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May/June 2006

Bird flu and your business

  TWO hundred million birds have died of the 1-15N1 virus (you wonder who might have counted them all)!
  At the time of writing, about 100 people have died from this virus, which has passed from birds to humans. 1-15N1 — which was discovered in 1997 — kills more than half the people who contract the disease.
  Ordinary flu constantly mutates, changing its genetic structure. This keeps researchers in business as they look for its weakness and develop vaccines. It explains why the elderly need their vaccinations every year.
  In 1918 there was a flu pandemic, leading to millions of deaths. Scientists and doctors fear the same is going to happen with H5N 1.

How does it affect us?

  The odds are the first flu pandemic will develop in the northern hemisphere. As we know, flu usually strikes in winter, so it is reassuring we've now got through the northern winter safely. However, there is no reason why it should not spread during summer.
  During the flu pandemic of 1918 aircraft did not travel across the world, so the disease spread relatively slowly via people travelling by sea. A pandemic in modern times would have the potential to spread much faster because of the ease of international travel.

What might happen?

    • Expect some essential services, including hospitals, food retailers and banks to be unable to provide their normal speed and level of service. 
    • Many staff will choose to stay away from work.
    • The flu will mostly spread as a result of uninfected (healthy) people inhaling droplets from coughs and sneezes from an infected person.
    • Researchers may develop a vaccine eventually. However, this would be likely to take several months. By that time, the flu will have done an enormous amount of damage.

What can small business owners do about it?

    • Plan for office staff to work from home. Set up your computer network for this now.
    • Keep a supply of surgical masks. Make sure you get the right type. Masks are likely to disappear from the market almost overnight. The world will run out of them. This happened with the SA Rs epidemic. So stock up early.
    • Learn the correct way to put on and take off a mask.
    • Keep masks in the glove box of business cars.
    • Anyone travelling by public transport should always use masks.
    • Stock up on tissues, and use them instead of handkerchiefs.
    • Regular hand washing will be essential. The disease could be transmitted through shaking hands, touching doorknobs, picking up someone else's pen and so on. When signing a credit card chit, use your own pen. Make the change now.
    • Each employee should have their own towel, or even better, use paper towels.
    • Avoid meetings. Any place where people gather is going to increase the risk of transmitting the disease. When meetings are necessary, the
attendees should try to keep at least a metre apart from each other.
    • Think, and perhaps get proper advice, about your obligations to pay staff during an outbreak if they cannot or will not work. Can your business survive this? Is there something you need to do about it now?

Conclusion

  These are some of the things owners of small businesses need to be thinking about. The odds seem high that this deadly form of flu will come.

Further information

  For more detailed information send an e-mail to flu@workhealthsolutions.co.nz

Starting in business?

  NEW business people often have stars in their eyes about what they can achieve. For many, the reality is often longer hours of work for less income than they expected. If you are starting in business, here are some points to keep in front of you:-
    1. Be different from your competitors and tell the world the advantage you offer.
    2. Sales come first. It is useless gearing up with the right equipment if you cannot make the sales. Resist the temptation to focus on the production side of the business at the expense of selling.
    3. Immediately following sales comes cash collection. Never give credit unless you have to. Many clients think they are obliged to accept payment after the 20th of the month following the date of the invoice. No law exists to tell you when you should be paid. If you must give credit, how about seven days?
    4. Identify your typical customers and find the most cost-effective way to get your messages to them. Advertising is often the worst. Many ways exist to promote your business, such as referral cards, direct mail, flyers in letterboxes and networking. A builder started his business using carefully targeted direct mail followed up by phone calls during which he asked for an appointment. It worked. Networking means getting to know people through clubs and other organisations such as the Chamber of Commerce.
    5. Be miserly with your spending if you can; conserve your cash.
    6. Don't pay rent if you can work from home.

Conclusion

  These are just a few of the things we consider important. If you are already in business, you might like to have a look at them anyway.

Meet the market

  A FRIEND told me recently: "My clothes dryer broke down just before Christmas. A service-man called and pronounced it dead. I received an invoice for $75 for the minimum callout.
  Shortly after Christmas an electrician called for an unrelated job. It took significantly longer than the serviceman who told me to get a new dryer. The electrician charged $25. Why such a big difference?"
  When pricing, be fair to your customer but also to yourself. Find out the market rate and at least match it. A $25 cost for a callout in a major city is cheap.

Use a sorting board

  A SORTING board is a useful device for running papers into alphabetical order. It is a wooden board with 26 flaps attached to it. You can sort your papers alphabetically by putting them under the appropriate flap — much quicker than sorting into piles.

Selling your business — what do buyers want?

    1. When selling a business make it look attractive. If presentation is important to the sale of goods or services, it is no less important to the sale of the business.
    2. Sell obsolete assets and stocks that are not essential to the running, of the business. This helps keep the sale price down. The lower the asking price, the bigger your potential market. Compile a comprehensive list of plant and equipment you are selling. Tidy up your customer databases, for verbal agreements or contracts, and detail your systems and procedures.
    3. First impressions count, so spruce up your premises before inviting, buyers in.
    4. Prepare a brochure to give to prospective buyers. Put in plenty of pictures and make it an easy, persuasive and enjoyable read. Commonly, business sellers think it is enough simply to hand over some financial statements. Go further. Explain what is going on in the business and show a buyer why your business is so desirable. Make sure all your claims about the business are true. If the buyer fails in the
business, you may have some serious explaining to do if you cannot support all the claims you have made.
    5. Your brochure should include an overview of your business accounts. Advisors usually want at least three years of financial statements so put them in. Many vendors avoid supplying a Balance Sheet (also known as a Statement of Financial Position) because it allows a buyer to find out more about the business. For example, if a business is being pressed by its creditors, the Balance Sheet will make this obvious. It may also show the amount paid for goodwill. However, if you have nothing to hide, you might like to make your Balance Sheets available.
    6. Buyers usually look first at the bottom line, so make the income to the owners clearer by adding a statement to show the combined company profit and owners' salaries.
    7. You might like to list your business on the internet. Try visiting www.nzbizbuvsell.co.nz. It will also provide you with more information on buying and selling businesses.

Tax traps - Entertaining thoughts

  IT was Wendy on the phone. "The entertainment expense laws are a dog's dinner," she said. "How am I supposed to know what is 50 percent tax deductible and what is 100 percent?"
  "It's easier than you think," I replied. "If there is a reasonable amount of personal enjoyment in it, expect a 50 percent deduction. So business dining, out is only half deductible, but travelling away for business purposes is 100 percent. Who wants to dine by themselves? Indeed, if you have a guest you are back to the 50 percent limit."
  "So if Ross and I go to the annual hairdressers conference in Brisbane, my dinners are 50 percent deductible if I entertain a guest, but if I dine alone they are 100 percent claimable?"
  "Wendy," I said, "trust you to find the exception! When travelling overseas the 50 percent rule doesn't apply. If the cost is tax deductible, the entire expense is 100 percent claimable. You can dine with others if you wish." "And if I and some of my business associates want to watch the wonderful Shane Warne playing cricket, where do I stand?"
  "If he's playing in New Zealand the 50 percent deduction applies because the seats at the cricket are equivalent to a corporate box, but in Australia on his home turf, the limit will not apply."
  "And I suppose I can claim only half the cost of my Christmas parties because I'm supposed to have a wonderful time even though I'm paying?" "You've got it," I replied. "And if you want to take your team for a boat ride, that is also a pleasure and the claim is limited to half."
  "And now let me anticipate your next question — normal morning and afternoon teas are 100 percent deductible, so if everyone usually has sticky buns, claim the full cost. You can also claim the full cost of providing food if your team is given lunch while attending a lunchtime meeting, provided the meeting is part of the employees' duties."

Bank statements

  MOST banks seem reluctant to send a statement until they can fill all the lines on the statement. If you have a loan we need this information up to the end of each financial year. You should tell your bank to send a statement at the end of each financial year for all loans. You also have to declare all your income, so make sure you get statements showing the interest you have earned. Beware bank printouts, which are often prepared up to the time you ask for the information and can be almost useless for us.

A moving experience

  A CLIENT was moving house. When the removal men arrived, they greeted the owners, shook hands and introduced themselves. They asked the owners for their names so they could use them when asking, where to put the furniture. When they left they shook hands again and said goodbye. The supervisor asked: "Have the boys said goodbye to you?" The customers felt they were dealing with a team which enjoyed and was proud of its work. Surprise! They are telling all their friends. 

In brief

IRD's extensive tentacles

  A MAN travelled regularly between New Zealand and another country over a 10 year period. The Department was checking to see if he was a New Zealand resident. It detailed each entrance and exit of the country during that time. There is very little it is not capable of finding out. It even swaps information with other countries.

References

  A SOFTWARE supplier says: "Ask for a full list of our customers so you can choose who you talk to about our products". Could anyone ask for better reassurance than this? Just make sure you ask your customers first if you can use their names! When checking out a supplier, contact customers who have used the product or service for a few years. This is particularly relevant when buying a franchise. Pick the franchisees who have been in the business for some time. They are best qualified to report to you.

Adjusting your payments

  THE provision of food or drink to staff or customers is usually an entertainment cost. Exceptions exist and they are very specific. Make sure you show these costs separately. If you disguise them by calling them General Expenses, Administration Costs, or similar, you could be charged with tax evasion.

... and beside your bed

  KEEP a pen and pad of paper beside your bed to write down those good ideas. You'll lose them if you don't. We've said this before. We heard recently that Fats Domino has a piano beside his bed! Why do you think that is?

Is your website up-to-date?

  IF your website is not up-to-date, you could be at risk of prosecution. For many businesses the internet is an integral part of its marketing activities. There are passive and active websites. Passive (or E Profile) websites are in essence electronic versions of other printed marketing material, such as company profiles and flyers. The information usually details the product and services available and the key contacts within the organisation.
  An active (or E Commerce) website may enable visitors to make purchases or bookings for services from the provider. Pricing information is often available on these sites.
  Most businesses employ someone to maintain and update their website, either internally or externally. This is an ongoing cost and some businesses are often tempted to update their website less frequently than the actual changes to their business.
  A recent case highlights the risk to businesses that place pricing information on their website. An Auckland restaurant posted its menu and prices on its website. Several customers were attracted to eat there based on the information posted on the website. Upon attending the restaurant one customer was alarmed to find that many of the menu items on the website were not available and the actual price of items was significantly more expensive than advertised.
  The customer complained to the restaurant owner who refused to do anything about the situation. The customer complained to the Restaurant Association of New Zealand and the Commerce Commission.
  The latter investigated the case and upheld the customer's complaint. It initiated a prosecution of the business owners in the District Court. They pleaded guilty to breaching the Fair Trading Act and were fined $3000, plus $260 for court costs.
  This highlights the need for business owners who display their pricing, information and other details on their website to take care to ensure this information is at all times accurate and up to date.

Turn unhappy customers into advocates for your business

  A CLIENT told us this story: "I took my wife to a coffee shop. I ordered some fruit salad and she ordered a ham croissant, which was to be toasted. Our drinks and my fruit salad arrived, but there was no sign of the croissant. In due course we asked what had happened. It had been forgotten and was now burnt to a cinder. There were no more ham croissants left.
  The waitress was most apologetic. She refunded the money and provided an acceptable alternative. A little later she turned up with one of the firm's loyalty cards. She had marked off nine cups of coffee as having been purchased and handed it to my wife telling her next time she came she should use it for her free cup of coffee.-
  This might seem trivial, but it illustrates an important point about putting it right. The firm provided the refund, the alternative and the smart idea — a free cup of coffee at the next visit. This last offer helped to ensure the customer would come back.
  Even better, the customer was so impressed she has told several of her friends, thus helping to promote the business rather than run it down. When things go wrong and you have to make up for the mistake, do it as quickly as you can, and ensure your contribution hurts you a bit. If you do, you are more likely to convert an unhappy customer into an advocate for your business. Maybe we should all make a few more mistakes to promote more advocates — but don't take this too far!

Tax calendar

May 31       Deadline for Fringe Benefit tax return normally due 20 April
June 7        3rd instalment 2006 Provisional Tax (June balance date)
July 7         1st instalment 2007 Provisional Tax (March balance date)
August 7    2nd instalment of 2007 Provisional Tax (December balance date)

Tax News

  THESE changes have become law from 1 April 2006:

Depreciation

  New rates, for short-lived assets, will apply for the year ended 31 March 2006. The rate of depreciation on buildings acquired from 19 May 2005 will be reduced to 2% CP or 3% DV.

Fringe Benefits Tax

  The promised rate reduction from 24 percent of the GST inclusive cost of a vehicle to 20 percent now applies. You can also use 36% of book value (plus GST) for vehicles from 1 April 2006 unless the vehicle has already been subject to FBT. The same calculation method must be used for at least five years.

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 accurate this information.

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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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