An easy way to keep business records

A simple system to keep your business records under control. Buy seven cardboard A4-size storage boxes. Label them:

§  Bank statements, cheque books, deposit books

§  Invoices - paid

§  Invoices - unpaid (that is, your debtors)

§  Bills - unpaid (that is, your creditors)

§  Bills - paid (including invoices for purchases, credit card purchases)

§  Petty cash receipts

§  Others.

Each box should be dated for the current tax year.

You'll also need:

§  A wages book for employees

§  A cashbook for day-to-day operations

§  A business diary.

How you actually file things is up to you.

A suggested simple method to file things

Invoices

Make two copies of each invoice you send out. Send one to the person/business who owes you money and file the other copy in the 'Invoices - unpaid' box.

When payment is received (perhaps a cheque arrives or payment is made electronically) pull out the relevant invoice and write the date and relevant the cheque number on it, then transfer it to the 'Invoices - paid' box.

Store these paid invoices for seven years, as required  Inland Revenue, and then recycle the box back into your system.

Bank statements

Check these against your cheque butts and then store them in the 'Bank Statements' box. Before you store them, transfer the information concerning bank charges, automatic payments etc into your cashbook, and then do a bank reconciliation.

It's a good idea to code the entries on the statement so your accountant can check them quickly. For example, the telephone payment might be coded 01, the power payment 02, car expenses 03, and so on. The best way to save money on accounting fees is to use the same code as your accountant (so it's familiar to them), so ask them for their coding system before you start.

Keep your used cheque butts and deposit books in this same box. An accountant's tip: the clearer the details on your deposit and cheque butts, the easier it is for your accountant to follow what you've done. That means lower accounting fees. So remember to fill in those cheque and deposit butts with a full explanation of what the money was spent on, or where it came from (in the case of a deposit) and which invoice it settled.

If you are paying using internet banking, include as much information as you can in the references boxes (such as which invoice you are paying) as this will show up on your bank statements.

Bills

When tax invoices arrive, file them in the 'Bills - unpaid' box.

As you file each bill, make a note of the amount and its due date on the relevant page of your business diary.

Jotting down due payment dates for bills in your business diary helps you:

§  manage your cashflow (you can page through the diary to check on your future cash commitments)

§  pay on time and thus keep your credit lines secure

§  avoid missing any discounts on offer for early payment.

When you're ready to pay the bill, take it out and write the date paid and your cheque number on it. If you are paying using internet banking, then print out the 'confirmation' page and attach it to the invoice in lieu of a cheque number. Then transfer the invoice to the 'Bills - paid box' and keep it for the required seven years.

This box should also contain invoices for items you paid for using eftpos, credit cards or internet banking. Remember, if you buy something using eftpos or your credit card make sure you get a tax invoice as well as transaction record as you need this for invoice for your records.

Others

This box can be used to store other information you are required to keep. Some of this information may be kept electronically. But you may want to print out hard copies for back-up purposes.

§  cashbook (and other any bookkeeping workings such as journals and ledgers)

§  wage book, if you're an employer

§  details of entertainment expenses for clients, staff or suppliers

§  till tapes and day books

§  stocktake figures

§  list of debtors and creditors

§  interest and dividend statements

§  list of assets and liabilities

§  depreciation schedules

§  final profit and loss statements and balance sheets

§  any other documents that confirm entries in your accounts, such as worksheets.

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Preparing a business plan

Your business plan is a management tool and is designed to suit the structure and needs of your particular business. There is not a one-size-fits-all business plan, or a set formula that you have to follow.

This leeway to design your own business plan can feel quite daunting at first, but this is easy to solve if you identify the reasons why you need a business plan. These could include setting business goals and objectives, establishing performance requirements and assessing whether these have been achieved, or communicating messages to people inside or outside your company.

The structure of your business plan

A business plan usually serves a number of purposes. It is a good idea to identify the purposes you’d like your business plan to achieve because this could affect how you choose to structure and write your plan. For example, you’re likely to focus on different information depending on whether your plan is intended as an internal document for management to refer to, or to raise finances from an external source.

Use the three business plan structures in the table below to find the best structure for your business. Since there is not a set way to structure a business plan, the format is one of personal preference. You might find one outline is more suited to your business than another.

If you’re writing your business plan as part of the process of applying for a loan, it is a good idea to include a one-page cover letter. The cover letter should include the following:

§  The type of loan you are looking for

§  The amount of the loan and period you wish to borrow the money

§  What you need the money for

§  A reference to the business plan attached.

If you are applying for a loan, you will probably also need to include more detailed personal information, including your  IRD number, bank accounts, assets, liabilities and other business interests.

Writing your business plan

Keep your business plan as short and simple as possible. Use simple language and short sentences so that it is easy to understand, and edit your draft to remove unnecessary words. Use bullet points or tables if this makes ideas easier to read or understand.

Present your facts and information so that they flow logically rather than jump around, and make sure that the information presented in different sections supports each other. You don’t want to present information that does not add up or raises questions about the accuracy of your plan.

Do not give in to the temptation to overstate the truth, and bear in mind that the figures you present will need to back up the words in your business plan.

Start by jotting down points and ideas under each of the headings you plan to include in your business plan. Then sort these ideas so that there is a logical flow. At the same time, look out for any gaps or weaknesses and fill them in with the necessary research.

Start writing your business plan as soon as possible and keep refining and editing your work to keep it as short, simple and easy to understand as possible.

Writing your executive summary

Your executive summary is a very important part of your business plan. It is the first section people will read, and provides a brief but complete overview of your entire business plan. Because it contains reference to the entire business plan, the executive summary is usually written towards the end of the business plan writing process.

Your executive summary should be less than three pages, simply written and to the point, with an emphasis on the key issues of your business plan and a focus on the areas that will make your business successful in a competitive market.

Use your plan’s table of contents to map out your summary, and elaborate on the areas that are important. It is a good idea to end your executive summary with a short statement of why your business is poised to be a success.

The table of contents

The table of contents will appear before or after the executive summary. It is a list of headings with page number references that help your reader locate specific information in your plan. The numbering of the headings in your table of contents is one of the last things you will do when finalising your business plan.

The presentation of your business plan

The presentation of your business plan could be one of the first impressions someone gets of your business. It is a good idea to include a cover page and to bind your business plan with a cardboard or plastic front and back cover so that it is professionally presented.

It is also important that the layout is neat and professional looking and that the pages are numbered. Spend a little extra time on the presentation of your business plan to ensure it presents your business in the best possible light.

Does my business plan need an external review?

Your business plan does not need to be approved or verified by anyone, but it is a good idea to let a few people read your draft business plan before you finalise it and print it out.

Paying to have your business plan professionally proof read will ensure that it is free of embarrassing spelling and grammatical errors. Asking your accountant and a few business acquaintances or mentors to read through your plan will also help to identify any inconsistencies or gaps in the information.

Why is business planning important?

Setting out to build or grow your business without a business plan is like switching on the ignition and driving out your driveway without knowing where you are going, or how you plan to get there.

Business planning helps you define an agreed route-map for your business. It identifies your key objectives for the next three-to-five years and how they will be achieved. A business plan gives directions and timelines in which to achieve your goals, and provides a guideline for your day-to-day operations and decisions.

Why do I need a business plan?

There is no logical reason to wait for external motivation, like your bank manager asking to see your business plan, before you write one. Committing your plans to writing helps to sharpen your focus and identify your priorities, and can be used as a benchmark to measure your progress towards achieving your goals.

Business plans are an essential management tool that tells you what you plan to achieve, how you plan to achieve it, and when you hope to achieve it by. Set time aside to assess actual progress against your business plan to keep your business on track, and update your plan as economic, market and individual circumstances change.

The primary purpose of your business plan is to map out a strategy and action plan for your business, but it also serves a useful secondary purpose as a reference document for external parties with an interest in your business.

Your business plan is likely to be read by people in your company as well as other people and businesses who are entering some form of partnership or association with you. Since your business plan contains your strategy and action plan for your business, it will be referred to by your staff to ensure that the decisions they make match the overall plans and objectives of your business.

Your business plan (or selected portions of it) is also likely to be shown to people outside your business, like your bank manager or other lenders, when looking to raise finance or investment capital. Similarly, if you are looking to employ a new senior staff member, for example, a professional business plan could help clinch the deal.

Potential business partners or representatives are also likely to be favourably impressed by a comprehensive business plan, and your plan will also play an important role in presenting your business to potential buyers when it comes time to sell your business.

People from outside your company or organisation will primarily be interested in using your business plan to assess the viability and profitability of your business.

Setting your goals

Your business will not operate as efficiently and effectively as it could without specific and defined goals. Your business plan is likely to outline goals for some, or all, of the following:

§  Financial objectives – for example, to increase turnover or reduce operating costs by 5% this year

§  Strategic objectives – for example, to increase the number of corporate clients by 20% within two years

§  Operational objectives – for example, to increase output by 10% within six months

§  Marketing objectives – for example, to increase total sales to existing customers by 10% next year

§  Social / Environmental objectives – for example, decreasing your carbon footprint by 5% each year for three years.

Holding a staff brain storming session is a good way to benefit from the expert knowledge of your staff and get their buy-in and support for your business goals and objectives. Depending on the size of your business you might hold only one brainstorming session, or several, to cover the objectives for various business units.

Keep your goals realistic, and pertinent to current general economic conditions, as well as your specific industry conditions. For example, in a period of global economic downturn it is more effective to look at ways to decrease costs than to increase sales.

Identify your strategy

Your business plan will also include your business strategy and will outline the steps you plan to following order to achieve the goals and objectives you have identified. This in turn, will direct the day-to-day operations of your business. Each of your business goals will need a plan of action that needs to be followed in order to achieve the objective.

As a rule of thumb, your strategy will outline the most practical and cost-effective way to achieve each objective. It will detail any extra equipment or personnel that might be required to achieve this.

For example, you might need an extra staff member and an additional computer to increase output by 10% within the next six months, or you might consider enrolling your sales staff on a course to achieve the objective of increasing sales to existing customers next year.

Forecast the financial implications

The financial implications of your goals and strategies will be reflected in the financial forecasts in your business plan. Your goals will identify the areas of improvement, like an increase in sales or a reduction in costs, and your strategy will identify any additional expenditure in order to achieve these goals.

Most business plans will include a 12-month cash flow forecast, a profit and loss forecast, and a two- or three-year projection.

Your cash flow forecasts will identify whether you have sufficient financial resources to implement your plans immediately, or whether you will need to explore other financing options. Monitoring your actual spend against your projections is a way to ensure that new project costs do not escalate much beyond planned expenditure.

Review your business plan

Your business plan is a living document that grows and changes over the lifespan of you business. It’s objective is to identify your key goals and how to achieve them, while taking market and technological trends into account.

The effectiveness of your business plan as a management tool depends on you referring back to it as a reminder of your plans and objectives, and updating your plans in order to keep them relevant.

Reviewing your progress against your business plan, on an annual basis, is a good way to measure actual performance and will form the basis for revising and updating your plans.

Because the nature of your business and the market you operate in will change over time it is a good idea to review and update your business plan once a year. The most efficient way to achieve this is to set aside a few days every year, at the same time, to do this. 

Interactive online business plan

Quick start business plan

This business planner helps you turn your idea into a reality. It includes a break even template, a cashflow forecast and builds into a comprehensive business plan.

How to use this tool

§  You will be presented with a series of pages containing practical information, examples, tips and downloadable templates to help you implement your ideas.

§  As you navigate your way through the pages, you will be prompted to answer key questions and select items.

Creating your Action Plan

§  Your answers and selections will be added to an Action Plan which you can download in Word format.

§  This Action Plan will be automatically generated, based on the action points which you recorded as you navigated through the pages, so it's important to think carefully about all the information that you add.

Templates

As you navigate your way through the pages, you can download practical templates to help you implement your Action Plan.

Tax obligations when setting up a business

When setting up a business so that you can pay the correct amount of tax, as well as claim the business expenses and deductions you are entitled to receive you need to consider the structure you will use to run your business. You also need to understand which forms and records you will need to complete and maintain and if you will be required to register as an employer or for GST.

§   The Tool for business
The Tool for business helps you get all your small business tax issues sorted quickly and simply.

§   Determining if you are actually in business
Identifies some important criteria for determining whether someone is in business.

§   What structure will you use to operate your business?
Explains basic requirements and liabilities for operating your business as a sole trader, a partnership, or a company.

§   What registrations might you need to complete?
When setting up your business you may need to apply for a different type of  IRD number. You may also need to register as an employer, or for additional tax types such as goods and services tax (GST) or fringe benefit tax (FBT).

§   Your business tax obligations
Learn about the records you need to keep while running your business, the importance of budgeting for tax payments and your balance date.

§   Where to go for more help
Some sources of business advice and the areas they advise on.

§   Kaitakawaenga Maori
Kaitakawaenga Maori work out of most Inland Revenue offices. They offer a free advisory service to help meet the needs of Maori individuals, organisations and businesses.

§   Business tax information officers
Inland Revenue's specialist Business tax information officers offer free tax education and advice to new businesses and smaller organisations.

§   Where to go for more help
Some sources of business advice and the areas they advise on.

Is your business idea viable?

Most people start a business in a flush of enthusiasm. While enthusiasm is an important ingredient for business success, it is not the only one. You need to find out if there is demand for your product, and whether there is enough demand at a price that ensures your business will be profitable.

There's obviously no way to guarantee that your idea is going to succeed, but thorough market research will go a long way to ensuring that you'll be investing your time and effort in a business venture that should offer a reasonable return on investment.

If you can answer yes to the following questions, there is a good chance that your business idea is a viable proposition, which means your next step would be to draw up a business plan.

Do you have a unique selling point?

Unless you've been lucky to find a gap in the market, your product or service is going to have to compete against other similar products for customers and market share. To compete, your business has to stand out from the competition – it has to have a unique selling point that you can use to encourage customers to buy from you.

This doesn't mean you have to invent a totally new product or service. Your offering might:

§  Be cheaper or more economical to use.

§  Smell better or work better.

§  Come in a more fashionable design or appealing colour range.

§  Weigh less, or be made of better material.

§  Anything else that compares favourably with similar products on the market.

If you have a unique selling point, it's worth doing further research into the viability of your business. If you're not sure if your product or service adds value that customers can’t find elsewhere, it might be better to brainstorm a few more business ideas before you forge ahead.

Do you have a market?

Knowing who will buy your product and what motivates their purchasing decisions is vital to the success of your business. Not only will you need to make sure that your product appeals to your target market segment, but you'll need to find out how large your potential market is, whether it is stay-at-home mums, business people, teenagers or retirees.

Think about the size of your market in your area or wider (if you plan to sell online, for example). How many people will be interested in your offering, at the price you're likely to need to charge?

The next step is to look at your potential competitors. Find out what their respective competitive advantages are, and examine their pricing and marketing strategies. Looking at their website, physical Yellow Pages advert or printed advertising material is a good start. Many businesses have social media offerings so check to see if they have a  Facebook or  Twitter profile to get a feel for how they interact online.

Is there room for you to muscle in and get a large enough share of the market to break even and start making a profit? Does your product or service really fill a need that is not met by the competition?

If you're still answering yes, then it's time to crunch some numbers to test if your idea is really viable.

Find out more about understanding your customers.

Do the numbers add up?

What costs will you incur in producing the goods or providing the service? What is your selling price? How much demand do you anticipate? Is there enough demand and are the margins high enough for you to break even after a few months and then start trading at a profit?

Work out a cash flow forecast using your anticipated costs, selling prices and sales quantities. How long will it take to build up your sales to a point that your business is able to break even? How long before your business starts to generate a profit?

Perhaps most importantly, once your business is established, what sort of return-on-investment will you get? There's little point in investing a lot of money, time and effort in running a business if you earn less than the returns you'd get from putting your money into a term deposit. Is your business venture going to do more than keep you busy? Is it going to make you money?

Do you have enough money to last until your business is profitable?

If you're satisfied that your business idea should bring in a good return-on-investment once it is established, the last question you need to consider is whether you have enough money available to meet the start-up costs and operate the business until it is turning a profit.

Work out a cash flow forecast to see how much money you will need. Remember, you might need to rent premises, buy equipment, employ staff and pay salaries, fit out an office, purchase stock or supplies, and get your marketing campaign off the ground. These costs can add up to a sizeable amount.

In addition, you'll need to be able to cover your operational costs, and your personal expenses, for quite a few months before you break even or turn a profit. If you're borrowing money, you will also need to be able to make the interest payments when they fall due.

If you've answered this with another yes, chances are you have a viable business idea. But before you go charging ahead with entrepreneurial enthusiasm and set up your business, it makes senses to formalize your plans and thinking by drawing up a detailed business plan.