How much should you spend on Christmas gifts for your clients?


Here at SME we don’t buy client gifts. Instead, we make a donation to a local charity. This year it’s Eat My Lunch, which feeds Kiwi kids in need. We let our clients know that we’ve donated rather than sending them a hamper or a bottle of wine – so far, no complaints. However, individual gifts are important for lots of industries and they can foster good relations for the year ahead and remind your clients how much you value them.

So how do you know how much to spend on each client? Ask yourself:

  • How much profit are you making off this client each year? Valuable clients get gifts, one-off or low-value clients haven’t earned one.

  • How easy is the client to deal with? Spend more on the easy ones, because they’re worth more to you.

  • How long have you had the client? So few businesses reward loyalty, but you should. Loyal customers have massive value to your business.

  • What are you giving your clients? Food and drink are 50% tax deductible while other items are 100% deductible (ask us if you’re not sure). That means you can spend more on non-food-and-drink items. Also think about whether your client would appreciate something tangible or if they’d prefer a donation to a charity or similar – don’t be scared to ask them, lots of people really appreciate being given the opportunity to choose a gift.

To work out what to spend on each client, first calculate a total gift-giving budget. The maximum should be something like 1.5% of your profit. Say your profit is $100,000 a year, you might spend $1,500 on gifts.

Obviously, though, you don’t want to divide it equally among your clients. Your best client might get a $250 gift, while your smaller clients might get a $25 bottle of wine. And don’t forget to write a nice note on the gift so your client knows you’ve been thinking about them. With any luck your gesture will be appreciated and help to support a strong relationship with your valuable customers.



Do yourself a favour and outsource some chores


I’ve recently been working with a small business owner who’s doing extremely well, making great money and expanding rapidly. Part of that is down to his hard work, of course, but my worry is that this success is coming at a price to his family life. He spends a lot of time in the business, plus he and his partner (who’s also working full time) deal with all the cooking and cleaning, mowing the lawns and all the day-to-day household admin. It’s bloody hard work. I know they’re making money, but it’s tough to get quality family time to spend with their two-year-old twins.

My advice to him was this: “Get a cleaner. Get someone to mow the lawns. Get My Food Bag. You can afford it.” Sometimes New Zealanders are stubbornly wedded to the DIY mentality. We’ve all seen the Mitre 10 ads on TV that insinuate we’re all weak-chinned losers if we don’t do our own renovations. Honestly, though, if you’re running a successful business, why would you spend your weekend installing shelving? Or mowing lawns, or cleaning your bathroom? There’s no pleasure to be had in doing everything yourself while missing out on quality time with your family and friends.

Kiwis are often sheepish about admitting to outsourcing jobs like cleaning or mowing, especially if it’s never been done in your family before. (We even do this when it costs us money – like the way lots of Kiwis won’t pay for good financial advice or use a mortgage broker, even when it makes perfect financial sense.) Paying someone else to help you spend more time with your family is a great use of your money. There’s no point building a brilliant business that’s worth a fortune while your personal life flounders along miserably.

Household chores are a massive source of annoying arguments and resentment, so get them taken care of and you can enjoy more peaceful family time, too. And a bonus benefit: you’re supporting other local entrepreneurs to help build up their businesses. This is a win-win situation, where you build your business and they build theirs. All the while you spend more time with your family and reduce your stress.

Cash jobs: not worth the risk


I don’t carry much cash these days – very few of us do. It feels like we’re going towards a cashless society where we pay for everything with the wave of a card or a tap of a device. But the Reserve Bank has found that we’re using more cash than ever before. A big chunk of that $6 billion in cash is undeclared income, where New Zealanders avoid paying income tax by dealing in cash.

Don’t kid yourself that your accountant doesn’t know what you’re up to, by the way. We usually have our suspicions – we know what your accounts look like and we don’t necessarily believe your stories about where that money came from. Certain industries are particularly prone to doing cash jobs, paying staff with cash and generally behaving in a way that avoids declaring income. Let’s just say that when if you’re a tradie with a declared income of $40,000 a year and you’ve just returned from a trip on your luxury yacht, you’re not fooling anyone.

Cash jobs aren’t worth the risk. In the past it’s been easier to get away with it, but Inland Revenue (IR) is taking a pretty dim view of under-the-table income these days. This year IR rolled out a $1.9 billion project that uses technology to identify suspicious transactions. The IR’s experts are really good at this and when you add that expertise to the tireless inhuman ability of the bots, cash jobs are looking less and less like a bet worth making. The bots can compare your business to every other similar business nearby and ask why you’re declaring a 20% lower income. All you need to do is use a loyalty card to spend some of that undeclared cash and you could easily turn up on the IR’s radar.

It’s risky, it’s unethical and it could bankrupt you in the end. If you’re spending all that cash and the IR catches up with you, you’ll owe them all the unpaid tax they can find. Unless you’ve been saving that cash, you could find yourself in serious financial strife. And I promise you that if your business can’t make ends meet if it starts paying tax, you should wrap it up right now and start looking for a job. It will be a lot less stressful.

5 ways the cloud can boost your business


Cloud-based software has revolutionised every industry in the world – it’s hard to think of any type of business that hasn’t benefitted from online systems. Here are the top ways you can use the cloud to boost your business performance:

1.     Accounting software

Using a cloud-based accounting system like Xero means no more boxes of receipts, no more hand-written reconciliations, no more printed invoices. It’s also incredibly helpful to see up-to-date data, both for your accountants and for your own business management. At any moment you can get an accurate snapshot of how your business is performing and compare it to any other period. It’s a tool that’s incredibly effective for tracking performance almost in real time.

2.     Document storage

Filing and sharing have never been easier with apps like Dropbox and Google Drive. Our business used to spend time and money sending documents into storage and trying to find the right piece of paperwork. Using an online storage system means you can search easily, file rapidly and retrieve your documents from any device.

3.     Tracking your tax-deductibles

If you travel for your work or spend money on your personal accounts, you no longer need to keep a physical logbook or hold onto faded receipts. There’s an app for that! Scan and retain receipts using an app like Receipts by Wave or Shoeboxed. Use the Driversnote logbook app and your tax-deductible mileage is taken care of completely – and stored securely.

4.     Xero add-ons

Using Xero is a great start, but you can get even more out of it by making use of the add-ons. WorkflowMax, for instance, helps with timesheeting, quoting and task management – perfect for professional services. ServiceM8 is brilliant for builders and tradies because it works from appointment to completion on any contract. Kounta is fabulous for cafes because it speeds up point-of-sale transactions. Whatever industry you’re in, you can streamline admin tasks with a tailored Xero add-on.

5.     Software as a service

Instead of paying thousands of dollars for software packages that are out of date in two years, cloud-based software subscriptions let you pay in instalments and always have the latest technology. With many services, you can also turn them on and off on demand, so you can pay for cloud-based Photoshop when you need it for one month, then not pay for six months, then turn it on again for another month or two at a later date. So simple and cost-effective.

Part of effectively managing your business means reviewing your spending – use cloud-based services and apps to tailor your spending so you’re only paying for exactly what you need and no more.


Kiwi builders: the cashflow nightmare


It’s surprisingly tough being a Kiwi builder. Everyone complains about the price of construction, which has gone up dramatically over the past five years. Yet construction companies are still struggling: from Fletcher Building to Bella Vista to the ex-Hawkins Group, the flow-on effect from large businesses who can’t pay their creditors means the small contract builders get stuck with cashflow nightmares.

How does it happen?

  • A larger, well-established company uses you as subcontractor and you assume that they have the money to pay you – no reason to think otherwise.
  • You spend your money on materials and possibly other subbies.
  • Your big client doesn’t pay you.
  • You’re uncertain about chasing money from someone who’s also potentially going to put a whole lot more business your way, and you’re a one-man-band so there’s nobody else to do it for you.
  • You’re really busy doing your work and your invoicing isn’t top of your priority list; you’re tired at night and you don’t get around to doing the accounts.
  • The client says they’ll pay at a certain time, and you believe them, so you keep working and incurring more costs.
  • You always pay your debts, so you’re the one left out of pocket.
  • If the client or the project becomes insolvent and is liquidated or bankrupted, you may end up dragged into the same quicksand.

Unfortunately we hear these stories often from our new clients – we are experts in construction sector finance and assurance. There are ways to make sure this doesn’t happen to your building business. To protect yourself it takes time and commitment to having protective systems in place. For instance:

  • Changing your payment terms so your outgoings are always matched by money coming in.
  • Being ruthless about being paid. If the money stops arriving, so should you.
  • Treating your invoicing like it’s as important as the actual construction, because it is. Not leaving it until late at night.
  • Chasing arrears earlier and more aggressively.

Turning down work if the client has a history of non-payment. Not working at all is better than working and not getting paid. At least if you’re not working at all, you can go out and quote on jobs with a chance of making you some money.

Keeping our financial information right up to date means we can also analyse where your biggest profits are coming from: Who are your best clients? Which projects have the biggest margins? That helps you to know what work to pursue in future. If you’re a builder who wants to avoid being caught in a cashflow nightmare, we can help.