Justin Lip – Strategic Financial Solutions

Whether you’re a big corporation or still dreaming about that big idea, chances are that the aim of your game will be to build wealth – preferably, in the quickest possible time. Some might argue that we’re not all like that and of course, they would also be right as your financial objectives are unique to you. So why risk it all?

Invariably, we can’t escape reality. I’m sure you’ll agree that with money, greater certainty and opportunity abounds – essentially to spend time doing the things you love. In a rushing towards our objectives however, we can sometimes overlook the opportunity to make these same objectives more certain. This was only too true for a close family friend of ours – Jack and Joanne.

With three wonderful kids and in their early 40’s they had done considerably well. Jack had a stable and growing small business that allowed Joanne to stay at home and look after their 3 year old daughter and two boys in early high school. They were well on track with a reasonably sized investment portfolio, a couple of investment properties and had structured their debts appropriately to generate tax deductions.

Through our conversations, the topic of personal insurances came up several times and was always finished off with, “I’ll think about it”, “It’s all too hard, don’t have the time” or “I can’t see the value”. Ironically on numerous occasions when this topic surfaced; it was Jack who bought it up. Jack and Joanne had sacrificed a lot to get to where they were and it wasn’t through sheer luck either that they had managed to accumulate wealth. They had lived on a tight budget earlier on, buying in bulk when items were on sale, Christmas presents in July’s toy sales, skipping regular holidays.

One day, tragedy struck. Jack walked into the shower after a hard day’s work, slipped and rest is history. It took Jack a few hours to regain consciousness but another 8 months to get back on his feet. By this time, things had dramatically changed. Jack was no longer the same person physically as the slip resulted in a blood clot in his brain and was grateful to be alive. Joanne was forced to work part time with their youngest put into child care. They ended up losing their investment properties and their share portfolio is now only a fraction of what it was. How could this happen in such a short period of time, you might ask. Well, like I said earlier, Jack didn’t protect the most important asset – “You”.

I’ve asked this question many times to my clients’, what’s the most valuable asset that they have and almost without fail, I get answers along the lines of their investment properties, homes, shares, and jewellery. Only sometimes I get the odd answer, ME.

Do we really take care of our love ones like we said we would? Do we have any plans in place to spare our loved ones the aguish of having to live through such a situation? Can we pass this risk to someone? If I say yes, wouldn’t you agree that the “cost” is insignificant compared to what Jack and Joanne had to go through?

If Jack had life, total permanent disability, trauma and income protection insurances in place, they would have received lump sum payments to help pay down loans, lump sum for medical treatments and receive monthly income to help with ongoing family expenses. In their situation, to pass this risk onto the insurers would have cost them around $3,000 per annum or $250 a month or under $10 a day. Is that too costly? I’ll let you decide.

So before you jump on the phone and start calling insurance companies for quotes, seek professional advice – it could save your family and business potential heartache later on. It’s imperative, wouldn’t you agree?

Ben Venter, AR

As a financial adviser specialising in business insurance, I spend most of my time creating comprehensive business succession planning strategies.  In its most limited form, a business succession plan is a strategy agreed to between the owners in a business that will enable business owners to exit the business upon retirement.  This allows the owners to liquidate the equity they have built over the years in an organised manner to fund their retirement, and in many cases, to pass on this significant contribution to their estate.

This type of agreement is precariously deficient however, as it does not take into consideration that the business owners may be forced into retirement.  The chances that any one of us will experience a significant and unplanned health event during our lifetime such as injury, illness, or death, are actually quite high.  For example, of the Australians who retired early, 41% did so because they were too sick or too injured to return to work (6.6% had the financial resources to retire, and 52% could not find work. (Australian Bureau of Statistics – Retirement and Retirement Intentions, Australia (6238.0); Disability, Aging & Carers: Summary of Findings; National Health Survey 1995)

A well-structured business succession plan considers these risk factors by formulating a strategy to address the possibility that the business owner may experience Death, Total and Permanent Disability, and/or Temporary Disability.  Generally, the strategy should focus on the following areas -

▪ Protecting the owners against a forced sale of assets in the business,

▪ Protecting the owners against a drop in revenue in their business, and

▪ Protecting the owners against the potential disorder and cost of an unplanned transition in the ownership of the business.

As I tell my business clients, it is important to also review their affairs in general to assess potential outside risk that could also impact their business.  This means that business clients will require more than just a traditional accountancy service.  For example, we help business owners-managers and directors improve profitability and efficiency by using advanced business development solutions.  We investigate many areas of their business, including:

▪ Looking at the business from an asset protection viewpoint to develop an adequate business structure

▪ Streamlining businesses systems and processes

▪ Offering corporate advisory solutions

At The MBA Partnership, as a member of Count Financial Limited, we have an experienced team that offers an extensive range of services to help small to medium enterprises and taxpayers with their financial needs, from accounting and taxation services through to business management and forensic services, to retirement and succession planning.  Our team has the expertise to support you whether you’re starting out in business, about to go public or about to retire.

Please note taxation and accounting services do not fall under Count’s AFSL.

General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

As a small business owner you’ve worked hard to get where you are: from your original idea or concept to launch and growth of your business. You want to succeed – your business is a reflection of you and its success is your success. Indeed, in many cases it is your livelihood. Nevertheless, you know that the road ahead may not be as clear-cut and that the strategic choices you make now could affect the future of your company. Can you maximize profit, reduce your CO2 emissions and support global targets by 2030?

The answer of course is not that simple. Understanding the impact on your business of emission targets whether now or in the future and more generally, climate change is even less simple. Ultimately, whether you believe in it or not, you need to be aware of the risks given the current environmental uncertainty. Did you know that the Kalgoorlie earthquake earlier this year caused losses of over $10 million dollars within the hotel industry?

Of course, businesses in Kalgoorlie that were adequately insured for property damage and loss of profits will probably sleep easy knowing that they will be able to get up and running without to much of a hassle. Of course, that is if those businesses weren’t in an asbestos affected areas…

So it’s refreshing to see that organisations that specialise in risk-transfer (i.e. insurance) are partnering with environmental organisations in order to provide tools that can help businesses understand the financial impacts of climate risk. Allianz for example has recently launched an online game that enables you to simulate the effects of business choices on the ability to maximise profits whilst reducing emissions.

Zurich for example, has established a program for brokers that enable them to talk to their clients more confidently about the risks of climate change. The program includes a comprehensive set of risk diagnostics, online tools and training information for both brokers and their small business customers.

The only problem with these initiatives however is how little people know about them – this is still an area where information needs to be ‘pulled’ from risk experts such as insurers and is not ‘pushed’ out to the Australian community in an effective manner. Of course, if you aren’t aware of the risks then why would you go looking for answers?

We would love to hear your thoughts on this important issue!