Numbers WINTER 2019
Being mindful of wellbeing
Inside Is kindness the new GDP? Creating a culture of calm What does wellbeing mean to you? 2019 Business Confidence survey results The rise of the digital colleague The bridge to retirement
BAKER TILLY STAPLES RODWAY MAGAZINE
DIRECTORS Auckland
David Searle
(09) 373 1128
Hamilton
David Heald
(07) 834 6801
Tauranga
Chris Downey (07) 578 2989
Hawkes Bay
Dave Sawers
(06) 878 7004
Taranaki
Chris Lynch
(06) 757 3155
Wellington
David Hulston (04) 472 7919
Christchurch
Dave McCone (03) 343 0599
DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this document. It is recommended that you consult your advisor before acting on this information. 02 Numbers ¡ Winter 2019
A look inside this issue of Numbers... 04 Wellbeing Budget Is kindness the new GDP?
08 Singing in the rain Why the Budget produced a mixed business forecast
12 Mindfulness Creating a culture of calm
16 What does wellbeing mean to you? 19 Realising the potential Airport Farm
22 The bridge to retirement 24 The rise of the digital colleague? 26 Ask an expert 28 Employment law changes 30 Three-way budgeting 33 Great conversations, great relationships, great futures Take a look at what we’ve been up to recently
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Wellbeing Budget Is kindness the new GDP? STORY Nicola Hankinson National Technical Manager
New Zealand’s recent 2019 Budget was the first produced using the Government’s new ‘Wellbeing concept’, a ground-breaking approach based on the Treasury’s Living Standards Framework (LSF). Why is this groundbreaking? It has never been done before!
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No other government in the world has prepared a budget based upon publicly stated wellbeing outcomes, one that claims to gauge the long-term impact of policy on the quality of people’s lives. No easy task! New Zealand has a proud history of breaking new ground in the financial reporting arena, being the first country in the world to produce accrual-based government financial statements and the first to introduce non-financial reporting at a government (and also registered charity) level. Feedback from the recent introduction of performance reporting requirements for registered charities suggests that people value being able to access information about an organisation that is broader than outlining how they have spent their funds and how much is left. Almost 30 years since the introduction of the Public Finance Act, New Zealand continues to take significant strides in advancing governmental transparency and accountability with the introduction of the LSF and development of the Wellbeing Budget. While it has long been recognised that measuring success based on dollars and cents alone (i.e. GDP) doesn’t cut it, no other government has gone this far. In 2014, Chartered Accountants ANZ released a paper advising that: “We need to start understanding how we are performing in a broader societal wellbeing perspective in order to create the policies for long term prosperity for all”. Even earlier, in the late 1960s, Robert F Kennedy recognised the importance of broader measurement. It is hard to imagine an American politician these days giving this sort of speech, but that does not diminish its power: “Yet the Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or Numbers · Winter 2019
THE FIVE BROAD PRIORITY AREAS UNDERPINNING THE WELLBEING BUDGET 1 Boosting innovation Creating opportunities for productive businesses, regions, iwi and others to transition to a sustainable and low-emissions economy. 2 Creating opportunities Supporting a thriving nation in the digital age through innovation, social and economic opportunities. 3 Backing Māori & Pasifika Lifting Māori and Pacific incomes, skills and opportunities. 4 Supporting mental health Supporting mental wellbeing for all New Zealanders, with a particular focus on under 24-year-olds. 5 Improving child wellbeing Reducing child poverty and improving child wellbeing, including addressing family violence.
the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything, in short, except that which makes life worthwhile”. 05
And business owners agree. In our recent Business Confidence Survey, 72% of respondents considered it was important to measure performance through wellbeing factor (see Diagram A).
require policy action, guide cross-governmental coordination and build public-private partnerships. • The Central Government of China, which introduced a Green GDP illustrating that, as a result of previously unaccounted for environmental externalities, some resource-intensive industries had near zero growth. However, as a result of political concerns, China has discontinued its use of the Green GDP.
So, what has stopped other countries from progressing further in developing alternative success measures? Are there solid reasons for sticking with the status quo and measuring success using more traditional measures? You may also ask what governments role is in relation to the wellbeing of its citizens – that would be a fair question.
• The European Commission committed to the following actions to develop alternative measures to support GDP:
A number of countries and jurisdictions have progressed development of ‘GDP alternatives’. Examples include:
‐‐ Developing a European Development Scorecard
Sustainable
‐‐ Including environmental and issues in the National Accounts
• The State of Maryland in the US, which developed a Genuine Progress Indicator (GPI) to guide strategic planning and development and assess how policy decisions affect social wellbeing.
social
‐‐ Improving the timeliness of environmental and social data collation to enable near real-time information to be used for decision-making
• Paraguay, which adopted a Social Progress Indicator as a national performance measure to identify areas of concern that
‐‐ Promoting more accurate reporting on distribution and inequalities
Diagram A: How important is it for the government to:
Balance the budget Measure performance through economic factors (e.g. GDP) Measure performance through wellbeing factors (e.g. mental health) Measure performance through environmental factors (e.g. water quality)
0%
Very important
20%
40%
Somewhat important
60%
Not so important
80%
Not at all important
100%
Not sure
Baker Tilly Staples Rodway Business Confidence Survey 2019
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‐‐ Stimulating development of a comprehensive environmental index and quality of life indicator In terms of reporting success in the wellbeing arena, since 2007, the US has published State of American Well-Being rankings, to highlight which states are performing well across five key elements of wellbeing: • Purpose: liking what you do each day and being motivated to achieve your goals • Social: having supportive relationships and love in your life • Financial: managing your economic life to reduce stress and increase security • Community: liking where you live, feeling safe, and having pride in your community • Physical: having good health and enough energy to get things done daily The 2017 rankings report highlighted that wellbeing in the US was in a state of steady decline, and that investing in the wellbeing of others is more critical now, than ever before. The report also noted that wellbeing goes beyond the individual and is impacted by outside forces which supports the notion that wellbeing is best measured, and managed, at a national level.
What are the challenges preventing other governments from developing ‘Wellbeing Budgets’ based upon broader measures of success? 1 It’s hard! Measuring progress against ‘softer’ and often less tangible indicators is incredibly difficult to do. There is no universal measurement currency, like USD, to benchmark against, and no ‘line in the sand’ to draw. As a result, proxy measures and indicators, rather than firm targets, are required.
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2 In order to measure wellbeing holistically, the impact of policies needs to be considered over a longer-term horizon. A focus on inter-generational wellbeing, rather than the impact in the upcoming financial year or political term, is difficult to do within the confines of a political cycle. 3 As with the introduction of other seemingly sensible policies (such as, some say, capital gains tax), politics comes into play and governments need to manage their political capital. Is a Wellbeing Budget worth the potential ‘hit’ in the polling stakes? 4 There is a risk that information on performance against wellbeing measures may shine the spotlight on the ‘winners and losers’ of government policy. Ironically, governments could suffer from enabling too much transparency.
Should we stop just because it is too hard? No. As we discovered on 30 May, the Coalition government considers that paving the way towards broader measures of national success is a worthwhile endeavour, despite the challenges. The world is certainly watching us, with the announcement of our Wellbeing Budget drawing much attention at the World Economic Forum at Davos earlier this year. Whether this approach is as transformational as is claimed is yet to be seen. While it is difficult to argue against reducing child poverty and youth suicide rates, the business community and society at large hold high expectations for tangible results to support these claims. Can the Wellbeing Budget deliver these results? Time will tell. nicola.hankinson@bakertillysr.nz 1 Chartered
Accountants ANZ future [inc] paper, Is policy making measuring up? Rethinking how we measure the success of a nation, September 2014
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Singing in the rain Why the Budget produced a mixed business forecast
STORY Kaison Chang Baker Tilly Staples Rodway Auckland
Business leaders, for the most part, seem cautiously confident they will do about the same this year as they did in 2018. Even dairy prices and exports are expected to remain stable. So why is there still so much negativity about the way our economy is heading?
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Our economy seems to be ticking over fine, with the International Monetary Fund predicting we’ll see 2.5 per cent growth this year. Business leaders, for the most part, seem cautiously confident they will do about the same this year as they did in 2018. Even dairy prices and exports are expected to remain stable. So why is there still so much negativity about the way our economy is heading? Politics is part of the answer, but it’s more to do with trust. With the government’s wellbeing agenda raising the cost of doing business, the major task this year will Numbers · Winter 2019
be convincing business owners they are on the same page. Despite the scepticism, the government is actually much more aligned with business priorities than many think. Listening to business leaders, they’re in favour of environmental sustainability and wellbeing measures as long as the overall economy is also in a healthy position. Our research bears this out. In our recent Business Confidence Survey, more than 70 per cent of respondents were in favour of measuring New Zealand’s 09
progress by wellbeing and environmental factors, from mental health and community engagement to air and water quality (see Diagram A on page 6).
The Budget When it comes to what businesses want most, top priorities were infrastructure, a simplified tax system and investment in research and development (see Diagram 1). The encouraging thing is that the government seems well aligned with these demands, from investment in new rail to the 5G network and digital transformation. Business owners I’ve spoken to are delighted that the extensive capital gains tax is no longer on the horizon, a sign that the government, at least in coalition, is listening.
Diagram 1: Rank the following issues in order of how much of a positive difference they would make to your business. 1 Invest in infrastructure (i.e. rail, ports, roads etc) 2 Simplify the tax system and cut red tape for business 3 Invest in research and development 4 Reduce personal tax rates 5 Invest in science, technology & math education 6 Reduce company tax rates 7 Encourage the immigration of highly skilled workers 8 Invest in New Zealanders’ wellbeing 9 Reduce barriers to international investment
Economic outlook Despite these signals, our study shows two-thirds of business leaders think overall wellbeing will either remain the same or go backwards, and hope for the economy is also low. This isn’t surprising when you look at house prices. As Kiwis, our optimism seems to be linked to how well our housing portfolios are doing. Aucklanders, in particular, are expecting house prices to drop, largely mirroring views on our economic performance (although Waikato residents are bucking the trend). Last year, around half (48 per cent) of business leaders thought the government was performing poorly at managing the economy (see Diagram 2). This has risen to 63 per cent in the current Business Confidence Survey. Only 13 per cent of business leaders believe the economy will grow at the same rate as it did last year, down from 18 per cent in 2018. Diagram 2: How is the government performing when it comes to managing the broader NZ economy? 2019 2018 0%
20%
40%
60%
80%
100%
10 Introduce a Capital Gains Tax
Baker Tilly Staples Rodway Business Confidence Survey 2019
Very poorly/poorly
Well/very well
Not sure
Baker Tilly Staples Rodway Business Confidence Survey 2019
Finance Minister Grant Robertson has already signalled he is willing to take on more debt in order to make the necessary investments from 2022 while keeping to a responsible debt level of no more than 25 per cent of GDP. While this year’s Budget can’t deliver everything on the wishlist overnight, it does seem that government policy and business demands are much more in sync than the old stereotype about Labour Governments would suggest. 10
Pessimism about the economy is to be expected during any Labour government – it’s politics. On the other hand, in 2018, the majority of business leaders (68 per cent) believed they personally would be worse off under the new government’s Budget than they were the previous year. This year, only half feel the same. Also a positive sign, survey responNumbers · Winter 2019
Diagram 3: How’s business? How has your business performed over the last 12 months? How is your business likely to perform over the next 12 months? 0%
Significantly worse
Worse
Stayed the same
20%
Improve(d)
40%
60%
80%
100%
Significantly improve(d)
Baker Tilly Staples Rodway Business Confidence Survey 2019
dents said their businesses had performed the same (43 per cent) or improved (27 per cent) in the past year (see Diagram 3). My own conversations with business leaders reinforce this. While around half of those surveyed expect job security to worsen, in my experience, businesses are continuing to make investments, consider acquisitions and plan new hires.
Addressing the costs The negativity, therefore, seems to be less about the Budget than the government’s overall agenda. Businesses have already seen significant changes from higher minimum wages to the abolition of the 90-day probation period, domestic violence leave and rising compliance costs, so understandably the business sector is feeling challenged, even though dairy prices and exports are expected to carry on at much the same level as before. While businesses support the concept of wellbeing, the government needs to provide real clarity on how improvements will be paid for. If the government wants to turn around the negativity, it needs to work harder on demonstrating its alignment with business leaders and ensuring further business costs don’t slow the economy. The figures and our own anecdotal evidence show an acknowledgement that wellbeing is worth paying for, as long as businesses aren’t bearing the full cost. Numbers · Winter 2019
According to the same survey, more than half of business leaders (53 per cent) support a new tax band for very high-income earners. A fifth support higher taxes for those earning more than $150,000 and a third are comfortable with a new threshold at $200,000 (see Diagram 4).
F 6 41 + 21 32
Diagram 4: Do you support a higher top income band for very high earners? Unsure
6%
Yes
(over $200,000)
32%
No
41%
Yes
(over $150,000)
21%
Baker Tilly Staples Rodway Business Confidence Survey 2019
In spite of the fact that this Budget did not include any changes to tax regimes, businesses’ overall sentiment is likely to remain pessimistic unless the government can deliver on its infrastructure programme as well as greater wellbeing without imposing further burdens on the business community. There are encouraging signs that we’re all heading in the same direction, but how we get there will make all the difference. kaison.chang@bakertillysr.nz 11
Mindfulness Creating a culture of calm STORY Julia Stockman People & Culture Consultant Baker Tilly Staples Rodway Taranaki
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It’s a fast-paced, frantic world we live in and there will be times when all you want to do is crawl into a dark cave and wait till the chaos and noise dissipate before emerging.
Photo by Adam Zvanovec on Unsplash
Unfortunately, for most of us, the reality is that life doesn’t quite work that way. You know what it’s like: demanding deadlines, the pressure to deliver, constant distractions. The result? Anxiety, stress and an unhealthy workplace. More and more, the importance of being able to calm our minds amidst the chaos is critical if we are to focus our attention and effectively perform at work. For leaders, creating a culture of wellbeing, where people can thrive and flourish, is not only good for business but is at the heart of true leadership. The World Health Organisation predicts that mental illness will be the leading cause of disability and absence in the workplace by 2030 if it’s not proactively addressed. The Southern Cross Health Society’ Wellness in the Workplace’ survey of 2015 estimates that New Zealand lost approximately 6.7 million working days to absence in 2014. The direct costs of absence alone, most commonly from minor illness, amounted to $1.4 billion across the economy in 2014. It’s estimated that on average, employees have nearly three times as many presentee days (whereby the employee is ‘at the office’ but not 100% well), as absentee days, resulting in much higher ‘hidden’ costs of poor mental health. The average cost to New Zealand employers of absentee and presentee days is estimated at over $1,500 per year, per employee. 13
These are quite sobering statistics for anyone to read. Yes, the world is complex, and we need resilience to cope. But it’s not all doom and gloom. We can build resilience, and complex problems can be easily solved if we are in the right headspace. So, what’s the answer? Mindfulness. Mindfulness was once viewed as somewhat unconventional for western society. It is the practice of self-observation without judgement, with a focus on our minds’ inner voice. As scientific research uncovers the enormous benefits on our wellbeing, it is quickly gaining momentum. A study published in the Journal of Applied Psychology in 2012 revealed that individuals who practised some form of mindfulness experience had significantly less emotional exhaustion and more job satisfaction than individuals who did not. In addition, research conducted by the Institute for Mindful Leadership reveals that when we practice mindfulness, we reduce stress, we’re able to think more creatively, enhance performance and we can increase our emotional intelligence and empathy levels. Let’s consider the challenges facing you as a leader. How do you go about creating that culture of wellbeing, where people can thrive and flourish? Carley Huack’s (Executive Coach and Founder of Living Well Awake) message to leaders is; “when you create a strong foundation of authenticity, psychological safety, wellbeing, and belonging in the workplace, you alter the atmosphere. You create ease where there was tension. You boost productivity, cultivate self-awareness, maximise effectiveness, increase creativity, enhance teamwork and foster healthy relationships.” Sounds easy right? Leading people is one of the most challenging roles we can take on in life. It takes passion and energy but often, we’re left at the end of each day feeling exhausted. What part does mindfulness play? And can we use mindfulness as a leadership tool? 14
A 2017 Harvard Business Review research study revealed that when leaders are stressed, their anxiety can be felt across the entire organisation. Only 7% of employees believe that their ‘stressed’ leaders effectively lead teams. With these statistics in mind, it’s relatively easy to see how much we need to nurture the concept of mindful leadership.
“ A mindful leader is someone who embodies leadership presence by cultivating focus, clarity, creativity and compassion in the service of others.” HE INSTITUTE FOR MINDFUL T LEADERSHIP
So, what does it mean to be a mindful leader? Mindfulness is a practical skill that we, as leaders, can use to navigate through leadership challenges effectively. By using our own mindfulness practice, paying attention to how we are showing up with the people we lead, we can control our reactions to difficult situations so that we can process and make rational decisions, not emotive ones. And the first step in becoming a mindful leader is self-awareness. Daniel Goleman, Emotional Intelligence guru, writes in his book Emotional Intelligence; “For leaders, the first task in management has nothing to do with leading others; step one poses the challenge of knowing and managing oneself.” Daniel Goleman says that people who have a high degree of self-awareness recognise how their feelings affect them, other people and their job performance. Numbers · Winter 2019
“ Without self-awareness and the ability to manage our emotions, we often unknowingly lead from hurt, not heart. Not only is this a huge energy suck for us and the people around us, but it also creates distrust, disengagement and an eggshell culture.” BRENÉ BROWN
PHOTO: Maile Wilson
• Were these expectations reasonable and achievable?
A mindful leader won’t simply blame others if the goals aren’t met. They will take an honest look at themselves and see if they did everything possible to help their teams succeed. American Researcher and Author, Brené Brown, says that we need to be curious of our own blind spots and how we can pull these into view. We need to be committing to helping the people we serve find their blind spots in a way that’s safe and supportive. This is leading from the heart. Next time something doesn’t quite go to plan at work, or someone doesn’t quite meet your expectations, ask yourself: • Do I have good intent, and do I care why? • Did I set clear expectations and communicate them clearly? Numbers · Winter 2019
• Have I got a good understanding of the skills, knowledge and ability of my people before assigning tasks? • Have I empowered my people to achieve the goals? Mindful leaders don’t just hold others accountable; they do the same with themselves. Mindfulness in leadership is starting to take shape. More and more people are learning the power of mindfulness and how this can empower them to become the best version of themselves. The environment we live and work in is constantly evolving, and we are often overwhelmed by the complexity of today’s world. We know this for a fact. So as a wise person once said, “You can’t stop the waves, but you can learn to surf.” As we look for ways to strengthen and build our resilience, ways to calm our minds as we surf the waves, I encourage you to lean in, be brave and curious to explore your own mind in mindfulness. julia.stockman@bakertillysr.nz 15
What does wellbeing mean to you? STORY Rebecca Marshall HR & Wellness Consultant Baker Tilly Staples Rodway Hawkes Bay
Feeling anxious and overwhelmed around budgets and money is familiar for many people in today’s world of rising house prices, rising debt levels and the cost of raising kids while still trying to live full and busy lives.
Financial stress can take a serious toll physically, mentally and emotionally, with strong evidence indicating that it is a leading cause of relationship breakdown and a major contributor to mental health issues. When we are stressed, it affects all other aspects of life. Like it or not, stress (financial or otherwise) has an enormous effect on our body, thoughts, feelings and behaviour. More often than not, we might attribute an irritating headache, insomnia or decreased productivity at work to illness or too much coffee, when in actual fact, stress may be the cause. Stress, left unchecked, can contribute to many health problems, including high blood pressure, heart disease, obesity and diabetes, so taking steps to manage stress and increase overall wellbeing can have many health benefits. Stress leads to lack of sleep, increased tiredness, poor food and lifestyle choices, 16
less sound critical decision making, no energy for exercise, weight gain, increased anxiety and depression, and follow-on health complications… and the cyclical impact on wellbeing continues. According to Worksafe NZ workplace stress and fatigue not only affect productivity but can also affect the physical and emotional health of workers and the effects of work-related stress are increasingly becoming an issue for workplaces and the community. The effects of stress, whether work-related or not, vary from individual to individual and can be associated with illness and disease, low morale and engagement, anxiety, low productivity and antisocial behaviours. On the flipside, alleviating stress helps increase longevity, health and happiness. However, stress is only one factor in maintaining overall wellbeing. That said, this begs the Numbers · Winter 2019
Photo by Artem Beliaikin @belart84 on Unsplash
Wellbeing is “the state of being comfortable, healthy or happy”.
question as to what exactly is wellbeing? And how can you assess your own personal state of wellbeing? Physical and emotional health can then be assessed based on the satisfaction or success an individual feels in this area of their life. Satisfaction is unique to every individual - what may feel balanced or successful for one person may feel stressful or tedious for another. It’s a challenge to avoid slipping into ‘comparison mode’ especially when there is so much access to the intricate lives of others who may seem to ‘have it all’
through what they show you on social media. The road to achieving a higher state of overall wellbeing is relative and definitely not a onesize-fits-all magic pill. Despite popular belief, a person’s sense of wellbeing isn’t necessarily tied to the amount of money they earn, the type of car they drive or where they live. Each person attaches importance to different aspects of life, complete with their own value system that they judge themselves and others by. While one person may place their career above all, another might care most about being adored
“ 92% of serious work-related mental health condition claims were attributed to mental stress.” SAFE WORK AUSTRALIA
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by everyone around them. This comes back to their own intrinsic values. Feelings of positive wellbeing enable people to successfully overcome difficulties and achieve what they want out of life. Past experiences, attitudes and outlook can all impact wellbeing, as can physical or emotional trauma following specific incidents. Although values can play a role in your wellbeing, so can health. In fact, health may be the most important indicator. Even in situations where goals set are fulfilled, a health issue could still throw wellbeing off track and negatively affect someone’s sense of wellness. In other words, health plays a significant role in a person’s feelings of wellbeing. Although we can’t always control what hand we’ve been dealt concerning health, we can at least do the best with what we’ve got. Changing one’s mindset can make a significant difference in
their sense of wellbeing – as the saying goes “When life gives you lemons, make lemonade”. It’s a fitting way to describe how a change of perspective can help improve feelings of wellness and determine whether or not there is a high or low sense of wellbeing. Along with working on adjusting mindset, there are many different ways to work on perspective and in turn, increase wellbeing. This includes meditation, practising gratitude, shifting your perspective, and mindfulness. Although these may help to see the glass as half full, consideration should also be given to specific actions that will lead to an increase in satisfaction levels in specific areas of life. My advice is to do whatever it takes to improve your overall wellbeing, even in just one aspect of your life that you would like to develop and if you want help along the way reach out for support.
rebecca.marshall@bakertillysr.nz Rebecca Marshall is a HR and Wellbeing Consultant for Baker Tilly Staples Rodway in Hawkes Bay and is also an accredited Integrative Nutrition Health Coach. Rebecca delivers Health and Wellbeing Workshops to corporate clients, and also works one-on-one with people and with groups to support individuals to reach their health goals. While Rebecca focuses on dietary nutrition, there’s a larger focus on non-food forms of nourishment like career, relationships, physical activity, and spirituality. Rebecca assesses a person’s overall well-being and together they come up with recommendations to help enact basic health-supportive modifications. 18
Numbers · Winter 2019
Realising the potential Airport Farm
STORY A manda Burling Baker Tilly Staples Rodway Taranaki
A growing poultry and dairy farm business makes use of new technology to manage cash flow.
The owner of Airport Farm, Ed Whiting, isn’t one to shy away from technology. His poultry and dairy farms are great examples of his technical innovation. Operationally, he is acutely aware of the advantages of using the latest technologies to help with the success of the business. For example, the chicken sheds on his new poultry farm are computer-controlled, meaning food and water levels can be checked instantly and shed temperatures and humidity automatically set and monitored. The efficiency of his work and the performance of his stock on his dairy farm have also seen substantial gains due to remote monitoring technology. Numbers ¡ Winter 2019
Having three farms currently in operation, with the third farm being further developed, it is crucial for Ed to utilise technology to ensure they all run smoothly. However, with regards to his finances, he was unaware of the functionality available within his existing cloud-based accounting software (Xero and Figured). Prior to understanding this, Ed was tracking his development expenditure and progress using spreadsheets, not only taking up a lot of his time but opening his business up to potential data inaccuracies and even profit loss. In getting to where he is now, with multiple revenue streams to manage, Ed was 19
becoming overwhelmed with the quantity of information he had coming in, and having undertaken a massive capital development project something had to give. He hired an administrator to keep things on track and used Xero to process their day to day transactions and generate the GST returns but they were still not using the software to its full capacity and were barely using Figured at all.
“ Probably the hardest mistake in forecasting to eradicate is human error….Microsoft Excel spreadsheets might serve a business in a startup phase well, but once that organisation experiences growth, the amount of data to account for and the sensitivity of that data grows exponentially. Excel spreadsheets are insecure, easily overwritten or deleted and unsuitable for the needs of smallmedium size businesses in 2019.” FINANCESONLINE.COM*
Benefits of using cloudbased accounting software In this era of online cloud solutions, it has become easier than ever to manage data in a business. In fact, the ability to plan and react to data in such a volatile economic landscape is crucial to business success. Accounting software such as Figured has been designed to meet the needs of the agricultural industry. It offers multi-farm functionality meaning budgeting can be done on a per farm or consolidated basis and includes production tracking, real-time budgeting and planning, as well as various reporting options. Being a cloud-based system also means that Ed, his Accountants and Bank Manager can remotely collaborate around the same data. 20
Seeing Ed’s reaction when we explained what we could achieve by utilising the functionality of the system was priceless. All of his issues would be solved without the need to have an Excel Spreadsheet tracking everything in the background. With the correct setup and use of this software, we were able to get accurate real-time information that meant we could easily access and identify how his capital development project was tracking. It also means that our time involved in completing the annual financial statements is a lot less, allowing us to concentrate on providing value to the future of Ed’s business. Once the accounting software was being used correctly, it became apparent that Ed was going to be short on funding to complete the project. Updated forecast plus actual spend to date reports were now easily accessible and allowed us to accurately see where overspends were, where underbudgeting was, and what the shortfall was going to be. Having this information upfront meant Ed was empowered to make informed decisions about where his business was heading financially. Having all of this information available meant that obtaining additional funding was relatively straight forward. Using the ‘Scenario’ tool in Figured we were able to show the bank what the future looked like, give a clear indication of when debt repayment was going to occur, and show that the business was still in a healthy financial position at the end of it. “Now that we have Figured running well, I spend more time looking at where we are at and where we are going. Going forward, this means making financially informed business decisions faster, saving time and headspace. Something I work on all the time is removing ‘junk’ from my brain, e.g. there are hours and hours of unproductive thought wasted on not knowing your financial position, it kills productivity and the ability to work efficiently” Ed states. Numbers · Winter 2019
Along with Figured, we introduced Ed to Pay Sauce, which is another software system that has made paying his 20-25 employees efficient and straightforward. His employees are now able to enter their time via a mobile app and select which farm they are working on, along with the exact shed (if they are in construction). This is providing accuracy in per farm variance reporting as well as keeping track of costs with the shed build as the construction wages have to be kept separate from the operational wages. Running all of his farms through one Xero account and utilising the functionality in Figured means that we are able to separate the operations of individual farms to view profitability on a per farm and consolidated basis. It also means that we can track expenses per farm and per chicken shed, making analysis of shed performance and capitalisation of the assets much more efficient.
Benefits of using a cloud-based document management system Another important technological advancement for Ed’s business has been introducing him to a cloud-based document management system, Hubdoc. Capturing receipts on the go, automatic coding, and auto fetching of documents are just some of the features that have meant Ed no longer requires the use of an administrator. We estimate it has saved him approximately 30 hours per month, which is a saving of $1300 per month. Ed continued; “It takes less time to review and enter invoices myself than it does to review invoices that have been entered by someone else. The big win is that it is easy to do on the go, so there is not usually any big haul of invoices to go through every month.” Airport Farm continues to go from strength to strength and is now looking forward to the addition of a Feijoa orchard revenue stream. With the use of Figured, we can use the ‘Scenario’ tool to see what the future looks like and find answers to questions such as ‘what happens if interest rates go up?’ Giving Ed a precise look into what could happen in the next 5-10 years gives him peace of mind when growing his business. We will also continue to work with Ed to generate monthly variance reporting and subsequent updating of forecast and management reporting until completion of his development project. Going forward, we will continue with quarterly management reporting to assess debt repayment and profit review. amanda.burling@bakertillysr.nz * financesonline.com/8-common-budget-forecasting-mistakes-fix
Ed Whiting of Airport Farm
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The bridge to retirement STORY W ill Roberts FANZ Private Wealth
As your golden years get closer, do you have a financial plan for how to bridge the gap between what you are likely to have and what you will actually need?
If you have budgeted well and saved your way into the property ladder early in life, you’re probably feeling reasonably comfortable about your financial future. After all, building wealth while enjoying a good lifestyle is really what living is all about. For those lucky 22
enough, sufficient wealth has been accumulated that removes all fears of what the future holds, and they move forward with confidence that few adjustments to lifestyle will be required in retirement. That is not the situation for many of us! Numbers ¡ Winter 2019
As I’ve moved further into my 50’s, I’ve noticed a change in conversations. With teenagers becoming adults and (hopefully) flying the nest, minds have shifted from giving our children the best start in life to “have I saved enough for my own future?” Consider this, at 55 you have ten years left until retiring and hopefully 20 years plus of retirement to fund. Life’s been good, but are your savings on track to deliver the same lifestyle once you stop earning? Even those that have saved well are unlikely to be sure of the answer. It’s quite possible you still have a large mortgage to deal with! Over the last couple of housing market cycles, we have often blamed the baby boomers (in part) for driving up prices and shutting out first home buyers in an attempt to fast track retirement savings. In the context of the discussion above, we can see the causes of baby boomers’ concerns. Housing has delivered good investment outcomes for many investors, albeit primarily because of the ability to gear investment returns. In part, the problem may become generational because our expectations around lifestyle have changed. Our parents knew or learnt from their parents about recessions and were more focused on saving rather than consumption. We, on the other hand, want it all - now! On one of my first client interactions as a financial adviser, the client said straight up, when you retire - money becomes the most important thing in your life bar none! Before retiring what we spend, we can replace, and on this basis, our health and family rank alongside savings. However, on retirement, how we live is entirely based on what we have saved. It can be a very alarming place, not knowing how your retirement is going to pan out financially. It might be a stretch, but as a way of focusing your mind on the issue, think how you would feel if you were made redundant and lost your key source of income. All of a sudden, there is the stress of paying the bills and looking after your family. The faster your savings Numbers · Winter 2019
disappear, the more stressed you become. Retirement can feel the same to some people – and knowing it’s coming years out from the actual event could represent a long and challenging time! Here’s where your financial planner can help. A financial plan helps build the bridge from today to your retirement. They will learn about your goals and formulate an action plan or budget based on investments and structures that suit your personal circumstances. Not all goals may be achievable, but at least you then have the power to decide what your priorities are and time to adjust your mindset. A financial adviser can also share the experiences of their clients to explore your alternatives. Often the solutions are not quite what you think, but they get you where you want to be. Downsizing, moving regions, inheritances and the value of NZ Superannuation should all be considered. Your dreams of helping your children into their own homes (or similar help) may also need to be discarded. Having provided financial advice through the Global Financial Crisis, one aspect particular to business owners is the heavy reliance on a single asset to fund retirement. Events like the GFC can make business sales tricky or impossible. This may delay the sale process or worse. Having a savings plan outside your business can be crucial to peace of mind. It’s all part of having a robust plan for the future. will.roberts@sraminvest.co.nz At FANZ Private Wealth, we are experts in helping you plan for and secure the future you deserve. FANZ Private Wealth is a boutique investment advisory service who specialise in providing personalised and impartial investment solutions for individuals and trusts. Calling 0800 727 2265 to contact an adviser. FANZ Private Wealth is an operating division of Funds Administration New Zealand Limited (FANZ). FANZ is a subsidiary of SBS Bank which is a registered bank. Neither FANZ nor FANZ Private Wealth is a registered bank.
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The rise of the digital colleague? STORY M atthew Shallcrass Baker Tilly Staples Rodway Christchurch
Experts are calling the soaring advancement of technology an Industrial Revolution and understanding how your business workforce could take advantage of these new technologies is becoming critical to futureproofing your business against looming competition.
It is now commonplace when visiting a business’s website to be welcomed by their chatbot, whose purpose is to support and scale the organisations’ relationship with customers. With the growth in artificial intelligence, these digital assistants are rapidly improving from basic computer programs designed to answer questions and perform simple tasks to fulltime team members, with incomparable accuracy and work ethic from their human counterparts. An increasing number of organisations are using robotic process automation (RPA), which is highly sophisticated software that replicates manual and repetitive processes in an automated, reliable and consistent way. Processes suitable for RPA vary from
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reconciling customer invoices through to payroll processing. Sam Osborne, Managing Director of Virtual Blue Limited, who specialises in intelligent automation consultancy, and RPA delivery and implementation shared an example at a recent ASB Bank robotics and artificial intelligence event, where a health care provider had programmed a digital assistant to reconcile patient ACC invoices. Prior to implementing RPA, ACC invoices were reconciled by a team of three people in the organisation on a rotation basis, the process involved several manual steps between a web browser and the internal patient management system and was highly repetitive. Due to the significant volume of transactions and lack of integration between
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the two systems, there were often errors and delays in processing the information. Virtual Blue used RPA, which in many cases can be done for under the cost of hiring a person, to train a digital assistant that the business named “Matilda� to reconcile the patient ACC invoices. Like the human staff, Matilda had her own username and password to login to the patient management system but was capable of reconciling the ACC invoices 24/7 with an accuracy of almost 100%. One primary concern, which could result in significant resistance of a digital assistant-driven workplace, is job replacement. However, digital assistants are helping staff do their jobs more efficiently by increasing productivity. In terms of what the future of work will look
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like, if managed effectively, digital assistants should be able to take over the boring, tedious or dangerous tasks. As a result, staff are free to focus on more difficult activities, requiring greater creativity and hopefully leading to more fulfilment in their jobs. Just as technological innovations such as the personal computer are now a regular addition to the business environment, so too will be sophisticated digital assistants. Therefore, it is important we plan for how this technological revolution will change business models, using this opportunity to consider not how we take the human out of the workforce but rather how we take the robot out of the human. matt.shallcrass@bakertillysr.nz 25
Ask an expert STORY J odi Johnston Baker Tilly Staples Rodway Auckland
A READER ASKS:
“How can I fix an error in my tax return? Can I just amend it in my next tax return?”
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Generally, once a tax return is filed, it can only be amended through the formal dispute resolution process (where the tax due is higher) or by formally seeking the Commissioner’s discretion for a reassessment (where the tax due is lower than that returned). However, legislation provides taxpayers with a concession to amend assessments without going through a formal process provided the adjustment is below certain thresholds.
A taxpayer may correct immaterial errors in the next return where the total discrepancy in the assessment is equal to or less than the lower of: • $10,000 of the person’s annual gross income or GST output tax, as applicable, and • 2% of the person’s annual gross income or GST output tax. For example, if your annual gross income is $400,000, then 2% of this is $8,000, meaning you can adjust an error in taxable income or expenses of up to $8,000 in the next return, without having to request Inland Revenue to make a separate amendment.
An anti-avoidance provision exists to prohibit the application of the materiality threshold if the error was made for the main purpose of delaying tax payment. Any error falling within the provided threshold can be corrected in the next return, which has the aim of encouraging taxpayers to account for discrepancies after the discovery of an error in a timely manner. The threshold for amending assessments applies based on a single return. Assessments of the taxpayer’s liability for income tax, fringe benefit tax, and goods and services tax are treated separately. Other, specific rules may apply, especially with respect of GST. The above rules only apply to errors below the thresholds. If there are errors that exceed those thresholds, whether in your favour or Inland Revenue’s we recommend you obtain specific advice about how to resolve the issue. If you believe there is an error in a prior tax return or have any further questions about the thresholds for correcting erroneous assessments, please contact your Baker Tilly Staples Rodway advisor. jodi.johnston@bakertillysr.nz
Provided the above thresholds are satisfied, or if there is a single error of $1,000 or less, taxpayers can make automatic corrections to the next return. This eliminates the requirement to investigate the underlying causes of the error(s) and obtain the Commissioner’s consent before corrections to the error(s) can be made.
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Take advantage of our expertise and send your question about finance, accounting, audit, tax, and other business-related areas to askanexpert@bakertillysr.nz and one of our specialists may answer it in a forthcoming issue of Numbers.
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Employment law changes There have been recent amendments to the Employment Relations Act 2000, as of 6 May 2019. The two most significant changes are to the 90 day trial period and meal breaks.
90 day trial period The 90 day trial period can now only be used in employment agreements where a business employs up to 19 employees, including casual employees. This now means that a business that employs 20 or more employees, including casual employees, will no longer be lawfully able to use the 90 day trial period clause. Genuine employment agreements that have been entered into prior to 6 May 2019, will remain compliant and can run their course. Businesses who are unable to use this may be able to use a probationary clause in their employment agreement, depending on their circumstances. There are a few requirements that need to be followed in order for the probationary clause to remain genuine, for advice on whether this fits your circumstances please do not hesitate to contact a Baker Tilly Staples Rodway HR advisor. 28
Meal breaks From 6 May 2019, if an employee works for 8 hours per day, they are due to receive: • A minimum 10 minutes paid tea break after two hours of work, • A minimum half hour unpaid lunch break after four hours of work, • A further minimum 10 minutes paid tea break after six hours of work. Numbers · Winter 2019
Additional amendments The other areas of the Act that have had recent amendments which we have not covered in this article include: • Redundancy and/or the sale of a business and protection requirements for vulnerable workers • Collective employment agreements The default provisions require the breaks to be around the middle of the relevant work period if that is reasonable and practicable. If an agreement between the parties cannot be or is not reached, the Act also states the times at which the breaks are to be taken, with limited exceptions for workers in essential services or national security. Numbers · Winter 2019
• Union membership • Collective bargaining. If you have any concerns about how the recent changes may impact on your employment agreements or would like any further information on the above amendments, please contact your Baker Tilly Staples Rodway HR advisor. 29
Three-way budgeting STORY A manda Burling & Jed Eden Baker Tilly Staples Rodway Taranaki
Ever wonder why your business is making a profit but never has any cash? It’s a question we as accountants are often asked, and the answer can vary. What this question does highlight is the importance of doing three-way budgeting, not just a profit and loss budget.
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Why should you budget? Knowing how much cash is coming in and going out of your business is critical information for any business owner. Recognising what is available stops overspending and putting the financial health of your business at risk. Understanding your cash flow situation is vital to setting the foundations for growth, profitability and the long-term success of your business. Cash flow isn’t the only important thing when it comes to financial reporting. You will also be keeping a close eye on your profit and loss and your balance sheet, both of which give you a different perspective on the financial health of your business.
What is a three-way budget? A three-way budget combines the three key financial reports into one consolidated forecast. It links your Profit & Loss, Cash Flow, and Balance Sheet together so you can forecast your profit, future cash position and strength of your balance sheet. This three-way format highlights the interaction between income and expenses, cash at bank, and your balance sheet position. The benefit of this is that it allows you to analyse how a change in income, expenses, collectability of debtors, loan repayments, or drawings can affect the profitability and liquidity of your business. Ideally, this will then lead to improved decision making and a healthier business. The age-old adage “you can only monitor what you measure” comes to mind when comparing a profit and loss budget to a three-way budget. Extending your budgeting beyond the profit and loss to include the cash flow and balance sheet, allows the measuring and monitoring of a
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wider range of inputs and outputs. This additional information will allow better decision making and a more in-depth understanding of your business.
Monitoring cash flow Within your business, there is a continuous cycle of cash in and cash out. This cycle needs to be monitored in order to ensure that enough cash stays in the business to cover upcoming payments. There are a few ways to do this effectively: • Produce a cash flow statement – giving you a full breakdown of your cash in and cash out across the business. This is a historical report that shows you what has happened. • Run regular forecasts – this takes your current cash position and looks forward. Assuming your budgeting around income/ expenses, cash in/cash out is accurate, it will show you if you have enough cash to meet your obligations.
gives a good reference point for budgeting at the start of the year. Basically, this is the report that shows if you are making a profit and highlights that it is possible to be still profitable but have poor cash flow.
What is my balance sheet telling me? Your balance sheet shows your assets, liabilities and equity at a given point in time. Assets are the things that you own, cash, equipment, machinery, land etc. Liabilities are the things that you owe people, bank debt, accounts payable. Equity is the investment by the owners, plus (minus) any income (losses) made over time. This shows you the financial health of your business. Accountants often look to the balance sheet to gauge the strength of the business.
• Use data to enhance forecasts – from the forecast above, make changes based on real-time information to improve the accuracy of the outcomes.
Utilising your budget
Creating cash flow forecasts can be time-consuming and complex, but most cloud-based accounting software can automatically produce cash flow forecasts using data from your cloud-based accounting system.
Two well-known sayings spring to mind: “What gets monitored gets managed” and “In business, we need to work smarter not harder.”
Understanding your P&L Your profit and loss statement shows all of your income and expenses over a given period of time. It looks at total income and expenses incurred (on an accruals basis generally) over the period rather than cash flow (cash basis). The profit and loss is essentially a historical report, showing what has already happened, rather than future financial positions, but it is good to review your performance, and it 32
Once you have prepared your three-way budget, what’s next?
There are two important parts in preparing a budget, firstly the preparation of the budget and secondly a system to ensure that action is taken when results differ significantly from those predicted. Speak to your Baker Tilly Staples Rodway advisor about options to suit you and your business; whether that is monthly reporting or quarterly reporting, we work alongside you to get the best results. amanda.burling@bakertillysr.nz jed.eden@bakertillysr.nz Numbers · Winter 2019
Great conversations Great relationships Great futures Take a look at what we’ve been up to lately
Pink Ribbon Baker Tilly Staples Rodway offices around the country hosted Pink Ribbon Breakfasts to raise money for Breast Cancer Foundation NZ. This money helps to pay for New Zealand-based research projects developing new drugs and finding better ways to use existing treatments. The Breast Cancer foundation also provides counselling, rehabilitation programs and other support to patients. Our teams had a great result with over $3,800 raised.
Auckland
Christchurch & Tauranga
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Fieldays 2019 Jordan Hartley-Smith and Kylie Cronin from our Taranaki office joined Xero and Figured at Fieldays 2019 to share and build their knowledge of financial sustainability, resiliency and efficiency for our valued farming clients.
Jordan Hartley-Smith & Kylie Cronin
Opportunity Japan
Speakers Joe Nelson, Michele Lam & Stephanie Honey
Team Japan hosted Global Trade Insights Co-Founder Stephanie Honey, plus business leaders Joe Nelson (Cedenco Food New Zealand) and Michele Lam (Villa Maria Estate) for an informative session on the current and projected trade situation with Japan in light of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). We will be holding another Japan event later in the year, contact us at teamjapan@bakertillysr.nz to join our mailing list.
Doing Business in New Zealand Baker Tilly Staples Rodway Auckland Director Andrew Dickeson and Manager Jodi Johnston recently presented “Doing Business in New Zealand” to audiences in Sydney. More than 200 people attended the presentations at CPA Australia and Pitcher Partners. The presentation focused on the opportunities for Australian businesses thinking of expanding across the Ditch. 34
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Brand launch Our Auckland office was pleased to share our brand launch with our clients and staff in April. Hosted at Giltrap Prestige’s stunning showroom, we enjoyed an evening of good company and fast cars.
Baker Tilly Staples Rodway Chairman, David Searle
Just Transition Summit The recent Just Transition Summit signals a major shift in New Zealand’s economic landscape, towards a more environmentally sustainable model. International trends and consumer tastes are heading in the same carbon-neutral direction and transition could also be a boon for businesses or industries needed to support it. Early investigation of your options will leave you more prepared for new legislation or market conditions.
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Auckland Level 9, 45 Queen St PO Box 3899 Auckland 1140 auckland@bakertillysr.nz T: +64 9 309 0463 Waikato Level 4, 354 Victoria Street PO Box 9159 Hamilton 3240 waikato@bakertillysr.nz T: +64 7 834 6800 Tauranga Level 1, 247 Cameron Road PO Box 743 Tauranga 3144 tauranga@bakertillysr.nz T: +64 7 578 2989 Hawkes Bay Cnr Hastings & Eastbourne Streets PO Box 46 Hastings 4156 hawkesbay@bakertillysr.nz T: +64 6 878 7004 New Plymouth 109-113 Powderham Street PO Box 146 New Plymouth 4340 taranaki@bakertillysr.nz T: +64 6 757 3155 Stratford 78 Miranda Street PO Box 82 Stratford 4352 stratford@bakertillysr.nz T: +64 6 765 6949
About Baker Tilly Staples Rodway Baker Tilly Staples Rodway is a national association of independent practices, with eight locations throughout New Zealand.
Wellington Level 6, 95 Customhouse Quay PO Box 1208 Wellington 6140 wellington@bakertillysr.nz T: +64 4 472 7919
We are proud to be a member of Baker Tilly International, a top ten global network of independent accounting and business advisory firms, whose member firms share our dedication to exceptional client service.
Christchurch Level 2, 329 Durham Street North PO Box 8039 Christchurch 8440 christchurch@bakertillysr.nz T: +64 3 343 0599
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www.bakertillysr.nz Numbers ¡ Winter 2019