Jeff Banks Blog 9 March
Quote of the Week
My wife reminded me about some memorable quotes Gandhi had made during his life time, whilst we were cleaning out some old books and magazines so we had a break and watched the 1982 movie of his life and a quotation rang in my ears.
“Development is the realisation of human potential.”
The question then begs if the quote is true, then has your potential developed to its fullest extent or are you stagnating. I spoke during the week to a group of women at a Mumpreneur’s function and to a person they were all exploring their potential by striking out in business and using the networking function to enhance their results. During and after the formal part of the night it was very pleasing to see the networking that was happening between these very motivated women.
During my talk I challenged them about their goals and their definition of “worth”.
The motivation for being in business can be varied. These can be as diverse as being a megalomaniac to just needing to survive but no matter what the motivation a clear goal as to an end game is of paramount importance. Once the goal is in place constant review of the results is required to ensure the goal is being achieved, and although one member of the group misconstrued what I suggested to mean if I am not succeeding today, I should shut down, we talked through potential modification of goals and where the results to date sat in her overall scheme of things. There is a big difference between the “rose coloured glasses” approach to review of a failing business and the analytical review of a growing business that is still in its infancy and not yet realising its potential.
On the subject of worth we discussed the difference between buying goodwill and buying employment. Too many business opportunities come across my desk that when you factor in the real cost of management ie the time a proprietor is expected to contribute (without appropriate cost calculation) into a so called “business valuation” are not “worth” the amount sought. I took them through the analogy of investing their hard earned money in the bank – they could earn say 6% and what would they have to do to collect the interest – effectively nothing and their risk involved is significantly less than owning and operating a small business. If the final calculation based on a respectable hourly rate for required skills is that, to earn a wage, a business is not worth any more than the physical assets and potentially should be discounted beyond that figure for the risk involved and as a golden rule – never ever buy someone else’s potential – it is going to be your hard work that will need to make the potential come to fruition and you as an “employee” should be compensated for your efforts.
So in closing if you are going to build your business to sell you need to be able to demonstrate your business can support the entire management required and generate a sustainable net profit to be valued with any goodwill component. If your structure is such that this will never happen, because perhaps you are the business, then in order to create wealth you need to make the necessary adjustments to your goals and use other avenues of wealth creation to achieve your retirement goals. This may include short term lifestyle changes to ensure cash flow availability for things like extra superannuation contributions or targeted investment strategies.
Like the quotation says – it’s all about the realisation of human potential – your potential.
There endeth the sermon
Jeff Banks Blog 2 March
Quote of the Week
Into old movies this week the 1954 version of 20,000 Leagues Under the Sea in which a conversation of note occurred.
“You said you had a plan.”
“I do have a plan. Trouble is, it won’t work.”
I have spoken long and hard about planning and failing to plan is tantamount to expecting defeat. The other side of the coin, what I might term the “rose coloured glasses approach”, is to have a plan that simply will not work, as the quote suggests, and that is just as bad.
To give you an example, I was sitting with a client today discussing his plans for expansion of his business. In his mind it was, because he was busy, simply a matter of putting on staff and reap in the money. Unfortunately, in the real world at least, it does not work that way. He had done lots of what he thought was “appropriate” research but had lost sight of the major issue facing the expansion.
Planning is all about considering the consequences and the contingencies, realising that profit projections do not immediately turn into positive cash flow and that there will be a need for resources (in this case cash) to ensure any plan such as this comes to fruition. He failed to consider:
Employees want to be paid.
Customers of service industry businesses tend to want the services done before they pay for them, not to mention they want businesses to provide trading terms.
This means, even if your invoicing procedures are timely, there is a lag time between the time the increased costs are incurred and the corresponding increase in income hits the bank account. Add to this there is always a training period for any new staff which will take away potentially income earning staff (in this case the owner and principal income producer) from their pursuits and become costs as non productive time is utilised building the work force. If the resources are not available to meet these added pressures businesses may fail.
Undercapitalisation is a major cause of business failure – especially in small business. Understanding these issues, quantifying them and realising the cash requirements business people may need the help of an advisor like an accounting firm such as Banks Consultancy not just to assist in preparing the necessary budgets but to provide an outside insight (a fresh set of eyes if you will) into unforseen pitfalls that may exist.
The client above did not have grandiose plans by any stretch of the imagination, but when confronted by the realities of cash flow burdens had to rethink his strategy and look at formal funding measures. One further matter we then discussed with his was “what of your projections do not eventuate – do you need to factor in a success/failure percentage to ensure any amount borrowed has that buffer in it”. Again tempering the “rose coloured glasses” approach to forecasting. A wise old mentor once told me that any budget projection of income should always be halved to see if it still works and timings doubled to ensure the strength of the plan. The mentor’s advice has been of great assistance when advising clients looking to expand, commence or invest in a business.
Planning for the sake of it can end up being a waste of time. Understanding the issues and planning for those contingencies, ensuring your plan is sound – even if there are major flaws in the projections – might not lead to immediate success but can allow business people to make adjustments in the face of adversity, equipped with real knowledge.
If you are considering a major shift in your business or you want a fresh set of eyes to look over your plan we at Banks Consultancy are here to assist.
There endeth the sermon
Jeff Banks Blog 24 February
Quote of the Week
Being a sort of a sci-fi buff I was remembering the movie of that great series The X-Files and its catch cry “the answer is out there”. Then looking over the movie of the same name which was first screened in 1998 I found this quote:
“If we fail to anticipate the unforeseen or expect the unexpected in a universe of infinite possibilities, we may find ourselves at the mercy of anyone or anything that cannot be programmed, categorized or easily referenced”
Given the subject of various numbers of my other blogs this quote hit home again. It seems to suggest “if we fail to plan we plan to fail”.
It’s all about making sure all the contingencies are covered, making our set of rules and sticking to them as well as playing by the compliance rules where required and keeping our noses clean. But of course it’s more than that. Asset protection through structure and/or insurance is also a very pertinent consideration to not just business people but to everyone.
With the notion of structure being the subject for another time let’s talk insurance.
What is your most important asset – your health; so you take out health insurance – your income earning capacity; so you take out sickness & accident insurance etc but what about your business. What are your assets, your equipment, your stock, all of which should be insured but also what about business interruption through fire, flood or the sickness of an integral member of staff – have you considered insuring those assets?
But it costs so much I hear you say. I have a couple of answers to those comments:
1. If the cost is too much then perhaps the business you are running is not viable and you perhaps should re-consider the risks
2. Refer the quote – what happens when something unforeseen happens, is the risk of losing everything you have worked for worth it?
At Banks Consultancy when we review clients we tend to ask the question (perhaps not as directly as this) “Are your insurances adequate?”. Unlike many other accounting firms we are not tied to any one broker tending to use ones whom we trust and specific to needs of our clients and we certainly do not get a kick back for referring clients to them.
Level of adequacy is a good question that requires some thought. Those who know me well know I lost a mate to cancer a few years ago. Fortunately we had lots of arguments well before the onset of the disease about insurances and, in association with his broker, we came to the realisation of the level of (life and critical illness cover in this case) insurance required that would pay off his mortgages and allow his family time to mourn and provide some money to act as a buffer. Now that money will never bring him back but it does allow the family to remain in the family home and generate an income to support them. His wife works now because she wants to rather than because she has to.
Asset protection – lots to consider!
There endeth the sermon
Jeff Banks Blog 17 February
Quote of the Week
Moving away from the movies for a week we go to my favourite song writer – Harry Chapin and his song “All My Life’s a Circle” where he juxtaposes that rather than beware the light at the end of the tunnel as it may be a freight train he suggests
“No straight lines make up my life;
And all my roads have bends;
There’s no clear-cut beginnings;
And so far no dead-ends.”
Certainly business life is made up of lots of bends and what’s around the next corner is the something we would all like to know before we turn the corner and unfortunately Harry did not see what was around a particular corner and died in a car accident some time ago.
I have said that in my opinion small business needs to remain lean and mean as another financial crisis such as the “GFC” although not a certainty seems to be looming. In any event we should all remain vigilant in keeping our business lines taut.
For many of us though, we may think there are bends in the road rather than ignoring the light at the end of a very straight tunnel which is the freight train of disaster screaming towards us..
The big banks, Qantas and the like, although their work force reduction decisions may be unpopular, are making them to ensure the continued success of their companies. I would suggest that some of the decisions we have to make in business may be unpopular as well – not to employees but to us as owners. The hard decisions are never easy but in the face of the alternative a decision to cut some of the luxuries of life may in turn secure our future.
Living in the manner I want to or have become accustomed is an adage which can bring a small business to its knees very quickly. “But I need $x to survive” is something I hear a lot from clients who have gotten themselves into cash flow difficulties. If your business is not generating the profit levels to sustain your present lifestyle it is up to you to either adjust the business to generate the income or change your lifestyle accordingly. That means making tough decisions – perhaps unpopular decisions at home – to survive, or become one of the growing number of business failures and of social security recipients.
The buck stops with the owner and it is our collective responsibilities to ensure our businesses generate the income we need to not only survive but to prosper. In the face of adversity, when the going gets tough, the tough get going. If you feel your business is struggling to generate the cash flow to keep you in the manner you wish to remain accustomed perhaps a consultation with me at Banks Consultancy may be a start on another journey or at least around a bend with a pleasant destination.
There endeth the sermon
Jeff Banks Blog 10 February
Quote of the Week
This week I go back to a classic from 1980 – Xanadu – we all remember it, Olivia Newton-John…, fantasy girl… but a quote I remember from it:
“No questions, no lies. No truth either”
I suppose when they were putting these lines together they were thinking more along the lines of “ask no questions and get told no lies”.
The taxation side of the business compliance is complex – there is no denial of that fact. So how do we handle the issues – stick our head in the sand and play ostrich?
You can, but in tax, ignorance is no defence!
So where do you go for advice. You can ask your peers (or someone you meet at the pub) and they will, I suggest, be more than happy to tell you how they “bend the rules” to suit their particular situation, remembering that is based on their personal experience and their personal taxation structure and strategy. The advice is free but what is it worth.
In this country there is almost sport in playing the “hide the money from the taxman” game and certainly we at Banks Consultancy assist our clients in this endeavour in every possible legal way. Simply ignoring or flouting the law is never an answer. Neither should entering into a transaction without the right advice. The adage “if we fail to plan we plan to fail” applies much more in tax.
A simple instance – you are going to buy a commercial vehicle and going to use some sort of commercial financing arrangement – are you aware there are at least three different ways in which the GST is treated on that purchase and if you are intending to have the GST refunded at the time of the purchase, two methods may in fact see the GST deferred significantly and not just as 1/11th of the repayment. Further getting it wrong in your BAS and then getting the error found by the ATO in an audit will mean you incur a fine for recklessness. You may have very well got the transaction right but did you tell your bookkeeper the intricate details of the transaction as they will need to know to ensure they correctly record repayments as well so that subsequent GST claims are correct. We have seen a number of bookkeepers claim GST on the gross repayments where they were either wrong as they needed to be split between the capital and interest portions of the repayment (as in the case of a commercial hire purchase arrangement for those accounting for GST on a cash basis) or the GST had been claimed up front and the claim in the repayments and were in fact a double claim of GST input.
Unfortunately ask no questions, get told no lies might sound like a useful strategy but it can cause a whole heap of trouble for you down the track. Be smart talk to your accountant (hopefully that is Banks Consultancy – if it isn’t then perhaps it should be) and start asking questions, be positive that you know the consequence of your structure and transactions you are contemplating to ensure no nasty surprises. Remember if the ATO deem you to be reckless in recording transactions they will fine you.
There endeth the sermon
Jeff Banks Blog 3 February
Quote of the Week
This week I have been watching a bit of escapism in the form of the 2005 movie – Stealth and the following quote made me think of business issues that may be of interest
“War’s terrible. It’s meant to be terrible, and if it stops being terrible, what’s going to stop us?”
Substitute the “rules of business” for the word “war” from this quote and think to all the external pressures associated with being in business.
What really stops us from getting to our goals, which in most cases it’s the most possible money with the least amount of effort. So what are they really those barriers.
In a perfect world everyone plays by the “rules”. The marketing mirrors the product, the invoices we send are paid with our terms of trade and the bills are paid on time and all the compliance issues are dealt with in a timely manner where everyone pays the tax they should and the government has enough for those services we as individuals cannot provide and we are left with enough to remain in the manner we would like to become accustomed. Sadly for most of us not everyone plays by the rules and the more unscrupulous of us bend and break them to suit ourselves. This then manifests itself into a “keeping up with the Jones” mentality of – if they can do it why can’t I.
In one word “integrity”. I know most of us have it and want to comply within the ambit of the “rules”. Unfortunately for most of us there is a storm coming and we will need to button down the hatches and avoid as best we can the economic down turn that is predicted. Ensuring the future of the economy is all about small business – the major contributor to employment and GDP in this country – and whilst big business may cut work forces here and ship Australian jobs overseas because the “cost” is reduced, we as business people need to show we are resilient, flexible to the changing needs of our customers and above all valuable to our customers. By providing a value to them the sustainability of our businesses strengthens and the economy as a whole benefits.
Strengthening our resolve to make it right means continued compliance with the rules, and from our point of view that means lodgement of BAS, tax returns, and other statutory returns and payment of debts as required.
We elect politicians to run the country and if we don’t like what they are doing we have the chance at each election to replace them. It is effectively not up to us to belly ache about how hard it is – it is up to us to work within the rules we have and find a solution to any issues that confront us as business people.
At Banks Consultancy we are ready to assist any and all that ask for our assistance
There endeth the sermon
Jeff Banks Blog 27 January
Quote of the Week
After the events of this week I had no option but to go back to the 1995 movie The American President and not because a pollie script writer thought he could plagiarise without acknowledgement and not think anyone would notice but because of the disgraceful events that occurred on Australia Day of all days.
“You want free speech? Let’s see you acknowledge a man whose words make your blood boil, who’s standing centre stage and advocating, at the top of his lungs, that which you would spend a lifetime opposing at the top of yours.”
As many of my many readers know I am a card carrying Liberal Party member and whilst I do not agree with Ms Gillard’s politics I still respect her right to speak her mind. It is irrelevant that the “activists” in this case suggested their actions were aimed at the opposition leader, it’s like most violent acts – there is always an innocent party. Having said that there is a time when you have to agree with the “other side” and although he may have made a meal of it the quotation by Mr Albanese should strike a chord in the hearts of all Australian business people. Using the part of the same movie quote as he did – “we do have serious problems in this country and we do need serious people to deal with them”.
Are we heading to a global recession – probably. Are our politicians doing enough about it – only history will show. You can be sure there will be plenty of Bob Rumsfeldesq talk of what we are scared of and who is responsible.
At a micro economic level I suggest it is time for business to act. Be proactive, button down the hatches and have your survival plans in place. Being ready as we did for the last economic downturn – there is not going to be the magic $900 again to stimulate the economy.
For those of us who got lean and mean, make sure we have not taken our “foot off the pedal”. Do an audit of operations and make sure there are no excesses. 2012 will be tough, perhaps tougher than any of the recent times.
In these tough times don’t be afraid to target appropriate advice. Look at your advisors and ask yourself “am I using them to their fullest”. Banks Consultancy offer much more than just the compliance aspect of taxation. Couple that with a number of other consultants, business coaches, financial planners and the like we can offer you the advice that may just help you save your business or at least ensure a maximisation of profits in the face of the very tough times ahead.
There endeth the sermon
Jeff Banks Blog 13 January
Quote of the Week
I was looking for something topical to deal with a Friday the 13th and whilst I was going through some of those “Jason” movies I noticed this one from 2002 movie Friday After Next
“Don’t be sorry ho, be careful!!”
This quote effectively says it all. In business we are all beset by deadlines and the pressures customers and clients place upon us let alone our statutory obligations to lodge BAS, tax returns and the like.
Making sure it is all done on time can be a nightmare. As part of our commitment to clients we at Banks Consultancy forward a “Critical Dates” sheet at the start of each quarter to remind businesses of their upcoming obligations for lodgement and payment of BAS and other potentially relevant taxes. Does it stop there? The answer in our case is – No. As the dates become a train at the end of the tunnel (as opposed to just the light) our staff will be actively chasing with phone calls and update emails, the delinquent or absent minded clients. We pride ourselves on this and use it as part of our mantra.
There are a number of provisions for extension that can be invoked for those who genuinely cannot meet their reporting obligations but in most cases it’s a failure to plan that is the root cause of the issue.
If you are going to be in business then you have to act like it. Planning to ensure your obligations are satisfied is an integral part of the task of being the business person.
If for any reason you are having trouble meeting your reporting obligations seek out assistance, seek out Banks Consultancy.
There endeth the sermon
Jeff Banks Blog 6 January
Quote of the Week
Whilst on holidays it would seem that much more time is spent on looking to the television and tonight one of the commercial channels has “A Few Good Men” so this week I am taking my quote from that movie and I suspect the most memorable quote there is from that movie is the Jack Nicholson one that is a response to Tom Cruise asking for the truth.
“You can’t handle the truth”
For many small business people this is a way of life. They struggle to make ends meet day in day out but believe they are “living the dream”. Excessive hours, no time off and wickedly difficult cash flow are a way of life but they are their own bosses. The lies we tell ourselves – we can do it better than the boss ever did, we can take time off when we like, we can write everything we spend off and we will make a squillion dollars doing it.
What scares me as an accountant is that you will get a small business person in to Banks Consultancy and prepare their BAS and/or their tax return and after claiming all the legitimate tax deductions the satisfaction that comes with paying no tax at all is amazing. They do not understand that paying no tax generally means you are making no money.
Taxes rightly or wrongly are imposed by the elected government in what is supposed to be a fair ratio such that all people contribute in a fair manner to those things that we collectively require as opposed to those which as individuals we can afford. Taxes in this country are bracketed so that low income earners pay less per dollar earned than those of us that may earn more. So I am sorry of you can’t handle it but if you are not paying any income tax then you are most probably not earning an amount commensurate with the input of your endeavours. The question that then automatically follows is why are you even in business.
I am not advocating paying tax for tax’s sake – we at Banks Consultancy will the full 9 yards to ensure you pay as little as you need but death and taxes are a fact of life and the amount of tax could very well be a good barometer of the success or otherwise of your business.
There endeth the sermon
Jeff Banks Blog 29 December
Quote of the Week
With a bit of time off I am able to watch some more obscure movies and a quote from this one hit home after a less than perfect experience with what could only be termed a bout of being on the end of marginal income. The target was the 2000 movie The 10th Kingdom
“That’s not funny! Maybe it will get funnier if we keep doing it.”
There are times when expanding businesses look for new customers or look to clear stock. The income generated could be termed marginal income, in technical terms the next bit of income over and above present levels. Some sellers look to massive advertising, gift vouchers, sales and discounting to entice marginal income whilst others look to other ways to entice new customers ie the “trade” industry and by this I mean Bartercard, BBX and the like.
Faith in people and the system brings people to do some silly things, but one thing that will kill any experience is a poor episode. My case in point (and given we have been in the “trade” industry for in excess of 20 years you might wonder why as this is not the first time we have been on the receiving end here) a seller wanting to clear an unwanted item advertised on BBX and seeking a similar item for a Christmas present we purchased and all things being equal a new client relationship between the seller and I had been created – that’s where it went down hill. Here it is 29 December and the item still has not arrived. Phone calls not answered, and when they are calls not returned as promised and a very sour taste has begun to accumulate in the mouth of the customer.
This seller had looked for marginal income but what has he ended up with – a customer willing to tell the world of the poor service and the broken heart of the recipient to whom the gift was meant. Is this what we are looking for in marginal income – I suggest not!!
The experience should (not matter if the item is sold at a discount, was a voucher, on sale or on “trade”) be the same as at the end of the day as what every customer wants is to be able to trust a supplier and the supplier would love to be able to sell to that customer again and again.
Time and again discounters and “trade” suppliers look to rush the sale through as it does not seem to be as valued as a “normal” sale. Sorry boys but a lost sale is just that – lost – and although you may have completed this sale the potential for further sales from a disgruntled customer may be far greater than the initial “quick sale”. You had your chance and blew it. Perhaps for you the market is potentially big enough to discard potential customers in that manner but let me tell you the only ones laughing are those laughing at you – not with you
There endeth the sermon.