How do you create certainty in uncertain times? Much of what we do personally to grow and protect our wealth, and commercially for the businesses we manage is subject to unpredictability and change.
The answer is that there are no certainties in life – sorry about that. But, this doesn’t mean that you can’t take charge and protect against uncertainty – you just need to know where and how to look at it.
Where we are at Government spending will continue to be a focus this year with the interest on Government debt now running at $1 billion per month according to Treasury. There are only a few ways the Government has of dealing with the increasingly ominous debt trend; initiatives to lift productivity and growth to boost tax revenues, spending cuts, and increased taxes or a reduction in tax concessions. This year, for you personally, your SMSF, and your business, you should keep this in mind when trying to manage change as Government policy is likely to provide both opportunities and risks in the short and long term.
For you Your wealth
In the last 9 months, we have seen a huge drop in the value of equity markets, especially here in Australia. The All Ordinaries Index sat at close to 5,955 points at the end of April 2015. As at 21 January 2016, the index was 4,896 points. A drop of over 1,000 points or close to 18%.
It’s a volatile market and difficult to know what to do beyond “don’t panic.” Most of the leading economists are predicting continued growth despite the market being easily spooked. It’s important to know your individual position and the likely impact of change on you – investing vs paying down the mortgage, different investment types, SMSF vs retail funds. Reacting with the crowd to change is never a good idea. If you haven’t already, talk to one of our advisers about your options.
Also bear in mind the impact of Government policy. Negative gearing currently costs more than Australia’s defence budget. It’s likely to be cut back or grandfathered out of existence at some point.
The reforms to social welfare in the last few Federal Budgets didn’t quite make it through the Senate in full. But, times have changed and Palmer United is no longer the Senate ‘king pin’ it once was – directing traffic on Government policy and social reform.
One change that did pass Parliament was the ‘no jab, no pay’ reforms. From 1 January 2016, if your kids are not immunised then your family is no longer eligible for subsidised childcare or the Family Tax Benefit Part A end of year supplement.
Every so often it’s important to review what you’re spending money on and why. Debt is a big issue for most as we accumulate debt in different forms over time – home loans, investments, credit cards, etc. If this sounds like you, it’s almost guaranteed you are paying too much. It’s time to take stock and see what debt you have and if there is a way of getting a better deal.
Look at the trends and opportunities
Many of the ‘dramatic’ changes that impact on mature business models – online retail vs traditional retailers, the shift from paper publishing to online publishing, the demise of packaged electronic products on shelves to download delivery, or for example, the impact of Uber on taxi services – were reasonably predictable. There were recognisable indicators for each of these changes well before they had a direct impact on Australian businesses. Online retailing existed decades before denting bricks and mortar retail sales in any recognisable way, and as soon as faster internet speeds enabled quicker downloads the packaging and B2B sale of most electronic products became unnecessary. Tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. If anything, Uber proves that the foundation of any industry can be shaken dramatically in less than a few years.
In many cases, these ‘disruptive’ businesses offered something to consumers not reliably fulfilled by the existing market – efficiency, access, range, and importantly, greater consumer control not just acceptance of what is on offer.
As business operators, it’s important to constantly assess the impact of trends on our current business and product range and work toward the ‘what ifs’.
Trends also exist in Government policy and can have a positive or negative effect on your business. At present, the Government is firmly focussed on boosting business productivity and investment. There are a wide range of incentives to stimulate spending and the entrepreneurial spirit:
• Crowd funding – funding is difficult for entrepreneurial start-up businesses in Australia. New frameworks are currently being developed to formalise crowd and other funding sources to encourage investment opportunities beyond bank finance.
• Employee share schemes (ESS) – new rules introduced last year bolster the tax benefits for employees of ESSs and provide special concessions for start-ups. Further changes should follow shortly.
• Accelerated depreciation – small business and primary producers can access a range of concessions that enable them to offset expenses in the same year as the expense – rather than depreciating the expense over time.