Having completed Part 1 of Creating a Business Plan in 4 hours, you will now have a one page template that states your business’s Vision and its Purpose. You have identified what the business needs to deliver to you and the Core Values that provide the basis for how you will do this. Now we are going to delve into the detail to operationalise your strategy – by setting goals for the next 12 months, along with actions to achieve and metrics to ensure you’re clear around what success looks like.

5.Revenue Targets

Under “What we want to achieve” section, write Gross Revenue Target. If you have an existing financial forecast, use the projected annual revenue figure.  If not, see the PlusOne website for a financial forecast template. If appropriate, divide the Gross Revenue figure by 12 to get a monthly target (not relevant for businesses with seasonal variation).  Now add any other relevant high level financial measures such as Gross or Net Profit and a monthly target.

Note the Gross Revenue Target should tie back to your “What we want to achieve” statements.

6.Key Performance Indicators (KPIs)

Head up the next section in the right hand column with Key Performance Indicators (KPIs). These are the key business drivers and identifying these enables business owners to measure progress accurately and then apply strategies and tactics to improve each KPI.

Start by listing as many KPIs as you think are appropriate for your business. These will be drivers of your business and are levers, that if pulled, can have an impact on your results. Your KPIs need to be measurable on a daily, weekly or monthly basis.

For example, 5 KPIs that drive Sales are client retention rate, leads generated, sales conversion rate, average transaction value and average dollar sale.

Now rank your KPIs from most important and include the top 5 in your business plan. You will need to ensure your selected set of KPIs covers all core business areas, and also decide which of these will be key levers for change – not just for the coming 12 month period, but running through your entire strategic plan.

The next two sections are quick and easy to complete.

7.Our Ideal Client / Customer

Consider who you would like to work with and describe this customer in one sentence. Think about the Vision for the business and how the ideal customer would fit in with the Vision. Now complete the following sentence and enter on your Business Plan; “Our ideal customer is…”

8.Our Value Proposition (for ideal customers)

The Value Proposition is one of the most important, if not the most important, parts of your business plan.  Think of it as your ‘elevator pitch’ that summarises what you do and for who. It can be shared with customers and staff and is a powerful business tool.

Consider the following and spend 25 minutes brainstorming the things that describe your value proposition to your ideal customer.

• Why should your customers do business with you?
• What makes you stand out from the competition?
• What is your point of difference?
• What objections from customers have you overcome that your competitors may not have?

Now complete the following statement “I help target market do topic so that benefit. If you have three main problems you should call us.”

For example “We help small to medium sized business owners unlock their business potential so they improve performance and increase profits. If you want to grow the wealth of your assets, have your business running more efficiently and sleep at night knowing your assets are fully protected, you should call us now on 0800 7587 766.”

9.Our Most Critical Challenge

Write down as many critical challenges to be addressed in the next 12 months and rank in priority.  Now include the most important critical challenge in a new section on your Business Plan under the Ideal Client section.

10.Opportunities / Vulnerabilities We Must Manage

The purpose of this section is to identify key opportunities to take advantage of and vulnerabilities to be addressed. Consider the following:

• What keeps you awake at night?
• What’s happening in your industry that you need to respond to?
• How much family time are you getting?
• How much YOU time are you getting?

These issues are often identified by doing a SWOT analysis and a SWOT template is available here for you to complete your own SWOT analysis. Now include these in a section alongside the Critical Challenge.

The opportunities and vulnerabilities identified are often used as the basis for Goal Setting in Part 3 of How to create a Business Plan in 4 hours.

Good luck creating your business plan and remember, if you need help to do this, contact Giles or his team on  0800 758 766 or sign up for our business planning service.

The post How to create a Business Plan in 4 hours – Part 2 appeared first on GECA Chartered Accountants.

After you buy your first home and accumulate some equity on the property, it may be time for you to climb up the property ladder further. Now, when you are ready to start investing it is extremely important to do it right from the beginning. And the first question that needs to be asked is what legal structure to choose and what tax consequences it will bring.

Recently, The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 has been enacted. It introduced ring-fencing rental losses, a new rule for New Zealand residential property investors that will apply from the beginning of the 2020 financial year, i.e. from 1 April 2019.

To keep it simple here is what it means for property investors:

• If expenses related to your rental are higher than your rental income you cannot reduce your other income by the amount of your rental loss.
• You can use that loss amount against the profit from your rental – in a tax year when it gets profitable. Before this happens, ring-fenced losses can be accumulated.
• The amount of ring-fenced losses can be used to reduce or offset against taxable gain on sale of property for example if a rental is bought on or after 29 March 2018 and sold within five years after the purchase (so called the bright-line test). Un-utilised ring-fenced losses can be used in future when an investor buys another rental.
• An investor can elect to apply the rules on a property-by-property basis or on portfolio basis. This means that if an investor has got more than one rental, they can choose to track their ring-fencing losses by property or by the whole portfolio. Also, there is an option for an investor to include some of the properties to the portfolio and keep the others separate.
• Ring-fencing losses rules do not apply to your main home, business premises, commercial property, farmland, mixed used assets, employee accommodation, property bought as part of a land dealing business or bought with the intention of resale

This is the minimum that every investor may want to know about the new legislation. Now let me come back to the main question: what structure will suit better a new investor in the changed tax environment?

1. The first and simplest structure to be used is to buy a rental under a natural person’s name.If you get profit from your rental it is going to be taxed at your marginal rate. If you get a loss then the new rules will apply and you can offset the loss against your future profit.

The biggest disadvantage of this business structure is that even though it looks like a cheap option in reality it may appear that it is the most expensive one. Rental property under your personal name is not separated from your other assets.  This means that has no protection against your creditors and relationship property claims. Also, under some circumstances the process of inheriting this property may get complicated.

2. Another option is to set up a trust and transfer your residential property to this trust. It can by a costly and time-consuming option since proper trust setting and running implies that you will need to work closely with your financial adviser, lawyer and an accountant. However, it may be worth it: your property will be kept secured and protected against claims by creditors and ex-spouses / partners. Assets kept in trusts will be inherited by the people you want, and not the people that persuade the court that they were disadvantaged.

Taxwise, if the trust makes a profit out of rental property it may keep that profit in the trust or distribute it to the beneficiaries. If the profit is kept in trust it should be taxed at the flat rate of 33%. If it is distributed to the beneficiaries, it will be taxed at the beneficiaries’ marginal rates except for children under 16 (for them, the rate of 33% applies).

If the trust makes a loss it is subject to the above-described ring-fencing losses rule. The loss cannot be distributed to the beneficiaries and cannot be offset against other income that the trust may have.

3. There is an option for you to create a limited liability company and transfer your rental to the company. It will help you protect your property better than if it was held by a natural person but not as well as if it was held in a trust. However, the tax consequences will be similar. If profit is held in the company it will be taxed at the flat rate of 28%. If it is distributed to a shareholder as a shareholder salary it will be taxed at their marginal rate. Ring-fencing losses rule will still apply to the company losses.

There is one minor exception from this rule. As per s EL 11 of The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019, if a company is not a close company, i.e. has got more than six not associated natural persons, the ring-fencing losses rule does not apply. However, the majority of New Zealand companies are close companies and will be still caught by the new rule.

Summary

Nowadays due to the implementation of ring-fencing losses legislation, holding rental properties individually or keeping it in a trust or in a close company will not differ significantly in terms of tax liabilities. Each ownership structure allows distribution of profits to individuals and tax at individuals’ marginal rate. However, the losses will be still subject to the new rules.

Therefore, when choosing a business structure, it is worth considering other pros and cons such as security, compliance costs and accessibility of profit.

The Author.

The article is written by Valiya Gafarova, Certified Xero Adviser and Accountant at GECA Chartered Accountants. If you want to know more about tax consequences of having a rental feel free to get in touch with us on 0800 758 766.

Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.

The post How to choose the right business structure for your residential rentals after ring-fencing losses were introduced appeared first on GECA Chartered Accountants.

Set expectations at the beginning

In New Zealand more than 60% of family owned businesses are transitioned to a second generation. However, this process can be fraught with difficulty and often lead to conflict between siblings and generations. Often this is due to the ‘expectations gap’ – that is differences in expectations between the various parties involved in the succession.

Often the expectations of each party when entering into an arrangement are not documented and so misunderstandings occur between the different parties. I recently worked with a client where this mismatch in expectations led to a severe breakdown in family relationships. Something that could easily have been avoided had these expectations been made clear from the outset of their business relationship.

Create a succession plan to document expectations as soon as possible

In this particular instance, the son had joined the family business ten years ago with a verbal understanding that he would succeed his father and take over the business in due course. This is a typical expectation for a family member entering a business even if they may not be the best person to succeed the parent.

The business had several tough years and then a period of growth. During this time the son was employed as a CEO and after about five or six years began asking his father who acted as Managing Director what was happening with succession. Several discussions were held over the years, however, no firm agreement on the way forward was reached. Following increasing pressure from the son, two years ago the father finally engaged advisers to help structure a succession transaction with his son.

Communicate to keep all beneficiaries happy

It was important to both parents that their three children were treated equally. And so this precluded the gifting of shares in the company to the son. Instead, the father proposed the son buy 49.9% of the equity in the company based on an independent market appraisal, over a period of 5 years, and use dividends and a supporting loan from the family trust to enable this. His view was the family estate would be boosted by the amount received for the shares from the son. The son would then get a one-third entitlement to this value in his inheritance.

The proposal came as a great shock to the son. It was his expectation that he would be succeeding his father as owner of the business. He had not considered that his father would expect him to buy the company, especially not at a commercial valuation.  He believed that he had created the value during his ten years as a CEO and that by buying a company at commercial rates he would be rewarding his two siblings for his effort in creating value.

Plan for the unexpected

It was a classic case of mismatched expectations. And it was around this time that the father was diagnosed with a terminal illness with only two to three years to live. Suddenly, the succession process took on a new urgency.

Complicating the issue was the appointment of a sibling as a trustee to the family trust that held the shares in the family business. As an aside, this is a problematic issue for many New Zealand family trusts. While there is a desire for family members to support their parents in the event they become incapacitated. If they are beneficiaries as well as a trustee this places them in a difficult conflict of interest position anytime a distribution of trust proceeds is considered.

The sister was of the opinion that the brother was lucky to have a job and should not be given a company without paying for it. This led to a conflict between the brother and sister. In particular, because the original succession proposal provided for the trust to maintain a 50.1% shareholding, in other words, control of the company. As CEO and a part-owner as proposed, this was unacceptable to the brother.

Finding a solution that rewards success

The son rightly identified that if he wanted to game the proposal, as CEO he would manage the business value down in order to secure the remaining 50.1% at a reasonable price.  This would disadvantage his siblings in the process. He also had to consider whether he wanted to buy the company or use what would be a substantial inheritance to retire. He also recognised if he were to exit the business, there would have been a negative impact on business value in the short term.

The outcome

Ultimately, a succession transaction was structured. The son was given an option to buy 50.1% of the shares in the company each year at a set value. The set value was an agreed increase over prior year EBITDA, therefore, incentivising the son to exceed this in-order to achieve greater dividend return on his shareholding. The remaining 49.9% shareholding was to be valued in the event of his death and the son to buy the shareholdings from siblings at an agreed 10% discount to market value. This was to reflect the brokerage cost of selling a business and to incentivise the purchase of the business by the son from the family trust.

One of the crucial elements of the succession proposal was agreed and the proposal documented the dividend payment policy to enable the structuring of loan payments to pay for the shares.

The above example illustrates the need for documented agreements from the outset of any business relationship, and in particular between family members. The more informal nature of these working relationships often leads to mismatched expectations which can cause conflict and compromise the business performance.

In particular, the succession of a valuable asset such as a business needs to be managed carefully and with transparency amongst all family members to ensure harmonious family relations. Often family estates can be worth many millions of dollars. Claims on this can be wide and varied, ranging from partners family members to charitable causes. Documenting the succession plan and disseminating provides clarity and transparency to all involved parties and helps maintain the integrity of the family unit. 

Read more about Succession planning at GECA. If you need help with a family member succession process, feel free to get in touch with Giles on 0800 758 766.

The post Family Business Succession Planning appeared first on GECA Chartered Accountants.

FEL Group is a steel manufacturing business based in Penrose, Auckland. It manufactures a range of steel products ranging from street furniture such as park benches to most recently, a 30m bridge. Over the last 18 months the Directors have been receiving business coaching from Giles at GECA, to overcome challenges and unlock their business potential.

FEL Group is typical of many of the business clients who use GECA for business coaching and improvement.

• It is a family owned and operated business with current Directors, brothers Peter and Steve Medforth, starting out working in the business more than 30 years ago and then taking over from their father as owners in the early 1990s. Steve and Peter’s sons also work in the business.
• The Directors are hands on in the business, covering a number of key functions.
• Since 2000 the business has tripled in size, going from a small jobbing operation with 12 staff to one with three business divisions, 50+ staff, a range of diverse products and significant complexity.
• The manufacturing business sector in which FEL operates has become increasingly competitive with increased pricing and margin pressure arising from offshore suppliers and factory automation.

Getting started

The starting point for the Directors and Giles working together was the annual complimentary client review. This high level review meeting looks at all aspects of the business and identifies key issues that are preventing the business owners from meeting their objectives.

During the meeting, issues were identified that are typical of many owner operator businesses. These included;

• Managing the complexity of the business was getting beyond the skills and experience of the owners
• There was no 12 month business plan or longer term strategic plan
• The owners were wearing too many hats and were struggling to achieve work-life balance
• The existing business structure was unfit for purpose
• Sales were growing but profits were not
• Lumpy cashflow was creating financial pressure

Business Planning

The first piece of work undertaken by the Directors to address these issues was a business planning workshop. The output from the session was a one page business plan for the next 12 months setting out the key goals with actions and a designated person assigned responsibility to complete them within a set time frame.

It was great to get clarity about the direction of the business and put in place a plan to achieve our goals.

 Peter Medforth on his business planning session.

Quarterly Business Coaching

To help them achieve the goals set out in the plan, the Directors began quarterly coaching sessions.  The benefits of this were immediate, with long standing issues being resolved and an improvement in results.  Based on this, quarterly coaching was stepped up to monthly sessions to allow greater focus on achieving results.

As well, the coaching group was expanded to include the senior management team. Within six months, the business had two successive months of record results and was ahead of budget.

It’s the simple things that Giles made us focus on that have worked, documenting actions and making someone accountable for achieving these and the results speak for themselves

Steve Medforth

Organisational Review

A key issue identified during the business planning session was a business structure that allowed the Directors to step back from the business and regain their work-life balance.

An organisation structure review was facilitated by Giles and the end result was a robust business structure with a newly created CEO role to lead the business allowing the owners to move into a governance role. Giles then worked with the Directors on the recruitment of the CEO, assisting with interviews and assessment of the candidates.

It was great to have Giles’s corporate experience to call on when creating a viable business structure and then he was able to assist us with the panel interviews for the new CEO, something we had limited experience with.

Peter Medforth

As a family business, the Directors wanted to maintain ownership of the business over the long term and looking forward,  the next step is to put in place an effective governance structure to allow the Directors to govern the business and work successfully with the new CEO.  To do this, Giles will mentor the Directors to grow their governance skills as they transition from management to governance.

FEL Group is a great example of how GECA can work with business owners to unlock their business potential and grow their business.

At GECA our most successful clients use our business coaching services – call us now on 0800 758 766 for a free consultation. Alternatively, you can find out more here

The post Business coaching case study: FEL Group Auckland appeared first on GECA Chartered Accountants.

Business success and sports success are often down to one thing – good planning.

Beyond their obviously talented players, the All Blacks incredible record of success in part can be attributed to the planning that covers every aspect of their performance.

One of the assistant coach’s jobs on the recent tour to England was to catch the bus from the hotel to the stadium the week prior to estimate the time it would take for the team to get there on game day.

Planning for the small details like this gives the All Blacks the platform to focus on their roles, winning rugby games.

So what lessons from planning for success in sport can be applied to business planning?

Focus on what you have to do

Tops sports stars have incredible focus on achieving their goals. Every night in bed, Olympian Michael Phelps said he mentally swims the race in his mind, counting every stroke, visualising his turns, planning every second of the race.

Imagine what could be achieved if you bought such a focus to your business planning, mentally focusing on the key goals you need to achieve and planning the steps that need to be done.

Good business leaders do this by focusing on the key strategic goals for the business, and planning how to achieve these using clearly identified, time-bound actions and assigning responsible people for delivery.

Procedures build consistency

Sports success is based on consistent performance. Be it a competition across months, or a game of two halves, winners need consistent performance to ensure success.

In business, a great way to build consistency is to use clearly documented procedures that allow operations to be standardised. Clearly documented procedures for all aspects of your business a great way to reduce business risk – no more relying on knowledge held by a staff member who can be absent at any time.

Another benefit of documenting procedures is the opportunity to review processes to increase efficiency.  Many businesses have processes that have been there since day one without considering if increased business activity could allow a better way to do things.

Documenting procedures facilitates a process review; by setting down each step in any process, it is easy to identify opportunities for business process improvement.

Innovation to keep ahead of the competition

At the height of his success as a golf player, Tiger Woods took time out from playing to completely reinvent his golf swing. He didn’t need to at the time – he had just won four majors in succession but he knew he had to improve to stay ahead of the competition.

In the same way, business owners constantly need to invest in research and development to provide new products and services to their customers. As in sport, this is done by analysing what makes the competition successful and improving on this to create something better.

Clear expectations

In sport, there is a very clear expectation of success. From the athletes competing for medals to sports bodies competing for funding, high performance against benchmarks is the expectation. There can only be one winner.

High performing businesses have the same clear expectations of performance. Staff have clear objectives aligned to business goals and understand what is required of them to achieve these objectives.

Regular performance reviews are undertaken to monitor and improve performance and development programs are put in place to identify and nurture talent.

So there you have it – four good ideas for sporting success that can be equally applied to business planning. If you need a business coach to help you unlock your business potential call us now on 0800 758 766 for a no obligation chat.

The post What can success in sports teach us about business planning? appeared first on GECA Chartered Accountants.

So what can you do now to ensure a great 2016?

• Refresh your business plan. The start of the year is a great time to review your business plan and update it with new goals for the year ahead. If you have struggled to achieve the goals set under the plan, consider if you need the support of a business coach to ensure you meet your objectives.
• Stretch in Q4.  December and early January can be tough months for a business so a strong final quarter can make all the difference between a good year and a great year. Review your KPIs and identify any quick wins that can improve short term results. Set and communicate stretch performance targets for your team for February and March. Emphasis the correlation between strong business performance and their future remuneration.
• Organise everything. Any down time in January can be used to organise or even better – remove – the clutter that accumulates in many work places. Consider how to reduce paper in your workplace– we’re not at the paperless office yet but even printing double sided will reduce usage and costs.
• Go lean. Good for both body and efficiency. A process where a process is refined and unnecessary steps removed. Many of us will have systems and processes that have evolved over time with capacity added in a reactive way as the business has to handle increased volume and / or complexity of products and services. Pick a process that you know is using too much time and resource. Start with the outcomes required and build a new process in as few steps as possible. Implement. Use technology and other efficiency resources such as outsourcing. Call an expert if you need a hand.
• Cut your losses. Steve Jobs famously arrived at Apple in 1997 for the second time as CEO and one of his first acts was to reduce the product range by 70%. Do the same and review all your services and products. Consider if the business case still stacks up.  If not, exit or cease the activity.

So there you go. Five things to do that can make a measurable improvement to your business performance in 2016. And for support to implement any of the above in your business, call your friendly GECA Adviser now on 0800 766 758.

Written by Giles Ellis, Director at GECA Chartered Accountants, providers of affordable expertise with a personalised service.

At GECA, we unlock business potential. If you need advice and services to grow your business, improve your results and protect your assets, then we can help. Call now on 0800 766 758 for your complimentary meeting.

The post How to hit the ground running in 2016 appeared first on GECA Chartered Accountants.

As lead investor on several Icehouse start-up companies, I was recently invited to a presentation by Bill Payne, one of America’s most celebrated Angel investors and a former Icehouse Entrepreneur-in-Residence.

In a change from his usual subject of raising capital to fund start-ups, Bill presented on Business Exits and how to successfully achieve them, something he is well placed to comment on with many successful exits under his belt, including one that was sold for more than $30m – pre revenue!

Bill’s top tips for a successful exit strategy were as follows:

Start planning your exit strategy from day 1!

When someone starts a business, generally, the last thing on their mind is the sale or exit of their business. However, it is important that this is a consideration by the owners from the outset to ensure alignment between business operations and the eventual sale of the business.

Whilst management are focused on day to day operations, and achieving goals under the strategic plan, the Board (or someone responsible for long term strategic planning) should be aware of the need to exit the business at some point in the future and be planning for it. It is crucial if an exit opportunity arises, that the business is prepared to take advantage of this.

If no internal expertise is available, get an adviser who can help.

Know what you want for your business

When planning your exit strategy, it is important there is alignment by all investors in regard to individual exit value targets. If the majority of investors are prepared to accept 5x their investment for an exit price and one investor wants 10x their investment, a prospective sale of the business could fail due to that one investor holding out for a higher price.

Know who the buyers are

It is crucial to understand who prospective buyers may be. If you want to sell your business for $15m, you need to know who in the industry is acquiring businesses at that level.

Generally, buyers can be either a competitor, a supplier or a customer. Prepare a list of potential acquirers and conduct analysis and research to understand the buying patterns in the industry and of prospective acquirers.

A good example of this is Microsoft versus Google. Microsoft does occasional large acquisitions that are priced in the billions (WhatsApp at $9bn as an example) whereas Google continuously searches out and acquires smaller business in the $5 – $10m range.

Get to know the larger players in your industry or sector. Understand their buying patterns. Prepare a short list of potential acquirers. Position your business over time to be as attractive as possible to your target acquirer. Build relationships with management and the owners.

Don’t limit potential buyers

As the business grows, it will enter into contractual arrangements with distributors, suppliers etc. Be aware of your potential acquirers and the impact that restrictive contracts may have on their ability to get maximum value from an acquisition of your business, particularly when contracts are in regard to operations in other countries.

While a value add relationship may exist between the acquirer and the target business in the country, this may not be the case for operations in other countries and restrictive contracts may limit the value the acquirer can place on the business.

***

Bills top tips for business exits were specific to start up investments, however there is considerable overlay with other businesses as well.

If you would like advice and help to create a successful exit strategy for your business, call Giles now on 0800 758 766.

The post Create a successful business exit strategy with these tips appeared first on GECA Chartered Accountants.