NEW ERA
Yes, we’re on the threshold of a new era. We’ve changed our name to reflect our focus on finding solutions for business; and Stephen is going to be getting used to sleep deprivation. Wife Kimberly gave birth to a beautiful, healthy baby girl, Emma Maree Healy, on 28th March.
NEW HOME FOR A NEW NAME
We expect to be in our new home in early May. We’ll be in the Kingsgate Professional Centre in the middle of Caboolture. Suite 9 is the basement suite opening onto the car park on Elliott Street, overlooking the Lakes. Kingsgate is directly opposite the big Moreton Bay fig and NAB, on the corner of King Street and Morayfield Road.
So we’ll be centrally located and easy to find. All four of the major banks, a Coles/Kmart shopping centre, the Caboolture Post Office, the Courthouse, Queensland Government Housing, the Moreton Council and the Office of Fair Trading are within spitting distance as are lots of professional practices in law, medicine, optometry, accounting and financial planning.
NEW WEBSITE FOR A NEW NAME
Yes, and we’ve decided to create a new, fresh looking website to complement our new name and new home too. It should be up and running soon. The old website served us very well over the years but it was sometimes criticized for being too big and wordy. This time, more images, fewer words but a strong message:
Most accountants are happy to report your position. Our focus is to improve your position.
A REMINDER OF THE FOCUS OF OUR SERVICES
I’ve said it before that probably the greatest frustration I have in practice is that people think of accountants as people who “do” their tax. Absolutely, I have every right to be called an expert in tax planning and have the runs on the board to prove it.
But I have more to offer business – as do Stephen Healy and Barry Brown, the other qualified people here. Corporate Accountants are Business Developers. This description takes account of our abilities in business analysis, reporting and giving spot-on advice on critical issues such as cash flow, costing, productivity, creating and meeting Key Performance Indicators (KPI’s), and understanding and using financial and management ratios.
It’s not “academic” balderdash. No major, successful business in the world operates without continual reporting of these kinds of things by managerial staff! Woolworths can tell you to a fraction of a cent the contribution that a can of baked beans makes to its cash flow and profitability, believe me.
Is it too confronting for me to say that if you run a cruddy business, you’ll never need to test our ability at minimizing the tax you pay?
Available are a number of copyright reports we can provide. All you have to do is ask.
-
Monthly/Quarterly Performance Analysis
-
Productivity Report
-
Costing Report
-
Business Valuation
-
Tax Analysis (Projections)
-
Cash Flow Report
-
Business Health Report
TALKING ABOUT SUCCESS!
When we think of multi-national success we think Coca Cola. True?
And why not? There are 1.7 billion servings every day, 20 million customers every week and 300 global bottling partners like Australia’s Amatil.
It’s no accident. Coca Cola has a very focused management – its projections on volume growth (3-4% pa), revenue growth (5-6% pa), operating profit growth (6-8% pa) and Earnings Per Share (EPS) growth (8-9% pa) go out as far as 2020 – Volume Sales 145 billion; Consumer Spend ($1,100 billion). And they’ll meet these projections, you could bet London to a brick!
The company believes in diversification. They offer 14 billion dollar brands, many of which we in Australia have never heard of. One third of revenues come from emerging markets – Latin America, China, India, Turkey, the Philippines, Russia, and Africa at large and their product portfolio captures the full non-alcoholic ready-to-drink market all over – sparkling soft drink, water, energy, tea, coffee and variants.
Interestingly, two of the smallest markets for Coca Cola are India and China (the biggest per head of population is Mexico!). Yet 4 of the top-selling brands in India belong to the Coca Cola company, the projected teenage population in India in 2020 is 172 million, China 121 million and the US just 31 million. The most popular soft drink in China is a mixture of orange pulp and coconut milk but Coca Cola which ranks 8th in this emerging market behind Yum Brands (KFC, Pizza Hut, Taco Bell), Colgate, Unilever and others including L’Oreal and Nestle is confident that immense growth is imminent with their own version of this strange brew and the acclimatisation of the youthful Chinese palate to Western soft drinks.
Diversification is one lesson for us. Leverage is the other: market power through brand awareness. Coca Cola’s success is all about focused management, as I said – leaving nothing to chance.
The energetic pursuit of sustained market share and profitability: this is what we should all strive for in business!
SHARES
The Australian share market has underperformed. At time of writing it had rallied off something of a “crash” in the face of floods, Yasi and the Japanese tsunami. The All Ords was creeping back towards the 5,000 mark.
To measure the behaviour of our market against other world markets you should first understand GDP. Gross Domestic Product is the measure of the movement of money within an economy, whether it be retail sales, wages, pensions, exports or imports, production dollars, distribution dollars, exchange dollars.
If you compare the behaviour of the Australian share market over the past ten years, you will see that it outdid GDP growth marginally – about 1%. In the US, UK and Germany GDP grew at higher levels than the share market but in Brazil, Russia and India, it blasted GDP out of the water. In China although the share market saw positive growth unlike the US and UK, the GDP belittled it.
The past three years (since the Global Financial Crisis) have been a disaster for shares world wide. GDP growth in Brazil, India, China and to a lesser extent Australia was positive. In the US, GDP growth was negligible, in the UK and to a lesser extent Germany down, in Russia, very slim. And the share markets in Russia, China, US, UK, Germany and Australia tanked – Australia down nearly 10% (GDP up around 3%) and China down nearly 20% (GDP up around 10%).
The question on everybody’s lips is why? China takes all the commodities we can dig out of the ground, its economy is continuing to grow at 9-10% and yet, the Aussie market had dropped 10% in the 3 years to December 31st. Strange, isn’t it? Sure the Reserve Bank has all but killed credit-funded retail spending in Australia (except for Queensland home goods after the floods) and there are signs of deflation in some pricing in Australia like white goods, clothes and milk (the first two because of the strength of the Aussie dollar, also down to our relatively high interest rates). This has put some retail stocks like Myer and Harvey Norman under pressure but it seems to me that once investors take stock of the solid growth prospects in an economy fired up by the commodities boom, they’ll return to the market. The price of oil, the looming mining tax and the mooted carbon tax won’t really impact too badly on the profits to be made by miners at the record world prices being paid for iron ore, coal and gas.
The share market looks to have life left in it, even against attractive short and medium term fixed interest rates of around 3-3.5% above projected inflation and increasing yields on residential rental property. An All Ords of 5,500 by Xmas?
INTEREST RATES
Where are interest rates headed? Many economists are saying that they’ll stay where they are until much later in the year because of the huge drop Australia-wide in consumer spending and in the stalling of the residential building industry. I can’t see much wrong with those sentiments but there is an elephant in the room!
Imported inflation is that elephant. Hamish Douglass, famous head of Magellan Asset Management and member of the Foreign Review Board among other things is warning that growing inflation in emerging exporting economies will be imported into Australia increasing our inflation rate. Interesting concept and it’s already happening in America.
If he’s right then he reckons the Aussie dollar will fall to around the 70-80 cents US mark, itself feeding inflation. (The strength of the Aussie is instrumental in keeping inflation in the 2-3% band so critical in the Reserve Bank’s thinking)
So the question becomes in Douglass’s scenario, how will the Reserve Bank react? It can’t regulate imported inflation so will it change the 2-3% band it’s enforced by cranking up interest rates for two and a half decades to 3-4% or 4-5%?
And what of the chances of all this fanning a wages breakout to add to the one just around the corner in the mining industry where they are still suffering grievous skills shortages.
EXIT FEES
The Gillard Government has delivered a free kick to the Big Banks with the banning of exit fees on home loans after July 1st. Small lenders which invariably offer lower interest rates than the Biggies use exit fees to discourage borrowers from jumping ship so they act as a sort of back-ended insurance for them. Now they’ll have to front-end their expenses in managing loans and that will mean the end of their cheaper rates.
To illustrate my point, see if you can get the 6.88% variable rate (no introductory one year discount stuff) that we can get for you from one of the Biggies!
My view is that the Government should walk all over the Loan Mortgage Insurance industry. That’s the real cost in borrowers swapping lenders. The cover is not transferable and it can be as much as $10,000!
AND TALKING ABOUT INSURANCE
I recently came across some interesting statistics I’ll share with you.
Each year 48,000 Australians will have a stroke and 16,000 of them will die within 12 months.
In 2005-2006, I was one of the 48,000. I was a spring chicken of 57 and had a number of small and a couple of big strokes. As I was wheeled into surgery to have a chunk of my left-side carotid artery removed, I gained comfort in knowing my wife would be okay – I carried about $1 million in insurance. And then I became one of the 16,000 who died within 12 months – I croaked while on the table. Lucky it was there that I decided to exit - they pulled me back, thankfully.
There are two lessons to be learned from my experience. First, lead a healthy lifestyle: I now have at least one day off a week, eat properly, drink less grog and get regular exercise. Second, once you’ve had a stroke, you can forget trying to get insurance to protect your family!
There are definitely some traps for the unwary in life insurance. One is that insurance cover is with some policies stopped at a relatively early age. At nearly 64, I’m facing the prospect of having just the one life insurance policy left next year when I have made it to pension age. That’s after paying for cover – and not collecting! – for years on several policies with several life companies.
Another consideration is the trap in paying your premiums through your self-managed super fund. It may be that any premiums you pay as protection against disability will not be tax deductible.
AFSL holder HNW Planning Pty Ltd through which CPBMAC Financial Solutions Pty Ltd and Bob Lamont are licensed can arrange appropriate cover through any of 12 life insurance companies. Price, quality and appropriateness assured!
SELF-MANAGED SUPERANNUATION
Advertisements for industry super funds have had an unintended effect. They’ve highlighted to the general public that retail superannuation funds can be a rip-off – their fees and charges can be horrendous!
But those among the public who have one iota of grey matter will have deduced that somebody is paying for their massive staffs, taj mahals and advertising campaigns - and it isn’t the tooth fairy. So there are now over 600 thousand self-managed superannuation funds in Australia.
Research has shown that the main reason for this is that people want to take control of their own destiny. But there is also the feeling that retail funds are a rip-off and resentment that financial institutions are paid a fair whack in fees whether the fund is performing well or goings backwards.
I have very strong ideas on how your superannuation fund should be invested. The two critical considerations are your age and the market (or investment) cycle.
All you have to do is ask for an appointment to consider your options.
There is no doubt whatsoever that superannuation is the best way to invest in this country tax-effectively. Pro-active investment management, a very generous taxman and keeping abreast of the fundamentals in market cycles should mean your fund always makes inflation plus some.
Too many people including professional fund managers set their investments in stone and never make adjustments sensitive to changing economic circumstances. Too often professional fund managers see their fund assets go backwards and seem more adept at making excuses for their ineptitude than actually managing their funds well. This is especially true in so-called “balanced” funds!
TRUSTS RULE!
I noted during the past couple of months that some small legal firms are saying that since a recent court case, Bamford, discretionary trusts are no longer effective business entities and that people should use companies.
Rubbish. All that Bamford established was that there is a difference between the income of a trust defined by trust law and income defined by tax law. The solution is simple: make sure your trust deed defines income as assessable income under Tax Law and you won’t have any problems. (Most modern trust deeds I have seen do so anyway.)
Trusts continue to provide asset protection to business owners by placing a wall between their personal assets and unsecured business creditors. And they can prove very effective in making satisfactory tax arrangements.
UNPAID PRESENT ENTITLEMENTS
Talking about trusts, tax law has changed in an attempt to extract tax from individual beneficiaries if a trust distributes profits to a company and doesn’t actually pay the money across. These UPE’s or Unpaid Present Entitlements from 16 December 2009 will be treated as unfranked dividends paid to individual beneficiaries and taxable at personal rates not company rates.
Sounds bad, but the strategies we’ve used for years to get around Division 7A deemed dividends on shareholder loans from companies continue to apply.
PRO-ACTIVE DEFENDERS OF CLIENTS
Yes that is something Corporate Accountants will remain! Even though we’ve changed our name, we haven’t changed our willingness to take up the fight for clients with the ATO and other government institutions.
In the past year, we’ve gone to bat for clients from all over Australia wrongly assessed for tax on income earned in Iraq as security advisers. The two officials involved in the patently wrong assessments of up to $120 thousand have since “left” the ATO! And we’ve re-done several years’ financials and tax returns prepared by another firm. The ATO gave the company a substantial tax bill and penalties and was in the throes of winding it up and seeking payment by the director of outstanding PAYG withholding tax. Our reworked accounts had the ATO actually owing the director over $100,000. Also in another instance, we objected successfully to an assessment dating back to 2002 for a company saving it some $40,000 in assessed tax, interest and penalties.
CPBMAC Financial Solutions Pty Ltd is a Company Authorized Representative of AFSL holder HNW Planning. Pty Ltd and is an associate of Corporate Accountants Pty Ltd. Corporate Accountants Pty Ltd holds an Australian Credit Licence (Finance Broking) and Tax Agent Licence.
Author Bob Lamont holds qualifications in economics & commerce among others, has Diploma in Financial Services (Financial Planning) and is certified by the ASX to advise in equities.
|
