takeaways are essential for business success:

  1. Protect your cash position, by knowing what it is. Build a cashflow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.
  2. Create a cash buffer as an insurance against unexpected difficulties.
  3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.
  4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.
  5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.
  6. Every dollar you spend reduces cash reserves. The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

Looking to improve cashflow? Make a time to talk to us. We are here to help.