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McGregor Bailey Blog

The obvious and unexpected benefits of having a personal budget

Having a personal budget is essential to gaining control of your personal finances. Budgeting doesn't necessarily mean restriction; it frees up your money, so you know exactly what's available to spend.

 

The top 10 benefits of personal budgeting:

 

  1. Gives you control. Developing your personal budget gives you control over your money. You'll know how much cash you'll have coming in and can make a plan for how to spend it.
  2. Focuses you on your money goals. Everyone should have goals for their money. Whether this is paying off debt, increasing your savings, or freeing up more cash to invest in your business, a personal budget will keep you focused on achieving these goals.
  3. Creates awareness of where your money goes. Have you ever looked at your personal drawings from your business and thought 'we can't possibly have spent that much money last year!'? You're not alone. So many people really have no idea what they spend their money on.
  4. Builds better money habits. Reviewing your actual results against your budget each month will encourage you to think about your spending before you spend.
  5. Helps manage debt levels. You'll be able to plan for unexpected expenses instead of obtaining debt to pay for emergencies. You'll also be able to allocate more money to debt repayments to become debt free faster.
  6. Helps you achieve your wealth goals. Wealth goals are your long-term financial goals; saving for retirement or major life events. Because these are long-term, you need to start planning the steps to achieve your wealth goals now.
  7. Provides an early warning system. By regularly monitoring your spending, you'll quickly identify upcoming costs and adjust your spending if required.
  8. Aids communication. Spending time developing your personal budget with your spouse will ensure you're aligned with your spending plan.
  9. Provides you with more money. If you have a personal budget and stick to it, you'll end up with more money at the end of the year than you would've had without a budget.
  10. Ultimately, it gives you a better life. Not only will you end up with more money, you'll likely have less conflict and stress over money.

 

Personal budgeting doesn't have to be a time-consuming process. Dedicating 1-2 hours a month to budgeting will result in a huge improvement; not only to your bank account, but to your stress levels too.

 

"A budget is telling your money where to go instead of wondering where it went." - Dave Ramsay

 

Contact us if you need help developing your personal budget!

Managing a cash crisis

MANAGING A CASH CRISIS

Dealing with a sudden cash flow crisis, even if you're working hard to avoid shortfalls, is hugely distracting. A formerly reliable customer might take much longer to pay than anticipated or a large consignment might fail to show up, leaving you out of pocket. If you're starting a business, it could simply be taking longer than expected to turn a profit.

 

Red light warnings
Develop red light systems to warn you automatically if something needs querying:

  • Check as early as possible if leads, orders, or sales, fall below a certain threshold, or if planned sales are delayed or a substantial customer stops buying from you.
  • Key indicators such as profit margins, liquidity ratios and stock ratios deteriorate beyond an agreed limit. Make sure you have regular feeds of how your business is performing.
  • You also need to know about any substantial invoices that are in dispute, particularly late debts and customers exceeding their credit limits.

Building productive relationships with your key suppliers is important, so they are prepared to extend extra credit to you when you need it.

 

If you have accounting software then it should be relatively easy to view your red flags weekly, monthly (or any period you set).

 

Identify the causes and take action
Below are some common causes and possible solutions of a cash crisis you may need to solve:

  • A major customer hasn't paid on time. Implement stricter credit control and better debt collection procedures. Contact them to ensure you have the right purchase order and the invoice has been sent to the right person. Even check if your contact has gone on holiday and forgotten to pass on your invoice.
  • A rise in the cost of production has eroded your profit margin. Try and source less expensive materials or supplies or decide if you need to raise your price. Monitor your gross profit margin for any further profit slippage.
  • Your business overheads have blown out. Identify specific expenses that have increased and see how you can reduce them. Regularly monitoring your net profit margins to spot any out-of-proportion increases so you can take timely action.
  • Your business is growing faster than your capacity to fund the growth (your working capital). There's usually a time gap between selling goods or services and getting paid by customers. Meanwhile there are bills to pay. See if you need to slow down to avoid failure through over-trading or raise the necessary working capital to get you over the temporary cash shortage.
  • Sales have been slower than predicted. Review your marketing plan and sales campaigns. Alternatively, if you can't see any future improvement in immediate sales, consider other markets and targets.

There may be other causes such as the failure of a major contract or you bought a large asset at the wrong time and you now need that cash reserve for working capital. In each case, understand the cause and the action you're taking to avoid a repeat, such as diversifying your customer base or using your cash flow statements and forecasts to time purchases more appropriately.

 

Sourcing finance
If you do find yourself in a cash crisis (it's a temporary hitch and the business is still sound), there are a number of funding options to consider, ranging from self-financing or bank loans to finding a business partner. The relative attractiveness of each option will depend on the size of your cash flow shortfall and how long you're likely to need the cash.

 

Internal funds
Before you look for external sources of funding however can you free up cash from within your business? For example:

 

  • Offer customers a discount for early payment or ask them to pay immediately.
  • Offer for customers to pay by credit card when usually you don't.
  • Hold a sale of surplus or slow-moving stock to raise cash quickly.
  • Ask suppliers to take back excess stock and a credit or give you longer credit terms.
  • Sell underused assets and rent the equipment instead, as and when required.
  • Downgrade or sell vehicles and lease instead.
  • Reduce your drawings from the business until revenues improve.
  • Your accountant and advisers may be able to suggest other ways to release the locked-up cash in your business.

Bank loans
If you need a business loan and have a good banking track record, it could be little more than a formality to get a higher overdraft facility or access to a business loan to tide you over. If you're going to need quite a lot more money, you'll likely have to present a more detailed business plan and financial forecasts.

 

Invoice finance
If you have cash tied up in unpaid invoicing, you might qualify for invoice finance. This facility enables you with immediate access up to 80 per cent of the value of any unpaid invoices that your business might have. It helps free cash flow by releasing money from unpaid invoices as and when you need it.

 

Partners and investors
If your business can't afford to service loan repayments out of surplus cash flow, then it may need more capital so you could consider taking on a business partner to invest in your business. There are advantages but also pitfalls to avoid. Get expert advice first from your accountant and your lawyer – they may know of suitable investors. Be aware that you'll need to share the ownership of your business if you go down this path.

 

Family and friends
You could ask family, friends or business colleagues to help out with a temporary or longer-term loan. It's best to put the agreement in writing and get everyone to sign it, so that both sides are clear on what has been agreed. Be aware that this sort of agreement could strain personal or working relationships if things go wrong, so treat it as a last option.

 

Summary
Managing cash in a crisis is stressful for any business owner, but you do have options starting with preventative measures such as cash flow statements and forecasts and sourcing finance.

 

Questions to ask as your small business recovers from COVID-19

As small business owners look to operations after COVID-19, there are some important business questions to ask. These questions will help you determine what adaptations you want to keep, whether your business model is working, and if there are additional changes you want to make to keep your company operational through future economic downturns.

 

It's not always fun to do this sort of examination, but the answers to these questions will help you to make the best possible decisions for the future.

 

1. What worked and what didn't work in my business model?
Almost all small business owners had to make changes to their business model. Whether it was hosting meetings with clients on Zoom, learning about encryption technology to allow employees access to sensitive information from home, offering restaurant food for take-out or managing dance classes online, most small businesses adapted in some way.

 

Ask yourself:

Did I have to adapt my business model? Did I alter my goods or services in any way? Did I change how my premises are used? Did these adaptations enhance my business in some way? Do these changes highlight gaps in my business model that should be addressed? Should I make some of these adaptations permanent?

Maybe you have a lot of clients who would prefer to have meetings online rather than face-to-face. Perhaps offering classes online is a way to reach out to students or clients who can't attend weekly sessions in person. There may be perfectly good reasons to continue with a revised business model.


2. Do I need to make changes to my supply chain?

You have some control over your supply chain, but not a lot. Disruptions happen and they can drastically affect your business.

Review how the various components in your supply chain reacted to the pandemic and whether they helped your business or hurt it.

 

Ask yourself:

Did the suppliers in my supply chain remain open and transparent with me? Did they reach out to me to discuss revising our agreement? Were they reasonable in their expectations and willing to work with me? Do I need to have alternate arrangements or back-up plans in case there are future supply chain disruptions?

Your supply chain has a huge impact on your business. Trusting your suppliers and knowing you can work with them will allow you to feel more secure in the future.

 

3. How has my staff adapted?

Your staff has faced a great deal of stress and uncertainty during COVID-19, due to professional and personal concerns. Team members may have had to transition to new ways of working-at home, on a new schedule, or with new policies and procedures in place.

 

Ask yourself:

Are there changes to how my staff works that I could continue to implement? Should I provide additional training for staff? Have I communicated openly with them? How adaptable was my team?

 

One benefit from having employees work from home more days a week is that such opportunities for remote working can boost employee morale while saving you money. Now that you've invested in the technology to allow staff to work from home, is it worth it to allow this scenario to continue, even a few days a week?

 

Final thoughts

In addition to looking at your business, take a look at your customers and clients. Were they supportive of your business during this time? Did they turn elsewhere? Did they respect the changes you made to your business or the policies you put in place?

Each of the above questions-about your business model, your supply chain, your staff and your customers-will help you make informed decisions about the best way to run your business as COVID-19 restrictions are lifted.

 

Get in touch with us to chat about your business.

Government announces new wage subsidy and other support measures

 

Grant Robertson has announced a new round of the wage subsidy, in response to the recent lockdown restrictions.

 

The Resurgence Wage Subsidy is a 2-week payment. Businesses will need to show a 40 per cent drop during a period of at least 14 days between August 12 and September 14, when compared to last year.

 

Businesses throughout New Zealand will be able to apply. This acknowledges that the restrictions in Auckland will be having an impact on businesses across the country, especially in tourism, hospitality and for companies that supply, and trade with Auckland.

 

The associated costs of the new wage subsidy are expected to be covered by an underspend in the wage subsidy extension, which still remains open to applications until September 1.

 

The mortgage deferral scheme -The existing scheme was coming to an end on September 27 but will be extended until March 31 2021.

 

More announcements on the mortgage deferral, the small business cashflow scheme and a simplified leave support scheme are to follow. In Grant Robertson's words 'This means businesses with workers who have been told by health officials or their medical practitioner to self-isolate will receive the equivalent of the wage subsidy to help cover that person's wages for the time they cannot be at work"

 

The new wage subsidy scheme will be open for applications from 1pm on Friday, 21st August 2020.

 

Note: You cannot apply for the Resurgence Wage Subsidy if you are already receiving payments from the Wage Subsidy, Wage Subsidy Extension or Leave Support Scheme.

 

For more information visit the Work and Income website.


 

COVID-19: Wage subsidy eligibility tool

 

 

The Business.Govt.nz website has a great COVID-19: Wage subsidy eligibility tool.


Use this tool to better understand your eligibility and how to apply for the COVID-19 Wage Subsidy Extension or the new Resurgence Wage Subsidy Scheme.

 

Link here to use the Wage subsidy eligibility tool.

Mandatory contact tracing for NZ businesses

 

Mandatory contact tracing for NZ businesses 

In order to help prevent the spread of Covid 19 in New Zealand, the government now requires businesses to have QR code posters to support contact tracing.

From 12pm on Wednesday 19 August, all businesses and services providers are required to display the official NZ COVID Tracer QR code posters in prominent places at or near the main entrances of each of their premises.

The posters are free to create. You will need a separate one for each of your premises or unique locations. All you need is your driver's licence, address and contact details.

Mandatory contact tracing for NZ businesses 
https://qrform.tracing.covid19.govt.nz/

 

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