The minimum adult wage will go up from $9.50 to $10.25 an
hour from March 2, 2006, the Government said yesterday. The minimum youth
wage - for workers aged 16 and 17 - will also increase by nearly 8 per cent,
from $7.60 to $8.20 an hour, Labour Minister Ruth Dyson said. Minimum wage
rates are reviewed annually. Ms Dyson said the Government's goal was for the
adult minimum to reach $12 an hour by the end of 2008 depending on economic
conditions. The youth minimum wage is 80 per cent of the adult rate. Ms Dyson
said the increase would benefit about 91,000 adult workers, most of them
women, and around 10,000 youth workers. The Council of Trade Unions (CTU) said
the increase was an important step towards a $12 minimum wage.
INLAND
REVENUE DEPARTMENT RELEASES NEW TAX RULES FOR PEOPLE WHO HOST BOARDERS
New tax rules for people who host paying boarders will simplify the
process. Under a new practice coming into effect from the 2007 income year
(generally starting on 1 April 2006), tax liability will be based on the
amount of income received, rather than the number of boarders in a
household.
Currently people are not required to declare income to Inland Revenue if
they have one boarder, but must usually pay tax on 20% of the payments
received from two to four boarders. For more than four boarders, they must
return income and claim actual expenditure like a small business.
The new rules also remove the need to keep records for related
expenditure by providing an option to claim standard costs when claiming
tax-deductible expenses to off-set against their income. If people choose to
use these 'off-the-peg' costs for their expenditure, it will make completing
and filing tax returns easier, as they will no longer have to keep detailed
receipts.
The standard cost that can be claimed for one or two boarders is $200 a
week for each boarder, and $162 a week for the third and subsequent
boarder(s). The lower rate recognises that costs for each person are less in
a larger household.
People with five or more boarders, however, must complete a tax return
and claim actual expenditure incurred, with sufficient records to support
their tax position.
DEBT
FINANCE
There are two main types of capital; debt and equity. They are very
different and will have a big difference on the business as it grows and
develops.
Most businesses when raising
finance seek external funding funded by a bank loan.
This is the most typical form of debt financing. The loan typically has to be
repaid at an agreed interest rate and within a specified period of time. The interest rate can either
be floating or fixed rate.
Typically the loan is secured against an asset. This means that if the
business fails to repay the loan, the lender has the right to claim the asset.
An asset could be a house or other premises or some equipment owned by the
business. As the loan is secured, the cost is usually less than other more
risky types of borrowing. However, a bank loan also locks companies into a
payment schedule that may cause problems for small businesses.
You will have to be able to show how the money will be repaid and are
likely to have to provide some kind of security for a loan or overdraft. If
you are unwilling to put personal assets on the line, the bank is unlikely to
lend you money.
The straitjacket of making a set payment at what may be a fixed interest
rate can also cause a lot of problems for fast-growing companies that consume
capital very fast.
For these reasons, loans are more suited to tried and tested business
models that offer good prospects for profitability.
Debt finance can also take the form of an overdraft. This is generally
linked to working cashflow rather than capital expenditure. It is repayable on
demand and exceeding the limits can be expensive.
Other types of debt finance that are increasingly popular include leasing,
a way of borrowing to buy specific equipment or machinery, or factoring and
invoice discounting, where the small business borrows against sales.
If your business needs some working capital but the amount fluctuates, an
overdraft is probably best for you. The interest rate is agreed in advance and
you only pay interest for the time and amount that you are overdrawn.
Businesses that need longer-term finance, in particular for a specific
purchase or planned expenditure, should look to take a loan that can be repaid
over a set period.
There are many reasons why debt finance could suit your business – it is
accessible, flexible and tailored. Debt finance will be the first option for
most small businesses. With debt finance, whether it is loans, overdrafts,
leasing or invoice discounting, the company is borrowing against reserves
rather than giving someone ownership of shares.
PREPARING
A CASHFLOW FORECAST
Use
Cashflow Forecasts to
figure out when you'll have cash available and when you'll be
short.
A Cashflow
Forecast enables you to track cash as it flows
in and out of your business and reveals the causes of cashflow
shortfalls and surpluses.
- First, try to predict the total amount of money coming
into your business over a specified period, for example,
over the next quarter. This requires forecasting sales for
the period, and then estimating the average dollar amount
collected for 15, 30, 45, 60 and 90 days, as well as
accounting for bad debts.
- Second, predict cash outflows over the same period,
using sales forecasts, estimating the timing of material
costs and other production costs. You’ll need to allow
for tax payments, wages, rent and all other outgoings. If
you’re planning on expanding your business, you’ll
need to allow for those costs too. If you’re planning to
buy assets, you can either fund them from cashflow
surpluses or borrowings or cash reserves from previous
years. If you’re thinking of funding them from cashflow
surpluses, include them in your forecast to see if you can
afford to use your cashflow in this way.
- Once you have predicted cashflows, you can develop a
cashflow forecast with a variety of best and worst-case
scenarios for payments by looking at the first
(discounted) date for variable payments and then the last
date before penalties. You can now forecast cash
availability by adding projected payments to opening
cashflow and subtracting variable and recurring expenses.
Cashflow Forecasts help you make sure you have enough money
to pay your bills. They also help you identify periods when
you’ll have surplus funds which you can use for expansion or
to reduce debt or pay dividends.
You will be able to use the
Cashflow Statement not only to
analyse your sources and uses of cash from year to year but
also from month to month. You will find the Cashflow Statement to be an invaluable tool in understanding the
how’s and why’s of cashflowing into and out of your
business.
DEALING
WITH CASHFLOW PROBLEMS
Many small businesses
experience cashflow problems occasionally and need working
capital.
For most, the immediate response is to go to the bank and
ask for an overdraft or overdraft extension. But the money
might be there in your business. To unlock your hidden funds,
and make your business more efficient at the same time, you
need to look closely at your assets, customers and suppliers.
ASSETS
Your assets include debtors, stock, pre-paid expenses, vehicles, plant and equipment,
fittings and property. Each of these is a possible source of
funds.
DEBTORS
Are you letting some customers have the free use of your
money for months? This is a common occurrence in small
businesses where the owners are so busy getting products out
the door or services completed that they don't pay enough
attention to basic business procedures. Many customers will
take advantage of this 'free money', but your business isn’t
a bank. Hurrying up outstanding debts due to you will assist
in increasing your cashflow.
STOCK
Do you have excessive capital tied up in stock? This can
occur if you are carrying large numbers of of items that you
could obtain from suppliers at short notice, or if you have
too many slow-moving items.
It’s important to regularly review your stock levels and
turnover rates, and your purchasing policies.
Can you free up money by reducing stock? What about moving
out of the slow-moving lines or having a quick sale of the
slow-moving stock? It might pay you to discount some items
quite heavily to get some money in quickly. If you need
additional funds to purchase more stock, make sure that you're
replacing slow-moving stock with the faster selling lines.
PRE-PAID
EXPENSES
These pre-paid expenses often relate to services. For
example, you might pay your insurance bill for the year all in
one hit, but you could arrange to pay small monthly amounts.
There might be an additional cost for doing this, but you must
weight the extra cost against the advantages of 12 small
payments which your cashflow can comfortable handle versus one
large annual payment.
FIXED
ASSETS
Fixed assets can often be the source of a significant
amount of cash. Do you really put all your assets to full use?
You might be able to sell off little-used assets and hire
suitable replacements when you require them. You might be able
to sell vehicles and lease others instead.
CUSTOMERS
Your customers can be a source of business funds. Apart
from the good debt collection tactics referred to above, try
these tactics:
Ask some of your credit customers (start with the ones you
know best) to pay you using their credit cards. They have
access to 30-55 days’ free credit and you get the cash
immediately, less the credit card commission.
If you're starting a new business, consider establishing it
on a cash-only basis to keep the funds inside your business
rather than locked up in Debtors.
If you supply goods over a period of time, or if you're a
service business, ask if you can invoice for progress
payments. Otherwise, you’ll have to wait until the job is
finished and then another 30 days or more before you get paid.
This approach also gives you an early warning if the customer
isn’t going to be pay, allowing you to cut your losses and
get out. It’s a very suitable approach for tradespeople
subcontracting to a developer.
SUPPLIERS
Ask your suppliers if you can buy on consignment, meaning
you don’t pay until you make a sale. Or ask them for
extended payment terms to give you the opportunity to sell the
goods before you have to pay.
If the supplier won't budge, try splitting the order in two
and offering to pay normal credit terms (30 days) on one half
and 90 days on the other half. Your suppliers will be more
likely to agree to this kind of arrangement if you've paid
them promptly in the past.
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