08 Building on Strengths ITM owner is all about empowering others
12 Wired for Change How Electric Bikes NZ is making a difference
I SSUE 12
Fresh Snow SNOWPLANET IS NOT RESTING ON ITS LAURELS
14 Still Want to be a Landlord? Round-up of the latest property tax legislation news
Business is a curve.
Where are you on it?
Today it isn’t enough to know what you do, and simply do it well. You also need an eye on your future, and a knowledge of what that might mean. At Hayes Knight, we don’t just work the numbers, we interpret them. The result is a more empowered, knowledgeable client who knows what tomorrow might bring – curve balls and all. Visit hayesknight.co.nz
CONTENTS
Counting on change “The one thing you can count on is change” is certainly a saying that has rung true so far in 2018. There has been a lot of change going around. Much of it has major economic implications and some of the impact is yet to be felt – so, the current business environment has a fog of uncertainty hanging over it. From Trump’s antics and trade wars, to more local New Zealand legislation changes such as minimum wages and fuel taxes; there are plenty of reasons for business owners to be concerned about what lies around the corner and wonder how the changes will affect their bottom line. The following pages have plenty of articles to inspire, inform and help you think about proactive measures you can take to prepare
for change. Our client stories tell of learning to roll with the changes and constantly evolve to stay ahead of the game. Hayes Knight advisors have also pulled together updates, including a round-up of the recent and impending changes in tax legislation. There are tips on managing ‘change projects’, a view on the forthcoming increases in minimum wage and much more. So, we hope you will join us in embracing change and finding ways to use it for strategic advantage and enjoy exploring the articles in this issue of Beyond the Numbers.
“...join us in embracing change and finding ways to use it for strategic advantage...”
Andie Johnson Editor, Beyond the Numbers
features
04
THE POWER OF POWDER Snowplanet continues to innovate
news, views & tools for success
08
EMPOWERING AND BUILDING CONFIDENCE ITM owner empowers others for success
14 WHO STILL
WANTS TO BE A LANDLORD? Round-up of the latest property tax legislation
10
16 KNOWLEDGE
SHOP Rewards of being a member
The information and advice contained in Beyond the Numbers cannot cover every financial situation or requirement. If you have further questions, we encourage you to contact a Hayes Knight business adviser for advice tailored to your specific circumstances. Hayes Knight Limited is an independent member of Morison KSi.
12
SWIMMING THE TIDES OF CHANGE Top 10 tips for staying afloat
PLUGGED IN AND CHARGING How Electric Bikes NZ is making a difference
17 HAYES KNIGHT NEWS Updating you on recent news
Cover photo: Jason Dorday
18 SPOTLIGHT ON
19 RADAR
Meet Rod and Josh our new Business Services Managers
The minimum wage debate
Beyond the Numbers is published by Hayes Knight editor.
Andie Johnson Lewis Hurst // hurstmedia.nz printing. Cube design.
3
BUSINESS STRATEGY SNOWPLANET
The power of powder WORDS: Deirdre Coleman IMAGES: Jason Dorday
The mountains might be just a three-and-a-half-hour drive away, but those living in the greater Auckland area are still flocking to New Zealand’s only indoor snow park. Located in Silverdale, Snowplanet has been running for 14 years, and thanks to its innovative approach and ability to deliver fresh new experiences its popularity is growing. 4
Over the last financial year, 156,000 visitors paid to enjoy the slope at Snowplanet – up from 95,000 in 2008. But, factor in those who come just to dine in the Seven Summits restaurant, and the total number of visitors is closer to 250,000. Snowplanet caters to everyone from experienced snowboarders and skiers to complete novices. Casual customers and season-pass holders account for much of its business, and after-school and holiday programmes are also important revenue streams. The company runs ski-racing and after-school programmes for those who want to improve their skills, and has partnerships with a number of local schools. Like the Central Plateau ski fields, winter is Snowplanet’s busiest season with numbers
SNOWPLANET BUSINESS STRATEGY
Snowplanet's General Manager, Rojie Aguilar
peaking during the July school holidays. However, the facility is far from idle during summer. Christmas parties are popular in November and December, with corporate functions taking place year-round in Snowplanet’s conference rooms. General Manager Rojie Aguilar says that in addition to skiing and snowboarding, snow tubing is gaining in popularity with around 25,000 visitors a year keen to sample this fun activity. Aguilar joined the company in 2007 as its company accountant, and has learnt the business from the inside out. While he’s worked in chartered accountancy firms, manufacturing, food, property development and real-estate financing, running an indoor snow park was a new proposition.
“I’m from the Philippines where it’s hot and tropical, so this was new to me,” he laughs. “I learnt to ski here at Snowplanet.” Founder Eduard Ebbinge is still a Snowplanet director, along with Duncan Smith and Henry Tait. Passionate skiers, all three are heavily involved in the company’s strategic direction, leaving Aguilar and his team to manage the product development and operational aspects of the business. And it’s a business that never stops. Snowplanet operates 365 days a year, with the snow dome open for up to 15 hours at a stretch during peak season. The maximum capacity on the snow is 300 at any one time, and on Friday nights the place is pumping with visitors enjoying the new terrain layouts of the super park. “No matter the time of day, there are always people at Snowplanet,” says Aguilar. “We do all our maintenance at night and we’re actually only closed to the public for a few hours.” Depending on the time of year, Snowplanet employs between 120 and 160 staff. The Snow Sports Academy runs all the structured lessons and the ‘resort staff’ manage the front-of-house operations (the ticket desk, gear rentals and pommel lifts). Hospitality staff run the restaurant and behind the scenes are the sales and marketing, finance, maintenance, health & safety, human resources and administration staff. THE COOLEST PLACE IN TOWN As New Zealand’s only indoor snow park, Snowplanet’s offering is unique, but it’s still vying for our recreation dollar with entertainment venues such as Rainbow’s End and Auckland Zoo. “We don’t really compete directly with the mountain,” says Aguilar. “We see ourselves as a feeder for the outdoor ski fields – it’s a complementary offering. Many of our customers learn to ski at Snowplanet and then go to the mountain or come here during the off-season to train or enjoy the snow.” Like a number of Hayes Knight’s clients, to measure customer satisfaction, Snowplanet uses the NPS (Net Promoter Score), which ranges from -100 to +100, with +50
“We’re continuing to explore other activities that would complement and improve our current offering…” considered ‘excellent’ and anything above 70 categorised as ‘world class’. “We started using the NPS in 2010. Back then our rating was 37. Over the last two years it’s sat at around 78 so we’ve really improved. We can’t please everyone, but the important thing is that we communicate with our customers and respond to all their comments.” KEEPING IT FRESH While the size of the slope hasn’t changed since Snowplanet opened in 2005, the quality of the experiences on offer has improved considerably. Visitors now enjoy a constantly changing terrain of obstacles. “Creating a good experience isn’t about the number of features,” says Aguilar, “it’s about the quality and providing a different style of riding that keeps them excited and keeps the park fresh.” “In 2012, we purchased new rails and features, and four years ago we invested in a lighting upgrade for the dome,” says Aguilar. “It’s now twice as bright, which greatly enhances the experience.” There is now also more up-market dining and a conference centre and crèche. The Seven Summits restaurant has changed from a tray service to an alpine-bistro dining atmosphere, and recently introduced the innovative 3D ‘Dining with Gaston experience’. This multi-sensory pre-meal entertainment, originally from Belgium, is an animated tabletop show featuring a tiny accident-prone chef who runs around between the cutlery and plates. Auckland is just the seventh city in the world to offer it. “We’re continuing to explore other activities that would complement and improve our current offering. There are 25 other snow domes in the world and we look at them all for inspiration and ideas, but we 5
BUSINESS STRATEGY SNOWPLANET
The numbers understand the behaviour of our customers and focus on what might be applicable to the New Zealand market.” PLOUGHING EARNINGS BACK INTO THE BUSINESS While the initial set-up cost for Snowplanet was significant, maintenance CAPEX is ongoing. Every three years, Snowplanet purchases new snow-grooming machines at a cost of $250,000 each. Its cooling system is powered by massive compressors that are stripped and rebuilt every three years. This costs around $40,000 to $50,000. “We also invest up to $200,000 on replacing a third of our rental gear each year,” says Aguilar. “Snow-making is an ongoing cost, as is cooling and powering the venue. We have a risk management plan with generators if the power goes off.” Skiing and snowboarding are normally viewed as high-risk activities, so managing health and safety is another daily challenge. Thousands of dollars have been invested to minimise the risk of injury. “We ensure that those things within our control are safe. We’ve padded almost everything inside the dome that can be hit, and helmets are compulsory for all activities except tubing.” Snowplanet has 27 shareholders, and because of its unique offering, the business can sustain itself without corporate backing. Operational costs are funded through its earnings. For the past six years, Hayes Knight Director Phil Barlow has assisted Snowplanet with a range of business 6
“…We’ve padded almost everything inside the dome that can be hit, and helmets are compulsory for all activities except tubing.” accounting services, including compliance and tax consulting, while Business Services Manager Sue Tregoweth handles the company’s filing requirements. “There’s really nothing else like Snowplanet in New Zealand,” says Barlow. “It’s clearly a niche offering and they’re constantly looking at ways to expand on that. With the growth in residential housing and commercial development around Silverdale over the last few years, Snowplanet’s turnover has increased and we’re delighted to be able to help them handle the associated accounting requirements.” FUTURE EXPANSION Snowplanet occupies just 4 hectares of the 14 hectare site it owns in Silverdale. Its vision is to develop the rest of the site into a destination facility with a cluster of complementary recreational activities, such as zorbing, indoor climbing and other adventure activities. Snowplanet’s snow dome is currently 40m wide and 200m long, but over the next five years, Aguilar says the plan is to double the
Snowplanet is one of just 26 indoor snow facilities worldwide. Until recently, it was the only snow dome in the Southern hemisphere. There is now another in Brazil.
More than 150,000 people now visit Snowplanet each year, up from 95,000 in 2008. The dome at Snowplanet measures 200m x 40m and the indoor temperature is -5°C.
Snowplanet holds around 40 competitions and events annually.
5300 pieces of equipment
(apparel, skis and boards) are rented out every week.
150m3 of fresh snow is
supplied to community events and off-site functions each year.
400 birthday parties, 180
corporate groups are hosted annually at Snowplanet.
width of the slope and add another 80m to the length. “We’ve seen the potential to grow the snow sports business. We want to expand our tubing and attract families who simply want to experience snow. By moving the beginners slope to our new facility, we’ll free up another 30% of the current slope to create more space for advanced customers to ski or snowboard and improve the experience for everyone.”
F RANCHISE TIPS
International franchise 101 The franchise sector in New Zealand has experienced significant growth in the past few years. New Zealand is known as a franchise friendly country, making it an attractive destination for international brands. For someone with a business or corporate background wanting to operate their own business, a green-field master franchise could be the perfect opportunity to join the franchise sector. While carrying out due diligence is a standard procedure for purchasing any business, there are a few points of difference when looking at a new system in New Zealand. Here are some key areas for you to consider through the process of buying into an international franchise: Selecting your advisors – The origin of the core franchise documentation and prepurchase information will depend on where the system was developed. Unless you are looking at an international franchise that was founded in New Zealand, it certainly won’t be New Zealand. It is essential that your advisors specialise in franchising to ensure efficiency of time and money. Having the ability to understand the documentation and cut through the jargon to get to a “what this means for you is …” position will help give you peace of mind. Review the legal documentation – not only is it recommended that you choose a lawyer specialising in franchises, they will also need to have a sound commercial
background. Given the documentation will be written overseas, the documentation will need to be reviewed and potentially tweaked to ensure that it meets New Zealand legislation and it can be practically applied across borders. Research the system – a key element to this is understanding who you are going into business with and how they operate. Discuss with them what training and support they will give you and how this will be delivered given the location and time zone differences you have. Consider any modifications or changes required to the documentation and/or manuals required and talk through your options. Ideally you would have the ability to discuss with other international master franchisees so you can get their perspective on how the process worked. Know your competition – while the franchise system may be new to New Zealand, there are likely to be other businesses that operate in a similar space. Consider identifying the local competitors and undertake a SWOT analysis on what this system has to offer. Total investment required – the up-front costs are generally clearly identified in the in the franchise documentation. You will need to consider the working capital required to help fund the new venture while it is getting started.
Right financial model – while the franchise system may be well established overseas, you need to test the assumptions from a local perspective. Consider differences such as city/regional geography and population, income levels and spending habits to ensure that it could be successful in New Zealand. Test the growth assumptions, pricing recommendations, cost structures and taxation that have been provided to you and get these reviewed and challenged by a franchise accountant. Consider the model from a franchisees’ position – as the new master franchisee, your success will depend on the success of franchisees within your area. You would need to test the assumptions above that are applicable to franchisees within the New Zealand environment to ensure they would also have a financially viable business. Taxation and compliance costs – cross-border transactions add a level of complexity to taxation requirements. Ensure that you get advice on what your requirements are and diarise the filing and payment dates! Like any new venture, planning is critical to success. Ensure you have the right team beside you, reviewing and challenging the information provided to help set you on your way. Call Hayes Knight to find out how we can be part of your successful team!
7
BUSINESS STRATEGY ITM
Empowering and building confidence WORDS: Deirdre Coleman IMAGES: Jason Dorday
Business success at these North Island ITM stores has all been about finding the right people and empowering them to make sound decisions. Nine years ago, James Kendall felt it was time for a change. With two decades of experience in building supply under his belt, he wanted to investigate new opportunities. The first of these came in late 2009 when he and wife Nicholle purchased the ITM store in Matakana – a store that has just won the ITM Operational Excellence Award for 2018. “It was an industry I knew and was passionate about, having been a supplier to the ITM network for 20 years,” says James. “The chance to buy into a business that I could grow was pretty exciting.” James turned to Hayes Knight Business Advisory Director, Scott Travis and Associate, Amanda Billington, to assess the viability of the venture, assist with the due diligence, and help with the acquisition and funding processes. It was the height of the GFC and many in the building industry were suffering, but with sound management and a focus on nurturing strong, enduring relationships with local builders, the business has flourished. Four years later, another opportunity arose – this time to invest in the ITM store in Cambridge. James now has a 25% stake in that store, with the remainder owned by three other business partners. In 2015, ITM Taupo and Turangi jointly came up for sale. James purchased them together with Brett Stewart, his business partner in Cambridge ITM and Andrew 8
Crighton, his nephew. Andrew now runs the Turangi store and the Taupo one was recently sold. The family connection has been further strengthened with James’s son now joining him and Nicholle in the Matakana store. Establishing a management structure that lets James focus more on the overall direction of the businesses has been a crucial step. Nicholle is involved in the back end of the business and also has oversight across Matakana ITM and Turangi ITM and while James is still very in touch with what’s going on, much of his time is now spent dealing with other business.
“The chance to buy into a business that I could grow was pretty exciting.” “I learnt early on that you can bury yourself doing it all by yourself or you can empower and inspire people to make a decision,” he says. “I like to think I’m a good delegator. I’d rather people make a decision than not make one – to encourage that culture you have to empower people
Business owner, James Kendall. Above right; with his wife Nicholle.
and trust the process. I’m certainly less involved in the day-to-day running of the stores, but it doesn’t work if you make yourself a key person within the company and then when you’re out, the business suffers.” Sales Manager of ITM Matakana, Shane Bell, has worked with James for 15 years in a previous business and is a trusted friend and colleague. Four years ago, James and Nicholle offered Shane a shareholding in the Matakana store and he’s now a business partner. “Nicholle and I work well together, but you need significant business partners to share the emotional burden of a growing business,” explains James. “Part of my succession plan is to bring young, energetic key people through and give them a chance to have a shareholding. It’s nice having a team around you, it re-energises you. It’s a tight family, where everyone sees a future and is fully engaged.”
ITM BUSINESS STRATEGY
While he knows the building trade well, James also isn’t afraid to call on outside expertise where he needs it. And that’s where Hayes Knight come in, providing a range of accountancy services including acquisition advice, the structuring of finance and ownership, carrying out valuations and forecasting, as well as business strategy. “They’re much more than simply accountants,” says James. “If I have an idea or a dream, Scott’s the first guy I run it by. That’s invaluable really, and we’ve built a high level of trust.” While James is constantly refining the business model for his stores, Hayes Knight has full vision across the stores and can help guide the decision-making. “They keep a very good overview of the back end of our business, which gives us confidence and acts as a security blanket. We really see their input as an investment.” Scott Travis says he and Amanda enjoy working with such a positive and motivated client.
“Part of my succession plan is to bring young, energetic key people through and give them a chance to have a shareholding…” “He has so much energy and optimism, he’s a pleasure to deal with,” says Scott. “James understands the value of having stakeholders in this business and he’s always looked for opportunities to introduce people and offer them a shareholding. When that occurs, we prepare valuations for the business and often also provide assistance with the shareholders agreements and the overall ownership structure.” Among the project work that Hayes Knight is also currently conducting for James is an evaluation of how systems, such as payroll functioning and buying power, can be coordinated, centralised and integrated to gain efficiencies across the stores.
“James has asked us to look at whether we’re using and sharing the knowledge effectively and overlaying it across the group as opposed to each manager running their store separately,” says Amanda. “He’s also looking at opportunities for further acquisition and how another business might be integrated into the group, so we’re modelling that for him.” James conveyed his intentions for the future nicely with this concluding comment, “It is a leap of faith to try anything new, however I would like to think the journey will continue to involve inspiring others to ‘have a go’, build confidence and share success through a great team culture.” 9
TECHNOLOGY
Swimming the tides of change Changes in technology are moving at an alarming rate, showing no signs of slowing down. Customers are demanding better, faster products, services and experiences and want to do more with less. Companies now have to undergo change almost constantly if they are to remain competitive. Hayes Knight has seen their own rate of change increase over the past few years. This year, several major changes rolled together forced the firm to seriously consider the impact of these changes and how best to manage the process and inevitable upheaval. Below, Practice Manager, Helen Hall, reflects on Hayes Knight’s recent experience with managing change. There is no doubt that organisational change can be difficult. Typical responses can be fear, anger and resistance, but rather than seeing change as something to be tolerated only when necessary, we have shifted our thinking to understand that change will now be constant. We recognise that innovative organisations embrace change as a tool to benefit all stakeholders and therefore this mindset of welcoming, rather than fearing change is often a competitive advantage. Retired American businessman Jack Welch famously said of organisations; “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” In fact, employers who embrace technology and innovation are now seen as attractive employers, despite the impact it may have on the team implementing changes. This is because progressive employers know how to support change effectively, ensuring that great communication remains a priority. Thinking about how we have adapted so far to keep our heads above water and what we should focus on for the remainder of this year, with some significant changes yet to roll out, to follow are some top tips based on our experience so far. 10
Top 10
tips for staying afloat in times of change 1. JUMP RIGHT IN Breaking a project down into manageable steps with achievable deadlines will allow you time to scope and plan, whilst still remaining focussed on the present. You don’t need to know all the detail before you start but if you know what you need to achieve, allow plenty of time and get started now, you will be done before you know it. Have faith that if it is the right thing for your business and your customers, then it will always be the right thing for your team too.
2. INVOLVE THE TEAM Vertical project teams are ideal for larger scale projects that involve the whole team. They create opportunities for junior and senior team members to not only benefit from each other’s experience but create valuable teaching and professional development opportunities. Team members may enjoy the chance to shine outside of their normal role.
VILLA MARIA BUSINESS STRATEGY
3. COMMUNICATION IS THE KEY Start with an explanation of what is planned and why, then survey the team for suggestions and areas of concern. Explain when their feedback is required and keep communicating progress even if only to say what decisions are currently being made. Communication from the project team to management should be regular and give them clear, but focussed, decision making choices along the way.
4. FOCUS ON A STRONG STRUCTURE The framework for any structure is always critical for its ability to stand upright, so make sure you focus on this. With any strong adaptable system, you can easily adjust it to meet your individual needs.
5. STICK TO YOUR COMPANY IDEALS A clear vision of what your core values are will make decision making very easy. If you are finding decision making difficult, it may be that you are lacking clear direction for your business and you may need to put your project on hold and solve this first.
6. WORK WITH SUPPLIERS YOU CAN TRUST AND WHO MATCH YOUR COMPANY IDEALS Finding synergies with suppliers that you can trust and match your core values will limit your frustration because your expectations around problem solving will be met.
7. LEAD FROM THE TOP Be clear with owners and managers that they are the drivers and role models for positive change. If the management team are showing positive change behaviour and attitude then the team will follow their lead.
8. TALK ABOUT HOW CHANGE MAKES US FEEL AND WHAT TO EXPECT The links between change, stress and mental health are well known and don’t be afraid to discuss these types of things with your team. At best there will be minor levels of discomfort and at worst significant stress. Discuss their pathways for selfmanaging discomfort and frustration versus communicating major stress points.
9. EXPECT MISTAKES Even the most well-planned implementation process will have bumps along the way, so simply adapt and quickly move on.
10. START SWIMMING AND THEN AMEND AND FINE TUNE AS YOU GO It seems clear that change is here to stay but you can’t get started until you take the first steps. By allowing a reasonable timeframe, involving the team, communicating and adapting, you can turn a difficult situation into a learning and development opportunity that benefits not only your customers and owners, but your team as well.
11
BUSINESS STRATEGY ELECTRIC BIKE NZ
Plugged in and charging WORDS: Adam Fricker IMAGES: Jason Dorday
Apparently there’s a saying about electric bikes, or ‘e-bikes’ as they’re known. It goes something like, ‘before you try it, you think it’s cheating; after you’ve tried it, you don’t give a toss’. EBNZ’s General Manager, James Speedy.
In 2017, Stuff journalist Rob Stock spent a week on an e-bike and wrote, “Hills lose their power to intimidate you. To ride an e-bike is to experience super-strength. With each turn of the pedal, the electric motor drives the rider forward as though they have preternatural muscle power.” He said fellow e-bike commuters were saving buckets of cash by leaving the car at home, were getting fitter despite not being particularly athletic, were rediscovering the pure joy of cycling and were feeling virtuous at the same time. And perhaps best of all, they were upsetting the lycra-clad purists as they cruised past them on their e-bikes. This is life-changing stuff for many people. The customer testimonials on Electric Bikes
“The industry attracts people who aren’t really cyclists at all. EBNZ are enablers…” NZ Limited’s (EBNZ) website (electricbikes. co.nz) tell the same story: Stefan says he gets around Auckland’s hilly streets faster on his Smartmotion e-City than he did in a car. Gerard has halved his commute time on his E-Urban, loves overtaking cues of 150 cars in the morning and is saving “a lot of money”. Robenanne has reconnected
with her kids and grandkids through e-biking. And Shane says, “Since my knees have gotten so bad, I’ve had to give up so much. But after purchasing one of your bikes it’s allowed me to get back out and enjoy riding again.” You get the picture. The people at EBNZ are improving the lives of their customers in meaningful ways. And they know it – that’s what drives them. “The interesting thing about the electric bike industry is that very few of the drivers of the industry are actually cycle purists,” says James Speedy, General Manager of EBNZ .“The industry attracts people who aren’t really cyclists at all. EBNZ are enablers, they enable people to get out
Mapping the Journey EBNZ outgrew basic compliance and bookkeeping advice. 12
Hayes Knight helped restructure working capital, tax and funding arrangements.
Next, future organisational structure and strategies to facilitate growth were white-boarded.
A fit-for-purpose purchasing model was created.
ELECTRIC BIKES NZ BUSINESS STRATEGY of cars and onto bikes, people who might not be able to consider it without electrical assistance; and it really makes a difference in people’s lives.” That total focus on good outcomes for the customer, coupled with the productdesign capability of the majority owner, Anthony Clyde, is a powerful combination that has driven EBNZ’s growth since forming in 2006. The company is now one of the major players in the rapidly growing e-bike segment. Now a major wholesale distribution business, EBNZ was one of the first commercial importers of e-bikes in New Zealand. It also owns one retail store in Albany, Auckland, which teaches James and his team invaluable lessons about the retail environment that their dealers are experiencing; keeps them tuned in. Being tuned in is a common theme with this company. It is run by e-bike enthusiasts, they get constant feedback from like-minded dealers and customers, feedback that Anthony, through his separate design business, recycles back to their manufacturing partners in China to tailor e-bikes best suited to New Zealand conditions and values. These strengths jumped out to Hayes Knight Director Brendon Cutler when he first started working with EBNZ just over a year ago. The company was well in tune with its customers and expanding rapidly, experiencing the usual growing pains, and facing an exciting yet fast-changing marketplace. “Like electric vehicles, initially there were a few players at the forefront, then everyone jumped on the bandwagon,” says Brendon, “So for them, the question is how do they keep market share and maintain growth in that changing market?” Together they looked at tax issues, worked with their existing bank to put improved working capital facilities in place and whiteboarded the strategies, new organisational structure and roadmap the company would need to be successful. They also developed an in-house purchasing model, Brendon explains.
Cashflow forecasting was developed and implemented.
James (left) with Director, Anthony Clyde
“Now a major wholesale distribution business, EBNZ was one of the first commercial importers of e-bikes in New Zealand.” “Purchasing for EBNZ is very seasonal and with long lead times can be a moving target in terms of quantities and therefore timing of payments. The model helps forecast what their product needs will be, important given the high per unit value, and translates through to show impact on cashflow.” James Speedy and his team have found the business consulting and advice invaluable as they journey towards their goal. “I think it’s reasonable to have a goal to become the biggest electric bike distributor in the country,” he says. “And that’s not only distributing to dealers either, that’s focusing on corporate fleet sales, possibly even
EBNZ’s finance team were assisted with reporting and KPIs.
working with government, councils, that sort of thing.” “We weren’t really aware of the true role an accounting firm could have. We’ve found huge opportunities in being able to really focus on what the numbers are doing for our business and how we can make use of that; where to put resources and where not to put resources.” Along the way, the payoff will not just be financial. “We’re not so much passionate about cycling, we’re passionate about making a difference to all-round transportation and the community. The love of the product is still part of it, but it’s more about what it enables people to do.”
Some spot analysis of the changing marketplace was done.
With the roadmap set, ongoing monitoring and regular meetings keeps things on track. 13
TAX UPDATE
Who still wants to be a landlord?
It seems every day you read the newspaper, there are numerous articles focusing on the New Zealand property market. There have been a number of tax changes aimed at softening the property market. In addition, there are various other rules and regulations being placed on landlords. For the average New Zealand mum and dad investor who may have only one rental property, some of these changes may now have them thinking twice about continuing to hold that investment. So what recent changes have been made and what is on the horizon?
14
LOSS RING FENCING The proposed residential rental loss ringfencing rules will mean that speculators and investors with residential properties will no longer be able to offset tax losses from those properties against their other income to reduce their tax liability. The losses can be used in future years, when the properties are making profits, or if the person is taxed on the sale of land. The Government sees this as a key measure in making the tax system fairer while improving housing affordability for owner-occupiers. There is an expectation that many mum and dad investors will exit the rental market given they will no longer be able to cover mortgage payments from PAYE refunds that they may have historically received from the loss offset. These proposals will likely make their way into a Tax Bill in 2018 and apply from the 2019-20 income year.
T AX UPDATE know what to expect come winter and make informed decisions. Landlords must also have smoke alarms installed that are in good working order and well maintained. From 1 July 2019 insulation will be compulsory in all rental homes. Any new, replacement or top-up insulation installed in a rental home after 1 July 2016 must meet requirements that will apply from 1 July 2019. Further information can be found at https://www.tenancy.govt.nz/assets/ Uploads/Tenancy/renting-and-you-englishedition.pdf HEALTH AND SAFETY LEGISLATION The Health and Safety at Work Act 2015 (the Act) came into force on 4 April 2016. Under these rules, landlords (and their property managers) of both commercial and residential premises, owe a duty of care to ensure the health and safety of everyone involved with or affected by work undertaken on their property. These rules place numerous obligations on commercial property landlords to ensure the health and safety of those using the leased property for work purposes. Although the Act applies to residential rentals, it only applies whilst it is a place of work (e.g. where tradesmen are engaged and enter the premises to carry out repair work). The rest of the time, rentals are simply homes and landlords need only comply with existing Residential Tenancy laws. LEAKY BUILDINGS BRIGHTLINE TEST The Brightline test effectively taxes gains from the sale of property that have traditionally been treated as non-taxable capital gains. A 2 year “Brightline rule” was introduced from 1 October 2015. Gains on property bought on or after that date and sold within 2 years became taxable. The exceptions to this rule being the “main home”, relationship property and also inherited property. The 2 year ownership requirement has subsequently been extended to 5 years for any property acquired on or after 29 March 2018. INSULATION REQUIREMENTS From 1 July 2016, new tenancy agreements were required to contain a signed Insulation Statement from the landlord disclosing whether there is insulation in the rental premises and its location, type and condition. It is intended to help tenants
Over recent years the media has been awash with stories of properties found to be leaky. Many of these have been in large apartment blocks and the costs for remediation have been significant (sometimes over $100,000 for each apartment). For landlords, the issue is then whether any of these costs are deductible for tax purposes. Unfortunately, this is not a clear-cut issue as it is necessary to determine to what extent the costs are “repairs and maintenance” and to what extent they are capital in nature. Most property owners would rightly argue their property is just being returned to the condition it was when it was purchased and therefore the costs should be deductible. The Inland Revenue however do not necessarily hold that view, although they are considering this issue in more detail – it will be interesting to see if they relax their position once the loss ring-fencing rules are introduced. Advice should always
be sought before deducting any remedial expenses. AIRBNB – BED TAX The Auckland Council (and other councils) are looking at introducing an Airbnb tax. If the proposed tax proceeds, homeowners would have to pay a visitor accommodation rate to the council, which is based on how much of the year they rent their place out. Another issue that is sometimes overlooked for Airbnb homeowners is if you derive more than $60,000 in a 12 month period from renting your home, you will need to be GST registered. In addition, you need to watch if the owner of the home is registered for GST in a different capacity (e.g. self employed) as that may mean there is already a GST obligation. If you are operating an Airbnb or intend to, you should seek advice on this point. EARTHQUAKE STRENGTHENING RULES The Building Act provides a framework for managing earthquake-prone buildings. Major changes to this framework took effect from 1 July 2017. The earthquake-prone building provisions apply to non-residential buildings and some larger residential buildings – those that are at least two storeys and either: • contain three or more household units, or • are used as a hostel, boarding house, or other specialised accommodation Some structures are specifically excluded, including farm buildings, retaining walls, fences, certain monuments, wharves, bridges, tunnels and storage tanks. For landlords, any earthquake strengthening requirements will fall under the Health and Safety legislation. In practice, landlords are only expected to take reasonable steps to address a hazard or minimise its impact. As strengthening work involves significant costs and disruption, it is most probably not a reasonably practicable step to immediately begin such work. Landlords should thus plan and budget for strengthening work in the future or as soon as is reasonably possible. As you can see, there is a raft of new legislation and regulations that have recently affected property owners and there are further changes just around the corner. If you are contemplating buying or selling property, please contact your Hayes Knight advisor to discuss this in more detail. 15
KNOWLEDGE SHOP
Rewards of being a Knowledge Shop member What does an accounting firm do to ensure their staff have access to the best accounting resources and support to develop their knowledge and maximise profitability? Many savvy firms throughout New Zealand have joined Hayes Knight’s Knowledge Shop and discovered a reliable solution in the wealth of products, services and training available to members. Virginia Stallard, Director of Vision Accounting Solutions Ltd describes how Knowledge Shop membership has helped her accounting practice value its employees by allowing them to keep up with their chartered accounting educational requirements, “It’s been a great investment in my team’s professional development – the quarterly workshops provide excellent training, which is very interactive and pitched at the right level. The sessions are a great opportunity to discuss any matters concerning us and we enjoy being able to meet like-minded accounting professionals in a semi-informal setting.” “The exclusive access to top quality resources puts Knowledge Shop members streets ahead of their competition” explains Knowledge Shop Director, Shelley-ann Brinkley. “When a member has a tax question on behalf of their client, the member can tap into up to date technical information and advice; made possible due 16
to Hayes Knight having a highly-regarded Tax Consultancy division with professionals who operate at a Government and IRD advisory level.” “It’s really valuable to have client issues quickly checked into and know that behind the advice there is a process of brain storming, trouble shooting and input from various experts,” adds Stephen Johnson, Director from Accounting North Limited.
“It’s been a great investment in my team’s professional development…” It’s not just tax that Knowledge Shop helps members with. There is a full range of accounting related expertise on hand – from financial reporting and business improvement matters through to support with practice management and company law requirements. “We find the Knowledge Shop Q&As particularly helpful; the service is very practical and down to earth. Importantly, they give a yes or no answer, which is just what we need to avoid wasting
time researching further commentary”, comments Virginia. THE MEMBERSHIP BENEFITS INCLUDE: Help desk – unlimited number of questions submitted online, answered by highly qualified professionals Professional development – quarterly face to face training Knowledge Bank – 24/7 access to a member only Knowledge Bank of practical and up-to-date working papers, standard letters, checklists and procedures News updates – the latest news and e-mail alerts on the issues important to members and their clients Tim Mayston, Director of Mayston Partners Limited sums up the service nicely, “Without Knowledge Shop we would have had to spend more time upskilling in tax legislation, whereby reducing the amount of time addressing other important client needs.” Interested in joining? Get in touch with Shelley-ann today on 09 448 3252 or shelley-ann.brinkley@hayesknight.co.nz.
H AYES KNIGHT NEWS
Congratulations to Newmarket Business Awards winner Congratulations to Superette for winning the Hayes Knight Retailer of the Year Award at this year’s prestigious Newmarket Business Awards held at The Cordis Hotel on Thursday 14 June. Hayes Knight Director, Brendon Cutler (pictured right, with the winners), presented the Award and attended the Awards dinner along with our Hayes Knight Newmarket team. Now in their seventh year, the Newmarket Business Awards celebrates business excellence and aims to recognise businesses that are maximising their potential and have mastered the art of delivering excellent products and services in the Newmarket area.
Supporting youth development Hayes Knight is proud to be associated with the Tania Dalton Foundation as a capability partner, providing accounting advice, support and services. The Tania Dalton Foundation (TDF) exists to make a meaningful impact to young people in New Zealand. It has been established to help our youth, from all kinds of circumstances and at different stages of their development, to unlock their talent and their best selves, for their sport and for themselves. The foundation has been busy this year with their first class of 12 scholarship recipients and only has plans to grow. TDF’s 3-year scholarships provide financial assistance, one-on-one support and personal development opportunities. Tania’s close ties to the North Shore make this charity close to our hearts and we are looking forward to helping them achieve all their goals. The foundation held its first gala dinner on 16 August 2018 at the Cordis Hotel, raising over $200,000.
Did you know? Hayes Knight regularly obtains client feedback via our online Net Promotor Score (NPS) platform. NPS is a metric used globally to measure customer loyalty and advocacy levels. Our current NPS score is 64. The current benchmark for the accounting industry is 26.
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HAYES KNIGHT NEWS
Spotlight on
In this feature, we talk to two new senior members of the team that have recently joined Hayes Knight.
Rod Brown
BUSINESS SERVICES MANAGER Rod Brown has spent over 10 years in the chartered accounting environment after starting his career working in a corporate role. LIKE JOSH, YOU ARE ALSO A BUSINESS SERVICES MANAGER – HOW DO YOUR ROLES DIFFER? I work closely with Hayes Knight Director Brendon Cutler, so I am responsible for overseeing and assisting with his client base and team. Because of this, I have a wider range of clients that I currently deal with on a regular basis. While Josh also works closely with clients, he has taken on more of the internal project work since joining us and has been instrumental in helping to implement our recent “Less Paper” project.
HOW DO YOU ENSURE YOU GET THE BEST OUT OF YOUR TEAM? I like to think that I am always approachable and willing to take the time to talk through any issues and ideas that the team may have. It is important that everyone feels comfortable sharing new ideas to ensure that we are always improving the service that we provide to our clients. WHAT MAKES HAYES KNIGHT A GREAT PLACE TO WORK? The people. We have a great team here with a broad set of skills and knowledge which means that we are constantly learning.
Josh Soo
BUSINESS SERVICES MANAGER Josh Soo has returned to Hayes Knight after starting his professional career with us as a graduate in 2005. After gaining admission into the Institute of Chartered Accountants Australia and New Zealand and experience at several large accounting firms in Auckland, we welcomed Josh back in 2017. DESCRIBE WHAT YOUR ROLE AS A BUSINESS SERVICES MANAGER ENTAILS My role at Hayes Knight is diverse and exciting; from working in a highly talented team to develop and implement sophisticated firm internal systems, to undertaking client financial forecasting, valuation and quality control review assignments.
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HAVING WORKED AT OTHER AUCKLAND ACCOUNTING FIRMS, WHAT DO YOU THINK MAKES HAYES KNIGHT A UNIQUE PLACE TO WORK? Hayes Knight has an uncompromising approach to quality in the services we provide. The firm’s reputation for quality of work is well known amongst other professional firms in Auckland. YOU SPECIALISE IN ASIAN BUSINESS, WHAT DOES THIS MEAN FOR YOUR CLIENTS? I get a real buzz from helping clients achieve their next business goal but understand that no single adviser can cover every aspect of a client’s advisory needs, including legal, risk-management and funding issues. Therefore, having a strong connection to the local mandarin-speaking professional community including lawyers, bankers and insurance providers, means that we can provide our clients with better opportunities to obtain the advice they need to achieve their business goals.
O PINION
Radar By Tristan Dean, Business Advisory Director
The minimum wage debate As from 1 April 2018, the minimum wage in New Zealand increased from $15.75 to $16.50 per hour, an increase of 4.8%. The current intention is for this to increase further, to $20.00 an hour as from 1 April 2021. This represents a total increase of 27% from the starting point of $15.75 an hour, over the next 3 years. No one would argue that those earning the minimum wage are living a glamourous lifestyle, and I think a large proportion of the population of New Zealand support the planned increases. However, if you own a business that is reliant on a large amount of manual labour, things just got interesting. The fact is that the lowest paid employees in New Zealand businesses are going to get a government forced pay rise from $16.50 to $20.00 an hour over the next three years. Let’s then assume that the direct supervisor of those lowest paid employees is currently earning $20 an hour. Logic tells me that the supervisor is going to be looking for a pay increase pretty quickly, probably at least $3.50 a hour to be precise. In turn, the wage increases will then likely keep flowing upwards through the business. As such, some commentators are predicting that for businesses heavily reliant on manual labour, overall wage costs may well increase by up to 20%, directly as a result of the 27% rise in the minimum wage. What would the bottom line of your business look like if your direct costs rose by 20% over the next three years? For many businesses that we see, such an increase in costs, without a corresponding increase in the sale price of the goods or services being generated, would be more than enough to put the business into a lossmaking position. So, what does a business facing a 20% increase in labour costs do? Most likely, it simply puts its prices up to offset the cost increase and protect margin. If it
can’t do this (for example, as its pricing would become uncompetitive against imported products), then it needs to find a way to cut other production costs, cut overhead costs, or increase the efficiency of its current labour force. Failing any of those actions, potentially, the business will cease to trade.
“Logic tells me that the supervisor is going to be looking for a pay increase pretty quickly...” I question if the Government has fully modelled the impact that increasing the minimum wage could have on the economy. Have they done the maths on the likely flow on effect on wage rates above the minimum wage? Have they factored in potentially higher unemployment rates and the inflationary impact of businesses putting up their prices in order to survive? I’m picking not, I’m picking that they have simply rushed to implement what is generally a popular policy (particularly to nonbusiness owners). However, despite what some are saying, I can’t see the New Zealand economy coming to a grinding halt due to the minimum wage increase and in all likelihood, businesses will simply suck up the increased costs and then find a way to protect the margins they require in order to make the risk and stress of being in business worthwhile. The important point in all of this is for businesses to start planning for the increased costs now. They need to model what impact the cost increase will have on the bottom line and work out what needs to be done to counteract it. The clock is ticking. 19
Beyond the numbers... To stand out and stay ahead of the competition, you need to be challenged. At Hayes Knight, we don’t just work the numbers, we interpret them. We are with you every step of the way; helping you and your business move ahead and stay ahead.
Are you up for the challenge? Contact us today Visit hayesknight.co.nz