Tricks of the trade see you right

Kiwis love a bit of DIY, but applying the Number 8 Wire mentality in your approach to business doesn’t cut it

Whether you’re buying a franchise or an existing business, starting a new venture or buying out a business partner, jumping into things without the right advice or systems in place can lead you down a path of recurring nightmares and stress. Here are some tricks of the trade to see you right.

Lock in slick systems

Too many businesses start out operating manually, using their bank statements to manage their business. Suddenly all this money comes in and you’re as happy as a pig in the proverbial: “I can afford that new twin cab I’ve always wanted!” Can you? Can you tell from your bank balance how much you have to pay your creditors next month? Do you know when and how much GST and income tax you’ll need to pay?

If you’re running your business from bank statements, you run a high risk of making poor business decisions. Implementing a good accounting system, such as Xero, from the beginning is a smart decision that will save you time and money.

You won’t be up all night or working through the weekend preparing your GST return and you won’t need to pay your accountant for hours of bank statement coding and processing. Good accounting systems enable you to manage your customers, suppliers and bank accounts. They generate good monthly financial information to help you manage your business.

Put the IRD first

GST and PAYE payments are the main taxes that businesses struggle with. They are regular, but creep up on you before you know it. If you’re experiencing cash problems, it’s tempting to put off paying the IRD for other creditors.

This is dangerous, because it can easily spiral out of control. PAYE and GST are considered money held in trust for the IRD, and if you can’t afford to make your payments regularly you will likely face penalty charges and interest. Many of the cloud-based payroll systems will manage your PAYE. This is a good option for many businesses. They will deduct the gross pay from the business’ bank account and file the PAYE return monthly. One less hassle!

Avoid the income tax trap

Beware of the year two income tax trap. New businesses are not expected to pay provisional tax in year one, but the following year they’ll need to pay any terminal tax along with the new year’s provisional tax. A double whammy!

Know what’s yours

Just remember that if you have money in the bank, it’s not all yours. To help manage your tax, consult your accountant and make sure you are putting sufficient funds aside to cover your tax liabilities. Managing customer debt is quite often the main contributor to companies running out of cash. Too often we see the attitude of “bill it and they will pay”. Remember, a sale is not a sale until it is paid!

Chase ‘em up

If your terms of trade are ready to go, you’ve got to enforce them or appoint a team member or professional credit manager to do it for you. They are more cost-effective than you think. Good clients understand value; if someone isn’t paying, they’re either struggling for cash themselves or are not good clients. Then it’s time to toughen up!

Use the right people

If you’ve just bought a business, it’s natural to get excited and let the emotions take over before you’ve had a chance to do your due diligence. But without it, you’re in trouble. If you’re buying a business, the vendor will naturally overemphasis the positives – it’s your job to make sure everything is in order.

Your accountant can help you analyse any forecasts, financial accounts or check appropriate systems are in place to generate reliable financial information. They can also cast an eye over your purchase agreement to make sure there are no hidden tax issues.

Use a valuer to make an assessment of the condition and value of any equipment. Use a lawyer to help with the purchase agreement and possible guarantees from the vendor, in case there are any undisclosed skeletons in the closet.

If you’re purchasing a company, make sure you set up a new company and purchase the assets and client list rather than buy the shares. If you purchase the shares and then become the director, you will become liable for any historical issues before your time. This includes any IRD debt or audit and any other contingent liability of the company. Yikes!

You don’t know what you don’t know, right? Good, proactive advice doesn’t have to cost a fortune and it truly is an investment. While the ‘she’ll be right’ Kiwi attitude has its place, find the balance in your business by getting advice before you hit a roadblock.

Keen to earn more and stress less? Grab a coffee and free consultation with your RightWay Regional Partner. Head to www.rightway.co.nz or call 0800 555 024 – it’s our shout!