Frequently Asked Questions
Resources to help you with accounting, tax and building your business
Here are a few of the questions we’re asked on a regular basis. If there’s anything else you’d like to know please feel free to get in touch below.
The same applies for payroll systems. If you’re after bright-and-breezy then Xero Payroll is good. If you need something more ‘heavyweight’ then iPayroll or Smartpayroll is the way to go. If you’re in Hospitality, we nearly always recommend Flexitime.
Tax & IRD
If you had taxes more than $2,500 in the previous financial year, you’ll be required to pay the following year’s taxes on a provisional basis. There are 3 methods that can be used to calculate how much provisional tax you’ll need to pay, and it’s important to be accurate to avoid penalties and interest. We can help work it out for you, and to keep you up to date throughout the year to ensure you’re on the right track.
If things have progressed past that, then it’s about negotiating penalty remission, interest and tax remission. This will depend on your circumstances, but may be worth exploring. If you’d like more details, please contact us.
Your next question may be whether to register on invoice or payments basis; do you calculate your GST when you make a sale/purchase, or when payment is actually received? SMEs generally register for payments basis. There are various reasons for this, but usually it is due to cash flow – payment has actually been received/paid, so you’ll have the cash available at the time. It’s also easier to manage and account for. A hybrid method exists, but it is rare so we won’t elaborate here.
Lastly, you’ll need to choose a return period. We find 2 monthly GST is most manageable for SMEs, which also allows you to look through your accounts regularly. If you’re a really small outfit you may choose 6 monthly, but only if you are diligent in your bookkeeping (as 6 months is a long time between filing). Larger organisations or businesses that have high transaction volume may opt for monthly. This is for ease of keeping on top of things and for cash flow.
We believe a bookkeeper is definitely worth looking into if keeping your books in order is draining your time and energy, and if you’re looking for up-to-date reporting to help you make important decisions.
With cloud-based systems like Xero, you have real-time access to information that can support your business decisions. Your financials can be accessed anywhere you have internet – it’s as simple as logging on. We highly recommend packages like Xero for your accounting/bookkeeping, as it’s relatively easy to use and has so many benefits.
However, once hitting this level, business owners are often left with questions like: “where to now?” and “how do I get to the next level?” Or, as the business rapidly grows, more knowledge is required on cash management and debt, along with margins.
This is where it’s important to understand the fundamentals of business at each stage. Our business coaching and development packages are tailored to you, and what will get you where to need to go.
The first step is to develop your budget. Be realistic and use the most workable yet ‘gloomy’ scenarios, and update it frequently. Monthly or quarterly would be best to get a good picture.
Look closely at your cashflow mechanisms. These include bank overdrafts – are they suited to your business, and are they sufficient to cover periods of high expenses or low sales? Are your credit terms with suppliers and payments on large assets as favourable as they can be. Do you hold off paying accounts payable to the last moment? On the debtor side, do you collect promptly or have credit terms in place to incentivise prompt payment?
It is vital to make cashflow an area you’re well in control of, as the wheels can fall off quickly when cashflow management is lacking. Get in touch and we can get you on top of cashflow issues/budgets and forecasts so you can be confident moving forward.
We often see business plans that are very lengthy. Because they’re so long, they often don’t get referred back to and end up gathering dust. It’s important they’re relevant to you, and how you operate.
At a minimum, we like to see detail around distribution channels, customer segmentation, internal resources, external partners, and margin/break-even analysis.
If you’d like a template, get in touch and we’d be happy to send you one.
Another example would be on fixed assets, like a computer – you have spent the money, but according to accounting rules, this cash outflow needs to be recorded as an asset on the balance sheet, and expensed over time (depreciation). When this happens, you don’t see the expense right away on your profit and loss statement, but instead over the life of the asset. This leads to a higher profit on paper, but less cash in your hand.
Also, when you have high debtor levels (people owe you money) and cash tied up in stock, your cash balance will be low compared to what is showing as profit.
By structures we mean what business type suits your situation – do you trade as a Company, a Sole Trader or a Partnership? Do you have personal assets that need protection and to be kept independent of any business undertakings? Do you need to consider what a change in these relationships means to your assets, both in the business and personally?
FAQs for Contractors
One option is to look at ACC Cover Plus Extra – with this, you get 100% of the amount you pre-agree with ACC.
Another option is to take out private insurance cover (which we generally recommend). It’s best if your income fluctuates, if it’s not a true indication of actual earnings, or if your business will still generate income while you’re injured.
Please note we’re not insurance advisors and as such you need to seek specific advice before relying on this FAQ. We’re happy to put you in touch with an advisor that we work with closely.
If you’ve used an office at home for work, then you can claim a portion of your:
– Interest payments on Mortgage, or rent
– Phone and internet
– Repairs and maintenance
– Power and gas
– Body corp fees
– And any other expense relating to the home office.
Alternatively, you can keep a log book for personal and business travel, and can then claim that percentage of all running costs relating to the vehicle (including fuel, insurance, repairs, insurance, warrants and registration).
You need to keep your log book for 90 consecutive days. This log book can then be used for 3 years (so long as your mix of use doesn’t vary by more than 20%).
The logbook should include:
– The start and end date of the log book
– The distance of each business journey
– The date of each journey
– The reason for each journey
Some things you can claim are:
– Subscriptions to business magazines and publications
– Entertainment; for example, if you’re meeting someone to discuss future contracts
– Memberships of professional organisations
– Some insurances
– Travel on work trips
Certain types of expenses are disallowed. Generally these are things which are of a personal or private nature, even if they’re used for business/work. The most common example is work clothes, unless they’re branded with your business name.
FAQs for Rentals
Depreciable chattels include carpet, whiteware, curtains, hot water cylinders and more.
You can’t, however, claim the interest on your mortgage relating to your family home.
Getting the structure right on the lending determines what debt is allocated to your family home versus your rental property.
Here’s a few:
– Fees or commissions paid to property managers
– Legal fees if under $10,000 (in general)
– Accounting fees
– Bank fees
– Office expenses (including home office)
– Phone calls
– Travel to and from the property
– General repairs and maintenance
There is a distinction between what’s considered R&M versus what’s considered Capital Expenditure (“CAPEX”).
In short R&M can be claimed for tax, while CAPEX can’t.
R&M is anything that brings the property back into it’s original condition, without improving it beyond that original condition.
For example, replacing a broken shower head, repainting, or replacing damaged lino would all be considered R&M.
On the other hand, CAPEX is anything that improves the overall condition of the property.
An example of this would be removing a damaged exterior wall and replacing it with a conservatory. The conservatory is an improvement to the property and is therefore CAPEX.
It can be a subtle change in circumstances that changes something from R&M to CAPEX. As such, we always recommend you discuss your situation with us.
As a start, checkout our eBooks:
Our bigger aim is to provide you with the support, training and resources to help you build wealth for your family.