July 2023 - Bay of Plenty Business News

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12 BAY OF PLENTY BUSINESS NEWS July 2023 Due diligence: How to prepare your business for scrutiny Due diligence is one of the most important stages of the business sale process. Due diligence is the procedure by which prospective buyers thoroughly examine all aspects of your company, including financial records, legal documents, and operations. The purpose of due diligence is to verify the financial and legal status of the business and to ensure that the buyer understands the business and its potential risks before committing to the purchase. As a seller, you should be ready for due diligence and understand what buyers will be looking for. Here are a few pointers to help you prepare your company for scrutiny: Gather all necessary documents Have all relevant documents and materials in an easily accessible format and ideally in a single location. Be sure to respond to requests in a timely manner. Failure to provide documents or information promptly can delay the sale process or even cause a potential buyer to walk away from the deal. Review your financials Ensure that the financial statements are accurate and up to date, and that they provide a clear and accurate picture of the financial performance of the business. This is critical because financial statements are one of the most important documents reviewed by buyers during the due diligence process. Be ready to answer questions Be prepared to answer questions about the company’s operations, finances, and legal issues. Buyers will almost certainly have a number of questions as they evaluate the BUSINESS SALES > BY STEVE CATLEY Steve Catley is a Business Broker at LINK Business Brokers. He can be contacted at 021 341 117 and steve.catley@linkbusiness.co.nz company to see if it’s a good fit for them. Being prepared to answer these questions can make the sale process go more smoothly and increase the chances of a deal closing. Be transparent Honesty is the best policy and transparency is essential when selling a business. It is critical to be open and honest about any issues or challenges that the company may be facing. This can include issues such as declining sales, high debt, or legal problems. Buyers will appreciate your candour, as it helps them understand the full scope of the business and make an informed decision. Presentable premises Ensure that your premises are always presentable. While (depending on the nature of your operation) this can sometimes be challenging, it is a great way of creating a good impression. Hire a professional Hiring a professional to assist with the due diligence process can be a valuable asset when selling a business. Due diligence is an important step in the sale process because it involves an investigation of the business’s financial and legal status before the sale is completed. Working with a professional such Remember that due diligence is also an opportunity for you to showcase your company and its potential to prospective buyers.” as a LINK Business Broker can help ensure that the process runs smoothly, and that all necessary information is provided. We also have access to some of the best lawyers, accountants and financial advisors in the industry. This helps us be absolutely certain that your business is best prepared and presented to prospective buyers and their due diligence professionals. By following these tips, you can help ensure that the due diligence process goes smoothly and that you are able to close the deal on your business. Remember that due diligence is also an opportunity for you to showcase your company and its potential to prospective buyers. SHINING SPOTLIGHT ON RESIDENTIAL PROPERTY BRIGHT-LINE TEST Sellers of residential property in the last year may have got a surprise when logging into MyIR to complete their 2023 tax returns by the 7 July deadline. If Inland Revenue held information suggesting that a property sale during the year might have been taxable under the bright-line rules, the owner’s tax return may have been pre-populated with the property information, including purchase and sale dates. TAXATION > BY ANDREA SCATCHARD Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of Plenty. She can be contacted on ascatchard@deloitte.co.nz The bright-line test The bright-line test was introduced in 2015 to target residential property speculation. It imposes income tax on gains made from selling qualifying residential properties within a specific timeframe (subject to some exceptions including for a person’s main home). Initially the test covered properties sold within two years of acquisition, and in 2018 the government extended the period to five years. Then in 2021 it was extended to ten years (or five years for qualifying new builds). Property owners need to be familiar with these rules and understand which bright-line period applies to them in order to limit any unexpected tax liabilities. Does the bright-line test apply to you? Despite its ostensible simplicity – if you buy and sell residential property within the relevant bright-line period and no exemptions apply, the gain on disposal is taxable – the bright-line rules can be incredibly complicated to apply. We have different bright-line periods and main home exemptions applying depending on when a property was bought, and there have also been recent changes to the rollover relief rules which can apply to allow some tax free transfers of land where these isn’t a change in economic ownership without resetting the bright-line period applying. Inland Revenue is watching The extension of the bright-line period from five to ten years means that more residential property transactions are potentially taxable than before. Inland Revenue uses various measures to identify property sales that may be taxable and to ensure owners accurately report property sales. Inland Revenue’s compliance activities include: 1. Communication: Inland Revenue has been proactively communicating with taxpayers, providing guidance and information about the bright-line test and associated tax obligations. 2. Data Matching: Inland Revenue collects and analyses property transaction data from LINZ and compares it to income tax returns filed. The land transfer tax statement completed by both parties to every property transaction includes the IRD numbers of the buyer and seller and requires both parties to indicate whether the property will be, or was, their main home. This data is being used to pre-populate income tax returns where suspected bright-line sale income has been derived. Around 22% of the 1.7 million land transfer tax statements completed since January 2020 indicated the property was the seller’s main home, leaving a large number of sales potentially subject to tax. 3. Auditing: Inland Revenue targets property transactions to ensure property owners are complying with their tax obligations. Inland Revenue has conducted over 6,500 property audits in the last 3.5 years and assessed additional tax of over $350 million. These measures are all aimed at helping property owners get it “right from the start” when it comes to paying tax on their property sales and to encourage voluntary compliance. It is important that you complete the land transfer tax statements accurately for any purchase or sale of property, and that you carefully review and update if required the details of any pre-populated property sales that Inland Revenue thinks might be taxable. If you have made any taxable sales that Inland Revenue may not already have information for, these need to be manually added into your tax return. We may see future changes to the bright-line rules depending on who holds power after the election. In the meantime though, residential property owners need to understand the rules if they are considering buying or selling property. If you need help determining whether the bright-line rules apply to you, it is recommended you seek professional advice from a tax specialist.
July 2023 BAY OF PLENTY BUSINESS NEWS 13 Food, glorious food… with a twist of IP I hear there’s a new app called Sense of Humour – maybe you should download it? Chris Hipkins and sausage rolls – today I heard angry condemnation of Chris I’s supposed promotion of sausage rolls as a healthy eating choice … really? I suggest he’s not saying everyone in New Zealand should eat more sausage rolls, he was merely pointing out that, much like every Labour leader before him I’m sure, sausage rolls are unavoidable when doing the rounds New Zealand’s Country Women’s Institutes. And they actually taste quite nice. It’s life in New Zealand. Whether you vote red or blue, or green or beige, sausage rolls are unavoidable. Please give him a break on this one! And the other Chris, Chris II, is not immune to the vicious barbs of humourless critics either – his off-the-cuff quip (in acknowledgement of the fact New Zealand’s population growth is no longer adequate for optimum economic growth) that the audience should ‘go ahead and have more babies’ was met with criticism that he was ‘outrageously dictating social policy and promoting anti-abortion policies’ – please people, it was a joke. Seriously, a joke. I know politicians twist the truth, obscure facts, avoid HAVE YOU EVER NOTICED? > BY ALAN NEBEN Alan Neben is a Mount Maunganui local and experienced New Zealand publisher. His columns provide a light-hearted perspective on social changes effecting New Zealanders. answering the question, shamelessly criticise every aspect of opposition policy, kiss babies and pat dogs purely as a photo op’ (even if they hate kids and are allergic to pets), but they can still have a laugh … can’t they? Perhaps the question should be, “Can ‘we’ still have a laugh?” Are we now all so angry that we can’t take a joke? How dull. How utterly depressing. We in the media must accept a large part of the responsibility for the de-humourising of our politicians. The media has trained the public to zero-in on missteps and characterised humour as a misstep. On the other side the middlemen and middlewomen: the media minders, media trainers and press officers – the ones who baby-sit the politicians and tell them what to say, how to say it, when to say it, and what to definitely not say – have a lot to answer for. Most politicians have been trained to not to make a joke, to not use humour for fear it be misconstrued or worse, misappropriated and weaponised. Unlike a good lawyer who advises his client to say nothing, the media manager insists the politician say something, but just not the wrong thing. “Stay on message – and remember the message doesn’t include humour or satire. Don’t be sucked into answering the question, because the question is designed to make you look untrustworthy or stupid. Instead stay on message. Don’t worry if the message has no relationship whatsoever to the question.” Maybe that’s why when a delusional buffoon like Trump finally comes along with the self-confidence to say, “I know better than anyone, one plus one equals three, and black is green,” a large portion of the constituency says, “Finally, a guy who doesn’t play the game scripted by manipulative political stage managers – he’s our guy because he’s authentic. We can trust him.” Ironic. My advice to political media managers: allow your clients to be authentic – some voters quite like it. To the public: if politicians are funny, it’s okay to laugh at their jokes; if they make a mistake, consider the context and maybe cut them some slack, even if they are not on your team. Food, glorious food! Hot sausage and mustard! While we’re in the mood - Cold jelly and custard! Peas, pudding and saveloys! What next is the question? So sang Oliver and his fellow workhouse orphans in the timeless classic, Oliver! The same or similar words may have been (but most likely were not) uttered more recently, in somewhat different circumstances, by attendees of Fine Food NZ 2023 in Auckland, where I had the privilege of presenting a seminar on using IP rights to maximise competitive advantage. My seminar addressed three topics: • How creative thinking from the start can get you ahead (a recipe for success); • How ongoing creative thinking can keep you ahead (a recipe for continued success); and • The dangers of ignoring the power of IP (a recipe for disaster). In this issue’s article, I summarise my presentation on the first topic – how creative thinking from the start can get you ahead. When it comes to food (and beverage) products, broadly speaking there are three drivers of creative thinking: customer needs – the needs of, for example, supermarkets; consumer needs – the need to meet, for example, changes in consumers’ palettes; and business needs – the need to survive and thrive in business. In meeting all three needs, a well-crafted intellectual property strategy can help maximise INTELLECTUAL PROPERTY ISSUES > BY BEN CAIN Ben Cain is a Senior Associate at James & Wells. He can be contacted at 07 928 4470 (Tauranga), 07 957 5660 (Hamilton), and ben.cain@jamesandwells.com the potential of your business. So what do you need to consider in crafting an IP strategy for a food (or beverages) business? My suggestion is to consider, from the outset: • What IP assets (rights) might be available to you – in NZ and overseas if you plan to export – and how to acquire them; • What registrable IP assets do you want to acquire; • What registrable IP assets do you need to acquire; and • When can, do or must you acquire your IP assets. In my experience, the most common registered and unregistered IP assets that are available and are used by businesses in the food and beverage industry are trade marks (registered and unregistered), industrial copyright (unregistered), designs (registered), get-up (unregistered) and trade secrets (unregistered) (for example, recipes). Of these, registered trade marks (more specifically, certain types of registered trade marks) and registered designs are currently significantly under-utilised in New Zealand. In relation to registered trade marks, most, if not all, businesses will be aware that you can register words and logos as trade marks, but how many are aware they can register three-dimensional shapes, colours, smells and even tastes as trade marks and, more importantly, seek to do so? Judging by the relatively small number of shape and colour trade marks on, and the complete absence of smell and taste trade marks from, the New Zealand Trade Marks Register, my guess is not many – which means a lack of awareness. Either that or the reason is a lack of willingness due to the potential cost of acquiring registration, which can be (but is not always) significant. My personal guess is the former. As for registered designs – which are available to protect the shape, configuration, pattern or ornamentation of physically manufactured items, these appear to be equally under-utilised by food and beverage businesses. Again, the issue could be a lack of awareness or a lack of willingness, again perhaps due to cost. Registered designs do not cost very much to acquire, however, which suggests lack of awareness rather than cost is to blame. Whether awareness or cost is the culprit, I encourage businesses in the food and beverage industries to make themselves aware of and engage with the opportunities to acquire registered IP assets that are available to and used by them – no matter how tricky it might be to acquire them. By doing so, they may acquire competitive advantages that will get them ahead, and aid them to stay head, of their competition. Tauranga real estate: market in review By ALAN NEBEN Tremains Real Estate hosted a breakfast at their Tauranga offices on 21 June in conjunction with the Tauranga Business Chamber to talk about the state of the local real estate market. Bay of Plenty Business News spoke to Tremains’ sales consultant Deborah Peake and managing director Anton Jones after the event. Deborah was the main presenter and was pleased at the turnout for the early morning breakfast. “About 30 people attended and there was a good cross-section of professionals, from finance and banking executives to insurance companies and law firms. “Having those interested parties in the room meant there was a good energy,” she noted. This year has seen the first significant dip in property prices in the Bay of Plenty in the last 14 years. Huge growth of Tauranga, along with limited land supply, increased building costs and increased interest rates have made navigating the market seem like a bit of a mine field for buyers and sellers. But Anton suggested it’s not all bad: “It’s a changing landscape and that change certainly has been dramatic in the last two years. As interest rates have risen we’ve all been bought down to earth. But that is only temporary, and median prices now are only back to January 2021 levels so there is certainly some cause for optimism.” Deborah provided a general overview of the market’s growth, particularly over the last 5-8 years, which only really slowed briefly with the arrival of Covid, before picking up again quickly. The current correction began 18 months ago, with the Credit Contracts and Consumer Finance Act (CCCFA) changes, rising interest rates and inflation, but Deborah was quick to point out that despite the correction, the house price index on the whole is still trending up when we look back to pre-Covid levels. “When measured over the last couple decades, the house price trajectory is still moving upward – that’s a positive message I’m giving to those who may be feeling despondent,” she said. According to Anton, “The government’s removal of interest tax deductibility, then the implementation of healthy homes regulations effectively added significant cost for investors. “Recent interest rate hikes have exacerbated that situation and in 2020-21 many started selling their rental investment properties, due to the lower return against higher values. “On top of these pressures, first home buyers have also been daunted by increased interest rates in the last 18 months. “Fortunately, we’re now seeing more first home buyers starting to enter the market again,” he noted cautiously. Deborah pointed out that the tightening of the CCCFA lending rules at the end of 2021 didn’t help home buyers, but recent easing of those requirements has provided more stimulus. She said interest in the first home buyer segment is strong at present. Are we at the bottom of the market yet? “While some buyers are effectively speculating that we are and starting to buy again, we can’t say definitively that we’ve reached the bottom of the market until months after that point has been passed. “That’s the conundrum we must all face,” concedes Anton. “Although listings across the market are down right now, something we often see seasonally as winter kicks in, the election and the advent of spring will undoubtedly affect things later in the year meaning more of a plateauing of the market from here instead of large falls or rises.”
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July 2023 - Bay of Plenty Business News

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