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Accounting in New Zealand: what you need to know

Passion drives many business owners, whether it's for the product they sell or an idea they’re trying to achieve. But the daily routines of running a business are often less glamorous - going in on your own is tough work, especially if you're not a numbers person. The business owner is the idea person, so making sense of the world of accounting is a common strain for many.

 

But since cash flow is the key to survival, it's important to get in control of your finances. This doesn't mean you need to become an accounting expert yourself, rather you need to get someone who does know what to do with your finances!

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So how do I choose the right accountant?

When you look for an accountant, there are a number of factors to keep in mind. First, you need someone with experience and availability so that they’re ready and willing to help you. However, these people are easy to find, it's the second point that you need to consider carefully... and that's finding someone you trust. This person will be working closely in your business, after all. You should feel comfortable going to them to ask questions and get their trusted advice.

 

Get the right person and they’ll offer valuable advice, manage those numbers and ultimately, help your business grow.

Also consider:

  • Their qualifications and area of expertise - are they a member of CAANZ (Chartered Accountant Australia and New Zealand)?
  • What do other customers say about them - do they come recommended?
  • Their connections or business network - do they have reliable professional connections?
Lastly, ask them how they’ve helped their customers achieve their goals. Look for enthusiasm in the response and find an accountant who loves their job.

Cash flow advice

From June 2017 to 2018, just over half of New Zealand’s small businesses were reported cash flow positive - but a 50.5 percent on average is too low. If your cash flow is unhealthy, you’ll be struggling from invoice to invoice, chasing debtors and unable to grow your business. Consider the following tips for improving your cash flow.

Review product pricing

Review product pricing

 

Price too high, and customers will turn elsewhere. Price too low, and customers could doubt the quality. Pricing is a delicate balancing act. Work towards a cash flow boost that doesn’t reduce your sales.

Enforcing payments

Enforcing payments

 

Make sure you’re disciplined with payments. Set up good systems for invoicing and payment collection, and always chase late payers promptly. Having bills paid on time will build positive relationships that can help you in the future. You want the early payment discounts, where possible.

Evaluate your terms

Evaluate your terms

 

Are you offering 30 days payment to your customers, but expecting to pay bills every 20 days? If there’s a gap between paying and receiving, you’ll need extra funds for that time. Put your supplier and customer payment terms side by side and figure out if they’re balanced, and if they work for your business.

No handouts

No handouts

 

Your company’s financial health depends on it - no handouts. Avoid long-term payments which hurt your cash flow. Find out your customers’ payment policies and ensure the terms work for you before you agree. Send early reminders to regular late payers, and consider asking for a deposit (or full payment) upfront in future.

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Accounting and tax compliance: must-haves for Kiwi businesses

It might seem like the boring side of doing business, but your accounting and tax compliance is vital. In this section, we give a quick rundown on the tax obligations for New Zealand business owners.

1. IRD number

Make sure your IRD number is close at hand. The Inland Revenue will need it when you’re setting up a business, selling goods or services, or registering as an employer - everything that involves Inland Revenue. It’s used for all your tax and business details.

2. Fringe benefit tax

The FBT applies to things on the fringe of your business, such as subsidies for health insurance, or vehicles that are available for personal use. It doesn’t apply to things already taxed for the employee, including salaries, wages or cash bonuses.

3. Super

When you make cash contributions to employees’ superannuation accounts (including KiwiSaver), you pay employer superannuation contribution tax or ESCT. ESCT rates vary between employees.

4. PAYE

Pay as you earn (PAYE) is tax deducted from an employee’s wages or salary before the employee is paid. The employer pays the sum to Inland Revenue each month. 

5. GST

The goods and services tax (GST) in New Zealand is 15 percent. It’s added to the price of most products and services, so you can charge GST on what you sell - you’re collecting it for the government.

 

If you’re registered for GST, you can claim back the GST you pay on services or goods for your business. Payment terms of GST to IRD are monthly, bi-monthly or twice a year.

6. ACC levies

If you’re a small business or you’re self-employed, you’ll pay an ACC Work levy each year. This levy pays for work-related injuries suffered in New Zealand.

 

If you have employees, you’ll need to deduct their ACC Earners levy from their wages which funds non-work related injuries.

7. Income tax and provisional tax

If you earn money in New Zealand, you're legally required to pay income tax whether you’re a self-employed worker, contracting, or a business.

 

Provisional tax is simply a way of pre-paying your tax bill in instalments over the year - Inland Revenue will let you know if you should be paying your income tax in this way. For help understanding and calculating your provisional tax payments for the year, see an accountant like RightWay.

8. Annual returns and accounts

Your annual company tax return must be submitted to the IRD each year. This is publicly available information about your company. It includes your address and details of the people in charge of your company.

 

Your annual returns and accounts information helps form a clear picture of your business.

 

The following aspects are voluntary, but can help you make better decisions using your financials:

 

  • Monthly Reporting - close your books each month, so you don’t have to worry about them.
  • Annual Financials - you need these to be compliant and to make sound financial decisions.
  • Financial Analysis - quality data and solid analysis gives you a valuable, real-time view on your business' health.
  • Insightful Reporting - get meaningful reports to assist you with your decisions.
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Bookkeeping 101

Bookkeeping basics 

A bookkeeper is a person who keeps the accounts of a business. It’s important that your bookkeeper is thorough and accurate, as they must correctly record every financial transaction in the general ledger. Your company’s financial management depends on the quality of the general ledger.


Bookkeepers offer a range of services, including bank reconciliation, payroll services, and the management of invoices and bills.

Bookkeeping methods

There are two methods of bookkeeping: single-entry and double-entry. Double-entry is the most common system, where each entry has an opposite entry in a different account - one account is debited and the other credited.


While bookkeeping can be done on a piece of paper, in a book, or on a spreadsheet, many bookkeepers and businesses now prefer to automate the process using software like Xero. Accounting software can simplify the process and reduce the opportunity for human error. A bookkeeper usually works under an accountant, as further security.

Cash flow forecasting

New Zealand business owners need to be using cash flow forecasting - that is, you should know in advance what funds will be incoming and outgoing. Record as much information as you can, because this record becomes more valuable with effort and detail.

Forecasting process

Your cash flow forecast should include your starting balance for the period, your expected income and estimations of all expenses, and from those figures, the amount you’d expect to have at the end of the period.


With a cash flow forecast, you can plan for the future, knowing certain months will have more expenses to budget for, and other months will be good times to expand and grow. Avoid financial troubles and be empowered to plan for the future.

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Invoicing tips and tricks

It’s common for small businesses to struggle with invoicing because many businesses underestimate the length of the process. You can spend as much as 10 percent of your work time on invoices, which has a knock-on effect on your other admin tasks.

Perhaps unsurprisingly, small businesses also struggle to be paid on time. According to the latest small business insights from Xero, invoices were paid an average of 8.3 days late in June 2018.

That’s why it’s critical that you factor invoicing and payment issues into your accounting strategy, and make your systems as efficient as possible. Set up your invoicing properly. As a small business owner your time is precious, so use a little wisely to save a lot later on.

Why we use Xero: The perfect cloud-based software made for Kiwi businesses

Keeping traditional accounting software up to date and backed up has notoriously been expensive and complicated (if business owners did it at all). But when those systems aren't updated, businesses put their data at risk. Plus, this software usually only works on one computer making it a challenge to share information between those who need it most.

The age of accounting in the cloud means accounting can be done better and faster. Manual accounting processes can be a drain on your business’ resources as you or someone else in your business has to take time away from your area of expertise to make sense of the numbers.

Not only does that take all the fun out of being in business, it's a bad use of your time. Cloud software can save your company time and money by putting you back in the part of the business that needs you most.

The benefits of accounting with the cloud are revolutionary for small businesses. Ability to access data anywhere anytime via one centralised system, as well as the ability to easily and safely share data and manage backups give business owners real power over their accounts. Best of all, accounting software helps businesses maintain tax compliance with all regulations in the jurisdictions in which they operate.