Keeping your business cash liquid – the difference between cashflow and profit

The foundational goal of any business is to make a profit. As a business owner, that’s one of your key financial aims – to make enough sales, at a big enough margin, to generate profit from your enterprise. But how does profit differ from cashflow? And why is cash king?

How do profit and cashflow differ?

To really understand the difference between generating profit and managing cashflow, we need to look at what both these terms mean. You might think that delving into the accounts is a job for your adviser, but being in control of your profit and cashflow is an invaluable business skill.

Let’s take a look at the differences:

  • What is profit? – Profit is the surplus that’s left from your income once you’ve paid your expenses, supplier bills and tax etc. It’s driven by creating a profit margin and generating value from your products and/or services.
  • What is cashflow? – Cashflow is the ongoing process of ensuring that the business has the available cash (or ‘liquid’ cash) needed to operate. This provides the money needed to trade, to pay suppliers, to cover wages or to buy raw materials etc.

Why is positive cashflow so important?

‘Cash is king!’ may be a cliche these days, but it’s a maxim which underpins any successful business model. Yes, it’s great to make a profit at year-end, but if you don’t look after your cashflow then the business may not survive as long as the end of the year.

What’s needed is good cashflow management to enhance your financial health. And without a careful eye on your cash numbers, things can quickly go awry.

A business can generate high revenues and big profits, but still be cashflow poor. In other words, it can have profits at the end of the period, but have very little liquid cash to fund it’s day-to-day operations over the course of the period.

Talk to us about improving your cashflow management

Good cashflow management is all about being in control of your cash inflows (income you’re generating) and your cash outflows (what you’re spending). To achieve ‘positive cashflow’ you need to proactively work to keep your inflows higher than your outflows.

As your adviser, we’ll help you set up detailed cashflow reporting and forecasting, so you can keep the business in that ideal positive cashflow position. And we’ll also look at key steps for keeping your revenues high, margins profitable and meeting your financial targets.

Get in touch to talk through your cashflow management.

New rules for Trust Compliance

New rules for Trust Compliance

With a new top tax rate of 39% now in place, other tax rules have also been tweaked to make sure they all align.

Trusts now have new rules on disclosures, in an effort to prevent people from using trusts to avoid paying additional tax.

Previously, trusts have not needed to file financial statements or details of non-taxable transactions. This has now changed. Inland Revenue will now be collecting more information so it can keep a closer eye on how trusts are being used.

Trusts now need to provide more financial information

From April 2021 onwards, all annual returns for trusts will need to include:

  • Financial statements
  • Details of settlements
  • Details of distributions, taxable or not
  • Any other information required, like loans and transfers involving associated persons or related parties.

Charitable and non-active trusts are exempt, since they don’t need to file a return.

You can read more about the new taxation bill here.

If this looks daunting, don’t worry, we can help you work out what information is required and how you can supply it. It is vital to make sure you comply with the rules so your trust isn’t declared a sham – if that happened you would lose any advantages that the trust provides.

Compliance costs are increasing

This is a large step up in terms of what trusts must provide in order to be compliant. It’s important that you start collating this information so you can supply it to Inland Revenue. This will probably be time-consuming and may have additional costs, particularly in this first year. Hopefully it will get easier as we all learn to navigate the new rules.

If you have doubts about how to comply, we can answer your questions. It might also be a good time to review your entities and make sure your trust is working for you.

Give us a call, drop us a note or text us – we’re here to help!

Managing ‘the books’ 2020-style

Managing ‘the books’ 2020-style

Lisa Martin, Executive Director of GoFi8ure, discusses all things accounting and bookkeeping, and shares some best practice management advice with business owners.

It’s 2020. A new decade has dawned. What better time to reflect on how far business accounting and bookkeeping has come since the turn of the century.

Who can remember a world without cloud accounting platforms? Imagine a world of printed bank statements and invoices, manual reconciliations, and no sign of digital bank feeds or automated accounting tools?

It’s all a distant memory for GoFi8ure’s Executive Director Lisa Martin (pictured) too. She has witnessed first-hand the rise of automation over her business accounting career – making life easier and providing more time for business owners.

She notes that there is still ongoing uncertainty for business owners to grapple with – such as retaining clients, hiring staff, ensuring that revenue targets are constantly met. Like a swan gliding serenely across a lake, there’s always plenty happening just beneath the surface.

Read the rest of the article here!

A word about good planning

A word about good planning

2021 delivers a raft of new finance and tax issues for business owners to get to grips with. Gofi8ure’s Lisa Martin provides some clarity and advice to help you stay on top of your business finances.

It’s no secret we’d all rather forget 2020. The pandemic not only had a significant impact on the viability and finances of New Zealand’s businesses, but many business owners also struggled to get their head around various new tax and compliance requirements.

2021 presents another unique set of potential money and tax-related stumbling blocks, and GoFi8ure’s Lisa Martin believes the key to dealing with them lies in mastering the four functions of management – namely planning, leadership, organisation and control.

Most people bring core skills or expertise to a business, Martin explains. “But as a business owner they’re naturally wearing 12 other hats, and often planning just doesn’t come naturally.” Leadership isn’t necessarily a natural asset either; Covid has tested everyone’s organisational agility to the max; and, as for ‘control’ – this is where a business owner must understand the control mechanisms of his/ her business and stress-test absolutely everything.

Keep reading the article here!

Investment property changes

Investment property changes

When: 27 March 2021

What: For properties acquired on or after 27 March 2021:

  • Legislation has passed that extends the bright-line test from five years to 10 years on residential property.
  • The Government intends for the bright-line test to remain at five years for new builds and will be consulting on what a new build is soon.
  • Legislation has passed that introduced a ‘change of use’ rule. If the sale of your property is subject to the bright-line test, and you don’t use the property as your main home for 12 months or more, you will be required to pay income tax on a proportion of the profit made through the property increasing in value.
  • If you sell a property within 10 years of acquiring it (or five years for a new build) and it was your main home for the entire time you owned it, you will not pay tax under the bright-line test on any gain in value.
  • Any gain in property value that is considered taxable income (including under any of the bright-line tests) will also affect any other obligations or entitlements you have based on taxable income, such as student loan repayments, child support payments, and Working for Families.

For properties acquired before 27 March 2021:

  • The previous bright-line test for five years will continue to apply for properties acquired before 27 March 2021.
  • The Government has proposed that interest on loans for investment properties acquired before 27 March 2021 can still be claimed as an expense, but the amount will reduce each year until it’s completely phased out by the 2025-2026 tax year. A consultation will be held about this.

Fact sheet: Proposed changes to bright-line test(external link) — Inland Revenue

Why: These changes have been put forward with the aim of increasing housing supply and housing affordability

Investment property: law changes and tips for maximising returns

P is for purpose, not profit

P is for purpose, not profit

Why does your business exist?

Your purpose is three to seven words explaining why your business exists for your customers; it should be about them, not you. It is a small statement with immense power – your reason for being.

Tesla: To accelerate the world’s transition to sustainable energy.
Netflix: To entertain the world.
Zoom: To make video communications frictionless and secure.

These may be big company examples, but a clear purpose statement is just as important for small and medium sized business.

A well-defined purpose statement is an antidote to narcissistic by-lines of the past… because we know that consumers are wired to take a self-interest and therefore will engage your business if your ‘why’ resonates with them. Thereafter, your purpose will drive the alignment of values and loyalty.

If you don’t focus on purpose, you’re likely to focus on profit.

Guess what? Your customers aren’t interested in you making a profit. They’re too worried about their own profit. They are more than happy for you to make a profit – provided you meet their needs first.

The correlation between a business’s ability to serve a higher purpose and stronger financial performance has been proven. So, defining your purpose is a smart business strategy.

It comes down to engagement with your team and your customers.

Numerous studies have told us that a strong sense of purpose drives team satisfaction, which will help to improve customer loyalty.

Articulating your business’s purpose to your team allows them to see that they’re contributing to something bigger than themselves. Linking your purpose to their tasks and responsibilities allows them to see their connection to the outcome; how their role is contributing to the overall vision of the business and how they’re impacting your customers’ lives.

If we focus on meeting (and exceeding) customer needs, better profitability will be a by-product.

Getting clear on your purpose will transform your marketing. Being able to clearly articulate why you exist for your customers will tie them to your brand and make them more inclined to refer you to others. When that new customer does their due diligence, i.e. they stalk your website and social media, it’s more likely they’ll develop an emotional connection to your business and buy from you.

Your purpose must first be defined by the leaders.

Only when your purpose is crystal clear can you articulate it to your team and then your customers and target audience.

Having a clear purpose is also about sustainability. There is mounting evidence that in these times of change and disruption, having a clear purpose will improve a business’s ability to transform and adapt.

So, what’s your purpose? Need help defining it? We can help.

“People don’t buy what you do, they buy why you do it.” – Simon Sinek

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.

Start the New Year Right with a Clean Slate

Start the New Year Right with a Clean Slate

When it comes to the New Year, tidying up your accounting may not be your first instinct. However, business owners need to ensure accounts are well-organised before the start of the year, in order to stay financially healthy throughout the coming months. GoFi8ure is urging companies to meet the coming year with a clean slate of accounts; a process made easy with the help of their team of expert accountants.

A clean slate of accounts can benefit business owners greatly, as it can reduce confusion and errors that can compromise a business’ finances. Cleaning up accounts and optimising processes can requiring a lot of work, possibly even taking weeks if business owners choose to go it alone. This is why GoFi8ure is offering professional accounting services to small, medium, and large scale businesses, to hire help them deal with time-consuming accounts, and start fresh come January.

GoFi8ure strives to help businesses get the help they need in all things accounting – tax returns, management reports, payroll, GST reconciliation, financial statements, and more, in order to take a business to the next level.

As a certified Xero partner, GoFi8ure can provide Xero training, which will allow companies to save time and valuable resources, while still transitioning to a more efficient process of accounting. By offering different packages tailored for what a business needs, GoFi8ure can deliver solutions for start-ups, small companies, medium to large companies, and offer full-service financial administration.

GoFi8ure has offices nationwide, and can travel to clients located in Wellington, Hutt Valley, Wairarapa, Auckland, or Dunedin. GoFi8ure also offers cloud-based services nationwide.

GoFi8ure’s Transformational Accounting Service Solutions

GoFi8ure’s Transformational Accounting Service Solutions

GoFi8ure is a transformational, award winning accounting firm providing a one-stop accounting solution to SME business owners, sole traders, and not-for-profit organisations. We take care of your day-to-day financial paperwork and compliance, freeing you up to concentrate on what you love, and giving you time to think about your future business growth.

At GoFi8ure, people are at the heart of the business – whether that is maximising our clients’ time by travelling to their offices to work on their accounts, or giving our staff the flexibility to take charge of their own role in the business.

GoFi8ure is not your run-of-the-mill accounting firm; we pride ourselves on keeping at the forefront of industry and compliance changes. We utilise cutting-edge software and technology to provide efficient and effective solutions for our clients. Our extensive software skills matrix includes working with more than 52 apps over 18 different industries.

We have 14 qualified Accountants and Bookkeepers who work for GoFi8ure. Each GoFi8urine brings with them a strong accounting and software skill set. Part of our service offering is stopping the need to do your accounts manually by implementing systems and processes, to ensure the business is staying compliant, up-to-date, and running as smoothly as possible. We implement systems such as Xero, and we help businesses migrate their accounts over to these systems by offering initial set-up of the system, as well as staff training, including any add on tools and programmes.

Services we offer include:

Accounting and Tax – Our in-house tax experts and tax Accountants work across our team of advisors to make sure that the tax planning and strategy for each client are effective. Whether you are undergoing a major change in your business and need a tax opinion on the impact, or just want to know that your advisor has everything tax-related in hand, we are the team for you.

Not only are we one of the top accounting firms in Wellington, but we are also proud members of the Accountants and Tax Agents Institute of New Zealand (ATAINZ) and a recognised Tax Agent with Inland Revenue.

Virtual CFO – We work with multiple SME businesses as their Virtual CFO (Chief Financial Officer), supporting them to ensure their business is continuously growing and their business goals are being achieved. We do this by assisting with budgets, cash-flow forecasts, attending board strategy meetings, reviewing their end of year tax compliance situation, and supporting the owners and directors by supplying relevant information so they can make better business decisions.

Financial Controller – We also offer a Financial Controller service. With this service we go to our client’s site and provide accounting support from daily bank reconciliations, calculation of wages and PAYE, debtor and creditor processing, GST, cash-flow monitoring and forecasting, and monthly reporting for directors and board members. This gives the business owner peace of mind knowing their accounts are being looked after by a professional accounting firm, and without the need to have to hire new employees.

Xero training and conversions – We provide one-on-one customised Xero and Bookkeeping training at your doorstep or in-house. Our one-on-one or one-to-many Xero and Bookkeeping training is done using your real life data, or the demo company as requested. We are also software implementation specialists who can help your business get set up on Xero.

BKED (Bookkeeping Education Centre) – After seeing the need to provide mentoring, training, and support to business owners and budding Bookkeepers (on top of what we already offer), we created BKED. Our courses and mentoring programmes are customised to empower and educate our trainees from both a practical and theoretical approach. We have one-on-one and one-to-many training courses available – we even have this amazing, custom-made training table that breaks out into little pods. How cool is that?

If you are a business owner and would like to learn more about Accounting Principles, Duties and Responsibilities, Strategy, Leadership, Management, and Business Finance, then it is time to get excited.

Warrant of Finance – We offer a Warrant of Finance (WOF) service which involves reviewing the client’s accounting ledger or information. This helps us to identify areas of risk and inefficiencies, which then allows us to prepare a plan for the client so that they can a) get better accounting processes, and b) implement accounting software and add-on tools to help them become more efficient and effective with information within their business.

It is no mystery that creating a successful business takes time! That is why here at GoFi8ure we are Accountants and Bookkeepers in the business of giving you more time, helping you to stimulate the growth of both your business and your passion.

If you would like to find out how GoFi8ure can help your business, send us a message by clicking here.

What is the difference between Administrators and Certified Bookkeepers?

During their early days, many small businesses have no choice but to combine many core functions together, including bookkeeping and administration tasks. As a business continues to grow, at some point, as a business owner you may need to separate the administrative and accounting functions. This will ensure that your business can run smoothly and more efficiently. Knowing the difference between bookkeeping and administration tasks will help you effectively create two roles that complement each other. So how do you identify when you need to hire either a Bookkeeper or an Administrator?

When should you hire an Administrator?

  • You are doing administration tasks when your time could be more productive elsewhere.
  • Your office needs someone to manage and maintain the constant flow of paperwork.
  • When you need someone to manage your diary and appointments.

What makes an amazing administrator is not necessarily how many pieces of office equipment they can operate. The value they bring to a business lies in how they support the business owner and reduce your administration workload. They take care of the background jobs that need to be done so you can focus your time on the valuable relationships with your clients and move your business forward, vital actions required to generate future growth.

When should you get a Bookkeeper?

  • You are spending more time on financial record keeping that working on your business.
  • You are not confident that your record keeping is as accurate as it should be.
  • GST return filing is often actioned late or at the very last minute.
  • There is no budget in place or minimal understanding of current and future cash flow.
  • Payroll has become stressful and more time consuming.
  • You cannot clearly answer the following:
  • What bills do I owe and who owes me?
  • Did I make enough money this month?
  • Am I meeting my filing deadlines?
  • How do I accurately process payroll?

You may have discovered that by owning your own business you spend more time than you thought you would trying to keep track of the financial paper trail, instead of doing what you enjoy. Wouldn’t you rather get back to doing what you enjoy, use your strengths and skill set to build your business, rather than having to worry about administration and bookkeeping?

As a business owner you may not have the time, energy or skills required, so if you are spending time looking at your books and wondering if they are accurate or correct, it may be time to bring in the expert. With a certified Bookkeeper on your side, your business can be more profitable, more efficient, and more competitive. You will get accurate reports that reflect your business activities, enabling you to make informed decisions that will keep your business moving forward. All those deadlines – they are met without you giving them a second thought.

Now that you know the difference make sure you don’t hire an Administrator to do a Bookkeepers job! Talk to GoFi8ure about our bookkeeping and accounting services, tailored to meet your business needs.

You did not get into business to be a Bookkeeper but we did, so talk to us about outsourcing your bookkeeping by emailing us on ​