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.

EXAMPLES:
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

Property and Tax update 2021

Property and Tax update 2021

On 23 March 2021, changes to tax rules for investment properties took investors by surprise. There has been widespread commentary with more to come as the detail unfolds.

In overview:

  • The bright-line test has been extended from 5 to 10 years for properties purchased on or after 27 March 2021
  • The current exemption for the main home changes for properties acquired on or after 27 March 2021, making them subject to a ‘change of use’ rule
  • From 1 October 2021 property owners will not be able to claim interest on residential investment property acquired on or after 27 March 2021, and interest deductions on borrowings for residential investment property acquired before 27 March 2021 will be phased out over the next four income years.

Bright-line extension

Different rules apply for different scenarios:

  • For properties purchased from 27 March 2021, the bright-line test period is 10 years.
  • If you already own a rental, and, the old rules apply:
    • a 5-year bright-line test if you purchased the property on or after 29 March 2018, or
    • a 2-year bright-line if you purchased the property from 1 October 2015.
  • If it’s a new build, the proposal is that it will be subject to a 5 year bright-line test.
  • If you’re in the middle of buying a residential rental property, it’s more complex. Generally, if you entered into a binding contract to purchase a property before 27 March, you are within the old rules and the 5-year bright-line test applies. However, depending on variables around when the offer is accepted or the exchange and timing of counter offers, the 10-year bright-line test may apply. Talk to us if you’re in doubt.

‘Change of use’ and the main home exemption

Under the current rules, if the property has been used as the person’s main home for over half of the relevant bright-line period, there is a complete exemption from tax under the bright-line test. Under the proposed changes, properties acquired on or after 27 March 2021 will be subject to a ‘change of use’ rule. If a property switches from being the owner’s main home for more than 12 months, then a proportion of the sale profits of a property sold during the bright line period will be taxed, based on the ratio of time that the property was and wasn’t used as the main home. The existing main home exemption rules continue to apply for residential property acquired on or after 29 March 2018 and before 27 March 2021.

Interest deductibility

The rules are graduated depending on when the property is acquired:

  • for residential property acquired on or after 27 March 2021, taxpayers won’t be able to claim deductions for interest from 1 October 2021
  • for properties acquired before 27 March 2021, interest on loans can still be claimed as an expense. From 1 October 2021 – 31 March 2023, the amount claimable will be reduced to 75%, reducing by 25% each following income year, until it is phased out completely from 1 April 2025.

The Government is also consulting on whether an exemption for new builds acquired as residential investment property should apply. Property developers and builders who build properties to sell will still be able to claim their interest expenses.

Short-stay Accommodation

Residential properties used to provide short-stay accommodation, where the owner does not live in the property, will be subject to the bright-line test and cannot be excluded as business premises.

Our Recommendation

Some of the proposals are subject to consultation. If you have the opportunity to comment, please make it clear how the changes affect you. If you own a residential rental or one used for short-stay accommodation, or if you are considering buying a second property, please contact us, to discuss the tax implications.

Leveraging Your Technology

Leveraging Your Technology

The decisions you make in your business are only as good as the data you use to make them. The more accurate and up to date your data is, the better your decisions will be. Leveraging your technology will provide you with accurate real-time data to make more informed decisions in your business.

Processes and systems drive your business, so it’s important to ask yourself if all of yours are clearly documented and up to date? Some processes may be followed simply because they always have been. Although other processes may have evolved over time, your documentation might not necessarily reflect this.

Using technology to streamline your processes and systems increases efficiency in your business, saving time, money, and reducing stress. You’ll also prepare your business for the future, making it more sustainable, scalable, and saleable.

Leveraging your technology can help you to:

  1. Make your data accessible from the cloud, allowing you to view real-time data and make decisions on the go.
  2. Reduce human error and increase productivity by automating repetitive tasks and workflows.
  3. Track your expenses and load them directly to your accounting software simply by taking a photo.
  4. Minimise double handling and increase efficiency by integrating your apps.
  5. Collaborate with your team regardless of where they are.
  6. Save the time and money needed to travel by using online meetings.
  7. Induct new team members seamlessly with clearly documented processes.
  8. Monitor your inventory in real-time, reducing inventory days and freeing up cash.
  9. Store customer preferences to personalise customer experience, increasing customer satisfaction and retention.
  10. Make your business becomes scalable, with systems in place to allow the business to grow without the wheels falling off.

Using technology to its maximum advantage will help to improve your business. However, implementing these changes can often be overwhelming. Let us know if we can help you leverage your technology!

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

 

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.

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,

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.

Maximising your cash reserves

Maximising your cash reserves

The Covid-19 crisis has highlighted the inadequacy of current cash reserves for many businesses. They simply don’t have enough cash to sustain the business in a crisis.

Now is the time to make permanent change to your business processes and cost structure so you can build those reserves. At the same time, business owners need to be part of a world solution, and that means paying our bills on time where possible.

11 strategies to maximise your cash reserves:

  1. Invoice your customers immediately upon supply of products and services. The faster you bill, the faster you’ll be paid.
  2. Shorten your payment terms, e.g. from 20th of the month to within 7 days of invoice. You’ll need to reflect any changes in your Terms of Trade, in key customer contracts, and on your website.
  3. Invoice directly from your accounting software. This can enable faster payment.
  4. Negotiate prompt payment discounts with your suppliers. Don’t be bashful, there is no harm in asking.
  5. Get better at collecting the money you’re owed. Ask nicely to be paid by customers as soon as an invoice is overdue. The fast cash is in the 30-day column, not the 90-day column.
  6. Outsource proactive debtor management to a collection agency. This can be surprisingly cost-effective.
  7. Perform credit checks on new customers and make sure your Terms of Trade give you as much protection as possible if a debt goes bad. For example, put personal guarantees in place.
  8. Develop a personal spending budget and stick to it. This will reduce cashflow pressure on the business.
  9. Take costs out of the business where you can, but only where you should. This is an ideal time to review every line item in your Profit and Loss Statement. The shift to working online may allow you to change spending patterns.
  10. Have clear spending limits for team members who incur expenses on behalf of your business and regularly monitor these.
  11. And finally, prepare a Cashflow Forecast. Know what’s ahead of you and understand how positive changes will improve your cash reserves going forward.

Cash is oxygen for your business. Contact us now so we can help you put a cashflow improvement plan in place.

“The more a business owner knows about their cashflow, the more empowered they become.” – Nick Chandi

Key numbers to focus on in your business now

Key numbers to focus on in your business now 

As a business owner, it’s always been helpful to have an understanding of accounting – but in the post-lockdown world, it’s never been more important to have a good grasp on your finances.

With the business world irreparably changed by the impact of coronavirus, your business is facing a ‘new normal’. Priorities have changed, customer behaviours have mutated and revenue streams have had to evolve and pivot in order to create a viable post-lockdown business model.

To track, monitor and drive your financial performance in this new business world, it’s increasingly important to have a handle on your key financial reports and metrics.

Getting to grips with your financial reports

Whereas in the past, extra cash in the business may have been seen as a surplus that needed to be spent on something, COVID-19 has shown us that having these reserves is vitally important for the survival and long-term health of businesses.

To truly be in control of this cash, it’s vital that you can dip into your accounts, financial reports and dashboards and ‘see the genuine story’ behind your financial position.

So, what are the key reports to focus on? Let’s take a look:

  • Budget – your budget is the financial plan that’s tied in with your strategic plan. In essence, the budget is your approximation of the money it will take to attain your key strategic goals, and the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historic numbers) against, allowing you to see the variances, gaps and missed targets over a given period.
  • Cashflow Statement – a cashflow statement shows the flow of money into and out of your business. Understanding these cash inflows and outflows in detail allows you to manage this ongoing process, allowing you to aim for a ‘positive cashflow position’ – where inflows outweigh outflows. In this ideal positive scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.
  • Cashflow Forecast – forecasting allows you to take your historic cash numbers and project them forward in time. As such, you can see where the cashflow holes may appear weeks, or even months, in advance – and that gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or going to lenders for additional funding.
  • Balance Sheet – the balance sheet shows you the company’s assets, liabilities and equity at a given point in time. In a nutshell, it’s a snapshot of what the business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity). The balance sheet is useful for seeing what stock and equipment the business owns, how much debt (liabilities) you’ve worked up and what the company is actually worth – all incredibly useful information to have at your fingertips when making big business decisions.
  • Profit & Loss – your profit and loss report (P&L) Your P&L gives you an overview of the company’s revenues, costs and expenses over a given historic period of time. Whereas the balance sheet is a snapshot, your P&L is more like a moving video. It shows you how your finances are progressing by demonstrating how revenue is coming in and costs/expenses are going out (rather than cash coming in and going out, as you see in your cashflow statement and cashflow forecasts).

Talk to us about accounting and financial reporting for your business

We’ll run you through the key reports in your accounting software, and can help you track performance, take action and prepare your company for surviving the new business normal.

Successfully implement change in your business

Successfully implement change in your business 

Research by Kotter International found that more than 70% of change projects within a business fail. Why is this?

The research findings show that employee engagement is the biggest factor. Whether it is a small change to one or two processes, or a company-wide change, it’s common for staff to feel intimidated by it.

So what can you do for successful implementation of change? Here are the principals from Kotter’s 8-Step Program:

1. Get the team onboard

Build support and create momentum behind the changes you are making by communicating the benefits with the whole company early on.

  • Start honest discussions with your team and give dynamic and convincing reasons to get people talking and thinking about the change.
  • Demonstrate what would happen if you didn’t make the change and what else it could affect in the future.
  • Request support from customers in this instance who may love the product, outside stakeholders and others known in the industry to strengthen your argument.

Kotter suggests that 75 percent of a company’s management needs to support a change in order to succeed.

2. Form a powerful coalition from all areas of the business

Share the support you have from all areas in the business (not just the leadership team). Visible support from key people within the organisation will bring others on board and create a sense of urgency. Give these people key roles in the change process to help progress it.

Once formed, your “change coalition” needs to work as a team, continuing to build urgency and momentum around the need for change.

What you can do:

  • Identify the influencers in your organisation for this change, as well as your key stakeholders.
  • Ensure that you have a good mix of people from different levels within your firm.
  • Ask for a commitment from these key people.
  • Work on team building within your change coalition.

3. Create a vision for change

Create an overall vision that helps everyone understand why you’re asking them to do something.

What you can do:

  • Develop a short summary (one or two sentences) that captures what you “see” as the future of your organisation.
  • Create a strategy to execute that vision.
  • Ensure that your team leading the change are all on the same page.

4. Communicate the vision

Embed this in everything you do so it is not lost in the day-to-day operation but a powerful part of this.

What you can do:

  • Talk often about vision and change.
  • Make sure the vision is applied to all aspects of the operations. For example, ensure it’s added to the training and induction program and is encapsulated into the relevant job descriptions and evaluations.
  • Address people’s concerns and anxieties about it openly and honestly.
  • Lead by example.

5. Remove obstacles

Check constantly for processes and structures that need to adjust to allow you to execute the vision and help the change move forward.

What you can do:

  • Look at your organisational structure, job descriptions, and performance and compensation systems to ensure they’re in line with your vision.
  • Recognise and reward people for making change happen.
  • Identify, or hire, change managers whose core role is to deliver the change.
  • Identify areas or team members that stand in the way of change, and find solutions.
  • Take action to quickly remove barriers rather than letting them fester.

6. Create short-term wins

Create short-term targets – not just one long-term goal. Each “win” that you produce can further motivate all the staff especially if it’s a big change requiring a longer process and help keep them on task.

What you can do:

  • Reward people who help you meet the targets.
  • Look for sure-fire projects that you can implement without help from any strong critics of the change.
  • Don’t choose early targets that are expensive. You want to be able to justify the investment in each project.

7. Build on the change

Keep looking for improvements to the system to ensure the long term goals are achieved.

What you can do:

  • After every win, analyse what went right, and what needs improving.
  • Set goals to continue building on the momentum you’ve achieved.
  • Develop a culture of continuous improvement.
  • Keep ideas fresh by bringing in new people to lead the change.

8. Anchor the changes in your culture

Finally, to make any change stick, it should become part of the core of your organisation. Make continuous efforts to ensure that the change is seen in every aspect, giving it a solid place in your organisation. It’s also important that your company’s leaders continue to support the change. This includes existing staff and new leaders who are brought in.

What you can do:

  • Talk about progress every chance you get. Tell success stories about the change process, and repeat other stories that you hear.
  • Include the change ideals and values when hiring and training new staff so it is enforced from the start.
  • Publicly recognise key members and enablers of the change.
  • Create plans to replace key leaders of change as they move on. This will help ensure that their legacy is not lost or forgotten.