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Short-term vs long-term financing

Maintaining healthy cash flow can be challenging; between ongoing expenses and bills, poor cash flow can severely impact your customers, staff and bottom line. Business owners need to understand the differences between short and long-term financing when developing a cash flow strategy.

There are various sources of financing available, with each being useful for different situations. Choosing the right source and mix is key for good cash flow, with financing options often being classified into two categories based on time period: short-term and long-term. To find the right plan for you, determine your needs and then match a financing option to meet those needs.

Short-term financing:
Short term financing, or working capital financing, looks at needs that arise in relation to financing current assets – for a period of less than one year. Working capital is the funds that are used in the day-to-day trading operations of a business. Short-term financing can help you to pay suppliers, increase inventory and cover expenses when you do not have sufficient cash on hand.

Long-term financing:
Long-term financing options can help you invest in overall improvements to your business, for a period of more than 5 years. Capital expenditures, such as upgrading equipment, buying additional vehicles and renovating are funded using long-term sources of finance.

Posted on 19 August '19 by , under money. No Comments.

Evaluating risks in business  

Business owners are faced with constant challenges and tough decisions to make on a day-to-day basis. Risk-taking is often necessary to achieve more in the business, but owners need to make informed choices to avoid potential damages. To manage risk effectively, a proactive stance needs to be taken in identifying and responding to risks before a crisis strikes.

Identify risks:
Risks can be hazard-based, uncertainty-based or opportunity-based, with both tangible and intangible items posing risks for your business. Owners may find it easy to list the physical items at risk such as assets and infrastructure, yet neglect intangibles such as injury to staff, loss of important business information and more. It is important for business owners to be aware of the risks they could face in their business.

Calculate your risks:
Making an educated assessment of both the likelihood and potential severity of risks can help prioritise your responses. Once the risks have been identified they should be ranked on the likelihood of occurrence and the severity of consequence it might impose on the business. Risk ranking can help you to determine what situations need more time, attention and resources.

Manage your risks:
Finally, the risks need to be managed effectively. Avoidance is not always the best or viable solution as there is no way to ever be completely risk free. Transferring is a common way of avoiding damage as the risk is no longer your problem, for example, insurance and product warranties. Reduction of risk comes from a sound knowledge of your business and little things you can do that make a difference. Acceptance is for those owners with experience and a clear mind. Nothing in life is without risk, the business owners who accept this and learn from challenges are the ones who find success.

Posted on 19 August '19 by , under business. No Comments.

Use KiwiSaver to buy your first home

You may be entitled to the KiwiSaver HomeStart Grant after you have been contributing to your KiwiSaver for three years. The Grant is administered by Housing New Zealand which operates outside of KiwiSaver and will be paid to your solicitor.

What are the grants?
There are two HomeStart Grants. These are:

  • For purchasing an existing home, it is between $3,000 and $5,000 based on $1,000 each year of KiwiSaver membership.
  • For building or purchasing a new home or for purchasing land to build a home on, it is doubled to $2,000 per year of membership. This can be up to a maximum of $10,000 for five years of membership.

Eligibility:
To be eligible for the HomeStart Grant, you must be a member of KiwiSaver, another complying superannuation fund or exempt employer scheme, be 18 years or older, and have not received a HomeStart Grant or a KiwiSaver withdrawal before. You must have contributed the minimum percentage of your income to a KiwiSaver scheme for at least three years, although they do not need to be consecutive. You must have a household income, before tax, of less than $85,000 per year for one person, or less than $130,000 per year for two or more people. You must have a deposit that is 10% or more of the purchase price, including the addition of the grant. You should note that income and house price caps will also apply.

In some circumstances, you may still be eligible for the HomeStart Grant if you’ve owned a house before. Housing New Zealand will need to determine if you are in the same financial position as a first home buyer. For further advice or information, consult your financial advisor.

Posted on 12 August '19 by , under super. No Comments.

Getting on top of cash flow

Managing cash flow is critical to the success of a small business. While it is necessary to be profitable, your profit is a number that shows up on your accounts at the end of the year whereas your cash is the money you have in the bank. By incorporating the following tricks, you can help to maintain the flow of money coming in and keep the business running smoothly.

Prepare a cash flow projection:
There are always unforeseen challenges or changes in the marketplace. While you won’t always be able to predict or forecast these, you can gain a better grasp on industry trends and patterns. Drawing up a cash flow projection can help you plan the ups and downs of your spending. In your projection, be sure to include:

  • Cash receipts, including income from sales and income from financing.
  • Cash disbursements, including all expenses (cost of goods, operating expenses, loan payments, income tax payments, etc).
  • Net cash flow — opening cash balance plus receipts, minus disbursements.
  • Ending cash balance.

Generate new business:
The business is going well; you’re meeting your targets, money is coming in, and you’re happy. This is not a time to relax, it is a time to be seeking out and generating more business. Cash flow may keep your business alive, but sales are what keeps cash flow alive. Keep expanding and preparing your business to cater for growth. This will help prevent you from chasing your tail when times are tough.

Posted on 6 August '19 by , under money. No Comments.

Boost employee productivity

All businesses need to look at ways to increase the productivity of their staff. When your employees get more work done, it will ultimately lead to the business making a bigger profit. As well as increasing productivity, employers should also aim to improve the happiness and wellbeing of their workers. Here are some ways to boost employee productivity without losing staff engagement.

Use feedback:
Collect as much data as you can from your employees. This can inform how you create the workplace to best suit their needs. Data you might collect could include information on their performance levels by installing productivity tracking software on their devices. You could also regularly survey your staff to gain more qualitative data on their personal insights and happiness levels at work.

Provide good tools:
A business can only foster a productive environment when employees have access to the best tools. Provide your staff with excellent hardware, software and office supplies. This includes laptops, office furniture, and amenities. The more comfortable that your employees feel at work, the more work they will get done. High-quality software will also help your business to achieve work more efficiently.

Allow flexibility:
Having an employee schedule in place may be one way for you to ensure your workers stay on task and produce a consistently high standard of work. However, rigid schedules do not always suit all employees. Allowing your employees to make minor changes, such as swapping shifts, flexible start or finish times and remote working arrangements can actually improve productivity and loyalty to the business. It can also benefit employee communication, dependance and engagement.

Posted on 6 August '19 by , under business. No Comments.

Simplifying provisional tax for small businesses

Inland Revenue is making provisional tax simpler for New Zealand small businesses through the Accounting Income Method (AIM). Now in its second year, AIM allows business owners to pay a tax bill only when they’re making a profit.

Under the previous rules of provisional tax, payments must be made three times a year and in equal amounts. As most businesses don’t earn their income equally across the year, this can cause strain on the business’s cash flow if taxes are paid earlier than profit is made.

AIM does not replace existing methods, but is available alongside previous ways of paying provisional tax. It is currently provided through three accounting software providers and aims to take the guesswork out of provisional tax by using a business’s real-time account information. This can then provide them with more certainty that they are paying the right amount of tax at the correct time. AIM also reduces a business’s exposure to penalties and interest on provisional tax.

AIM is currently provided as part of software accounting packages from MYOB, Reckon and Xero. To find out whether AIM will assist your business, speak with your accountant or tax agent.

Posted on 6 August '19 by , under tax. No Comments.

Supporting mental health in the workplace

Business owners have a responsibility to look after their staff and ensure they have a healthy working environment. This extends to mental health as well as physical. With one in five people experiencing a mental health issue at some stage in their life, there is a greater need to have mental health support specifically within the workplace environment of small businesses.

While most workers can successfully manage their illness without it impacting on their work, some may require support for a short period of time and others may require ongoing workplace strategies. Employers should be aware of mental health issues they can encounter and how best to approach them. Research is key in helping to understand what your employee is going through, how to recognise the illness and ways to successfully manage it.

Employers need to recognise the role in which work can play in an individual’s mental health. An ‘unhealthy’ work environment or a workplace incident can cause considerable stress and possibly contribute to or worsen mental illness. Employers must make changes to the workplace to enable someone with anxiety and/or depression to remain at or return to work, provided they can continue to meet the core requirements of their role. These changes can be temporary or permanent.

Further ways to promote mental health initiatives within your business include encouraging members of your workplace to seek help, reducing the stigma surrounding mental illness, and fostering connectivity and communication. Managing mental health within your business by avoiding conditions that lead to excessive stress and encouraging awareness and support can have many positive outcomes and cultivate a mentally safe and healthy workplace. Employers should also familiarise themselves with the work health and safety regulatory body in their state or territory.

Posted on 29 July '19 by , under business. No Comments.

Strategies for achieving your financial goals

Setting financial goals can be a great way to ensure that you’re always in control of your money. However, we all have frivolous spending habits that can derail us from achieving these goals. With perseverance and dedication, many of these habits can be changed over time. Here are some strategies that you can implement to set your plans in place and help to achieve these financial goals.

Use your budget:
Building a basic budget can provide you with a snapshot of your current financial situation, your financial health and your spending habits. It’s difficult to know how you will reach your financial goals if you don’t understand where you stand financially. By using a budget, you can work out how much is required to save each month for your goal, monitor your spending habits and have a better picture of whether your goal is attainable.

Sacrifice:
Incorporating frugal spending habits like avoiding that daily takeaway coffee, cutting back on your paid subscriptions or any other unnecessary expenses can help you save faster. You may challenge yourself to stop spending money in specific categories for a small period to work out where it will be feasible to cut costs.

Reduce your debt:
Debt can be one of the major obstacles when it comes to your savings. Don’t let your debt overwhelm you, but identify where it is and implement strategies to help pay it off faster. These tactics may be to cut expenses or to shift higher-interest loans to a single lower-interest loan if possible.

Posted on 22 July '19 by , under money. No Comments.

Managing business growth

It can be exciting and reassuring when your new business venture achieves growth and success. When things reach a certain threshold, however, you may no longer be able to oversee everything as a business owner. Here are some key things to consider in order to manage the development of your business.

Key performance indicators:
As your business expands, determine some key performance indicators (KPIs) to evaluate certain tasks and how you will get regular data for each. Some examples include:

  • Absenteeism: by creating a great working culture and attendance perks, you can encourage your staff to take less time off.
  • Sales: offering bonuses or other perks to employees who exceed sales expectations could improve overall performance.
  • Complaints: Implement a system for dealing with complaints individually to help ensure they don’t happen again.

Develop your skills:
In addition to making changes that improve how your business operates, you should also focus on adjusting your own leadership style. In areas where you recognise you could improve on, think about delegating tasks to your employees to maintain growth. Brainstorming with your staff and other advisors may open you up to different perspectives and insights, facilitating a diversity of ideas within your organisation.

Anticipate competition:
Growth will inevitably attract competition. If the growth of your business begins to take away your competitor’s market share, they may implement strategies to counter your success such as lowering their prices, increasing advertising or adding new products. Be prepared for this and pay attention to the other businesses in your market.

Posted on 22 July '19 by , under business. No Comments.

Understanding KiwiSaver for employers and employees

KiwiSaver is New Zealand’s approach to a taxpayer-subsidised, personal retirement savings regime. Under the scheme, employers make payroll deductions for each employee through the Pay As You Earn (PAYE) tax system. Employees are required to save these to a KiwiSaver account. Here are some of the key features of KiwiSaver that employers and employees should be aware of.

Eligibility:
KiwiSaver is eligible for anyone under the age 65 who is a New Zealand citizen. While people over age 65 cannot join, they can remain as members if they have joined before turning 65. They are also eligible if they are entitled to live in New Zealand indefinitely, and are normally living in New Zealand at the time they join.

Employee contributions:
Employees who are members of KiwiSaver must contribute a minimum of 3% of their gross taxable pay. Individuals can choose to increase the amount to 4%, 6%, 8% or 10%, but can reduce it back to the minimum amount of 3% at any time. Gross taxable pay includes all bonuses, holiday pay and overtime pay. It does not include things such as redundancy pay, accommodation benefits, taxable overseas living or accommodation allowances.

Employer contributions:
While employees must contribute to their own KiwiSaver savings, it is also compulsory for their employers to put money in. These KiwiSaver deductions must be at the default rate of 3% of their pay. However, an employer is not required to make compulsory contributions to an employee’s KiwiSaver if they are already paying into another registered eligible superannuation scheme, the employee is under 18 years or if they are over 65 years.

Posted on 15 July '19 by , under super. No Comments.