Time for an accounting reality check

Over the past three years Kiwi business owners have navigated testing times. GoFi8ure’s Lisa Martin explains why they need a competent accountant or bookkeeper to watch over their business.

There’re business owners who, no matter the market risks and economic challenges, always manage to punch above their weight; to achieve higher than average revenues and profits.

On the other hand, many others just scrape by – essentially treading water.

Either way, with everyone working on getting everything together for their end-of-year accounts, a lot of uncertainty remains out there, across the board, believes GoFi8ure’s Lisa Martin. Business owners are still recovering from recent events, are definitely nervous about the future, and are not helped by rising interest rates, which impact on mortgages.

Will they be able to maintain the same level of turnover, particularly when their own clients are facing the same issues?

“There’s often a real problem achieving consistency of revenue, and maintaining control over expenses – and in light of these, how do businesses grow profits? You need profits to keep in reserve,” says Lisa. “There’s uncertainty around money, and how it can just quickly slip through fingers.”

In the current environment, with prices rising everywhere, it’s important to adjust your own prices and payroll to match the minimum wage too – especially if you’re employing students.

“Work hard to stay on top of everything,” advises Lisa. “It is a juggling act and, as a business owner you need to stay ten steps ahead of everything. Otherwise, it’s really going to be a race to the bottom.”

In the current regime business ownership is exhausting, Lisa admits. “It’s more compliance driven than ever too. Whether it’s health and safety, or ACC, GST or payroll compliance, there’re so many rules and regulations to stay on top of.

“If you don’t, before you know it, the tail will be wagging the dog!”

She believes business owners often lack acumen around what to do with incoming revenue.

“There’s a lack of understanding around how much of that money is yours. I’ve even seen owners asking people on Facebook for advice on where the money should go; how much should be allowed for tax and even if that tax money should be put aside.

“They can also be unsure about when they should get registered for GST,” adds Lisa. “Some people don’t even know what the threshold for GST is, and many still don’t realise that any generated GST is not their money to take advantage of.”

Facebook is definitely not the place to get reliable advice on any of these subjects either, she says. “Some of the stuff seen on social media is quite frightening, and Facebook can easily lead the uninitiated down the wrong track,” she warns.

A reputable accounting firm, such as GoFi8ure, is most definitely the right place to seek answers to any of your cashflow and accounting concerns.

In explaining how business owners can sometimes go wrong with their finances, Lisa refers to what she calls “the evolution of a business owner”. In the early days when your business is just a side hustle and there is no grand plan you may get away with a lower level of advice and support.

But two, five or ten years later, now you’re hiring staff. If your business is growing you need to grow your own knowledge with the help of someone who’s already “been there and done that”.

Align yourself and learn

Lisa is on the board of the Accountants and Taxation Agents Institute of New Zealand (ATAINZ), which has a SME membership representing 200,000 Kiwi taxpayers. Those accountants, many sole traders, understand the benefits of belonging to a professional body, and tapping into a shared knowledge pool.

Having seen some “pretty dodgy” financial statements, that don’t even balance and are knocked up in Microsoft Word, over her career, Lisa’s understandably hot on lifting and maintaining standards.

“We live in an uncertain world, and ambiguous answers from the wrong people only add to that uncertainty, and compromise your business, she says.

“Business owners should check to see which professional body their accountant belongs to. Hopefully it’s up to the calibre of ATAINZ, CPA, CAANZ or similar.”

Taxing times

Attending Inland Revenue (IR)-run seminars to learn about Tax Returns and about GST, and how to account for it, is a good idea too, Lisa believes.

Boosting savings and reserves also increases certainty for struggling business owners, she suggests, along with careful cash planning. “All business owners should at least understand the minimum amount they need to put aside for tax. I’m genuinely concerned that there’re still ‘side hustle’ business owners out there who aren’t GST registered; who, say, receive $1000 from a client and actually think that $1000 is all theirs. It’s not. A third belongs to Inland Revenue.”

Business owners must learn that not all business expenses are tax deductable either.

“Only business expenses that are directly related to earning income can be claimed. If anything has a personal benefit, then you can only claim a percentage of it.

“We must be accurate, ethical and fair on revenue recognition and expense claim deductions.”

Lisa also knows business owners who deliberately attempt to create a dodgy mechanism specifically to reduce their tax burden, but warns that IR are quick to spot them.

In the case of divesting revenue out of businesses into family trusts to qualify for the 33c/$1 tax rate, the department is onto that as well, having announced an increase in the rate to 39 cents.

Minimising your tax burden and ensuring you pay an equitable and fair amount of tax all happens through partnering with a reputable accountant – who can also advise on structuring your business, recognising revenue, claiming expenses, setting up a payroll, GST compliance, as well as staying on the right side of Inland Revenue.

Accountants are mirrors

There’s no doubting that new businesses can get started successfully with some simple guidance, signing up with Xero and a bookkeeper (to do tax summary and GST returns) and learning the basics of invoicing and bank reconciliations.

But questions still arise. Are you coding your incomes correctly? What if you’re putting more expenses through the business than you should?

Remember, an accountant is your mirror, says Lisa. “We check and vet the deductibility of your claims, ensure you’re registered for the right things, such as donations.

“Near enough is not good enough,” she says. “You hold your accounts up to us and we may challenge you on some of your assumptions.”

It’s also true that accountants such as GoFigure, who liaise with Inland Revenue on your behalf, will provide a more seamless overall experience for business owners.

Lisa Martin, CPA, is Executive Director of award winning accounting and taxation firm GoFi8ure. Recently she was one of two Kiwi women named in the global Top 50 Women

www.gofi8ure.co.nz 0800 463 488