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February 2007

Move methodically into the fast lane

  "YOU can do anything but you can't do everything„" says motivational business speaker Debbie Mayo-Smith.
  Decide what you honestly want, she says. "Any goal can be achieved! It's a question of being methodical."
  Other ideas, some of which are also from Debbie, include:
    I. Be specific about your goal. It must be done within a time and measurable, for example, you wish to double earnings within 12 months.
    2. Understand what you must do to accomplish your goal. Write it down. How much business can you generate from existing customers? How many new ones will you need and how much do you need to earn from each?
    3. Chop up the goal into bite- sized pieces. If you need 50 new customers averaging $2000 each, that is about four clients a month.
    4. Now work out, using thinking techniques such as brainstorming, all the ways you could get four new customers a month and then choose the best ideas to achieve this. What will you do each month (or other time interval)?
    5. Create time. Write down every activity you have in a week, preferably using a spreadsheet. Examples might be washing the car, preparing dinner, reading bedtime stories to children or mowing the lawn. Could you delegate any of them? How about washing the car and mowing the lawn? Could you pay someone, and make more money for your business with the freed-up time? Look at your business and make a similar list. What is the worst that can happen if you delegate and someone makes a mistake?
    6. Arrange all your activities — business and private — with the most important at the top of the list. This is where the spreadsheet can be useful. Some might be important to you even though someone else could do them. To retain them, put them high on your list.
    7. Start culling from the bottom. Either stop the activity or get someone else to do it.
    8. Learn how to get the most out of your software and save yourself and your staff time. "By taking the time to learn my MS Office software (no matter how busy I was), and hiring literate people and training them with the shortcuts, I (and never more than one part time administrator) have been able to run a lean office doing the equivalent work of six or seven staff members in one quarter of the time they would take," Debbie writes. "Additionally automation gives you increased
business development, customer service and sales prowess. Truly."

Conclusion

  It is time to complete your business plan for your next financial year. We hope these comments will help you. 

Novel Christmas greetings

  TWO novel "Xmas cards" came our way in 2006. The first was an animated electronic card. It was fun to read and cost the supplier nothing to send. The senders of the second greeting habitually gave us a bottle of wine for being good customers. This year they wrote: "We decided to make a change to how we recognise our clients this year, but your custom is no less appreciated. We hope you have a great Christmas and New Year. Best regards." Instead of the wine they gave a generous donation to a charity. Be noticed - Dare to he different. 

Becoming a KiwiSaver

  The scheme commences on 1 July 2007. It will apply to all new employees between the age of 18 and 65 except:
    • Casual employees e.g casual agricultural workers and temporary employees (with a contract for 28 days or less)
    • ACC recipients, receivers of paid parental leave, election-day workers or private domestic workers.
  Here is a list of employer responsibilities and other information about the scheme. The first few bullet points need to be actioned within 20 days of a new staff member starting work:-
    1. Start deducting contributions from the first pay at the rate of four per cent of gross salary.
    2. Give a KiwiSaver information pack to the new employee within 7 days of the employee starting work.
    3. If the employer has chosen a preferred savings scheme give the new employee a copy of the investment statement and advise the employee they can choose their own scheme if they wish
    4. Give Inland Revenue the name, address, and tax file number and tell them whether the new employee is already a member of a KiwiSaver scheme. Notify IRD if the employee is on a contribution holiday.
    5. Inland Revenue will hold the contributions for an initial three-month period while the employee seeks financial advice and chooses a KiwiSaver scheme.
    6. Employees have 8 weeks to opt out. If they do, the deductions are refunded to them.
    7. An employee can elect to make 8% contributions.
    8. Employees can change their minds and opt into the scheme, later.
    9. The employer may receive a notice from the IRD if an employee has elected to take a contribution holiday in which case stop deductions. On further notice from the IRD recommence deductions.
    10. The employer can contribute to the employee's 4 percent. This will be tax free to the employee, subject to the contribution being no more than that of the employee. Some employees with larger incomes may prefer this to a salary increase.
    11. Existing employees may elect to join KiwiSaver.
    12. Self-employed people can also join but they need to make payments directly to Inland Revenue or their scheme.
    13. Savers may exit the scheme when they become eligible for National Super or after five years, whichever is the longer period of time. Working National Superannuitants may be interested.
    14. Savers, after 12 months in the scheme, may take a contribution holiday of up to five years.
    15. Significant financial hardship, serious illness and permanent emigration are reasons for withdrawal from the scheme.
    16. Each new saver will get a government contribution of $1,000, locked in until age of eligibility.
    17. After three years KiwiSavers may make a one-off withdrawal to pay a deposit on their first home.
    18. After three years of savings, the Government will pay $1,000 per year, up to five years, as a contribution to a first home subject to the employee meeting the eligibilty criteria.
    19. Up to half of contributions can be diverted to pay off a home mortgage, subject to the mortgage company and the KiwiSaver fund manager being willing to agree to the arrangement.
    20. The Government will subsidise the administration costs of KiwiSaver schemes.

Do you own overseas shares?

  NEW tax laws apply from 1 April 2007 to people owning less than 10 per cent of the share capital of overseas companies. If you have a portfolio of overseas shares which cost you more than $50,000, the change will affect you. For companies and trusts there is no relief for a low-cost portfolio. The new rules are complex, so if you have any concerns please contact us.

Nine digit IRD numbers are coming

  IF you need to collect IRD numbers on your database, prepare for 9-digit figures.
  The Inland Revenue is planning to introduce the change some time in the coming year.

Tax tips & traps

FBT and cars

  IF your company owns a car costing more than $15,000 and it is available for your private use, base Fringe Benefits Tax on the original cost, not Tax Book Value. After five years you may change to Tax Book Value. It pays to do this. If you keep cars a long time, make a diary note to remind you to switch. If you have already been paying FBT on your car for five years, you can switch now.
  Tax Book Value is the value of the vehicle as shown in your financial statements. If it appears as a GST exclusive amount, you will have to add He (to allow for GST) for the FBT calculation. There is a minimum figure of $8333 including GST.

Repairs after bad tenants

  If you rent out a property and have to make repairs, do so before the rental ceases. Remember this when changing from rental to private use. If you want a tax deduction, it is no use doing the repairs after the tenant has gone, unless you are going to continue to let the property.

Come back tomorrow

  A SEASONAL business, requiring an on-going supply of temporary staff, spent a lot of money advertising, asking for interested people to telephone for an appointment.
  When potential employees dropped in, the receptionist asked them to "telephone and make an appointment to come back tomorrow". The person who would be doing the interviews was in the office and available. How many of those sent away never telephoned or returned but sought employment elsewhere? How many advertising dollars were being wasted by a badly organised business? As the interview work needed to be done it might as well be now. The firm counted the telephone responses to each advertisement but was measuring the wrong thing,. It should also have been assessing the number of responses to the advertisement and people employed. When measuring, keep the right statistics.

Aligning GST and provisional tax

  FROM 1 April 2007, GST return dates will be progressively aligned with business balance dates as the year proceeds. People who complete returns to 28 February and have a 31 March income tax balance date will have to do a one-month return some time during the year. This is in preparation for changing the dates for provisional tax payments starting 1 April 2008 so businesses can pay income tax and GST at the same time. Some small businesses will be able to avoid paying, Use of Money Interest. We will tell you more in a later newsletter. Also from 1 April 2007, GST will become payable by the 28th of the month instead of the end of the month. April is difficult for GST because it includes Anzac day near the end and Easter often falls in April. We have heard of a proposal to make the GST payment date 7 May but, at the time of writing, no change has been announced. 

In brief

He wrote it down

  OTTO LOEWI had an amazing dream. He woke in the middle of the night and immediately wrote a description of his vision. In the morning he could not read his writing and spent all day trying to decipher it. Luck was with him. The dream came again the next night, but this time instead of trying to record the event he went straight to his laboratory and did the experiment. He had discovered that chemicals are responsible for transferring information between nerve endings. He was awarded the 1936 Nobel Prize.
  If you have a good idea, write it down NOW. But make sure you can read it. You might not have the luck of Otto Loewi.

Delight the customer

  A CLIENT contacted Amazon and purchased a book. It was to be sent by fast mail and would take two or three days. The book took two weeks to arrive. The client contacted Amazon and complained. Without hesitation, the company apologised and cancelled all charges. He thinks Amazon is wonderful and is telling his friends about the excellent way they handled his complaint. If you mess things up, make sure your customer is delighted with the way you handle the situation. Be generous.

More holidays

  DO you know how the new four-weeks holiday is calculated?
  Find out the date each of your employees started working for you. They are entitled to the extra week from the anniversary of commencement with you. Instead of calculating holiday pay at 6 per cent, use 8 per cent from that date. 

Tax calendar

March 7    3rd Instalment 2007 Provisional Tax (March balance date)
                 1st Instalment 2008 Provisional Tax (November balance date)
April 7       1st Instalment 2008 Provisional Tax (December balance date)
                 Terminal Tax 2007 (March to June balance dates)
April 28     GST for March 2007

Make loyalty cards work for you

  HOW well do loyalty cards work? Now they are everywhere, what are you going to do to stand out from the crowd?
  The owner of a coffee shop keeps the loyalty cards for her customers. She tells us this makes a big, impact. Further, she adds a little value:
    1. When a customer comes in she starts making their favourite coffee so it is on the go by the time they reach the cash desk.
    2. She greets her customers by name, making them feel important.
    3. She also runs a breakfast club and will often say to a customer "The next time you come in it will be a free breakfast. Remind me, won't you." This often brings the customer back earlier than usual.
  We have seen a variation of the loyalty card. It is an electronic card like an eftpos card. Customers buy say $20 of credit by transferring money from their eftpos or credit card to the coffee shop card. One food business accepts up to $500 from each customer. The card automatically adjusts the discount at the required time. Look at the gains for the shop:
    • If you had paid for your coffees in advance, wouldn't it make you want to keep going back to the same shop?
    • The shop is getting an interest-free loan
    • A proportion of the credit will never be claimed.
  Some people give out loyalty cards when they do not need to. A suburban garden shop sets its prices noticeably lower than the competition. It has a loyalty card, but why?
You can damage your business with loyalty cards. One firm has put a six-month expiry date on its card. A customer had reached her 10th clip only to be told five of them had expired. She's telling her friends.
Points to note:
    1. Be smarter than your competitors. Come up with new ideas. Do some brainstorming.
    2. Don't allow these schemes to upset your customers. That is dumb.

Your financial year end is coming

  CHECK the following:

Accounts Receivable

  Every year we have clients who do not understand they must pay tax on all their earnings, including money not yet received. April invoices for March work are part of March year-end income.

Bad Debts

  Write off bad debts before your balance date. This does not stop you from continuing, to try and get payment. For a debt to be bad, you must show you have taken every reasonable step to get paid.

Use of Money Interest

  If you expect your business income, after deducting expenses, will exceed $112,000, you might have to pay Use of Money Interest (UOMI). Ring us now if you have not previously been affected by UOM I.

Stock and Work in Progress

  You must count and value your trading stock at balance date, unless it will be worth less than $5000. Keep your stock sheets to show Inland Revenue if it asks for them.
  Dispose of dead stock now as it must be valued at its cost, unless you can prove it has a lower market price. A guess is not acceptable. You have to find evidence to support the price. This can be difficult. Work in progress must be valued unless your business is only providing services which cannot yet be billed.

Bonuses

  If you want to pay staff bonuses relating to the 2007 year, they must be paid within 63 days of the business's tax balance date to be claimable for that year.

Company dividends

  If you plan to pay a company dividend, you might be able to get a tax refund for a person whose income is less than $38,000, if the dividend is declared by 31 March. If a family trust owns shares, you might be able to allocate the dividend to a low-income member of the family. The law is complicated, so check with us.


All information in this newsletter is, to the best of the author's knowledge, true and accurate. No liability is assumed by
the author or the publisher for any losses suffered by any person relying directly or indirectly upon this newsletter.
You are advised to consult professionals before acting upon this information.

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About Us

We are a friendly two partner practice with approximately eleven staff located on Apollo Drive, Mairangi Bay. Our clients are varied and our skills range from business structuring to trusts to Look through companies and tax planning.
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63 Apollo Drive, Mairangi Bay, Auckland
P: 64 9 478-5292
E: jmv@jmv.co.nz
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