Goodwill: What’s it worth?

Goodwill can add value to your business

Goodwill is one of your business assets – but you can’t measure it and it’s very tricky to put a price on it. When you sell your business, goodwill is the intangibles in your business that add value beyond the physical assets and guaranteed income stream.

Goodwill includes:

  • Your brand’s great reputation
  • Your loyal customer base
  • Your positive customer relationships
  • Your happy employees who want to stay
  • Proprietary data and intellectual property
  • The great systems that make your business run smoothly

Goodwill can have an impact on the value of your business

Most small and medium-sized businesses in New Zealand are sold based on their assets and earnings, and goodwill isn’t much of a factor in the valuation. But some types of businesses do have significant value in their intangible assets, particularly in the tech sector.

Discovering the value of your business’s goodwill usually comes down to the negotiating process with a potential buyer. You’ll need to agree on what the business is worth, and that means agreeing on the price of those intangible assets.

Tax on goodwill

Usually you’ll only need to think about goodwill if you’re buying or selling a business. Goodwill is non-taxable for the vendor in a business sale and non-deductible to the purchaser (although there are exceptions; you can read more about tax on business asset sales here).

Goodwill cannot be depreciated like a physical asset. However, some types of intangible property, like patents or trademarks, can be depreciated, so talk to us if you think this might apply.

What is your business’s goodwill worth?

We can help you work out the value of your business in today’s market – get in touch and we can figure out how much money you could walk away with if you sold in today’s market.

Should you dive into tax pooling?

Diving into tax pooling

Okay, let’s be honest – paying provisional tax can be tricky. The amounts change from year to year, and bigger payments sometimes coincide with periods of low cashflow. Not to mention that if you underpay your provisional tax, you will likely be charged use of money interest (UOMI) by Inland Revenue (IR).

Tax pooling is designed to help solve this problem and smooth out your tax payments. Let us tell you how.

What is tax pooling?

A tax pool is a fund of money created by many taxpayers paying in their provisional tax. It’s organized by a registered intermediary, which works with both taxpayers and the Inland Revenue. We have partnered with Tax Traders and believe you will not be disappointed by the benefits they can bring.

When you join a tax pool, you pay your provisional tax into the fund. You can make a regular fixed monthly payment, for example, so it’s easier to manage your cashflow.

Your tax is then paid out of this fund on your behalf. The funds are held in an Inland Revenue account, which transfers them against the name of the members of the tax pool as instructed by the intermediary.

If you haven’t paid enough into the pool to cover your tax, the tax pool lends you the money at a cheaper rate than the IRD’s UOMI rate. If you have overpaid, the extra money is lent to other people in the tax pool and you earn interest.

How can you find out whether tax pooling is right for you?

The advantages of tax pooling are lower costs on late payments, earnings on overpayment, and generally making it easier to manage provisional tax payments.

If you’d like to know more about tax pooling, and whether it could work for you, get in touch.

We can help by answering your questions.

Scaling up sustainably: Grow your team without overcommitting

Scaling up your business

Growing your small business into a team enterprise can be daunting. The amount of work coming in will tend to surge and retreat, leaving you alternately overworked and underworked – you don’t want to commit to an employee when you’re not certain of your workflow.

How can you manage workflow surges and get the help you need, without overcommitting to staff costs?

Start with on-demand assistance

The first step might be to outsource some of the jobs you least like doing, or during your busiest periods. That might mean using a local freelancer or finding an offshore service to take over your social media, for instance, or your invoicing. Those services can be an affordable way to get on-demand help when you need it, giving you the ability to drop that cost at any time if your workflow drops away.

Can you take on an apprentice?

An apprentice can be an extremely cost-effective way to get an extra pair of hands. A wide range of trades can participate in apprenticeship schemes, including construction, engineering, beauty, farming, tourism and sports. Apprenticeships are currently free for apprentices and subsidised for employers by the Apprenticeship Boost. You’ll need to train them and pay them at least the minimum wage.

For those who aren’t in a trade, an intern could be an option to help over the summer or uni holidays.

Contractors and part-timers

Using contractors and part-timers also gives you some flexibility when it comes to growing your workforce. Contractors are usually more expensive, because they need to pay their own employment costs of ACC, holiday pay, sick pay and so on. The advantage of contractors is that you can pay for the expertise you need, when you need it.

Part-time employees are more of a commitment, but you can build in some seasonal or work-based flexibility on their hours – and they’re less expensive than contractors.

Once you are successfully managing contractors or part-timers, you’ll have a better understanding of when you can make that jump to a full-time employee.

Managing the team as you grow

When you’re responsible for a team, particularly when they’re working on diverse projects for a range of clients, you’ll need a way to manage them effectively. SME is partnered with simPRO project management software, which is designed in New Zealand to meet the needs of local businesses, and lets you do your invoicing, quotes, field management and project management all in one place.

If you need some advice about sustainably building your team, we’re here to help. Get in touch and we can run the numbers, consider the pros and cons, and give you the information you need to make the best decisions for your business.

Surprise tax bill? Here are six possible reasons

Surprise tax bill

Did you, or someone you know, get a surprise tax bill they weren’t expecting?

Several Kiwi’s have recently been in touch after having received tax bills that took them by surprise, and they’ve been asking Inland Revenue what’s going on.

An Inland Revenue spokesperson has provided six likely reasons that more people seem to have been caught out this year:

  1. Last year, tax bills below $200 were written off as part of the pandemic support measures. This year, it’s back to the usual write-off threshold of $50.
  2. Inland Revenue is now doing tax assessments for everyone, so some people are getting bills or refunds who never have before, including some children with KiwiSaver funds or other investments.
  3. Anyone paid 27 fortnightly wage packets may have underpaid their tax – that can be fixed once IR has the correct information.
  4. Many incorrect tax codes were corrected last year, and for a few people (mainly aged over 65) the IRD made errors which they are correcting.
  5. Pension tax code changes were delayed, leading to some undertaxing which is now being rectified.
  6. Some people’s tax codes are still incorrect.

We can sort out any surprise tax bill issues

Ultimately, the Inland Revenue calculates your tax based on the information they have about you and your business. If they have the wrong information, you may be paying too much tax or too little tax.

We can look at your surprise tax bill and help you work out what’s gone wrong. We can also deal with Inland Revenue on your behalf to give them the right information and ensure you’re paying exactly what’s required and no more. We’ll work with Inland Revenue to get your refund sorted out or to come up with an affordable payment plan.

Get in touch – our tax specialists at SME Financial are here to help.

Rental tax changes are about to kick in – are you ready?

Rental Tax Changes

Earlier this year, the Government announced the removal of tax deductions on loan interest for rental properties. Previously, interest payments could be claimed as a business expense and taxed accordingly, giving property investment a tax advantage.

Now, properties bought from April 2021 onwards will not be able to claim any tax deductions for the interest paid on the mortgages. For all existing rental properties, including holiday home rentals, the tax deductibility is being phased out over four years.

Changes take effect from 1 October

Until October, the old 100% interest tax deductibility is in place. Then on 1 October this year, rental property tax deductibility reduces to 75%: you can still claim three-quarters of your interest payments as a business expense and get a tax advantage. The 75% rate remains in place until 31 March, 2023.

For the following financial year (1 April 2023 to 31 March 2024), you’ll be able to claim 50% of your interest payments as a business expense against your rental income. Then it drops to 25% for the next financial year (1 April 2024 to 31 March 2025). From 1 April 2025 onwards, no interest deductibility will be available. You can read more details here.

What should you do?

To assess how much impact this will have on your situation, we can calculate the difference this is likely to make to your overall gains or losses in the years ahead. Our forecasts will be a good guide, but the exact situation will vary depending on several other factors, too. For instance, as interest rate deductibility reduces, you may also find that rents increase to help you meet the higher costs. However, your mortgage interest payments may also go up, if (as seems likely), interest rates increase over that time.

Ideally, you should think carefully about your rental properties and whether they will still be fulfilling their role in your financial strategy. You might choose to keep them – switching from interest-only to principal-and-interest repayments could be a way to start reducing your interest costs over time. Or you could sell up and invest the proceeds somewhere else.

Talk to us to get a better understanding of what your position will be when these tax changes come into effect, so you can make smart decisions about your financial future.