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The success of an acquisition largely hinges on the price paid relative to the value received. To ensure success, it’s crucial to gain a comprehensive view of not only the quality of earnings of a business but also the quality of the reporting itself. If you’re an investor performing due diligence, here are five key considerations about the quality of the target’s financial reporting.

The External Reporting Board (XRB) has released updated reporting thresholds for public benefit entities (PBEs): Tier Old criteria New criteria Tier 1* Total expenses greater than $30m Total expenses greater than $33m Tier 2 Total expenses less than $30m Total expenses less than $33m Tier 3 Total expenses less than $2m Total expenses less than $5m Tier 4 Total operating payments $140,000 No change *Note; an entity is also required to apply Tier 1 if it has “public accountability”. This decision is welcome as many PBE entities will see a reduction in reporting requirements and compliance costs. These thresholds have not been updated since 2012; in that time, various new pieces of legislation have been introduced and inflation has pushed many entities from Tier 3 to Tier 2 reporting without becoming any larger or more complex. Several new PBE standards have also been issued over the last decade, causing concerns that the costs of reporting exceeded the benefit to users under the previous size thresholds. Research by the XRB on the expenditure of PBE entities shows there is substantially less clustering around the $5 million threshold, compared to the $2 million threshold. In total there are 33 entities with total expenditure between $4.8 million and $5.2 million, while there are 115 entities with total expenditure between $2.8 million and $3.2 million. When does this change apply? The new thresholds are mandatory for periods beginning after 28 March 2024, which impacts 31 March 2025 balance dates onward. However, the change can be applied for periods that end after the standard takes effect (28 March), so those preparing reports for 31 March 2024 balance dates onward are also eligible. This news is timely for Incorporated Societies applying XRB PBE reporting standards for the first time under the Incorporated Societies Act 2022, as more Incorporated Societies will also now have lower reporting requirements. Determining your expenditure Total expenses for the purpose of determining a reporting threshold include all of an entity’s operating expenditure. This includes grants or donations made by an entity, but does not include capital expenditure (assets) or loan payments. How does it work in practice? If you now find yourself eligible to apply a lower reporting tier due to this change, it can be implemented immediately. However, you need to consider future expenditure as you may end up transitioning back quickly if this grows year on year. It’s also important to think about consolidation requirements if your entity sits within a group, so that a change in reporting tier at the entity level doesn’t interfere with group reporting. PBEs can apply requirements of a higher tier if they want to, so if you are happy to stay at the current reporting tier – that’s fine. For example, we have seen this with recently established PBEs that knew they would exceed the previous $2m expenditure threshold in future years, so they start by adopting Tier 2 rather than waiting until they hit the threshold. If your PBE previously applied Tier 1 requirements and you are transitioning to Tier 2 requirements due to your expenditure, the recognition and measurement accounting policies will remain the same, but there will be less disclosure requirements in the notes to the financial statements. Tier 2 and Tier 3 reporting requirements have some differences, mainly around presentation of revenue and expenses, and accounting for property, plant and equipment, investment property and publicly traded financial investments. Entities that previously applied Tier 2 requirements and are transitioning to Tier 3 can choose to either provide comparative data in accordance with Tier 2 requirements (i.e., leave it as it was) or restate them in line with Tier 3. If your entity is thinking about transitioning reporting tiers, start engaging in the process early so you can navigate this transition which can be deceptively complex at times.

There’s been a period of relative calm in the world of accounting standards in recent years, however they quietly continue to evolve and reflect the dynamic nature of business, and the need for transparency and accuracy in financial reporting. Recently, several important changes have been made to New Zealand equivalents to International Accounting Standards (NZ IAS) to make financial statements clearer, comparable and relevant. Key updates have been made to: 1. material accounting policies for year ends from 31 December 2023 onward 2. accounting for estimates for year ends from 31 December 2023 onward 3. the presentation of current and non-current liabilities for year ends from 31 December 2024 onward Understanding the implications and significance for your business Changes to NZ IAS 1: Disclosure of material accounting policies A shift from the significant to the material The amendment to NZ IAS 1 emphasises the disclosure of material accounting policies. It requires entities to make material accounting policies prominent and easily accessible within financial statements. Previously, businesses were only required to disclose their significant accounting policies. The move to releasing material accounting polices was made to reflect the fact that term and its application is described in detail in accounting standards, where the term significant is not. How will this benefit my organisation and its stakeholders? Transparent disclosure of accounting policies is crucial for stakeholders to comprehend how financial information is prepared and to assess the reliability of financial statements. By explicitly stating material accounting policies, companies provide clarity on significant judgments and assumptions applied in financial reporting, enhancing the overall transparency, trustworthiness and comparability of financial statements for different entities. Investors and other stakeholders can make more informed decisions when they have a clearer understanding of the underlying principles and methodologies used in financial reporting. It encourages companies to critically evaluate their accounting policies, ensuring they accurately reflect the economic substance of transactions and events. Businesses are encouraged to review the significant accounting polices previously disclosed to determine how they stack up against the new guidance to disclose material accounting policies. Changes to NZ IAS 8: Accounting for Estimates More consistency and reliability on the horizon The revision to NZ IAS 8 addresses the accounting for estimates, emphasising the need for consistency and reliability when estimating uncertain future outcomes. Over time, a change in accounting estimates has become confused with a change in accounting policy. The amendment replaces the definition for a change in accounting estimate with the definition for an accounting estimate as monetary amounts that are subject to measurement uncertainty. Enhance the usefulness of your financial statements … Estimates play a crucial role in financial reporting, particularly in areas such as fair value measurements, provisions, and impairment assessments. Ensuring the reliability and consistency of estimates turns your financial statements into a tool stakeholders can use to assess the potential impact of uncertainties on an entity's financial position and performance. … And mitigate risk The revised standard prompts companies to exercise greater diligence and transparency when making and disclosing estimates. By providing insight into significant judgments and uncertainties, you can mitigate the risk of misinterpretation and enhance stakeholder confidence in the reliability of your financial information. Additionally, it encourages robust internal controls and processes for estimating, monitoring, and disclosing uncertainties, all of which improves risk management practices. Changes to NZ IAS 1: Presentation of Current and Non-current Liabilities What is changing? The amendment to NZ IAS 1 focuses on the presentation of current and non-current liabilities, requiring a liability to be classified as current if, among others, the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. The amendments to NZ IAS 1 clarify that the right to defer settlement must have substance, and it also discusses the impact of covenants on this assessment. Why is this important? Clearly presenting your current and non-current liabilities makes your liquidity and solvency position easier to understand. By segregating liabilities based on their maturity, financial statements provide valuable insights into an entity's short-term obligations and its ability to meet them, which helps stakeholders assess liquidity risk and financial health. The amendments state that at the reporting date, instead of considering covenants that will need to be complied with in the future, when considering the classification of the debt as current or non-current, the entity should disclose information about these covenants in the notes to the financial statements. The standard setter introduced these so investors can understand the risk that such debt could become repayable early and therefore improving the information being provided on the long-term debt. What is the impact on my business? The revised standard prompts entities to reassess their classification of liabilities, ensuring compliance with the new presentation requirements. By clearly delineating between current and non-current liabilities, businesses enhance the clarity and relevance of financial statements, enabling stakeholders to make more informed assessments of an entity's financial position and performance. It underscores the importance of effective liquidity management and strategic planning to meet short-term obligations and sustain long-term growth. What’s next? After a period of relative calm, we are expecting to see a minimum of two new accounting standards over the coming year. The first, IFRS 18, will impact the representation and disclosures of primary financial statements. Key changes include: • new required subtotals included in the statement of profit or loss such as operating profit, profit before financing and income taxes, • disclosures around management-defined performance measures (MPMs), and • enhanced requirements for aggregation and disaggregation (i.e., grouping of information). It is important to note that IFRS 18 is subject to consultation before the standard is adopted in New Zealand. We are also anticipating a new standard outlining disclosure requirements for subsidiary, and potentially other entities, who do not have obligations to produce financial statements. When and how this standard might be applied in New Zealand will be subject to XRB consultation.

When you take a sip from a 330ml bottle of Speight’s Gold Medal Ale, you probably don’t consider the 47c in excise tax that was included in the price. And why would you? It would only take the fun out of having a nice cold beer. Unfortunately, if you run an alcohol business in New Zealand, you don’t have the luxury of forgetting about excise taxes. These have risen rapidly in recent years because they are benchmarked to consumer inflation. The rise over the last three years in the consumer price index to as high as 7%, has meant more than $94 million in additional excise tax for the alcohol industry. On top of that, the industry has had to absorb rising ingredient and packaging costs, skills shortages, falling sales and higher interest rates. It’s tough going for our alcohol manufacturers and distributors, many of whom are small privately owned and family businesses. While this is an area of tax legislation that might only affect a small number of businesses, it has a sizeable impact. It’s a challenge to be accurate and compliant, particularly for the smaller craft producers that make up around 10% of our local market. These inaccuracies are an under-recognised issue - get it wrong, and it can be extremely costly. Overpaying could lead to significant unnecessary costs Producers must record alcohol volumes accurately, have correct sales records, and lodge that data by the deadlines set by the New Zealand Customs Service. Because brewing is an art and a science, the level of accuracy required can be tricky to achieve. It’s not uncommon to see brewers make tiny errors that lead to big consequences, and the last thing anyone wants is to be facing thousands of dollars a month in unnecessary tax. It’s also easier to make errors at a smaller craft operation, because it’s less industrialised when compared to the big players like Speight’s or Heineken. Take, for example, a fictitious beer manufacturer – let’s call it Bottle Brewery. One of its best-selling beers is a light lager that should have 4% alcohol by volume (ABV). Unfortunately, the team at Bottle Brewery isn’t equipped to be 100% accurate with its calculation and processes. As a result, its light lager has been leaving the brewery with an ABV of 4.08%. That might sound like nothing more than a rounding error, but it’s just enough to increase the excise tax on the beer. The corresponding increase gets applied across the stock keeping unit (SKU) based on sales per month, and the light lager is selling well, shifting 100,000 units in a month. Applying the additional excise tax adds an extra $2,800 per month for that alcohol SKU alone. Plus, the Bottle Brewery team is a bit slow at filing its returns. With that late fine, and the extra excise tax, the company is unnecessarily paying $3,600 a month. Hopefully Botte Brewery has been more accurate with its other beers or its taxes could be really adding up. Underpaying can be a nasty shock When you’re underpaying tax, you run the risk of an unpleasant shock when you need to backpay the outstanding amounts. Customs carries out regular inspections of New Zealand’s alcohol businesses, walking through production facilities to see how you’re recording your alcohol volumes, checking your systems, and inspecting your reports and declarations. Inspectors will look at everything, even checking to see whether you have alcohol sitting in unlicenced areas of your property – you may need to pay excise tax on it if that’s the case. At a time when niche brewers have been struggling to stay afloat, investing in getting this right is well worth the effort – because the costs of getting it wrong can be disastrous. If Bottle Brewery has been paying its excise tax assuming its light lager is 4%, but Customs discovers it is actually 4.08%, the business may be on the hook for several months of backdated taxes. This could be a considerable cashflow blow for a small brewery that’s already feeling the headwinds of tough economic conditions. It may even face penalties for mistakes or omissions, on top of any tax owed. If Customs decides to do a full audit, that will also take up extra time and resources they can’t afford. Customs is very responsive and helpful, and they do have options under the legislation to remit penalties and offer time to pay arrangements. However, they don’t always have the ability or appetite to offer lenient repayment options, and outstanding excise tax and penalties may need to be paid. The right systems and processes can save you time and money Most breweries use spreadsheets to track their sales and alcohol volumes. Academic research has found that an estimated 94% of spreadsheets contain errors, which shouldn’t fill anyone with confidence. Breweries need to develop and maintain a laser focus on improving the quality of their data, and developing models that help them improve accuracy and file returns on time. Typically this investment quickly pays for itself, often simply by avoiding late filing fees. Improving systems and processes often leads to other increased efficiencies throughout the business, including better stock storage practices and more precise forecasting. When it comes to excise tax reporting, a millilitre of prevention is worth a fermenter full of cure.

Grant Thornton’s latest report, "Pathways to Parity: 20 Years of Women in Business Insights ", marks two decades of dedicated research aimed at monitoring and measuring the representation of women in senior management roles within mid-market companies worldwide.

This publication is designed to give preparers of IFRS financial statements a high-level awareness of recent changes to International Financial Reporting Standards. It covers both new Standards and Interpretations that have been issued and amendments made to existing ones.

With hopes Covid is now somewhat in the rearview mirror, the pace of change in the transfer pricing space has not slowed down. The OECD continues to drive the base erosion profit shifting (BEPS) programme to minimise tax competition among jurisdictions and ensure multinationals pay their fair share. However, the effectiveness of the programme’s final stages depends on the willingness of countries to implement and enforce these rules consistently. It remains to be seen how tax authorities worldwide will adapt to these changes and if a new era of cooperation will indeed emerge in the global tax landscape. However, with economies around the world still in or coming out of recession, there are questions around whether the 142 countries that have signed up to the BEPS framework remain committed to such a unified approach, or if there will be a shift to a ‘every jurisdiction for themselves’ mentality. As some economists have indicated, there are signs certain economies are shifting away from a focus on globalisation to looking inward and more national economic protectionism. What does this mean for New Zealand-based multinationals? There seems to be a stand-off between countries waiting to see who will jump first. In the meantime, some have implemented the needed regulations, while others – like New Zealand - have also hedged their bets and have legislation waiting as a backup, as demonstrated by the introduction of the digital services tax laws brought in by the Labour Government. The current National-led Government is yet to confirm if this will remain, be repealed, changed or trumpeted, but it has increased resources for Inland Revenue to expand its audit capacity, minimise taxation losses and ensure greater integrity and fairness in our tax system. And it’s likely there will be heightened proactivity in this space so the Government can collect the extra revenue needed to deliver on its election policies. This means change for multinationals could be on the way, and transfer pricing rules may be an area in which Inland Revenue increases audit activity; this may also not be limited to the tax authority of New Zealand but others around the world. The key for potentially affected Kiwi businesses will be to: · review their New Zealand and global transfer pricing policies to ensure they remain fit for purpose · establish suitable governance to implement these policies appropriately · keep management up to date with changes in the transfer pricing space. Countries will be weighing up the benefits of a unified approach against the temptation of self-interest, while businesses grapple with economic uncertainties and transfer pricing rules which will continue to change. As New Zealand and other countries await international unification, internal pressures will continue to mount, setting the stage for a complex interplay between economic recovery, taxation, and the delicate dance of international relations.

The world of cryptocurrency saw more controversy this year with NFT markets collapsing, Sam Bankman-Fried being found guilty of a range of charges that could land him in prison for over 115 years, and Binance - the world’s largest exchange - agreeing to one of the biggest settlements in US history after violating anti-money laws and sanctions violations, by allowing terrorist groups to trade on its platform. And so cryptocurrency’s renaissance begins … Despite all the negativity, most cryptocurrency markets are up year on year in terms of price appreciation. This could be for a variety of reasons - speculation, artificial unregulated markets, or the maturity of the cryptocurrency industry increasing the confidence in the underlying asset. One element fuelling the fire of cryptocurrency markets is institutions looking to create financial products that allow traditional investors to get a piece of the virtual currency pie. Some of these include cryptocurrency spot exchange-traded funds (ETFs) or even the ability to gain crypto exposure in KiwiSaver. A cryptocurrency spot ETF is a type of investment fund designed to directly track the price of digital currencies like Bitcoin for example. It is a regulated and stock exchange-traded product, which means it is subject to oversight by regulatory authorities. In the U.S. this is the Securities and Exchange Commission (SEC), and would be the Financial Markets authority (FMA) if such a product was ever to launch on the NZX. Spot ETFs are typically structured to hold actual cryptocurrency, and investors buy and sell shares of the ETF which should mimic the spot prices of the cryptocurrency. Other opportunities already exist for New Zealand investors with the highest-performing KiwiSaver in terms of short-term (last 12 months) returns through Kouras’s Carbon Neutral Cryptocurrency Fund, with a one-year return of 66.52%. This fund invests in institutional investments that have direct bitcoin exposure. Allowing KiwiSaver investors to put up to 10% of their portfolio into this. It is definitely for those with a more aggressive growth strategy with the fund's Statement of Investment Policy and Objectives (SIPO) outlining the fund “is only appropriate for investors that have a very long investment horizon and who are willing and able to withstand significant volatility. The Fund is expected to deliver a 50% loss every 1-2 years.” While these developments demonstrate how the industry is maturing, this evolution contradicts the founding principle of cryptocurrency: decentralisation. Bitcoin and other digital currencies were never intended to become investment assets sold on a stock exchange, unlike these newer products which rely on centralised institutions controlling and holding large amounts of cryptocurrency. It’s time to start regulating the renaissance All of this points to a growing imperative for regulatory intervention. A hybrid strategy is being explored by The Reserve Bank of New Zealand (RBNZ) to impose regulations on products that inherently have a lack of regulatory oversight. It has proposed a regulatory approach for the opportunities and challenges of new forms of private money like crypto assets. Having experienced the challenges of a deregulated market during our work liquidating failed exchanges like Cryptopia and our views about stablecoins (a type of cryptocurrency), Grant Thornton New Zealand submitted an alternative approach in a submission to RBNZ. Our perspectives recognise the potential significance to private money that stablecoins could have in the current financial landscape. Having seen the wild west of cryptocurrency, we remain advocates of the potential benefits of Distributed Ledger Technology (DLT) to revolutionise the financial industry. To advance products based on this technology, there is a need for robust regulation and risk management to protect New Zealand's monetary sovereignty, and to maintain trust in the global monetary system. Given the global nature of cryptocurrency, we believe that a coordinated, international approach is necessary to effectively address these risks. On 30 June 2023, RBNZ published the outcome of its public consultation. The submissions reinforced RBNZ’s view that there are significant risks and opportunities with treating virtual assets as money. They have now decided against proposing a regulatory response at this point in time. Another reason outlined for taking a cautious approach lies in regulatory developments globally. There is likely to be real advantages to aligning crypto asset regulation throughout the world. As various overseas regimes are implemented, best practice for regulating crypto assets may become clearer. This was reflected in our submission which stated the limited adoption of these new forms of private money including cryptocurrency means it is too early to develop a robust and futureproof approach to capture all potential risks associated with a new form of private money. The UK is signalling they intend to regulate crypto activities in 2024 through formal legislation. Australia is currently running a consultation process for making crypto exchanges and digital asset platforms subject to its existing financial services laws; this will require platform operators to obtain an Australian Financial Services Licence. These developments mean the RBNZ may be forced to change tactics and follow global changes. In the meantime, we will have to see what 2024 brings in the world of cryptocurrency.

Too few New Zealand businesses are making good use of advisory boards. Used effectively and with the right people involved, an advisory board can solve problems, fill knowledge gaps and help to maximise growth and profits. In a complex and volatile business environment, advisory boards can help steer your business through choppy waters. Executive teams are increasingly faced with problems that fall outside their day-to-day areas of expertise, and advisory boards provide independent advice about how to navigate tricky times. What makes an advisory board unique? Many large businesses have a full constitutional board, which has decision-making power for the company. The members of a traditional constitutional board have fiduciary responsibilities, and their role tends to focus on compliance, risk management, and monitoring business performance. If they work on problem solving or growth strategies, it’s typically from a top-level strategic perspective. Risk minimisation is a priority. In contrast, an advisory board has no decision-making power and the members don’t have the same duties as the full board members. Its focus tends to be on maximising profits and growth, solving problems, and acting as a sounding board – sometimes down to quite detailed levels of execution. Advisory board members often identify market opportunities and provide network links that can support the company’s expansion. The priority is capitalising on opportunities and how to iron out problems. An advisory board provides suggestions, observations and ideas to those making the day-to-day decisions about the company. Those decision-makers can then decide whether or not to act on that advice. The advisory board is both an alternative to the traditional constitutional board and a complement, so you can have one without the other or both. We know advisory boards can be effective Research about advisory boards demonstrates their effectiveness: A survey of businesses leaders found 95.7% believed their advisory board added “real value” to their business, according to The Alternative Board. Advisory boards help businesses avoid costly mistakes; broaden knowledge and skills; and provide a sounding board; among other benefits, according to research by the Business Development Bank of Canada. A Columbia University study revealed advisory boards help organisations “remain innovative and at the forefront of their industry”, and found although board members’ experiences of past failures didn’t prevent all failures, it did minimise the probability of failure. Another US study found an inter-professional advisory board can broaden perspectives within an organisation and lead to new insights. Does your company need an advisory board? An advisory board certainly isn’t a requirement for every business. First, the company needs to have reached a certain size. Beyond that, your business could benefit from an advisory board if: your it is growing or looking to grow you want to raise funds you’re aiming to build strategic partnerships the business is facing a major change of direction, with new products or expansion into new markets the owners of the business are in the process of succession planning the business is, or soon will be, for sale. An advisory board will raise the level of strategic conversation, and it can be the difference between business as usual and an extremely valuable, highly saleable organisation. Building an advisory board You don’t need to launch an advisory board in a single push. It can begin with a single advisor – perhaps your lawyer or accountant. Alternatively it might be someone who knows the market you’re considering moving into for instance, or a person who understands the specific staffing challenges you’re facing. From there, you can build an alternative advisory board. It might include a key person from within the business, possibly the managing director, chief executive or owner. Ideally you want an independent chair with two or three external advisors. Members of your advisory board should be carefully selected to ensure they have the right skills. Identify areas where your company lacks knowledge – for example, it might be insights into a particular country, marketing campaigns, or recruitment. As the company grows, the informal advisory board can move to a more formal set-up. This means having a board charter, rules for the board members and a code of conduct. It’s vital members clearly understand their own role, and everyone else’s roles on the board and within the business. Ultimately, depending on the size and complexity of the business, you may need to establish a constitutional board in time, to ensure the company meets its regulatory and compliance requirements. Even then, having an advisory board means you can continue to have those valuable conversations about how to grow the business and solve thorny issues. Advisory boards are an investment in your company Maintaining an advisory board isn’t free, but it’s a genuine investment in the business. With independent advice, the leadership team can gain a different perspective on an issue. For example, one of our clients owned a company that had been highly successful and grown rapidly, before hitting head winds. It was clear some difficult decisions had to be made but downsizing can feel like you are failing. The process was nerve-wracking for the owners. It was with the support of the advisory board the client was able to make a long-term plan, put the downsizing into perspective, and make the tough choices. Now the business is well set up to survive the tough times and will be ready to grow again when the market picks up. Usually, though, it’s not during a quantum shift that an advisory board proves its worth. It’s an accumulation of small changes. One client is currently leveraging their advisory board to help develop their management team’s effectiveness; to clarify their purpose and vision; and to identify strengths within the business. An advisory board is the ideal forum to explore opportunities, problem solve, and seek counsel. It’s a way for a business to invest in its future and improve accountability of the management team.. It can bring in knowledge, experience and capability where and when it’s needed. In a time of high volatility, an advisory board has never been more valuable. This is an ideal time to establish an effective advisory board to help you navigate your business through these uncertain times and into a successful future.

Here comes the new year, and it would be lovely to think 2024 will be smooth sailing compared to the past three years. Unfortunately, that’s almost certainly not going to be the case. Instead, volatility will continue to reign as the pace of change only speeds up. Reflecting on 2023, most would agree it was a tough year, and those challenges are not going to disappear over the Christmas holidays. Businesses will continue to face cost pressures, high interest rates and staff issues in 2024. The world has fundamentally changed since the pandemic; buying patterns, financing, and technology have all been transformed. As a business decision-maker, not only do you need to get your head around our new economy, you need to do it while also tackling whatever new hurdles are thrown in your path. How can you help your business survive and thrive in 2024? The answer is simple: you must be ruthless. Start by building resilience When the economic landscape is in permacrisis, it’s essential to make your business as resilient as possible. To make sure you can ride the wave in 2024, you need to ensure your cashflow is reliable and predictable, and you must manage your costs. Look ruthlessly at your spending and outgoings to find efficiencies, while tightening your terms, invoicing and debt management processes to improve cashflow. The key is knowing what your cashflow is. Let go of underperforming products and services Cost-benefit analysis is valuable here as you decide what to let go. Crunch the numbers and identify parts of the business that aren’t providing strong and reliable profits, both historically and into the future. Ask yourself tough questions about those underperforming strands: ‘Why am I continuing to sell this product or service? Is it dying and do I just need to cut it out? Am I continuing to serve legacy customers because it’s in my comfort zone or I feel an allegiance to the past? Will I get a better return by investing the same amount of time and energy on something else?’ Cut out your D clients The Pareto principle, aka the 80-20 rule, says that 80% of your profits will come from 20% of your clients. Most businesses find this principle applies. This is an old exercise but an effective one: look at your client list and grade each one from A to D. Your A clients are the most profitable ones who are the best to deal with, and your D clients are the lowest-value, most headache-inducing to work with. It’s time to cut out your D clients and focus your energy on keeping, growing, and finding new A grade clients. Jettison outdated stock After the inventory rollercoaster of 2020 and 2021, some businesses are still sitting on outdated stock. Sell it if you can, provided you don’t cannibalise your own clients. In other words, don’t sell a cheap old item to a client who might otherwise buy a profitable new item. Instead, try to sell it to a market you’re not involved with. One of my clients was able to shift a huge amount of product to a dollar store, preventing the business from undermining itself. Otherwise, look for a way to give the stock away, or even better - recycle it if you can. Take legacy technology off life support Legacy technology is a drag on any business. We see it in government departments and large businesses, where slow, patchwork systems take hours to complete tasks that could happen almost instantly with up-to-date tech. Getting rid of desktops and landlines, and moving to the cloud, makes your business more resilient and cuts ongoing maintenance costs. Get the experts in to help your business transition to the cloud in a way that will work for your organisation – you should be able to find some significant efficiencies. Embrace AI The point of making all these cuts and cost savings is not only to boost your profitability and resilience. It will also free up funds so your business can be ready for the future, because any company not embracing AI will be left behind. As the pace of change increases, firms that embrace change, and have the knowledge and information to handle it, will accelerate their growth. Firms that keep doing what they’ve always done will start to fall behind. Eventually the gap between non-adopters and their AI-savvy competitors will become too wide to bridge, and the non-adopters will drop away. There will be some high-profile receiverships, but in general these failures won’t happen with a big bang. It will be death by a thousand cuts as small operators decide they’re too tired to keep fighting fires, decline to renew their leases, and let their companies wither away. Open that window of opportunity Skills shortages are already on the horizon for many industries, including accounting where the number of graduates is down by 40%. Overall university enrolment in New Zealand fell in 2022, in line with Australia and the USA which have also seen lower post-pandemic enrolment levels. When there are too few people to do the work, technology is filling the gap. We’ve seen this in our own horticulture industry, for example, where automation is being developed to pick fruit so we don’t need to rely on itinerant workers. And automation is much easier to apply to repetitive data-driven tasks – it will take over many of the drudgework elements of traditional roles undertaken by accountants, lawyers, managers or human resources. With the dreariest parts of the job outsourced, your business will be more efficient, and you and your team can concentrate on the kind of problem solving that needs a human brain - unlock that potential! Find accelerator opportunities The opportunities for innovative accelerators will be massive. Right now, as we head into 2024, we have a window of opportunity. This is the time to make change and prepare for a fast-changing future. By being ruthless now, you can set up your business to seize these opportunities when they appear. You can redivert resources to allow you to invest in technology so you’re better prepared for change and more resilient to challenges. The choice is stark when considering the outcomes. If you do nothing, your business will suffer and potentially dwindle away. But by changing the way you operate, you can become one of the accelerators, dominating in your niche and leaving your competitors behind. There is no middle ground.

As a long-time board member, I’ve learned a lot about the difference a well-functioning board can make to the success of an organisation. I’m currently a Chair/Trustee for a national not-for-profit (NFP) that helps young people to thrive, develop confidence and positively contribute to our communities. It’s wonderful to see what can be achieved for our young people through an organisation with an effective board and team. Based on my own experiences, these are my tips for NFP board members. Align your board appointments with causes you are passionate about For most NFPs, board members are unpaid, so being personally aligned with the purpose of the entity is essential to keep you motivated and engaged. Volunteers who lack engagement won’t add value to the charity’s mission, purpose and overall impact. If you don’t feel strongly about the cause, leave the board position for someone who has the passion needed to be productive and enjoy their role. Foster a positive environment where everyone can express their opinions If nobody is willing to speak up with different opinions and ideas, you will make very little progress. Equally unhelpful, but more stressful, is a meeting filled with conflict, where everybody disagrees and no consensus can be reached. You need to find a balance. All boards will have times where there isn’t consensus. The key to achieving a resolution starts with everyone feeling comfortable about expressing their opinions regardless of whether they’re popular. This involves creating a safe environment where everyone has the freedom to be authentic and bring their true opinion to the table. I have personally experienced times where there have been disagreements among board members. When this happens, everyone needs time to express their views, and to respect everyone’s differences in opinion. This way, a consensus is reached faster, and when everyone supports the final decision it’s an extremely positive experience. If you bring a problem, also bring a solution It’s not uncommon to sit on a board or committee with someone who likes to turn up and throw a problem or two on the table. This negativity will make everyone else feel like there’s an extra weight on their shoulders as they try to solve the problem. A far more powerful and productive approach is to by all means raise your issue, but also put some thoughts together about potential solutions to show that you are willing to work collaboratively as a team to find a resolution. Encourage diversity of thought Diversity isn’t just about ticking boxes. It’s not about ‘Do we have a woman on the board?’. It’s about ‘Is the person opposite me going to challenge me? Are they going to bring different perspectives and see the issues through a different lens?’. Look for people who fill gaps in thinking or perspective to help represent various points of view, so you can cover as many angles as possible and ultimately get the most out of every discussion. Roll up your sleeves and get involved Boards for large businesses might be purely strategic. But NFP boards need more than just top-level engagement. As a charity trustee board member, expect to roll up your sleeves and delve into operations from time to time. If your approach is, ‘That’s not really the role of the board, I don’t want to help with that,’ you’re not likely to win any friends as the rest of the board members knuckle down and start working on day-to-day problems. It can also give you some useful insights into the culture and operations of the organisation. Be prepared for each meeting When board members arrive at a meeting without doing their homework, it means they’re not able to contribute fully to the conversation. Ensure you are prepared for every meeting, whether that’s having ticked off your to-do list, read the paperwork, or researched the topics that are up for discussion. And it’s not enough to be physically present, you also need to be mentally present and engaged. If you’re daydreaming or playing wordle during meetings, you’re not bringing much value to the organisation. You also need to be prepared to dig deeper and go beyond what is presented to you. For example are you following the board’s rules and workplan? Or, is there anything missing from the agenda that you need to raise? Follow through on your commitments Board members who turn up at each meeting having ‘forgotten’ to do what they promised impact the whole group. Be accountable and reliable: if you say you’re going to do something, get it done. It’s hard to push volunteers to complete work; the charity has no leverage to make you achieve everything on your task list. It falls on you to walk the talk, do what you have promised, and cast a positive leadership shadow. Be selective when recruiting new members Recruiting for an unpaid position can mean small charities take whoever they can get. However, ideally you don’t want to simply sign up the first person who expresses an interest. A bad apple will rapidly make the whole board dysfunctional. Try using a formal skills matrix to identify areas where the board needs extra expertise, then recruit for those specific skillsets. This has the added benefit of everyone knowing their position on the field, so to speak. For example, on my current Board financial issues come to me; legal issues to the lawyer; HR issues to the HR expert. It creates clear roles and happier board members. You can also trial prospective members. Try to find out if they will be a good fit, by inviting them to a meeting to see whether they’re prepared, engaged and passionate. Use trustee rotation for fresh perspectives There should be an exit strategy for board members as it will need fresh blood, the members may want to move on, and it provides an opportunity to disestablish members who aren’t bringing value to the organisation. New members prevent the board from becoming stale, bring in new ideas, and provide extra knowledge and skills. Getting it right leads to better outcomes for everyone As a trustee I have found my board role extremely rewarding. You can make a big impact on the community by donating your time and professional expertise. If you can get it right, being on a well-functioning board will be an enjoyable experience for you and your co-trustees, boosting your personal development and driving better performance and outcomes for a cause you are passionate about.

Some years ago, I remember someone bemoaning New Zealand business owners’ lack of ambition. This person said when owners have grown their businesses big enough to start to look overseas they then sell, as long as the sale price would allow them to join the Triple “B” and buy a bach, a BMW and a boat. Although I hadn’t heard of this club before, the point that stuck with me was the comment about the real value of a company being unlocked globally by its new owners. I think things have moved on significantly since then with New Zealand companies such as Seequent selling for $1.46 billion, Ziwi for around $1 billion and Partners Life also for $1 billion. Certainly, a lot more that a ticket to join the Triple “B” club! Gone are the days when companies sold for 3-4 times EBITDA (earnings before interest, tax, depreciation and amortisation) or maybe 7-8 times EBITDA if the buyer had Australian pension fund money looking for a home. Deals like Seequent are not referable to EBITDA at all, with technology companies increasingly being sold at multiples of sales instead – sometimes up to 45 times sales and beyond. How to get the best bang for your buck when selling your business While you are sitting at the beach or lake over Christmas, thoughts of selling your company may cross your mind. If so, there are lots of things you might need to start thinking about. Firstly, get sale ready. When a company is sold, there will almost certainly be some level of due diligence – typically covering finance, legal and tax. A buyer doesn’t want any nasty surprises. Preparing for this will involve ensuring everything is in order – making sure all agreements, processes and procedures are documented and all information likely to be needed is collated and ready to provide. Some businesses plan for this several years ahead and look to have their annual accounts prepared and audited. These actions, though worthwhile, are generally house-keeping tasks and won’t necessarily increase the value of your business. So what can add value, or at least bump-up the multiple of earnings that a purchaser is willing to pay? When it all boils down, the value of a business is based on the demonstrable track record of sustainable earnings, or the prospect of growth in earnings in the future - or, ideally the combination of both. Therefore, being able to prove the reliability of your revenue and profits, and the strength of your position in the industry is worthwhile. It’s also important to have a well thought out set of financial projections which demonstrate the growth prospects for the business and how these can be achieved. Is growth going to come from the existing product base, new product development or bolt-on acquisitions to increase presence and market share? How much will this cost, and what are the potential returns if actioned? The other key question a purchaser will want answered is around people, and most specifically you! What does the business look like with you – are key customer and supplier relationships shared across a management team, meaning your exit from the business is not detrimental to its performance? Answers to these questions are usually presented in an Information Memorandum (IM), a short sales document used to market the business to prospective purchasers. Detailed sell side due diligence reports can also be provided to prospective buyers. While this won’t generally stop buy side due diligence being undertaken, it can help buyers get to the heads of agreement stage more quickly and ensure all the information and materials are ready for due diligence questions. Once a heads of agreement (high level terms likely to be reflected in any future sale and purchase agreement entered into) has been signed, a buyer will typically be granted a period of time where they have exclusive rights to undertake due diligence, and formalise a contract and purchase price. If they decide to proceed, the buyer will submit the first draft of a sale and purchase agreement. The buyers and seller will negotiate the terms of the sale and purchase agreement with the document going backwards and forwards between the buyer’s lawyers and the seller’s lawyers. The document may go back and forwards several times while clauses are negotiated. Will you sell shares or assets? A business sale can involve shares in the company or its assets. The advantage of a share sale for the seller is they can walk away and often the sale proceeds are a tax-free capital gain. The disadvantage for a buyer is they inherit any “skeletons” buried within the company not identified during due diligence. Often the sale and purchase agreement will seek to put some of these risks back on the seller in the form of vendor warranties and indemnities. Under warranties and indemnities, the seller will have to refund part of the purchase price if specific things are identified or occur. Where the seller still wants to draw a line in the sand and not have to worry about warranties and indemnities, it is possible to obtain warranty and indemnity insurance. This is specialist insurance, and a premium is paid to the insurer to transfer the risk arising from warranties and indemnities post sale to the insurer. Typically, the warranty and indemnity insurer will want to review all due diligence reports and may require further due diligence to be undertaken or exclude certain risks. Where business assets are sold, the company’s past stays with the vendor with the business being transferred into an existing or new company owned by the purchaser. This involves changes of ownership of assets, assignment of business contracts and the transfer of employees. It can also involve the purchaser assuming agreed liabilities, such as leases and employee entitlements like holiday and sick pay. When business assets are sold, the vendor will need to wind up the selling company to access any capital gains tax free. What about tax? Purchase price allocation Purchase price allocation is where the parties agree what portion of the overall purchase price is allocated to the various assets acquired and liabilities assumed. This is a key area for negotiation. A purchaser will want to allocate as much of the purchase price as possible to items which will be tax deductible either upfront or at some point in the future, such as plant, patents and trading stock. The seller will want to allocate as much of the purchase price as possible to non-taxable items such as goodwill and trademarks to increase the amount of non-taxable goodwill that they realise. There is generally a natural tension between the seller’s best outcome and the purchaser’s best outcome, so Inland Revenue will generally accept the purchase price allocation agreed between unrelated parties as being a fair market price. GST The purchase price will be either inclusive of GST or have GST added on top. Generally, a seller will insist on the purchase price being “plus GST if any”. The purchase price can be zero rated for GST in certain circumstances, such as where an interest in land is included in the sale (ie, a lease) or where the sale is made to a purchaser outside New Zealand. GST zero rating can also apply to a going concern, ie, where what is being purchased is able to be operated on its own immediately after the purchase is complete without adding anything to it. As most business require premises, it is generally quite hard to have a situation where there is a going concern which isn’t already zero rated for GST due to an interest in land being transferred. There are many more things to consider, and if you are considering selling your business you should get your house in order sooner rather than later. There may be significantly more at stake that membership in the Triple “B” club!

If you only make one security tweak to your business, it should be this: turn on multifactor or two factor authentication. Multifactor authentication (MFA) is a simple change that can massively improve data protection. Without it enabled, your business or Not for Profit organisation could be in breach of the Privacy Act depending on the type of information you hold. What is multifactor authentication? Multifactor authentication means accessing a particular app or system requires more than one method of identification. Without MFA, you log on via one device, with a single set of credentials. MFA requires more from users based on three factors: Something you have, like a smartphone or a secure USB key Something you are, like a fingerprint or facial recognition. Something you know, like a password or PIN. For example, to log into Xero online, you enter your email and password. With MFA, you then need to confirm your identity another way – such as on your phone via the Xero app. If MFA is enabled for Microsoft Outlook and you log on using a device that isn’t trusted, you will also need to enter a security code that has been sent to a trusted email account or phone number. Whether it’s a text code, a fingerprint or a phone confirmation, MFA ensures more than one ID method is required to get into your important data. Most platforms and applications give you the option to switch it on through your security settings. It seems inconvenient – why would you bother? Single-factor authentication can make it much easier for a cybercriminal to compromise your bank accounts, accounting software, or business systems from anywhere in the world. All they need is your email address and password, which might have been stolen or leaked, or gained through phishing. With two-factor authentication, it becomes exponentially more difficult for malicious users to get access to your systems. According to Microsoft, there are more than 300 million fraudulent sign-in attempts on its cloud services daily: “All it takes is one compromised credential or one legacy application to cause a data breach.” It estimates that MFA can block more than 99.9% of account compromise attacks. If that seems too high, perhaps it is, but MFA is still highly effective; Google says its implementation of MFA halved the number of account compromises. When you have MFA enabled, it’s less concerning if your password is leaked or compromised. That alone won’t be enough to allow a hacker to gain access. Without MFA, you’re probably in breach of the Privacy Act The Office of the Privacy Commissioner recommends all organisations, regardless of their size to introduce MFA. When a breach occurs, one question often asked is whether an organisation has taken reasonable steps to protect the data they hold. If it is deemed the organisation did not take reasonable steps to protect its data, this could result in a breach of the Privacy Act. What’s reasonable depends on the size of the organisation breached and the scale and sensitivity of data it holds. No matter how small your business or charity might be, it almost certainly holds some personal information. It might be as basic as a list of members’ names, phone numbers and email addresses. Or perhaps it’s a more complex customer management system that includes payment details, health information or biometric data. As such, implementing the MFA is no brainer. Under the Privacy Act, every organisation or individual that holds data must collect it appropriately, keep it safe and allow the people it concerns to be able to access it (for more details, read the Privacy Principles). The Office of the Privacy Commissioner describes two-factor authentication as a bare minimum for small businesses or organisations that hold digital information. Without MFA in place, if someone unauthorised accesses your business data, you are likely to be in breach of the Privacy Act. This could lead to a penalty under the Act starting from $10,000; the most ever awarded is just over $168,000. The risks of a data breach go far beyond penalties, though. Your organisation may also experience potentially huge financial losses, reputational damage, and be forced to shut down. We know of one instance where a small online business experienced a data breach, and the cost of remediation and compliance was so high that dissolving the business was the best outcome. Cyber incursions are such a significant risk it’s hard to overstate their potential impact – yet many organisations are unaware of their responsibilities and risks. It’s all part of everyday risk management Cyber security can feel like a particularly thorny specialist topic that sits outside business as usual. But there’s a better way to think about it – cyber security is simply another risk management activity. It’s not separate or unique or different to other risks in your business, so managing it should equally be an everyday task. This means switching on MFA and getting everybody using it automatically, as well as keeping up to date with software patches and managing passwords effectively. Simple steps like these go a long way to protecting your organisation from breaches. In some cases, you might need to switch platforms to be able to access MFA for your organisation. We also occasionally see small regional organisations in areas that are digitally excluded, which can make this tricky. There may be workarounds available, or alternative platforms that can help. Create awareness and provide training We know that it can feel inconvenient to add MFA to apps you use frequently. If those who use your systems don’t understand the importance of using MFA, they may find this extra effort irritating, or try to switch it off. It’s essential to have all users on board. Education is the key – you need to explain to everyone why MFA is vital and why it is well worth the additional effort. You need to create awareness and provide training. According to research by Verizon, 82% of all cyber attacks “involved a human element”, and phishing scams still dominate social engineering attacks. We know that many small and medium enterprises and Not for Profits, don’t have in house IT and cyber expertise, however, being small or local doesn’t exempt you from the Privacy Act, so you still need to make the effort to not only enable MFA, but to understand your obligations under the Act, establish cyber security policies, and incorporate MFA into your overall approach to risk management.

Becoming a trustee for a local charity is a wonderful step to take. You’re doing something meaningful for an excellent cause and you’re helping make the world a better place. However, if you are considering becoming a trustee of a charity, go in with your eyes wide open. It’s vital to understand these roles come with certain responsibilities and duties. Although trustees generally have the very best intentions, some inadvertently don’t follow the rules. These issues are particularly common with new trustees, or people who don’t have any experience with governance or running an organisation. People are enthusiastic about becoming a trustee, but don’t fully grasp the obligations that come with their new role. Five mission-critical areas of focus for trustees Do you know how to play by the rules? Every charitable trust has a board of trustees, comprised of at least two trustees. The board will likely operate under a Trust Deed. The Trust Deed typically sets out the following rules and guidelines including, but not limited to: the organisation’s charitable purpose the structure of the board how to appoint and remove trustees trustee duties and obligations how the board will operate how trust assets will be managed. As a trustee, it’s your responsibility to make yourself familiar with the Trust Deed and ensure the rules are being adhered to. Don’t assume that what the trustees have done in the past is compliant, or that trustees who have been on the board longer than you have this under control. The charity rules are readily available to trustees and to the public on the Charities Services website. Do you understand the sector’s legal and regulatory environment? When you become a trustee, you may be signing up to legal obligations such as becoming an employer, being party to contracts for services, as well as needing to lease property, plant and equipment. You need to be aware of what you are signing, and how these obligations impact you as a trustee, or even how you can become personally liable under these contracts. For example, if you sign a long-term lease and the trust cashflow is insufficient, are you liable for this cost as a trustee? There will be certain laws and regulations that apply to your charity, and you must be across all of these to avoid the financial and reputational risks of non-compliance. For example, our latest research report about the sector revealed that while 90% of charities surveyed are aware of the Privacy Act 2020, over a third hadn’t aligned their policies with the new legislation, and only 22% had reviewed third-party contractual agreements with providers who store or process personal information they receive from these organisations. A further 40% didn’t have a suitable privacy officer in place – a key requirement for any organisation that holds personal information and data about people. It is important that you understand and comply with your obligations under the Charities Act 2005, Trusts Act 2019 and the Charitable Trusts Act 1957 where relevant. I don’t need to worry about tax – do I? This is a big yes for all trustees. Many tend to know charities are exempt from tax provided the charity has met the requirements of the tax exemption process, but they don’t always understand this is only limited to income tax – it’s not a blanket exemption. Trustees must continue to consider and comply with other indirect taxes such as Goods and Services Tax (GST), and Employee Deductions (PAYE). Why does my charity need to confirm how it spends money? If your trust applies for grants, these often come with obligations to undertake accountability reporting. When you apply for these grants, they are normally tagged to cover a very specific type of expenditure, and declarations are often required at the end of the funding period to confirm the money was spent in accordance with the conditions of the grant. There’s also a flipside to each coin a charity has to spend – and this involves demonstrating funds are invested in advancing the cause of the organisation. Our research contained a word of caution for charities carrying large reserves, as this requires the need to articulate to all stakeholders and funders why the reserve are being held and what they’re going to be used for. In fact, last year’s Charities Act review recommended organisations with annual operating expenses over $140,000 will be required to disclose information about the reserves they hold, and why they hold them. This information will also be available to the media and general public. Are you confident around finances and understand your reporting requirements? From time to time we see challenges arising from trustees who lack confidence when it comes to finances including year-end reporting. This could include not having an audit when required by legislation or your own deed. The trustees must understand their charity’s financial metrics, how they align with their charity’s strategy and goals, and how they link this information through into the statement of service performance. Charities are obliged to file an annual return with Charities Services. This is due six months after balance date. These disclosures will include: Ensuring the charity’s contact details, purpose, structure, and officers’ details are up to date, and providing details of paid and unpaid work undertaken for the charity. The trustees must present the charity’s financial statements which must be compliant with the relevant reporting requirements. There are different tiers of reporting which are fit for purpose depending on the size of the charity. You must confirm you have prepared the financial statements according to the required reporting tier. Some charities will require these financial statements to be audited. This may be governed by the Trust Deed rules, it may be a requirement of the funders of the charity, or it may be a legislative requirement due to the size of the charity. The financial statements will likely need to include a Statement of Service Performance, a report which uses both written and numerical information to demonstrate what were the outcomes of the trust’s activities for the year. What are the potential outcomes of getting it wrong? Your organisation could be the subject of a Charities Services review. Much like a tax audit, this would be a fairly labour-intensive and costly process. You certainly want to avoid this if you can. You could also potentially lose your charitable status. This would be catastrophic, as your entity is then liable for income tax and donations would no longer be tax deductible to your donors. Even minor mismanagement by trustees can lead to reputational damage. People like to donate to well-managed charities, because it gives them confidence their funds are being put to good use. If the community loses faith in your organisation, it could lead to a major reduction in funding, donations and volunteers, and other organisations may no longer wish to be affiliated with yours. Financial reporting compliance is not only a problem for charities, but will increasingly be a concern for incorporated societies under the new requirements. You should by no means be discouraged from becoming a trustee of a charity. You just need to ensure you know what the obligations of your new role are, so your efforts strengthen the organisation rather than steering it into choppy waters.

Most Kiwi businesses are keen to reduce their carbon footprint – but the cost can be prohibitive. Unfortunately, the environmentally-friendly option isn’t always the cheapest. It would be wonderful to see the Government step in and provide affordable financing for decarbonising the business sector, because we know this could work. There is the GIDI fund, but this is typically for large projects ($300,000 plus) being undertaken by major manufacturers and processors. There isn’t much available for the vast number of small and medium enterprises that make up the majority of Kiwi businesses. Our major banks, though, have stepped up to provide some options. There are now sustainable lending products available to qualifying business borrowers of all sizes, with lower interest rates for projects that will improve your company’s sustainability and/or carbon footprint. These can be a win-win-win: they help your business cut emissions, support the bank’s own sustainability targets, and they improve national energy efficiency. 8 types of projects that are likely to qualify The major banks all offer sustainability-linked loans and while their criteria differ, these are typically the eight types of projects that will meet the eligibility criteria at some or all of those lenders: Energy efficiency improvements. Investment in products and technology that will reduce energy consumption, such as switching from incandescent or halogen lighting to LEDs. Green buildings. This might include installing a digital energy management system or retrofitting a more efficient heating and ventilation system. Waste minimisation. Adhering to the principals of a circular economy by designing out waste at every stage of a product’s life cycle. This might mean using more recycled materials in packaging for instance, or making the product more recyclable at end of life. A loan could fund new equipment or materials, or go towards changing the manufacturing process. Process heat. Typically converting boilers from coal or natural gas to a cleaner energy source such as biomass or electricity. Renewable energy. Generating green energy; usually installing solar panels. Clean transportation. Switching from internal combustion engine vehicles to fully electric vehicles (EVs). This could also include resources to make the change such as installing EV chargers. Sustainable land use. Restorative agriculture, forestry and fisheries. Sustainable water. Investing in ways to reduce the use of water in manufacturing processes or reducing contaminants reaching our waterways. Much like with mortgage lending, every bank has a slightly different approach, so it pays to research each lender’s criteria and terms before you apply for a loan. Set yourself up for borrowing success All the major banks have certain conditions for sustainable loans that go beyond the basic box-ticking. Again, this varies widely. But to give you the best chance of a ‘yes’ on your loan application, you should be ready for two additional homework projects. First, several banks want to see the impact the project will have on your company’s carbon emissions. Unless your business is sizeable, they won’t expect an independent audit of your emissions – this is not only expensive but there aren’t many people qualified to carry out this type of work. However, you can use a free calculator like Climate Toolbox and Cogo to give you a baseline carbon footprint, and then recalculate it to demonstrate to the bank how much difference your project will make. While not official, banks also understand frameworks like B Corp which shows you have done your homework and are making a serious attempt. The Climate Action Toolbox may also be helpful. These calculators won’t be perfect, but they will be enough to provide an estimate of the impact. Second, the bank may also want to see how your proposed project fits into your wider business strategy. What is the long-term vision for the business and how will improving sustainability help this? Are you aiming to attract new customers, retain market share, or boost the company’s resilience? If you’re applying for a loan, being able to show the bank how the project fits into your wider strategy will make you a much better lending proposition. How much could you save with a sustainable loan? Is it worth jumping through a few hoops at the bank to secure a sustainable loan? It might be. The typical saving could be between 0.5% and 1.5% on what your interest rate would otherwise be. That rate will be determined by your quality as a borrower. Let’s say you’re planning to borrow $800,000 to buy new EVs to replace your company cars, and you’re expecting to keep the EVs for three years. If the standard business loan you can secure is 12%, here’s how much difference a 1% interest rate discount could make: Loan amount Interest rate Total payment Total interest Difference $800,000 12% $956,572.12 $156,572 0 $800,000 11% $942,875.05 $142,875 -$13,697 That saving of roughly $13,700 is already significant, but if you then replace the EVs again on another loan, after 12 years you’ll have saved nearly $55,000. On a much smaller project, the savings are lower but still helpful. Say your standard loan rate is 13%, and you want to borrow $50,000 to install solar panels on your building. These last a while, so your term might be 5 years. Loan amount Interest rate Total payment Total interest Difference $50,000 13% $89,586.44 $16,733 0 $50,000 12% $86,082.57 $15,227 -$1,506 Once you add that $1,506 to the savings you’ll make on energy costs, the solar panels start to look like a better investment. Run the numbers and talk to someone who knows the market Sustainable loans are relatively new, so banks are still finding their feet on how to lend and who can borrow. Run the numbers and start thinking about whether your current bank is going to be on board with your project. For example, a push to electrify your fleet of company cars will meet the sustainability criteria for most banks. However, what about replacing older EVs with new EVs? This will not reduce your company’s carbon footprint, so is it an eligible project for a loan? Some major banks say yes, others say no. Talking to someone who understands the sustainable loan market will help you match your project to the best-fit lender. The more affordable funding available, the more quickly we can help decarbonise Aotearoa and reach our climate change targets – which is good news for everyone in New Zealand.

Why would a business ever choose to invest more time and money in financial reporting? You might think it’s always better to just do the minimum and stick to the usual special purpose reporting that most Kiwi company’s produce. But when your company is serious about achieving a higher profile on an international stage, there could be some unexpected upsides to stepping up to more rigorous financial reporting. Instead of special purpose reporting, a company could benefit from adopting International Financial Reporting Standards (IFRS). Put simply, it’s an international accounting language that crosses borders so investors or shareholders who have a reasonable level of financial knowledge can compare listed companies across the globe. The standards are comprehensive, consistent, transparent and universal. Different jurisdictions have their own versions of IFRS and Aotearoa is no exception. We have NZ IFRS, a local version of IFRS which includes domestic requirements for our market while ensuring we comply with IFRS. The standards are updated regularly. NZ IFRS and which companies must comply Naturally, NZ IFRS is required for publicly listed companies, whether they’re based here or internationally. For some businesses, especially household names, you’ll often see the complying information packaged up in the financial section of a glossy annual report. For other businesses, the information will be available on the Companies Office website. Privately owned New Zealand companies with assets totalling more than $66 million or revenue over $33 million must also comply with NZ IFRS. Other entities deemed ‘publicly accountable’ may also need to report under NZ IFRS, for example regulated entities such as banks or insurers. Adopting IFRS sends a clear message your company is ready for the big leagues If your company doesn’t meet the threshold for mandatory adoption of IFRS, why would you choose to opt into the standards? Attracting the right buyers at the right price The first and biggest motivator is the prospect of a sale. Reporting under IFRS makes a company more attractive in the international marketplace. If your company has the potential to be purchased by a global corporation as a subsidiary, that potential buyer will be an IFRS reporter. By stepping up to IFRS, your company can be assessed more easily and accurately by the prospective purchaser. We’ve seen many Kiwi companies sold overseas in recent years, from huge sales like Vend ($455 million) and Timely (around $100 million), through to high-performing SMEs and farms. IFRS shows you’re speaking the same language, and that your company can easily slot into their own reporting regime. It also demonstrates that your business has the capability and capacity to comply with IFRS. Because this level of reporting is more complex, and requires a higher level of sophistication, it shows a purchaser that your company has the acumen and expertise to be a major asset on the balance sheet. Stepping up your capital raising game Another important motivator of switching to NZ IFRS early is fundraising. If your business is seeking to raise money from the capital markets, adopting higher-level reporting can help investors make a more informed decision. It can give them confidence in your company and allows them to have a more in-depth understanding of precisely how the company is performing. And, if your company is dealing in complex financial instruments such as hedging, foreign exchange or derivatives, there is no information in special purpose reporting that tells you how to treat these. NZ IFRS provides clear guidance about reporting on these types of activities. IFRS produces higher-quality financial statements Financial statements produced under NZ IFRS are considerably more accurate than those produced under the special purpose financial reporting framework. A higher level of scrutiny is applied across your organisation’s financials, and the standards themselves provide guidance about how to improve the accuracy of your statements. Here’s some examples to highlight how they differ: If your company has $1m debtors owing at the end of the financial year, special purpose reporting will value that at $1m. That’s a straightforward way to account for those monies owed. In contrast, NZ IFRS demands a closer look at the outstanding invoices. If the company historically sees a 5% rate of default, your NZ IFRS financial statements will provision for that and value the accounts receivable at $950k. This is a more accurate valuation of the receivable invoices. When a business exports goods, once the goods are on a ship and on their way overseas, they are invoiced and recorded as a sale. Under NZ IFRS, those goods might not actually be sold until they land at the receiving port – the sale would be reversed back into inventory until the product arrives and ownership passes. Unlike special purpose reporting, NZ IFRS requires right-of-use values for leased assets, which needs some detailed calculations to capture. There are hundreds more rules like these that contribute to IFRS providing much more detailed and accurate accounts. If you adopt IFRS, the quality of your accounts is going to be significantly higher, and it could change your final numbers quite substantially. Making a decision about whether to adopt NZ IFRS Adopting NZ IFRS does involve extra work and higher costs. You certainly wouldn’t adopt these standards lightly. Ideally, you should consider the costs and benefits to the business – is it worthwhile? If IFRS statements could make the difference between a sale or no sale, or maximise the value of your company, it could be an investment with a very impressive return. It won’t be right for every business, but for up-and-coming companies with great acquisition prospects, NZ IFRS can show you’re ready for the big stage.