How healthy is your working capital?

How healthy is your working capital?  

We all know that cash is king when it comes to business success, but what exactly is ‘working capital’ and how does this financial metric help measure the health of your business?

Working capital is made up of the cash and assets that are available in the business to fund your operations and keep you trading. It’s worked out by taking your current assets (the things you own) away from your current liabilities (the things you owe to other people).

So, why is working capital such a critical metric?

Having the liquid capital needed to trade

It’s possible for your business to be busy, successful and profitable, but for your cash position to still be in poor health – and that can have a serious impact.

If you can’t readily convert your assets into liquid cash, it’s a struggle to meet your cashflow goals, pay your bills and fund your day-to-day operations. But with the optimum level of working capital, you strengthen your balance sheet and put the company in a solid financial position.

To achieve this healthy level of working capital you’ll need to:

  • Proactively manage your cashflow – cashflow feeds your working capital by pumping liquid cash into the company and keeping the balance between assets and liabilities in a strong position. But to achieve this, it’s vital to achieve a positive cashflow position, where your cash inflows are greater than your cash outflows. This means getting paid on time, lowering your outgoings and keeping a close eye on your ongoing cash position.
  • Monitor and forecast your financial position – running regular financial reports helps you stay in control of your finances. With careful monitoring and forecasting of your cash position, you can ensure you don’t end up in a negative cashflow position, without the requisite working capital to trade and fund the next stage in your business plan. Cloud accounting software and business intelligence apps have made it easier than ever to create up-to-date, real-time reports and run dashboards that show your key metrics.
  • Use additional finance when required – if working capital is looking thin on the ground, then additional funding may be needed to bolster your balance sheet. Short-term finance options (such as overdraft extensions or invoice finance) and longer-term business loans can be needed to keep working capital on an equilibrium.

Talk to us about optimising your working capital

Working closely with your accountant is vital if you want to promote the ideal level of working capital in the business. We can help manage your cashflow, monitor your financial metrics and provide access to additional finance and funding when your capital needs a boost.

Get in touch to start maximising your working capital.

Do you know what you don’t know?

Do you know what you don’t know? 

The Knowledge Pie depicts the proportion of what we know, what we know we don’t know, and what we don’t even know we don’t know. What will you do this year to extend your knowledge?

There’s a simple concept called The Knowledge Pie.

This concept segments one’s personal knowledge into three key areas; what we know, what we know that we don’t know, and what we don’t know that we don’t know. You might want to read that again.

An example to better explain: Jane, a young qualified plumber and business owner, knows how to do plumbing. She also knows that she does not know how to do a Tax Return… or orthopedic surgery. However, she doesn’t know that she does not know that if she tightened her Terms of Trade and debtor management policy, she’d get paid faster and improve her cashflow, making her business life less stressful and more successful.

No-one knows what they don’t know.

Many people think this ‘cluelessness’ is a lack of experience thing that affects young people… but everyone, even experts, are completely unaware of what they don’t know that they don’t know.

Imagine the average pie for any person… it could be lemon meringue or steak and cheese – you choose. Now, cut your pie in half and cut one half in half again (creating two quarters). One quarter represents what you know, one quarter represents what you know you don’t know, and the half represents what you don’t even know that you don’t know.

How do I learn about what I don’t know even know that I don’t know?

Some ways to grow your knowledge this year:

  1. Join a new network.
  2. Do some volunteer work.
  3. Get a mentor or coach.
  4. Coach or mentor someone else!
  5. Collaborate with someone that brings different skills and knowledge to the party.
  6. Learn a new skill – it could be pottery, coding, or the ancient art of tai chi.
  7. Visit a new place, town, or country; immerse yourself in the history, culture, and language.
  8. Subscribe to a new magazine, publication or podcast.
  9. Read books on different subjects.

Growing your knowledge can grow your business.

The fact is that for all of us there is much more that we don’t even know we don’t know than what we actually know. Breathe. It’s ok.

Next fact: we will be more successful in life and business if we remain open to new learning, and learning extensions and distinctions on what we already know.

Avoid having an ‘I know’ mentality about the things you do know about.

Some people close their minds when hearing about a topic they have knowledge of. They may assume that they know it all. But we can always know more… and if we shut ourselves down to new learning, we could miss an important distinction that could make a big difference.

Get in touch if you’re interested in how we can help you extend yourself this year.

“Those who keep learning, will keep rising in life.” – Charles Munger

Understanding who your customers are is essential for your business

Understanding who your customers are is essential for your business

Successful businesses really understand their customers.

Knowing your target audience is half the battle when it comes developing successful marketing activities.

When you understand the specific characteristics and needs of your customer base, you can deliver your solution at the right price, in the right place and in their language.

Learn more about your customers and you will be ahead of your competition in no time. This will save you time and money in the long run. It’s about going slowly now to go quickly later. By answering the following questions, you will be able to both identify and unlock the potential of your customers.

What types of customers do you want?

Analyse the different types of buyers for your products and determine which are likely to be the most valuable to your business, these are the customers you will want to focus on.

What revenue do you want them to bring?

Project the likely revenue so you can set a reasonable cost to acquire them.

Understanding your customer and the role your product plays in their lives

  • Use surveys and questionnaires
  • Look at comments or frequently asked questions
  • Use social media
  • Segment your customers based on buying behaviour

How do you reach them – What channels are they using every day?

Different demographic groups tend to favour different types of media, so detailed knowledge of your customer base will help you in devising a marketing campaign to reach them.

How do you acquire them as customers?

Your marketing goals will determine what approach you take for campaigns. Consider the following factors:

  • Campaign timetable
  • Campaign budget
  • Relevant audience

Knowing and understanding your customers is key to successful business and can give you a profitable advantage. Take some time to understand your valued clients and you’ll be more likely to succeed in attracting more.

Read more about understanding and attracting new customers here.

Making the 2021 Financial Year the Best Yet With GoFi8ure

Making the 2021 Financial Year the Best Yet With GoFi8ure 

Most business owners would agree that the best accounting situation is wherein their financial statements are managed properly and tax returns are filed timely – all without expending long hours. With GoFi8ure, even small businesses can accomplish their mandatory, lengthy to-do lists without mentally taxing themselves with all the demands of financial management.

GoFi8ure ensures entrepreneurs a fast and efficient way of handling accounting tasks before starting the 2021 financial year.

Working alongside trained accountants, businesses’ administrative tasks and expenditures are cut in half. GoFi8ure can professionally take care of one’s invoicing, bank and cashbook reconciliation, GST, financial records management, expenses and creditor management, wages, periodic management accounts, and annual accounts for tax returns.

It is legally required for New Zealand businesses to file their tax summaries for the income earned within the previous financial year. And, understandably, even small businesses will lack the capacity and time to do these themselves. As reliable tax agents, GoFi8ure can take care of one’s filing requirements to make sure tax returns are filed on or before the expected date of filing.

More than just filing tax returns, GoFi8ure is capable to provide businesses valuable administration knowledge. As a Xero partner, GoFi8ure offers one-on-one Xero and bookkeeping training to businesses wherever they are located. GoFi8ure can travel to Wellington, Hutt Valley, Wairarapa, Auckland, and Dunedin for the one-one-one training using real-life data while also providing cloud-based services nationwide for those who are farther away.

Xero training is customised to suit a business’ specific requirements. This allows businesses to remain hands-on when it comes to running the business smoothly this coming financial year.

Achieving financial freedom

Achieving financial freedom 

Financial freedom means having enough money to live your desired lifestyle. Is your business allowing you to hit key financial milestones such as buying a house or taking a holiday?

When you started in business, what did you imagine your lifestyle would be? How does your current lifestyle compare?

Many business owners assume that after a few years in business they should be able to achieve another financial milestone such as buying a house, upgrading the car or taking the family on an epic holiday. Reality may be different.

Is financial stress common in your business?
You invested a significant amount of cash in the early days with the aim of getting a great return on your investment. Perhaps you’re busy focusing on profit, assuming that will mean more money in the bank, when what matters even more is cashflow. After all, you need enough cash to pay your team and suppliers, invest in new business assets and pay yourself.

Achieving financial freedom means having enough money for you to live your desired lifestyle. We can help you understand the difference between profit and cashflow and help you implement strategies to improve your cashflow so you’ll have more money in the bank – both the business’s account and your own!

What does financial freedom look like for you?
It might mean paying off the mortgage early, taking an extended holiday, or just having financial security in retirement. First, you need to define what you want financially from your business.

How much money does your business need to provide to you so you can live your desired life? Start with what you want over the coming 12 months. We can then help you break this down, so you know the revenue and sales targets you need to achieve to hit the magic number.

We’ll then help you develop a plan, so you know the actions you must take to achieve your targets. We can even hold you accountable to completing these actions so you achieve your overarching financial goals and desired lifestyle.

What will your lifestyle look like in 12 months if you continue with business as usual?
Compare this to what your lifestyle would look like if you implement a plan, with clear targets, and accountability to ensure you achieve your goals. Get in touch and try something different this year!

“Real wealth is not about money… real wealth is about freedom.” – James Clear

How to manage sustainable growth

How to manage sustainable growth

The differences between those that grow profitably and sustainably, and those that disappear without a trace, are usually clear. What may not be clear are the differences between the runaway success stories and those that get stuck.

Expansion for expansion’s sake is not sustainable. Deciding you want to grow by 14 or 20 percent a year means you’re chasing numbers, instead of chasing your core purpose. And if you’re not focusing on your core purpose, you will lose your way.

If a company grows at 15 percent pa, it will double in size every five years. A $10m company that grows at 25 percent pa for 12 years will have turnover of $144m. That’s a massively different company. To survive it needs to have a clear focus on what it’s doing, why – and how.

People

Everything rests on your people. If you don’t have the right people, your business will be consumed by personnel issues, making it difficult to focus on anything else.

Strategy

When revenue is not growing as you would like, or is slowing, it is time to re-address your strategy. What are you selling, who are you selling it to and where are you selling it? What is your core ideology? Why do you do what you do?

Execution

If revenue is increasing, but profit isn’t following suit, you need to look at how you’re executing your strategy. Do your annual plan, quarterly plan and personal plans align to your goals? Do they help your team align to the company’s priorities?

Cash

It may seem obvious, but too many would-be growth companies don’t have the cash they need. Growth sucks cash – will you have enough cash to grow? Cash is oxygen to a company; knowing your cash conversion cycles and improving them is vital to let your company breathe and grow.

Are you floundering when it comes to managing the books?

Are you floundering when it comes to managing the books? Struggling to get your head around all the rules and regulations? Relationship with your accountant or bookkeeper not that flash? Then buckle up for your financial literacy check-up. 

New Zealand is one of the easiest places in the world to go into business – with just a few clicks of the mouse you can be up and running. No training, no specialised knowledge, no great investment, no worries.

It’s almost too easy. And that can be dangerous.

Lisa Martin, executive director and founder of accounting and bookkeeping specialists GoFi8ure, is a trained accountant with a Bachelor of Business (Accounting) and knows of at least two university papers that would benefit business owners just starting out.

You can read the article by CLICKING HERE. 

The benefits of

The benefits of creating a holding company  

Once your business gets to a certain size and turnover, there’s real value in assessing the company structure and how to make things more tax-efficient.

Setting up a holding company is one way to start creating an ordered and effective group structure. And by moving any surplus cash up from your trading company to your new holding company, you protect your profits and can, potentially, reduce your tax liabilities.

Separating your trading and investment

When all your surplus cash, profits and personal shares are wrapped up in one single company, that can often cause problems further down the line. With all your eggs in one basket, there’s an inherent risk built into your company structure and, in a worst-case scenario, if the business fails, you could end up losing everything.

But with separate trading and holding companies, held within a defined group structure, you can begin to protect your company and your own personal interests.

To start the process of creating a group structure:

  • Create a new holding company – a holding company is the ‘parent’ at the top of your group structure. This entity is entirely separate to the trading business where your shares are held and will sit at the very top of the structure, with your trading company and any other subsidiaries beneath it.
  • Transfer your trading shares – the next step is to transfer your existing trading company shares over to the holding company, in exchange for shares in the holding company. This gives you control over the holding company, but also enough share rights to also control the trading business as well.
  • Move your profits – excess cash can be moved from the trading company to the holding company in a tax-efficient manner, which protects any profits by ring-fencing them within your newly created holding company. And if the trading company were to fail, for whatever reason, these profits are protected and safe.

As your business interests grow, you can add further subsidiary companies to this basic group structure, presenting an organised structure to the local revenue office and also reducing the potential risk within the wider business.

Talk to us setting up a group structure

If you want to protect the long-term future of your business and investments, we can help you create a robust group structure – safeguarding the future of your business and the profits you’ve built up.

GoFi8ure on Setting Financial Resolutions to Start the New Year Right

GoFi8ure on Setting Financial Resolutions to Start the New Year Right

Concluding the year means wrapping up tax returns and keeping financial statements up to date. This way, business owners can welcome the New Year with a brand-new slate. To help, GoFi8ure shares some important financial resolutions that businesses should stick to for an uncomplicated and stress-free New Year.

  1. Set realistic budgets

Business owners who are planning to expand in the new year should first look into their company budget. A good first step is to review expenses with a professional accountant, and see if expansion is even viable in the first place. There may be instances where one business needs to trim expenses and set a more realistic budget to improve cash flow first. Whether that is in the form of examining operations, inventory, or cutting unneeded personal spending, there are many ways to significantly influence a company’s cash flow and financial position.

  1. Become more organised

Accounting can be time-consuming and difficult to manage, especially when businesses don’t have great record keeping. This could easily lead to losses if one does not keep files and records organised. Losing cash slips and encoding the wrong data will influence profitability. GoFi8ure recommends investing in professional help. Professionals specialise in handling time-consuming accounting tasks, so it is a valuable investment that will likely outweigh the costs in the long-term.

  1. Always be one step ahead

Complacency will never work when running a business. Businesses that are planning to apply for a business loan will need to provide tax returns, and this means businesses need to file them early on to obtain a stronger position, in order to get loan approval. A major plus is also utilising a reliable accounting software—such as Xero—so one can review and keep financials up-to-date.

Provisional Tax explained

Provisional Tax explained 

If you are employed, your employer deducts income tax from your regular pay and pays it to the IRD.

But if you get your income from other sources such as self-employment, rental income or shareholder income, then you need to pay your income tax to the IRD in other ways.

Generally, after your first year in business, your accountant will finalise your accounts and determine your tax position. If your business has made a profit you will have income tax to pay on that profit. This is also called terminal tax or residual income tax. You have until the end of the following financial year to pay it.

Provisional tax can come into play at this point because if you have more than $2,500 in residual income tax to pay, you will have to start paying provisional tax. Provisional tax is income tax paid in advance of the end of the financial year, or paid as you go (not in arrears).

As a default, provisional tax is generally calculated at 105% of last year’s end-of-year tax (standard option) and usually paid in three instalments over the year (28 August, 15 January, and 7 May).

Talk to us if you think that your income is going to be substantially more or less than last year and we can help estimate a more accurate figure.

Other ways to pay provisional tax are by using the ratio option, where you pay a percentage of your GST return – this can be good for people with fluctuating or seasonal income – or by the AIM (Accounting Income) option, which uses your accounting software to calculate your provisional tax based on your profit (or loss) for the period. You generally pay in line with your GST periods for both of these methods.

It’s important to get provisional tax right. If you under pay or don’t pay on time, the IRD may charge you interest.

Get in touch to make sure you’re paying the correct amount, or to see if there’s a better option for paying provisional tax.