When we develop any action plan, be it strategically or operationally, we always follow the same learning path.  So understanding how we learn, and embracing the discomfort of learning, actually makes it easier to implement.

The steps to learning are:

1. We don’t know what we don’t know – this is what a new issue is like, that we haven’t previously had to deal with, before it comes onto our radar.  We don’t give it any though because there is no reason to. When you were a small child, you didn’t even think about driving a car, you didn’t need to.
2. We know what we don’t know – the issue is now on our radar.  We are aware of it, but not quite sure what to do about it or how to deal with it.  It often feels quite uncomfortable, that which is the unknown.  It’s then time to start learning to drive and you become acutely aware that you don’t know what to do.
3. We know what we know – having identified that we need to do something we then start taking steps to do it.  In implementing, we are very methodical, if not cautious in our approach.  We consider all the options, develop an action plan, ask a lot of questions and then start implementing.  Gradually it gets easier and easier. You know you put your seatbelt on, put the key in the ignition, check your mirrors, and so on.  You keep doing the same routine each time, and eventually it gets easier and low and behold, you are driving.
4. We just do it – this is when our learning becomes second nature.  We don’t think, we just do.  It is hardwired into our behaviour.  Eventually, you just get into the car and drive without thinking how to.

So, understand that steps 2 and 3 in the learning process are just that, steps to hardwiring new outcomes.  The only way to stop the uncomfortable feeling of knowing what you don’t know and knowing what you know, is to DO.  Embrace it and implement.  You won’t get it right every time, but you never know until you try.  The reality is, learning never stops, you adjust and change from what you know so that you get the outcome you are after.

At Financially Well Organised, we don’t think it’s important to plan for your financial security:  we know it is. Financially Well Organised brings you a simple solution and process that will give you peace of mind that your financial affairs are in order and you’re implementing strategies to achieve your goals.

Most people tell us they want to have greater personal wealth to fund their lifestyle, provide financial security for their family and children and to retire in comfort. Whatever your goals, we have the expertise and experience to help you achieve them in the most effective way and in the shortest amount of time.

Feel free to explore our website, http://financiallywellorganised.com/ which is full of helpful resources, tips and tools to help you become financially well organised; take the survey to see how Financially Well Organised you are and get a report back to see how you’re doing. We’ve helped hundreds of clients achieve greater personal wealth and financial security and improved their business performance. We can help you too.

Over the next few months, we will delve into our 10 step program to give you all the tools you need to become Financially Well Organised

• The implications from the bond market selling off
• The fact tail risks have been easing. In this regard the US economic growth is looking more sustainable and the risks of a financial meltdown in Europe have eased.
• Continued underperformance by the Australian market.
• Continued mix messages from China

Download the The Investment Report for March 2012 here.

To ensure you are Financially Well Organised you must:
1. Review your tax position before 30 June;
2. Implement any strategies required to reduce your tax payable;
3. Ensure you comply with all tax and superannuation laws applicable to your structure; and
4. Plan your cash flows for 2012/13
What is Tax Planning?
Tax Planning is the process of gaining an understanding of your estimated tax position prior to 30 June and implementing effective but legal strategies to minimize taxation. It is also an essential part of wealth creation through tax efficient strategies.
It involves reviewing your actual results for the first 9 months of the year and estimating your expected results for the whole year so that you can implement any strategies prior to 30 June.
From a business perspective, Tax Planning is critical to ensure you retain more after-tax income to use in your business, reduce debt, invest or use for living expenses.
In these post GFC times, cash is still tight, so understanding your taxation commitments is critical for managing your future cash flows. You need to have an accurate estimate of the timing and amounts of your:
1. 2012/13 quarterly PAYG Instalments; and
2. Estimate of the balance of what your 2011/12 tax will be

With regard to PAYG Instalments, in some cases instalments can be varied downwards to reflect the true results that the business is achieving. Tax instalments are typically based on the last Tax Return that is lodged and that maybe as long as 12 months ago. The businesses performance may have changed substantially since this time. If you are paying more tax than necessary, you are taking away vital cash flow from your business.
Being Financially Well Organised™ is about ensuring that you are maximising all of your after tax returns.

Tax Planning strategies focus on the following:
1. Strategies for obtaining tax deductions;
2. Strategies for moving income away from an entity paying a high rate of tax to an entity paying a lower rate of tax;
3. Strategies for moving profits and losses between tax years, either to defer tax or take advantage of more favourable tax rates; and
4. Strategies for reducing the amount of assessable capital gains from an investment sold at a profit.
To ensure you maximise your after tax returns and have adequately planned for your 2012/13 tax payment, make sure you complete your Tax Planning review well before 30 June. Once 30 June rolls by, it’s too late and there will be nothing you can do. You may end up paying more tax than necessary.

The nasty side of not tax planning
With multiple entities, including companies, trusts and superannuation funds, there are also the complexities that require annual attention to ensure you don’t fall foul of the tax and superannuation laws. Failure to address all of your legal requirements can result in additional, unnecessary tax and penalties. The ATO has tightened up on many areas of the law over recent years, so it is critical to make sure you address your obligations each year before 30 June. Anyone who has a company, trust or superannuation fund, must complete an annual tax compliance review to make sure they maximise their after tax returns. We are reviewing all of your pre 30 June compliance requirements.
Some areas you need to address before 30 June:
• Have you paid out the correct amount of dividends to meet your Division 7A requirements? Not meeting these requirements could mean that the original profits are effectively taxed at 62.55%.
• Have you paid your commercial rent to your superannuation fund in accordance with your signed lease agreement? Failing to do so may be a breach of the superannuation law which could result in your fund losing its tax concession benefits, meaning it could end up being taxed at 45% instead of 15%.
• Have you maximised your deductible superannuation contributions for the year? For over 50’s, this is the last year of the transitional contribution cap of $50,000.
• Have you considered your distribution strategy from your trust? Failing to do so and documenting your plans after 30 June may render the distribution ineffective and tax the income at 45% instead of your marginal rates of tax.
• Have you paid the correct amount pension for the year? If you don’t, you may place the tax free status of your super fund in jeopardy.
Don’t worry, that is why we’re your accountants. We’ll be in touch soon to discuss ensuring you have addressed your Tax Planning before 30 June.

I often ask this question at the beginning of a speaking engagement.  I ask everyone to stand up.  Usual groans, I can here them thinking: “Great, one of these speakers that want me to actually engage.” Then I say, please sit down if you are NOT insane.  Unsurprisingly, most people sit down, however, I always have one or two that stay standing.  Not sure if they have self diagnosed or think that there is some sort of prize.  I then put to the group Einstein’s definition of insanity: “doing the same thing over and over again and expecting a different result.”

It amazes me how businesses continue to keep doing the same things over and over again, and wonder why they keep getting the same results.  It’s because the business owners are INSANE.  They don’t look to the core activities that fundamentally produce the same results and change them.  Sometimes the change required is only slight, but it can achieve an amazing result.

Take for example a business that is tight with cash flow.  There are a number of reason that may cause this, including:

• Not enough sales
• Low gross margin
• Too many overheads
• Slow paying account receivables
• Too much stock or work in progress

Here’s some ideas to bring back your sanity:

• Develop a sales plan to increase your transaction frequency and average sale to existing clients.  These clients are already engaged with your business and will have unmet needs that you can meet.  Most of your clients won’t know what ALL of your products and services are until you tell them
• Put your prices up.  By improving your gross margin you improve your profitability.  It is easier to improve your profitability by a price increase with reduced volume, than it is to discount your price to win work and increase your volume to compensate. To achieve the same profit at a current 50% gross margin, if you drop your price by 10% you need to increase your sales volume by 25%.  Alternatively, if you increase your price by 10%, you can afford to reduce your sales volume by 17% for the sales result.  However is will most likely result in increased $ margin.
• Cut your costs.  This will often be in the indirect labour cost.  Cut some costs, so long as it doesn’t imact on quality and client service, it will fall straight to the bottom line.
• Engage all clients and have them sign off on every order, job or matter before you start to supply.  No sign off, no sale, no work or delivery.  That means signing off on your terms as well.  Then build a system to follow up outstandings as soon as they are overdue and continue to do so until paid.  Afterall, they agreed at the front end to do this.  Remember that saying, the squeaky wheel gets the most oil.  After a while, they pay you on time because they know you are relentless and organised.
• Clear out your stock and WIP regularly.  Set a maximum limit and constantly focus on maintaining that limit as a number one priority.  Once it’s out of stock or WIP, it becomes a sale and can only then turn into cash.

You don’t have to do all these things.  Just work out which one is going to have the biggest impact and make a change to achieve the results you want.  Be relentless about your implementation. Remember, it’s your business, your clients need to play by your rules.

Stop being INSANE and do something different.

Resilient US macro prints and data suggesting a soft landing in China (RRR reduced by 50 bp) saw investors continue to increase risk across portfolios with equities a beneficiary. A strengthening oil price driven by supply constraints is becoming an increasing focus and concern for investors.
The Australian equity market (ASX200) finished February flat (+0.8%) with Banks and Resources both underperforming. Reporting season was a key focus with margins across the industrials and banks remaining under pressure. Mining services reported solid growth while retail and media struggled. Increasing M&A activity across deep value stocks saw renewed interest in this segment.

Download the Wrap Up of the Market for February 2012 here.

Ingredients
Serves 4

• 500g beef mince
• 2 tsp olive oil
• 2 cloves garlic, crushed
• 1 onion, finely diced
• 2 carrots, finely diced
• 1 zucchini, finely diced
• 2 slices of ham, finely diced
• 1 tsp basil
• 1 tsp oregano 
• 1/2 tsp parsley
• Salt and pepper, to taste
• 1 tsp curry powder
• 2 tsp sweet chilli sauce
• 2 tbsp worcestershire sauce
• 2 tbsp tomato paste
• 1-2 cups chicken stock
• mozzarella cheese
• ricotta cheese
• parmesan cheese
• lasagne sheets

Instructions

1. Preheat oven to 180°C. Spray baking dish with non-stick vegetable spray.
2. Heat oil in large saucepan. Add onion, carrot, zucchini and garlic, cook until soft.
3. Add mince and continue to cook until brown.
4. Season with salt, pepper, basil, oregano, parsley and curry powder.
5. Stir in sweet chilli sauce, worcestershire sauce and tomato paste.
6. Add 1 cup of chicken stock, leave on low heat for 20 minutes adding the remaining chicken stock when needed. (Note. The sauce needs to be fairly moist to ensure the lasagne sheets cook well).
7. Assembly: Pour a thick layer of meat sauce into the lightly greased baking dish followed by a layer of lasagne sheets. Cover sheet with Mozzarella, Ricotta and Parmesan Cheese.
8. Repeat the above step to allow for 3 layers, finishing off with a layer of cheese.
9. Cook for about 1 to 1.5 hours. You can tell when it is cooked by putting a knife through the centre and ensuring that it cuts easily.

• Sole practitioners
• Partnership of individuals
• Partnership of discretionary trusts
• Service entities
• Companies

There are advantages and disadvantages for each structure, and the relevant choice, as always, is dependent on each principals’ and practice’s personal situation. Since 2007, legal practices in Queensland have been able to incorporate. Provided there is compliance with the Legal Practitioners Act 2007, legal firms can now enjoy the same structuring advantages as most other businesses in Australia. There are many advantages of incorporation, with the main ones being:

• Succession
• Asset Protection
• Taxation
• Cash flow management

Whilst any eligible legal practitioner can incorporate, the taxation benefits commonly considered to apply to all companies, may not apply to all practitioners. It has long been understood that a company can retain business profits and be taxed at 30%, the company tax rate. However, where the income is regarded as personal exertion income, this generally cannot be retained in the company and must be paid out to the principal. A simple distinction between business profits and personal exertion income can be made by looking to who has earned the income. Where there are at least the same number of principal and non-principal fee earners, on a full time equivalent basis, the profits are more likely to be regarded as business profits. Whether a paralegal is considered to be a non-principal fee earner is a point for discussion. My view is that they would not be considered a fee earner because they cannot provide legal advice as a legal practitioner unless they derived a material amount of fees for the practice. So an incorporated legal practice where the principal is the sole fee earner with one or more paralegals and administration people will generally not be able to retain profits, unless the paralegals derive a material amount of fees. These profits would need to be paid out to the principal as wages and taxed at their marginal rates. These rules are different to the personal services rules, and should not be confused with them. One other issue that some firms don’t consider when they incorporate is the shift from cash to accrual in terms of the timing of when income is assessable. For firms that were previously on a cash basis for bringing to account their income, when they incorporate they usually move to an accruals basis for tax purposes. This means that the company (or principal if the company cannot retain profits) will pay tax on the income that has been invoiced, not received. If when you sell your practice to a company, you do not sell the WIP and debtors, and you were on a cash basis, then during the next year the WIP and debtors will be collected on a cash basis in your name, but the company will be taxed on all invoices issued. This can cause some cash flow issues if it is not adequately planned for. If you’re considering setting up and Incorporated Legal Practice, make sure you seek advice to address all the issues that will impact on your decision. Also be mindful of the significant advantages that incorporation provides and take a balanced view. To further educate the legal industry on the ILP strategy, I am running a series of 4 webinars commencing on Thursday 22 March, “Getting the most out of incorporating your legal practice”. Click on the link to register. If there is anything you would like to discuss regarding incorporation and any other matter for your firm, please call Matt Schlyder on 07 3833 3999 or email me on matt@elliottsgroup.com.au

I had a call from a new client this week.  We have only been working together for a few weeks.  When we first met, it was clear to me what he needed to do in his business, but he couldn’t see it.  Sometimes it’s hard to see the wood for the trees.  What he had created in his business was administration and management structure that held him back from doing the things that ignited his passion.   As an owner of a business, if you are not doing the things that you are passionate about, your business will suffer.  Remember, a fish rots from the head down. What we worked out was a simple strategy to turn this around and release the anchors.  Some simple outsourcing so he could regain confidence in his numbers, without him having to spend 20 hours a week focusing on it.  Almost immediately he felt a weight lifted off his shoulders.  He could see how this has been holding him back.  Within the next 5 days he had identified exactly what was required to drive revenue and GP growth, just some simple things: commit to implementing a new product that 80% of his clients needed (he has had this in the pipeline for months but couldn’t get the headspace to commit), and change his pricing model to drive his GP up by a minimum of 10%, which falls straight to net profit.  By identifying his anchors, realizing they been have slowing him down to the point where it felt like he was at a standstill, he was able to make some decisions that will dramatically improve his results.

More importantly, he can now see that he will only be doing those things that he is passionate about and that stimulate him.

Your anchors can be those things that frustrate you, or those partly finished projects, or those people that suck your energy.  Make a decision to untie the anchors, nothing bad will happen, and your head will clear.   When I find myself being slowed down by anchors, I take 5 minutes to write down what they are.  I find that by writing them down, I get them out of my head so I am clear to get on with the stuff I enjoy.

Remember, the definition of insanity is doing the same thing over and over and expecting a different result.  Do something different today and untie your anchors.

Results Achieved ÷ Effort

This is a contextual subjective measure, not a scientific one, so please don’t get all analytical on me.  Also, I’m not trying to be philosophical with this blog, so please stick with it and read to the end.

If the result is less than 1, then it means that what you achieve isn’t worth the effort you put in.  If it’s 1, I’d say why bother, that’s just break-even and it gives you nothing.  If you can achieve 3+ then it’s really worth doing.

ROE is measured on how you feel about an outcome as a result of the effort you put in:

ROE<1: chances are you’ll feel frustrated, you’re not making any headway, in fact you worry about future outcomes, it feel like you are going backwards.  You question whether you should just pack it all in

ROE=1: mild frustration, you feel like you are marking time and going nowhere.  Maybe in a bit of a rut

ROE >1-3: contentment.  You are moving forward, your actions are purposeful and produce results.  Life is pretty good

ROE3+: your energy is self perpetuating.  The results seem effortless, your strategy is right, what you do is exhilarating.  It inspires yourself and others.

Our actions everyday are driven by how we feel.  How we feel is driven by what we think.

THINK → FEEL → ACTION

So if how we feel (ROE) sits in between our thoughts and actions, step 1 must be to focus our thinking on the actions that will produce the results that make us feel ROE3+.  If we are ROE3+, we are truly thinking and acting strategically.

When you use ROE as a model to determine what effort you put into which activities in your business, you can prioritise your actions based on likely results.  After all, don’t we enjoy doing the things that make us feel good?

• Going to watch your son Rugby versus cleaning the pool.
• Developing a solution for a client that adds significant value to them versus doing your firm’s book work
• Taking 3 hours out every Friday morning to clear your head and develop strategies that will produce ROE3+ results and then implementing them

In my previous blog post Charging Hours is Only Part of the Revenue Equation owners of businesses focus too much on doing the work and squeezing as much as possible out of the orange they currently have.  Instead, as the leader of the business, it is your responsibility to drive priorities and action plans to produce the results.  Remember a fish rots from the head down.  If you use an ROE approach to action planning and you are currently ROE<1 or ROE=1, then don’t be disillusioned, many people are.

What’s the answer? Work out the things that you are passionate about and love doing, and only do these things.  If you don’t, then you’ll stay ROE<1 or ROE=1 and you’ll continue to feel frustrated, stressed and disillusioned.  What your personal actions are in the business, as the owner, as the leader, will dictate the ROE of the business.  Step 1 is to get yourself ROE3+ and your business will follow.  The answer is in your head, trust your instinct.