Change is often an unavoidable constant in our lives. Sometimes it’s within our control other times it’s not. Our jobs or roles change, our businesses undergo restructures and re-designs within the strategies, the target markets, or products, and we need to be able to adjust.
Fortunately, there are ways to adapt to change, and even to take advantage of it.
Whether your goals are short term or long term both savings and investing have their place.
In the short term it is important to save and to have an emergency fund to cover any household or business expenses that are easily accessible and liquid. Experts recommend 3 to 6 months is a good buffer. Longer term, you might want to consider investing as a way of growing your money and out running inflation.
The differences between saving and investing are below, so you can decide what’s right for your personal circumstances. This article isn’t personal advice, so if you’re not sure what to do, please seek advice.
Saving – I need the money within 5 years
While cash savings won’t fall in value, they’re not risk free. Cash often struggles to keep up with rising prices, or inflation, so you can lose money in real terms.
When should I save?
· You’ve got a short-term goal in mind, like a holiday, wedding or even a house purchase or new equipment, new employees, or a new project.
· It’s your just-in-case money – if the washing machine breaks or an unexpected business expense or opportunity is presented you want to have cash available to act promptly.
· You want to be able to access your money straight away
Investing – I won’t need the money for 5-10 years
Investing involves spreading your money across different areas which aren’t cash. It can help you to grow your money over the long term. But unlike the security offered by cash, investments can fall as well as rise in value, so you could get back less than you invest.
Here are some of the main ways to consider investing your money:
· Shares- Purchasing a part of a private or public company, with the hope of capital growth and/or regular dividend payments.
· Bonds– issued by companies or governments, to help them finance their processes. In simple terms, you’re buying a portion of their debt – hopefully in exchange for an interest payment and your money back at the end.
· Property– An investment property is real estate property purchased with the intention of earning a return on the investment either through rental income, the future resale of the property, or both. The property may be held by an individual investor, a group of investors, or a corporation.
· Managed Funds– individual investors give their money to a managed fund – which invests all the money, choosing investments on everyone’s behalf based on the fund’s objectives. They aim to grow the money over time, produce an income, or a combination of both. You’ll pay a fee to own a ‘unit’ in a fund, in exchange for the manager’s expertise and time spent looking after your money.
· Retirement Funds (such as an SMSF)- Investing is generally long term and a self-managed super fund is a great way to have control over your retirement planning.
· Invest in yourself- Continue to use your funds to invest in education and professional development to upskill yourself to keep up with the ever-changing landscape and to increase your knowledge.
· Invest in your business- Purchasing new equipment, investing in systems and advice are key to growing your business and increasing your yearly returns.
When should I invest?
· When you’re willing and able to accept a level of risk – and won’t need the money for at least 5 years. With investing, there’s no guarantee of making money and you could get back less than you invest
· When you want the chance to grow your money more than you could with cash
· After you’ve saved a supply of cash that you can access easily for emergencies
If you would like to discuss savings, investing, self-managed super funds or business planning contact us today and we will help you determine what is best for you and how to get the most out of your money both personally and in your business.
New Year’s resolutions don’t have to be reserved for diets and exercise. Sometimes the area of your life that really needs attention is your finances. If you can get your finances, both personally and in your business into shape, the rest of your life will run smoother.
The new year is the perfect time to give your finances a boost. Here are a few financial New Year’s resolutions that can help improve your financial health.
1. Start investing: Rich people invest money and poor people spend it. 2022 is a great time to review where your money is going and how it is being used, investing can be as simple as foregoing the daily coffee and using the funds to invest in a managed fund, to planning a structured investment strategy such as a SMSF or a full financial plan.
2. Build your emergency fund: Most experts recommend keeping three to six months' worth of expenses in an emergency fund, this is appropriate for your personal budget and for your business. With the uncertainty that has been seen of the last couple of years, people losing their jobs and businesses not being able to open, having reserves is always important to help you weather any storm that may come your way.
3. Pay off your debt: Net debt is expected to be $729 billion—or 34.2% of GDP—at 30 June 2022 and peak at $981 billion or 40.9% of GDP in 2024–25. What does this mean? It means the country’s debt levels are increasing but yours doesn’t have to. While interest rates are low it is a great time to start planning to pay your debt down. You can balance transfer your outstanding credit card debt to low or no interest rate cards, re-negotiate your home loan to a lower interest rate and put extra money into an offset account or make additional payments towards your loan, doing this can reduce the term of your loan substantially and save you thousands of dollars.
4. Start a budget and track your expenses: If you don’t have a budget, you may as well be financially blind. Without a budget you can’t set and track your goals, your income, or your expenditure. In business a budget is a must and is the only way (coupled with a business plan) to see structured growth. Personally, it is important too, even if you have a fixed income, to understand your outgoings and where your money is being spent, invested and how much it costs to live. This will help you plan and achieve the small wins you want every day.
If you would like to learn more about setting financial goals or implementing a budget for you and your business, contact us today.
It's that time of year, and tax time is upon us. We are looking forward to seeing you all again.
We have included our tax time checklists to help you get your information together.
If you would like to book an appointment or have any questions, do not hesitate to contact us today.
If you’re a Bruce Springsteen fan, you might enjoy his song “The Price You Pay” (also covered by country star Emmylou Harris). Roger Daltrey of the Who sings “The Price of Love” while Twisted Sister released “Pay the Price” in 1999. The Doobie Brothers contemplate life in “Too High a Price” while the Thompson Twins think back to their youth in “The Price”.
Get the idea? Price is important in song… and in life! But if you listen a little more closely, they are REALLY singing about VALUE, not price.
Price represents the VALUE we are willing to pay for something. Therefore when setting price, understanding value (along with other factors) is important for all businesses. As accountants, we often see that clients can greatly improve business performance through small adjustments in price. Here are some pointers:
Asking Questions to Establish Value
Think of some of your own purchases. Perhaps you engaged a marketing consultant in the hope of growing sales. You may have bought some software to reduce expenses. In both cases, the VALUE is measurable. There are also less tangible examples of value. Buying insurance, for example, may lead to risk reduction, more certainty and peace of mind. Some purchases may bring value through improved wellbeing or lifestyle (like a gym membership). Value may take the form of a feeling of prestige, often enabled through purchases or luxury items. You need to understand how your customer VALUES your product. If you’re unsure, you may need to ask them. Once value is established, you have the most powerful indicator of price.
Add Value to Reduce Price Sensitivity
Think about the price sensitivity in your market. Some markets are highly price sensitive especially where you are selling a commoditized service. Why pay more for something that is readily available at a lower price? But if you are selling a highly customized, rare, sought after product, price sensitivity will be lower. What can you do to increase the perceived value of your product or service? What can you add? What can you ‘bundle’ to create more value? How can you improve the client experience? The simple fact is that premium providers can charge more.
Think long-term
A ‘loss leader’ refers to a sale on which you are willing to lose money because of some advantage to be secured down the line. That advantage may be revenue from future sales, enhanced reputation, increased business valuation, acquisition of new skills etc. The existence of these future opportunities will influence your view of price on the next sale. You may even consider a ‘freemium’ approach where you give something away in the hope of securing future revenue.
Consider Unique Aspects of the Market which Influence Demand
We are used to paying different amounts for flights depending on the season. Same with Broadway tickets. That’s because demand can change based on ‘surge pricing’, ‘demand pricing’, or ‘time-based pricing’. What factors influence demand among your customers? Gift-giving seasons? Strong performance of the economy?
Competitor Pricing / Benchmarking
Don’t think of value / pricing in isolation. Who would your customer buy from INSTEAD OF you? And what would those competitors charge? You are probably aware of suppliers who are considered to be ‘cheaper’ while some are considered ‘more expensive’. Consider the range of prices in the market and where you fit. Justify your position in this range.
Cost-Plus Method
This should not define your strategy… but it IS important to know what it costs you to provide your product / service. To get an accurate view, include ALL costs for this sale such as marketing, selling, preparing and completing the work. Include the costs of personnel, materials used and any disbursements to third parties (e.g. contractors) you bring in. This helps to understand your breakeven cost and will influence price.
Consider Payment Terms
Payment terms form an important part of pricing and how your client VALUES your work. Would you rather receive $100 today or $120 in three months? More importantly, perhaps, would your customer rather PAY $100 today or $120 in three months? The value of cash in your business at any point in time will influence price strategy. Think also about performance-based payments where you are paid once certain milestones are achieved.
Keep it Simple
There may be a temptation to design complex price arrangements. An obvious example is to link price to future savings. But often it is difficult to track and measure future outcomes. Also, clients like transparency when it comes to payment / pricing and anything that is difficult to follow will not be well-received.
For service providers, the most attractive way of pricing for clients is a project (or fixed) fee because they enjoy the certainty and transparency. It also drives efficiency in your business because you strive to be more efficient resulting in a higher profit. Where the scope of work is extremely vague (because the project is exploratory or poorly defined), hourly rates may be the best way to go.
Discounts
Some businesses will never offer discounts while for others, this will be a normal practice. An important question is what advantage you secure by offering a discount. Does this increase the chance of closing a deal? Does it result in a more loyal customer? The same can be said for promotions or ‘specials’ (such as buy-one, get-one-free).
Document Your Pricing Strategy
You don’t want to think through a pricing strategy every time you price a project. Create a document which you can refer to for future assignments and review it periodically because things will change.
Working out price may not get you ‘singing in the shower’ but shifting the discussion to value is an important start. Your industry, business goals and costs of production will influence your approach to price. Remember, your accountants are well equipped to advise you on price optimization and unlock additional value in your business. Take the time to evaluate your own approach to pricing and we will share some ideas on how to improve your approach.
