Balance Sheets Explained
If you have been in business for a while, you will have almost certainly heard the term Balance Sheet. If you are new to business however, you may find yourself preparing a Balance Sheet for the first time. Here is a basic overview of a Balance Sheet and when you might need one.
What is a Balance Sheet?
A Balance Sheet is a financial summary and should give an overview of the financial health of your business. Like the name suggests, it essentially balances the what the business owns versus what it owes, leaving the overall value of the business or owner’s equity.
What is a Balance Sheet used for?
For business owners the Balance Sheet gives a snapshot of the financial position of the business. It can help guide their business strategy going forward. In New Zealand, the IRD require a Balance Sheet dated at the end of the financial year as part of completing an IR10 or Financial Statements Summary. Balance Sheets are also used by Finance Providers when considering lending or potential buyers if the business is put up for sale.
Common Balance Sheet Terms Defined
Assets
An asset is something tangible that your business owns. Assets such as brand or reputation would not be considered assets on a balance sheet as they do not have a tangible value.
Assets on a balance sheet are usually grouped into 2 categories – fixed assets and current assets.
Current Assets
These are assets that will generally last less than 12 months. Cash is considered a current asset as are things easily converted to cash such as stock or inventory.
Fixed Assets
These are assets that will remain with the business beyond 12 months. Fixed assets include items like equipment, buildings, machinery and vehicles.
Liabilities
A liability is an amount that you owe. Like assets these are generally grouped into two categories – current liabilities and long-term liabilities
Current Liabilities
This is an amount owed that needs to be paid off within the next 12 months. Taxes and accounts payable fall into this category.
Long term Liabilities
These are longer term loans and liabilities for example mortgages or lease payments for buildings or company vehicles.
Debt Ratio
This is the ratio of total debts compared to total assets. In some industries there is a maximum acceptable debt ratio, this will vary from industry to industry.
Owner’s Equity
The overall value of the business once the total liabilities have been subtracted from the total assets.
Technology and Balance Sheets
In days gone by a Balance Sheet was a document prepared by an accountant once a year. The invention of modern accounting software has made creating Balance Sheets far easier and enables businesses to create a Balance Sheet any time they choose. At Spectrum Accounting Xero is our preferred software for efficiency, accuracy and security of information.
Getting it Right
It is imperative that your Balance Sheet is an accurate reflection of your financial position. Leaving off just one asset or liability can throw out your results significantly. For expert, professional assistance with your Balance Sheet and other financial documentation, talk to the team at Spectrum Accounting.
Is Outsourcing right for your business?
There are many different aspects and considerations when running a business, many of which take you away from the core reason why you got into business in the first place. If you find you are spending precious time and energy on tasks that take you away from what you want or need to be doing, you may wish to consider outsourcing.
Why Outsource?
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Financial
Outsourcing time-consuming tasks to a service provider who can perform those tasks more efficiently than yourself can actually save you money in the long run. When you factor in the lost opportunity to earn while your business is completing those tasks it often makes more financial sense to outsource. For example, consider a task that usually takes you 6 hours to complete, what if that same task could be completed in just 3 hours by an experienced professional? Yes, you need to pay for that 3 hours but can you earn more in the 6 hours you have freed up to make that worthwhile?
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Workforce
Many small businesses run on minimal staff. If you lack the manpower to get essential tasks completed, outsourcing is a great way to fill the gap without needing to commit to another permanent staff member. This is especially true when considering temporary or inconsistent tasks.
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Time
Time is one of the most valuable resources you have as a small business owner. Outsourcing can free up your time so you can focus on the more important tasks within your business. Often service providers can provide the service you require quicker than you would be able to do it in-house.
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Sanity
We all have our preferences when it comes to how we spend our time. Outsourcing can allow you to pass on tasks that frustrate you so you can spend more time doing the things you love.
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Increase Strategic Reach
Outsourcing can give you access to networks or customers that you may not be able to access on your own.
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Risk Reduction
Outsourcing can shift legal or technical risk from your business across to the service provider.
Choosing a partner to outsource to
All service providers are not created equal and there are some important aspects to consider when you are considering outsourcing
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Expertise and Reputation
Do they know what they are doing? Checking credentials and how many years of experience the provider has working with similar businesses to yours can give you some peace of mind. Checking reviews and case studies will offer insight into what the service provider is like to work with and where their strengths lie. You may also wish to speak directly to an existing client or two in order to get a good feel for what to expect.
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Pricing
How much and how often does the service provider charge? If your business has a consistent workload and steady income then a subscription model or retainer may work for you, allowing you to have certainty over how much outsourcing will cost each month. If like most small businesses, your workload fluctuates week to week or month to month it often makes more financial sense to “pay as you go” and only engage the services when you need them.
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Approach and Values
A good provider will act as an extension of your business and be invested in your goals and values. If they are customer-facing, they should represent your company to the same standard as you would. Again, reviews can be helpful here to determine if they are the right fit for you. Also, consider what their communication and support are like and what will happen if a problem does arise.
Spectrum Accounting has over 40 years of experience providing bookkeeping services to small and medium enterprise and self-employed contractors like Paula Apparel 2020 Limited. We know what we are doing, and we do it well. If you are considering outsourcing your bookkeeping, get in touch with us today.
Holistic Accounting and Bookkeeping
What is Holistic Accounting and is it right for your business?
Holistic is defined in the Cambridge Dictionary as “dealing with or treating the whole of something or someone and not just a part”. It’s a term most often associated with holistic medicine, the practice of improving overall health by going beyond treating just the symptoms and instead considering a person’s entire wellbeing. Likewise, holistic accounting and bookkeeping aims to improve the overall financial health for a business by looking at the big picture. Rather than focusing on a few individual aspects and how they affect the bottom line, a holistic approach takes the wider systems and operations of a business into account to help create a stronger overall business strategy.
Many small businesses scatter financial operations, with different parties handling bookkeeping, payroll and tax obligations. A holistic approach takes all the aspects into account and ensures communication across all parties so that all are working towards the same goal. Good holistic accounting and bookkeeping prioritises the overall growth of a business alongside compliance obligations.
What does the Holistic approach look like with Spectrum Accounting?
Communication and Alignment
Two of the pillars of holistic accounting and bookkeeping are communication and alignment. For Spectrum Accounting, this means taking the time to really understand what your business does and what you want to achieve. We’ll work with you to align all your financial operations to achieve your wider business goals while meeting your compliance obligations along the way. We’ll keep in regular contact with you and any other parties involved in your financial operations to help ensure everyone is working towards the same end results.
Compliance and Knowledge
Compliance can be frustrating, and some might even say ‘boring’ at times, but it is of utmost importance – getting it wrong can be catastrophic for your business and land you in hot water with the authorities. Out team are experts in the bookkeeping field and up to date with all the latest tax information in New Zealand. We’ll share our knowledge and expertise with you and help ensure that all your compliance obligations are met.
Technology
Great tech makes keeping across your financial position easy. At Spectrum Accounting we are entirely cloud- based, using top-rated accounting software that prioritises information security, visibility and efficiency. Our systems and processes are user friendly, and we can provide training to you and your team to get the most out of them.
Tailor-made Service Offering
Every business is different, each with its own unique strengths and challenges. Holistic Accounting recognises that a one-size-fits-all approach is unlikely to give your business the overall results you desire. That’s why at Spectrum Accounting we work with your existing strengths and resources and tailor our bookkeeping services to the level and extent that your unique business requires.
If you think a holistic approach could be a good fit for your business, we’d love to hear from you. Contact us today.
Customer Story: Pro Pour Concrete Systems Limited
Owned and managed by Dan Vessey, Pro Pour Concrete Pumps provide a concrete pumping service using a concrete boom pump. The truck mounted hydraulic pump transfers liquid concrete through a series of hydraulic powered articulating arms and pipes to locations that a standard concrete truck can’t easily access. Dan and Pro Pour Concrete Pumps have a reputation in the commercial concrete industry for being experienced and knowledgeable with well-maintained equipment. Dan prides himself on clear and effective communication, a crucial skill when working in fast paced and potentially hazardous commercial construction sites.
Playing to his strengths
When he set up Pro Pour Concrete Pumps, Dan was aware that accounting was not his strongest skill and planned from the start to find a reliable accountancy service provider who would be persistent, structured and ensure the financial side of his business was run the right way. He was looking specifically for a professional with experience in small New Zealand businesses who was engaged and genuine. Dan found Diane and Spectrum Accounting through a mutual personal contact and hasn’t looked back.
“What I have found with Spectrum Accounting is that I sleep better. I think more clearly and I can plan better. There is a whole section of stress removed from my day-to-day now that I have Diane and Jacquie helping me with my books and planning”
The Spectrum Accounting difference
When Spectrum Accounting started working with Dan and Pro Pour Concrete Pumps the first thing they did was to strip everything back and rebuild Dan’s financial structure and processes to ensure every element was as clear and easy to maintain as possible. Dan has been impressed by their industry experience, knowledge, structure, planning and exceptional communication.
“Spectrum Accounting work with an approach that is catered to the needs of my business. If there is anything that needs urgent attention, they are right there to alert me and help me sort it out. From transaction reconciling to extensive statistics and data collection to form an overview of financial health and performance – they have me covered, and I am very appreciative.”
Spectrum Accounting assist Pro Pour Concrete Pumps with:
- Tax compliance and GST preparation
- Day-to-day bookkeeping
- Financial planning
- Regular reports
“I feel as if I am their only client in the manner they work with me, I feel like my business is focused on, never forgotten or put to the bottom of the list like larger accountancy groups.”
If you need some help getting your books in order, talk to Spectrum Accounting today.
Customer Story: Paula Apparel 2020 Limited – How outsourcing bookkeeping has helped their business
Paula Apparel 2020 Limited manufacture, wholesale and retail the iconic PAULA RYAN Brand, which was established 25 years ago. PAULA RYAN is known in Australasia for its high-end womenswear and luxury fabrics. They have a strong and highly respected reputation in the New Zealand fashion industry for their premium, classic contemporary styling with a European flavour. The PAULA RYAN Products are sold direct to the public throughout New Zealand and Australia through online, independent retail stockists such as Smith & Caughey’s, Ballantynes, and their own Northwest flagship store.
Outsourcing made sense
In 2020, then General Manager Ben MacMillan bought the business and became Managing Director. Ben saw a need for an external contractor to offer the in-house team additional support as required. He wanted on-call access to expert accountancy knowledge and support to the day-to-day bookkeeping of the business, without the commitment of adding another permanent employee.
Ben also saw this as an opportunity to strengthen and streamline their financial processes, by focusing on accounts payable/receivable in-house and outsourcing the tax obligations, quarterly financials and end or year accounts. He also wanted the peace of mind which comes from an expert, independent financial oversight ensuring that all financial records are kept up to date and accurate. Outsourcing was the logical decision.
Enter Spectrum Accounting
Spectrum Accounting became involved with Paula Apparel 2020 Limited in 2020 after being referred by their previous accountancy company.
Since then, Diane and her team have
- Managed tax obligations and GST
- Prepared the annual accounts
- Provided quarterly reports
- Overseen the accuracy of records with regular auditing
- Offered recommendations and assistance streamlining current processes and implementing new processes
- Provided support and assistance for any queries that the in-house team might have.
- Assisted with transaction processing in Xero to alleviate pressure on the in-house team
Looking to the future
Ben describes the relationship of Paula Apparel 2020 Limited and Spectrum Accounting as “a very productive working relationship” and one that he knows will continue long term.
In his words, “Diane is an asset to the business, she works in very well with our needs and timelines, we find her trustworthy, reliable and accurate.”
If you think that outsourcing could be the right fit for your business, talk to Spectrum Accounting today.
Customer Story: Edith Amituanai Artist
Acclaimed photographer and Arts Educator Edith Amituanai has been described by fellow photographer Haruhiko Saemshima as a “catalyst bringing art into communities and communities into art”. Her contemporary photography has won multiple awards including the Marti Friedlander Photographic Award 2007, the Trust Waikato National Contemporary Art Award and the Martin Hughes Contemporary Pacific Art Award.
Located in Auckland, New Zealand, much of Edith’s photography focuses on her local community and in particular the Pasifika community of which she is part of. Her work has been featured in many exhibitions around New Zealand and in 2018 she created a book Keep On Kimi Ora in collaboration with Kimi Ora Primary School in Flaxmere, New Zealand.
Art and Accounts
Like many artists, Edith’s business income comes from multiple sources and can be sporadic. She found herself with a growing business, needing help understanding both her financial position and her tax and GST obligations. She also wanted to develop long term financial systems and to prepare her accounts so she could apply for a home loan.
The importance of understanding
When looking for an accountancy partner, it was important to Edith to work with someone who understood artists and knew how to make them comfortable with their finances. Fellow artist, Nikau Hindin recommended that Edith talk to Diane and Spectrum Accounting who had first-hand experience working with artists as well as many other self-employed contractors in similar positions.
The Spectrum Accounting Experience
Diane and the team from Spectrum Accounting began working with Edith soon after. They started by setting up Edith’s accounts in Xero and establishing some financial systems for her business. They helped her meet her tax obligations and prepared her accounts so that she could successfully apply for the home loan she was wanting.
Edith still wanted to be involved in her accounts, so the team from Spectrum Accounting gave her training to understand and utilize Xero and the systems they had put in place.
“I feel very empowered by utilising the systems Spectrum Accounting has built for me.”
Now, Edith completes the parts of her accounts that she is comfortable with, while Diane and her team look after the rest.
“I now have a much clearer understanding of my finances, of how much revenue was made, expenses etc. It’s been life changing!
It means I know what I can say yes and no to, and what I areas I can develop further.”
Edith and her husband also own a rental property and Spectrum Accounting assists to manage the end of year accounts for this property.
Stamp of Approval
Edith has been very happy with the work and support she has received from Spectrum Accounting. She describes the team as prompt and great communicators and readily tells colleagues and friends about them.
“I tell many colleagues, particularly sole traders, about Diane as it has been liberating to know more about my finances, before it was very much guesswork!”
If you want to take the guesswork out of your accounts, talk to Diane and Spectrum Accounting today.
Help! My books are in a mess!
Uh Oh, something’s gone wrong! Your books are in a mess, the IRD are breathing down your neck and you don’t know where to start.
This is a stressful situation to be in, needing to meet your compliance obligations but not really sure what has gone wrong, let alone how to fix it.
First off, relax, it’s going to be okay. You are not the first, and you certainly won’t be the last to find yourself in this position.
Ok, now you have some options.
1. DIY
You can absolutely have a crack at fixing things up yourself. Combing back through your books can allow you to identify where things went wrong and rectify them. If a clear fix isn’t evident, the IRD website is full of useful information and their staff are willing to provide advice over the phone or through MyIR. On the other hand … There’s option 2.
2. Get Professional Help
This is usually the most time-efficient option. A professional bookkeeper or accountant lives and breathes accounts and will usually be able to identify and fix issues quickly and efficiently and let you know what to do to satisfy the IRD. You may wish to take the relationship further and engage their services on an ongoing basis in order to prevent future issues with your books and tax obligations.
What to look for when choosing a professional bookkeeper or accountant?
• Expertise
Make sure you are talking to an expert who has proven success in this area and ideally one who has proven experience with a business similar to yours. Some will have specific services built around identifying and rectifying issues such as Spectrum Accounting’s Fix-Up service.
• Communication
Ideally you don’t want to find yourself in this position ever again so look for an accountancy service provider like Spectrum Accounting who will keep you across your financial position throughout the year with regular catch-ups and reports.
• Technology and Systems
The days of handwritten ledgers are well behind us. Good accounting software can make a huge difference in the time and effort it takes to keep your books in order. At Spectrum Accounting we prefer Xero for security, visibility, and efficiency. We offer training to our clients on how to maximise the Xero experience.
• Location and Availability
You need to be able to access help when you need it so consider where potential accountancy service providers are based and whether their availability fits with your business. A provider who is geographically close to you may be tempting but in this age of lockdowns and social distancing, a provider who can competently provide their services online may be a better option. Spectrum Accounting are located in Auckland but are entirely cloud-based so they can serve clients anywhere in New Zealand. They are also available 7 days a week.
If your books are keeping you up at night, Spectrum Accounting would love to talk to you. Give us a call today to see how we can help you.
Going self-employed in 2022? Basic accounting terms you need to know
| Assets = | Liabilities + | Owner’s equity | ||
| Building | Vehicle | Cash = | Bank Loan + | Owner Investment |
| $40,000 | $20,000 | $20,000 = | $20,000 + | $60,000 |
Look for these key factors when appointing an Accountant
Your business might have grown a lot or just a little recently, but you know it’s time to find a trusted accountant who would help you grow and get fantastic results.
With so many accounting firms in New Zealand, you might be wondering what they offer and how you can choose the right account for you. All of them might be real professionals but might have different industry experiences or offer an additional support level.
Read further to find out what you need to consider when hiring an accountant.
- Looking into the future
It’s vital in business to look back and evaluate what went well and what did not. Some accountants are great at reporting based on what has already happened, but a great accountant should be able to tell a story with numbers. That story needs to translate the results into forecasts and guidance. At the end of the day, you want to learn and grow and not just look at reports. Ask your accountant if they can help with forecasting and planning for your business.
- Available technology and tools
In the modern world of working remotely, business owners appreciate online tools, especially when they can be used from anywhere in the world. How handy would it be to have access to your accounting dashboard while having a cup of coffee and a caramel slice on your deck? Very handy, indeed. This is where software like Xero makes our lives easy. A great accountant will be able to help you set it up and provide training and support so you can get real-time data on the tip of your fingers. Ask your accountant if they use cloud-based accounting and can dedicate time to showing you how to use it.
- Client relationship and customer service
Customer service and client relationship is a big deal in the service industry. There is no difference between “big” and “small” clients in customer service. When looking to hire an accountant, it is a great idea to set up an initial meeting to see if you are comfortable asking them questions about your business. It’s also a great idea to see how you can work together, as an accountant should be your trusted partner. Go ahead and check out reviews first to see what other clients say about the accountant you are thinking of hiring.
- Fear-free and zero judgement environment
Do you shiver when accountants talk numbers and send you reports? Some business owners do. While running a business, you might know the basic concepts of accounting. Understandably, accounting might not be your field of expertise. So relying on an accountant to explain things in plain English is a fair call. A meeting with an account should really be easy and conversational as if you are talking to your friend and business partner. No one wants to leave a meeting feeling lost, or the worst-case scenario, misinterpret the information your accountant just tried to communicate to you. Ask your accountant if they can set up a meeting with you and see if you feel 100% comfortable in it.
- Pricing options
Accounting firms offer packages for businesses of various sizes, and hence, a different level of support. What might work for the “big fish” won’t work for a small or medium-sized business. What is more, if an accountant charges per minute like lawyers, perhaps you won’t be getting from them the amount of support you were hoping for. We think that a much better and fairer way to charge for the time is only the actual time spent on our clients’ books. Have a chat to an accountant you are considering engaging to see what billing process they follow.
It’s definitely a good idea to look around and consider the 5 things listed above when looking for a perfect accountant. If you would like to chat with us and see if we can work together, then get in touch via our contact form or by calling us on 021 274 0289.
Why is regular Bookkeeping important for businesses?
Every successful business is built with a solid foundation. A key component of that foundation is regular bookkeeping. Regular bookkeeping can not only keep you out of trouble with the Inland Revenue Department, but it can also help you grow your business through effective cash flow management and accounting policies.
What is Bookkeeping?
Bookkeeping is the process of maintaining financial records of a business. Every business has some type of bookkeeping that they will perform on a monthly or even daily basis. Tasks like payroll, bank reconciliations and invoicing are some of the most common bookkeeping tasks. These tasks need to be performed regularly in order to stay up to date with information. A lack of timely bookkeeping can lead to errors, lost items and even fraud. Monthly controls surrounding bookkeeping can help keep your business running smoothly.
Benefit #1: Saves You Time and Money
Regular bookkeeping has many benefits to you and your business. Staying on top of bookkeeping can save you time at the end of the year when it is time to file your business or personal return. You won’t have to spend countless hours searching for receipts and transactions, instead the year should be fairly complete. Moreover, regular bookkeeping can help you avoid late filing penalties which can range from $50 to $500. The Inland Revenue Department can be very strict on imposing late filing penalties, all of which can be avoided with the assistance of monthly bookkeeping.
Benefit #2: Accurate Financial Data
Just like regular bookkeeping can save you money, it can also help ensure that you have accurate financial data. Transactions are more likely to be entered correctly when they are done shortly after receiving the information. If you wait until the end of the year to reconcile your accounts and enter information, you heighten your risk of incorrect data. This can be detrimental to your business since taxes are calculated based upon the financial data from your accounting software. Duplicate entries can cost you more money in taxes, especially on the GST tax. Avoid future amendments and correspondence with the Inland Revenue Department by ensuring your data is accurate when you enter it.
Benefit #3: Promotes Business Growth
Accurate financial data leads to business growth. Regular bookkeeping helps you maintain accurate records which can be used for business planning and projections. Business planning is essential for steady growth. Planning future labor needs, supply orders and capital needed are all factors that come with business growth. Regular bookkeeping can help you reach these goals by giving you a clear picture of your business’s financial health. You don’t want to be scrambling for money or to find a labor force because your books weren’t reconciled. Effective cash flow management stems from transparency in the accounting records. Without regular bookkeeping, you won’t be able to fully understand where your business stands.
Benefit #4: Avoid Letters from the Inland Revenue Department
Another reason why your business needs regular bookkeeping is to effectively handle the Inland Revenue Department. As mentioned before, the Inland Revenue Department can be very strict when imposing penalties. Sometimes the Inland Revenue Department can be wrong about the fines and penalties they impose, making sound bookkeeping necessary to prove you don’t owe any penalties. Moreover, you can potentially request penalty abatement if you have sufficient evidence to support your viewpoint. The Inland Revenue Department often times gives you a short amount of time to respond to the letter and pay any fines or penalties. If you are behind on your bookkeeping, you may miss the deadline to respond for penalty abatement, highlighting the important of staying consistent with monthly bookkeeping tasks.
Benefit #5: You Learn the Whole Business Process
Learning how to bookkeep for your business can come with a learning curve. Accounting is hard, especially when you have New Zealand tax laws to follow. Learning the entire business process, from invoicing to providing the good or service, is critical for you to grow your business. How do you expect to pass the task off to someone else if you don’t understand how to complete it yourself? Take the time to learn the laws and regulations surrounding monthly bookkeeping. It will pay off in the long run.
Bookkeeping is a critical component of every business, from a one-man company to a company with a hundred employees. Don’t be stuck warding off the Inland Revenue Department because of racked up fines and penalties from late filing and inaccurate records. The few hours a week or month spent doing bookkeeping tasks will reap significant results in the end.