Goodwill: What’s it worth?

Goodwill: What’s it worth?

Goodwill is one of your business assets – but you can’t measure it and it’s very tricky to put a price on it. When you sell your business, goodwill is the intangibles in your business that add value beyond the physical assets and guaranteed income stream.

Goodwill includes:

  • Your brand’s great reputation
  • Your loyal customer base
  • Your positive customer relationships
  • Your happy employees who want to stay
  • Proprietary data and intellectual property
  • The great systems that make your business run smoothly

Goodwill can have an impact on the value of your business

Most small and medium-sized businesses in New Zealand are sold based on their assets and earnings, and goodwill isn’t much of a factor in the valuation. But some types of businesses do have significant value in their intangible assets, particularly in the tech sector.

Discovering the value of your business’s goodwill usually comes down to the negotiating process with a potential buyer. You’ll need to agree on what the business is worth, and that means agreeing on the price of those intangible assets.

Tax on goodwill

Usually you’ll only need to think about goodwill if you’re buying or selling a business. Goodwill is non-taxable for the vendor in a business sale and non-deductible to the purchaser (although there are exceptions; you can read more about tax on business asset sales here).

Goodwill cannot be depreciated like a physical asset. However, some types of intangible property, like patents or trademarks, can be depreciated, so talk to us if you think this might apply.

What is your business’s goodwill worth?

We can help you work out the value of your business in today’s market – get in touch and we can figure out how much money you could walk away with if you sold in today’s market.

Should you buy or lease your business assets?

Should you buy or lease your business assets?

Should you buy or lease your new equipment? We’ll review your current financial position, cashflow and cost base to decide whether buying or leasing is the right thing for the business.

There are certain items of equipment, machinery and hardware that are essential to the operation of your business – whether it’s the delivery van you use to run your home-delivery food service, or the high-end digital printer you use to run your print business.

But when a critical business asset is required, should you buy this item outright, or should you lease the item and pay for it in handy monthly instalments?

To buy or to lease? That is the question

Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it’s important to weigh up the pros and cons of buying, or opting for a leasing option.

First of all, let’s look at why you might decide to buy the item…

Buying: the pros and cons:

  • Pro: It’s a tangible asset – when you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes.
  • Pro: It’s yours for the life of the asset – once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up regular lease payments, and if your financial circumstances change then you can sell the asset to free up the capital.
  • Con: It’s an expensive outlay – paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment.
  • Con: You may require extra funding – if you don’t have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet.

Leasing: the pros and cons:

  • Pro: Leasing has a cheaper entry point – if the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For startups and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business.
  • Pro: You can spread the cost – there is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, grow and bring in more customers and revenue.
  • Con: You don’t own the asset – there are different types of leasing agreement. Under a capital lease, you do own the asset (once you’ve paid if off). But if you opt for an operating lease, this is a more short-term lease and you won’t own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required) so it’s important to consider what kind of leasing agreement you’re entering into and what the advantages/disadvantages may be.
  • Con: You may pay more in the long run – most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value.
  • Con: You may lose the use of the asset – if you can’t keep up your lease payments (due to poor cashflow for example) then the owner of the lease agreement may recall the asset. If this item is crucial to your business model, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is a more risky prospect, but also an easier option for businesses with less cash to splash.

Talk to us about whether buying or leasing is the best way forward

Whether you opt to buy or lease your equipment isn’t always a straightforward decision to make – so it’s a good idea to consult with your accountant early on in the decision-making process.

We’ll help you review your current financial position, assess your available cashflow and look at your regular cost base to decide whether buying or leasing is the right thing for the business.

The dangers of discounting

The dangers of discounting

You might think that offering discounts is a great strategy to use when sales are falling. In reality, you’re likely to be more profitable by holding your price and accepting the reduction in sales volume than discounting a product.Let’s look at an example to show the difference in your gross profit if you discount your selling price by 10% compared to holding the price at $100 and accepting a 10% reduction in sales volume.

If sales are currently at 10,000 per annum at $100 per unit, your sales will be $1,000,000. With costs of $60 per unit, your gross profit is $400,000.Dropping the selling price by 10% might mean sales remain constant at 10,000 with a selling price of $90 per unit, so you’ll achieve $900,000 in sales. Costs remain at $60 per unit, so your gross profit will be $300,000.

If you were to accept the 10% drop in sales but hold your price at $100 per unit, your sales revenue will still be $900,000, but you’ll only have to pay for 9,000 units, so your gross profit will be $360,000.

In other words, holding your price and accepting the drop in sales results in a reduction in gross profit of $40,000 compared to a $100,000 reduction if you offered a 10% discount.

If you look at it another way, you can work out the increase in sales needed to maintain your original $400,000 gross profit if you offer a 10% discount. To calculate the increase in sales required, first calculate the gross profit for each unit: $90 selling price – $60 cost per unit = $30 gross profit per unit. This gives us a gross profit percentage of 33.33% ($30 gross profit / $90 selling price * 100).

To calculate the required increase in sales, multiply the previous sales volume figure by the gross profit percentage. To maintain your $400,000 gross profit, you’ll have to sell 13,333 units (10,000 units * 133%).

Discounting is simply not the answer – it’s a race to the bottom! Look for other alternatives to respond to a drop in sales – starting with what you can do to delight your customers so they keep coming back!

“When you realise how much you’re worth, you’ll stop giving people discounts.” – Karen Salmansohn

If you’re experiencing a drop in sales, get in touch so we can work with you to identify the reasons for this and explore alternatives to offering a discount.

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

Looking to improve business performance?

Looking to improve business performance?

Here are ten ways to make sure that you continue to drive through each business quarter with purpose, vision and the courage to super-charge your business.

1. Eliminate distractions: Time is the scarcest resource and biggest killer for most businesses. When we get busy we can also get distracted and focus too much time and energy on the wrong things. Be brave – slash standard meeting times, reduce unnecessary admin and delegate roles and responsibilities.

2. Say goodbye to bad customers: If possible in your business, get rid of ten time-wasters, bad payers, or customers who cause you pain. You will feel instant relief and spend your time better elsewhere.

3. Invest More: Having freed up time and headspace from deploying points one and two above, make sure you ring-fence time, key people, and money for some of the initiatives below. Redeploy with passion!

4. Get a Plan: You don’t go on a journey without a map or any idea of where you’re headed – so why fly blind with your business? Have a planning process, create a kick-arse plan – and execute. We can help you get started.

5. Surround yourself with positivity: Make sure the people in your business understand and share your vision. Bring them onboard, listen to them and give them ownership. Don’t let people who don’t get it, or don’t care, be a millstone around your neck. If they’re not right, do them a favour and free up their futures.

6. Use Technology: Technology can help you decrease admin, improve comms, improve reporting and accountability. Whether it’s for team communication or cloud accounting, slash paper and automate where possible.

7. Keep on top of the numbers: Do you have enough information to monitor business cashflow and see emerging trends? We can help you identify the metrics to track on a regular basis, in order to run your business efficiently.

8. Be Different: Break the mould and position yourself to attract ambitious, growing and engaged clients, and employees.

9. Deploy Marketing: Create a simple marketing plan to increase reach and penetration. Set aside a budget to treat this seriously. Start by making sure you really understand your customers. Existing customers are prospects too, keeping them happy is your first step. The more you know about them, the easier it will be to attract more of the same.

10. Take a break: Don’t underestimate the time you have away from your business. It can allow you to come back refreshed with new enthusiasm and inspiration for the way forward.

Lisa Martin Nominee for Top 50 Women in Accounting 2019

A MASSIVE congratulations to Lisa Martin on being named a Nominee in the Top 50 Women in Accounting for 2019.

We are so proud of Lisa and her achievements, not only professionally but personally. Lisa strives for excellence and wants to enable budding Accountants and Bookkeepers to deliver top quality, best practice accounting solutions to business owners. Lisa is passionate about providing change and really valuable information to business owners so they can make the best business decisions.

Congratulations again Lisa – you really are a top accounting superhero <3.

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