Month: December 2020

Pros and cons of reverse mortgages

Posted on by Adam_Admin

Reverse mortgages allow you to use the equity in your home as security to borrow money. The following are pros and cons of acquiring a reverse mortgage. 

Pros

  • You will be the owner of your home and can continue to live in it
  • Some of the money you gain from it could be used to supplement retirement (especially relevant if your super isn’t covering all expenses 
  • You could use the lump sum payment for renovations if your home is in a bad condition
  • You could put the money aside for emergencies that can arise 
  • You won’t feel stressed about your living situation

Cons

  • Over time, your debt will grow while your equity decreases
  • Interest and fees will accumulate and contribute significantly to your loan balance
  • The interest rate that is charged on a reverse mortgage will be higher than on a standard home loan
  • Reverse mortgages could impact whether you receive Age Pension
  • Reverse mortgages could inhibit your ability to afford aged care
  • If you are the sole owner of your home, then if you move or pass away, the person staying with you may not be able to stay
  • If you plan to invest the money from your reverse mortgage, then your home is at risk (not just the portion being invested) 

Planning for unforeseeable circumstances is especially important during retirement. Therefore before you choose to opt for a reverse mortgage, make sure you consider your options. 

Why you need Search Engine Optimisation

Posted on by Adam_Admin

The term SEO gets thrown around a lot, but what does it mean? Search Engine Optimisation is the process of increasing the quality and quantity of your traffic through organic search engine results. Quality pertains to the types of people that visit your website and how relevant they are to your service and product. Quantity pertains to the amount of traffic your website receives. 

But what does that mean for your business?

Save money on ads: 

A significant advantage of SEOs is that you don’t have to pay for your website to come first on a search engine. If a website is well-crafted, then it will appear in the highest spots when a relevant search is made on google – without paying a price for it. Being one of the earlier results on a search engine also increases the perceived reliability of your business. 

Find your target audience

SEO can help you target the audience that is most relevant to your services. If your page responds to the needs a customer expresses on a search engine, the likelihood that they will visit your website and use your services is a lot higher if your website is shown early. For this, having SEO is extremely important. 

Stay ahead of competitors

Using SEO helps you improve your rankings on a search engine, and also helps you move above your competitors. Data shows that the first result on a page gets 20.5% of clicks, and by the fourth one, this drops to less than 9%! Moving up in search results make a big difference, and it also pushes your competitors lower.

Easy to measure

When you make changes to your SEO, you will be able to see how it impacts your website visits straight away! You can use tools such as Google Analytics which help monitor your traffic,

How to reduce the tax you pay

Posted on by Adam_Admin

There are various potential ways you can reduce the tax you pay. You may be entitled to tax deductions, offsets or you may choose to opt for salary packaging. 

Tax deductions will reduce your taxable income amount. For example, potential tax deductions are work-related expenses, self-education expenses, charitable donations, the cost of managing your taxes. These deductions will reduce the amount of income on which tax is calculated.

Tax offsets apply after tax has been calculated, alternatively known as rebates. These will reduce the amount of tax payable. For example, some offsets you could claim are low/middle-income earners, taxpayers with an invalid relative, pensioners and senior Australians, the taxable portion of a superannuation income stream. 

Salary packaging allows you to ‘package’ your income into salary and benefits. There are many potential ways you can package your salary. For example, you could arrange to earn less salary in exchange for higher superannuation payments. By reducing your salary this way, you are reducing your taxable income. 

How to motivate and incentivise employees

Posted on by Adam_Admin

Each employee is motivated and incentivised by different things. While some employees are more motivated by money, others might feel motivated when their work is recognised. It is important to try to understand what will best work for an employee and reward them accordingly to ensure productivity. 

Providing an incentive will motivate certain employees to be more productive and produce quality work. There are various types of incentives that can be applied, such as bonuses or travel perks. These incentives give employees more to work for than their paycheck and act as motivation to put in extra effort in the work they complete. 

Recognition can also be a powerful motivator. Identifying that an employee has completed their work to a good standard and acknowledging their efforts will motivate them to continue producing good work. Employees will also appreciate their employers noticing their efforts and feel that their work is relevant and integral to the business. If you notice that an employee is doing particularly good work, public recognition can also be extremely effective. 

Employees who are self-motivated feel the same sense of accomplishment when they meet their own goals as other employees might feel when they meet company standards. For these people, company perks and incentives might not be as effective. Instead, discussing with these employees about their personal expectations and how they align with the business might be more effective. Therefore, these individuals would be working towards their own goals whilst achieving the business’ goals as well. 

Before implementing any of these strategies it is useful to talk to your employees and get to know them. Alternatively, it might help to establish a business culture and hire employees who will respond to similar incentives so that you can utilise these for each employee rather than have a different one for each individual. 

Conducting due diligence when buying an existing business

Posted on by Adam_Admin

You’ve found the perfect business for you to buy. It fits all your requirements and you’re in a position where you can comfortably buy the business. What’s next?

Before you sign the contract to finalise the buy, it is important to conduct due diligence. For this, you should review the financial records, business operations and legal documents. These will prepare you to manage the business and identify any risks or problems in process that you might need to tackle head on. You will also be able to better understand what will be expected of you as owner of the business and which responsibilities have been allocated to that position. 

You should review items such as: 

  • Licenses and permits: Have all the necessary permits and licences been acquired, and if not, look into why this might be the case – were they denied a permit due to any issues with the business?
  • Contracts and leases: Have you spoken to the landlord and whether they’ll be transferring the lease agreement/negotiating a new lease? Is the business in contract with another that is problematic?
  • Agreements: Are there any agreements the business is in that you don’t feel comfortable with?
  • Status of plant, equipment, and fixtures: What is the current status of the equipment and machinery? When will you need to replace it? Has it been approved by the relevant authorities?
  • Assets: Identify any assets that are under the business. Does it have any intellectual property? 
  • Inventory: How much inventory is there? Is it included in the sale? How is the inventory managed and will you still be able to source it from the same place? What is the status of the current inventory i.e. can it be used?
  • Liabilities: What liabilities do you need to be aware of? Are there any outstanding debts? Any fines, warranties, refunds that need to be paid for? 

Additionally, you need to conduct financial due diligence. Examine the past 3 to 5 years of the following financial documents:

  • Tax returns
  • Business activity statements (BAS)
  • Records of accounts receivable and payable
  • Balance sheets
  • Profit and loss records
  • Cash flow statements
  • Sales records

You should examine these to make sure that record-keeping has been conducted and maintained appropriately. This will also inform you of any changes that need to be made once you start running the business yourself. 

Self-managed super funds (SMSF) aren’t just about financial investment

Posted on by Adam_Admin

Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees. 

Firstly, SMSFs require a lot of on-going investment of time:

  • Aside from the initial set-up, members need to continually research potential investments. 
  • It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
  • The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par. 

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying. 

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fee, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses. 

Thirdly, investing in SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge. 

Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund. 

Partnership Agreements: What you need to know

Posted on by Adam_Admin

A partnership agreement formalises the business relationship between two partners. It can cover everything from low-level processes, up to how dispute resolution will take place in the business.  

Business partners are personally liable for the business in a partnership, therefore, determining the finer details is extremely important and can prevent complications down the line. The agreement will help allocate the responsibilities and obligations of each partner. It will also help establish the rights of each partner and how profits and losses will be distributed amongst partners. 

An agreement should take the following into consideration for it to be an effective piece of documentation:

  • Percentage of ownership: How much will each partner contribute to the business? This contribution could be in the form of capital or equipment and service – regardless, this will determine how much ownership of the business the partner has. 
  • Division of profit and loss: Allocation of profits and losses might simply follow the ownership percentages or simply be equal between partners. Regardless of how the division will be allocated, it is important to clearly identify this in the agreement. 
  • Length of partnership: The agreement could be for an unspecified amount of time, or the design of the business could lend itself to be dissolved after a given period of time. This should be in the agreement – including if the time frame is unspecified. 
  • Decision making and dispute resolution: Outlining a decision-making process and instructions on how disputes between partners should be resolved is extremely important. A meditation clause will help with resolution without the interference of the court. 
  • Authority: A ‘binding power’ should be included in the agreement which allocates partner authority. If a business is bound to a debt or other contractual agreement, this can expose the company to unmanageable risks. Including terms that state which partners hold the authority to bind the company and what would need to be done in those situations will assist with reducing or avoiding these risks.
  • Withdrawal or death: The procedures for handling the departure or death of a partner should be stated in the agreement. This could involve how the valuation process will take place and might need each partner to maintain a life insurance policy as well as a designated beneficiary. 

What record-keeping requirements does the ATO have in place?

Posted on by Adam_Admin

Record-keeping, if done well, can help running a business much easier. It gives you an overview of the business’ financial progress so that owners can assess their strengths and weaknesses and make decisions accordingly. Record keeping also enables owners to meet their tax and superannuation obligations easily – all the data and information required is readily available. Finally, record-keeping provides owners with a profile, of sorts, which demonstrates the financial position of the business to banks or other lenders. 

Record-keeping requirements related to tax and superannuation need to be met. The specifics will depend on the unique tax and superannuation and obligations your business may have and the structure of your business (sole trader, partnership, company or trust). 

The Australian Taxation Office (ATO), requires the following from all businesses: 

  • The records cannot be changed and further, the information should be kept so that it cannot be changed or damaged. 
  • The records must be kept for 5 years from the date they were prepared, obtained or a transaction was completed – or the latest act they relate to. The records might need to be kept for longer periods in certain circumstances. 
  • The business must be able to show the ATO their records if requested.
  • The records must be in English or easily translated into English.

The ATO will accept paper and electronic records. 

  • There has been an inclination towards electronic record-keeping for both tax and super requirements as this makes certain tasks easier and reduces workload after initial set up. There may be some laws which require paper records in addition to electronic ones. 
  • Businesses may also keep paper records electronically i.e. scan paper documents and store them on an electronic medium (and dispose of papers).
  • If records are stored electronically, then they should be on a device which owners have all access to, has been backed up, and allows the owner to have control over the information that is processed, entered or sent from the device.