27 June 2017

Hey Boss, go sack yourself!

By Steve Marsten

It’s at this time of year we, the Directors of Sothertons, are heavily booked and working  flatchat. Often we hear from clients who say “We are working  our whatsits off but we don’t have any profit growth to show for it.” They also feel that they are not getting closer to their financial and lifestyle goals.

When you consider many people go into business for two main reasons:

  1. To have more control over their time and lifestyle; and
  2. To increase their wealth or cashflow.

Suffice to say that Business is also hard work for many. So why do so many people do it? The answer is because when you get it right, the financial and lifestyle rewards are unparalleled. Over the past 30 odd years working with businesses and business owners we have identified several keys to building a successful business and the first one is to “give yourself the sack!” You see, sometimes the biggest single critical success factor in your business is you and hence you are also the biggest barrier holding the business back!

All too often we think that the business relies heavily on us. We feel the business needs us to survive and hence it becomes your self-fulfilling prophecy – things couldn’t possibly run better without you there. And alas - you become trapped. Now this thought process is usually built on the fact that the business provides you a job as opposed to you building a business that supports you.

The key trick is to examine, develop and adopt ways to build a highly saleable business that provides good cashflows and profits, a solid customer base and an awesome team of people. The goal is to get processes in place that DON’T rely on the current owner. Now the fact is - this is the perfect business to own so many owners are unlikely to sell it anytime soon.

At Sothertons, we work with business owners to go through every aspect of their business to determine how to remove the “owner” from the system. This enables staff to be trained to follow the system. Success comes with having clearly defined processes to follow, within a supportive, high performance culture. Call us on 4972 1300 for more information.

20 June 2017

What is the true value of advice?

By Tina Zawila

At this time of the year, we are very busy providing last minute advice on how to save tax prior to 30 June.  And if you are a regular reader of our articles you will recall we recently covered our top tax tips for 2017. 
However, in today’s article I wanted to talk about the value of advice.  As advisors our challenge is to make the intangible, tangible, the invisible, visible.  The power of the spoken or written word can be invaluable but many fail to recognize it and appreciate it. 

Let me give you an example.  Recently during a tax planning consultation, I spoke to a young businessman about how to save tax before the end of the year.  There were various strategies discussed including contributing to superannuation.  As a self-employed person he is able to claim a tax deduction for contributions he makes to superannuation to save for his own retirement.  It is one of the only tax deductions available to you where you get to ‘keep the money’ (albeit in your superannuation fund).

This advice will potentially save him thousands of dollars this year in tax, but the real value is in the wealth creation opportunity of the superannuation contribution.  To illustrate, let’s do the math, $10,000 (the contribution after tax) invested today for 40 years with a compounding rate of return of 10% per year, will be worth over $452,000. If the interest compounds monthly, that total jumps to $537,000.

So is the value of the tax planning advice, the tax saved this year?  What about the value of the wealth created over the next 40 years? What would you be prepared to pay for someone to give you advice to suit your circumstances and needs?  What is the opportunity cost of NOT receiving that advice?

Of course I need to remind you that the concepts discussed in this article are general in nature, and you should seek individual professional advice to suit your circumstances.  In fact, that’s the message - seek advice!  Call our office today on 49721300.

13 June 2017

Do I pay my debt down in a low interest rate environment or borrow more?

By Steve Marsten

Many Australians face a heavy debt burden and they often faced the dilemma of whether to pay down debt with excess cash or to invest that money in an attempt to turn it into even greater amounts of wealth. The issue is - If you pay off too much debt and reduce your leverage, you may not garner enough assets to retire. Conversely, if you're too aggressive, you may end up losing everything. So to decide whether to pay down debt or invest, you must consider your best investment options.

I always believe your decision should be based on your after-tax cost of borrowing versus your after-tax return on investing. Suppose, for instance, that you are a wage earner in the 32% tax bracket and have a conventional 30-year mortgage on an investment property with a 5% interest rate. Because you can deduct the mortgage interest from your taxes, your true after-tax cost of debt is around 3.4%. So if you are not receiving a return greater then 3.4% after tax, on your investment, consider paying down the loan asap!

Further, private home loans don’t usually have tax benefits to the average taxpayer and in a falling property market many are often losing money. Hence the smarter option is to pay down this loan as soon as possible. This is especially true if the interest rates are low in the economy.

In this day and age it still amazes me that there are homeowners who are paid weekly (or even fortnightly) but continue to pay the home loan off monthly. You literally take years off the loan if you multiply the 12 annual payments by 12 months and divide it by 52 weeks to obtain your weekly commitment and begin paying weekly. If you can then round up amount by $20 or $50 or even $100 – that time frame contracts incredibly. Clearing your debt is a plus and given that you don’t realise a loss unless you actually sell your asset, it allows time for the asset to recover its value.

At Sothertons we are always assisting taxpayers and investors to get ahead with debt control strategies and investments. Call us on 49721300 for more information.

06 June 2017

Who's in your Circle?

By Tina Zawila

Last week I facilitated a lunch meeting with a group of local business owners as part of an accountability/networking group.  The purpose of the meeting was to discuss and hold each other accountable to make changes, to solve challenges, and to grow their businesses. 

What became clear from the outset was the willingness to help each other succeed.  Everyone was willing to offer feedback as a customer; to help solve a challenge; to offer a different perspective; and to identify both synergies and diversities between the businesses.  The sharing was open and honest and many new ideas were noted and formed from the discussion.

All of these businesses have operated throughout the turmoil of the changing Gladstone economy, but rather than being focused on what may have been and gone, all of them shared a bright vision for the future.  Albeit, a future which will require some sound business strategies and good old fashioned hard work to turn the vision into reality.

It is taking the time to work ON their businesses that will hold them in good stead to make the right decisions now, for the future growth and prosperity of their business.  They are taking the time to look at where they are now, what challenges they face, what opportunities exist, and where they want to be.

They are forming a circle of trusted advisors, mentors and peers to help them on their journey.  They are making promises to support and hold each other accountable to do what they say the will do. 

Most business owners recognize that being in business can be lonely.  These businesses are overcoming that feeling by being part of this group. Who is in your circle?

At Sothertons, we work with business owners to help them succeed.  We are the trusted advisor that will walk with you along your business journey.  If you would like us to be part of your circle, call us on 4972 1300 today.