Establishing Good Financial Habits in Your Business
Manage your money better.
We blogged recently about making your trades business recession-proof, and this month we’re back to add another bit of advice: create a strong foundation for your business by establishing good financial habits.
For this, we’ve teamed up with an expert in the field: our very own “cool accountant” Jason Topp, Chartered Accountant and founder of SMYD. Read on for five Topp tips to benefit small business owners—and check out SMYD’s website for more.
Claim all your expenses
You need not be a rocket scientist—or even an accountant—to understand that claiming all your allowable business expenses and legitimately reducing your taxable income is a good call. It will mean you pay less in taxes.
Here are some things to consider, whether you are doing your own tax return or having it prepared by an expert:
If you use your home for business, you can claim a portion (the percentage of the house used for work i.e your office space) of many household expenses: power, water, internet, rent or mortgage interest, rates, and some insurances.
Any phones and phone lines, stationery, computers, and other office equipment/services can be claimed.
For vehicles that are 100% business use, you can claim 100% of costs. If you are using a vehicle for both business and personal affairs, you can claim costs one of three ways (more info on the IRD website):
Keep a logbook to track the vehicle’s business-related mileage. Deduct the current kilometre rates (find these on the IRD website).
Keep track of all the actual costs of running your vehicle and claim the business-related costs—including depreciation loss.
Claim 25% of the vehicle’s running costs.
For any business expense in general, can you find a strong connection between the money you’re spending and your income generating activity? Ask yourself “is there a link between this expense and my business?” if you don’t know the answer, consider it a great reason to have a coffee or meeting with your accountant to understand more.
Never do cash jobs
It boils down to this: there’s a good chance of being caught doing cash jobs, and consequences range from tax penalties to criminal convictions. It’s just not worth it!
IRD can find out about cashies in several ways: a confidential tip off, a transaction that is recorded in another party’s tax returns, audits of not only your business but others you trade with, or a random check. The agency has access to a lot of data that can be used in its investigations.
If you need to get yourself out of a mess of undeclared income, a good accountant can help. SYMD has a video on the topic—take a look and keep your books above board!
Review regularly
Your business finances are not a “set it and forget it” deal. You should be regularly casting an eye over your books to look for gaps, check which debtors are behind on payment, and find ways to reduce costs.
You could catch a major issue—like a trusted employee embezzling tens of thousands of dollars. You might also just find that you can restructure some subscriptions, change your invoicing process, or switch suppliers to smooth your cashflow and increase margins.
Minimise debt
Debt is expensive. Whether you’re taking out bank loans, using an invoice financing service, or keeping a balance on credit cards, you’re paying interest and fees.
Here are a few tips for minimising or avoiding debt:
If you're using debt to buy a new asset, ensure your pricing and margins are correct. You should be comfortable with the cashflow that asset will generate and how much will be allocated to debt.
A lot of businesses get into debt to cover cashflow shortfalls. To avoid this, encourage and incentivise your clients or customers to pay up promptly! You can look into prepayment options, offer a small discount for quick invoice payment, and/or review your invoices to make sure there are no barriers keeping clients from paying.
Consolidate or refinance existing debt to get the lowest interest rates. Regularly review your debt situation to make sure you are getting the best possible deal. If not, renegotiate.
Increase your profits where possible and use extra to pay off debt faster. Prioritise costs and cut any unnecessary ones. Seek the best prices from suppliers. Join a buying group.
Take advantage of any available government support. For example, did you know that until the end of 2023 you can apply for interest-free loans through the Small Business Cashflow Scheme (SBCS) if your business has experienced loss of revenue due to COVID-19?
Stay on top of your books
(or have someone else do it)
Have you ever been three weeks behind in loading your receipts into Xero? You certainly wouldn’t be alone, but you would be indulging in bad financial habits. Good bookkeeping is invaluable for both your finances and your peace of mind. These day-to-day tasks come together to create your financial blueprint, the basis of your tax returns, and the records which will guide your financial planning. Staying on top of your bookkeeping will help you to make informed decisions, keeping all the necessary details at hand and easily accessible. Your business is an asset just like your personal or rental properties—you wouldn’t neglect them, so why do the same to your business?
If you’re not keen on keeping your own books, there are options—but don’t push the task off onto a loved one who is also not excited by the job (or possessing any skills or experience). A good virtual assistant (or team of talented VAs like we have at Released) will whip your books into shape quick smart.
Here’s a great way to look at this: what is the “cost” of paying someone to do this? How much will you need to gain in efficiency or savings to cover it? I bet you’ll be surprised by just how little you need to move the dial to make it a worthwhile investment.
These five tips will help you to keep your business in a good position financially. For more expert advice, take a look at SMYD’s resources page. And if you need help with the admin side of it all, get in touch with the Released team.
