High Inflation: What does it mean for your business?
High inflation is hitting businesses and households hard in 2022. Across the world, inflation is running high, thanks to factors like pandemic disruptions, monetary stimulus and supply-chain issues. You'll see the effects of inflation at the supermarket and the fuel pump - and in your business.
Eroding your buying power
Inflation increases prices, which eats away at your buying power. For business owners, that means you'll encounter higher costs from your suppliers. Materials are more expensive, transport has become far more costly, and basics from office supplies to utilities are all rising in price.
In addition, your staff are probably asking for pay rises. For you and your employees to keep up with inflation, your income needs to increase by at least the same amount as inflation. To achieve that could mean a seriously large wage bill increase for your business.
Rising interest rates
Central banks try to keep inflation at a sustainable level. They react to high inflation by raising their interest rates, which slows the economy and puts a handbrake on inflation. As a business owner, you'll see this reflected in a higher cost of borrowing, and the same will apply to your home loan.
Inflation does have some side-effects that could be positive for your business. First, it tends to push up the value of big-ticket assets that your business might own, like property or plant. Second, it makes debts seem smaller - your debt amount stays the same but hopefully your income rises.
It's time to raise your prices
With inflation causing you to spend more, your business will also need to raise prices. This is always a sensitive topic to tackle with clients and customers, but at least the way has been paved for you by prices rising across almost every single sector and industry.
If you're wondering how much you need to increase prices in order to keep up with inflation or maintain your margins, do give us a call. Our forecasting expertise means we can run the numbers, test out scenarios and figure out a sweet spot that will work for your business. We'd love to help.
Xero Price Update
From the 16th March 2022 Xero have increased their partner only cashbook plans. This will reflect on your monthly Xero Subscription invoice from the 10th April 2022.
- Non-GST Cashbook plans are increasing by $1.15
- GST Cashbook plans are increasing by $2.30
We encourage you to sign up to our Direct Debit facility, GoCardless to ensure the correct amount is paid. To sign up please click on the "View and pay online now" link on your next invoice or contact Emma on email@example.com, otherwise please ensure your Automatic Payments are updated.
All prices are in NZD and are GST inclusive
End-of-year tax is due on April 7th 2022
As if dealing with inflation isn't enough, terminal tax payments are due on 7 April 2022. If cashflow is a problem and you're not confident in your ability to make your payment, please get in touch. We understand that the past 12 months have been extremely tough for many businesses and clients, so you're not alone.
Ways to avoid penalties and interest
Paying tax late means Inland Revenue will charge you for use of money interest (UOMI) and late payment penalties. These can really add up and start to make your cashflow situation worse.
There are several ways to avoid this - we can work out the right option for your situation and complete any applications or paperwork.
Because of the pandemic, Inland Revenue is now well set-up to provide tax relief for businesses which have struggled with lockdowns and border closures (you can read more here). This flexibility has been extended due to Omicron.
There are ways to write off UOMI or even tax (in the case of serious hardship). Another method is to set up and instalment payment with Inland Revenue, or apply for an extension to your tax payment dates.
Remember, we can apply on your behalf, you don't have to do this yourself. You also have the option of using tax pooling to borrow at a lower rate of interest than the Inland Revenue will apply.
Don't just ignore it
If you can pay your terminal tax, make sure you do so on or before 7 April. If you can't, please don't ignore it, even if it seems too stressful - we can work on your behalf to avoid penalties and interest, and find ways to get it sorted out.
We're here to help, so do get in touch.