(NZ small business accountant tips 2024)
Kia ora koutou!
We’re fast approaching the end of the financial year ending 31 March 2024. As we near the close of the current financial year, we’re entering a new financial year with its set of challenges. Over here at The Comic Accountant, we’ve been closely monitoring business happenings around the world and in our home of Aotearoa.
With insights gleamed from our client’s performances and general observation of industry trends, here are some accountant tips for you, dear reader!
As with all Aotearoa-centric articles, not all advice contained in here may be relevant if you’re living in a different country. But that being said, some advice is universal – like this first one we’re getting into:
Living with high interest rates
High interest rates are here to stay! At least for the rest of 2024. This seems to be the trend across most of the developed world. High income economies (like the US and UK) are still experiencing higher than usual inflation although at 3 to 4 percent, this is a lot lower than the 7 to 9 percent we were looking at back in 2022.
Interest rate hikes by central banks across the globe have resulted in inflation coming down. However in the case of Aotearoa, inflation is still trending above 3%. The reserve bank of NZ has a mandate to keep inflation between the 1 to 3 percent band – so until we see inflation coming within this band, we’re not going to see a slash in interest rates.
Small business accountant tip:
If you’re going to take out a loan – make sure you have a solid plan on how you’re going to pay it back. Interest rates are at an all time high at the moment. Business loans can range between 14 to 20 percent interest – so you’ll want to make sure that you can support that with considerable business growth. Please, PLEASE talk to your accountant before you take a loan out. You will want to be sure that it won’t cause a financial burden on your business.
On that same note, the IRD’s use of money interest has also increased to about 10.91% since August 2023. This is the highest it has ever been in the past 8 years. Prioritise paying off IRD debt. If you are on instalment arrangements with the IRD and have extra cash lying around – use this to pay off the IRD debt instead of letting the interest accumulate.
Robust small business growth, despite everything
Even though inflation is relatively high and interest rates have not come down, small businesses are doing pretty good. In general, sales across all our client groups have increased year on year. The only clients that have experienced decreases are due to the owners wanting to scale down the business.
Despite interest rates rising, the general consumer spending attitudes have not taken a nosedive. It is possible that the impact of high interest rates have yet to be felt by most households in Aotearoa. Many mortgage owners are only starting to come off their lower fixed rates and onto higher rates. So we may see some households reduce their spending as a result. However we believe that the impact of these households are minimal and that overall most households will be in a position to spend money on consumer goods.
Small business accountant tip:
If you haven’t raised your prices in the last 12 months – now is the time to do so! With prices going up in general, your clients and customers are less likely to leave you due to price hikes. When all your competitors are doing the same, there really is no (economic) reason for your customers to change to another provider.
Keeping prices low isn’t going to win you any new customers in this current economic environment. The market trends show that customers are still willing to spend. Have confidence in the quality of your product and service – ultimately your customers are using you because you’re the best at what you do. Not because you’re the cheapest!
Remember, you too are bearing the brunt of higher prices. So for your business to continue to be profitable, a price increase is in order! Have a look at what your competitors are doing and aim to increase your prices accordingly. By the end of the day, there’s no point in eating into your own profit margin for the sake of your customers. After all, who would serve your customers if you can’t afford to feed yourself?
Slowdown in wage growth will lead to better staff retention
Wages experienced a huge surge between 2022 and 2023. High inflation led to workers collectively demanding more from their employers. Thus the market responded and served up the highest year on year wage growth over the past ten years in 2023 at 4% in Aotearoa.
However this trend is looking to slowdown as we enter 2024 and get into full swing this year. This is good news for employers who are fatigued from playing catch up in the labour market. Staff retention will be financially easier. Forecasting for the immediate future will also be easier as we don’t have to account for any unexpected wage increases.
Small business accountant tip:
As a small business/startup owner – staffing is often one of the last things you think about. Especially if you’re a solopreneur doing everything yourself. If you like flying solo – more power to you! But if you are thinking of expanding, now is a good time to do so. Wage rates will remain stable for the next year or so. This will make budgeting for new hires easier. Combined with a robust growth outlook for small businesses, you should seriously look at expanding your business this year!
If you already have a team – remember that your team IS your business. While wage expectations may have dropped, continue putting your team welfare as your top priority. Have checkups with your team members regularly – ensure that their work and wage expectations are being met. Listen to them – its not all about money by the end of the day, its about them feeling appreciated for their work and important to your business.
But yes, if your business enjoys a windfall profit this year, be sure to spread the wealth among your team. After all – bonus payments to your staff are tax deductible!
Macroeconomic challenges are here to stay
We’re entering 2024 with a lot of the problems we’ve been experiencing since 2023. The war in Ukraine continues to put a strain on food exports around the world. This is further exacerbated by the war in Gaza and the raids conducted by pirates in the red sea. China’s economic growth is expected to slow down as it begins to feel the effect of its aging population. Despite this, the US has managed to achieve a ‘soft landing’ recession. So the general global economic outlook is pretty mixed, but its not all bad.
Small business accountant tip:
By the end of the day, large macroeconomic movements will affect small businesses in less obvious ways. We’re not going to wake up tomorrow and find that our business has gone under due to a US policy change. Your biggest macroeconomic exposure as a small business comes from dealings in foreign countries. If you do business outside your home country, you may be exposed to exchange rate risk. If your business is mostly local, you don’t have to worry about much.
Macroeconomic forces are out of our control. Instead, focus on the things within your control – put into action the tips discussed in this article. Bump up your prices, pay off your debts and treat your staff well. The better you are at positively affecting things within your control, the better you will be at dealing with things that aren’t within your control.
Bring on 2024!
Over at The Comic Accountant, we’re pretty positive about 2024. We believe that small businesses will continue to enjoy growth and that NZ will also experience a ‘soft-landing’ similar to what happened in the US. Focus on strengthening your busines processes, securing your cash flow and treating your team and customers well. You got this! Kia kaha!
Stay positive!