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.

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:

INDEX

1. Relevant Business and Taxation Articles.

2. What is Profit and how to Improve it?

3. Past Email Newsletters

4. Past Client Newsletters

5. GST- changing Filing Frequency

6. Do you need to file an IR3 Income Tax Return?

7. Do you need to file a Personal Tax Summary?

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:

A sample Profit Statement can look like this (with varying sales):

 Thus:

If you are looking for ways to increase your profitability then you have to focus your attention on the four profit determining factors-  price, volume, variable costs and fixed costs.    Profitability can be increased by taking action to increase or decrease any of the four factors, as long as the required conditions are met.  

There are three things to note about this summary:

In other words, any profit improvement strategy must focus on either or both of two things:

Remember your gross margin is the difference between the price of your product and what it costs you to buy or make it.  Therefore , the only way to increase your gross margin is to sell at a higher price or buy at a lower price.   In most cases, but not all, you will have limited scope to buy at a lower price.   For this reason your selling price is the critical variable.  

You should be aware that to a price discounting policy to capture sales can be a dangerous policy for the financial health of a business.  The following table illustrates how much you have to increase sales by if you reduce your prices:

That is, if your Gross Margin is 30% and you reduce price by 10% you need sales volume to increase by 50% to maintain your profit.  Its unlikely such a strategy will work .  

Many small business people regard price as the only factor influencing the buying decision of their customers.  Sure , there are some customers who may only buy at the lowest possible price but this does not apply to all customers and it may be that a premium price can be achieved if the product or service is marketed in such a way that the customer perceives added value and you promote other features and benefits that you can offer your customers. For example better quality, longer warranty, satisfaction guarantee, 24 hour accessibility, more convenient location, greater resale value etc.  

This is all about getting more sales per dollar of fixed costs.  It can be achieved by either or both, increasing your sales at a faster rate than your fixed costs increase or reducing your fixed costs without affecting your sales.  

Advertising your product or service is one of the best ways to increase your sales.  Effective advertising means getting the most out of your advertising dollar and includes:

Fixed Costs must be incurred for you to remain in business.   In the short term they do not change as your volume of sales increases. Some of these costs are discretionary in the sense that you can make a decision to reduce them simply by cutting back. Others, however, are committed and you cannot avoid them.  

The critical thing with each fixed cost is to ask yourself the following questions:

You will notice that all of these questions are directed towards what you are getting for what you are spending.  They are not simply concerned with whether or not you can eliminate or reduce cost.    Take wages for example.  In difficult times people will often think of dismissing staff.   This may be appropriate but should be considered carefully, as it may be more appropriate to invest more in staff training to show them how to improve customer service and how to sell more to customers.  

It is startling what effect relatively small changes can make to your bottom lines.  The following illustration indicates that , in these circumstances that profit increased by more than double with change factors of only 5% for the number of customers, the frequency of purchase, the average sales value and an increase in the Gross Margin %, and a 10% change factor in fixed costs:  

	has not exceeded $250,000 in the last 12 months, or
	is unlikely to exceed $250,000 in the next 12 months

 DO YOU NEED TO FILE AN IR3 INCOME TAX RETURN?

Fill in the details below to work out whether you must file an IR 3 income tax return or receive a personal tax summary for the year from 1 April 2003 to 31 March 2004 .

1.	Did you receive income with no tax deducted - from business, partnership, an employer, interest, rent, royalties, estates and trusts, or anywhere else? Yes No

2.	Did you earn withholding payments - usually from contract work? Yes No   More information on withholding payments

3.	Did you receive income from an estate or trust? Yes No

4.	Did you receive shares from your employer either free or below market value Yes No

5.	Were you assessed for provisional tax? Yes No   More information about provisional tax

6.	Did you receive any income from overseas? Yes No   Answer "No" if your only overseas income was: social security pension subject to the special banking option for the full year interest and dividends under NZ$200 with tax deducted

7.	Do you have a loss to carry forward from the previous year (from business, rental, etc)? Yes No

8.	Did you change your balance date part way through the year? Yes No   Generally this will apply only to someone who's in business or who's just stopped running a business.

If you answered "Yes" to any of questions 1-9, you will need to file an IR 3 tax return.

 

 

DO YOU NEED TO FILE A PERSONAL TAX SUMMARY?

Do you need to receive a personal tax summary?   In many cases IRD will send  you one automatically, but if they dont if not you will need to request one. The questions below  will tell you if either of these situations applies.

See also more information about personal tax summaries .

9.	Did you or your partner receive family assistance from Inland Revenue? Yes No

10.	Did you or your partner receive family assistance from Work and Income, and your combined income was over $20,000? Yes No

11.	Do you qualify for a student loan interest write off (excluding the full interest write-off for full-time, full-year students)? Yes No   More information about write offs eligibility.

12.	Did you have a student loan interim assessment? Yes No   More information about interim assessments

13.	Did you pay tax as an IR 56 taxpayer (home help, nanny, gardener, embassy staff, overseas company rep or 'Deep Freeze' personnel in Antarctica)? Yes No   Booklet about IR 56 taxpayers

14.	Did you earn over $200 of interest and/or dividends? Yes No   Joint accounts: take into account only your share of the interest

15.	Did you use a special tax code during the year, or did we contact you because you appeared to be using an incorrect tax code? Yes No   More information about special tax codes

16.	Did you use a CAE or EDW tax code and earn more than $200 from that source? Yes No   These codes are for casual agricultural workers and election day workers

17.	Were you a New Zealand resident for tax purposes for the whole year 1 April 2003 to 31 March 2004? Yes No   More information about who is a NZ resident for tax purposes , especially for people leaving the country.

If you answer yes in questions 9-16 and question you will need to file a Personal Tax Summary

 

 

 

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.