Start-ups in tough times can be achieved

MANY of today’s successful businesses began in difficult economic times.

They had to be lean, adaptable and prepared to seize opportunities when they arose. They didn’t have the luxury of boom times, when mistakes could be covered up.

The current tough times are full of opportunities. The following is a true story about Murray, who returned to New Zealand to look after his ailing mother, who had recently become a widow.

Murray had been working in a bank in Australia. He’s single and in his late forties. 

One day he was building a boulder retaining wall at home when a neighbour stopped to chat. This led to him being asked if he would like another job. Soon another neighbour, also a widow, needed some help and the owner of a house across the road wanted his garden maintained while he went to Europe for two years.

A retired friend designed a flier and 150 of these were put in letterboxes. Murray said the flier didn’t work very well because he got only two permanent jobs from it. He then added “but I did actually get a couple of one-off jobs as well”.

A 2% strike rate from a flier would be pretty good, I told him.

Murray has also picked up a couple of cleaning jobs. Within nine months he has built up an income of about $800 a week.

To get started, he offered a below-market rate, but this was at least better than he would have got working for wages, if he could have found a job. Gradually, he’s improving his charge-out rate as his business expands.

He was lucky not to have a family to support and to be living among an aging population in a reasonably affluent area, which is precisely where his target customers could be found.

What Murray did not have was a network, but he was able to take advantage of his mother’s. A network supplies you with contacts and hence referrals. He also had no special skills to offer the market, but he took advantage of the opportunities as they arose.

Why do we tell you this story? Because many people are being made redundant. One may be your friend. Why not suggest they start out on their own? This way, like Murray, they’ll have lots of bosses and if one makes them redundant, it may not matter too much.

Build business with a database

A DATABASE is arguably the most valuable tool you can use to promote your business. If you have ever wondered about the wisdom of building a database, consider this story.

A young professional has built up a database of 6000 email addresses. He sends regular newsletters to all of them. Occasionally he presents seminars. His last seminar drew 80-90 people.

You can also build a database. Invite every customer, potential customer and any other contact to be on your mailing list. Don’t overlook suppliers because they might give you references.

If you are going to send out newsletters,  make sure they are interesting and have some value to the reader. Many newsletters are a yawn. We trust ours is not one of these.

Some useful newsletter rules to follow are:

·         Send them regularly and consistently. When you feel like it, is not good enough.

·         Make each article of value to the reader.

·         Use colloquialisms. Using “you” and “your” is fine.

·         Make the articles easy to read. Bullet points, short words and short sentences help.

Take a break and let ideas flow

PERHAPS the best way to get some new ideas for your business is to apply some of the Edward De Bono thinking techniques.

However, another easy way of doing it is to take a holiday. Make sure it lasts at least two weeks, preferably more.

If you spend the first week winding down, the second week will be more relaxing. Your subconscious brain will, however, keep working and without your trying, hopefully, new ideas will pop into your  head. Don’t let them get away. Capture them on paper, immediately and that means NOW.

You’re having dinner at a restaurant, someone says something and it stimulates an idea for you. Write it down before you forget – don’t rely on your memory to recapture the thought later.

Armed with new ideas you can go back to work and start implementing them. Your staff (if you have any) will probably feel more comfortable doing what they’ve always done (and getting the results they’ve always got) rather than making changes.

You can help by including them in the process.

A client went to work with a bright idea, but asked his staff for their ideas first.

“I had to confess, Anne came up with a better one. I dumped mine and we ran with hers.”

PIEs and PIR

WE’RE still getting clients who are overpaying their tax when they invest in a Portfolio Investor Entity (PIE).

If you’re in any doubt of the correct tax rate to use , called Prescribed Investor Rate (PIR) please get in touch with us.

It’s based on the lower rate applicable for the last two years. For example, you get a request to supply your PIR in April 2013, use the years 31 March 2013 and 2012 (or equivalent balance dates).

If your 2013 accounts have not been done and can not be estimated sufficiently to determine the PIR, the practical solution is to use the rate based on the 2012 tax return.

Employee or contractor - take care

IT’S very tempting to try and make someone working for you a contractor rather than an employee.

The hope is by doing so you will bypass the obligations of the Employment Relations Act and avoid tax complications. As accountants, we don’t advise you on the Employment Relations Act but we do comment on tax.

Simply signing up a contract for service  between you and the “employee” will not necessarily mean the person about to work for you is an independent contractor, particularly if the contract does not reflect the true relationship.

You need to be particularly careful when it comes to tax. If you fail to make PAYE deductions when you should have done, the IRD can make you pay the PAYE and charge you a penalty. There could also be use of money interest and ACC premiums to be paid on the wages.

IRD sets out five tests but, unfortunately, none of them is black and white and judgment is required. The five tests are:

Do you control the “employee”?

What is the intention of the parties?

Is the contractor truly independent?

Is the type of work being done near enough to the same as that being done by other staff?

Does what the contractor is doing look like an independent business?


There’s no room here to discuss this subject fully. This is just an outline. If you have any doubt, please consult us.

Using social media for business

SHOULD you use social media as part of your business marketing? We think the following letter from a journalist might help you to decide. 

“It's becoming increasingly important for businesses and organisations to use social media, but for us in the Baby Boomer-plus bracket, it's often too daunting (and time-consuming).

“For Linked In and any of the other multitudes of people-connection media, it's a matter of whether you use it to build your audience and keep connected digitally to people and colleagues, or whether it becomes a nuisance. I often get requests from people to join such sites, and there's got to be a limit. In the end, everyone in business has to decide where they put their time. To operate an effective Facebook page, for example, takes about an hour a day. Do we all have someone free to do that, or do we have the time ourselves? Most of us in our age group still believe business is about exemplary service, face-to-face contact and 'doing the work'.”


Travel between home and work

GENERALLY, the cost of travelling between home and work is not a tax-deductible cost. Some people think if they do some work at home or have a home office set aside, it is a second place of business and therefore the cost of getting to their normal workplace is tax-deductible. To qualify, the home has to be a significant place of work so that in fact constitutes a second work place.  Some of the factors making it significant include: 

·      A large percentage of the time is spent working at home, say 30-40%;

·       files are kept at home;

·      there’s a good business reason why you would work at home;

·       the work produces a significant amount of income; 

·       the work at home is integral to the business.

Not all factors need to be present and it will inevitably be a matter of weighing up those that are to make a judgement.

Tax and life insurance

BEWARE of life insurance agents who claim premiums on a life insurance policy can be tax deductible to a company. While this may be true,  depending on who is going to get the proceeds of the policy (it needs to be an indefeasible – unable to be overturned – right of the employee) the premiums will nevertheless be subject to fringe benefit tax. This negates the benefit of having them tax deductible.

Income protection insurance premiums paid by an employer for an employee will be deductible and not subject to FBT if the employee would be taxable on any future payout.


February was a busy month with a 10 day trip into Hong Kong and Shanghai.  Then home to Coromandel for a three day fishing competition. While in Hong Kong I met with accountants who specialise in Hong Kong tax and investments in other parts of the World such as New Zealand.  There are significant tax benefits from correct structuring of investment vehicles in New Zealand for Hong Kong residents who return to New Zealand to live or who invest in New Zealand.  I also took the opportunity of travelling to Shanghai and I must confess that I was stunned by the vibrancy of the city.  It is a show piece for China’s entrance into the modern world. 

I had the opportunity to travel to a nearby satellite city, 250 km away.  During this trip by electric train it was interesting to see mile after mile of thirty storey apartment blocks either being built or finished.  What was even more interesting was that many of these buildings were uninhabited.  This would confirm some anecdotal evidence that China has only been able to maintain its growth rate due to these large infrastructure expenditures.  Urbanisation is the biggest potential force driving China’s domestic demand and the recent Development and Reform commission in China is stating that it will require 6.4 trillion dollars worth of investment to accommodate this urbanisation.  This is a large amount of money and it is leading suspect for the course of a bull market that could take Australian resource stocks significantly higher.  China’s powerhouse economy has major geo political and financial ramifications for the rest of the world.  There is no question that the world is heading towards a different or new world reserve currency which has financial implications for everyone. 

On a more mundane matter the high levels of ACC costs has caused me to look at ACC rates.  I did a recent review of one client’s ACC levies and with appropriate structuring can reduce the levy from $7,800 down to approximately $3,000.  So if you wish to discuss a reduction in your rates please email me. 

Interest rates continue to trend at historically low levels and it appears as though this will continue for the rest of this year.  If you have mortgages falling due for review I would strongly suggest that you lock in these low interest rates for as long as possible as this cannot continue indefinitely.  The latest Reserve Bank comments have just come out and they have advised that they expect to keep the official cash rate unchanged through to the end of the year at 2.5%.

Dare to be different

A WOMAN went into an appliance shop and asked: “Please show me your Gaggenau appliances.”

“Sorry madam, you will need to make an appointment,” she was told.

She was taken aback until it was explained to her that time was needed to show just how good the appliances are. Would she please make an appointment for a full demonstration? She came again next day at noon. The salesman showed her how the Gaggenau appliances worked, including the oven. He cooked her a lunch which included a roast rack of lamb.

Was she impressed!!? Well, she placed an order worth $40,000.



April 8 2013

2012 Terminal Tax
(March balance date)

May 7

3rd instalment of 2013 Provisional Tax
(March balance date)

GST for March 2013

May 28

1st Instalment 2013 Provisional Tax
(December balance date)

GST for April 2013


About Us

We are a full service Chartered Accountancy firm based in Mt. Eden, Auckland, New Zealand.  We provide full tax accounting, management accounting, trust accounting services.

Member, Institute of Chartered Accountants