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October 2003

Making money from Moving Annual Totals

  A MOVING Annual Total (MAT) is a little known but most effective accounting device for monitoring your business. 
Let me describe it to you. Please look at the chart and graphs inside this newsletter.
  "Annual Total" means the sum of the 12 consecutive monthly values for any period of anything you wish to measure. If I add my sales for the 12 months to the end of October 2002, I have the annual total for the year to the end of October 2002. It is $1900 in the attached chart.
  "Moving" refers to having, a sequence of totals and implies moving on one month at a time. So, if I want to review my progress for the year ended 31 March 2003, this is how I do it. I calculate 12 months sales to the end of April 2002 ($1810 in the chart). I then calculate 12 months to the end of May 2002 ($1820), 12 months to the end of June and so on. I am advancing one month at a time. This is a moving total. It is also a Moving Annual Total because it takes in the annual figures. What's so special about a Moving Annual Total? It irons out seasonal fluctuations. It gives you a picture of your progress. If the resulting graph slopes upwards, the figures are increasing, flat means there is no change and downwards shows a falling trend.
  If you keep your graph up-to-date each month, you will find it easy to notice if an adverse trend develops. A downward slope for two or three months should spur you into action.
  Graph 1 has plotted monthly sales for the 12 months to 31 March 2003. It tells me sales at Christmas are good. It also indicates there can be a couple of good months in winter. Does it tell me how the business is going? NO. It is of very limited use.
  Contrast this with graph 2. This graph has been derived from the same sales figures except it also reflects the changes from last year. Notice the upwards slope of the graph. You will notice the dip in November, but this is no cause for alarm as the graph moves on up after this. You may also notice the graph of the last three months is showing some signs of flattening. It would be interesting to see what will happen when the April, May and June 2003 figures are added later.
  Moving annual totals can be used to measure anything you like. Sales is the favourite, but you could also choose gross profit percentage, wages as a percentage of sales, your age of debts (how long your debts are outstanding) and the list can go on. Pick out your key performance indicators (this is jargon for the most important things affecting your business) and graph them using, a moving annual total. Bring the figures right up-to-date (to 31 October 2003). You will get a much tighter control over the progress of your business.

Be unique in what you offer clients

  WELLINGTON is known for its steep sections. Some folk say Wellingtonians actually have one leg longer than the other from walking sideways up and down the slopes.
  The Dominion Post ran a story about a builder, who has solved some of the problems of these difficult pieces of land.
  He specialises in excavation work on steep sections and has imported special equipment. His latest addition is a conveyor belt which can be run through a person's house if there is no better way to move the spoil. He is swamped with work in a highly competitive industry.
  He has something unique to offer.
  Don't be one of half a dozen people quoting. Find something unique you can offer.

Joe Gerard—the super car salesman

  JOE GERARD is arguably the best car salesman in the United States. He sends a letter to all his clients every month. In February, for example, he sends a "Happy Valentines Day" greeting with his good wishes. Even though it may be three years until his client is ready to purchase a car again, Joe's keeping, in touch means when that time comes, the client's first thought is to contact him. In the meantime, the letters are helping to get referrals.
  Experts suggest keeping, in touch regularly. Joe's method is easy.He doesn't even have to put together a newsletter! Anyone could follow Joe's method.
  Suggestion: Look for a small variation on the idea. Even if you can't manage the same frequency as Joe, find occassions to make regular contacts with your customers and clients. One could be the anniversary of purchasing. Discipline yourself to make these regular contacts. Set deadlines and stick to them, Oh! and don't always be trying to sell something.
  To avoid your letters or cards looking like "junk mail", try using hand-written envelopes, envelopes in different colours, and so on. A postcard, without an envelope, takes less than a second to find its way into the rubbish bin. Your envelope will slow the recipient down giving your card significantly longer exposure.

Handling the slow payer's cheque

  SOMETIMES you will receive a cheque and have doubts about it being, paid. If you bank it, you might find it comes back to you some days later marked "Present Again". The cheque is said to be "dishonoured".
  Reduce the risk of not being paid by asking your bank, when you deposit the money, for a -Special Answer". You will be charged a fee of about $25, but this can leapfrog you to the head of the payment line.
  Often people who cannot control their cash-flow will issue cheques believing they have deposited enough money to cover their payments. They fail to allow for commitments still in the pipeline.
  If you request a special answer, your bank will approach the paying bank the next business day with a demand for payment. If the paying bank holds enough in the account at the time, the cheque will be paid. Here is another tip. If you are owed a large sum, see if you can get it paid with more than one cheque. Often a small amount will slip through safely whereas as a larger sum will be rejected.

Dining at Winnie's Place

  THE tables are white Formica. Youwill find condiments include vinegar and tomato sauce in a container shaped like a tomato.
  The food is typical 1930s Kiwi fodder of the highest quality. If you are looking for a slap-up feed with loads of protein, this is perhaps the only place in New Zealand you will find it.
  A unique feature is a plate of fresh bread, and another of butter, on every table.
  Little has changed over the last 70 years. The bread used to be buttered for you. There was a time when you could not buy alcoholic drinks. Next time you visit Wellington, go to the Green Parrot.
  Remind yourself business is all about being different; being unique.
  The place brims with customers. You had better book your table well in advance, unless you prefer to dine with the leader of the New Zealand party some time after midnight.

Create urgency when you advertise

  TO the east of London is a seaside town called Southend- on-Sea.
  An entrepreneur used to use a launch in summer, called the Skylark, to give rides to the holiday makers. A local resident noticed the captain of the Skylark would often call out "All aboard the Skylark, last trip today". He also observed the last trip today started about 2pm, there was another one half an hour later and another after that and so on. They were all "the last trip today".
  The skipper was saying "Get aboard or miss out-. Today he might have been accused of dishonest advertising.
  When you advertise using direct mail, remember you too must also create urgency. If you don't, you will lose sales as many people interested in your product or service will put your advertisement aside to consider at a later time. These people never get back to it.

Pareto again

  IN a previous edition of our newsletter, we told you the story of a client who got rid of half his customers to spend more time on his A Grade customers. His profit jumped.
  He has consented to our telling you the results of his second year of applying the new policy. Here they are:-
    • Sales up 70 percent
    • Gross profit margin — down a little bit
    • Net income — up 70 percent The Pareto principle says 80 percent of your income comes from 20 percent of your customers.
  It suggests you should be selective and avoid low-grade ones who often cost you money.

Quote

  MARKETING is 50 percent psychology and 50 percent technology. James D Rosenfield

Tax traps - 63-day rule

  MANY smaller companies are registered with the Inland Revenue Department as Loss Attributing Qualifying Companies (LAQC). They are set up like this so the shareholders can claim any company losses in their personal tax returns. There are several other advantages; one of which is that capital gains can be distributed to shareholders, whereas in ordinary companies the capital gains are locked in to the company and cannot be paid out to the owners until the company is wound up.
  With most changes in shareholding, IRD must be advised of the change within 63 days of its occurrence. Failure to do this results in the LAQC status being cancelled and this is backdated to the beginning of the year. If losses are expected, the shareholders will be unable to claim them. 
  IRD has some discretion to extend the 63-day time limit. However, experience shows it exercises this sparingly. It also needs to be advised, within 12 months, if a shareholder dies. When there is a shareholder change during the year in which a company makes a loss, the loss is apportioned between the outgoing and incoming shareholders on a time basis, unless the loss can be established at the time of the change.

How to write a headline that sells

  THE headline of an advertisement is the most important part.
  We couldn't possibly tell you all about how to write your headline, but we could certainly illustrate a few points for you.
    • Was your attention caught by the words "How to"?
    • Did this headline create an interest?
    • Did you become curious to know how you could write a good headline for an advertisement?
    • Did the heading offer you a benefit?
    • Did you see some gain in reading on?
    • Did you expect you would learn something as a result?
  The heading of this topic has been designed to help illustrate these points:-
    1. You need a powerful headline to attract attention
    2. The headline needs to stir an interest in the reader
    3. The headline needs to make an offer of some benefit to the reader
  When you write your next advertisement, think about what your headline has to do. Realise that the body copy following is there to enlarge upon the information supplied in the headline.
  The headline is the most important part of your advertisement and the best thing you could do, if you do a lot of advertising, is to learn all about headlines and how to write really good ones.
  Your headline is there to grab and captivate your customer — make it powerful.
  Oh, and by the way, don't forget next time you advertise in the Yellow Pages to use our advice about headlines.

In brief

Don't create a fog

  HOW many articles do you read where the sentence goes on and on? Don't allow your writing to become foggy. Use short sentences and short words. If you don't believe me, try reading a book written by Winston Churchill. He was a champion at using words everyone could understand.

Lotto tickets

  IF you have a family trust, use it to buy your Lotto tickets. If you win, wouldn't you want it to belong to the trust? Imagine trying to gift a $1 million to your trust at the maximum rate of $27,000 a year! You must be able to prove the trust bought the winning ticket. Do this by getting the trustees to pass a resolution to buy the tickets. It is best to draw a cheque on the trust as well and pay it to yourself in advance for, say, a year. Don't forget to keep the process going.

Guarantees

  GIVING a customer a guarantee is a powerful way of reversing the risk in a transaction to yourself. You are saying "take these goods or services and if you are not entirely happy I won't charge you". The worst thing you can now do is to make it difficult for the customer to get the money back. You must be trusting, smile, and hand over the money quickly. It is better for your reputation and may well bring you other sales.

Cutting phone costs

  A CLIENT cut his phone bill by more than 20 percent. He instructed his staff to cease calling suppliers on their cell phones. Instead, he told them to ring the firm's 0800 number and connect that way.

Direct mail — does it pay?

  TO avoid a loss, each item you sell by direct mail must carry sufficient profit to cover the costs of the promotion. Here is the formula for calculating the selling., price.
  The cost of postage, envelope, paper and time involved can be fairly estimated to be a dollar. If the response rate is 1 percent, the profit on each item must be $100 to break even. So, if your cost is $20, your selling price has to be $120.
  Similarly, if your experience tells you to expect two percent of those mailed will accept your offer, your selling price has to be $70 (100/2 + 20) to avoid a loss. Direct marketing requires a degree of marketing skill and knowledge. The quality of your mailing list will affect your return. If the prospects know your business and are in the habit of buying from you, you can expect more purchases than if your direct mail is going to strangers.
  Add to your database by finding prospects who have as many similarities to your existing customers as possible. Get your customers to agree to accept e-mails from you, not only to save postage but also to lower the selling price you need to break even.
  Finally, when working out cost, allow for some unsold stock.

Tax calendar

November 7    2nd instalment 2004 Provisional Tax (March balance date)
                       2003 Terminal Tax (October balance date)
December 7     3rd instalment 2004 Provisional Tax (December balance date)
January 15      GST November 2003
                       2003 Terminal Tax (December balance date)
February 7      2nd instalment 2004 Provisional Tax (June balance date)

Making appointments

  WHEN customers call to make an appointment with you, make them feel they are the most important client you have. However, never admit you have plenty of time.
  It is far better, when looking up your diary, to comment: can squeeze you in at ...or...." than to indicate hardly anyone wants your services.
  On the other hand, always give the impression you are happy to see new customers and not too busy to take on more business.

Is this a bubble I see?

  THE surge in property prices is causing some alarm.
  There are stories of banks lending on a very high proportion of the value of property. In the United Kingdom, I am told, loans can be 120 percent of valuation to provide some money for furniture as well.
  The rapid growth of property prices will inevitably come to an end. If that end is abrupt, buyers may disappear and prices fall.
  Banks are usually a friend in good times, but not so when times get tough. They change their policy to protect their interests. If they decide they want you to have a greater equity (own more of the house yourself), they may ask for a partial capital repayment next time your loan comes up for renewal. If you have borrowed based on 95 percent of valuation, you could find your bank cutting this back to, say, 85 percent AND asking, for an up to-date-valuation, which might be lower than when you bought.
  Please understand the above is only a picture and we are not trying to forecast the future. What we are trying, to do is warn you we may be witnessing, a property bubble about to burst. Who knows? If the market does change, those who have borrowed to excess are the most likely to be hurt.

Your home and family trust

  IF your family trust has investments, including your home, be sure to check the accounts we produce to see the home is included.
  We sometimes discover, when a family home is sold, it was owned by the trust but does not appear in the accounting records. This can arise because the trust starts by owning only the house and at that time, no accounting is needed. The investments arise later and no one thinks to add in the family home when the accounting starts. It can also arise through lack of communication between accountant and solicitor.
  Always ask your lawyer to supply us with a copy of trustee decisions. It is embarrassing to discover some years on there was a transaction which should have been accounted for at some earlier date.

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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P: 64 9 478-5292
E: jmv@jmv.co.nz
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