McLEAN AND CO.
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
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:
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.
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.
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:
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