There and back again

It’s been a crazy six months since I last blogged.  My son had a life threatening accident which had a profound affect on me, I’m approaching my 40th birthday with mixed perspectives, and my daughter has started school.  Campbell Tyson has changed markedly with the retirement of one director (Nigel Hicks, a long and faithful servant of CT), the future appointment of another (Mat Robertson, on 1 April 2013), moved premises (Level 2, 1 Wesley Street), new server (big thank you to OutsourceIT), new phone system (thanks Sietec), and I am taking over as Managing Director on 1 April 2013 (from Glen Beal, after a formational/inspirational 5 years in the role).  A fair bit for six months!

So, what now?  Well, with any change there comes consolidation and refinement.  I look forward to working with the superb team here at Campbell Tyson to assisting our clients to “Improve Beyond Today”.  And I will keep you posted on how we go with this blog!

Meetings, meetings and, oops, another meeting

Stephen Lynch from Results.com has a great strategy he uses to ensure when he is meeting with a team member, its a productive discussion:

As a leader, you want to encourage your people to think though the issues first, and make good decisions themselves.  Alternatively, if it is a situation where they really do need your input or sign off – you want them to present all the options along with their thoughtful recommendation as to what the right decision should be.

I recommend training your people to use GROW framework to think through the issues – and even have them present issues to you in this manner.

G = Goal

What is the goal?  What is the outcome we want to achieve here?

R = Reality

What is the current reality?  What is happening and why?

O = Options

What options do we have?  What are the implications of each option?

W = Will

What WILL we do?  Here is my recommendation

Yes, things may take longer to resolve initially – but you must be disciplined if you want to stop getting sucked into “reverse delegation.” Push back, and tell your people to go away and present their issues to you in this manner until it becomes their new default behavior.

In effect, you are now learning to delegate more effectively.  You GROW your people by making these situations a valuable coaching opportunity – with the intent to teach your team how to problem solve and make great decisions without you needing to be there all the time.

Simple, but you can see how it would be effective.

Till next time.

Impending Year End

For those of you with a standard balance date (31 March), we have the financial/tax year end coming up fast.  The following are a number of ways you can legitimately manage your tax position.

1. Consider prepaying certain expenses – Some expenses can be prepaid in March and claimed as a tax deduction in the year to 31 March 2012, regardless of their amount.  These include stationery, postage and courier charges, vehicle registration and road user charges, rates, subscriptions for papers or journals, and even audit and accounting fees!Other expenses have limits on the extent to which they can be claimed if prepaid.  These include rent, consumables, insurance premiums, professional or trade subscriptions, travel and accommodation, advertising, periodic charges and other services.  The rules surrounding prepayments are quite complex, so if you’re planning this type of expenditure, please contact us.
2. Trading Stock– Trading stock (excluding livestock) must be valued at the lower of cost or realisable value.  General adjustments for obsolete stock are not acceptable to Inland Revenue.  It’s important therefore to perform a physical stock take at year end and actually dispose of any obsolete lines or alternatively write that stock down to its net realisable value.Clients with an annual turnover of less than $1.3m can value their closing stock at the opening stock value, but only where closing stock can be reliably estimated to be less than $10,000.
3. Loss offsets and subvention payments – 2011 loss offset or subvention elections must be filed with IRD on or before 31 March 2012.  Subvention payments relating to the 2011 income year must be paid by 31 March this year.  The IRD changed its practice of requiring an actual physical payment, and now accepts that a subvention payment can also be made by book entries so long as the payment obligation is discharged. 
4. Write off any bad debts – To claim a deduction for a bad debt you need to physically write the debt off in your debtors’ ledger prior to the end of your financial year.  For most clients that’s 31 March 2012.  There should also be evidence that you have taken reasonable steps to recover the debt prior to writing it off.
5. Employee expenses – Any amounts owing to employees at year end (such as holiday pay, bonuses, long service leave, redundancy payments) can be claimed for tax purposes in the current year as long as they are paid within 63 days of balance date.
6. Review last years fixed asset register – The book value of assets can be written off for tax purposes if the asset is no longer in use by the business, the business has no intention of using that asset in the future and the cost of disposing that asset is expected to be greater than the proceeds from its sale.  Actually, it’s simpler than that.  Scan your asset schedule from last year’s accounts and you’ll probably notice assets that no longer exist (the mobile phone that you dropped in the tide at Christmas time), or simply don’t work.
7. Retentions – Retentions on building contracts are generally taxable in the year the contractor becomes legally entitled to receive them.  This can result in significant deferral of income.
8. Discount Reserves – A deduction for a discount reserve, to cover for example prompt payment discounts, is allowable where debtors are entitled to such a discount.  In the first year a deduction of the actual discount percentage is allowed and in subsequent years a calculation is made to maintain the discount reserve at that percentage level.  If the credit period offered to customers exceeds 93 days, different rules apply
9. Repairs and maintenance – General adjustments for repairs and maintenance reserves are not allowed as a tax deduction.  Instead it may be worthwhile to undertake any necessary repairs and maintenance on key assets prior to the end of the financial year to ensure a full deduction.  Deciding whether expenditure on an asset is deductible as repairs or maintenance or should be capitalised is not always cut and dried, so please contact us if you aren’t sure.
10. Imputation credits and dividends– Companies that have imputation credits for tax paid at 30% have until 31 March 2013 to distribute dividends with those imputation credits attached up to the previous maximum of 30:70.  But tax paid at 28% for the 2011-12 income year and onwards can only be attached at the new rate of 28:72.In addition, imputation credit account balances must not be overdrawn as at 31 March each year.  If so, they attract penalties.

    We realise the subject for imputation credits is complex for many of our clients.  Rest assured we will contact you regarding any necessary dividend and taxation planning before 31 March.

11. Income – Be sure to review any credit notes issued to customers following balance date that can be applied to the previous year, i.e. 31 March 2011.  In doing so, you will be entitled to effectively reduce your current year’s taxable income.

If you are uncertain on any of the above issues, or had a query concerning what you are able to do to plan for the year end, don’t hesitate to drop me a line.

Till next time.

Expensive Funding

When cash flow gets tight, we all look for ways to delay payments, use financing that is available, and do everything possible to ensure the business (and household) keeps on running.

Sadly, the IRD is sometimes seen as a potential financier.  In NZ we rely on self assessment, and the filing of returns is seen as something separate to the payment of the tax.  In my experience, some tax payers believe that this provides a possible avenue of funding when things get tight. 

Unfortunately, the cost of this “finance” is almost always the nail in the coffin for a struggling enterprise.  As the following graph indicates, your debt grows at a rate most likely faster than the profits you retaining the cash has created resulting in a bigger car wreck in the end.

 

 

 

 

 

From the graph you can see that sometime during the 3rd to 4th year, your debt will have doubled.  Thats expensive whatever way you look at it.

If you are getting in to difficulties with your cash flow, talk with your professional advisor about what you could be doing differently, the sooner the better.  If you are already behind with the IRD, get in touch with us and we can talk about strategies before things get out of hand.

Till next time.