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Accountancy Insurance - why it's important

Have you considered what would happen if you were subject to an IRD audit? Would you be able to fund the additional accounting costs associated with such a process?

Accounting Insurance Audit Shield Each year we offer our clients the option to purchase Audit Shield Accountancy Insurance

For a small annual premium, Audit Shield can give you peace of mind. We have recently written to all clients with information about how to purchase accountancy insurance. If you would like more information please contact us today.

Audit Shield is offered by Accountancy Insurance - tax audit insurance specialists who assist over 1800 accounting firms throughout New Zealand and Australia. Established in 2003, Accountancy Insurance currently employ over 60 members of staff across both countries with each and every team member passionate about providing the market with a tax audit insurance product that is simple and effective - Audit Shield. The team at Accountancy Insurance has the depth of knowledge to ensure Audit Shield covers accounting firms and importantly, you, when it matters.

Last year changes were made to the requirements for financial reporting for companies with balance dates after 1 April 2014. Therefore companies with accounting years ending 31 March 2015 are the first to be affected by the new rules.

Financial ReportingThe changes introduced under the Financial Reporting Act 2013 and the Financial Reporting (Amendments to other Enactments) Act 2013 stated that not all entitles need to prepare general purpose financial statements in line with New Zealand Generally Accepted Accounting Practice (NZ GAAP).

However in reality, even if your company is not required to prepare financial statements under the Financial Reporting Act 2013, you are still likely to need to prepare company financial statements for IRD purposes. Exemptions do apply for some non-active and small companies.

So actually very little has changed! For most it simply means the applicable legislation has changed from Financial Reporting Act 2013 to the Income Tax Act and the need to prepare company financial reports remains.

Minimum company financial statement requirements for IRD purposes:

  • A balance sheet stating the assets, liabilities and net assets of the company for the stated income year
  • A profit and loss statement showing income and expenditure during the income year; and
  • A statement of accounting policies explaining the policies and assumptions that have been used in the preparation of the financial statements and a description of any material changes in accounting policy from prior years, along with Notes to the Accounts including various additional disclosures the IRD now require.

For assistance with preparing your financial statements, please contact us today or request an appointment online.

Defining your value proposition

If someone asks you what your business is, can you tell them in a nutshell?  Or will they be bored and confused before the elevator reaches the 2nd floor…

Your value proposition should sum up why a consumer should buy your product or use your services over someone else's. 

You need to understand your prospective clients so you can differentiate your offering from others.  Provide clear reasoning why the client will benefit by buying your product or service - and why it will add more value or solve a problem better. 

Creating a value proposition:

Value Proposition1. Research what motivates your prospective buyers. What environment do they live in?  What problems do they face?  Ask yourself how your product or service meets their needs.

2. Define what makes your offering desirable and unique. How can potential clients obtain better value by doing business with you instead of your competitors?  You'll need to provide evidence.

3. Test your message - is it clear? Step into your customers' shoes and ask yourself: what is actually being offered?  Can someone get it cheaper/ easier/ quicker somewhere else?  Does the offer convey trust?  Does the value proposition make YOU want to buy it?

4. Balance your objectives. If your message is clear but lacks persuasion or it makes people want the product but doesn't convey that it's exclusive to you then you'll need to tweak the message.

5. Boil it down. Remove unnecessary words, keep it simple - it should read clearly on a web page and you should feel confident reciting it to potential clients.

6. Test your proposition. Keep it current so that it constantly reflects your position within the industry.  Talk with close clients - ask them what appeals most and what sums up their buying experience.

If your value proposition doesn't roll off your tongue then you probably don't have one. It's time to define how the value of what you're offering far outweighs the perceived cost.

For assistance developing all aspects of your business strategy, contact us today or request an appointment online. 

When you are in the process of assessing your business risk and putting together your risk management plan, make human capital risk one of your focus areas. 

Human capital risk is a term which covers whatever arises out of not managing an organisation's human capital well. This includes:

  • catastrophic workplace events such as disabling illness, injury or death

  • losing staff to rapid turnover

  • a team member committing fraud or misappropriating assets

  • negligent hiring or retention, such as where an employer fails to complete necessary background checks on a new hire and, as a result, employs someone who is dangerous or untrustworthy

  • complacency, where the organisational culture is one of 'I don't know' and 'I don't care' and the business drifts or runs aground because of this 

Human Capital RiskWhen you review the risk management strategy for your business, assessing risk is not so much about analysing how likely or unlikely it may be for an event to occur. Over the last few years we've certainly witnessed that extreme and unlikely events occur far too often for comfort. It helps to analyse what the cost to the business would be if any of these risks occurred. Could the business take the hit or do you need to have strategies in place either to avoid them altogether or cushion the blow? And what sort of strategies might be appropriate?

Where catastrophic events pose a danger to the business through the loss of key people, an insurance package might cover funds to help cover shortfalls through the transition and replacement costs, as well as funding a shareholder's share of business debt, and purchase of the deceased or disabled partner's share of the business. Backup strategies might also include developing a leadership programme, more effective delegation of responsibilities, mentoring and training.

If staff turnover is an issue, is there something else going on? Are pay points far lower than those of competitors? Is morale an issue? Are the business' recruitment strategies just not finding the right fit for the firm? You might look at what your competitors are doing but you could retool recruitment and training processes to increase employee retention. If staff are leaving because for lack of a clear career path, could the organisational structure offer solutions? You might also look at organisational culture and introduce measures to improve morale, engagement and a positive outlook toward the business and customers.

The potential damage a fraudster could do to a business is truly horrifying. It's hard to come back from the direct costs to management, as well as the damage to the brand, team morale, and vital relationships with partners, suppliers and regulatory bodies. However, it is possible to create a climate which minimises the possibility. Strategies might include screening employees at pre-employment as well as screening suppliers and third parties, thorough internal controls and audit processes, as well as a clear code of conduct and awareness training for the whole team.

Whatever your assessment of business risk, a risk management strategy that meshes with every aspect of the business is crucial. Regular review and energetic follow through will help to minimise risk and create a stronger organisational culture alert to possibility and adaptive to change. For assistance with your business risk management, please contact us for an appointment.

How do you know what to insure?

It's a bit of a Murphy's Law principle that businesses often don't really come to grips with their risk management plan (or the lack of one) till some random accident takes out a key manager or lead hand and it hits everyone what it will mean for the business.

No one can plan for everything but every business should have a sound grasp of the kinds of risks that might hit them hard. And every business should put strategies in place to minimise risk and deal with it, if the unthinkable happens.

Business InsuranceWhen you are thinking about insurable risk for your business, emotion can sometimes derail the process unless you put a framework in place to assist in the decision making process. You also need to assess whether you can manage risk through your own resources first.   

There is no one rule to apply to insurance risk as everyone's situation is different. However, start by brainstorming up every conceivable risk. Then divide your list into two columns:

  • What are the potentially catastrophic events that may affect your business?  What are the events that could result in financial loss, cause you to substantially change your lifestyle or force you to close down your business? These are ideal risks you should think about insuring for.
  • What are the risks that might potentially cause you to suffer losses but which you could manage out of your own resources such as cash assets? Generally, you may not need to insure against these risks.

Whenever they start to work through their insurance plan, most people tend to think about things rather than people - the buildings, the vehicles, plant and equipment. You also need to factor in the impact if key people were suddenly not there to make everything run smoothly.

Do a double take and consider whether you've really taken human capital risk into account. What would be the effect if you couldn't work for six months, for example? Who are the other key people in your business? What would be the impact if they couldn't work for six months or if they couldn't return to work at all?

Often people make the mistake of over or under insuring in the wrong area and find there are gaps in their risk management plan. For professional advice in structuring your risk management plan connect with your local insurance consultant. If you're not quite sure where to start, contact us first to help break it down.

Common marketing mistakes

We often get asked by clients about ways to grow their businesses and expand profit. While there are no simple answers and every industry is different, below are a few potholes to avoid on the road to marketing your business:

1. Going into business without finding out what customers really want.

2. Launching the products or services without sufficient market research.

3. Competing on price rather than developing a Unique Selling Proposition.

4. Pitching prices too low so that not enough funds are left for sales promotion.

5. Expanding sales of products or services which offer very little profit.

6. Expanding sales when there isn't enough working capital.

7. Opening a business in the wrong location.

8. Using sales people who may have good technical knowledge but who have not been trained to sell.

9. Staying too long in dying or unprofitable markets.

10. Doing the same as last year - all the time.

For helping with your business growth planning contact us for further assistance.


ANZAC Day 2015 “Mondayised”

New Holidays Act legislation in New Zealand means for the first time ANZAC Day is being Mondayised. This year ANZAC Day falls on a Saturday which is still the day ANZAC celebrations are held. However, ANZAC Day will also be observed with a public holiday on Monday 27 April 2015.

What does this mean for employers and public holiday entitlements?

Employees are entitled to one public holiday day only as follows:

• For employees that would not normally work on Saturday, ANZAC Day is treated as falling on the following Monday
• For employees who usually work on Saturday, the public holiday must be treated as falling on the Saturday.

If you require your employees to work on the day that is their specified public holiday as above, they are entitled to at least time and a half pay and a whole day's alternative holiday (day in lieu) at a later date.

If you're unsure of the payroll impact of these changes, please don't hesitate to contact us and we'll advise based on your particular situation.

Businesses often ask us about KPI's and benchmarking and want to know more about them. So what exactly do these terms mean and how can using them help your business?

Key Performance IndicatorsKPIs - Key Performance Indicators are pieces of measurable data that breakdown aspects of the operational side of your business in order to measure your progress. These include:

1. Data surrounding how many staff you have and how 'productive' they are in terms of selling goods or services

2. How many clients or customers you have and how much each of these spends with you

3. Data surrounding cashflow and the collection of bad debts or even debts you may have to 'write off'

4. Revenue generated by the different goods and services you offer

Benchmarking is vital when establishing the performance of your business. Benchmarking compares your important KPIs to those of businesses with similar operations. You can then ask yourself:

1. Are your operating costs as low as similar businesses?

2. Is your debtor management plan working as effectively as those of your competitors?

3. Is your staff productivity comparable?

Benchmarking can provide the not so obvious solutions to a number of small margins which in turn, when tweaked, may dramatically improve your bottom line.

Paul Martin Chartered Accountant Limited can assist you with setting KPIs and benchmarking your business. Contact Us to find out more.

With just a few days of the financial year left, it's a good time to make sure your financial affairs are in order. Below is a check list of items all businesses should take a look at:

1. Contracts. Have you invoiced retentions that are not due and payable for another year? If they are payable in the current year they need to be declared as income but if not, the income will be deferred to a subsequent year.

2. Credit notes. Credit notes issued to customers after 31 March may be applied to the previous year, potentially reducing the current year's taxable income.

3. Debtors. Have you taken reasonable steps to recover bad debts? If so, and you write them off before 31 March, you may be able to claim a deduction.

4. Discounts for prompt payment. If you maintain a discount reserve, it is deductible. In the first year a deduction for the actual discount percentage is allowed. In subsequent years, the amount is calculated as a percentage. Different rules apply if credit extended to customers exceeds 93 days.

5. Dividends and imputation credits. Consider reviewing planned dividend payments. The imputation credit account must not have a debit balance at 31 March otherwise penalties may arise.

6. Employee expenses. Amounts owing for holiday pay, bonuses, redundancy payments, long service leave etc. can be claimed, if you have committed to them at year end and they're paid within 63 days.

7. Expenses. Can you pre-pay any expenses before 31 March? You may be able to claim for them.

8. Fixed assets. Do you have any that you are no longer using or don't intend to use in future? If so, the book value may be able to be written off.

9. Loss offset elections and subvention payments. Talk to us if you think the company will make a loss.

10. Planned maintenance and repairs. If any significant maintenance or repairs are due, bring this forward to get an early tax deduction.

11. Stock. Dispose of obsolete trading stock by 31 March or write it down to net realisable value (lesser of cost or market value). If the stock is worth less than $10,000 and your turnover is less than $1.3m for the year, you won't need to include your stock movement for tax purposes.

If you have any questions or need assistance with any of these items, please feel free to contact us.

Autumn newsletter

Our autumn newsletter is now available here.

In this month's issue:

  • Employment law changes
  • New requirements for Companies
  • ACC's levy reductions
  • Parental tax credit
  • Timely reminders
  • Business perspective - Craft Collective 

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