This week I am going to make an admission – I am definitely a James Bond fan, along with Star Trek, Star Wars and 70s music as everyone has probably gathered. This week I was watching the classic From Russia With Love from 1963 and an interesting quote made me stop and think:

           “Training is useful, but there is no substitute for experience.”

We tell our kids, nay we push our kids to get an education. We drum it into them, that without that backstop behind them earning money may be difficult in the longer term.

On the other hand schools and universities churn our graduates ready to “start at the top” and some of us “old fogies” sneer and snigger with derision at the “confidence” of the products of our secondary and tertiary systems, equipped with the technical knowledge but not the practical experience to engage immediately, force upon a weary market.

Have you ever thought, perhaps the problem is ours.

We at Banks Consultancy presently have engaged (through the request of his university) a young intern. As part of his degree process he will spend 3 months with us “experiencing” the accounting world. He has found out very quickly that his “education” is far from complete. Whilst his technical knowledge is sound his ability to understand what a client may want is enduring a sharp learning curve. I said to him the other day there is a big difference between doing a job and completing a job. A case in point I gave him a task to analyse a business’s performance and gave him some vague parameters to start on and left him with the comment – come back to me with a report. What I got was a ream of paper reports, printouts of monthly profits & loss statements, graphs of margins etc. I asked him what good was that to the client – his answer – it shows stuff. When we looked at the “stuff”, glaring problems emerged in the data that he had not thought to investigate or comment upon. I sent him away to come back with a 1 page summary of the information and he looked strangely at me then went away. To him he had answered the “essay” question, to me he would have wasted a client’s time. The difference between training and experience.

Getting back to the problem is ours. To have young Bennett with us costs us nothing in wages. It does cost us some time in showing him procedures and letting him loose on projects but the experience he will gain from the opportunities to work on real clients will be invaluable in the long run. Thankfully we have also been able to recoup some of that investment in some of the tasks he has been able to perform getting his grounding at the grass roots level.

We complain about the system, but there are some simple things we can do. We can put on a trainee or an apprentice, we can accept the school kids doing work experience or we can join in these intern type projects. Investing in the future can only benefit us all. If the system is imperfect then do something about it. A drop of rain when combined with another drop can become rain, a torrent of rain into a storm which can then manifest itself into a flood and will all end up in the ocean but it all starts with a drop of water.

Remember – Givers gain

There endeth the sermon

This week I found a quote which I am sure all business people especially small business operators can attest to. It is form the 1995 movie 12 Monkeys

       “I am insane and you are my insanity”

Adding the word business in front of “you” and you see what I mean.

We are all locked in a pitched battle with our egos and win lose or draw we all will fiercely defend our businesses. But there are times when it comes to pass that we must move on. The Australian Securities and Investments Commission (ASIC) is the watch dog of the corporations law and one of their pet hates is insolvent trading – not being able to pay your debts as and when they fall due.

For many of us in business we have significant liabilities on our balance sheet recording, in part, our investment in our businesses. If the net assets of the business is negative are we insolvent? The answer may be no, as long as there is an agreement either implied or written between yourself as shareholder and the company not to call for repayment of the loan whilst this occurrence remains in place. It may also be that your business has significant amounts of unrecorded assets such as goodwill that should it be properly recorded would bring the company books into a better light.

Reviewing your asset position should take place regularly especially where, as directors, we may potentially have personal assets at risk should “insolvent trading” be proven. The veil of incorporation only protects directors up to a point and there have been many who have pushed the edge of the envelope a little too hard and suffered the consequences losing assets outside the corporate veil.

Never let the Top Gun quote apply to you in business ie “Your ego is writing cheques your body can’t cash” to the way you run your business as the consequences can be dire.

There endeth the sermon

This week I have gone back to an old favourite the 1977 Star Wars Episode IV – A New Hope

       “Who’s the more foolish, the fool, or the fool who follows him?”

The bane of my life is what I would term “pub advice”. You know what I mean you will be talking to someone at the pub or a party and they will say they have this brilliant idea to diddle the tax man out of money or they don’t pay any tax. You know the conversations I mean.

What these people invariably mean is they cheat and can sleep with the notion that the tax man at some time in the future will catch up or because of structural implications they personally do not pay tax but their trading entity does or, which is more often the case – they actually are not making any money to cause a tax bill.

Many a time a client will come to me with this type of advice under their arm looking for an easy fix to their taxation dilemmas. Like Al Capone found out the hard way there are only two things in life that are certain – death and taxes. But paying no tax or seeking to pay no tax helps no one. I have clients who try their hardest to minimise their taxation liabilities to Nil (and with legitimate strategies, succeed) then complain bitterly when they go to the bank to be denied finance.

With the advent of what I would term “the all knowing computer” more and more the fiscal fiend (the tax man) is interrogating lending institutions and then investigating borrowers who “stretch the truth” on finance applications. You will see many finance companies asking for copies of tax assessments to see what they have been told can effectively be backed up by external sources for just this reason.

So what is the answer when taxes are apparently so high.

In my opinion it’s all down to budgeting not only the business side of things but also the personal side. Live within your means and ensure you budget for the appropriate amount of tax. Cash flow from a tax point of view is relatively easy to budget – PAYG is payable quarterly at an individual level or monthly at a business level as PAYW deductions from wages.

We at Banks Consultancy spend this time of year doing just that for clients. We will assist them with a review of operations, projecting potential profits and look at strategies to minimise the effects of taxation and then with this information in hand the client will have no nasty surprises come 30 June when the tax returns are completed, barring anything unforseen. Don’t get me wrong we will work hard to ensure the burden of taxation for any client is as low as possible but the end has to justify the means.

One of the things I have been advocating has been getting businesses lean and mean given the potential for difficulties ahead with another GFC type event and the struggling economy. We are already seeing the effects with reduced retail sales and the need for the RBA to reduce interest rates to help stimulate the economy. What that has meant is those who have done the hard work now face reduced overheads and increased profits – well done I say to them – but one consequence is increased amounts of taxation liability. To these clients it is more a management of the cash flow issues this creates rather than increased emphasis on reduction (as they have already implemented all they can). It is certainly not a time to play “ostrich”. It does not go away of you ignore it – in fact the consequences can be quite dire.

The only fools I want to see are those who want not to be foolish, want total control and are willing to control their own destinies.

There endeth the sermon

This week I have been off ill and have had time to watch some old movies and whilst watching the 1981 movie Chariots of Fire I reflected on the quote of Harold Abrahams

       “ I run to win. I won’t run if I can’t win”

As those who have seen the movie will remember, Harold Abrahams was a driven athlete with a strength of character which saw him win gold at the Paris Olympics in the 100m.

Those of us driven to being in business may not have such an acute drive but we all have that sense of “duty” to the cause. Many of us try and fail, but we pick ourselves back up and try again hopefully learning from our mistakes.

Also being ill this week has made me think about the “safety net”. If the illness (which was only the ‘flu by the way) turned nasty, what options are there for income generation for my family. Fortunately nothing was required but I did recover with a feeling of ease knowing that my insurances were well in place and ready to be put into action should the need arise.

Like most business people in the early stages of development – if we don’t work we don’t get paid – and although Banks Consultancy can operate without me for a reasonable period there will come a time should an extended period of illness or accident episode occur that the business would suffer. Coming up to year end, like most businesses we will be reviewing the performance of our business and budgeting for the ensuing year. One of the items on the agenda every year is an insurance review. We make sure the cover is adequate for the circumstances we expect for the forward period. Many years there is nothing required but a short talk with our insurance adviser – Matt Carter from Australian Financial Planning Group and we are set for the year.

I harp on about planning and review but in the case of episodes of illness or accident these cannot be adequately planned in any circumstance – hence the insurance industry. Take time to review the “what if” questions in your review process this year.

There endeth the sermon.

This week in honour of Whitney Houston we are remembering her and Kevin Costner in the 1992 movie the Bodyguard where we get this quote

       “Disapproval is a luxury I can’t afford”

Business is all about relationships. We all know this. Those of us struggling in tough economic times know we have to hang on to our customers, treat them right so they will continue to give us their trade and in turn generate cash for survival.

On the other side of the coin there are our creditors, both trade and others (like the tax man) that would like to be treated with the same vigour and respect you treat your customers. Having bills paid on time, ensuring compliance issues (BAS, tax returns etc) are dealt with in a timely manner are issues which they would find the most important.

From the business person’s point of view whilst sales and cash in the door are probably the most critical there are many more issues to being in business than just making sales and whilst tough times mean it’s harder and harder to bring in the cash, business people still need to allow time for the other side of business. I can hear the murmurs of “but that takes time” or “that takes me away from what I do best” and I would agree with both these comments. So what is the answer – get someone else to do it! Employ that bookkeeper, use your accountant etc. Next gripe “but what about the cost” – and the answer is – what is the cost of not doing it – loss of time to do the things you are really good at and which produce you cash, fines for late lodgement and worse getting it wrong, paying potentially far more than you should are all downside risks.

We see many clients who “do their own BAS” during the year to save money require lodgement of amendments when we get to do their taxes. Tax is a complex myriad of complex legislation and getting it wrong, even at a basic level can be very costly.

As I have said before we at Banks Consultancy take this time of the year (the third quarter BAS) to review results of clients over the first three quarters and project results and potential taxation liabilities and input strategies for limiting taxation liabilities, but it’s also a time to quickly review lodgements that have already been made. The major source of adjustments occurs in clients accounting programs where the bookkeeper has found an anomaly post BAS lodgement and fixed it on the date the original transaction occurred. This will not be picked up unless a global reconciliation of the transactions year to date is performed as we find many bookkeepers prepare the reports for BAS input for the relevant period only – which in a perfect world is fine.

Ensuring costs do not get out of hand is the responsibility of all business people but there needs to be a trade off considered between the cost and the benefit. “I am no bookkeeper but I can do my own BAS” is a fair call but what if you get something wrong or if something out of the ordinary happens – like the purchase of a vehicle? Do you know how to treat the purchase of a vehicle under finance? Did you realise there are several different ways to claim the GST, dependent on the type of finance and your registration for the reporting of GST?

We do!

There endeth the sermon

Going back in time to 1950 and the movie All About Eve and we get this quote

     “I haven’t got a union. I’m slave labour”

I am sure many of us in business feel this way. Long hours, under-compensation for our efforts, stress levels that would make mere mortals curl up in the foetal position and whimper endlessly are the norm rather than the exception particularly in small business.

So what do we do to take some of the stress off? I am not sure there is a definitive answer to this question. Certainly ensuring everything is done right the first time and not having to constantly re-cover matters can alleviate stress.

For many business people the stresses of end of period compliance with BAS, payroll tax and to a lesser extent income tax returns creates great stress. As may of my followers know I am a great believe in planning, not just from a profit point of view but it can also extend to the administrative. Finding ways to only need to record transactions once by ensuring records are clean and concise and filed properly can often save inordinate amounts of time at the compliance end of the period searching for those receipts needed to justify the claims we make, let alone verifying the transactions we have incurred. We must as business people ensure our records are kept in such a manner that they can be easily interpreted should an audit of them is ever required.

Safety of the records is also important. I suspect many tax auditors will have heard the excuse “they were destroyed in a ‘mishap’” and if the audit has not been going well the chances of them invoking a “lifestyle” assessment increases with objection against that type of assessment very difficult as the records apparently do not exist. In most cases records have to be kept for 5 years since the last communication relevant to the period in question in order to comply with tax department regulations. Effectively this could mean 7 years by the time you start a year on 1 July and end on 30 June then do your tax returns in say April of the next year then receive your assessment – it is 5 years from that date that records relating to that return have to be kept.

As with profits a plan for the security of records is just as important and not just the records noted above – computer backups – we all know about a computer malfunctions/crashes, but where are the backups of not only the programs but all your data. If you were to have a fire, are the backups on site? If so would they be destroyed as well. More to the point – is your backup procedure actually working? When was the last time you checked with your IT people? Having a functional off site back up procedure may seem a little over the top, until the unrecoverable computer crash reigns its terror on the unsuspecting business person.

Lots to think about, lots to plan, so much to do – so little time – for me it’s back to the slave camp

There endeth the sermon

The movie Avatar (2009) brings this week’s quote and given we are in the Easter holiday period I thought I would be a bit flippant with a quote which sums up a conclusion many accountants might come to when a client first walks in the door and suggests they have an idea for a business opportunity.

        “So you just figured you’d come here, to the most hostile environment known to men, with no training of any kind, and see how it went? What was going through your head?”

It’s like being a parent – there are no licences to being in business, anyone can put out their shingle and say here I am come and use my products or services. Sure there might be permits and professional associations etc which we could call a “barrier to entry” but at the end of the day if you want to start a business there is nothing really stopping you – or is there????

In my opinion the biggest threat to starting a new business is the new business person. Naivety can and will be the failure of many start-ups. Poor planning, “rose coloured glasses” syndrome and the like are the greatest killers of new businesses. There are those who simply think they can do it better than their boss, there are those who think it’s a very even playing field out there and those of course who simply look on the other side of the fence and think the grass is greener.

So where do you start. I would respectfully suggest once the idea is in place, research is the obvious next step. Look at the competition, the demand for your product or service then most importantly look at the cash flow requirements. Factor in the living costs you will need to cover, factor in the time lag between starting and the first sale, factor in the time lag between that first invoice and the money actually hitting the bank, factor in the amount of stock you will need to hold. Once you have all these numbers then double them to give yourself some backup should the plans not come to fruition in the time frames you have envisaged.

I am sure there are a lot of businesses that would not have started (and then failed) if some of the planning for the commencement of those undertakings involved some review of the items above. Any business looking to start or looking at review for the ensuing period should consider review by an independent professional, if only to rid yourself of the “rose coloured glasses” syndrome.

But what of the cost I hear asked. In some cases a small price to pay for ensuring success rather than failure. If the cost is too high the question begs is the business really viable?

There endeth the sermon

This week I was looking back at a slightly older movie – the 1997 “Good Will Hunting” and found

      “Good Day Gentlemen…And until that day comes, keep your ear to the grindstone”

A lot of us in business beat our heads against the brick wall each and every day and why – because at some day in the future we will be able to reap the rewards of our endeavours and retire on easy street.

Sound like an impossible dream? Perhaps your plan is out of kilter with your expectations. Worse still your expectation of current lifestyle is way beyond your earning capacity.

Now into the last quarter of the year thoughts turn to reviewing the first three and projecting results to come to grips with the potential slug the tax man might be aiming to impose. It is also a good time to review the “plan” and see if it is still prudent to the beast as it presently exists. Planning for survival in tough economic times at times outweighs longer term plans and goals. Having said that we all must look at what the beast (being in business) presents us and what do we have to do to ensure not only survival short term but longer term and into retirement.

Too many clients feel their businesses owe them a living and that they should extract funds to keep them in the manner they feel they deserve (rather than can afford). Some will draw funds from their businesses over and above salary, dividends and repayment of contributed loans and leave a “loan account” sitting on their company’s balance sheets. In accountant speak that creates a Division 7A issue that needs to be addressed. Unaddressed it could manifest itself into an adjustment to tax returns with large tax bills. It can also jeopardise the deductibility of interest on bank loans undertaken by the business, again meaning more tax to pay.

Many of us in business are so entrenched in our businesses we can’t, don’t or won’t attend to these types of loose ends which can be very expensive later on. We at Banks Consultancy harp on about planning and review and now is a perfect time. With the lodgement of the 3rd quarter BAS (or 9th month BAS for the larger clients) we have a perfect time to review what has happened, ensure we get to keep as much as possible and tweak any future plans to ensure the “Good Day” can come.

Review may also mean looking at those stresses outside business that cause concern. Is your lifestyle “appropriate” for the levels of income your business can generate and is there enough left over to ensure its viability and leave enough to invest for your retirement? It’s up to no one else but you to ensure that when you want to, there are enough resources to leave you as comfortable as you want to be. That may mean you have squirreled away plenty of superannuation, it may mean you have built your business to a point it can be sold, it may mean you have paid off assets bought and funded via mortgages along the way but without a plan what are you working for?

There is no point relying on government hand outs if you want to more than just survive when you retire.

There endeth the sermon.

This week I want to start by reminding everyone of that most famous of quotes from the 1961 inauguration speech of John F Kennedy

       “… ask not what your country can do for you – ask what you can do for your country. “

This speech was a call to arms that still resonates especially when times are tough. In business we sometimes lament that things are not going as well as expected or that things like, the payment of taxes is beyond the capacity of the business to properly sustain or that taxes are just too damn high. Add to that compliance is a bitch and we are overly burdened the red tape of doing business.

Yes its tough out there – yes, everyone is saying it – but what are we doing about it? The tough are getting on with it, remaining flexible, reviewing results and changing directions where needed or tightening the reins on costs if they are out of hand. For small business particularly what does this mean – it may mean a trip to the accountant to review the figures and not just to process that BAS or tax return. Many small business people are what I would term “trapped within, working in their businesses” unable to look at their businesses from outside to work on their business. This is where a professional consultant like an accountant may be of valuable assistance.

We at Banks Consultancy at this time of the year (the time when the third quarter BAS is due) like to review results of business clients from a global sense, project year end results and encourage clients to take control through knowledge of expected taxes and where required implement strategies to limit the liability and perhaps improve cash flow. This can take the form of a very basic review right up to an in depth report into the operations of the business. There is certainly no joy in sitting down with your accountant post 30 June and be surprised (or in some cases dismayed) by a hefty tax bill, especially if you have not budgeted for it.

Tax is a consequence of profit. We all know the rules. If we make it, some has to go to the tax man, but no one said we cannot arrange our affairs and structure or at least plan the payments, not only that, understand what is left for our personal lifestyle (sole traders and partnerships), directors salaries or future investment in the business. There is no point remonstrating about the difficulties, meet them head on, tackle and defeat them.

There endeth the sermon

I was looking thorough some old material and I was taken back to the very inspirational movie from the year 2000 – Remember the Titans and a quote which summed up the life of that football team after the loss of so many.

       “Sometime’s stuffs just hard… for no reason at all”

I am sure that life in business begs that question at many turns. It also makes us ask the question “why are we doing this”. Why – because in the majority of cases I believe – we love it!!!

As accountants we deal with many of the things that our clients would term “the necessary evil” – tax returns, BAS, workers compensation declarations and the like, compliance issues if you will, and look at the cost and say why. The smart clients use these compliance measures as points of evaluation and planning and although they may be an annoyance which take them away from their immediate goals they are an integral part of the end game. That light at the end of the tunnel we all hope is not a freight train.

Using trusted advisors to assist you in the attaining of your end goals sounds simple but many do not avail themselves of these chances. Here we are mid March – 8.5 months into a financial year and what is looming besides the 3rd quarter BAS, the end of the year and another tax return (and potentially a tax bill). At Banks Consultancy we see that last quarter an excellent opportunity to get around to all our business clients, reviewing the first three quarters of trading, projecting a full year result and offering strategies to alleviate any potential taxation burden or at least budgeting the taxation liability into further cash flows. Every client is different, there is no magic pill resolution to a clients individual situation.

Some business people think tax is tax and what I have to pay is what I have to pay and continue on regardless – and for them that is OK. For others looking at strategies that may contain maximising superannuation contributions, deferral of income or tax effective investment strategies based on the projection of the potential taxes accumulating can be a powerful tool in ensuring the plans to achieve goals are not curtailed through unexpected liabilities.

Sometimes stuff is hard especially when it turns up unexpectedly – like the plane crash in the movie which wiped out the entire football team. Catastrophic things happen – we hope not to us but the savvy business person ensures all that can be controlled is controlled and an easy one to control is the expectation of taxes. Review of operational results can easily be projected into potential taxation liabilities and once ascertained can be planned into cash flows to ensure the goals are not stymied.

I therefore suggest rather than seeing compliance as a cost use the results in a positive manner. It may result in the freight train light turning into the sunlight of Nirvana.

There endeth the sermon.