Finance

We recently sat down and watched the 2000 movie Chocolat and a quote reminded me of an adage of small town (and I am from a small town) which can relate to business.

        “If you lived in this village, you understood what was expected of you. You knew your place in the scheme of things, and if you happened to forget, someone would help remind you”

There are plenty of people around offering advice and direction. Accountants, business coaches even bankers and financial planners not to mention your mates in the pub. But who is the right one to listen to and when is the right time to seek advice? For many of us we are in our niche dealing with our circumstances, quite nicely thank you, but there are times when circumstances drag you so far out of the circle

I recently was speaking to a new client and she was contemplating giving some money to her son but was worried because someone had suggested to her that there would be a gift tax pertinent to the transaction. I asked where she got this idea – it was from a friend at a social engagement she had attended. The source had been quite convincing in their advice and had disturbed my client who was wanting to look after her son who was struggling and she had recently come into a quite large inheritance and was in a position to do something about it. Gift tax in Australia – news to me but the client was convinced

The moral to the story – get specific advice from a person who should know the answer – taxes, talk to an accountant, future financial plans, an accountant and/or a financial planner, straightening out my business, an accountant or business coach etc etc.

Advice at times may not be cheap but as any readers to this blog will know, we postulate “failing to plan, is planning to fail” and with any plan the appropriate research is required to ensure the right outcome.

Back to the story – the client is receiving a significant inheritance and wanted to divest herself of some of the money (and help her son) so there were tax implications but they were more along the lines of capital gains tax, revenue tax from extra income that would be generated from the assets being transferred and a social security issue from the change in circumstances. Further to that there was the issue of security of the inheritance from outside creditors – so we sought some advice as to securing debts, trusts and prolonging control through the conditions that could be imposed in her will. On top of that there was a nagging reminder that most of Australia’s Lotto/lottery winners of major sums are broke within three years. The change in circumstance tends to negate the control that may have been there prior to the windfall. Again with the assistance of a financial planner we took advice based on her “real risk aversion” (as opposed to the freedom apparently created by the inheritance) and set up a structure that would continue to do what was required and the plan included some of the luxuries that perhaps were not available prior but we set into a plan to ensure ultimate survival.

The good ending to the story was that after she had gotten over the shock of inheriting such a large sum she took the time to ask herself can I do this myself – answered no, and sought appropriate advice and that advice started with friend suggesting a call to Banks Consultancy.

This week I am taking a quote from the 1984 movie The Karate Kid

      “First learn stand…then learn fly…nature’s rule..Daniel-san, not mine”

The sentiment here is for life and as a business commences and grows the same principles apply.

We start with a concept, we do our research, we make the plan, we get the right advice, we gather the resources, we set up an appropriate structure and we start. If this is the general scheme of things then why do so many small businesses fail in the first three years of commencement?

The attention to the details I feel is the answer. Too many small business that “fail” in some cases got too big too quickly. They exhaust resources in an attempt to chase that next sale when in fact completion of the previous one may have been a better strategy. In many ways it’s the difference between a sales person’s definition of a sale and an accountants – the sales person sees the sale as completed when the order or the hand shake comes whereas an accountant may see it as the day the money has hit the bank and the relevant expenses paid (including the sales person’s commission?).

The details – ensuring what has been ordered is delivered, ensuring the customer feels they have gotten value for money all are integral parts of the smooth process of a sale. While the sales person is off chasing that next sale the poor accountant trying to collect the debts struggles with issues created through no fault of their own.

Getting back to our quote the learning to stand also means learning to understand what we are and what factors affect our ability to stand. Review and interpretation of results can often give greater insights into the success or otherwise of a business. Merely reading a profit and loss without analysing the balance sheet can at times give rise to poor decision making. We at Banks Consultancy suggest clients look at their cash profit & loss (easily generated from MYOB assuming that is your accounting program of choice) rather than just the accruals accounts to see the effect that collections and payments have on cash flow.

The clients who are presently flying do not just tirelessly work in their businesses they are the ones who understand their businesses and spend the appropriate time working on their businesses – sometimes with us and sometimes with other targeted consultants.

It’s not rocket science but like nature there are rules.

I was watching one of the classics this week – the 1968 Beatles epic Yellow Submarine and although a little cockney the following quotation hit a note (sorry for the musical pun)

“H is for hurry, E is for ergent, L is for love me and P is for please help! So, what do ya think?”

If HELP is an urgent cry for love in a hurry why then in business is it so often overlooked. Are we too proud or are we hiding a failing or an expectation HELP in the form of consultants is too expensive?

As I have said before cash flow is everything in business. Without it businesses will eventually die no matter how much in resources it may be able to call upon. If you feel your business cannot afford a targeted consultant for a specific issue there are many free services run by Councils and government agencies that may be able to assist. The advice tends to be general in nature but it might put you on a track that will clarify your concerns or allow you to realise where you need your HELP rather than just thinking you are alone.

Small business can be a very lonely place and networking functions can be an excellent way to meet customers or others in the same boat as yourself facing the same issues. I urge all small business owners to get amongst networking groups like BNI or as many of my readers would know I am a director of Pittwater Business Limited an organisation with a mantra of “existing to connect, promote and develop our businesses by networking, education and socialising” that among other things runs a bi-monthly breakfast (usually with more than 150 attendees) with not only networking opportunities but excellent and relevant speakers.

To say you are not alone would be an understatement. It is all there and I would suggest waiting for you – all you need to do is ask.

Rather than a movie quote, I thought given I attended the IPA (Institute of Public Accountants) National Conference in Sydney this week, I would use a quote paraphrased by one of the speakers. The quote is attributed to Albert Einstein (1879 – 1955)

“The hardest thing in the world to understand is the income tax”

An interesting quote coming from one of the most brilliant and celebrated of minds.

Taxation in this country is complex with many levels of direct and indirect charges. Our job as professional advisors is to assist clients through the myriad of laws, compliance issues and regulations, with the expectation that we (accountants) know everything about all taxes. If you think that then you are in the wrong place and I defy any individual in the accounting profession to honestly suggest they are an expert in all things taxation – but that is not the point.

Over many of my posts I have suggested it’s all about the plan and the taking the business issues by the “scruff of the neck”, working on your business rather than in your business and seek out advice where you need it. Successful business people will tell you at times “it takes money to make money”, nothing is more true than in taxation. Structural advice at the start of an undertaking on the best vehicle to use for your venture comes at a price as does the structure – the more complex the greater cost to establish and maintain. I have had a number of clients and potential clients baulk at the cost setting up a structure that would best suit them and cringe at the cost of the advice given. If you are going to play in the business garden you need to think like a business person. To open a business and get it to profitability takes time and money and if you do not have enough reserves to get yourself to that point then you should take stock of your thoughts and potentially change your mind. Too many failed businesses are a result of under capitalisation and rose coloured and/or blinkered glasses.

I would also suggest many potential entrepreneurs do not (or in some cases do not want to) understand the effects of taxes on their businesses. Moaning that taxation is too hard to understand is a cop out – there are two things in life that are certain so we are told – death and taxes – so get used to it. We as business people need to factor into our cash flow estimates the effects of taxation be it GST (we are collecting as unpaid tax collectors), PAYGW (we are deducting from the wages of our employees) or direct income tax (the consequence of making a profit). If we suggest we are business people then we can’t just do the business. Its only half the job.

At Banks Consultancy, like most accountants, we spend a great deal of our time attending to compliance issues of clients – financial statements, income tax returns, BAS statements and the like – but we also assist clients with planning and review. Our busiest time is not the July to October “tax season” but rather the April to June run up to the end of the year where we attempt to get around to all our business clients who want the service to review the first nine months, project the last quarter and plan the year end to ensure taxes are minimised (not avoided) and structurally everything is being done, with plans put in place to ensure no surprises come tax return lodgement time. Do you ask this of your accountant or do you simply react to a bill once it comes, perhaps 9 months after year end. If not, why not?

We might not know absolutely everything taxation but we do know business.

This week we look to a more obscure movie – the 1996 movie “Jack”

    “What do I want to be when I grow up? Alive”

The balance between work and family is often difficult to keep in balance – everyone understands that but there is also a balance between working on your business and working in your business that also requires delicate balance.

If we don’t get this balance right your business may be the one that ends up not being alive. One of the unique selling propositions (USP) about our firm, Banks Consultancy, and which is part of our mantra, is centred around ensuring compliance with taxation lodgements ie tax returns, BAS etc. We have found that more and more we have to go out of our way to remind business owners of their obligations to comply with lodgement demands. Many people are simply “too busy” to attend to the lodgements whilst others are concerned about the cash strain a lodgement will incur.

There are two aspects to the taxation debate, the lodgement of the required returns versus the payment of the liabilities. In most cases it is the late lodgement of the returns that brings about fines from Australian Taxation Office not the late payment of the bill (although these may incur interest).

In business today we need to place increasing emphasis on cash flow, and, should it be very tight, why incur penalties we could avoid by simply lodging returns on time. The preparation of a BAS or a tax return can give a business person a chance to have an insight into the performance of the business. A quick review can be a chance to check cash flows are suitable for survival and nip any issues in the bud so to speak. Small businesses invariably do at least a quarterly BAS if not monthly – surely a chance no matter how cursory to lift up the phone or speak to the BAS agent or the accountant preparing the BAS and ask how are we travelling to make sure that the result they give passes reality and the results agree to your expectations. We at Banks Consultancy also like to finalise as many tax returns with the 4th quarter BAS to ensure clients know exactly where they are at and what potential liabilities are in store.

It comes back to planning and reviewing – a most important part of being a business person

We again visit the 1995 movie The American President. In a heated debate about an issue of character assassination the following we made:

    “Statement
     People want leadership, they want it so bad that they will crawl across a desert toward a mirage and
     when they get there, they are so thirsty that they drink the sand.

     Response
     People don’t drink the sand because they’re thirsty Lewis, they drink the sand because they don’t
    know any better”

Business is all about competition. At a basic level we compete with our customers as we battle to entice them to use our services of buy our goods. We also may have competitors – those who we perceive are threats to our businesses. The threat may be that we sell the same product and the competition can sell at a lower price.

How do we turn that threat into an advantage.

At Banks Consultancy we took a long hard look at ourselves and asked why do clients come to us. The answers are: 1. Jeff Banks, 2. Jeff Banks passion, 3. Jeff Banks ideals. A bit of a common theme here but when you look at our mantra – we will talk in your language, we will reduce your taxation using all legal avenues available and we will drag you kicking and screaming to compliance – it all makes perfect sense. To me what’s the point of doing business if we don’t do it right. If we do not comply with the rules and regulations put in place by the governments we elected why be in business – why risk the consequences of poor business judgement?

Should we as business owners be too busy working in our businesses to afford the time to work on our businesses. We at Banks Consultancy constantly and actively harass our business owners to ensure they comply with taxation lodgements.

Should we as a community rape and pillage our markets in an attempt to gouge cash and lifestyle at the detriment of our social obligations to taxation etc. With the GST came an obligation to collect taxes on behalf of the government. Add to this all employers have an obligation to deduct taxes from the salaries and wages of employees and remit it to Australian Taxation Office. Without considering the entity taxation we may or may not incur we should not ever be in a position where we are delinquent in the remitting of these funds, yet we see many business using these funds to keep themselves afloat or worse being sucked from the businesses to maintain the lifestyles of the owners.

Has suitable planning gone into the business or similarly has the research been done into cash flow issues, issues of growth, capitalisation and sustainability which may have averted the need to “rob Peter (ATO) to pay Paul (creditors)”. It may be that you have a profitable business but is it cash flow positive. If you want to ascertain these and other questions of business management please contact us.

There endeth the sermon

I was watching one of my most favourite movies recently the 1995 Michael Douglas, Annette Benning movie The American President and a line from that most amazing diatribe towards the end of the movie where the president is talking about the women in his life and he reflects of his tribulations

“I lost one to cancer. I lost the other one because I was so busy doing my job, I forgot to do my job”

He is talking of course about the compromises and wheeling and dealing that needs to get done in the political arena and its effects on the moral cause. I have seen in business where estimators will continue to revisit quotes where margins are already slim just to get work when perhaps they may have been better served just moving to the next one. We need to keep sight of the end goal and in an economy where sales may be difficult to come by and margins appear to be shrinking perhaps we need to get back to doing our job for the betterment of those who matter.

The GFC and the post GFC economy have seen many businesses not survive and those that have may have been forced to compete in areas where perhaps they will live to regret. I have a client who took a look at what was happening as the GFC hit, reduced overheads significantly (including take home pay of directors), spoke to suppliers about their margins but refused to compromise on quality and pricing at their retail level. With margins intact they are keenly placed now the market is showing signs of improvement (albeit very limited signs).

I wonder what sort of rod we have created for our backs, now the GFC has supposedly past, through endless discounting of goods and services just to “maintain cash flow”. Will we be able to replace discounted prices just because “the worst has past”. I think the consumer may very well vote with their feet as those businesses who still feel the need to chase the turnover to survive believe they are continuing to survive and will out survive the competition. Healthy for our economy – I think not.

So getting back to my quote I think too many of us do business for business sake rather than looking forward to ensure the continued success of our creations. If you sell widgets or provide a service make it the best widget or service available that the market will want to buy and compete on quality rather than price.

Not so much a quote this week but a referral to a poem. A poem I grew up with was CJ Dennis “Hist!”

A poem that when you read it relates in may ways to business in today’s environment. A couple of kids starting out on an adventure to get home across Possum Park could very well be related to striking out in business and although they only have “A mile or so across the Possum Park” the feeling is the trail ahead holds many scary moments such as those that lie in wait for every business person in an economy pitching and leering from one bad news story to another.

Our intrepid park adventurers have taken some advice and need to “keep to the right”. To delay and lose their way will cause no end of heart break (In this case miss dinner or worse).

Each adversity they encounter causes fright and stress much like in business where apparent insurmountable odds always seem to be against us. Investigation and at times quiet reasoning at each conflict, maintain evenness through understanding and give rise to strengthening their resolve.

Finally “Look, see, Shining through the tree, A window light is glowing bright to welcome you and me” and the final verse “Laughed we did and chaffed we did and whistled all the way” – the brazen confidence that only ones who have survived can purvey. This brings me to wonder just how many of the those successful business people have not been as “scared” at one time or another in their intrepid trip to success. I think you might find (although few might readily admit it) there are times in all business people’s existence when doubt has set in. Will the cash flow be sufficient next week to pay the wages, is there enough demand for my goods and services to enable me to maintain my work force, is there enough margin in my quotations to ensure the survival of my family?

If you are unaware or uneasy about these types of things then talk to someone, get the advice you need and ensure the light at the end of the tunnel is not a train coming towards you.

This week we go to the 1980 movie Elephant Man

“I feel as if I’ve travelled my whole life, just to stand here”

I am sure many of us ask “why am I doing this?”. We work hard toiling away and for what – the token gold watch (after 25 years for employees). In business is it any different – yes, it should be as we are supposedly more in control of our destiny. We work harder than the employees, longer hours with lots of unpaid time (especially as collectors of GST on behalf of the government). That extra effort should not come at a cost it should come with reward.

If your plan does not encapsulate the reward phase then I respectfully suggest your business goals are wrong. There should be no time in business where, having travelled the road to success we do not know what to do with it once there. It might mean retirement with those millions we have managed to sock away in investments and superannuation or it may mean the crystallisation of the equity in your business and seeing it move into the next phase of its existence with someone else at the helm having purchased it from you. It should NEVER mean I have been in business all my life I have just turned 65 and I need to get an aged pension because I have no money.

Like I have said previously “fail to plan then you plan to fail”. But it’s not just the planning, its constant review of performance and realising of goals that is important. First it’s about the goal – what do I want – that’s a question for you. How do I get it – that may be where you need good advice either from an accountant (like Banks Consultancy), a financial planner or a business coach. Once you have a goal your plan can be put in place, tweaked where necessary, recorded and reported as required and most importantly savoured at its fruition.

Like the quote intimates work is not there just for itself, it’s a means to an end – to what end is up to you.