Connect February 2015

Financial news for tomorrow’s lifestyle

WELCOME TO OUR FIRST NEWSLETTER OF 2015

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This time last year we were in high spirits about the Australian economy. In the last weeks of 2013 the market rallied 6% with the All Ordinaries going past 5000 up toward 5400 in the New Year. Analysts were predicting the All Ordinaries would go to 6000 by the end of 2014.

The start of 2015 is experiencing commodity prices down. The Australian dollar is down to under 80 cents and consumer and business sentiment is down. Globally the Australian market lost about 4% of its value behind many of the other world markets. In the US the S&P 500 was up about 8%. Even China, where the economy is currently down, the Shanghai Composite is up about 40%. Even in troubled Europe the Euro stoxx 600 is up 4% over the year.

You could say as investors in Australian Shares, it has been a tough twelve months. The information market has been our saving grace. With commodity prices down and Australia’s terms of trade and national income tumbling, what is going to help the Australian economy going forward? Certainly the downward dollar and the likelihood of further interest rate cuts by the RBA during the mid to second half of 2015.  Australia needs to diversify in other areas of activity other than relying on commodities. We need to feed into areas such as tourism, education and IT. We should also be the food basin of the world and stop selling off our land.

There should be no real reason for consumer sentiment to be down. Wages in Australia are good, especially when you compare them to the US, and interest rates are the lowest they have been for decades. If the Australian consumer could shake off their negativity and forget what’s happening elsewhere in the world, we would see the Australian economy rebound, and business sentiment would respond positively.

By John Osborne, CEO


ARE WE MICROMANAGING OUR BUSINESS?

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In this age of technology and instant communication from around the globe, we can become very negative and uncertain as we absorb masses of information thrown to us by the media, which is usually negative. Basically through improved technology and great communication channels, we are aware of more issues.

We should be aware of these issues and have a good understanding of the economy and improving our knowledge. However let’s not micro-manage our business and money affairs and live generally on every different bit of information thrown to us by the media every minute of the day. We should stay focused on our goals and not constantly deviate because of one piece of information given to us. If we want to achieve our goals we need to stay focused.

We have seen over the last ten years that when the market goes up all the financial whiz kids are telling us how great the market is. The market is driven by greed, so this is probably not the time to buy into the market as you have left it too late.  When the market goes out of control everyone wants to get out. This is probably the time to buy.

Smart investors work in reverse of the economic sentiment and what media is saying. They build their business and investments during these times to see the rewards of their efforts when the market picks up. They buy and build during the tough times in the market, and maybe sell when the market has reached a peak.

A good example of this strategy is Kerry Packer’s sale of Nine Network to Alan Bond in the 80s for an amount of $1.05b. Three years later he bought it back when the market was appropriate for Packer for an amount of $250m.

Yes the market and business outlook is not exciting to most but what a great time to buy and build your business and investments.

For professional business advice contact our team of professionals at OYA Financial.

By Claire Osborne, CFO


TAKE ADVANTAGE OF THE LOW INTEREST RATES

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While interest rates are low and we could experience potential further rate cuts this year, now is the time to organize your finances. At some stage rates will start to rise as the RBA starts to tighten the screws. A quarter of a percentage point rise on a $300,000 home loan could cost you an extra $45 each month on a 5% variable home loan.

Pay a little more

While rates are low now is the time to be paying extra every month. This can have a big impact in the long run. Paying an extra $100 per month can save your $43,000 in interest over the life of the loan, $400 per month will take nearly 11 years off your loan.

Consolidate your debts

While interest rates are low, maybe now is the time to consolidate your debts. As rates rise you can reduce your monthly fixed commitments by rolling your credit card debt, car loans and personal loans into your home loan. The extra cash should go straight back into your home loan so that you don’t extend the time of your loan and end up paying more interest in the long run.

Consider an offset account

If rates rise investors may be happy but the poor old home borrower is going to feel the pinch. Any cash you have could be kept in an offset account which will allow you to link savings with your home loan account, and ‘offset’ or use that amount to reduce the interest accumulated on your mortgage.

There are two benefits in doing this. Not only do you save on the interest and term of the loan, you don’t pay tax on the interest earned in the offset account. Consider whether if now is the time to fix part of the home loan.

When home loan interest rates start rising, borrowers will be searching for better rates, for comfort and peace of mind. Over the last twelve months or more interest rates have fallen considerably and most borrowers have found themselves hundreds of dollars better off per month.

As the market changes, finding the right combination of variable and fixed rate home loans at a good rate couldn’t be more important. How much do I fix my home loan and what are the implications of fixing part of my home loan if our circumstances change and we move house in the future? While it can save you interest in fixing your home loan it could also cost you hundreds, even thousands of dollars if your circumstances change and you are forced to come out of the loan.

Current Interest Rates *

Variable               4.34%
Line of Credit     4.44%
1 Year Fixed        4.49%
2 Year Fixed        4.59%
3 Year Fixed        4.49%
5 Year Fixed        4.49%

Call us now on 02 9970 3111 so we can guide you in selecting the right home loan and tailor a solution to help you reach your financial goals.

By Nestor Ramirez

* All loans are subject to approval by the relevant lending institution. Fees, charges & conditions may apply to each loan type. This will be disclosed to customers prior to applying for the loan. Rates shown are current and “indicative only” as of today but subject to change without notice.


ARE YOU PLANNING TO SELL YOUR BUSINESS

It is important you structure the sale of your business correctly so you pay less tax. Over the next few years we are going to see a peak in businesses listed for sale partly due to economic conditions after the GFC but more due to the baby boomers considering retirement.

If you are considering retirement or simply moving into a new business venture, it is important you first seek expert advice from your accountant.

Making your business attractive for selling

Every business needs to have an exit plan. Long before you consider selling you need to focus on making your business attractive to the buyer’s market. Now is the time to be looking at an effective organizational structure, one that is less reliant on you the owner and principal of the business. Your focus should be on improving the net profit and cash flow. You should have some tax planning in place. And you should have a business and marketing plan in place to ultimately deliver business growth.

Remember your buyers will be seeking professional advice and are extremely clued up when it comes to considering whether your business is profitable and has opportunities for growth.

When selling your business you will need to show at least the last two years of financial reports prepared by your accountant, and a business plan to show where the future growth will come from for the business.

Accountants at OYA Financial are often surprised by the lack of structure and planning by many business owners. Your buyer’s accountant when considering to buy your business will look at your performance indicators and will be thorough in conducting a due diligence on your business.

When selling your business a key factor is an appropriate business structure which provides flexibility in distribution of net profit, asset protection and access to tax concessions on sale.

Many businesses will qualify for the Capital Gains Tax (GST) small business concessions and this can mean the possibility of no tax payable on the sale. You will have to meet a number of basic conditions to qualify for the concessions but they are of a huge tax benefit if you qualify. The following are some of the concessions which may be available to you:

  • general 50% CGT discount
  • small business 50% discount
  • 15 years retirement exemption
  • replacement asset rollover relief
  • retirement exemption

In summary

If you are considering selling your business in the next few years, start planning well ahead and structure your business for the sale. Seek well qualified advice from a professional to make sure you are getting the right concessions which may be available to you, saving you tax at time of sale. Our professional and qualified accountants at OYA Accountants and Business Consultants can assist you in selling or buying a business.

Exciting New Appointments to OYA

 Cameron

Cameron Stuart

We congratulate Cameron Stuart on his appointment as General Manager of OYA Financial. Cameron comes with a wealth of knowledge of the Financial Services Industry. He has twenty years of experience as a specialist interest rate trader. Cameron headed up interest rate derivatives desks for Lloyds Bank NZA Amro and Royal Bank of Scotland. His extensive experience spans across Australian, New Zealand, US and Canadian markets.

Irene

Irene Ohannessian

Irene joined the firm last year as a consultant and has now come on board as the Senior Accountant to lead the Accounting & Business Consultancy team. Having previously worked at private and commercial accountancy firms for over 15 years, her areas of expertise include Superannuation and Taxation planning for small to large businesses trading in Australia and overseas.