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Buying a business in NZ? Chances are you'll be buying a Small to Medium Enterprise - a business with between 3 and 50 employees and a turnover of $250,000 to $10,000,000.

One of the most substantial risks facing SMEs is the loss of key people. A profitable, solvent business can quickly begin sinking if key human assets jump ship. Minimise your human capital risk at the outset by undertaking and implementing prudent risk management processes.

Things to consider:

1. Shareholder purchase and sell agreements.
  If you are buying a business with other investors make sure you seek legal advice on your shareholder agreements for the buy and sell of shares following major events such as death or serious incapacity.

2. Key person risk. As a new owner, you may not be the 'key person' on day one. Establish who has the expertise or business knowledge that is vital to your business' success as part of due diligence. Who does the business rely on? What is the current process for managing human capital risk?

3. Business debt.  Bank funding for the purchase of a business might require you to personally guarantee, offering your personal assets as security against a loan. You may also need to guarantee leases and supply agreements. Carefully consider what you are agreeing to.

4. Insurance factors.  Unfortunately, you can't buy insurance to protect against business failure from bad decisions or poor management but you can protect against serious events affecting key people that could cause the business to fail and you to default on your debt.

When purchasing a business it pays to implement a robust key person analysis process. This will enable you to understand how and why a business is vulnerable and the potential financial risks of not acting in advance, while enabling you to minimise risks and make informed decisions going forward.

Cost of Sale and Overheads Explained

Cost of sale and overheads affect your profit.  Understanding how they inter-relate and keeping track of them can really have an impact on your business success.

Cost of Sale
Cost of sale (also known as Cost of Goods Sold or CoGS) is how much it costs you to make a sale. 

In a business which sells products, CoGS is based on the price paid for the product, plus any costs necessary to put the merchandise into inventory and make it ready for sale, including shipping and handling.  You can even break it down to calculate the cost of sale of individual units.

The basic formula is CoS = Opening Inventory + Purchases + Carriage In – Closing Inventory.

It varies, depending on what kind of business you have.  Manufacturers determine the cost of sale as the sum of the direct costs of material and labour incurred in producing a product.  A business that provides services would calculate cost of sales by looking at the amount of money that goes into providing a service.  In this kind of business it's important to have a system to track the time the team spend directly involved with delivering the service. 

Overheads
Overheads are general business expenses.  They can't be tracked directly to sales.  Overheads are what it costs you to open your doors every morning.

Seeing Profit
When you're looking at your profit and loss statement, it can be a challenge to see how all the factors inter-relate.

When you look at income from sales, you won't be able to see what your profit is until you've factored in costs.  After you've made deductions for items such as customer discounts and returns, and taken away the cost of sales you can see your gross profit.  When you look at gross profit, then deduct all your overheads, you'll see your net profit and get a better idea of how your business is really doing.

Your net profit is the proverbial bottom line.  It's important to also remember that tax is based on your net profit – the profit you keep will be your net profit after tax.

The important thing to understand is that every dollar you can save from your cost of sale increases your gross profit.  Every dollar you save from your overheads increases your net profit.  If you can't shave anything off your costs, you might need to think about whether you can increase your prices.  Increasing prices without sacrificing sales is the ultimate aim, however adding value to your products should always be considered to maintain or increase sales.

If you would like more assistance analysing and understanding your business cost of sale and overheads, please contact us for an appointment. 

Bolster Your Bottom Line

For new businesses in that critical early period, cashflow is a vital part of staying afloat to establish and grow the business.  Established businesses also know the importance of cashflow to help you keep everything running while you grow the business.  If you can't reach your targets for income, reining in your costs can help give you a little extra head room to manage cashflow while you're planning your next move.

Cost control can contribute to business success or failure but it can be hard to get a handle on it as your business costs can work on a number of levels.  It can be a challenge to pinpoint hidden costs or where your established ways of doing things cost you more money than they should.

It's more than just keeping an eye on outgoings (though that's important).  It's about looking at each aspect of your business and all your business systems (or the gaps where there should be business systems) to see if poor practice is driving costs up unnecessarily.

It can be helpful to break it down a little.  You can look at it in terms of cost centres such as power or office supplies.  Or you can look at what those costs do for your business.  It can help to analyse costs in terms of cost of sale and overheads.

Every dollar you can pull back from your costs can go straight onto your bottom line.  Contact us if you'd like to review your costs and your systems to keep costs under control.  Whether your sales are booming or busting, you want to make sure that while you're focused on revenue, your costs aren't ballooning and you're still delivering on your bottom line.

Accounting vs Bookkeeping

Accounting vs Bookkeeping – What is the Difference and Why Does it Matter?

It is very common for non-accountants to think that accounting and bookkeeping are the same thing. Both play a vital role in the financial cycle but fulfil quite different purposes. As a business owner you need to understand how these functions operate to ensure your business is getting the right financial data and advice that is critical for your future growth and success. So, let's take a closer look:

What is a Bookkeeper?
Bookkeeping is the process of recording the daily financial transactions of the business in a consistent way – generally the basic cash in, cash out in order to gain a simple understanding of financial performance.

Bookkeeping is the first stage of the accounting process and lays the foundations for the work completed by an accountant.

Unlike accountants, bookkeepers do not need any formal qualifications. Frequently the person keeping the books for a small business is the business owner themselves, although as their business grows, they often look to their accountant to provide this service.

What is an Accountant?
The accountant takes the raw information recorded by the bookkeeper and makes sense of that information. Accountants are trained and qualified professionals, skilled in analysing, interpreting and presenting data in different ways. This includes preparing tax returns and financial reports such as profit and loss statements and balance sheets – all essential to managing your business.

Accountants create reports that bring together key financial indicators to enable a better understanding of profitability and cash flow. Their focus is on providing business advice to help ensure your business performance is on track for the future.

There are however differences between regular accountants and Chartered Accountants. Chartered Accountants are further qualified to be members of the industry body which has strict professional and ethical standards. This includes the requirement for ongoing training and upskilling. So, working with a Chartered Accountant gives you the extra confidence your financial affairs are being well looked after!

Accountants and Bookkeepers Working in Harmony
Accountants can be bookkeepers but bookkeepers are rarely accountants. However, as the transactional information provided by the bookkeeper provides the foundation for the accounting process, it is important the two work in harmony.

One way many small businesses create this professional and financial harmony is to outsource both functions to a Chartered Accountant. Using the latest cloud accounting systems such as MYOB and Xero, Paul Martin Chartered Accountant Limited is able to exploit the synergies of a single data source to deliver real-time views of your company's performance. This enables more effective decision making, saves you time and gives you peace of mind your business is in good hands.

Contact us today to talk about how we can help you transform your business financial management.

Are you adequately covered?


As a business owner, have you considered what would happen if you became permanently sick or injured before retirement age? In this situation, adequate insurance cover is required to carry the business through a potentially difficult period.

A properly constructed insurance portfolio is vital for the stability of any small business. Of course there are numerous insurance policies available and, as various businesses are ore prone to particular risks than others, not all policies will be relevant to all businesses. We are happy to talk through the options with you.

Most businesses, however, should consider key-person and/or income protection insurance.

Key-person insurance provides funds to the business in the event of a key person dying or becoming totally or permanently disabled. It is taken out to cover income that will be lost until a replacement person is found and can also be used to cover any loans or commitments owing by the business.

Income protection insurance is insurance for the individual. Many different policies are available but in most cases a policy will pay up to 75% of a person's substantiated income through to retirement age or even until death in the event of sickness or accident.

Business owners should consider this:

- What would happen if you were unable to perform your normal duties?
- What would happen if you were run over by the "proverbial bus"?
- Who would take over the business?
- How would the bills be paid?
- Would the bank call up the loan?
- How would the principal's family survive?

These are important questions to consider ad others will be relevant to your particular situation. For example, if you are in partnership with other people, you need to consider the implications of one partner dying and surviving family members wanting to sell out. Appropriate policies are available for this type of business structure.

As with any insurance portfolio, you need to consider the risk involved to yourself, your family or your business and cover yourself accordingly. Permanent illness or injury or even sudden death may not be part of your business plan, but they can and do happen, and you or your family could be left seriously financially burdened unless you take prudent precautions. Key-person and income protection cover should definitely be considered as part of any small business insurance portfolio.

If you have already implemented a sound insurance portfolio, make sure you review it annually with us to ensure your cover continues to be relevant and adequate. You need to be mindful of any changes made to business operation and also take into account the current business climate.

Contact us for more information and assistance in this area.


With online shopping on the rise, so is credit card fraud. Fraudsters can sometimes illegally access customer card data through computers used to process transactions and unsecured data.

Credit card fraud is a serious risk to your business and your customers. Be aware of the risks to avoid damaging your business' reputation and bottom line.

Some helpful tips to avoid credit card fraud:

Make sure your anti-virus software is up to date.

Make sure you have effective passwords. Use passwords with letters and numbers and both upper and lower cases - passwords that cannot be easily guessed. And change them on a regular basis.

Dispose of customer card information.  If you have permission to retain this then make sure information is password protected. Hard copies of information should be locked up. Shred any such information when no longer required.

Limit staff access to this area of your business. It is important that your computer, associated equipment (eg servers) and website passwords are protected from unauthorised users.

Make sure your website online payment system is secure. Use secure online payment gateways such as DPS and payment express. This takes much of the hassle out of online payments and is safest for your customers.

When it comes to online shopping, your customers will appreciate the extra mile you go to provide a trustworthy and secure website. Advertise the systems you have implemented to shelter them from credit card fraud.

Most banks are very proactive when it comes to credit card fraud. If you have concerns about your credit card systems then have a look online at your bank's safety recommendations.

Sales discounts and discount reserves


Does your business regularly offer sale or cash discounts to customers who pay early on their invoices for goods and services? If so, it's a good idea to set aside a reserve fund to cover these sales discounts, The amount of this discount reserve should be based on your estimate of the likely total figure for discounts that will be taken.

As customers actually take the discounts, credit the accounts receivable account for the amount of the discount and debit the sales discount reserve. This way the discount is clearly in the same period as the associated invoices, so it is easier to account for all aspects of the sale transaction.

Networking: what's your elevator pitch?


Do you look forward to networking events or would you rather tidy your sock drawer?  For some people networking is a lot of fun while for others it's an ordeal.  Yet it's a given that networking helps you put your business out there and keeps you in touch with leads and new ideas.

So... you've responded to the email from your local Chamber of Commerce inviting you to their next after 5 business networking event.  The room is crowded and buzzing.  You have a glass in your hand, a smile on your face and 30 seconds before the gaze of the person you're speaking with starts to drift. 

One thing that can help is being confident you can say what makes your business special.  This is sometimes called the 'elevator pitch', because you should be able to deliver it to a hypothetical stranger in a lift between the time the doors close on the ground floor and the time they open again on the top floor ('lift pitch' has somehow never caught on).  You want something short, sparky and persuasive so your listener asks 'tell me more'.  You can use elevator pitches in different situations.  You might use one internally in your business to fire up your team about a new project.  In a networking situation, use it to reach out to a prospective customer or collaborator, so they know what you do and what your business can offer them.

When you know you're going to a networking event, think about what you say when you meet people:

- What's your goal?  Do you want to tell potential customers about your business?  Do you have a great new product or service you want to introduce?

- What do you do?  What's the customer point of view on your business?  How does it make their life easier or better?  If you can lay out some numbers showing the value in what you do, all the better (though don't overdo it)

- Whom do you do it for?  Is there a key market, such as builders or healthcare professionals?  Can you refine this, maybe by specifying the scale of the businesses you serve ('small to medium sized') or characterising them by the challenges they face - 'time-poor small business owners'?

- Why should they care?  What problem can you solve?  Try phrases like 'who are looking for' or 'so they can'.  Focus on how your business helps people and say which people.  For example, 'we develop apps for businesses with roving staff who need easy access to client and financial information'

- What makes you different?  This is your unique selling proposition (USP).  Why are you the better choice?  Does your business offer something truly one of a kind or is your USP a combination of quality, service and/or convenience?


Think about how you say it, as much as what you say.  Say it out loud until it feels natural.  Make sure you feel good about it.  If what you do excites you, chances are others will respond to that. 

The next step?  Listen.  Ask questions.  Don't let your eyes wander, checking for someone more interesting.  That's a first impression you don't want to create.  The elevator pitch is where you can make that important first connection.  After that, you have a chance to deepen the connection and build a relationship as your next phase of networking.

Website Terminology FYI

Do you geek out with website terminology or do you just want someone to make it go?  There are some common terms it's good to be familiar with. 

Html:  this stands for Hyper Text Markup Language.  Still no wiser?  Don't panic.  Your website's written in this language.  Most websites these days are user friendly and let you work on them without your having to dig into html at all.  But if there are some things you just can't make sit correctly, diving into the html to edit it directly may help.

Html commands sit between <> angle brackets (or 'chevrons').  The command at the opening of a web page is <html>.  The web page closes at the end of the text with a backslash added to the same command </html>.  All the formatting options to control how the text looks work the same way.  So if you want a specific phrase to be bolded in a paragraph where the rest of the text is plain, use the command for bold at the beginning of the phrase and close it at the end: <b>specific phrase</b>

If something's not working correctly for you, it may be because one of the brackets or a backslash is missing. 

How to Boost Morale Within Your Business


It's that time of year when team morale begins to drop. The colder months tend to lean toward less social interaction and more 'bunking down'. This in turn leads to a general lack of motivation amongst employees. What better time to launch a rocket ship so to speak and organise some exciting boosters for your team?

Recognise special personal events -  Acknowledge birthdays and the length of time spent with the company. Organise a coffee shout or buy a cake and get the whole team together to recognise the occasion.

Communicate  - Encourage conversation and idea sharing amongst team members. Remember that most of our time is spent at work and it's a good way to learn more about each other.

Acknowledge and reward hard work -  Order in pizza for lunch, have Friday after work drinks or simply send around a congratulatory email. As long as you ensure the right people are rewarded and your staff feel valued.

Encourage regular breaks -  Remind employees to stop work for 10 or 15 minutes in the morning and afternoon. Suggest popping outside for fresh air or coffee. It actually improves productivity.

Smile and have fun -  Organise team events away from the office, whether it be a team building exercise or a group lunch. Work can be stressful at times and can lead to burnout. It's important to add an element of light heartedness, as long as it's done in good taste. Employees will prosper from positive energy.

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