Issue 5 - Christmas Edition
Welcome to the 2010 Christmas edition of Jarvis Accounting Solutions newsletter.
Trading Hours over the Holiday Period
My office will be closing down from 12.00pm on Thursday 24 December 2010 and will reopen on Monday 10 January 2011. However, if you urgently require my help; you can still email me with your request and contact details or phone me on 027 383 2652 and leave a message.
To all of our wonderful clients, business associates and supporters, we wish you a joyous Christmas and an exciting and successful 2011.
From the Jarvis Team
Stuck for an idea for a gift this year?
Go shopping for a beautiful range of Natural Soy Candles.
For gifts, table centre piece and outdoor entertaining.
Shop online at www.benaturalsoycandles.co.nz FREE delivery with purchases over $40, within Christchurch city suburbs
Happenings at Jarvis Advanced Accounting
I would like to introduce my new employee, Richelle Jorgensen. Richelle has ten years of experience in increasingly responsible roles within finance at several companies. In her most recent position, Richelle managed finance and systems for Community Energy Action. She will be helping to look after our online accounting software clients, primarily Xero based.
Richelle is also available to assist with Administration consultancy. If you think there must be a better way to do this, there probably is and Richelle will be more than happy to advise and assist with getting systems flying and improving efficiencies.
This Business Tip completes the series on the importance of having cash in your bank. Cash is vital for a business to survive and prosper and when it's there we know the business is doing well. A business in good health may survive for a short time without sales or profits, but without cash it will die. Management of money coming in and out of the business needs careful attention.
The final area that we will look at is Accounts Payable also called Creditors (Suppliers you bought goods from).
What are the common problems?
- You have no agreed credit terms with suppliers and pay earlier than you need to.
- Do not have a system to prepare detailed Creditors' Aged Analysis on a monthly basis.
- Failure to pay invoices on a timely basis.
- Failure to contact any Creditors who you are beyond the stated terms of trade.
- Failure to plan for Statutory payment, payment to the IRD (GST, PAYE, Provisional Tax)
What can we do to rectify this?
- Agree standardised terms with your suppliers, eg the 20th of the month following. Not only do you get the use of your cash longer but paying once a month will reduce administration time.
- Check whether other suppliers would offer better terms. If they would, ask your existing suppliers to improve theirs.
- If you pay promptly, your suppliers should expect to do you a favour in return when you need one.
- Poor creditor management planning may see you accumulate excessive debt or jeopardise your company's ability to operate, especially with suppliers linked to sales. Always resolve issues and make a plan with suppliers before it turns to a dispute.
- Statutory payments should always be planned for and paid on time, failure to do so can result in huge penalties and if left unresolved can even lead to prison.
Business Lessons from the Christchurch Earthquake
It has been an interesting year. Who would have thought that Christchurch would experience and suffer the consequences of a 7.1 earthquake and all the resulting aftershocks.
We can happily report that, apart from some minor superficial damage to our office and homes, we managed to survive unscathed. We were some of the lucky ones.
A disaster like this can happen at any time, day or night. Our beautiful country does sit precariously on islands that straddles fault lines and volcanic vents and eruptions from Mount Ruapehu have at times disrupted businesses, roads and airports. These 'acts of God' send a very real warning to both businesses and private citizens to check that insurance cover is both comprehensive in type and of sufficient value to indemnify losses. Some Christchurch businesses are facing serious financial hardship because their risk cover was inadequate or, even worse, non-existent
An insurance broker has provided us with the following list of business risks that need to be covered:
- Commercial Building Insurance: Full replacement value including loss of rental income for 12-24 months minimum and landlord liability.
- Stock: Insured for full value and allowing for seasonal fluctuations and multiple locations.
- Plant & Equipment: Again, for full replacement value at today's costs.
- Business Interruption: The sum insured should be for the full Gross Profit figure allowing for trends over the next year or two. An adequate indemnity period is vital, 12-24 months minimum
- Marine/Transit Insurance: For stock being transported within the country and overseas.
- Public Liability Insurance: Including Statutory Liability and Employer's Liability.
The above list is certainly not exhaustive and you should seek advice from an insurance broker or company to ensure your business assets are protected with comprehensive cover of all risks and losses. The unthinkable can and does happen, just remember Christchurch on the 4th of September.
One of the great discoveries a man makes, one of his great surprises, is to find he can do what he was afraid he couldn't do. Most of the bars we beat against are in ourselves - we put them there, and we can take them down.
October sure was an interesting month. Some clients who prepare their own GST returns (despite our best efforts to motivate them into early action) realised at the last minute the implications of the GST rate increase. Apart from that, the transition went pretty smoothly.
But the switch to 15% GST is not quite complete. We have clients whose GST returns span I October 2010, the date on which the GST rate increased. These clients will need to file a special 'Transitional GST Return' (GST 104A). These included clients who had a two-monthly or six-monthly return with a period ending 31 October, and also includes those clients with a six-monthly return with a period ending:
- 31 December 2010
- 31 January 2010
- 28 February 2011
The Transitional GST Return splits the GST calculation into two parts, each part covering transactions at the old or the new rate. This is a complex return so for those of you who do complete your own GST returns, don't be shy about asking for help.
A Wake Up Call for Mum and Dad Trustees
Trust times are a changing
A wake up call is coming for mum and dad trustees with an overhaul of trust regulation likely to create a compliance regime similar to that for governing companies.
Next month, a paper to be issued by the Law Commission could review options to significantly tighten compliance procedures for trusts including: creating a register of trusts, appointing a trusts ombudsman paid for by an annual levy on trusts, detailing in a dedicated statute the duties of trustees and making it easier for beneficiaries to remove non-performing trustees.
In line with the Companies Act which sets out company directors' duties, the trust statute could include both civil and criminal penalties for trustees (often mum and dad) who fail in their duties and could give more power to trust beneficiaries. There may be as many as 500,000 trusts in New Zealand resulting in a growing worry that a large number may be mismanaged or, in some cases, not managed at all.
Poor trust administration may lead to serious problems for both trustees and beneficiaries evidenced by the following examples:
- Annual gifting of Settlors' loans not completed. If loans resulting from assets transferred to the trust are not forgiven, trust assets will not be fully protected, defeating the primary purpose of the trust.
- Trust minutes not completed. Trustees should authorise by a signed minute adoption of the annual financial statements and tax returns, distributions to beneficiaries, borrowing of funds, the purchase and sale of assets, investment strategy and other important transactions. Failure to do so may lead to disputes between trustees and beneficiaries, causing expensive legal litigation.
- Lease documentation not on file and current. Trustees may own property that is leased to a trading company. If up to date lease documentation is not on file the leasing arrangement could be challenged by Inland Revenue or a disgruntled beneficiary.
- Registers regarding Trustees, Beneficiaries, significant events and gifting programmes not properly maintained. If these registers are not accurately maintained, problems may arise in establishing the true position of the trust, especially when attempting to wind it up and distribute assets to beneficiaries.
- No Settlors' Memorandum of Wishes. This document provides trustees with a blueprint for governance of the trust to fulfill the intent of the settlors who established the trust. Without this memorandum in place, trustees may misinterpret the trust's purpose.
The Way Forward
There is a clear need for family trusts to be comprehensively reviewed.
At Jarvis Advanced Accounting I always recommend that a set of accounts and annual minutes are completed, even if the Trust only owns the Family home.
If we have not done this for you or we have and you have concerns about the Trust Documentation please contact us in the new year. Do not allow yourselves to be open to a challenge by any other party.