Breaking bad (attitudes)

Never mind Covid – the biggest threat to your business right now may be some bad habits or attitudes you’ve developed around your accounts and finances. GoFi8ure executive director Lisa Martin helps reboot that thinking.

As the pandemic rages on and business owners struggle to adjust to the changes imposed upon them, questions keep coming thick and fast to Lisa Martin and her team of accountants and bookkeeping professionals at GoFi8ure.

With the country emerging from another round of lockdowns, she says it’s hardly surprising that many of those questions relate to employing staff – including basic issues such as paying reduced rates, changing pay-rates without consultation or forcing staff to take annual leave.

“It’s time to step back from your business and ask yourself some serious questions,” suggests Lisa, “because there’s a good chance that more lockdowns will follow.

“What lessons have you learnt from 2020 around accounts, money, solvency, government support and cashflow?”

Lisa suggests many business owners have learnt very little and points out that while New Zealand is one of the easiest countries on the planet to launch a business, ownership always comes with its rules and responsibilities – and those responsibilities run wide and deep.

“After all, when you become an employer, you’re no longer just concerned about your own mortgage, but all your team members’ mortgages as well.”

She’s concerned by the number of businesses that literally live week to week. “It’s almost as if they have the mind-set that the cash going into their bank account on any given day is theirs. They’re not saving any money, not putting enough aside to cover bills, overheads and the unexpected.”

The situation is exacerbated during lockdowns, she adds, when certain businesses have encouraged their clients to pay for post-lockdown services in advance.

Lisa is also surprised by the number of cash businesses, such as cafes, restaurants and hair salons that are still incapable of pivoting to contactless online sales of some kind.

Basic disciplines

Government subsidies have arguably been less generous and more onerous this time round. But the biggest contributor to business failure can be something less obvious – basic disciplines that business owners are not applying towards their business finance, says Lisa.

“For example, if your daily takings are $3000, then a third, that’s $1000, should go into a savings account. That’s your rainy day money. Another third should go into an account to cover your tax obligations, and the final third towards operating expenses, including wages.”

If that doesn’t sound feasible to you, Lisa wonders whether, at a granular level, you understand how much it costs to have your business’s “lights on and doors open” every single hour. That includes expenses like power, phone, cleaning, marketing, wages, as well as downtime, training and all the various forms of leave.

“Another example is a staff member earning, say, $25 an hour. Remember there is another 20 percent to allow on top of that to cover overheads such as annual leave.”

Often business owners simply don’t understand, she says. And that good-old Kiwi ‘she’ll be right’ attitude will come into play.

Wrong attitudes

Lisa’s concern is that even though 2020 was a jolt to the system, many people didn’t change their ways around putting money aside for that rainy day.

“Let’s face it, over the past few months it’s been raining!”

She’s also surprised by the attitudes of owners of limited liability companies, who seem to regard their business as a vehicle to claim all their living expenses.

This can entail using a business debit card to cover personal expenses such as groceries and fuel, she explains, and many people are using lockdown and the need to work from home as a reason to claim everything ‘through the business’.

“It’s almost as if they have this sense of entitlement. You might get away with it for a while, but only until you get audited,” warns Lisa.

Fully understanding your operating expenses requires a deep dive into your financials. Among other things, this ultimately reveals the true cost per hour to simply keep your business’s doors open, says Lisa.

“Once you know where the problems lie, only then you can address them. I believe that business owners who just have a general overview of where their business is performing financially, are kind of running on empty.”

But she acknowledges these are indeed unprecedented times and business owners are having to deal with multiple issues at once – not least of which employees who are battling their own set of challenges while maintaining productivity from a home office.

Stumbling blocks

While 2020’s lockdowns caused many business owners to panic and seek help, Lisa’s pleased to note that in 2021 there has been a definite ‘we’ve done this before, we know what to do’ attitude.

However, there are still mistakes made, and some can be deliberate.

“While coding their ledger they might enter an invoice from a sub-contractor who’s not GST-registered, but they still claim that GST input because they want to keep their GST down,” says Lisa. “That’s not how you use online tools or do accounts.”

Some people struggle to fully comprehend the mechanics of business finances, she explains, such as revenue-less-expenses and the difference between income tax and GST.

“If you’re raising an invoice for $1000 plus GST, that $150 of GST is not your money.”

Her advice is to look at daily income totals in a different light – one that does not include that 15 percent of GST. It’s also wise, in this ‘new normal’, to talk to your accountant about ways to smooth the peaks and troughs of your business’s finances and cashflow. And that has a lot to do with focusing on your key metrics – things such as the difference between net profit and cash in the bank, and educating yourself on all aspects of a balance sheet, “the most important indicator of your financial health”, as well as learning how to value your assets correctly.

“Save money, and realise that GST, tax and payroll/PAYE is not yours,” says Lisa.

“If you have the same bad attitudes or sense of entitlement this year, as you did in 2020, and still get angry at what professionals in your eco-system are telling you, to keep you on the straight and narrow, then you need to take a hard look at yourself and admit that you’re not doing it right.”

Ask a professional

On a final note – a word from the wise on Covid-related subsidies. Transparency and honesty is imperative around recording these funds, advises Lisa.

“If you file your own tax return, remember that the information is automatically sent from the Ministry of Social Development to the IRD and pre-populated in your tax return.”

The new interest limitations on residential properties for landlords coming into effect from October 1^st is another set of rules requiring care and consideration, and Lisa believes there are still question marks over the mechanics of the law’s implementation.

As always, your best plan of action, whenever there is uncertainty around any aspect of your finances, is to ask a professional.

New Zealand’s qualified accountants and bookkeepers have years of training and experience behind them and will always work in the client’s best interest. And yes, sometimes that may involve pointing out the most basic of errors and bad habits.

https://gofi8ure.co.nz/   0800 463 488