Small Business Checklist
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In my day to day interaction with clients I meet a lot of small business owners whose businesses are in their embryonic stage. They are busy practising their particular expertise and, as such, most budding entrepreneurs do not willingly spend time thinking about the administration of the business.
I understand that, as they want to make a dollar before they worry about these things. The problem is that administration is a flow-on function. If you don't get the first month right, then there will be more to do the next month and the problem will grow.
Here are my tips
1. Undertake an initial consultation with one of Gilligan Rowe & Associates’ (GRA) consultants and take some advice on setting up the right tax structures.
2. Have GRA set up the tax structure (generally a trust or a company) for you, including LTC, GST, PAYE registration (if applicable).
3. Once your structure is set up, open two separate bank accounts for the business:
i. The first as your day-to-day operating account. This one can have a debit card attached to it.
ii. The second account will be for putting aside GST (if applicable) and your tax obligations. The only access you will have to this will be via internet banking. You will need to put a portion of your net income into this each time you get paid, or at least fortnightly or monthly. The percentage you put aside will differ between businesses, so please ask for advice from your GRA Client Service Manager (CSM).
ii. The second account will be for putting aside GST (if applicable) and your tax obligations. The only access you will have to this will be via internet banking. You will need to put a portion of your net income into this each time you get paid, or at least fortnightly or monthly. The percentage you put aside will differ between businesses, so please ask for advice from your GRA Client Service Manager (CSM).
4. Do not use the business accounts as your personal bank accounts, but transfer funds from your business account to your private account on a regular basis. You should get advice on this, once again from your CSM, as you can take drawings or pay yourself a salary (with PAYE deducted). The way you pay yourself will have major ramifications when it comes to the tax obligations for both you and the company.
5. Get an accounting package like Xero (we can supply this). A cashbook version of Xero costs $300 + GST per year. Please refer to my previous blog “How Start-up Businesses can Avoid Accounting Pitfalls”
6. You may want to use your motor vehicle for business purposes. Again, seek advice from your CSM. An overview is listed below.
Note, the rules and the per kilometre rate change regularly and the rates below were accurate at the date of this blog (May 2016). For up-to-date rates, visit the IRD website.
i. Travelling under 5,000 km per annum - if you are self-employed or a shareholder employee you can currently claim back 74 cents per kilometre up to a maximum of 5,000 km of work related travel per year. The rate changes, sometimes from year to year so you need to keep up with this.
ii. Travelling over the maximum 5,000 km, you have to keep a record of actual vehicle expenses. Calculating the business use versus private use is the key to this deduction and the recommended method is to use a logbook. With a three-month logbook record you should be able to work out the average business use of your vehicle. By recording the odometer before and after the period, you can work out the percentage of vehicle expenses to claim as deductions. You can then use this breakdown for up to three years with a variance of less than 20%.
iii. The default method (if you don’t want to use a logbook) is to claim up to 25% of vehicle running costs as a business expense. You will still need to keep records and you may be required to provide documents for the claimed amount.
iv. When a company owns a car, it claims all the expenses without making a private use adjustment. However, the company must pay fringe benefit tax if the vehicle is available for employees' or shareholder-employees' private use. The company will also have to calculate GST on the fringe benefit
ii. Travelling over the maximum 5,000 km, you have to keep a record of actual vehicle expenses. Calculating the business use versus private use is the key to this deduction and the recommended method is to use a logbook. With a three-month logbook record you should be able to work out the average business use of your vehicle. By recording the odometer before and after the period, you can work out the percentage of vehicle expenses to claim as deductions. You can then use this breakdown for up to three years with a variance of less than 20%.
iii. The default method (if you don’t want to use a logbook) is to claim up to 25% of vehicle running costs as a business expense. You will still need to keep records and you may be required to provide documents for the claimed amount.
iv. When a company owns a car, it claims all the expenses without making a private use adjustment. However, the company must pay fringe benefit tax if the vehicle is available for employees' or shareholder-employees' private use. The company will also have to calculate GST on the fringe benefit
7. Last but not least, the most important administrative activity is to develop regular accounting procedures by separating your tasks by expected frequency: weekly, monthly, two-monthly, tri-yearly, six-monthly or yearly. General accounting chores will fall into each category, and tax-related tasks typically come up no more than monthly.
i. Weekly & Monthly Tasks – these tasks are bookkeeping chores and each business will differ in complexity depending on transaction volume. Generally all businesses should follow these steps:
a. Sort your mail into action piles (such as bills to pay and orders to fill - if applicable)
b. Pay any invoices that are due or for which you can get an early payment discount
c. Record any withdrawal and deposit transactions in the electronic cashbook
d. File records in a suitable filing system
e. Reconcile bank statements to electronic cash book
ii. Two Monthly, Tri Yearly or Six Monthly Tasks – these tasks are GST, PAYE or income tax related. Once the weekly and monthly tasks are adhered to, the rest will follow in an orderly fashion.
Summary
You can't be everything in a new business. In order to succeed you need to ask for help from professionals who understand the different aspects, in particular accounting advice on how to get your processes right from the very beginning.
a. Sort your mail into action piles (such as bills to pay and orders to fill - if applicable)
b. Pay any invoices that are due or for which you can get an early payment discount
c. Record any withdrawal and deposit transactions in the electronic cashbook
d. File records in a suitable filing system
e. Reconcile bank statements to electronic cash book
ii. Two Monthly, Tri Yearly or Six Monthly Tasks – these tasks are GST, PAYE or income tax related. Once the weekly and monthly tasks are adhered to, the rest will follow in an orderly fashion.
Summary
You can't be everything in a new business. In order to succeed you need to ask for help from professionals who understand the different aspects, in particular accounting advice on how to get your processes right from the very beginning.
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Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again, - A & B - July 2015
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Gilligan Rowe and Associates is a chartered accounting firm specialising in property, asset planning, legal structures, taxation and compliance.
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