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CNS Partners Blog

We recently met with a client to discuss their business and how it was performing. The conversation moved onto retirement and we asked the simple questions :

1. What will happen to your business when you want to retire? 
2. How do you plan to exit the business?

The client was under the impression that they would simply put the business on the market when they were ready to sell and receive a payment that would assist in meeting their needs in retirement.

I then explained to the client the three main options for exiting a business:
1. Walk away because nobody wants to purchase the business
2. Sell to an external party
3. Sell or transition to a family member or employee of the business

The client's business was not a business that would sell easily to an external party due to the specialisation of the work performed yet they did not want all of their hard work put to waste by simply walking away.
Option three above was the answer but the transfer needed to be planned. The client still had 15 years of working life and needed to use them wisely to ensure the business was ready to transfer to an employee at the highest price.

We assisted in preparing a succession plan which dealt with the following:

- The possible business structures required

- Key personnel required

- Legal considerations

- Personal insurances

- Taxation considerations

The succession is still a few years off but the client now has a clear understanding of what the transaction will look like and how much money they can realistically extract from the transaction.

If you are in this position and would like help preparing a succession plan or to discuss the options for your business' future  please contact Scott Grady at scott@cnspartners.com.au or 3356 7088.

 

 


What Will Your Retirement Look Like

Retirement – Will You Have Enough Money?


Retirement day – no more full time work, time to go see the world, play golf, do lunch or play with the grandkids.  How many of us dream about the outcome, without spending any time thinking about how to make that happen?  

How much money do we need to fund this bucket list? Where is the money coming from?

The reality is that most Australians will have far less money in retirement than they deem necessary to live the life they dream of.  The Age Pension is no longer the staple safety net for retirees, for 2 reasons:
1. The money is not there and the Government needs to stretch it out further all the time
2. We have higher expectations than past generations about what constitutes a comfortable retirement

Achieving your desired financial position takes planning, management and time!  One of the best vehicles to achieve this is Superannuation, but who even thinks about it?  By retirement age, super is usually the second biggest asset you will have, following the family home.  

It doesn't just appear, it must be nurtured over your entire working life.  With low taxes, income reinvested to compound the growth, super can be a very powerful wealth creation tool.  Careful, active management of your super can provide an enjoyable retirement.

Act NOW – it's never too early but it can get too late!  

If you would like to discuss strategies for generating wealth for retirement, please contact Alan King, either at alan@cnsfinancial.com.au or (07) 3188 0234. Or  join us at our next work shop '3 Secrets To Financial Success For Business Owners' (Tickets available at: Eventbrite.com/e/3-secrets-to-financial-success-for-business-owners-tickets-32915221313).


A couple of years ago I met with some business clients who were unhappy with the profits they were generating from their business. They had been in business for twelve years and were making a profit of $60,000 per year. This was for two full time business owners who were not drawing a wage on top of this profit figure. HELP!

Rather than starting with what was going wrong in the business we discussed what their business financial goals were and their personal financial goals. To my amazement they did not have any goals. They just felt like they were working too hard for the little return that they were generating.

We immediately brainstormed what they wanted out of their business, both financially and non-financially, and then what they wanted financially to be paying themselves from the business. We also discussed what they could do with the money if they were able to achieve the numbers they desired.

Once we had down on paper what the client wanted to achieve the rest of the plan came together very quickly. The client was able to detail a business life plan, we assisted in the creation of a business budget and a personal budget. The client now had direction and could make decisions based on what they wanted to achieve.

Two years on and the clients are happy. They are achieving the goals that they set for themselves way back in the original meeting. All it took was time to stop, think about what they wanted and plan how to get there.

If you would like to discuss your business financial goals, please contact Scott Grady, either by email scott@cnspartners.com.au or (07) 3188 0232 or join us at our next work shop '3 Secrets To Financial Success For Business Owners' (Tickets available at: Eventbrite.com/e/3-secrets-to-financial-success-for-business-owners-tickets-32915221313).

When a friend of mine was unexpectedly taken too early and left behind a young family, I was able to take small comfort that despite losing their husband & father, at least they weren't financially crippled as well. The parents both had good life insurance policies that provided $1.5 million for the surviving partner. You don't think things will ever happen to you, but having something that close to home reinforced the reality to me that sad things DO happen. However, having protection meant:

1. The family home and all other debts were paid out

2. Money was available for the education of the children

3. The Mother didn't need to return to work immediately and was allowed time to grieve and support the children

4. There is no financial impact to their lifestyles, the annual family holiday is still affordable, the extra-curricular kids activities can be paid for

5. Surplus funds were invested to replace the wages the husband would have been earning – no bill stress ongoing

At the very least, we owe it to ourselves and our loved ones to put some thought into it, the 'what ifs' and the 'how would it affect us'. An informed decision beats being taken by unpleasant surprise every time.

If you would like some information on what options are available and how it all works, contact Alan King, either by email alan@cnsfinancial.com.au or (07) 3188 0234.

Do you know what your numbers mean?

Six months ago a client came to me with unpaid ATO debt of $50,000 and was unable to find a way to meet these payments. After a quick discussion it was revealed that the client had not actually reviewed their financial statements in over 12 months and did not realise that they had been running at a loss.

A lot of clients do not realise that things are not going well until they have run out of money. It is far too late by this stage. I find that clients do not pay enough attention to their financial numbers. I find it hard to explain how a business owner can successfully run their business without paying close attention to what the numbers are telling them about their business.

So why is regularly reviewing numbers so important?

1. The more often you review these statements, such as your income statement and balance sheet, the more accurate your understanding will be of what is working in your company and what is not working.

2. When things go well or not so well in your business a thorough understanding of your numbers can assist to explain why so that success can be duplicated or problems managed.

3. It assists with budget setting within your business. An historical view of your financial statements can assist with laying the foundation for future budgets. How do you know where to start without a review of the numbers?

4. It can assist with key performance indicator (KPI) development which can assist with working out what drives the profit of your business

5. It can assist with goal setting and monitoring how these goals are going.

So now that we know why regular review is so important why are business owners not reviewing regularly? Here are the simple reasons:

1. Most business owners do not know what they are looking at or what is particular they may be looking for.

2. Without someone checking in with business owners the review get put in the I'm too busy pile'.

3. Business owners are scared at what they may find and have to take action to correct.

The good news is that CNS Partners have a program that can assist with the above. It is called our Financial Partner Program. The Financial Partner Program is an advisory based program aimed at drilling down on your numbers and providing solutions for business improvement. 

The program includes:

• Annual Needs Review – this will address any changes in business concerns and growth & succession planning.

• Preparation of annual budget – both profit and loss and cash flow.

• We have two face to face meetings per year – In these meetings, we review the financial figures and compare them to budgets. We also look at benchmarking and highlight ideas and strategies for improvement. 

• We develop goals and actions plans at each meeting for review at the next meeting.

Please contact Scott Grady at CNS Partners if you would like to discuss this program in greater detail. The time to act is now and with assistance you can turn your business into the enterprise you dream it can be.

3 Reasons You Need A Budget

Budgets? Boring! True, it may not be an enjoyable task but it is the cornerstone of wealth creation and enjoying a comfortable standard of living.

We are constantly amazed at the people nearing retirement who suddenly decide to think about their financial situation, then get annoyed that their retirement prospects can't be miraculously improved. Start NOW, plan ahead. Here are three reasons you need a budget:

1. To ensure you spend less than you earn. It's a simple concept which most would dismiss as obvious common sense, but how much do you spend? How can you follow this rule if you don't know what you earn or spend? Budgets allow us to know what we have available, then decide how best to use it. If your budget highlights a need for more income, you need to work your business harder/more efficiently to achieve this.

2. To develop discipline. The 'I want, so I must have', mindset gets lots of us in trouble. If you can't afford it, don't get it! Save up, set goals and buy what you can afford, when you can afford it. Pay your credit card off in full every month. If you can't do that, then you are spending more than you can afford – stick to the budget.

3. To have surplus to invest. Once you know how much is required for your lifestyle, make a plan for what to do with the leftover. Pay debt off faster, put more money into superannuation, invest in property or shares and so on. What is required to maintain yourstandard of living in retirement and how are you funding it? There are lots of options which can help us get ahead, but we need to know the numbers first.

Whether it is personal or business, we need budgets. We need to know what we are working with and how to make it work hard for us. 

If you need help contact Alan King, either by email alan@cnsfinancial.com.au or (07) 3188 0234 or join us at our next work shop '3 Secrets To Financial Success For Business Owners' (Tickets available at: Eventbrite.com/e/3-secrets-to-financial-success-for-business-owners-tickets-32915221313).

Our elected parliamentarians have managed to stop arguing for long enough to actually pass some new legislation, the long awaited and much debated new Superannuation rules. This marks the most comprehensive change to our Super system in a decade. The good news is that the more extreme measures announced on budget night have been toned down, but there is still plenty happening that will probably affect most of us either now or in the future.

What has changed?

  • How much money we can contribute, both before and after tax
  • How much tax we pay in retirement
  • How we can claim deductions for making contributions
  • Extra tax for higher income earners
  • No tax concessions for Transition to Retirement Pensions (TRIS)
  • Flexibility for carrying forward unused contribution caps
  • The impact of receiving insurance payout from a spouse inside super
  • Changes to the impact of receiving reversionary pensions
  • Estate planning considerations
  • Impact on segregating assets

Who is affected?

  • Anyone who currently has a pension (or a TRIS)
  • Anyone considering making after tax contributions
  • Anyone contributing maximum before tax amounts

Super is now more complex than ever and the new legislation will force us to keep track of more data. This will most likely include a change of software for the 2017 financial year, so there are many changes ahead which we will keep you informed about as the deadline draws closer.

Does any of this apply to you or your SMSF? If so, you need to take action before 30 June 2017 to ensure that you comply with the new rules and also to take advantage of remaining flexibility before the rules come in to force. Don't wait until it is too late – if you need to review your circumstances, make sure you do it before June.

We encourage you to make an appointment to come and sit down with me to take appropriate action while the transitional period allows us to do so.

Former de facto spouses and deceased estates

Marriage and divorce change the wording of Wills, but until a decision of the Supreme Court of Western Australia in Blyth v Wilken in December 2015, ceasing a de facto relationship did not.

Wayne Scott's last Will dated 2 December 2003 gave the bulk of his estate to 'my de facto wife KATHRINE MARY MURRAY'. Mr Scott and Ms Murray had ended their relationship permanently on 21 December 2011, and Mr Scott died on 28 August 2014 without changing his will. 

It was decided that Ms Murray did not receive the gift under the Will because she and Mr Scott had ceased to be de facto spouses. Master Sanderson stated 'The deceased bequeathed the property to Ms Murray because she was his de facto wife. Once that ceased to be the case it seems to me the intended disposition should fall away'.

It is an interesting decision, as before the view would have been that Ms Murray would still be entitled to her gift despite the ceasing of the relationship. If Ms Murray had not been referred to as 'my de facto wife', and simply named in the Will, then she would still have been entitled to the gift.

The decision is a development that we have not previously seen, and has a number of implications.

1. De facto couples must review their estate planning arrangements when the relationship ends, either to preserve gifts to a former partner, or to remove them. It is not practical at this early stage to rely on this single recent decision as the complete and correct state of the law, and updating arrangements can make the result clear and certain.

2. A person who has separated from a spouse to whom they are married but not yet divorced should also review their estate planning arrangements, as a possible extension of this case would be to remove a gift to a spouse from whom someone had separated but not divorced at the date of their death.

3. Executors should be careful when administering estates where the Will refers to a person who was a former spouse of the deceased. After Blyth v Wilken, the separation may have changed how the Will operates.

For advice about estate planning and estate administration matters, please contact a member of our team."

Sales are down but profits go up!

The 2016 calendar year has been a hard one for many in small business. In uncertain times or when sales stagnate, you need to move quickly to protect your bottom line. Ignoring or delaying a decision to 'cut' the fat from your business will significantly impact your business' performance, cash flow and future survival. Examining and restructuring your costs will ensure your business not only survives but thrives when sales slowdown.

Consider these 3 simple cost saving strategies.

1. Income vs Expenses

Do you know your business' breakeven point? Breakeven Analysis identifies the minimum sales you require to cover your "necessary" business expenses. It requires you to calculate your total fixed costs (i.e. rent, interest etc.), gross profit margin and then you 'sensitise' your sales to produce a break even result ($0 profit). Once you have determined your breakeven point, be realistic in assessing your likely sales and recalculate your result as your gross profit margin fluctuates.

2. Reduce your fixed costs

Successful businesses have their cost structure weighted to variable costs (i.e. low fixed costs). Activity Based Costing is a process that enables you to analyse and change your cost structure. For example, using contractors to provide non-core services to your business or outsourcing the distribution of your products (i.e. freight) are examples of variable cost strategies.

3. Identify your business' strengths and weaknesses

Benchmarking is a process that allows you to compare your business performance to 'like' businesses. Consider the example below.

Implementing cost saving measures can be a difficult and emotional process. Changing your sales mix by focusing on high margin product or service lines and offering incentive rewards to staff are examples of benchmarking strategies to increase gross profit and reduce wages costs as a percentage of sales.

At CNS Partners we have highlighted the need to provide advisory style services to assist our valued clients in improving their business performance. We plan to provide these services to a larger portion of the client base in the 2017 calendar year. As your trusted business advisor, CNS Partners is best positioned to provide you with professional advice to implement required strategies.

If you would like to find out more about this advisory style service offering, please contact Scott Grady.

Australia is a wonderful place to be at Christmas time, sun, surf, sand and plenty of it. It is also a pretty unique place from a business perspective. From about Mid December to mid January the country all but shuts down. Of course those in seasonal service industries and retail will definitely not be shutting down. So I suppose business tends to fall in to one of two categories, either its is is in Christmas party and shut down or manic ramp up, super busy mode. Your clients will therefore most likely fall into one of those two categories as well. Herein lies mistake number one of the three I am going to share with you. We get busy or start to shut down and we presume our prospects are in the same position so we stop talking to them in the way we have been all year. We stop hunting new clients. I have had businesses I have worked with tell me that they stop hunting in December because their target market is either too busy or too quiet to be interested in being hunted. The simple reality is this. If you fill a need for a certain target market then that need continues regardless of the time of year. If they are super hectic it is highly likely that the need they have will be exacerbated and if they are moving to shut down mode it is a time when they will most likely be reflecting on the year and thinking about the needs they have for the coming year. The trick to hunting for new business is consistency and maintaining a top of mind strategy. By that I simply mean that if you are not staying in front of your prospects all year round then you will just have to work twice as hard in the new year to remind them of who you are and how you can help them. Potentially all the hard hunting work you have done to let them know about you will be undone and you will be back at the start of the game. It is a bit like landing on a snakes head in a game of snakes and ladders. What you want be doing is constantly searching for the ladder to take their awareness of you to the next level. Maintaining the hunt over Christmas will be timely either because they are slowing down and may be finally able to consider how you can help them or because they are crazy busy and realise that the solution you have been trying to offer them is exactly what they will need in the year ahead.

The second mistake often made is to take your finger off the pulse with existing clients over Christmas. For much the same reasons as above, many businesses simply stop their regular communication with clients over Christmas. I have often heard business owners say that their clients don't want to be "bothered' with information over Christmas or even worse they stop providing the same levels of service over Christmas. This is a value trap because your clients are looking for value from you no matter what time of year. So, if you are providing services, especially if it is on a retainer basis, you need to maintain the value proposition for your clients regardless of the time of year. As for slowing down (or worse still, stopping) contact with clients over Christmas it always reminds me of the 'dead man's switch'. It's an awful name but it is a common function on devices such as trains. The whole concept is that the train driver needs to keep his or her finger on the button for the train to operate. If their finger comes off the switch then the train stops. It is designed to protect in the case of lack of consciousness on the part of the driver. If you are the driver of your business do you want your clients to think you have lost consciousness, even worse, do you want to see your finger slip off the button and your business grind to a halt. The lesson is to keep the contact up, keep your finger on the button and continue to add value to your existing clients across the Christmas break.

Finally, the third mistake I often see is when businesses fail to plan for the next year. If you keep in mind that cash-flow will most likely follow your calendar then getting your calendar pre-loaded will save the slow start to the next year. All too often I see businesses start thinking about next years calendar after the holidays. By the time they have the calendar planned and loaded they are already in February. That's just crazy, they have missed out on a month of opportunity and they are spending valuable time planning and loading a calendar to chase the cashflow when it could have been done in the wind down time leading up to Christmas. Then they would have come back to a pre-loaded calendar ready to start earning money straight away in the new year.

Take some time to consider these three common mistakes. Are they part of the challenges you are facing in your business and if they are then now is the perfect time to take action.