Do you know that you could actually obtain financial assistance from the government if you outsource your payroll tasks to an accredited payroll services provider?  This government assistance is more popularly known as the PAYE subsidy that especially favours small employers like you.  If you are not taking full advantage of the PAYE subsidy, then you’re missing out on a great opportunity to streamline your business operations at the government’s expense. 

The Root of the PAYE subsidy

You are mandated by law to make deductions on your employees’ gross wages on behalf of the Inland Revenue Department.  This Pay as You Earn (PAYE) system has also since been expanded, so now employers are also required to deduct employee contributions and other financial obligations (e.g. payment for child support) from their employees’ salaries as well. 

On the surface, such an arrangement seems ideal.  The funds you are able to withhold can be used for business operations until such time when you are required to turn the deductions over to Inland Revenue.  Funds withheld from your employees’ wages could therefore help you recover from temporary cash flow problems. However, costs for non-compliance (e.g. you failed to deduct PAYE off your employees’ wages) are quite steep. 

By carrying out your payroll functions yourself, you incur opportunity costs.  The time, effort and money spent on making and preparing your employees’ payrolls and doing other payroll-related activities are resources that could have been spent on more important activities. 

PAYE Subsidy Basics

PAYE subsidy was the government’s response when it became apparent that the PAYE system represents a crippling inconvenience and a major expense especially to small businesses.  Through this scheme, the government would pay you money if you let a professional payroll services provider deal with your payroll. 

The PAYE subsidy works this way.  You have to outsource your payroll functions to an accredited PAYE intermediary or payroll agent.  Then, for every employee you have (the number of employees is capped at five), the government will pay $2 every pay day.  Of course, the subsidy is paid out as a lump sum and is paid directly to your payroll agent.  This way, you pay your payroll services provider only the balance after the government subsidy has been duly claimed and applied. 

Maximising PAYE subsidy benefits

It’s clear to see how you could benefit from the PAYE subsidy.  The direct benefit is the subsidy itself which can make payroll management outsourcing much more affordable for you.  Significant indirect benefits are also present, however. 

Get rid of penalties.  The burden of complying with government rules shifts from you to your payroll agent so you no longer risk being fined for non-compliance with tax regulations.

Manage your time better.  The payroll agency you appoint will pay your employees’ salary, will make deposits, will file the forms, and do everything else required in payroll management for you.  Thus, you get more time for more important endeavours.

Minimise employee disputes.  As a fringe benefit, you reduce complaints regarding incorrectly computed net wages since highly trained, experienced and professional accountants would be doing your payroll calculation for you. 

So, what are you waiting for?  Find your accredited payroll services provider at www.theofficeelves.com now and start maximising your PAYE subsidy benefits.

All New Zealand domiciled companies must have a registered office, as well as an address for service, where legal documents can be delivered to the company.  Both addresses must be notified to the Registrar on application for incorporation.

The registered office must be a physical New Zealand address, not a postal box or accommodation address.  Normally it is the company’s business address or the company’s accountant. 

If a company wants to change its registered office or the address for service, the change and the date upon which it is to take effect must be notified to the Registrar.  This date must be at least five working days after the notice is registered.

At the registered office, a company must keep the following documents:

*  The company’s Constitution 

*  Minutes and resolutions of shareholders’ and directors’ meetings

*  Share register and register of Director’s interests

*  Certificates given by directors

*  Full names and addresses of current directors

*  Copies of written communications to shareholders including annual reports

*  Copies of financial statements and group financial statements

*  Accounting records for the current accounting period and for the previous 7 completed accounting periods

You may keep these records at any other location in New Zealand provided that their location is notified to the Registrar within 10 working days of the change.  The share register, if not separated, is the company’s principal register and must be kept at its registered office.  If separated, the registers may be kept elsewhere.

No matter how small your business or how terrible your cash-flow is, an accountant is one professional you cannot afford to be without.

Accountants provide services that go way beyond frantic, last minute tax returns; or at least they should do. They are highly trained professionals who can be a tremendous benefit to your company.

This article discusses some of the areas an accountant can help you and highlights some areas to consider when choosing the right one for your business.

Accounting services

Advice to start-up businesses
Start-ups can take many forms: sole trader, partnership, limited liability company, trusts. Ask both your accountant and your lawyer for advice. Accountants help with the legal and tax aspects of registering a new company and can help with your business plans.

Accounting and book-keeping
Many start-up businesses maintain their own accounting records, particularly early on. This can be a good thing, because it may help you understand the financial heart of your business, but eventually the book-keeping should be outsourced, to allow you the busy business owner to focus on other parts of the business. The accountant may have an in-house book-keeper, or be able to recommend one.
 
Ask your accountant to recommend a good software package. Be aware, though, that they may simply recommend the packages they use, which are likely to be complex, rather than the one best suited to your business and expertise. Also be aware that modern accounting software produces lovely reports and graphs, but you need a professional to tell you what they mean and whether the data makes sense.

Tax services
A good accountant should be active long before the end of the tax year, advising you on how to structure your finances in a tax-efficient way. Ideally, they should be diligent, but not overly aggressive, about minimising taxes, and must remain well within the limits of the law. Accountants prepare, or assist with, tax planning and tax returns, although it will be more difficult for the accountant to focus on tax-planning or tax-saving opportunities after your financial year end has finished.

General business finances
Accountants can help you implement systems and controls to ensure that your business runs more smoothly and profitably. They can also help to find sources of finance and prepare funding applications.

Buying and selling

Ask your accountant to investigate the financial performance and position of any company you are interested in buying and also help you present your finances accurately and clearly if you are planning to sell.

Personal finance
Your accountant may be able to provide financial advice and, if not, should be able to recommend a good advisor.

SELECTING AN ACCOUNTANT

Look for a firm comparable in size to your company. Small to medium firms generally provide personalised service, specialise in small business work and charge less than big firms.

Also ensure that you select one that is qualified. Qualified accountants may charge a little more but they have undergone very rigorous training and need to ensure that their skills remain up to date via regular training. They will also belong to a professional body that regulates them to ensure they have the skills and experience to serve the general public. If in doubt, insist that you see their certificates allowing them to provide services to the general public.

Start by asking friends and contacts for recommendations. Online searches are another helpful way to compare and choose one suitable for your needs.

It’s best to meet two or three accountants before you make up your mind. Ensure that the first meeting with them is free (if not, find someone else). Plan what you would like to tell them about your company, and what you want to know about them. Ask about their fees, services and availability and consider asking for references from businesses similar to your own.

Find out how many partners there are, whether you will always be dealing with the same person, how many clients they have and the type of client base. Ask why they think their firm is appropriate for your needs.
It’s also appropriate to ask for an estimate of your return on investment – in other words, how much money they are likely to save you, compared with the cost of the services.

Fees
You should not choose an accountant based on their fees, but on how much time and money they will save you. However, you do need to know at the outset what the services will cost. Some fees are based on an hourly rate, which may differ depending on who does the work. Fees for tasks like audits are usually offered at a fixed-rate. Find out beforehand what the annual cost will be, and whether you will need to pay a lump sum or whether you can pay in instalments.

You can reduce fees by ensuring that time spent with your accountant is focused and well planned, and that your financial systems and records are well organised and up-to-date. They should be able to give you a checklist to help you collate the information they need to save time and money.

Driving the relationship
In most cases, the relationship with your accountant has to be driven from your side. Most accountants, however competent they might be, are not very pro-active. Arrange regular meetings (at least twice a year) to discuss your finances and taxes. Keep an eye on your tax returns to ensure that nothing is overlooked.

Don’t make the mistake of handing everything over, sitting back, and only finding out two years later that the accountant has been playing golf while your tax returns have been gathering dust in the corner. Your accountant can certainly help keep your finances healthy, but only with your active intervention.

Conclusion
Choosing a good accountant and developing an ongoing, professional relationship will be a key decision and is worth spending some time on. Finding the right one for your needs should result in you having an invaluable aid for your business as it progresses through the various stages of its life-cycle.
 

There you are, running around in small circles with deadlines to meet and bills to pay.  Can you really afford the time required to produce a detailed budget?  Isn’t your time better spent generating revenue?

Yes and no. To paraphrase Alice and the Cheshire cat: “If you don’t know where you are going, you are sure to get somewhere if you only walk long enough”. The budget provides you and your investors with a numerical map that leads somewhere specific.

What is a budget?
A budget is a forecast of revenue, expenditure and profit. Most budgets are revised annually.

What does it achieve?
There are two (often overlapping) reasons for producing a budget. One is to persuade potential investors that your company is a good bet. The other one is to plan your business finances – how much money do you have and how do you plan to use it? How much revenue do you need to generate to achieve your target profit? Is your business plan viable or does it need adjusting? In retrospect, did the year pan out the way you planned, or did something go wrong?

How to approach a budget
First, find out how your accounting software deals with budgets. It’s far more efficient to use the same package for accounting and budgeting.  Next, meet your accountant to plan how to structure the budget. Arrive prepared, with a chart of accounts and a list of informed questions. Take copious notes.

Traditional budgets are very difficult for start-ups and firms with a short history, because there is little or no historic data. Revenue is particularly problematic, because no matter how carefully you have planned, it’s impossible to predict the future. There are two main approaches to budgeting:

The projections approach
Here you enter projected costs and projected revenue, and calculate projected profits from these. This is reasonable and rational if the company has several years of relatively stable history to project from. If it’s a new company, such a budget is likely to become an exercise in denial and wishful thinking.

The required profits approach
An alternative method is to enter projected expenses, and then calculate how much profit you require, and how much you think you can actually generate. 

Eventually this should be enough to pay your salary and provide a return on your investment in the company.  However, it might be realistic to plan for a loss in the first year or two, and only a small profit for a year or two thereafter.
Having settled on a number, you now add expenses to profit to come up with your required revenue.

Turn this number inside-out. Is it realistic? Is it achievable? Instead of guessing wildly how many widgets you may be able to sell, or how many hours you hope to bill, you can now soberly assess whether you will be able to reach your targets. Don’t have 10,000 billable hours in the year? Can’t afford enough machinery to make a million widgets? Go back and adjust the business plan.

Once the company is liquid, determine your salary based on what you would be earning if employed in a similar job, and your return on investment based on the interest you would receive if investing outside the business.

EXPENSES
Fixed costs
Fixed expenses remain the same regardless of sales volume. They include rent, loan repayments, and insurance.

Semi-variable costs
These are costs with fixed and variable components, such as telephone, salaries and wages. The fixed component is the minimum cost of supplying goods or services, while the variable component changes depending on sales volumes.

Variable costs
Variable costs increase or decrease in line with sales, and include costs of materials, distribution and commissions.
Start-up costs
Initial costs must be factored in for a start-up.

REVENUE
If you use the required profits method outlined above, you will have generated a total figure for required revenue. This is a goal rather than a prediction. You need to break it down to decide how many of what you need to sell, what you need to charge, and whether the targets are realistic. It has the added advantage of generating very clear monthly sales targets.

Once the business has been running for some years, revenue will be predicted in a more conventional way, based on past performance.

MONITORING THE BUDGET
Once you have set up the budget, compare it to the actual figures every month, to look for differences and establish why they are there. Adjust expenditure or sales efforts as you go along, to bring the next group of numbers in line with the budget.

For help in preparing your budget or cash flow forecast, email us at enquiries@bizadvice.co.nz
 

Book-keeping makes your paperwork easier.  It provides a system that tells you – and your accountant – exactly what is going on.

Whether you use a manual or computer-based system, the same principles apply.  It is worth deciding if you are going to computerise your accounts at an early stage.  While a traditional paper-based system will look suitable for many start-ups, the accounting function could soon swallow valuable time as your business starts to grow.  If you start with computerised accounts, there will be no need to go through the time consuming process of transferring your paperwork onto a computer package.

This briefing covers:

1.  How to record business income and payments
2.  How to use your bank statement to check that you have not made any mistakes
3.  Tips for cash businesses such as shops

What do you need?
You have to record all the money coming into your business and all the money going out, both to keep track of your cashflow and for your tax records.  To do this you will need:

(a)  A record of every sale.
Cash businesses, such as shops, will use till rolls and point-of-sale systems to record sales.
Non-cash businesses should issue an invoice for every sale.  Keep them in two files: Sales Paid and Sales Unpaid.

(b)  Invoices or receipts for every purchase.
Keep two files: Purchases Paid and Purchases Unpaid.

(c)  Records of payments into and out of your bank account
Open a separate business bank account and ask for monthly bank statements

(d)  Records of payments made by cash
Keep receipts for cash purchases in a box file labelled Petty Cash.

(e)  A Cash Book for summarising the information.  Cash Books come in hard copy and electronic forms.
You can buy an analysis book (a book with several columns on each page) from a business stationer.  This can be used as a hard copy Cash Book.  If you have accounting computer software it will perform the same functions as a Cash Book.

The Cash Book whether hard copy or electronic, simply records all the money coming into and going out of your bank account.  Your accountant can help you set up a simple book-keeping system, choosing headings to suit your business.

Sales
You need a simple routine procedure to keep track of your sales.

Every time you make a sale, issue an invoice.

Give every invoice an original number (1,2, 3 and so on) and keep a copy of each.
File the copy invoices in Sales Unpaid.  Put the most recent invoice on top.  The invoices will automatically be in date order.

When an invoice is paid, pay the customer’s cheque into your account, using the paying-in book provided by the bank.
On the stub of the paying-in slip write the date, invoice number(s) and amount(s).  Take the invoice from the Sales Unpaid file.  Write ‘paid’ plus the date in the top right-hand corner.  File the invoice in Sales Paid.  Put the most recently paid invoice on the top.  The invoices will automatically be in the order they were paid.

Once a week, update your Cash Book or software package.
Look through your paying-in book stubs.  Enter into the Cash Book details of all the invoices paid.
Check the Cash Book entries against the invoices in the Sales Paid file.  Put a tick against the invoice number on the invoice to show that the invoice details have been entered into your Cash Book.

Once a week check through your unpaid invoices and chase any that are falling due.
Everything will match.  Invoices are in the same order as entries in the Cash Book, which is in the same order as your bank statement.

Non-sales income
From time to time your business will have other income apart from sales.  This might include:
(a)  New loans or grants
(b)  Interest on your deposit account
(c)  Equipment disposals
(d)  Tax refunds

You will not receive invoices for all of these, but they will appear on your bank statement.
Every month enter details of these exceptional transactions in the Cash Book below the entries for money received from sales.

Purchases
Every time you make a purchase, ask for an invoice or a receipt and keep a note of all purchases for which you do not have a receipt.  File the bills in Purchases Unpaid in date order, with the most recent on the top.

When you pay a bill, write the date, supplier and amount on your cheque stub.  If you pay several invoices with one cheque, write down each amount and the total.  Take the invoice out of the Purchases Unpaid file and write the date and cheque number in the top right-hand corner.  File the invoice in Purchases Paid in date-of-payment order.  If you have a receipt, as well as an invoice, staple them together.

Once a week update your Cash Book or accounting programme.
Look through your cheque stubs.  Enter the details of the bills you have paid into the Cash Book.
Check the details against the invoices in the Purchases Paid file.  Put a tick against the cheque number (in the top right-hand corner) to show that the invoice details have been entered into your Cash Book.

Everything will match.  Invoices will be in the same order as entries in the Cash Book, which will be in roughly the same order as entries on your bank statement.

Cash purchases
Pay the cash out of your own pocket and write details of the purchase on the receipt.  Keep the receipts in your Petty Cash file or use a spike, which is convenient and automatically keeps the receipts in date order until you deal with them.

Total all the petty cash receipts monthly and write yourself a cheque for the total.  Attach the receipts to an A4 sheet and file in Purchases Paid.  Enter the details in the Cash Book

You can treat purchases by personal credit card in exactly the same way.
Refund yourself the total of all the business purchases with a business cheque when the credit card bill arrives.  Staple all the receipts to an A4 sheet.  Enter details in the Cash Book, with your name and ‘credit card refund’ in the supplier column.

The bank statement
Every month compare your bank statement and Cash Book.  After any errors are corrected, both balances should be the same.  Match each entry in the Cash Book with the entry on the statement.  If you regularly pay batches of cheques into your bank, you need a ‘bank’ column in the ‘money in’ section of your Cash Book.  This shows the total value of money paid in each day, which will match the figures shown on your bank statement.

Payments made by direct debit or standing order will not yet be recorded in the Cash Book.  Nor will bank charges and interest.  Enter the details in the Cash Book below the list of entries for cheques which have been written out that month.
Then tick off the item in the Cash Book and on the bank statement.  Make sure that every item appearing on the bank statement has been ticked off.

Some items will not yet appear on the bank statement.  Money paid in by you but not yet cleared (e.g. customer’s cheques) or cheques you have sent to suppliers which have yet to be paid into their accounts.

Calculate the adjusted bank balance.  The adjusted bank balance is what the bank balance would be if all the money paid in and all the cheques paid out were shown on the bank statement.  It equals the end-of-month balance showing on the bank statement plus money paid in but not on the statement less cheques written, but not on the statement.

Reconcile the bank statement.  Write down the adjusted bank balance at the start of the month and add the total sales revenue paid in and other income for the month (taken from your Cash Book).  Deduct the total payments for the month (taken from your Cash Book).  This should equal the adjusted bank balance at the end of each month.

When the figures agree, you have successfully reconciled your bank account.

If the figures do not agree, there is an error.  If the difference is $5.25, look for a sales invoice, other income, or payment entry for $5.25.  It should not take too long to find it.

GST
If your business registers for GST you will need to make some changes.

There will be very few complications on the sales side.  You must issue GST invoices and you should enter the details of the GST in a separate column in the Cash Book.

The golden rule is that you must have a GST invoice for all purchases. over $50.  For small purchases of standard-rated (12.5%) goods, you can calculate the GST paid.  Total cost x 12.5/112.5.  Enter the details of the GST in a separate column in the Cash Book.  Enter the total under ‘total’ in the Cash Book, enter the total less GST under the individual heading (e.g. stationery).

Cash businesses
If, like a shop, you sell for cash – as opposed to allowing customers to pay after a credit period – the basic principles are much the same.

Shops face two particular problems.
(a)  If you take cash (from sales) and spend it (e.g. on wages), it is easy to lose track of what is going on.
(b)  The tax office (and the IRD, if you are registered for GST) will always be more suspicious of cash.

However, there are simple steps you can take to avoid any complications.
Keep your till rolls or EFTPOS cash summaries.  Use them like sales invoices in your book-keeping and keep a separate record of all money going in and out of the till.  Reconcile this record daily or weekly to check that the amounts add up to the actual cash you have.  If you use money from the till for a purchase, put the receipt in the till immediately.

Please call us on 09 449 0417; 0800 836 836, or email us at enquiries@bizadvice.co.nz if you would like to discuss how we could help you with your book-keeping needs.