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October 2008

There is no shortage of negative commentary in the media about the current trends in the economy in New Zealand and worldwide. However, on the positive side a slowdown in growth provides a great opportunity to reassess the relevance of your business strategy, operational structures, products and services.

Kiwi’s have a great reputation for creative thinking and quick implementation of practical solutions. Often a team based approach to the critical review process produces the best solutions and results.

Our key people are experienced in helping our clients with difficult and challenging circumstances.

Grant Brownlee,
Managing Director.

BBW re-brands as UHY Haines Norton

Fifty year old, West Auckland accountancy firm, Butts Bainbridge & Weir is now operating under the name of UHY Haines Norton. We remain NZ owned.

This move aligns us with the Australian UHY network of accountants and gives us a closer association with the Haines Norton group. For over a year our Audit Group has operated under the UHY Haines Norton name and we have found that this has offered us a stronger base from which to provide accounting services and has helped us foster closer Trans Tasman links.

Butts Bainbridge & Weir joined the extensive UHY network in 2002 because we wanted to support the growing number of our clients who have businesses outside New Zealand. We also saw an increase in the development of new opportunities for small and medium enterprises to expand overseas. This means we are still Butts Bainbridge & Weir with our base firmly in West Auckland serving a very wide variety of clients of all sizes, but we are now in a better position to serve clients with international interests.

Your contact at Butts Bainbridge and Weir, and the way we handle your account will continue unchanged but there will be one change you will become aware of. We are also moving offices to 22 Catherine Street [formerly the Norcross building] scheduled for around the beginning of October. Our contact details (postal and telephone) will remain the same but our email addresses will change. The only difference for our visiting clients will be that there will be more room to park!

Both the renaming and the move will happen at the same time and we will be in contact with you a little closer to the date to remind you of our new address and other details.

If you would like more information about UHY Haines Norton or our upcoming move, please do not hesitate to contact us.

Are You Making a Real Profit?

A Business profit arises when all expenses have been paid for out of sales.

What are the expenses? They include:

The materials, wages and other costs which vary according to the level of sales. Accountants call these the direct costs.
The ongoing costs, such as rent, insurance and repairs. These tend to be the fixed costs of being in business.
Interest on borrowed money.
Depreciation, which is a share of the costs of equipment and vehicles spread over their useful life.
A fair wage for the business owners. This should take into account skills, responsibilities of the job and the hours worked.
Taxation on the remaining profit.

When all expenses are covered a profit remains. Relate this to the money you have put into the business plus the profits you have ploughed back – your money invested. If you are making 25% profit on this figure, you have a reasonably satisfactory business. If you are making nothing and your business has been going for several years, you do not have a business. You have a job. You are merely employing yourself.

Many of our clients, in well-established businesses, work hard to make a rather inadequate wage. You might argue being in business is not just about money – what about the freedom to take time off when you choose, to do things your way and the satisfaction you derive from what you do? We agree, but you could probably have a profit as well.

Each year contains about 2000 working hours (50 weeks at 40 hours a week). Many clients work into the evenings and weekends achieving 2500 or more hours and they take all the risks and carry all the responsibilities for the business. If you are one of these, compare the amount of money you get from the business with what you would get if you were an employee. If the result is unsatisfactory, you are using too much energy working in your business and not enough in managing your enterprise to create better results.

Look critically at the work you do and think abouthow to become more profitable. Perhaps you should have a planning day, so you can have time to think seriously about your business and your profits.

It Pays To Be Generous

A painting contractor was invited to quote for painting a new house.

The owner wanted a dark colour but the painter was concerned about the paint absorbing heat. Paint can be classified on the basis of its ability to reflect heat. The painter recommended a 40% reflection but the customer wanted a colour which had only 32% reflection.

The painting contractor did as the customer wanted, painting the house a very dark green. In a couple of years gaps appeared in the paint work where the weatherboards had moved. The owner contacted the contractor and expressed his concern.

Remembering the customer is always right (well almost), the contractor repaired the damage at a cost of about $600 to his own firm. A couple of years later the same thing happened and again the contractor made the customer happy. The customer was delighted with this service and referred many lucrative jobs to the painter. He says “The $1200 it has cost me is the best investment I have ever made in promoting my business.”

We have a similar story. A builder went back to a house he had built 10 years previously to carry out a small repair at no charge. The owner said the fault was not the builder’s. The delighted owner told a friend, who was looking for a builder, and within a few weeks the builder had a contract for a new house, even though the project could not be started for about eight months. The new customer said “I was prepared to wait for the right person and I did not seek competing prices, because I’d rather be sure I have the right person for my home than save a few dollars.”

Be generous in business. It is better to have a delighted customer than one who is merely satisfied.

Helping Our Clients Improve

Our new Business Improvement division has been working extensively with clients over the past 12 months to improve the overall performance of their business.

We recently started working with a well established local business to devise a strategy whereby the owner can exit the business and gain the maximum value for the business.

We identified three key areas that needed to be properly planned and implemented to ensure the long term viability of the business:

In the area of taxation…
Our tax consulting division has identified ongoing taxation problems for the shareholders which also exposed the business to financial risk. We have formulated a strategy to mitigate these problems and return the client’s Balance Sheet to a sound financial footing.

In the area of human resources…
We are currently working with the business’s management team to help grow their leadership skills and give them the tools necessary to effectively run the operations of the business.

In the area of IT systems…
Informative and efficient operational systems are an important tool to increase value and enable management to effectively manage the business. We are overseeing the upgrade of the client’s current IT systems to ensure that management gain the operational advantage that they need to maximize value.

Our client is already reporting an increase in performance by the business and is confident of the long term viability of the business despite the current economic climate. The reason for the confidence is that there is now a long term strategy in place that management agrees and aspires to.

Contact Michael Jamieson our Business Improvement Manager on 09 839 0246 or email mjamieson@uhyhn.co.nz to discuss your requirements.

Planning For A Difficult Year

Now is the time to plan for a difficult year.

If you want to weather the economic storm and survive a difficult year, then you’ll need a plan. Plans do not need to be a marathon effort. Some planning is better than none.

Good planning assumes you are prepared to change the way you do things. If you don’t change, your business won’t either. Set objectives and monitor your progress in achieving them. Start by thinking about how to increase your sales and their profitability. We often give you tips in our newsletter. Why not go back and read some of them again?

When considering how to increase sales, start with your existing customers. Do not make your first priority getting new ones. Experts claim it costs five or six times as much to get sales from a new customer than it does from one you already have.

Do you keep in touch with customers or do you just let them slide away, once you have served them?

What do you do about after-sales service? A follow-up call to check on satisfaction works wonders. If a customer is in a buying frame of mind, keep selling. Does your system ensure you always do this? For example, the do-it-yourselfer who goes to buy a tin of paint. What’s the chance he’ll arrive home to discover he overlooked getting turpentine, sandpaper, putty, primer or even a paint brush? Do him a favour. Jog his memory and save him the frustration of having to return to your store, or even worse, someone else’s.

Put together a robust marketing plan – contact us if you would like some help.

Provisional Tax Payment Dates

Most clients (i.e. 31 March balance date) should have noticed that they were not required to pay provisional tax on 7 July this year. This of course is because the new provisional tax payment dates now apply.

The first due date for 31 March 2009 year-end ‘Provisional Tax’ is 28 August 2008. However if you are registered for GST on a 6-monthly basis – your first 2009 Provisional Tax will be due 28 October 2008.

The second 2009 Provisional Tax instalment will be due 15 January 2009 (2nd of 3 instalments) or for 6-monthly GST taxpayers, 7 May 2009 (their 2nd and last instalment).

We will contact you to remind you of these dates as they approach and will also let you know when the third instalment is due.

Those taxpayers paying Provisional Tax on the GST Ratio Method will generally be paying their Provisional Tax every second month. Any instalment intervals falling on 28 December or 28 April are deferred to 15 January and 7 May respectively.

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TAX TRAPS

Tax Refunds

Beware tax refunds. If you receive refunds direct credited into your bank account from IRD, check you are entitled to it. Also make sure by receiving it, it will not lead to a shortfall of tax somewhere else.

A client was several years in arrears with his tax returns. He paid tax in advance to avoid penalties and Use of Money Interest. IRD refunded what they thought was over paid tax.

As he caught up with his tax returns he discovered there was no money in the IRD to cover the tax liabilities. He had to repay the tax he had been refunded and was charged substantial interest and penalties.

Increasingly people prefer the IRD to pay tax refunds straight into their bank account. If you are one of these, keep an eye on credits from the IRD appearing on your bank statements.

Taxpayers can be prosecuted if they accept a tax refund and should have known they were not entitled to it. It pays to check the refund against what you expect to receive.

Business Branding

Two elements that can build customer perception about a brand are quality and price.

People go to Starbucks for consistently good quality coffee and food at a price they find acceptable. The Warehouse started its business by selling goods to the public at a price customers felt offered value for money.

If you want your business to be known for its value and/or quality, create that first, long before you think about a logo or slogan. Don’t create a slogan and tell people your quality is great if you are still ironing out consistency issues!

Never fall into the trap of thinking you should have the cheapest price so customers think you give great value for money. A BMW has a high price, but lots of people think the “ultimate driving machine” is great value.

REMINDERS

If you invest in a PIE

IF you invest in a PIE Elect 0% tax rate for companies, usually 0% for trusts, and choose the correct rate if investing in your own name.

Provisional tax & the GST ratio

If you wish to use the GST ratio apply to Inland Revenue before next year end. An ordinary letter will suffice. Talk to us if you need some help with this.

Donations

Donations to Registered Charities from your private company become deductible from 1 April 2008. The limit is the company profit, so don’t make a tax loss. A potential trap exists here for LAQCs. For individuals the rebate will be 33.3% of total gifts in the tax year. This will be a refundable tax credit.

Read Your Customers

Our client bought a car. When it came time for servicing she took it back to the franchise holder.

She ordered two new tyres as well as the standard service. When she picked up the vehicle it was returned by one of the salesmen, who started making various offers to her, including an offer for mag wheels.

She is well into her 70s and described the sales pitch as very false. She felt the salesman should have known she would not be a mag wheels person. She left with a pronounced negative feeling towards the dealer.

It is good to promote add-on sales, but you need to use good judgement or the result could work out worse for the business than if it had never occurred.

Keep Beneficiaries Informed

Trustees should keep trust beneficiaries fully informed. The trust was set up for them. They are the principal reason for its existence. Trouble with trusts often comes through a beneficiary’s spouse, who thinks his/her partner is not being treated fairly. You might trust your children, but you do not select their life partners.

The Government is looking at amending the Trustee Act to force disclosure. If you are not already doing so, why not get in first and start sending a copy of your trust’s financial statements and a covering letter to the beneficiaries this year.

Internet Banking

If you are not already using it, have you considered internet banking?

It might have some risks but most of these ought to be covered by your bank. Some banks now have sophisticated ways of minimising the possibility of anyone tapping into a customer’s account.

Internet banking certainly has some advantages. When you make a payment, you control the amount being paid. The bank cannot incorrectly underpay Inland Revenue, for example. It is easier for you to control cash flow and it saves time and postage. You can set up payments so they are processed on the last due day.

WAKE-UP WATER

Have you ever felt so tired you wonder how you will stay awake? A friend regularly fell asleep when he attended late afternoon seminars. One day, when he was feeling particularly tired, he drank three glasses of cold water before a seminar started. To his amazement he stayed wide awake through the course. Next time you are having trouble staying awake, try copious amounts of cold water. It can be as effective as strong coffee and a lot better for you. And... If you are running a long meeting, be sure to supply plenty of cold water for participants.

STAFF UPDATE

We recently celebrated two staff members achieving a decade of service at BBW. Len Kumar (Manager) and Bhuvana Narayanan (Supervisor) were both honoured in a presentation made to them in June – congratulations.

INTELLIGENT CHOICE • INTELLIGENT SOLUTIONS