1 The National Business Review / June 22, special report It has been a slow recovery for small and medium-sized enterprises () after the global financial crisis, the slowdown in consumer spending at home and the earthquakes in Christchurch. But there are definite signs of sunlight at the end of the tunnel, such as retail sales rising., defined as those with less than 20 employees, account for 40% of the economy s total output on a value-added basis and 31% of all employees. Traditionally, have called for less regulation but new research finds that some use regulation to their advantage, particularly those with strong business networks and who belong to professional bodies, as well as those that invest in up-todate management systems. NBR s special report looks at the challenges and opportunities facing in this new recovery. Simplifying taxes for small businesses The New Zealand Institute of Chartered Accountants has proposed a radical rule of one for SME taxes. As NZICA tax director Craig Macalister described it: No more than one hour, one return and one payment each month for income tax and GST compliance. By our calculation, that s thousands of hours freed up from compliance to focus on what small business owners do best. We also don t believe Inland Revenue has anything to fear, Mr Macalister The tax system was all about balance between minimising compliance costs and maximising revenue. But with much tinkering over time it had become overly complex, he Cont P30 How NZICA s tax simplification would work Micro business tax A business with no employees, turnover of less than $60,000 and unregistered for GST A final income tax rate of 14% for businesses that are not traders and 7% for businesses that trade in goods (such as retailers) will be paid on business turnover. Tax payments will be made monthly or at any time. No filing of returns. The micro tax of 14% and 7% includes a component for Accident Compensation Corporation levies. Income for the purposes of social policy commitments (child support, student loans and Working for Families tax credits) is 50% of gross income. The income will be transferred to the taxpayer s summary of earnings and no further income tax on this business income will be payable. Small business tax A business with turnover of less than $600,000, GST registered and may have employees Income tax will be calculated on a cash basis on the GST return and will be essentially a final tax. Small businesses that trade through a company or partnership will be taxed analogously to a sole trader by taxing the entity based on the personal marginal tax rate structure. Transactions, such as dividends and salaries, between the business entity and its owners are eliminated, as is the need to maintain an imputation credit account. Income tax and GST will be calculated and paid two monthly. Trading stock and plant equipment purchases are deducted on a cash basis. No provisional tax, no fringe benefit tax and no entertainment tax apply. There are no balance date and square up issues such as stocktakes. We ll deliver thousands of hungry business customers you just need to bring your irresistible products & services Call today to exhibit October ASB Showgrounds, Auckland mybizexpo.co.nz Exhibit alongside the most powerful brands. For the full exhibitor list please see Organised by
2 30 SPECIAL REPORT June 22, 2012 / The National Business Review Demand creates expo for smaller businesses Rule of one to help growth From P29 Brent Spillane XPO Exhibitions director Brent Spillane believes his company just had to take the opportunity to fill the SME gap in the business expo market. It was clear that small businesses wanted an effective, economic showcase where they can find ways to cut the cost of business, Mr Spillane They asked we listened. XPO s solution is the MyBiz Expo, taking place at the ASB Showgrounds in Auckland from October 14 to 16. It was clear that there is a need for an expo that helps solve the usual problems of business, easily and effectively, Mr Spillane We see this happening organically at our other events but so many are out there working alone and without access to better services and better information. He said he heard time and again how business owners simply did not have the time to pick through multitudes of service providers and were looking for the most effective and simple solution when it came to getting the best return on their investment. Power companies, telcos, banks, freight, IT support, insurance, vehicle leasing, print industry companies and more will be exhibiting at MyBiz. Visitors can go from supplier to supplier at the event and analyse their various features and benefits, while exhibitors have the opportunity to do face-to-face business and put together mutually beneficial deals, Mr Spillane Ultimately, we want the show to give the underdog SME a chance to collectively bargain [by sheer numbers invited] special offers that might normally only be offered to multinational procurement departments. XPO is also keen to change the landscape of how companies at expos interact with each other at trade shows, introducing a swipe card system that We want the show to give the underdog SME a chance to collectively bargain [by sheer numbers] special offers that might normally only be offered to multinational procurement departments Brent Spillane will record a visitor s data for the exhibitor and providing a database of contacts they interfaced with at the event. Mr Spillane said the technology also enabled another business platform after the event, with the creation of a MyBiz Club that would provide business offers and discounts throughout the year. While could use the MyBiz Expo as a nuts and bolts price comparison, it also presented a valuable opportunity to inform and educate visitors on new product offerings in the market, such as high-speed broadband solutions and TV advertising that might be new investments for business but could deliver significant results for. TVNZ has partnered XPO Exhibitions for the MyBiz Expo, taking the opportunity to reach out to event visitors to gain an in-depth understanding of their business challenges. TVNZ media sales general manager Tony Waite believes that through gaining this understanding, TVNZ can demonstrate how TV advertising can help overcome those challenges by developing a solution that delivers true return on investment. Television is a powerful advertising medium that needn t be cost prohibitive, Mr Waite Through MyBiz Expo we aim to showcase the power and benefits of advertising with TVNZ. We believe there is value in decoupling the system for small businesses from the system that applies for New Zealand s larger, more complex businesses. A simplification of rules would create an environment that is more conducive to business growth and productivity, he It s NZICA s view that if the GST base could be used as a basis for calculating and paying income tax, then income tax compliance costs will be largely absorbed into existing GST compliance costs. The proposals in the paper are two-fold: a turnover tax model for micro businesses (not GST registered and no staff), and a system based on GST for small businesses (turnover less than $600,000). NZICA revealed those views in the second instalment of its paper Simplifying the Taxation of Small Business in New Zealand. This paper is about presenting a constructive thought piece to government and business. We are very aware that the proposals in the paper cut across established income tax accounting but we believe that this is necessary in order to deliver simplicity to small business owners. Similarly, we recognise that the ideas presented in the paper may generate less tax compliance and related work for our members. We are, however, strong advocates for freeing up chartered accountants to spend more time doing what they do best: focusing on adding value to businesses to help development and growth, Mr Macalister ON THE WEB CRAIG MACALISTER: One hour, one return, one payment Take the bite out of underpaid tax. Penalties for underpaid provisional tax can be savage. But there is an IRD approved way to: - - eliminate late payment penalty charges, and save up to 25% of the IRD interest Tax PURCHASE from New Zealand s original and most trusted tax pooling provider is the solution. Talk to your tax advisor, call the tax tamers on or visit TMNZ/G/12/7
3 The National Business Review / June 22, 2012 SPECIAL REPORT 31 Why the one-hour a month policy would work for Tax Management New Zealand founding director Ian Kuperus says the NZICA discussion document is a good step forward for. It s good to see the institute taking a thought leadership role and not just responding to government initiatives and to seek to put small and medium businesses first. What usually happens is that an array of government departments come out with their separate ideas on what is going to be helpful for business and what might improve things, Mr Kuperus One hour a month This, however, seeks to take the position of the small businessman who says look, I can afford an hour a month on compliance. I don t mind what fills in that hour but what really gets to me is if that hour becomes five or six or 120 hours a month, then I am really feeling the burden of that. The challenge is really to turn things around and say to Ian Kuperus Bibby NBR Ad 180x260 20/06/12 9:47 AM Page 1 government departments, It s your decision to decide what compliance burdens you are going to impose on small business but here is the challenge try and keep it to an hour a month, he What the NZICA proposal does is instead of looking at it from the view of different government departments, it is trying to look from the SME point of view and it s aiming to channel through one agency. I think the more that government has a one-stop shop for businesses the better. What typically happened in tax policy development was that when changes made they were often at a high level from a large business perspective and carveouts were then made for small businesses at the end of the line. This seeks to turn around and take a holistic look at things from the SME view and see what can be done from that perspective. Mr Kuperus said the one hour could be the SME s time but with more hours of support from their external advisers such as chartered accountants, though I guess the caveat there is that small businesses haven t got large amounts of money to be paying for excessive time commitments from accountants or other professionals. The challenge from top down An hour a month is the compliance for government, so I would separate that out from the normal invoicing or paying their bills. The key is whatever government compliance requirements come over the top of that, such as keeping GST invoices or doing GST. If, when they are paying their bills, there is a seamless way to pick up the GST calculations so it doesn t take the businesssperson any longer, he or she just pushes a button and everything is recorded at the end of the month when she pays the bills it s much easier. A lot of these levying mechanisms be it income tax, GST ACC, they are all calculated off a similar base, broadly the profitability of the businesses. It s just that in the finetuning of the tax system, people have layered additional complexity on each of those mechanisms, so the businessman has to do his separate calculations in each area and they are not as well integrated as they might be if you were looking at the challenge from the top down. Internet fosters streamlining The continued development of the internet was going to be another important mechanism that could streamline interactions with the government, he Other approaches included ones such as Tax Manage ment, which helps businesses paying I think the more that government has a one-stop shop for businesses the better Ian Kuperus their provisional tax. We can finance the tax at a very low rate that means if the government s provisional tax payment dates don t fit with the cycle of that small business they can essentially redefine their payment dates by coming to us and we can map their payment dates for them. Albeit with an interest cost but it s a very seamless easyto-access service. Bibby turns my invoices to cash flow in 24 hours Ben Gilmore Site Sweepers Ltd. Managing your business can be challenging when your cash is locked up for 30 days or longer. We can release up to 85% of the cash you re owed in 24 hours. With over 5,400 clients in 14 countries worldwide, we re the world's largest non-bank specialist in Invoice Finance for. Call us on or visit bibbyfinancialservices.co.nz for more details.
4 32 SPECIAL REPORT June 22, 2012 / The National Business Review A small business can have a big voice Michael Dunning One of the biggest challenges for most is to set aside the time and effort for medium- to longterm planning. The constant changes that small businesses have to adapt to as well as high work flows, often makes it easier to only respond to the daily challenges as they arise. Even as a large corporate with more resources at our disposal, we need to regularly take time out to review our medium- and longterm goals and our results. We also get advisers outside our business to peer-review our current performance and future plans. This has resulted in a better understanding of our business risks. For a small to medium enterprise it should come down to a simple commitment to taking care of day-to-day business as well as working out three or four major initiatives that will drive Michael Dunning future profitability and minimise risk. The way the insurance industry gets involved is by providing advice and business support through associations such as the Insurance Broker Association of New Zealand. Brokers and advisers are generally also, so they have a good general understanding of these issues, along with expert knowledge of risk and insurance. Small to medium enterprises should look to their insurance brokers or advisers when placing their cover for a full understanding of what they are paying for. Not all created equal An important point is that even in the same industry there will be different capability, capacity and skill levels among. Be aware of what these are in your business and then make plans accordingly. The mind-set of the business owner and employees will play a huge part in the ability to translate capability and capacity into results. Developing business networks is also important to stay in touch with what is happening in the industry and to provide additional opportunities for business growth. As part of a business network, a small business can have a big voice. We re aware that the challenges of doing business in today s economic environment are increasing and growing in complexity. Our business is no different. With the increased costs of the Christchurch earthquakes and the The insurance industry is a people-based industry designed to provide strength and certainty to individuals by pooling risk CHALLENGES GROWING: In Christchurch particularly for all businesses as the city rebuilds challenges that we face in managing these costs, we have had to be proactive in our response. We ve had to reprioritise and divert a lot of time and resource into our response and will need to continue to do so for some time. Small business owners should be aware that there are reputable advisers and organisations that can help them. The insurance industry is a people-based industry designed to provide strength and certainty to individuals by pooling risk. As an industry we are well placed to help small businesses. Making contact with an insurance broker or adviser can help with business insurance needs. However, often brokers are also small business owners facing similar issues. They may be able to help in other ways or become valued members of a business network. Michael Dunning is Vero Insurance s NZ manager business Insurance. Vero New Zealand is a general insurance company ownd by Suncorp Group we re serving Koru memberships, valet parking & Airpoints Dollars. Air New Zealand s Above & Beyond Programme serves up a series of tasty benefits for our loyal Business customers. So if your business is spending more than $20,000 every year on air travel, get registered for Above & Beyond and start enjoying the benefits. It s a no-brainer. RegisteR ONLiNe at airnewzealand.co.nz/above-beyond OR PhONe AIR0003/NBR Above & Beyond Programme terms and conditions apply. Airpoints terms and conditions apply see airpoints.co.nz
5 $5 $4 Start finding the gaps in your cover right now. If it s more than 12 months since you sat down and reviewed (and not just renewed) your business insurances, then your business probably isn t covered for the levels of risk it s currently exposed to. Likewise if you answer yes to any of these questions» Changed your supplier arrangements?» Consolidated operations into one location?» Re-valued your major assets in the last 12 months?» Started exporting?» Vulnerable to currency fluctuations?» Seasonal fluctuations in stock levels?» Upgraded equipment or invested in new equipment?» Done anything that affects your balance sheet? PUBLIC LIABILITY MILLIONS $3 $2 $1 80% of Kiwi businesses are underinsured. Of those, a staggering 60% may even lack the cover to survive a major event such as a fire. These unforeseen shortfalls can run to hundreds of thousands or even millions of dollars. Enough to wipe out even well-capitalised ventures. Why are we telling you all this? We think someone needs to stand up and say something. We can t stand by, knowing that huge numbers of Kiwi businesses are unwittingly exposed to significant levels of risk. No one can benefit from that. How can insurance get out of whack? While businesses are constantly growing and changing, their insurance cover often isn t. These unseen and uncalculated shortfalls in cover won t appear on spreadsheets and can go on quietly growing for years, only making their presence felt when the unthinkable happens. Fixing your underinsurance problem can be easy just talk to your broker. Just start talking. And keep talking. Because that way, they can help you close up or at least shrink those gaps in your cover before they hit business-harming proportions. Other things your broker can do. They can also help you make informed choices, by highlighting where it s essential your business is properly covered. They can even prepare a full, written assessment of your business risks and cover recommendations, which you can present to the other stakeholders in your business. And should the worst happen, they ll guide you through the entire claims process, ensuring all the relevant information gets into your insurer s hands. More importantly, they can help your business get back on track as quickly as possible. Get a hand plugging those gaps visit nzicovercheck.co.nz now. $0 UNDERINSURED RECOMMENDED NZI New Zealand s risk management experts: with over 150 years of insurance experience AA- S&P rating *, for a very strong claims paying ability Backed by IAG, Australia s largest insurer, but autonomous in New Zealand Genuinely committed to sustainability. *Rating awarded 3 November 2011 by Standard & Poor s, an approved ratings agency. Please visit to view the rating scale. Figures indicated are purely for illustrative purposes only; NZI recommends you seek advice from your insurance broker before altering any aspect of your insurance cover. NZI0032G NBR FP BarGraph.indd 1 6/06/12 10:30 AM
6 34 SPECIAL REPORT June 22, 2012 / The National Business Review Factoring in a funding alternative For many small businesses, this business environment is daunting, Bibby Financial Services NZ national sales manager John Blackmore says. A myriad of challenges including difficult trading conditions, increasing operating costs, weakening consumer appetites, as well as the influence of the eurozone s economic crisis are placing pressure on profits and growth opportunities for small businesses. But cashflow management was one of the most pressing concerns for small businesses in New Zealand, he said Bibby Financial Services is the largest global independent specialist provider of debtor finance (also known as invoice finance, factoring, cash flow finance and invoice discounting a flexible cashflow funding tool for small and medium sized businesses). There are more than 470,000 small business enterprises in New Zealand and many have difficulties securing funding to take advantage of growth opportunities or manage cashflow to stay on top of statutory liabilities, wages and funding sales, Mr Blackmore Cashflow difficulties According to recent Statistics New Zealand figures, sales volumes for core retail fell 1.4% in the March 2012 quarter. This decrease followed strong growth in the second half of 2011, when the Rugby World Cup brought 133,200 overseas visitors to New Zealand. Many businesses across New Zealand are struggling to manage cashflow following the Rugby World Cup. These cashflow difficulties are often exacerbated by difficult lending terms from banks, which often require personal property as security against a loan. As a result, demand for factoring is growing to assist with cashflow, Mr Blackmore Factoring operates by providing a company with upfront cash for unpaid invoices. The service typically advances up to 85% of the value of each invoice JOHN BLACKMORE: Cashfl ow is a pressing concern into cash within 24 hours to help finance the gap between invoicing and payment. Once payment has been received on the invoice the remaining 15%, less a service fee, is returned to the client. Unlike traditional loans and overdrafts, factoring does not require property as collateral and also avoids the business waiting up to 60 days to receive payment for the invoice, making it one of the more accessible funding options available to. Many small businesses may be fully drawn or unable to risk their personal property to obtain a funding increase. Factoring is particularly valuable to these businesses and fortunately there are a number of active lenders within the New Zealand market, Mr Blackmore Tight liquidity Eagle Wire Products is one such business that has used factoring to support its cashflow management. Based in East Tamaki, Eagle Wire is a specialist in design and fabrication of wire, tube and sheet metal goods, employing 22 staff and with a customer base of 350. Hadley Wright, managing director of Tawil Group, the parent of Eagle Wire Products, said, When we started out as a small company, securing finance was relatively easy. However, we began treading water as a result of difficult trading conditions during the global financial crisis. We experienced tight liquidity with consequential supplier payment challenges. That led the firm to Bibby to seek more competitive finance and support cashflow management. We saw a significant improvement in our abilities to manage liquidity and have achieved over a 50% reduction in our overall funding costs, Mr Wright With the Reserve Bank forecasting a 0.4% growth of New Zealand s GDP in the June quarter, Mr Blackmore believes many will be struggling in the near term. Managing cashflow is a fundamental element of business success and, in an uncertain business environment, you need flexible funding solutions. The growth of factoring has been remarkable in markets such as the UK and Australia post the global financial crisis, with brokers and other finance professionals increasingly seeing more opportunities for referrals within these markets. I fully expect New Zealand to follow these trends, Mr Blackmore TRIM ECONOMIC CONDITIONS, FULL FAT GROWTH. Surviving the recession is an achievement in itself. Prospering in such times is nothing short of remarkable but it can be done. Just ask Mike Murphy, owner and director of Kokako. In 2001, the Kokako organic coffee company was launched. In its own right it s a successful and popular brand. Then global economic factors came into play. Mike had to examine the business and make the tough decisions. He also made a singularly important choice: to seek the expertise of a Chartered Accountant. So he approached Aaron Wallace CA of Auckland firm Hayes Knight. Naturally, Aaron applied the financial rigour for which Chartered Accountants are renowned. But he went beyond the numbers and provided Kokako with strategy, governance and a model for growth that enabled Mike s sustainable vision for the brand to be realised. Today, Kokako has a coffee roasting business, a well-known café and a profitable product line. The hard work will never be over. Anyone in business knows that. But now the rewards will be much richer. You can see Kokako s full success story at NZICA.com/BusinessDoesBetter. Better yet, you can bring this advantage to your business simply by searching business does better. Business does better with an NZICA Member. CAZ0101R
7 The National Business Review / June 22, 2012 SPECIAL REPORT 35 Challenges and opportunities for smaller businesses? Karl Armstrong Any SME that takes account of its risks better than a competitor increases its likelihood of enjoying a long and prosperous future. Business continuity, sustainability and understanding risks are familiar topics to large companies but anecdotally are given less consideration by often at their peril. This is where the insurance sector has an important role to play and one where we is determined to show leadership. The Canterbury earthquakes, for example, provided a salutary lesson for some businesses who were found to have inadequate risk processes and/or inadequate insurance cover. Both considerations need to be part of an overall strategy for any SME. With the cost of insurance increasing as a result of factors such as rising reinsurance prices and the scope and availability of some insurance cover also affected by events in New Zealand and around the Karl Armstrong world, more than ever before need to understand insurance and the physical and financial risks their enterprise may face. Plnning cuts risks And need to plan accordingly. Is stock secure (both from fire/theft or breakage)? Are premises vulnerable to any range of events (again consider fire, theft or natural peril such as flood)? What can I do to limit the risks? If something were to happen, how would the business get back up and running quickly? Planning can help reduce the cost of insurance and minimise the impact of particular events, enabling a SME to get back to business as quickly as possible. that own their own premises should know earthquake insurance is now subject to a deductible (excess), which is a percentage of the site value of the insured property, rather than a percentage of the loss. This excess applies regardless of the amount of a claim so who may be affected need to consider how they ensure they have capital available to cover this cost should it be necessary. Extend not reduce Business interruption insurance is an area where sometimes feel they may be able to cut ba ck to reduce costs. However as we ve seen in Christchurch the time it can take for a business to get up and running after a large loss can often be longer than anticipated. With that in mind, a business may need to extend rather than reduce cover or ensure robust contingencies are there. While need to understand their own responsibilities, it cannot be expected that business owners are experts at everything, so that is where expert advice and working with brokers is valuable. Karl Armstrong is NZI executive general manager look to trim costs but still grow Scott Carr Air New Zealand general manager New Zealand Scott Carr says a challenge for all businesses in this environment is to reduce costs while achieving growth. This is no different from corporate travel in that most organisations continue to closely monitor their travel spend whether it s air travel, accommodation, rental cars or reducing days away while travelling, he Nevertheless, Air New Zealand remained optimistic about the year ahead and we are well placed for growth, he Business travel was looking positive, with specific industries continuing to perform well, particularly exporters. Mr Carr noted that Air New Zealand supported through two offerings that helpd save on travel costs and encouraged travel. Travelcard was a corporate form of payment for air travel that delivered cost benefits of no card payment fees. The Above & Beyond programme rewarded businesses for their loyalty to the airline. Air New Zealand has seen significant growth in membership of the programme in the past 12 months and believes this is partially driven by businesses looking for opportunities to save on travel costs.