All information in this newsletter is, to the best of the author’s knowledge, true and accurate. No liability is assumed by the author or the publisher for any losses suffered by any person relying directly or indirectly upon this newsletter.

Perriam & Partners

Chartered Accountants & Business Advisors

BEHIND THE BEANS—2017 Unit 4, 35 Sir William Pickering Drive, Christchurch 03 358 3108 firstname@perriams.co.nz www.perriams.co.nz

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June 2017 – Issue 68

PAGE ONE Open Your Books Bunny Bites Marmite Good For The Brain What Is 2 + 2?

PAGE TWO What Is The Formula For Calculating Gross Profit? Money Tips For 2017 Word On The Street SBW Pot Stocks Deliver High Returns

PAGE THREE Looking After Our Elderly Parents Caught In IR’s Web Tax Bracket Changes Accountants Now Lean Mean Financial Machines

PAGE FOUR Share Trading Tips From Inside Finance & Fitness At It’s Best

CONTENTS

OPEN YOUR BOOKS … SHOULD YOU LET YOUR EMPLOYEES SEE YOUR FINANCIALS? Publicly listed companies obviously do as they are required to but our small traditional private companies are only accountable to a select few or in some cases, only two. Therefore would sharing sensitive data with your employees help them do their jobs more effectively and with a greater sense of ownership and loyalty? Many entrepreneurs feel that there is an increased need for openness and the move to be more transparent with your employees. The proposition is not easy. But perhaps for those who can stomach the risk, the rewards may be surprising!

BUNNY BITES New online research has found 59% of 28,113 respondents preferred to eat chocolate rabbits starting with their ears, 33% indicated they had no starting point preference and 4% said they started with the tail or feet. MARMITE GOOD FOR THE BRAIN Scientists have discovered a potential link between eating Marmite and activity in the brain through the apparent increase of a chemical messenger associated with healthy brain function. Participants in a University of New York study consuming a teaspoon of marmite every day for a month, compared to a control group who consumed peanut butter, showed a substantial reduction of about 30% in their brain’s response to visual stimuli.

WHAT IS 2 + 2? ENGINEER “It lies between 3.98 and 4.02.” MATHEMATICIAN “In 2 hours I can demonstrate it equals 4 with the following proof.” PHYSICIST “It’s in the magnitude of 1 x 10.” LOGICIAN “This problem is solvable.” ATTORNEY “In the case of Smith vs State, 2 + 2 was declared to be 4. TRADER “Are you buying or selling.” SOCIAL WORKER “I don’t know the answer, but I’m glad we discussed this important question.” ACCOUNTANT “What would you like it to be?”

All information in this newsletter is, to the best of the author’s knowledge, true and accurate. No liability is assumed by the author or the publisher for any losses suffered by any person relying directly or indirectly upon this newsletter.

June 2017 Page 2

SBW According to Islamic Law, you can’t use money to make money, it has to be from legitimate trade. It is prohibited to accept interest or fees for loans of money. Currently we have no banks in New Zealand operating according to Sharia Law, so SBW must be keeping his money under the mattress! What many Muslims do is either not put their money in an interest bearing account or, take the interest but it is donated to a charitable organisation or cause.

WHAT IS THE FORMULA FOR CALCULATING GROSS PROFIT? Gross profit margin is an important metric for evaluating a business’s profitability. In short, it measures the amount of each revenue dollar that remains as profit after accounting for those expenses that are required in order to produce your products or service for sale. Gross Profit Margin Unlike operating profit, gross profit does not include any expense not directly related to the business’s primary operations. Since overhead and operational expenses such as rent, utilities, freight and insurance are not accounted for, gross profit margin is both easy to understand and calculate. To arrive at the gross profit margin, only two pieces of data are required, your net revenue and cost of goods sold (COGS). Net revenue is the total amount of income generated by your primary operations, less any returns or discounts. COGS, as the name implies, includes all expenses for the raw materials, processing and manufacturing of goods. If the company manufactures and sells handmade wooden furniture, for example, COGS would include items such as timber, varnish, nails and the cost of the labour required to build each piece. The formula for gross profit margin is gross profit dividend by net revenue, where gross profit is equal to net revenue less COGS. Calculating Gross Profit Margin (Example) Because the gross profit margin is the same for a single item or for all items sold, assuming only one type of product and uniform pricing, this metric can be a quick and easy calculation for budding entrepreneurs to gauge how profitable a potential venture may be. For example, assume a prospective business owner is thinking about selling woollen hats. After doing a good deal of research, they estimate that each hat could reasonably be sold for $25. They track down suppliers for the wool and other raw materials and decide that until orders really pick up, they can do the knitting themselves saving on labour costs. They estimate the cost of all materials for each hat comes to about $10, they input this estimate into Excel. Based on her calculation, she determines that her gross profit for a single hat would be $15 and her gross profit margin would be 60% (15/25). For a small business in its infancy however, the gross profit margin serves as an excellent indicator of a product’s potential profitability.

POT STOCKS DELIVER HIGH RETURNS While the debate over whether to legalise cannabis for medicinal reasons rages on in New Zealand, investors overseas are grabbing opportunities to invest in listed stock in the United States where you can invest in a marijuana exchange traded fund. Talk about “high flying stakes”!

WORD ON THE STREET …

A standard packet of cigarettes now costs $31.60. Good luck if you’re a smoker. I can get 6.5 coffees for that price!

KFC increased its sales in New Zealand by approximately 4.9% from 92 stores.

The average annual wage in the hospitality sector is $39,624. That’s an hourly rate of around $19.05.

MONEY TIPS FOR 2017

Plan for mortgage rate increases and check out what they might be ahead of time.

Think twice about stretching the term of your mortgage. Consider how much extra inter-est it will cost and how old you will be when it is paid off.

Plan for expected expenses like Christmas and the start of the school year.

Use any windfalls wisely like increasing your Kiwisaver contributions or paying down debt.

Move credit card debt onto a low interest card and pay it off as soon as possible.

Set goals and make sure they link into your budget.

All information in this newsletter is, to the best of the author’s knowledge, true and accurate. No liability is assumed by the author or the publisher for any losses suffered by any person relying directly or indirectly upon this newsletter.

June 2017 Page 3

CAUGHT IN IR’S WEB The internet has created new ways to make money, with people running cottage industries over channels such as YouTube — some as hobbies, others as lucrative business ventures. Inland Revenue has been consulting over what it sees as earnings liable for taxation, and there is no doubt that revenue collectors “get” the internet. One example in an IR document is “Sarah who owns an especially cute hamster.” Her hamster video with a “miniature playground, complete with tiny slide and swing” goes viral, attracting millions of views and earning Sarah $10,000. Sadly, internet fame is fickle and interest in her cute hamster fades away, as does her revenue. IR reckons this windfall is not a random event and Sarah’s efforts are taxable. There is also a bloke called Henry, mild mannered solicitor by day, but at night an online gambling warrior. Henry uploads videos of his game playing exploits and gets dollars from the game creator for referring potential customers. IR also reckons this is a taxable activity and Henry should pay up. Anyone who says IR is out of touch with the modern economy is very wrong.

LOOKING AFTER OUR ELDERLY PARENTS (INCLUDING REST HOME THRESHOLDS) Firstly, make sure your Mum and/or Dad has an Enduring Power of Attorney in place. This document gives directions of what your parents would like to happen if they cannot make decisions for themselves. The Government expects people assessed as needing residential care to fund that care themselves and will step in and start paying once people’s wealth has been depleted below certain levels. Depending on where you live, the weekly minimum cost of aged care (which is the Government subsidy cap) is between $880 and $980. There is an asset test that determines whether people pay for their own care. Currently for single people needing care, or those with a spouse/partner already in care, that level is total assets valued at $219,889 or less, including the family home. People with a spouse/partner who is not in care have a choice of two different means tests, either total assets of $120,416 not including the value of the family house and car, or combined total assets of $219,889 including the value of their house and car. The means test is intrusive and becomes complicated when people have set up Trusts, which were once aggressively sold as a means of avoiding the residential care means test. The means tests “looks through” Trusts, as the Government is not interested in paying subsidies to people who chose to shelter their wealth. Often Wills and Trusts have to be rejigged. Decisions such as whether to sell the aged person’s home, or rent it out to pay the fees, have to be made. Families have to look forward to understand how much it could cost them. In 2015, the average length of stay for someone in one of the four services (rest home, hospital, dementia and psychogeriatric care) ranged from 72 to 85 weeks, a survey of NZACA members showed. If the weekly cost was $950, for example, that would equate to an overall bill of $68,400 to $80,750.

TAX BRACKET CHANGES The key tax announcement is a change to the tax thresholds. Previously the tax thresholds looked like this: Income Tax Bracket Tax Rate $0 - $14,000 10.5% $14,001 - $48,000 17.5% $48,001 - $70,000 30% $70,000 and higher 33% From 1 April 2018, they will look like this: Income Tax Bracket Tax Rate $0 - $22,000 10.5% $22,001 - $52,000 17.5% $52,001 - $70,000 30%

ACCOUNTANTS NOW LEAN MEAN FINANCIAL MACHINES It’s an exciting time to be an Accountant. You may not think Accountants get excited but we really do! While the humble abacus is ancient history in the age of cloud accounting platforms, an Accountant’s expertise with numbers and the insights this data can offer into a business, remains key. These challenges mean we need to be adding real value to our clients as business advisors who provide pro active, real time advice in light of the access we have to accurate, up to date data. With the ever growing influence of technology we are focused on being your lean, mean financial machine.

All information in this newsletter is, to the best of the author’s knowledge, true and accurate. No liability is assumed by the author or the publisher for any losses suffered by any person relying directly or indirectly upon this newsletter.

June 2017 Page 4

SHARE TRADING TIPS FROM THE INSIDE What makes the share market interesting is that all share transactions involve buyers and sellers who have their own perception of value. Sellers sell at what they believe to be a good price. Buyers think that same price is a good opportunity. The only time a buyer or seller might have an information advantage is if he or she is an insider. That term is generally associated with the illegal kind of insider trading where someone inside a company trades based on non-public information that can have an impact on the company’s share price. But there is a lot of insider trading that is absolutely legal. Essentially the buying and selling transactions of executives, key employees, major shareholders and directors of a company who, because of their position, have access to the most up to date information about the state of a business. There is an entire industry devoted to monitoring the trading activities of insiders in the belief that when insiders buy or sell, they send a signal to be heeded. A recent University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4% on average. There can be legitimate reasons for an insider to sell, divorce, estate planning or meeting tax liabilities. An insider might have the bulk of their wealth tied up in one company and it is therefore perfectly reasonable to want to diversify one’s assets. Insider buying activity is a really useful signal. Legendary investor Peter Lynch said: “Insiders might sell their shares for any number of reasons but they buy them for only one, they think the price will rise”. The good news is that under continuous disclosure and other market regulations, insiders are required to inform the stock exchange within days of doing any trading. So this information is readily available for those who are interested. If we assume insiders will always know more than us, the time to follow their lead is when they put their money where their mouths are and buy more shares in their business. Happy investing!

FINANCE AND FITNESS AT IT’S BEST Some of our team here at Perriams enjoying their weekly yoga class in our very own office gym.