Provision Newsletter

By Flying Solo contributor John Refalo

For many people starting a business is a dream but, at the same time, a significant risk when not done properly.

While we see a number of clients citing issues with the Tax Office as the catalyst for problems that upend them, there’s many reasons why a business can fail.

Let’s now explore what I believe are the five most common reasons why businesses fail.

1. You had poor planning

We may be sick of that saying “Businesses don’t plan to fail, they fail to plan” but this rings true. This is why we need a business plan—a good start is the template found on www.business.gov.au. To summarise quickly, a business plan is a document that goes through every aspect of your business, from establishing your vision and mission statement, to industry analysis and all the way to specifics like budgeting, employees, and expenses.

Spending adequate time creating a business plan will give you complete understanding of your business. You may be reading this now thinking “I am the owner … of course I know my business”. That may be true but a business plan forces you to:

• Consider your capital requirements;

• Define the direction that your business is going to take (vision, mission statement);

• Examine how your business is perceived in the market (quality, cost);

• Consider how you set yourself apart from your competitors (unique attributes);

• Deal with current and future threats to your business;

• Manage your income and expenses through budgeting;

• Consider finance arrangements to fund your part or all of your business;

• Consider opportunities in the industry/economy; and

• Define the employees’ roles and who is responsible for helping you achieve your direction.

This document is so important that even the banks require it when providing finance!

And while it’s up to you if you adopt one to this extent, or at all, spending some time looking at this (at least once a year) will hopefully change your focus on the ‘what’ you do in business to ‘why’ and ‘how’ you do business.

2. You failed to budget

Simply put, a budget will quickly tell you if you should be in business or not. It maps out your income and expenditure over a period of time which is especially crucial for those businesses that have cyclical or seasonal fluctuations (i.e. hospitality, agriculture, etc). By estimating the amount of revenue, or the peak periods when revenue is generated, businesses can see how much revenue is needed to keep the business alive during the slower months. On the flip side, focus on expenses is just as important (paying employees, meeting financial obligations, paying taxes) because it highlights what a business can afford.

3. You forgot to collect your cash!

Unless you are a ‘Not-for-Profit’, you are in business to make money. So when you complete a job, you expect to be paid for it … right?

These days, a lot of businesses operate on credit terms – sometimes necessary to secure customers. But when payment is due, a number of businesses are not doing enough, if anything, when collecting their debts!

I recently worked on the administration of a plumber that had a majority of ‘mum and dad’ customers on credit terms on its books accounting for $60,000 which was overdue. Had the owner followed up his customers and collected this amount, a lot of his short-term cash flow problems  could have reduced.

4.  You took (a big) wage

Business owners usually have a lot of sentimental attachment to their business, and for good reason. Some people pour their blood, sweat and tears into it. It’s for this reason that some business owners will use their business’ money as if it was their personal bank account.

This can have pretty serious consequences. For example I have seen businesses been used to pay for personal holidays, lavish lifestyles, mistresses, mortgage repayments and even a burial plot!

Diverting money from the business’ needs and focusing it on your own, limits the money available to grow your business, let alone to trade it! So next time, take a (reasonable) wage and once it hits your bank account, do whatever you want. We will revisit the seriousness of these personal transactions using a business’ funds in a future article.

5.  You didn’t set your price appropriately

A tricky question for business owners is: how can I price my product or service so I cover my costs but at the same time stay competitive? This is important because properly pricing your product or service determines how much profit you can make.

Specific budgets can help here on project-focused work where materials and labour are estimated, a percentage of meeting overheads (those costs not directly attributable to the job), provisions, and then applying a margin (a formal way of saying “the cream on top”).

If business owners take the time to price appropriately, they can see where their costs are being incurred and, more importantly, if they are undercutting themselves. There is no shame in walking away from a job because it is not profitable.

While there are many other issues that can be attributable to business failure, the above issues are what I believe are common for business owners, especially those starting out.

Source :Flying Solo  February 2019 

This article by John Refalo is reproduced with the permission of Flying Solo – Australia’s micro business community. Find out more and join over 100k others.

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Are you among the investors asking themselves: Is a radically new investment strategy warranted to deal with the challenging investment mix of continuing low interest rates, higher market volatility and subdued returns from diversified portfolios?

To the contrary, Vanguard’s economic and market outlook for 2019 and beyond emphasises that disciplined, diversified and patient investors who concentrate on factors within their control are likely to be rewarded over the long term.

In other words, the case for adhering to sound investment practices is compelling and a radical new approach is not needed.

Vanguard’s latest outlook warns that investors making short-term tilts to their portfolios’ asset allocations in an attempt to boost returns are unlikely to “escape the strong gravity of low-return forces in play as they ignore the benefits of diversification”.

In short, take a total-portfolio approach to investing rather than looking at different asset classes in isolation.

Further, the report suggests that a series of factors under investors’ long-term control are likely to “far outweigh” ad-hoc, short-term tilts to a portfolio.

Such under-your-control factors include:

• Save more: The straightforward strategy of saving more when possible can have one of the biggest impacts on the likelihood of our investment success. For many of us, this may begin with increasing our salary-sacrificed super contributions.

• Spend less: Our ability to reduce spending much depends, of course, on our personal circumstances. Yet many of us can keep a better control on our spending. And minimising investment costs should be a key focus of investors.

• Work longer before retiring: A longer working life, if feasible, provides a chance to save more for what will be a shorter and, therefore, less-costly retirement. And the continuing income from working past traditional retirement ages should help investors cope with a low-interest, subdued-return and more volatile investment outlook.

The adage that investors should concentrate on what they can control – not on what they can’t – makes even more sense when investment conditions are more challenging. A shiny new approach to investing is not required.

Please contact us on |PHONE| if you require further discussion on this topic .

Source : Vanguard January 2019 

By Robin Bowerman, Head of Corporate Affairs at Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page .

As Australia’s $2.8-trillion super system attracts even more headlines than usual, more people may mistakenly assume that almost everyone in the workforce is covered by at least compulsory contributions.

In reality, the position is far different.

A research paper* from the Association of Superannuation Funds of Australia (ASFA) reminds us that a “substantial proportion” of Australia’s workforce is self-employed and therefore does not receive superannuation guarantee (SG) contributions.  

In other words, they are out in the super cold – unless they are among the small minority of the self-employed who make voluntary contributions or who have built-up some super savings from past employment.

Based on Australian Bureau of Statistics data, ASFA’s paper points out that 1.267 million people or about 10 per cent of our total workforce, as at August 2017, were owner-managers of unincorporated small businesses as their main occupation.

And the percentage of the workforce that is self-employed and uncovered by compulsory super contributions is expected to rise with the seemingly-relentless growth of the gig economy.

Here’s another key statistic. Some 20 per cent of the self-employed have no super whatsoever compared to 8 per cent of employees.

Critically, any super held by the self-employed is often extremely small, arising from whenever they have been classified as employees and eligible for compulsory contributions. Often, their modest super savings arise from the time they first joined the workforce and from occasional employment.

It seems paradoxical that the self-employed are among the most enthusiastic supporters of self-managed super when the majority of the self-employed have little or no super.

What can a self-employed person take to make that they don’t miss out on super? Here are a few tips:   

• Try to make regular contributions as if employed: Think about making contributions that are at least the equivalent of the compulsory contributions you would have received if employed. (The superannuation guarantee rate is currently 9.5 per cent of an employee’s ordinary earnings up to a maximum salary amount.)

• Claim a tax deduction for concessional contributions: The self-employed can claim tax deductions for their concessional (before-tax) contributions. The annual concessional cap for all eligible super fund members is $25,000. (Concessional contributions comprise compulsory contributions, salary-sacrificed contributions and personally-deductible contributions by eligible self-employed individuals and investors.)

• Contribute early, contribute often and contribute as much as you can afford:  By following this disciplined approach, you will reduce the chances of being left behind employees with your super savings.

• Look for opportunities to contribute more: If you receive, say, an inheritance or sell a non-super investment, consider contributing some of the money to super within the contribution caps. (The standard non-concessional, after-tax, contributions cap is $100,000 for 2018-19. Fund members under 65 have the option of contributing up to $300,000 in non-concessional contributions over three years, depending upon their total super balance.)  

• Think carefully before cutting your contributions if cash is tight: A temptation for the self-employed is to cut super contributions if business cash-flow becomes tight. Consider the long-term implications for your retirement savings of reducing your contributions; there may be other ways for your business to save money.

• Don’t overlook the insurance side of super: Most Australians with life and permanent disability insurance obtain at least default cover through their large super funds. And many of the self-employed also choose to hold income-protection insurance through their funds.

• Aim to obtain asset protection with super: Self-employed business owners sometimes seek advice about how their super savings may be protected in the unfortunate event of a future bankruptcy – subject to claw-back provisions in bankruptcy law.

• Watch for a gig-economy super trap: Understand that employers are not obliged to make super guarantee contributions for employees earning less than $450 a month before tax. This means, for instance, that employees making up their incomes doing a number of part-time jobs for different employers may fall below the threshold for each.

• Guide young family members towards super: If you have young family members working in the gig economy, perhaps in a series of part-time jobs, consider talking to them about the benefits of making voluntary super contributions.

Most of us have probably heard a self-employed business owner say “my business is my super” or similar words. Their expectation is often to eventually sell their businesses to raise enough capital to finance their retirement. But how realistic are those expectations?

As a past ASFA research paper points out that while some of these businesses may have a value of “a million dollars or more”, others may be worth may worth “little more than the market value of a second-hand utility or truck and some tools of trade”.

*Superannuation balances of the self-employed by Andrew Craston, Association of Superannuation Funds of Australia, 2018.

 Source : Vanguard February 2019 

By Robin Bowerman, Head of Corporate Affairs at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

How to keep your finances on track once you leave the workforce

When you’ve worked hard all your life to build up your nest egg, the last thing you want to do is fritter it away too quickly. In this article, we look at the common money mistakes people in retirement make, and how you can do your best to avoid them.

1. Not taking control of your super

It’s important to know what your options are for getting access to your superannuation when you retire. You can take it as a lump sum, an allocated pension or an annuity. Learn more about accessing your super and then speak to a financial adviser to find out what’s right for you.

2. Not knowing your entitlements

Don’t make the mistake of not knowing what payments you’re eligible for in retirement. This may include government benefits, such as the Age Pension, carer’s allowance or disability support through to concessions on health and travel.

3. Spending like you’re still working

Dipping into your savings or your super money regularly will soon whittle away your hard-earned savings. Find out about ways to manage your money in retirement to help you free up your cash flow and keep an eye on your expenses.

4. Not managing your investments

Just because you’re retired, doesn’t mean you should be complacent about your investments. It’s important to consider your personal situation.

5. Not managing your debts

Consider all your options for reducing your debts, as you may not have enough funds to last you through your retirement. Be careful about paying too much interest on your debts. If you need to pay off your home loan, make sure you’re aware of how selling your home or investment property affects your entitlements.

6. Spending your retirement savings on the kids

If you plan to give money to your children (or grandchildren) to help them out financially, be aware of how gifting or going guarantor might affect your tax and your lifestyle in retirement.

7. Letting your insurance lapse

It’s tempting to reduce your outgoings in retirement by cutting back on things like insurance. But before you do, consider that almost 62% of AMP insurance claims were made by people over age 50 in 20171.

8. Taking expensive holidays

Make sure your choice of destination fits within your overall budget, bearing in mind you need your money to last the distance in retirement.

9. Buying a new vehicle

When you retire it’s very tempting to use your super to buy a new car to last you through your retirement. If you’re serious about watching where your money goes, you might want to think about making your current vehicle last a bit longer, but you’ll need to weigh up the maintenance costs versus buying another one.

Your retirement is in your hands, so try to make the most of the money you’ve got and invest wisely to make it last. But don’t forget to take care of your health to give yourself the best chance of going the distance in retirement.

Please contact us on |PHONE| if you seek further assistance .

Source : AMP January 2019

1 AMP claims paid 2017.

Important information:This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 13 30 30, before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person 

Ever wondered what retired Australians wish they’d done differently earlier in life? Find out more here.

Life is a series of moments. The day you get married. The day you take the keys to your first home. The day your child comes into the world. The day you wake up retired for the first time.

When it comes to something as big as retiring after a lifetime of hard work, it’s hard to get all the decisions right. So it’s natural to want your time over again. After all, hindsight is a wonderful thing.

Investment Trends put together a regular Retirement Income Report that gives a fascinating insight into how Australians are getting ready for life after work.

The top three changes people would make are all about saving more and saving for longer.

1.   44% said they should have made extra (or earlier) super contributions.

2.   25% said they should have started investing earlier in life.

3.   And 24% said they should have saved more outside super.

Here are some of the other changes people would make about their planning and saving for retirement if they were starting their working life again.

4.   Learn more about my finances

5.   Retire later

6.   Buy an investment property sooner

7.   Learn more about how much I need in retirement

8.   Get financial advice from a financial adviser

9.   Buy a home sooner

10. Leave more money in super when I retire

11.  Invest in safer assets

12.  Learn more about how much I could receive in retirement

13.  Consolidate my super funds earlier

14.  Change investment options within super

15.  Buy insurance sooner

16.  Get financial advice from my super fund

17.  Change super funds

18.  Invest in riskier assets¹.

Postcards from retirement

On the face of it, the good news for those of us approaching retirement is that just over half the people surveyed said they ended up retiring earlier than they had expected. But unfortunately, this wasn’t necessarily a planned choice, with health issues and redundancy cited by many respondents.

It shows that your retirement planning needs to be flexible enough to take into account unexpected illness or a change in your job situation before your intended retirement age.

And what about the rest of the survey respondents who ended up retiring later than they expected? A slim majority (55%) actively wanted to stay in the workforce, either full-time or part-time, while others cited financial reasons.

• 20% said they didn’t have enough money to live comfortably

• 10% said they wanted to save more and rely less on the age pension

• 8% said their investments hadn’t performed as they expected

• 6% said they still had debt to pay off

• And 4% needed to support their children financially for longer.

Retirement worries

AMP recently asked retired Australians what worried them the most in retirement. Again, the responses were varied—everyone has their own individual story. But what shone through were three overriding concerns—health, family and money.

• “Lack of purpose.”

• “Children and security and old age and health.”

• “Will my accumulated saving last?”

• “If I will outlive my money…in particular cost of electricity and health costs.”

• “Having enough income to live the lifestyle I live at present.”

• “Making sure we have sufficient means to live with dignity.”

• “Losing my independence.”

• “Having to balance risk and return with investments.”

• “Ensuring we have enough money to live on and ensuring the family is looked after.”

• “Running out of money too soon.”

What do I need to know before I retire?

The Retirement Income Report highlights the fact that Australians who feel better informed about their retirement tend to feel better prepared for it.

There were four main areas that people were keen to get more information on how to better prepare for life after work.

1.  General retirement adequacy—how much money they’ll need to retire on

2.  How to manage their finances in retirement

3.  Old age issues

4.  Using their home to fund retirement and insurance.

The most common sources people are turning to for expert assistance are financial advisers (35%), super funds (28%) and accountants (13%).

Ways to plan for retirement

Like any new chapter in your life, preparation can go a long way, so there’s no time like the present to start planning for your retirement. Here are some tips to get you started:

• Read a quick checklist to help you get ready for retirement.

• Work out how much money you might have and how long it will last in retirement 

• And if you’re looking for some inspiration about how to approach retirement, watch Adam Spencer travel around Australia to hear some valuable words of wisdom .

Mind you, with all this looking back, it’s heartening to know from the Retirement Income Report that one in four Australians wouldn’t change a thing…even with the benefit of hindsight².

Please contact us on |PHONE| if we can be of assistance on this topic. 

Source : AMP January 2019 

1 Investment Trends. Retirement Income Report, October 2016.

2 Investment Trends. Retirement Income Report, October 2016.

 Important information:This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 13 30 30, before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person