Business PerformanceSpecialists

Changinglives.

We are happy to share some of the transformations our clients have gone through. Working collaboratively was essential to helping them grow.

The owner of a boat building business had come to us seeking help because they were up to their eyeballs in debt, including a significant (for them) amount owing to the Tax Office.

Sadly, this was the second time in five years they had found themselves in this situation after previously bailing the business out by borrowing $150,000 on their home to prop up the business.

Upon reviewing their financial results and the fundamentals of their business, together with the nature of their industry at the time, we quickly realised that unless some drastic measures were taken, they were going to not only lose their business but also their house and all of their other assets.

We held numerous meetings with our client showing them where their business had gone wrong, pointing out the real financial position of the business and educating them on the underlying financial model their business worked on and what was needed to make the business successful.

Taking the above into consideration, our client decided that they had lost the love for their business and, given the way their industry was headed, made the decision to close their business (it was not saleable) and try something new.

We then worked to organise their financial affairs and business structure in such a way that we were able to liquidate the company without any flow on affect on their personal assets.

Our clients were very excited and grateful that they hadn’t lost their home nor any of the other wealth they had built up in their personal names.

Their only comment was that they wished that they had sought help and met us earlier before they injected $150,000 of their personal money into a business which was flawed in how it was set up to operate.

The moral of the story is that if your business is having any cashflow struggles or owes the Tax Office money, seek help early.

A successful tradie had, over many years of profitable trading and sound financial management, built a strong business with substantial retained profits.

What he didn’t understand is that, although he operated his business via a company and, as a result, his personal assets were mostly protected from the risks associated with operating his business, a substantial portion of his wealth was sitting in the company as retained profits and these retained profits were “up for grabs” if something happened in his business.

This was especially concerning to us given the industry in which he operated.

We devised a strategy where we paid fully franked dividends from the trading company to another company via the Family Trust shareholder up to the amount of the available cash.

This cash then sat in the second company away from the risks of the trading company. We were then able to use this available cash for investment purposes (via an investment trust) to increase our client’s wealth.

Funds were also lent to the trading company as needed under a formal loan agreement together with a registered charge over the trading company.

The result of this work is that:

  • in the event that something happens within the trading company, hundreds of thousands of dollars of our client’s wealth is protected from harm; and
  • our client has a tax effective vehicle in which to invest that wealth

A salary and wage earner on good money (i.e. in the vicinity of $300,000 per annum) brought his tax information into us in the first week of the new tax year.

He was early that year, he told us, because he had just bought two properties which were heavily negatively geared and he had prepaid 12 months interest so he was very keen to get his tax refund back as soon as possible to free up his straining cashflow.

Upon further inspection, we discovered that he had purchased the two properties in joint names, which is fine except that his wife worked part time and earned under the tax free threshold.

Depending on your risk and investment strategy, purchasing a property in the low income earning spouse’s name can be a good idea. It can protect a property from risk in the case of a business owner and it can help minimise tax if the property is purchased with the intention of a high profit quick turnaround.

However, this wasn’t the case here. Our client’s objective was to hold the property long term and get a tax break on the negative gearing component.

Luckily, because our client came in so early, we were able to call the conveyancing solicitor and get the percentage ownership changed to 99% for the high income earning spouse and 1% for the low income earning spouse prior to the lodgement of the stamp duty form with the Qld office of State Revenue.

This has saved our client tens of thousands of dollars in tax over the period the property has been owned and highlights why we don’t charge for incidental phone calls and encourage our clients to call us before making any financial decisions outside their ordinary course of business or employment.

A local fish and chip shop owner who’d operated the business for nearly a decade had watched its profitability decline year after year when he came to us for help.

We reviewed his last four years’ figures which included, fixed costs, gross profit margin, number of transactions and average dollar sale.

We identified that, while the number of transactions and average dollar sale amount had remained relatively constant over that period, the gross profit margin had reduced year upon year. The business’ fixed costs had also increased over that period.

We broached the subject of increasing prices and showed our client that whilst all of his costs had increased, because he had not increased his prices, the extra costs of running his business were coming straight off his bottom line and out of his pocket.

Our client was reluctant to increase prices for fear that he would lose all of his customers.

We showed him a calculation of how many customers he would have to lose before he was in a worse position if he increased his prices and advised that he could “dip his toes in the water” by raising the prices of only two items on his menu to see how his customers reacted; the price of chips and the price of one of his “meal packs”.

We also provided our client with a standard explanation to give to any customers who raised the price increase.

He reluctantly agreed.

One month later we met to discuss what had happened.

To his surprise, only one customer during the month even mentioned the price increase and, upon being given the explanation as to why, purchased anyway.

There was no drop off in the number of transactions however gross revenue, average dollar sale and gross margin increased for the month and so, of course, did net profit.

Over the next quarter, across the board price rises were implemented and the fortunes of the business were completed transformed because we were able to analyse the problem, find the solution, work with our client to belay his fears including staggering the implementation of the solution and review the outcomes of the implementation to ensure that our solution was working.