New Zealand Business Tips and Advice 27 June 2022 Many small businesses make the same accounting mistakes, which can prove to be costly. By avoiding these mistakes you can save yourself many headaches. The bottom line? By engaging a small business accounting firm, you can get expert advice when you need it. Yes, it can be expensive but so can making these mistakes. 1. Not Separating Business and Personal Finances One of the most common mistakes is failing to keep business and personal finances separate. This can lead to confusion and make it difficult to track business expenses. There are a few key reasons why separating your business and personal finances is so important. First, it will help you to stay organized and keep track of your expenses. When you have separate accounts, you can more easily see where your money is going and what is being spent on your business. This can help you to make better financial decisions for your business. Finally, separating your business and personal finances can help you to avoid tax problems. If you mix your business and personal income, you may be subject to self-employment taxes. By keeping your business and personal finances separate, you can ensure that you are only paying taxes on your business income. There are a number of ways that you can separate your business and personal finances. One option is to open separate bank accounts for your business and personal expenses. Another option is to use different credit cards for your business and personal expenses. You can also get a business credit card that can be used for business expenses only. Whatever method you choose, the important thing is to be consistent. Once you start mixing your business and personal finances, it can be difficult to undo the damage. So, it is important to make sure that you are always keeping your business and personal finances separate. 2. Not Keeping Accurate Records Another common mistake is failing to keep accurate records. This can make it difficult to track income and expenses and prepare financial statements. There are many different types of business records you should keep, including financial records, inventory records, customer records, and employee records. Financial records include receipts, invoices, bank statements, and tax records. Inventory records include purchase orders, packing slips, and product information. Customer records include contact information, customer surveys, and customer complaint records. Employee records include employee contact information, employee performance reviews, and payroll records. Financial Records In order to keep accurate records, you should establish a system for tracking and organizing your records. This system should be designed to meet the specific needs of your business. There are many different ways to track and organize business records, so you should choose the method that works best for you. When it comes to keeping accurate business records, many small business owners find themselves struggling. This is often because they don’t have the time or manpower to dedicate to creating and maintaining complex financial records. Fortunately, there is a solution that can make things much easier: using cloud-based software like Xero to keep track of your business finances. Xero is an online accounting software that’s designed specifically for small businesses. It’s easy to use and offers a wide range of features that can help you stay on top of your finances. Perhaps best of all, it can save you a lot of time and hassle when it comes to keeping accurate records. Here are just a few of the ways that using Xero can help you keep accurate business records: Automation One of the biggest advantages of using Xero is that it automates many of the tedious tasks that come with financial record-keeping. For example, it can connect to your bank account and automatically import your transaction data. This means that you won’t have to waste time manually entering data into your records. Accuracy Because Xero automates many of the tasks involved in record-keeping, it’s also able to reduce the mistakes that are often made when manually entering data. This can lead to more accurate records, which is essential for ensuring the financial health of your business. Ease of use Another big benefit of using Xero is that it’s extremely user-friendly. Even if you’re not particularly tech-savvy, you should be able to quickly learn how to use the software. This makes it a great option for small business owners who want to take control of their finances but don’t want to spend a lot of time doing so. If you’re looking for a way to streamline the process of keeping accurate business records, Xero is definitely worth considering. It can save you a lot of time and hassle and help to ensure that your records are as accurate as possible. Employment Records It’s important to keep accurate employee records for a number of reasons. First, it helps to ensure that employees are paid correctly and on time. Secondly, it helps to prevent lawsuits and other legal problems down the road. Finally, accurate records help you to keep track of employee performance and development. Good employee records are essential for any business. They help you track employee performance, compliance with company policies, and improve communication between managers and employees. Here are a few tips on keeping good employee records: Keep accurate and up-to-date records. This includes information on each employee’s job duties, performance, attendance, and any disciplinary action taken. Store employee records in a secure location. This will protect the confidentiality of the information and prevent unauthorized access. Make sure records are accessible to authorized personnel only. This includes managers and HR staff. Implement a retention policy for employee records. This will ensure that records are kept for the appropriate amount of time and disposed of properly when no longer needed. Have a procedure in place for destroying employee records. This will protect the privacy of employees and prevent identity theft. 3. Not Staying Organized If you’re like most business owners, you understand the importance of staying organized when it comes to your finances. After all, accounting is the language of business and a well-kept set of financial records can save you time and money. But what does it take to stay organized when it comes to your business accounting? Here are four tips to help you get started: Use accounting software There’s no denying that accounting software can be a bit of an investment. But if you want to save yourself time and headache, it’s worth the cost. Online software like Xero offers features like automatic bank reconciliation, invoice management, and financial reporting. Keep your receipts organized If you’re still relying on a shoebox to store your receipts, it’s time to upgrade to a more sophisticated system. There are a number of ways to do this, but one of the simplest is to use a scanning app on your smartphone. This way, you can keep all of your receipts in one place and easily access them when you need them. Stay on top of your invoices Invoices can quickly become overwhelming, but it’s important to stay on top of them. A good way to do this is to set up a system for tracking invoices. This can be as simple as using a spreadsheet or an app specifically designed for invoice management. Automate your finances One of the best ways to stay organized when it comes to your business accounting is to automate as much of the process as possible. This includes tasks like bill payments, invoicing, and even tax preparation. Automating your finances can save you a significant amount of time and help to ensure that nothing falls through the cracks. Review Your Finances Regularly Even if you have a great accounting system in place and you’re confident in your ability to manage your finances, it’s still a good idea to review your business finances on a regular basis. This will help you to spot any potential problems early and take corrective action before they get out of hand. Schedule some time each month to sit down and review your business finances. If you see anything that looks out of place, take action immediately to correct the problem. Hire a Qualified Accountant If you’re not confident in your own ability to stay organized in your business accounting, then it may be time to hire a qualified accountant. A good accountant can handle all of the financial record-keeping for you and can provide valuable insights into your business finances. Of course, hiring an accountant does come at a cost. But if it means that you can avoid costly mistakes and have peace of mind knowing that your finances are in good hands, then it may be well worth the investment. 4. Not Knowing the Tax Laws Many small businesses also make the mistake of not knowing the tax laws. This can lead to overpaying or underpaying taxes. If you are a business owner or self-employed in New Zealand, it is important to know the tax laws that apply to you. By understanding these laws, you can ensure that you are complying with them and avoid any penalties. The Inland Revenue Department (IRD) is responsible for collecting taxes in New Zealand. The main types of taxes that businesses and self-employed people are required to pay are income tax, GST (goods and services tax) and PAYE (pay as you earn). When it comes to business taxes, there is no one-size-fits-all solution. The right tax strategy for your business will depend on a number of factors, including the type and size of your business, your industry, and your specific circumstances. However, there are some general tips that can help you make sure you are complying with New Zealand’s business tax laws. Keep good records This means keeping track of your income and expenses, and keeping receipts and other documentation to support your claims. Good record keeping will help you maximise your deductions and make it easier to comply with tax laws. Be aware of the different types of taxes that may apply to your business These include income taxes, GST, PAYE, and company tax. Each of these taxes has different rules and rates, so it is important to understand which apply to your business. Use an accountant or tax advisor to help you with your tax affairs An accountant can help you understand the tax laws that apply to your business and can advise you on the best way to structure your affairs to minimise your tax liability. Comply with the filing and payment deadlines for your taxes If you fail to file or pay your taxes on time, you may be subject to penalties and interest charges. Keep up to date with changes to the tax laws The tax environment is constantly changing, so it is important to stay abreast of any changes that may affect your business. 5. Not Tracking Expenses According to a recent survey, nearly 60% of small business owners said they struggle to keep track of their business expenses. This is understandable, as running a business is complex and there are a lot of moving parts. However, tracking expenses is crucial to the success of any business. Why? Because it allows you to see where your money is going and make informed decisions about where to cut costs and where to invest more. There are a few different ways to track business expenses. The most important thing is to find a system that works for you and your team. One popular method is to use software like Xero. Xero is an online accounting software that offers many features for tracking business expenses. Perhaps the most helpful is the ability to connect to your bank account and automatically import transactions. This eliminates the need to manually enter data, which can save a lot of time. In addition, Xero categorizes expenses automatically, so you can see where your money is going at a glance. This makes it easy to identify areas where you may be able to cut back or save money. Xero also offers a mobile app, so you can track expenses on the go. This is especially helpful if you’re often away from your desk or office. With the app, you can take photos of receipts and add them to your expenses, so you don’t have to keep track of paper records. Perhaps the best feature of Xero is its price. It’s a very affordable solution for small businesses, and there’s even a free trial available. This makes it a great choice for businesses of all sizes. Xero also provides powerful reporting tools that can help you track your spending over time. This can be helpful in spotting trends and determining where you can cut costs. 6. Not Managing Inventory Properly Inventory management is key to any business, but especially small businesses. By keeping track of what you have in stock, you can avoid overspending on inventory and also ensure that you have enough products to meet customer demand. Here are a few tips for managing your inventory properly: Keep track of your inventory levels This seems like a no-brainer, but it’s important to know exactly how much inventory you have on hand at all times. This information will help you make decisions about when to order more products and how much to order. Don’t overstock your shelves It may be tempting to order a lot of inventory when it’s on sale, but resist the urge. If you have too much inventory, it will tie up your cash and could lead to problems if demand suddenly drops. Pay attention to turnover rates Keeping track of how quickly your inventory is selling will help you gauge whether you need to order more or less of certain products. This information can also help you price your products more accurately. Utilize technology There are a number of software programs that can help you keep track of your inventory levels and turnover rates. Utilizing these tools can save you a lot of time and help you make more informed decisions about your inventory. Store inventory properly Make sure your inventory is stored in a clean, dry, and safe place. This will help ensure that your products are in good condition when you need to sell them. 7. Not Creating a Budget When it comes to starting and running a business, one of the most important things you can do is create a budget. A budget will help you track your income and expenses, and make sure that you are spending and earning wisely. There are a few key things to keep in mind when creating a budget for your business. You need to set some financial goals What do you want your budget to achieve? Do you want to increase your profits? Reduce your expenses? Both? Once you know what you want to accomplish, you can start making a plan. Be realistic about your income and expenses Know your income. This is the foundation of your budget, so it’s important to have a clear understanding of your business’s financial situation. Know how much money is coming in, and from where. This will help you set realistic spending goals. You can do this by looking at your bank statements and credit card bills. Track your spending, and divide it into two categories: fixed and variable expenses. Fixed expenses are those that remain the same each month, such as rent or mortgage payments, insurance, and Salaries. Variable expenses are those that fluctuate, such as inventory, marketing, and travel. This will help you identify areas where you can cut back and will give you a better idea of where your money is going each month. This way you can allocate your resources and make informed spending decisions. Stick to your budget This can be difficult, but it’s important to make sure that you’re not spending more than you’re bringing in. If you find that you’re struggling to stick to your budget, there are a few things you can do to make it easier. First, try to automate your payments. This way, you won’t have to think about making payments each month. You can also set up reminders to help you stay on track. For example, you can set up a reminder to review your budget at the beginning of each month. This will help you to make sure that you’re still on track. Make sure to include a buffer in your budget This will help you cover unexpected costs or expenses that may come up. Having a buffer will help keep you from overspending and getting into financial trouble. Review your budget regularly As your business grows and changes, so will your income and expenses. Make sure to update your budget regularly to reflect these changes. This will help you stay on track and keep your finances in order. Don’t be afraid to ask for help If you’re having trouble sticking to your budget, there are plenty of resources available to help you. You can find budgeting tips online or speak to a financial advisor. 8. Not Planning for the Future Finally, many businesses fail to plan for the future. This can lead to cash flow issues and difficulties in expanding the business. There are a variety of factors to consider when planning for the future of your business. Here are a few of the most important: Your Market When planning for the future, it’s important to have a good understanding of your market. What trends are happening in your industry? What do your customers want and need? What is the competition doing? Keeping a close eye on these and other factors will help you make the right decisions for your business. Your Finances Another important consideration when planning for the future is your finances. What is your current financial situation? What are your long-term financial goals? What are the risks and opportunities associated with your financial situation? By taking a sound financial approach, you can ensure that your business is in a good position to weather whatever storms may come. Your People Your employees are one of your most important assets. When planning for the future, make sure you have a plan for your people. What are your plans for recruiting and retention? How will you develop your employees? What are your plans for succession? Investing in your people will pay off in the long run. Technology Technology is always changing, and it’s important to stay ahead of the curve. What technology do you need to be competitive? What are the latest trends in your industry? What new technologies are on the horizon? By staying up to date on technology, you can ensure that your business is positioned for success. The External Environment There are a variety of external factors that can impact your business. What is the political environment like? What are the economic conditions? What are the social trends? What is the competitive landscape? Keeping a close eye on these and other external factors will help you make the right decisions for your business. Tips for businesses planning Make a plan Without a plan, it’ll be difficult to know what needs to be done and when. Make a plan for the next 5 to 10 years, and include contingency plans in case things don’t go according to plan. Set goals Once you have a plan, identify measurable goals that need to be achieved in order to consider the plan a success. These goals should be specific, achievable, relevant, and time-bound. Be flexible The future is impossible to predict, so it’s important to be flexible in your planning. Be prepared to change your plans if necessary and be willing to take advantage of new opportunities that present themselves. Have a backup plan Things don’t always go according to plan, so it’s important to have a backup plan. This backup plan should be different from your first plan, and it should be designed to be implemented if your original plan fails. Get help If you’re not sure how to create a plan or set goals, get help from someone who is experienced in business planning. This person can help you create a comprehensive and achievable plan for the future.