McLEAN AND CO.

Accounting                    Taxation                      Business Advice and Development Assistance                              P.O. Box 10 , Clive        133 Main Rd, Clive          Tel. (06) 8700952         Fax. (06) 8700955 

Email murray@mcleanandco.co.nz                                  Website www.mcleanandco.co.nz

 
 
EMAIL NEWSLETTER  JUNE 2004
 

Welcome again to the McLean and Co. Newsletter in which we discuss current taxation and business matters. We trust you find it informative.  Any feedback would be welcomed.

McLean and Co. is a home based chartered accountancy practice based in Clive, Hawkes Bay.    Readers are invited to peruse the practice website www.mcleanandco.co.nz,  which lists services provided, gives contact details and indicates how to become a client, contains an extensive base of articles on business and taxation matters,  and has links to other websites that may assist your business.    Being a small firm itself,   McLean and Co. strives to provide a personal and professional service largely to a self employed person and small business client base.  Enquiries are welcomed.

 

NEW CLIENTS

We are happy to accept new clients.  Please contact ourselves at the contact points highlighted above if we can assist you in your accounting and taxation requirements. Our website lists information required for this in the following link:

www.mcleanandco.co.nz/Documentationrequired.htm

 

INDEX

  1. The IRD Unpaid Monies List.

  2. Business and Personal Planning

  3. Business Strategies- the Choice of Three

  4. What Does this Do to the Bottom Line?

  5. House and Contents Insurance

  6. Phoning Inland Revenue Department

 

RELEVANT BUSINESS AND TAXATION ARTICLES

The McLean and Co. website contains an extensive number of articles prepared by McLean and Co. relating to taxation and business matters.    Here are a selection that will be of interest:

Rental Property Income                            www.mcleanandco.co.nz/Page43.htm

Paid Parental Leave                                   www.mcleanandco.co.nz/Page23.htm

Business Legal Structures                         www.mcleanandco.co.nz/Page128.htm

Writing a Business Plan                             www.mcleanandco.co.nz/Page117.htm

Borrowing Money                                      www.mcleanandco.co.nz/Page123.htm

 

THE IRD UNPAID MONIES LIST  

The public can check the Unclaimed Monies list  at the IRD's website, which provides details of abandoned or forgotten money. The link to this is listed below.

There are 7,853 names on the list and the average amount unclaimed is $793.29. In total, the Department is holding around $6.2 million in unclaimed money for the 14 month period ending April 2004.

Most of the unclaimed money comes from deposits left in financial institutions such as insurance proceeds. It also includes unclaimed funds such as cheques or wages.

The largest single amount of unclaimed money to a company or individual is $79,464.50.

Inland Revenue's Unclaimed Monies list last year had 1,551 names, with a total amount of just under $1.5 million. Over the past 14 months Inland Revenue has paid out more than $1m to 338 people who have come forward as a result of the publicity in 2003 and previous years.

People who believe they are entitled to unclaimed money are advised to forward their name, address, IRD number, proof of identity such as a copy of a birth certificate, driver's licence or passport, and evidence that they have dealt with the person or organisation who paid the money in to:

Unclaimed Money, BusinessDirect, Inland Revenue, PO Box 895, Wellington.

Amounts go back some time, as the Unclaimed Monies Act 1971 provides that any unclaimed money is only paid to Inland Revenue if it has been untouched for six years or more. There is no time limit to when money can be claimed.

Initially it is the responsibility of the institutions holding the funds to make every effort to locate the proper owner of the money. If they cannot locate the person, the money is paid to IRD.

You can check if you are due Unclaimed Moneys on:

www.ird.govt.nz/otherservices/monies

 

BUSINESS AND PERSONAL PLANNING

We have recently upgraded our website to include a section specifically related to articles for Business and Personal Planning.  Current articles in this section are:

Business Plan- Reasons for/ Preparation

Writing a Business Plan- Detailed Analysis

Goal Setting in Business

Personal Budgeting

Do you want to be rich or poor in the future?  Personal Financial Planning Fundamentals

Financial Management Planning

Personal Planning for Business People

 

BUSINESS STRATEGIES- THE CHOICE OF THREE  

Ultimately you have to settle for one of the three business strategy options, and it is important that you are clear on what one you are going for.  

Your business strategies choices are, at the end of the day, very simple.   The big question is, how do you want to position yourself in relation to  your competition.  Basically your options are:  

To be the cheapest
To be the best
To dominate a market niche

Many small businesses go for the first option, in the mistaken belief that it is the only way to survive.   The problem is, there will always be someone who can do what you do more cheaply than you can.  

A cost leadership strategy is only really suitable for big businesses that have substantial economies of scale.  They are able to spread their overheads thinly over large volumes, and charge low unit prices.   So, if you are running a small business, this strategy probably won’t work for you.  

If, as a small business, you build your business reputation on being the cheapest, you are operating from a position of weakness.  Even if you can survive with your low prices, you will not be able to withstand a price war with a bigger competitor.  

The second strategy, being the best, can be used to build a powerful competitive advantage.  It means, however, that you have to have a unique product.  Otherwise you will have to spend a lot of money on research and development to stay ahead of the competition.  

You need deep pockets to win with this strategy.  Unless, of course , your product is so specialised that no one else is producing it.  And big companies, for whatever reasons, don’t want to produce it either.  That would give you dominance over a niche of your own.  Generally speaking, a product leadership strategy is only for the big boys.  While being the best in the category and staying that way can be a powerful strategy for highly specialised small businesses, it is just not sustainable for most.  

Dominating a market niche in your industry is the most suitable business strategy for most small businesses.  By adding value in a way that attracts a particular kind of customer, you can steadily build your business success. You are able to charge a premium.  And you don’t have to be the “best”.  

The trick, of course, is to clearly identify your niche market, and convince your target market that you provide the best solution to their problem.   For nearly all businesses, finding a niche and dominating it provides a solid foundation for building a business on.  

It is very important that you are absolutely clear on what generic strategy you are relying on.   Your business direction, by definition, is supported by a number of strategic tactics, whether you are aware of using them or not.    If you aren’t clear about your overall strategic direction, you may end up using conflicting strategies. For example, focusing customers on your low prices at the same time as you introduce best of class products.  Doing this means your profitability suffers and you fail to attract the customers you want…. not good!   Deciding on the generic strategy that will create the business success you are looking for, clarifies your thinking.  And it helps you see clearly what tactics you need to use.

 

WHAT DOES THIS DO TO THE BOTTOM LINE?


This question keeps on popping up and complicating business decisions. Not being able to answer it leads to bad business decisions being made. And it is a major cause of small businesses going bust.

For example, do you know what will happen if your sales volume drops? How far can it drop before you really start to eat red ink? And if you lower your prices in order to sell more, how much more will you have to sell to make the same profit?

If you take out a loan, what sales volume will you need to cover those increased costs? And if you take on a new employee, how much more turnover is required to pay the extra salary?

To be able to answer these questions, you need to have a good understanding of what your fixed costs, variable costs and profit margins are. You also need a good understanding of the relationships between these variables.

Cost/volume/profit analysis helps you answer these, and many more, questions about your business operations. The most important concept is the distinction between fixed costs and variable costs and what this means to you.

Getting to grips with this distinction enables you to do quick “back-of-the-envelope” calculations of the financial impact your  business decisions have.  The rest of this article examines this distinction.

Types of costs: Virtually all of your business' costs fall, more or less neatly, into one of two categories:

Variable costs, which increase directly in proportion to the level of sales. Some examples would be sales commissions, shipping charges, delivery charges, cost of direct materials or supplies, wages of  temporary employees, and sales or production bonuses. They all increase as sales go up and decrease as sales come down. So they can be directly built into selling prices.
Fixed costs, which remain the same regardless of your level of sales. Typical examples are rent, interest on debt, insurance, plant and equipment expenses, business licenses, and salary of permanent staff. Because they are not directly linked to sales, fixed costs have to be recovered by spreading them across all sales transactions.

Deciding which costs are fixed and which are variable is not always easy. Some costs appear to be both fixed and variable.

Combination costs : a certain minimum level is incurred regardless of sales levels. But increases in sales volume also cause these costs to rise. Your phone bill is an example. You pay a line charge that is the same each month. And you also pay a charge based on the number of calls you make., which is usually linked to sales volumes.

Strictly speaking, these costs should be separated into their fixed and variable components, but that may be more trouble than it's worth for a small business. To simplify things, just decide which type (fixed or variable) best describes the cost and classify the whole item accordingly. For example, in a telemarketing business, phone call charges are normally far greater than line charges, so you'd classify the entire bill as variable.

Relevant range of activity: It's important to realize that fixed costs are "fixed" only within a certain range of activity. For example, your rent is a constant amount per month. But only until your sales increase to the point where you need to rent an additional workplace, in which case it might double.

In the long term, all costs become variable. But for the purpose of understanding your cost structure, costs that stay constant over a 12 month period are regarded as fixed.

 

HOUSE AND CONTENTS INSURANCE

A quick introduction to how house and contents insurance works.

House Insurance

This normally covers every domestic building on the property, including the house, pool, garage and fences.

Accidental damage is most common. It insures you for everything not specifically excluded in the policy, such as wear and tear. This is the type we look at in this article.

Defined risk is less common. It covers you only for the risks specifically listed in the policy, such as fire or burglary. Many insurers offer only defined risk policies for holiday homes or rented accommodation.

With an accidental damage policy, you get three more options: an indemnity policy or a choice of replacement policies.
Open-ended replacement cover will replace your house irrespective of the cost and is the most popular.
Sum-insured replacement cover will replace your house up to a specific dollar amount, as stipulated in the policy.
Indemnity (or market value) cover will provide cover up to the current sale value of your house. This sort of cover is generally cheaper as you're not paying for the cost of a new product. For most people, this will be less than the cost of rebuilding, so a full claim on this kind of insurance usually means you have to sell the section and buy elsewhere.


Contents Insurance

This usually covers your belongings when they are at home or temporarily moved elsewhere in the country.

The policies have a mix of replacement and indemnity cover (see above). That is, they provide replacement cover for certain items, such as the furniture and carpets, with indemnity cover for many other things.

Indemnity cover on a five-year-old leather jacket means that if it is stolen, you'll receive a cash payment based on the original value minus an amount for depreciation.

Often, there's an overall sum insured, and individual sums insured for specific items like jewellery. Items over a certain value must usually be separately detailed in the policy. Remember, some insurance companies require a valuation certificate for items over a certain amount. Getting a valuation for rare or valuable items is a sound idea.

Government Levies

Your insurance premium includes a levy that goes to the Earthquake Commission, a government agency that provides EQCover. This covers your house and contents against earthquake, natural landslip, volcanic eruption, hydro-thermal activity and tsunamis.

EQCover provides replacement cover for houses up to $100,000 plus GST (there's an excess of one percent on the claim, minimum $200).

The contents is covered on the same basis as your insurance policy. Items with replacement cover have replacement EQCover, the rest is indemnity. There's a maximum of $20,000 plus GST for contents ($200 excess).

Because EQCover maximums are too low for many people, insurers usually offer top-up cover, at little or no extra charge. Make sure it covers all relevant risks (some don't include landslips, for example).

 

PHONING INLAND REVENUE DEPARTMENT  

If you wish to make enquiries with them you can call Inland Revenue Department on toll-free numbers from 8 am to 8 pm, Monday to Friday, and 9 am to 1 pm on Saturdays.

Choose the number that most closely matches your query, and have your IRD number ready.

Free 0800 calling does not apply to cellular calls except for Child Support 0800-221-221 and 0800-220-222.

PERSONAL CUSTOMERS
Service 0800 Number If calling from a
Cellphone: 		Overseas Numbers
Income Tax and
General Enquiries 		0800 227 774 09 263 3439 64 4 801 9973
Family Assistance 0800 227 773 09 263 3437 64 4 801 9973
Overdue Tax and
Returns 		0800 227 771 09 263 3438 64 4 801 9973
Non-Resident
Enquiries 		Please refer to our Non-Resident Listings.
 
BUSINESS CUSTOMERS
Service 0800 Number If calling from a
Cellphone: 		Overseas Numbers
Employers
Enquiries 		0800 377 772 04 381 9436 64 4 801 9973
GST 0800 377 776 04 381 9437 64 4 801 9973
Income Tax and
General Enquiries 		0800 377 774 04 381 9439 64 4 801 9973
Overdue Tax and
Returns 		0800 377 771 04 381 9438 64 4 801 9973
Non-Resident
Enquiries 		Please refer to our Non-Resident Listings
 
ONLINE SERVICES - HELP
Service 0800 Number If calling from a
Cellphone: 		Overseas Numbers
User ID and
Password Enquiries 		0800 473 249 04 471 0084 64 4 471 0084
File an Employer
Schedule (ir-file) 		0800 473 829 04 471 0084 64 4 471 0084
Look at Account
Information Issues 		0800 787 287 04 802 5204 64 4 802 5204
Non-Resident
Enquiries 		Please refer to our Non-Resident Listings.
 
STUDENT LOAN CUSTOMERS
Service 0800 Number If calling from a
Cellphone: 		Overseas Numbers
Student Loan
Enquiries 		0800 377 778 04 381 9435 64 4 801 9973
Income Tax &
General Enquiries 		0800 377 774 04 381 9439 64 4 801 9973
Overdue Tax and
Returns 		0800 377 771 04 381 9438 64 4 801 9973
Non-Resident
Enquiries 		Please refer to our Non-Resident Listings.
 
DUTIES (Gifting and Cheque duties etc)
Service 0800 Number If calling from a
Cellphone: 		Overseas Number
All Enquiries available
between 8am and 5.00pm
Monday to Friday 		0800 105 654 0800 105 654 64 3 363 1840
CHILD SUPPORT CUSTOMERS
Service 0800 Number If calling from a
Cellphone: 		Overseas Numbers
All other Enquiries 0800 221 221 0800 221 221 64 9 368 5695
Employer Enquiries 0800 220 222 0800 220 222 64 9 263 3121
CORPORATES
(Large corporates and businesses with a group turnover of more than $100 million, plus industries where specific tax legislation applies)
Service 0800 Number If calling from a
Cellphone: 		Overseas Numbers
Corporate
Employer Enquiries 		0800 443 553 04 381 9436 64 4 470 7577
All other Corporate
Enquiries, available
from 8am to 4.30pm
Monday to Friday 		0800 443 773 04 470 7577 64 4 470 7577
Non-Resident
Contractors 		0800 443 773 04 802 6056 64 4 802 6056
Non-Resident
Entertainers 		0800 443 773 09 367 1329 64 9 367 1329
 
 
 
The information provided in this email newsletter is for informational purposes only.   McLean and Co. accept no responsibility for the opinions and information expressed in the information provided and it is provided "as is" without warranty of any kind.    The user assumes the entire risk as to the accuracy and use of this document.   Readers are asked to seek professional advice pertaining to their own circumstances.    The McLean and Co. email newsletter may be copied and distributed subject to the following conditions:
All text must be copied without modification and all pages must be included.
This document must not be distributed for profit.    

 

If we can assist further, please email McLean and Co as follows:

 CONTACT McLEAN AND CO. BY EMAIL BY CLICKING ON THIS LINK

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