Xero Blog Goodness

Spaghettios, dog clothes & top tax tips

Published in Xero Business on 20 March 2013 by Jamie Sutherland

Our recent survey to over 400 accounting professionals reveals that Spaghettios, weddings and dog clothes are just some of the tax deductions people imagine they can get away with. Which shows that if you’ve ever tried to claim an unusual tax deduction, you’re not alone!

This year’s survey provides an update to a similar survey we commissioned last year. The year-on-year data provides  interesting insight into changing perceptions of the cloud as well as where small businesses are going wrong. As well as the fun responses, the research highlights just how much pressure small businesses are under in the US this tax season, especially due to the demands of changing government regulations and tax policy.

We’ve put together an infographic to illustrate the key results:

A key output of the survey is the biggest mistakes that small businesses are making. Top of the list is not keeping financial records up-to-date, followed by a lack of understanding about tax obligations.

All-in-all, it comes back to getting to know your accountant better and tapping into the advice they can give you. Xero’s real time single ledger enables your accountant to have a clear view of your finances and provide better advice to you. Note that nearly a third of the accountants surveyed would be willing to give you a discount if you enable them to view a reconciled ledger, which is easy to do in Xero. And more and more accountants are offering cloud services – up 11% to 43% this year.

Xerocon goes off!

A huge thank you to the 800 attendees and over 25 exhibitors at Xerocon NZ 2013. It’s by far the biggest Xerocon to date globally and more than twice the size of last year’s event.

From the feedback personally and on social media, we are pumped that people were getting huge value and it’s being seen as essential attendance for accounting and bookkeeping partners, whether making the transition or well on the up-and-up, as well as add-on partners.

People loved Rod’s keynote and all the info revealed by the product managers, seemed to appreciate the hard-hitting critiques of the profession from Viv Brownrigg and Greg Sheenan, and found lots of useful material amongst topics such as marketing, training, and add-ons in the streams. The API and Add-on day prior was also a huge hit capped off by a fascinating panel discussion on business funding.

The Gala Dinner and Awards evening topped it all off. TV personality Jaquie Brown added to the glamour with flawless MCing and Auckland band Halo got the dance floor humming right from the get-go.

The Xero Partner Awards recognise our top partners in New Zealand. Congratulations to all the winners:

Xero Partner Award Winners:

Xero MVP - Peter McCarroll, Lower Hutt
The Xero MVP is a new award for most valuable professional. The award this year is for a partners outstanding contribution to the Xero Community in 2012. No photo as Peter wasn’t present.

Fastest Growing Partner - Curtis McLean, Wellington
Judged on the number of organisations added in this financial year-to-date. This is for revenue and customers in the 2012 calendar year.

Partner Website Award – Enable Business, Wellington, Auckland
Judged on the overall look and feel of the design, degree of co-­branding partner and Xero representation, content and layout. The tipping point for the winner was the fact that they made the effort to design their site to work well and look good on mobile.

Partner Innovation Award - Finman Services, Paraparaumu
Finman marketing/biz dev manager Josh Ambler pulled together a comprehensive 12-month marketing plan with very clear objectives, which have driven new business leads and taken them to Gold this year.

Emerging Add-On Partner of the Year – Quotient, Hamilton
For Add-­on partners less than 18 months old and based on their rate of growth of joint customers.

Training Partner of the Year – Training & Beyond, Christchurch
The Training Partner of the Year Award recognises the quality, popularity and range of Xero training services offered.

Bookkeeping Partner of the Year – Katalyst Office Management, Auckland
This is based on the highest number of Xero organizations the partner is invited into and also highest level of service.

Add-On Partner of the Year – Unleashed, Auckland
The Add­-on Partner of the Year Award is for the top achiever of the year based on volume of joint customers.

And finally:

Partner of the Year - Winstanley Kerridge, Blenheim
This award has been judged on the number of organisations the partner has brought onto Xero.

See you at the next Xerocon!
Posted on Xero Blog 25 February 2013 by Richard Wood

Boost for your business!

This nifty package is designed to grow and strengthen the success of your business. Instead of business feeling like a game of snakes 'n' ladders, we strategically manage your cash flow, tax planning and goals for growth.

Alongside the basics - compliance, tax returns, regulatory filing to companies office, GST returns - we begin applying dynamic thinking to shape your business for the future.

We will ensure your accounting systems are up to date and easy to manage.

Your payments are made monthly by Direct Debit.

The BOOST package offers you the opportunity to really kick-start your operation by giving your business a clear direction and pathway to success.

We apply focussed attention on your business performance and look for key areas of improvement.

This package ensures accessibility and 'help on tap' from the team at Findlay and Co. This package includes Xero to save you time and effort in the accounting department and get you back on the tools of your trade.

Financial statements: your business story in three parts, love from Xero!

Running a business is all about information. The more you know, the more informed your decisions are. And when your decisions are better-informed, your chance of success is higher.

Financial statements are the best way to get this information. They open your eyes to potential pitfalls or alternatives you can explore when making a decision. However, I often meet small business owners who don’t use this valuable tool, so I’ve put together a quick guide on reading the different kinds of financial statements and figuring out what they’re telling you.

Income statement

Let’s start with the income statement. It’s a basic breakdown of your sales less your expenses for a given period  (let’s say last month). This is pretty simple math: if the sales over the last month are greater than the expenses the income statement will report a profit. Good. If the expenses are greater than the sales, they’ll report a loss. Not as good.

So let’s say the income statement told us we had more sales than expenses last month. But that’s only part of the story. If we’re only looking at a month’s worth of sales, we can’t rely on it as an indicator of the future. It could have been one booming month. It could have even been one big sale that made the whole month look good.

Since looking at one month at a time is limited, we can make the income statement more effective by adding prior periods into the report so we are viewing results from multiple periods at one time. This gives us a much better idea of trends – are sales trending upwards? Are expenses trending upwards to match them? Is the opposite true? Armed with a few months of information, we can use the income statement as a much more effective tool to investigate potential problems before they hurt the business.

A great trend to look at when you’re using the income statement over a period of time is profits and expenses as a percentage of sales. That way you can quickly see if increased spending is helping to increase sales or simply hurting profits.

Where is the money?

So if you have a profit on your income statement, that’s great. But we also have to remember something: cash is king. Profit on your income statement isn’t always money in your bank account.

If our booming month was from one big sale, we’re not actually going to see the results of that booming month until we’re paid for that sale. So a great sales month doesn’t necessarily mean we have cash right now.

To drill into this, we need to look at the balance sheet, which is a snapshot in time that shows the dollar amount of assets and obligations of the business. The way the balance sheet is formatted helps us see which assets we can expect to convert to cash in the very near future (accounts receivable) and which obligations we’re going to need to pay soon (accounts payable). Put another way? Our sales will become cash quickly, but our bills will take cash from us quickly.  That’s in contrast to things like bank loans that we won’t have to pay until far in the future (non-current liabilities).

When’s the money coming?

This is where the cash summary report comes in. Like the income statement, the cash summary report shows activity for a certain period of time. But rather than just reflect invoices, it shows the change in cash coming into and going out of the business. It’s an income statement based on when you pay and get paid rather than when you invoice and get invoiced. That’s a big difference, because you can’t pay your $10,000 bill due on Wednesday with a $20,000 sales invoice that’s coming in on Friday. Your supplier needs cash.

So as you can see no one financial statement tells the whole story. Each statement gives you a different detail, and combining them is the only way to truly know your business’s strengths and weaknesses. And when you know its strengths and weaknesses, you have all the information you need to truly take control of its future.

If you want to find out more about reading financial statements, give your accountant a call. Or, if you’re in between accountants at the moment, have a look at our advisor directory to find Xero experts who can talk you through everything you need to know.

Published in Business on 7 February 2013 by Michael Vanecek on the Xero blog, yay!

‘High’ cost employee dismissal

A recent employment case shows the need for perfect process - even if your employee breaks the law.  Mr O was employed as a full-time builder by Consortium Construction Ltd for 4 years until he was dismissed without notice for using drugs in the workplace.  He denied the accusation and complained that there was no investigation.
What happened: Mr O and his colleagues were working at a demolition site high up on scaffolding when cannabis was smelt and identified as coming from Mr O.  He was told to put it out and did so.  A manager was later informed of the event, and that Mr O had grinned when confronted, admitting it was something left over from the night before.  The manager told Mr O that his employment would immediately end due to his behaviour.
The Employment Relations Authority noted that, as part of the duty of good faith, an employer proposing to end an employee’s employment must give that employee access to relevant information and the opportunity to comment on that information before making the decision.  In this case, Mr O had no chance to mitigate his conduct as accidental or make reference to his employment history.
Despite Mr O having smoked marijuana - potentially putting himself and his co-workers at risk - his former employers were ordered to pay compensation for lost income and distress as well as a penalty for an illegal deduction on the final pay - totalling over $12,000.
Moral of the story: seek advice immediately from an employment specialist and make sure proper process is followed and documented.  Even when it seems a complete no-brainer. 

December wind-down checklist

Consider what must be done before you pop the Christmas bubbles - it might save you a hangover and boost New Year celebrations!

1.       If your business experiences a seasonal influx, make sure to plan the necessary marketing and increased staff measures.  When will your staff be taking their holidays?

2.       Follow up outstanding debtors: people (and businesses) are more cash strapped in the New Year so politely encourage payment prior to Christmas - it will help your cash flow, which may be light if you shut down over Christmas and New Year.

3.       Are you sending emails, Christmas cards, or corporate gifts to top clients?  What about presents or bonuses for your staff?  Consider the rules around claiming entertainment expenses.

4.       Have lots of business cards and other marketing collateral on hand - unexpected networking can occur anywhere you’re on holiday.  Magnetic car signs attract welcome custom also.

5.       Have you correctly calculated, set up and approved holiday pay for payroll to occur while you’re on holiday?

6.       Need guidance or support from us, your lawyer or other business advisor?  Engage them well before Christmas - most offices shut down for a minimum of two weeks.

7.       Have you performed a year end computer detox, updated your virus software and backed up your server offsite?

8.       If your business is shutting down, make sure your voicemail message and website mention closing date info and emergency contact details.  Also, who will be responding to work related emails?

Accountants Big Day Out!

Look at us, diligently working hard at the CCH Business Fitness NZ, Accountants Big Day Out last week.

We were lucky enough to see presentations by technology companies BankLink, MYOB, Xero and CCH Collaborative Solutions, and service providers Triplejump, Smart Payroll, Get Smart Financial Solutions, Rodgers Reidy, Accountancy Insurance and nsaTax.

We heard from CEO Russell Evans and BankLink's Richard Reese. The first session was Viv Brownrigg talking of Momentum, followed by Nat with a preview of the latest GBU results.

Simon Mundell spoke us about how technology is shaping NZ businesses, then our Product Manager Sara Hansen revealed what's on the schedule for Business Fitness in 2013.

Human Rhythms got everyone drumming after lunch, and then Robyn Pearce gave a few time management tips before Viv Brownrigg invited a panel of guests to talk about growth and service plans.

Last of all came business impresario Bruce Cotterill on profit performance, and MC Dave Steele wrapped up with an unexpected visit from comedian Dave Fane.

A really fun day where we learnt a lot and enjoyed meeting and chatting with all the other accountants. Roll on BDO 2013!

Remuneration of shareholder employees

The Penny and Hooper decision is a landmark tax avoidance case that has implications for small businesses operating through a company or trust. Essentially, the Supreme Court decided in favour of Inland Revenue, concluding that setting artificially low salaries amounted to tax avoidance.

Penny and Hooper were two orthopaedic surgeons, each earning taxable income of between $600k and $850k a year. They restructured their businesses into companies with a family trust owning most of the shares. They provided their services to the companies in return for salaries of $100k - $120k each year. The balance of the company’s income was declared as dividends to the family trust which the surgeons drew from regularly.

Each year tax of between $20k and $30k was saved by having the profits after salaries taxed at the trustee rate rather than at the surgeons’ individual top personal tax rates. The court found these savings a ‘more than merely incidental’ reason for their low salaries.

The IRD has put businesses on alert and is actively reviewing those operating through a company or trust where the income is generated from services provided by an individual, and the individual’s salary is unreasonably low. Although there may be good reasons for setting the salary low in a particular year, e.g. adverse business conditions, or a planned expansion of the business, in some cases the sole reason for the salary level is to take advantage of the lower tax rate that applies to companies.

The IRD is entitled to go back four years into a business’ records, but have publicly confirmed that where a ‘voluntary disclosure’ is made, only the last two income tax returns will be reassessed. A voluntary disclosure might significantly reduce IRD penalties or avoid them entirely.

Whenever we’re discussing your business we’ll look at this for you. In the meantime, if you are concerned and would like to discuss this with us, please do contact us.