again to the McLean
and Co. Newsletter
in which we discuss current taxation and business matters. We trust
you find it informative.
are happy to accept new clients. We would be happy to assist colleagues
and acquantances as new clients.
for Self Employed and Small Business
of Records to Keep
Accounts Receivable Days
SELF EMPLOYED AND SMALL BUSINESS
Being a self-employed person what do I
get out of the Budget 2007 announcements?
You will be able to join KiwiSaver by contracting directly with a
KiwiSaver scheme provider. You will receive the $1,000 kickstart and an
ongoing fee subsidy of $40 per year. Your personal contributions will also be
matched by a tax credit of up to $20 per week ($1,040 per year), which will be
paid directly into your KiwiSaver account. After three years of saving you may
be eligible for the first home deposit subsidy.
I’m only a small operation – do I
need to offer KiwiSaver?
Yes, if you employ staff you will be required to automatically enrol new
employees into KiwiSaver and you will need to provide access to KiwiSaver for
existing employees who want to opt in to the scheme. You will also be eligible
for the employer tax credits and your employees will be eligible for the
member tax credits and matching employer contributions. This ensures that
small employers will be able to offer their employees the same benefits that
other employers will be able to offer. The process has been designed to fit
with the existing PAYE system to help make it easier for employers.
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.
Broadly speaking, Strengths and Weaknesses often relate to internal factors
dealing with core competences and resources that are under your
Opportunities and Threats are often external factors outside of your
The SWOT technique as a benchmark in a variety of areas:
making major decisions, Understanding and improving the operation of a
While most of your analysis will be subjective, the SWOT can provide
multiple benefits to your l business. These benefits can include:
- insight into where your business can focus to grow.
- understand the industry structure by using a SWOT in your business plan.
- focus your advertising and marketing on areas that give you a
competitive advantage in the marketplace.
- the foresight to see looming threats and react proactively.
To develop your own SWOT analysis, consider each section with a certain
degree of realism and be specific. To effectively complete a SWOT for your organization,
look at the following examples:
- What does the business do well?
- What are its assets?
- What advantages does the company have over its competitors?
- business location or product exclusivity?
- patents or proprietary goods
- an established distribution channel
- limited human resources and staff?
- high cost of production?
- products or service similar to competitors'?
- what is done badly?
- why, if you are, are you losing money?
- government regulation softening
- development of new technology
- what has the competition missed?
- what are the emerging needs of the customer?
- what should the business be doing better?
- are the competitors of the business getting stronger?
- does the company have cash resources to tide over slow times
- new substitute products emerging
- price competition
- economic pressure
RECORDS TO KEEP
This list provides you with a handy reference for
ensuring that you have all the required documentation
on hand as required by the Inland Revenue Department.
Ensure that before you start up your business that
you have systems in place for the following essential
records. Time spent setting these up in an orderly and
easy to understand manner will save you hours or even
days and weeks of stress
and frustration later on. Having all records on hand
when you need them will save you money (accounting
fees, IRD late payment penalties etc) and will give
you the information you need to make the important
decisions in your business.
Your records must include:
Checklist Elements on this Page
- Cheque books
- Deposit books
- Bank statements
- Electronic records
- Withdrawing money for personal use (that is,
- Tax invoices
- Other invoices
- Credit card sales
- Debit notes
- Credit notes
- Cash register tape
- Electronic records
- Invoices for purchases
- Credit card purchases
- Electronic records
- Petty cashbooks
- Other relevant
Accounts Receivable Days is
the result of a formula calculating the average number of days it takes
customers to pay from date of invoice until you receive payment.
Accounts Receivable Days = Accounts Receivable/Revenue x Time Period
(e.g. Accounts Receivable = $150,000
Time Period =365 days
150,000/800,000x365 = 51
This example indicates that a business with Revenue of $800,000 and
Accounts Receivable of $150,000 is taking, on average, 51 days to collect
payment from its customers.
The value of knowing the Accounts Receivable Days Driver of 51 is that
the business now has a simple indicator to work with and use as a starting
point to measure improvement. If the business could get the Accounts
Receivable Days Driver down to 34, that would put $50,000 back into their bank
account. Depending on the profitability of the business this could cover a
month’s overheads. Imagine how much better the business owner would feel
having an extra month’s overheads in the bank.
Another benefit of knowing this number as opposed to just looking at
the dollar value of amounts owed by customers, is that it’s a relative
figure. E.g. using the above example if the Accounts Receivable rises to
$250,000 is this good or bad? It depends on the relative Revenue figure. This
makes it immediately more difficult to manage. Whereas tracking one number is
an easy indicator to manage, both for the business owner and the accountant or
Importantly, if this is a growing business wanting to fund growth
through external debt i.e. borrowings, any lender would look very closely at
this number. It’s a prime indicator of how well the business manages its own
money and therefore how it would manage the lender’s funds.
Many businesses grow rapidly and get very focused on Revenue growth.
This is fine but focus also needs to be on collecting payment for sales made.
If not, cash-flow can quickly get squeezed, which can strangle any hope of
continued business growth. It becomes a vicious circle, as a lender won’t
lend the necessary funds until the business demonstrates it has firm control
over its cash-flow.
It really boils down to making sure you get paid as quickly as
possible. A retail business doesn’t have this type of problem as it gets
paid immediately, however most other businesses give ‘customer credit terms’.
Following are some tactics you can use to shorten the Accounts Receivable
• Invoice as quickly as possible – have a system and a person
responsible for this process.
• Ensure your customers know the credit terms – if you leave them in
the dark they will decide for themselves what the terms are.
• Provide professional looking invoices – it indicates you are
serious about debt collection.
• Send out statements regularly –it reminds customers again that you
• Be prepared to chase up with phone calls and emails.
• Keep records of excuses given for non payment and politely repeat
back to slow payers why they didn’t pay last time. They soon get the message
you are ‘on the ball’ and you will be first on the list for payment.
• Be prepared to take legal action against those who refuse to pay. This may sound like an
extreme measure but unless you are really dependant upon one or a small
number of customers you may be better off without slow payers. They may be
costing you valuable resources you could be using to service better payers.
• Remember the longer you leave a debt outstanding the harder it is to
collect, so anything you can do to speed up the process increases your chance
of getting paid.
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
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