McLEAN AND CO.

 
 
EMAIL NEWSLETTER OCTOBER 2003
 
 

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. has installed Norton Antivirus software to minimise risk of virus transmission in the provision of this service.

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.nzwhich 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.

INDEX

  1. Your chance to have your say  on reducing business tax compliance costs

  2. GST- Dates Due

  3. IRD Phone Numbers

  4. Telephone Rental- if you run your business from home

  5. Looking at Buying a New Business- how do you decide which is the right one?

  6. Non Chargeable Time and Factoring it into your Fees

  7. Dollar Cost Averaging- what is it?

 

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:

Buying and Selling a Business- Determining Value           www.mcleanandco.co.nz/page88.htm

Finding Customers                                                              www.mcleanandco.co.nz/Page82.htm

Back Claiming of Rebates                                                    www.mcleanandco.co.nz/Page57.htm

Venture Capital                                                                   www.mcleanandco.co.nz/Page65.htm

Franchising Basics                                                              www.mcleanandco.co.nz/Page90.htm

 

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

 

YOUR CHANCE TO HAVE YOUR SAY ON REDUCING BUSINESS TAX COMPLIANCE COSTS

 
You have until 31 October to have your say on the proposed changes to the tax rules aimed at reducing business tax compliance costs.
 
The Government released a discussion document in mid-September outlining some options, including:
a subsidy for small businesses that use a tax agent for payroll management and associated tax obligations
aligning the payment dates of Provisional Tax and GST
a new way to calculate Provisional tax
You can find a summary of the discussion document on the IRD website at  www.ird.govt.nz along with an electronic feedback form.   You can request a copy of the summary document from INFOexpress on 0800 257 477.  The full discussion document can be found at  www.taxpolicy.ird.govt.nz
 
 

GST- DATES DUE

Just a reminder that the due date for GST Returns and payment is the last working day of the month following the end of your taxable period.   Your return will be due on the last working day before a weekend or public holiday.
 
For example, a GST Return covering the two-month taxable period from 1 September 2003 to 31 October 2003 is due by the last working day of November.   While the last day in November is Sunday 30 November, the last working day is Friday 28 November, therefore the return is due by the 28th.  The due date is also printed in the top panel of your GST Return.

 

IRD PHONE NUMBERS

The following are the toll free IRD numbers for phone enquiries.   IRD have staff available to answer these 8am-8pm weekdays and 9am-1pm Saturdays:
 
GST.........................................................  0800 377 776
Employers...............................................  0800 377 772
General Business Tax Enquiries............ 0800 377 774
Overdue Returns..................................... 0800 377 771
Payment Options for Overdue Tax......... 0800 377 771
 
 
TELEPHONE RENTAL- IF YOU RUN YOUR BUSINESS FROM HOME
 
IRD's policy on deductions for rental of telephone equipment and lines is to allow for up to  50% of the cost of telephone rental for businesses based at home if the home has only one telephone line.  This will apply irrespective of whether the rental charged is at the domestic or commercial rate.    IRD will allow a deduction of more than 50% if the taxpayer can show that the actual use of the telephone supports a higher percentage of business use.   If the home has two telephone lines, one charged at the domestic rate and the other charged at the commercial rate, 100% of the commercial rate is an allowable deduction.  In this case, no part of the domestic rental is deductible.
 
IRD's policy applies to all taxpayers who run a business from home except for farmers whose principal or full-time occupation is farming.  Such farmers are allowed 100% of their telephone rental as a deduction.
 
 

LOOKING AT BUYING A NEW BUSINESS- HOW DO YOU DECIDE WHICH IS THE RIGHT ONE?

Look for a business that comes closest to your interests and capabilities and one that fits in with your long and short range financial goals.  For each business you think you might want to start, ask yourself the questions below.  Write your answers down on a bit of paper so you can easily compare the relative benefits and drawbacks of one business over another.
 
Do I really know much about the business?
Do I have all the skills needed to start and run the business?
Would I really enjoy whatever is necessary to sell this product or service?
How much money do I need to make each week?
How long would it take to start generating that much money?
How much will it cost to start this business and run it until it starts producing income on a steady basis?
Can I afford to put that much into the business?
What money will I use to live on until the business starts making money?
How fast do I need to generate money?
Are there really enough people who want to buy this product or service?
Do I know how to find them?
How many hours a week can I work now?
How many hours a week will it take to do all the work (finding customers, producing or getting the product or service to them, billing them, doing the book-keeping)
How big could the business grow?
How big do I want it to grow?
 

NON CHARGEABLE  TIME AND FACTORING IT INTO YOUR FEES

Non-chargeable time is the time spent doing work you can't charge your customers for.   Typically such work involves writing proposals and quotes, making business contacts, answering customer questions, doing your book-keeping etc.
 
In a service business, earnings are tied to the number of hours devoted to income producing work.  In some small service businesses one-third or more of the total working hours each week may be spent doing work that can't be billed to any client.   In fact, its not unusual for the business owner to work from early in the morning until late at night without producing a cent of income.
 
Under such circumstances, time is a commodity with significant value. For instance, assume you work a total of 40 hours a week in your service business and on an average you make about $25 an hour on time spent on client work.  If you spent 10 hours a week doing non-chargeable jobs, you have only 30 hours a week left for paid client work.   Thus you are losing $250 a week in sales ( 10 hours x $25) .  If you normally charge $50 an hour for your time, those 10 hours of non-chargeable time will cost you $500 each week.
 
 
How do you factor the cost of non-chargeable time into your fees?
Calculate what your expenses will be for the month.   This figure should include a salary for yourself, plus all expenses including loan payments if any for the business, allowances for equipment upgrades and repairs etc.    Add in an amount for profit (your own salary is not profit.  Profit is what the business makes over and above your salary and all other expenses)
 
Multiply this figure by 12 to determine what the gross yearly income of the business should be (what you need to make each year).   Then divide the gross yearly income by 48 weeks to determine the amount of money the business will need to bring in per week on average.  The reason for using 48 weeks instead of 52 is allow for holiday time, sick days etc.  
 
Once you determine the amount of money you need to earn per week, divide that amount by your chargeable hours.  For instance if you plan to work 40 hours a week, but will spend 10 of them on non-chargeable work, divide the weekly gross income needs by 30 to get the hourly fee you should charge.
 
For example, if you determine you need to bring in $5000 per month to cover your salary and other business expenses, here's how you calculate hourly fees:
 
$5,000 (monthly income) x 12 (months)        = $60,000  (gross yearly income)
 
$60,000 (gross yearly income) / 48 weeks     = $1,250 per week
 
$1,250 (per week) / 30 hours                         = $41.66 (per hour) 
 
 

DOLLAR COST AVERAGING- WHAT IS IT?

When building up an investment portfolio , and especially if you do so with regular savings, the price you pay to invest is averaged over market highs and lows-   this is called "dollar cost averaging".
 
For example, if you are investing in a managed fund and your regular savings investment is $200 per month.  Over a six month period, market fluctuations cause the funds unit price to go up and down, but each month you continue to make the $200 investment.

 

 

 

 Monthly Savings Investment

 Fund Unit Price

Number of Units Purchased 

 January

 $200

 $2.00

100 

 February

 $200

 $180

 111

 March

 $200

 $1.55

 129

 April

 $200

 $1.25

 160

 May

 $200

 $1.65

 121

 June

 $200

 $2.10

 95

 

 Total Cost of Investments = $200

 Average Unit Price for Period = $1.73

 Total number of units purchased = $716

 

As shown above, at the end of six months, your instalments have brought 716 units.  Over that period, the average price of the fund (calculated by adding the monthly unit prices, and then by dividing by the number of months, in this case  was $1.73.  But, the average price you paid for your units (calculated by dividing the total cost of your instalments by the number of units received over the period) was just $1.68.
 
With dollar cost averaging, when prices are higher, your instalment buys less, but when prices are lower, your instalment buys more.

 

 

 

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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