Small Business People Take Note!

I have started to see a number of "for lease" signs go up on commercial property around Brisbane. A few possible reasons for this:

• Leases may have come up for renewal and the landlord decided to increase the rent, making the tenant decide to find lodgings elsewhere.
• The businesses leasing these premises have gone broke due to undertrading with the slowing economy. The owner didn't have enough put aside for a slower period.
• The business leasing the premises suffered from overtrading, taking on too much work with too little working capital available to get the jobs done.

Planning for a rainy day is important whether you are a business owner or an employee.

I host a forum for business owners on a Thursday evening from 5:30 to 7:00pm that provides workshops to small business owners or the managers to provide tools to assist them in drought proofing their business. They are structured meetings and each attendee gets a chance to benefit from the other attendees and the facilitator.

There are 6 core topics covered by various workshops and dicussion methods:

1. Attitudes, beliefs and values - core to business success
2. Knowledge, skills and abilities
3. Operations and productivity
4. Administration and Financial Controls
5. Marketing & Sales Strategies
6. Leadership - Personal and Business

If you are in business and haven't checked out your local Group 25 Business Club, do it now and benefit.

Good business trading!

Regards

Damian Ebzery B.Bus M.Bus(Prof Acc) AFPA ASA

Financial Meltdown or Financial Mistake Cleanup?

Time flies, last post was 7th August, it seems like yesterday.

Currently the global financial system is experiencing situations on scale not yet seen all at once.

The fact is that the banks began to "overtrade" trying to grow their sales without due caution for the quality of the sale. Giving out "low" and "no doc" loans just to sell some more money without charging a risk premium to the borrower to compensate for the extra risk involved with the lending arrangement.

There are two main reasons why businesses fail - one is overtrading and the other is undertrading.

The banks have now gone from overtrading to undertrading. Why? Because they no longer trust each other. However, to continue to exist they need to get over these issues and do business - buy and sell money - for a reasonable profit!

Fear is a very powerful mindset that can brutally affect the decisions we are prepared to make. As Roosevelt said though, "the only thing to fear is fear itself".

In Australia the best percentage of us have it very good. For many of us any financial stress has been brought on by our own choices - we can manage our choices.

If you read Saturday morning's Courier Mail one would think that life as we know it was about to end. However, there I was making pancakes, like most Saturday mornings, for my family and watching my 3 beautiful children play and grow. Life goes on, it up to us to make the decisions that propel us forward rather than hold us back.

Get out there and say thanks for the wonderful life we do have. Then look at ways to improve it if you want - don't make the improvements actually cause so much stress that they are negatives and detract from life.

Regards

Damian Ebzery B.Bus M.Bus(Prof Acc) AFPA ASA

Surviving in a Capitalist Society

Living in a capitalist society is an interesting experience. Within your network of family, friends and acquaintences you come across so many different perceptions of reality. Each persons little world is their own reality.How do we determine our reality- it is based on our experiences from the day we are born with some input from our inate senses along the way.

Why does capitalism exist? I believe it is due to the humans desire to have some sort of measurable guidelines that show one has "succeeded". This is then compounded by the need that humans have to continually achieve. Therefore the bar keeps getting raised.

How often is it that the first question you get asked when meeting someone is "how are you going?". The you think "how am I going - compared to what!".Money and material wealth is a means to an end - not an end itself. Unfortunately too many look as the magic million dollars as some sort of nirvana. Of course if they reach it then they have to work out how to maintain it. Often the puchasing power of the money is decoupled from the amount of money.

If you consider Malsow's Hierarchy of Needs, many in "developed" parts of the world have conquered the first 2 needs of sustainence and safety/security - to many this is an expectation of what is owed to them. The next few levels become more touchy feelly and less directly measurable. Hence the direction towards material wealth as a substitute measurement for success.

Human psychology is a challenging thing to keep control of.Why is one family of five with a 2 bedroom house happier than a one child family with a five bedroom house? What is happening around the world in many of the developed countries is that the material wealth that people have accumulated is not "Net Wealth" but "borrowed wealth", then thay have realised the challenge of maintaining this "wealth" and decided that it isn't as important as they originally thought so they bail out and down comes the "valuations" of these wealth measurements. (recessions and depressions)

Working with people in wealth protection and wealth accumulation is an interesting journey - the first step is to try to find out what "wealth" means to them!

Wealth and prosperity is different to money.

Keeping up the motivation

It's not just about the money.

Leading a fulfilling life is about much more than making money. Money is a means to an end. The challenge for many is deciding what the "ends" are.

I often get goals like "be financially secure", "be financially independant" etc.

Goal setting is about determining measurable targets that meet the overall objective. Therefore, what does financially secure mean to you - being able to pay the bills comfortably or is it more than that.

I often discuss the concept of Maslow's Heirarchy of needs with my clients.

It is bascially this, most important needs to most preferred needs:

Physiological needs - Hunger, Thirst
Safety Needs - Security and Protection
Social Needs - Sense of Belonging, the need to be needed, contributing to society and Love
Esteem Needs - Self Esteem, Recognition and Status
Self Actualisation - Self Fulfillment, inner peace etc

The issue for many in Australia is that the first and second level are covered at basic levels, therefore then it gets into the more "touchy / feelly" areas of life that aren't as easy to quantify. There's the keeping up with the Jones's which doesn't necessarily bring you happiness it might just load on added pressure to overwork and underplay.

I challenge you to take a contemplative hour and consider what is really important to you, try to quantify it and then determine a pathway to achieving it.

Regards

Damian Ebzery B.Bus M.Bus (Prof Acc) AFPA ASA

The shame file

In speaking to a number of financial planning clients lately I have found that one of their biggests issues on entering into an advice relationship is laying out their financial and related situation for us to assess and make recommendations on.

What we find is that most people seek advice when they are in some sort of bind, rarely just because they want to do better and achieve more. Therefore, this generally means that they are "owning up" to their situation there are pride and related pshychological issues to be dealt with.

I implore potential advice seekers to not be ashamed or afraid of being honest and saying "we want to do better". Whether in business, at work or personally our egos can often hinder us reaching our true potential in life. We can always learn something new to assist us in doing better.

The only dumb question is the one not asked.

Seize the day, achieve more out of life.

Regards

Damian Ebzery B,Bus M.Bus (Prof Acc) AFPA ASA

The financial planning process

In talking to some colleagues and clients I have been told that one of the complaints people they know have is that financial planners only talk about insurance and shares. These products make about PART of the tool kit that provides for both wealth protection and wealth accumulation.

Why do I provide risk management advice as part of my advice process? Because I have seen situations where a good wealth accumulation strategy has been working well only to be torpedoed by something happening to the client, ceasing their income and causing wealth accumulation strategy to fall in a heap as they no longer and feed the investments to help them grow.

Why do we cover all types of investments in our advice? There are two main ways to accumulate wealth sustainably. They are, investing in shares and investing in property whether directly or through some sort of managed fund or property trust. The aim being to build an investment portfolio that can at some stage replace your personal exertion income with income from the investments. Many don't have a portfolio of sufficient size to produce sufficient income, therefore they have to sell down their investments to help fund the shortfall. If you just have a direct property portfolio it means that you have to sell a whole property, often trigerring significant capital gains tax in one hit. With the flexibility of other investment options including property via property trusts you can sell down part at a time only freeing up the amount of money you need not a lot more than you need.

That is why when we structure portfolios we look at how we can achieve the wealth accumulation goals but provide enough felxibility for different stages of life as well.

Seeking advice from a suitable professional adviser will enable you to make informed and educated decisions about your financial future.

Regards


Damian Ebzery B,Bus M.Bus AFPA ASA

Beware of Junk Insurance Policies

Beware their are a new range of junk insurance policies being sold. Income Protection / Disability policies that only cover you for 1 year on claim, non renewable after 5 years in place (drop out generally when you need them most, are older and may hae some health issues affecting your ability to get a new policy) and have a very limited definition of disablement. The premiums are only slightly less than a quality policy to pays you to age 65, is guaranteed renewable (as long as you pay the premiums the policies will be in place till age 65) and have much better definitions of disablement and can also pay a partial claim as top up income.

The devil is in the detail.

Don't pay good money for half baked protection.

Regards


Damian Ebzery B.Bus M.Bus AFPA ASA

Investing for the Future

Finally the Australian Securities and Investment Commission is looking into the possible cases relating to "market manipulation".

Market manipulation is when somebody leaks information that causes investors to make significant buying or selling decisions. It also can be brought on by large investors making signficant sell orders or buy orders thereby affecting the up or down movement in a share price then cancelling these orders once they have had the desired affect on the sharemarket traders.

It is frustrating for the standard "long" investor who buys and holds but may rely on the valuations of the share portfolio to support a prudent margin lending position.

Our view is to try to see through the current volatility in the sharemarket any to continue making long term investments. The truth is, when building a long term investment portfolio you want the share prices to stay low whilst you are accumulating more shares as you can buy more - it is about buying income earning potential to provide an income stream in the future to replace your personal exertion income or to assist in paying down debt positions.

Invest - don't speculate - you might as well go to the races if you want to do that.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Beware of Insurance Traps

I often have people ask me about this insurance they have been offered by their bank - it is called accidental injury insurance or accidental death insurance. The premiums are often very low.

The problem is that these insurances only cover you when you are injured or die due to an accident. The truth is that most successful insurance claims come about through a medical illness rather than an injury from an accident.

There is no use paying insurance premiums for something that will only payout in very limited circumstances.

Personal insurance can be a minefield - seek advice from somebody who can compare what is available and what you need.

Remember, your ability to earn income is one of your most important assets - insure it properly.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Use your income wisely

To often we see good money wasted by people that do not understand the concept of investing out of gross income. There are two main ways this can be achieved:

1. Salary Sacrifice contributions to superannuation
2. An interest only investment loan where your employer pays the interest for you as a salary sacrifice out of gross income (you get the tax deduction now rather than at the end of the year).

The benefit of doing this is that you are saving the tax that would have been payable on this gross income. EG: An investor says they can afford $1000 per week out of cashflow to invest. If that comes out of after tax income (assumed 46.5% tax rate) they have earned $1869 to invest $1000. Therefore if they invested $1000 of pretax income they would benefit by $869 before they had even received an investment return.

Our research shows that over a 5 year period an investor (based on the same investment return etc) will be better off borrowing to invest in the above mentioned situation by about 300% or 3 times the net position they would have been by using after tax income.

Investing is about sourcing investment return form sources other than your personal exertion. It takes time and effort to build an investment portfolio that will replace your personal exertion income, but when it does you won't know yourself.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

When is the best time to invest?

The best time to invest is continually. Market timing is high risk and often detrimental to long term wealth creation. Often the biggest gains on the sharemarket are in one day. If you miss out by not being invested on that one day you can miss a lot of investment return.

I use the term INVEST. Speculating is a different thing altogether. Day Traders punt on movements in the stockmarket related to their gut feel on how an individual stock will move on any given day - don't forget the transaction costs of getting in and out. You might as well go to the races - at least you can have a drink and relax there.

Prudent investment will provide a combination of income and capital gains over time. Continually investing smooths out the spikes in prices and allows you to build an investment portfolio that will provide investment returns as long as the businesses you invest in continue to operate profitably.

When investing in property it is generally about supply and demand, and what rental income or capital gain a property may provide now and in the future. A property is not a trading business so the investment performance is generally related to how many properties of a similar type are available, where the property is located and whether good tenants can be found to provide the rental income and how much money the investor can afford to spend on it. There is more potential for emotional issues to affect property prices - whether someone likes the "look" of a property - not necessarily whether the investment return stacks up or not. Timing in property purchases can be like the sharemarket - unpredictable and risky.

You must always factor the opportunity cost of not being invested, particularly when borrowing to invest. Tax planning considerations can come into the overall decision process.

ONE IMPORTANT THING TO REMEMBER IS THAT NO ONE GETS WEALTHY AND STAYS WEALTHY BY NOT INVESTING. IF YOU SPEND EVERYTHING YOU EARN YOU WILL NEVER IMPROVE YOUR ABILITY TO LIVE WITHOUT WORKING FOR YOUR INCOME.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Keeping a roof over your head

It always surprises me when I ask people if they have insured their most valuable asset. Most say, yes we have insured our home.

The truth is for most people their most valuable asset is their ability to earn income. What is it worth? Take your annual gross income and multiply it by the number of years to normal retirement age.

EG: A 35 year old on $60,000 per annum. $60,000 times 30 years equals $1,800,000.

If your income stopped tommorrow many would suffer from financial difficulty by the end of two weeks. This could mean that the family home might have to be sold if the illness/injury causes you to be of work for more than two weeks.

Their are two types of insurance that can cover personal income - Income protection and Salary Continuance. The better quality policies are Income Protection policies and should provide cover on an "own occupation" basis if you were on claim up to age 65.

There are numerous income earners that think they are covered adequately by their income protection available through their superannuation fund. These often have a waiting period up to 90 days and will only cover you for 2 years maximum on claim.

These are some of the issues to consider:

• Own vs Any Occupation definition of disability
• Waiting period before claim can be made - needs to align with your financial situation
• Period the policy will pay out whilst on claim
• Guaranteed renewability - as long as you pay the premiums the policy remains in place regardless of changing health
• Guaranteed Insurability - ability to increase cover by up to 15% without further medical requirements
• CPI Indexed cover prior to claim - cover indexed each year
• CPI indexation of benefit whilst on claim
• Does the policy cover both employed and self employed income including income derived that may be split with a spouse

You should check if you have this in place and if so how good the policy is.

Premiums on Income Protection are tax deductible.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

You can start small when investing

You do not have to have a lot of money to start investing, with a managed fund portfolio you can start with as little as $1,000 - how to get this - you can even take a cash advance on a credit card and pay it off later - tax deductible interest!

Real life examples:

A client invested $2,000 in July 2000 in a managed share fund 100% Australian Shares Fund.

The client has reinvested all the distributions.

The portfolio is now worth $3,600 (albeit a little less than it was in November 2007).

That makes an average investment return of 11% per annum. Not bad for making the investment, putting "it in the bottom drawer" and going on living life!

A client invested $1,000 in July 2000 in a managed share fund 100% Australian Smaller Companies Shares Fund.

The client has reinvested all the distributions.

The portfolio is now worth $2,073 (albeit a little less than it was in November 2007).

That makes an average investment return of 14% per annum.

Prudent investment provides returns - even with share market ups and downs.

Seize the day!

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Funding Retirement - how much money is enough?

If there is one question in many baby boomers minds at the moment this is probably it.

How much you need is determined by a few factors (not an exhaustive list):

• What lifestyle you wish to lead in retirement?
• What age do you intend to retire?
• What does that lifestyle cost?
• What accomodation will you have? Will this add an ongoing cost?
• How much tripping around do you want to do?
• What are your hobbies? What do they cost?
• Remember this is a 7 day weekend - lots of time to fill!
• What is your health like? Will it be a long healthly life? People are living longer, many well into their 80's and more and more into their 90's.
• Will you still have dependant others (children, parents, etc)?

As an example:

A couple who want to retire at age 60 and have an income of $80,000 net of tax over normal life expectancies (mid 80's) would need about $1,000,000. Of course this assumes a continued average 8% investment return from invested funds during retirement.

Where does this put you? It is never too early to start planning and investing - it can be too late!

Happy to here from any retirees out their about how much it is costing them to live each year.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Planning for the end of the financial year

All to often individuals and businesses do not leave enough time to make informed decisions about managing potential tax liabilities and maximising wealth creation opportunities before the end of the financial year.

Last minute rushes have the ability to lead to inappropriate or risky advice as proper review and research has not been done to ensure the best things have been done.

If you are in business - look at your Profit & Loss - if there is a profit at the bottom line then there will be a tax bill for someone. You can look at ways to utilise the profit to cover a tax deductible expense that will add to your long term wealth creation.

If you are a wage or salary earner you can look at paying 12 months interest in advance on a loan to fund an investment portfolio. Getting the benefit as soon as you lodge your tax return.

Once 30 June is reached it is to bad so sad - tax will be payable and an opportunity to create wealth efficiently forever. Make the most of your hard earned income - act now!

Email us at empire@lips.net.au to find out how you can get on the road to a better, wealthier future.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Investing in Property

Investing in even the most basic property now will often require you to go into significant debt, usually bringing the family home into the equation as security on the loan.

We are investigating the opportunity of pooling funds of investors to invest in residential homes and units - fully invested no debt. This would provide a positive income to investors (often with a significant portion tax deferred) to offset against any borrowing cost they may have. You would be investing with between 10 and 20 other individuals via a private unlisted unit trust. The investment time period would be about 8 years - when all unitholders would have a chance to determine whether to sell the property or continue to own it.

If the interest is there we will look at both ungeared and geared trusts.

WHY?

• Only have to come up with between $15,000 and $30,000 to invest (can be borrowed funds).
• Less investment risk, as you can do this a number of times and have exposure to many more properties than you would be able to do on your own without having to take on the huge levels of debt required to establish your own property portfolio.
• Ability to access higher priced properties than you would invidually.
• Benefit from the longer term capital growth possibilities.
• Have an asset to assist funding lifestyle in the future other than your house and a bit of superannuation.
• Benefit from the ability to use tax deductible debt to buy in without having to have your house secured in its entirety.
• Benefit from better investment diversification - not all eggs in one basket.
• Puts accumulation of wealth rather than accumulation of debt as the main aim of investing.

Property and shares both have the ability to increase in capital value over time. Money in a term deposit doesn't, it actually decreases in capital value in real terms due to inflation. Especially if you spend all the income.

Email me at empire@lips.net.au to express interest in this opportunity.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA