Articles by Janet Xuccoa

The art of making money

in business

Recently someone asked me what were the secrets for running a successful business?  At first I thought the answer was obvious.  Successful businesses make money.  But in order to make money, what are the fundamentals of a money producing business?  This takes a bit of thinking about because each business is different.  What is the same however is the majority of successful money making businesses have common building blocks:  a strong CEO, a solid management team, great staff, ahead of the game research and development, innovative marketing, reasonably advanced technology, sound legal counsel, commercial accounting advice, workable banking relationships, good cash flow, stream line processes and of course, products and services clients want.

With the above list in mind, I thought I’d write a couple of blogs, noting my thoughts in relation to each building block.  Starting with the idea that for a business to not only survive, but prosper, I’ve jotted down my ideas in respect of moving products and services to clients.

Golden Nugget #1

Being in business means you should be attempting to build long term relationships.  Business relationships shouldn’t be likened to a speed dating exercise.  Take some time with people.  They will appreciate and value it.  Don’t short change them on the time commodity.  If you do this, you short change yourself and your business.

Golden Nugget #2

So often I see people selling to a client.  I don’t think this works.  When you are trying to demonstrate your goods and services, feel from the heart and work with the mind.  Clients don’t buy goods and services with their heads.  They buy them with their hearts.  You don’t have to sell at a client.  Simply seek to understand your client’s needs. Stand in their shoes.  Attempt to feel what they are feeling.  Only then can you really hear what they are saying.  Only then can you truly understand what they want and what they need. 

Golden Nugget #3

Passion and excitement are catchy.  If you don’t feel interested, committed and enthusiastic about what you are offering to a person, how on earth do you think you’re going to communicate the message that they need your goods or services?  Indifferent, apathetic personalities don’t promote your business in a good light.  So get energized about your day and what your business can offer your clients.

Golden Nugget #4

People like honesty.  This means they like to know the cost as well as the value of what they are getting.  Never be afraid to be upfront about these things.  Explain the benefits of your services and products and be transparent with your fees.  Doing this builds trust which in turn builds a strong business relationship. If you are uncomfortable talking prices, practice. 

Golden Nugget #5

Offer people a variety of price points in respect of your goods and services. Be inventive when it comes down to charging.  Sure offer a complete price for your goods and services but if appropriate, offer a variety of ways of pricing.  Maybe pricing per widget or per job or per process in a job, is appealing to your clients.  Do some client surveys to find out.  Whichever method you choose, ensure your clients are clear on the pricing and what they are getting. Remember you’re trying to build a repeat business relationship so transparency is vital.

Finally, let me leave you with a quote from Jeff Bezos … “If you build a great experience, clients tell each other about that. Word of mouth is very powerful”.  In light of this, I say choose your business footsteps wisely.

Until I talk to you next time, remember spending is short and earning is long as the Russian Money Baron say.

Ciao. Janet

Professional Trustee Services
Gilligan Rowe + Associates LP
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

As the Trustee Services Partner at Gilligan Rowe & Associates, I’m often asked by Trustees what we think is going to happen in the economy, the property market and with interest rates. We answer questions like this all the time as helping people make and protect their money is our business.

Matthew Gilligan is particular strong on these topics and there are many clients out there who thanks to his advice, did pretty well on the last lot of interest rates ups and downs.

The one million dollar question on the table at present is does a Trust fix its interest rates on its existing loans right now or not?

The last thing Trustees want to do is fix a Trust loan at a rate of say 7.25% pa and then rates move downwards the following month. Likewise, a Trustee will not be happy when they choose not to lock in their loans and find rates move upwards and against them and the Trust.

A couple of months back the answer to this one million dollar question would have been fairly clear. Now however, it really is a game of snakes and lizards and everyone is wondering which way they should roll the dice. Below are some tips that might just help you decide what to do with Trust loans.

The Reserve Bank and the OCR

In simplistic terms, the Reserve Bank’s main job is to establish and implement monetary policy. It does this by setting the Official Cash Rate (“OCR”) with an aim of controlling economic activity and inflation. How does this affect Trustees and Trust loans?

Well, again in very loose terms, Banks borrow money which they then lend on to us. Banks borrow money from several sources such as from overseas lenders, term deposit holders and of course, the Reserve Bank.

When a Bank borrows funds from the Reserve Bank, it usually does so at a rate around the OCR. When a Bank then lends funds on to us, it does so by putting a bit of a margin on those funds. So if a Bank borrows funds from the Reserve Bank at say 5% and if it adds a mark up of say 2%, we can expect that Bank to lend those funds to us at 7% or thereabouts.

Accordingly, when the OCR moves, it affects the wholesale rates Banks borrow funds at which in turn, affects the interest rates the Banks are prepared to lend money to us at.

When setting the OCR, the Reserve Bank looks about 2 years out. In other words, the Reserve Bank doesn’t just deal with what is going on right now in our economy when it sets the OCR. Rather, it looks about 24 months ahead and sets the OCR on what it expects is going to happen in the future.

In the last OCR review, which happened on 29 July 2010, the Reserve Bank set the OCR to 3%. The Reserve Bank said the economy might not grow as quickly as previously thought and inflation might not reach the heights it was previously expected to reach in 2012. What does this mean for interest rates?

If all was going according to the Reserve Banks prior expectations, the OCR would have risen to around the 6% mark by the end of 2012. That meant we could expected interest rates to be around the 9% mark by the end of 2012. But now that the Reserve Bank has brought back its expectations, it thinks the OCR will only reach 5% by the end of 2012. This of course means interest rates could come back a bit, to around the 8% mark.

So given the above information, does a Trustee fix or continue to float the Trust’s existing loans?

Floating Rates

If a Trust’s existing loans are on floating rates right now, you might as a Trustee, choose to continue along this path if you think New Zealand’s economy will be long and slow in growing. Of course if you hold this view, you’re be expecting interest rates to stay low and the OCR not to rise as quickly or as high as was previously envisaged. You will recall the Reserve Bank has recently indicated this.

As a Trustee you might also continue to float if you think the global situation (especially in Europe) will deteriorate. Why would you do this? Well a deteriorating global situation could lead to a decrease in the rates our Banks pay to pick money up off shore. If Banks have to pay less to get the moolah that they on-lend to us, then perhaps they won’t charge us so much for the pleasure of borrowing it off of them eg: fixed rates will come down.

If a Trust is in funds, perhaps it receives rental income for example, you may as a Trustee be intending to pay off some of the money the Trust owes the Bank on its existing loans. If this is the case as a Trustee you would probably also choose to float because if you fix the Trust’s loans, penalties may be incurred for making early repayments.

Fixed Rates

If you are thinking you might fix the Trust’s interest rates on its existing loans, you are probably of the mind that the International Monetary Fund growth forecasts will come true. Likewise, I expect you will believe the New Zealand economy is going to experience fairly rapid growth and inflation in the near future. You might be basing your Trustee opinion on the fact that the vehicle sales, dairy, forestry, education, exports and manufacturing sectors in our economy have grown and will continue to grow at a relatively quick pace.

Of course if you hold these beliefs, you will be expecting fixed interest rates to increase. As a Trustee wanting to do the best for the Trust’s Beneficiaries, you will be hoping to get in early so the Trust doesn’t have to suffer the rate increase later on. Hence, you are likely to fix the Trust’s interest rates now.

The Trust might also be in a financial position of being able to pay the additional monthly increase in payments it is going to experience if the rate is fixed now. I say this because if the loan is currently on a floating rate, the Trust is probably paying around the 6% pa mark. But if as a Trustee you choose to lock in the interest rates right now, you are most likely going to do so around the 7.0% to 7.3% pa mark. Consequently, the loan repayments will increase in size.

Of course the extra the Trust pays in loan repayments on a fixed rate might well be worth the peace of mind that is gained. Which is another reason why a Trustee might choose to fix their interest rates.

Look Left & Right Before You Jump

This heading says it all. Whatever you decide to do, get some information before you implement your decision. Do the numbers. Work out the figures. Check to see which alternative will be to the Trust’s financial advantage. Get help from someone independent. By the way, your Bank is not independent.

If you need help doing this financial check, then talk to us. Over the years we have helped thousands of clients with their Trust affairs. Of course a large part of our role is working out what is advantageous to clients from a financial perspective. This includes Trust clients and businesses and individuals.

So give us a call on (09) 522 7955 for a free chat. We’re here to help you.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.

In the last couple of weeks I’ve been honoured to be able to speak at a couple of events, attended exclusively by women. These events focused on issues relevant to women such as maintaining a “work-life balance”. 

I of course spoke about the issue of women keeping their eyes on the ball and looking after the moo-lah.  No one in their right mind would ever ask me to discuss a subject such as “work-life balance”. 

On occasions I’ve even had to look up the words to check their spelling so you can imagine I’ve got no conception of what the phase actually means.

Although in saying that, I did get a bit of balance in last night when I indulged in some Christmas cheer with a few of my own girlfriends.  We got around to discussing what had occurred at the women events I’d presented at and they suggested that I write a blog setting out my own thoughts about a couple of issues that had come out of these presentations.  This seemed an excellent idea after two glasses of red and by the time morning came around, the idea had stuck.  So here I am putting pen to paper.

Before we start, I want to be sure I’m shot by the Policitially Correct Squad so I’ll make this declaration up front:  the points I am raising in this blog can equally apply to both sexes and the views I am expressing are my own, based upon my own observations gathered from about 2 decades of practice.

So ... on the subject of money, here’s some things I’ve noticed over the years that are pertinent to women:

1.         Relationship With Money

Women often have a strained relationship with money in my view.  I’m not saying they don’t understand money.  What I’m saying is they seem to fall into two distinct camps.  They either really take the trouble to get to grips with the subject of money, where it’s coming from, where it’s going, money goal setting, investing, etc or they simply refuse to get their heads around the subject. In other words, there seems to me to be two mindsets – those that are truly interested in money and think of it as an essential economic good that they need to know about or those that adamantly refuse to deal with the subject at all.

Men on the other hand don’t appear to me to fall into two such distinct groups.  They might or might not be interested in the subject. They might or might not be good at managing money. They seem however not to have such strong feelings about the subject of money as I see women having.  In other words, they are much more laidback and ambivalent about the topic.  Summing it up, money for men doesn’t appear to be an emotional topic for them at all.

Of course the type of relationship women have with money affects how they actually deal with the commodity.

2.         Discussions About Money

This is a really biggie.  It affects not only how women deal with their own money but all sorts of other subjects, such as asking for a raise at work or asking their spouses what is going on in the money affairs department.  Women frequently seem to be backward in raising the subject of money. For some reason they seem shy and uncomfortable about discussing the topic. 

By way of an example, a women I spoke with last week was about to permit her boyfriend of 6 months to move into her home.  He had two ex-wives and 4 children.  She had no idea of what he earned, what assets he owned, what his commitments were to his wives and children and what money he would be contributing to what would become their joint household expenses.  When I asked her if she would be discussing these points with him, she said she ‘didn’t like to’. 

Now I just don’t get this.  She was about to permit someone to get really closely involved in her life and she didn’t have a clue as to what he was about financially.  That is just plain scary in my books.  How can you start to build a lifetime commitment with someone that you can’t discuss the subject of money about? 

Men I’ve noticed don’t seem to have much trouble talking about the green stuff with either their prospective partners or their employers.  As a result, they frequently get to grips with the views that their spouses and employers have on the subject and they then make decisions about their own behaviour accordingly. 

Of course not being able to raise and engage in a discussion about money leads women to either taking or advocating control of the coin which can have some really startling consequences.

3.        Working With Money

I guess it goes without saying that if a person isn’t interested in the subject of money and doesn’t feel comfortable discussing money then they aren’t likely to really work with money.  What I mean by this is that they will not feel comfortable asking questions and challenging another person’s viewpoint about what should be occurring with the moo-la.  Unfortunately, women often fall into this category. 

To illustrate my point I want to discuss the case that recently came across my desk, involving Jillian.  Her husband was running a bookshop which actually did pretty well financially. They always managed to pay their mortgages and they enjoyed a reasonable standard of living.  Jillian had always left the running of the business and their money to her husband saying he had everything under control.

Her husband wanted to get ahead as he put it and so he wanted to buy another bookshop.  Trouble was it would involve them getting a very big loan.  But Jillian didn’t want to appear unsupportive so she didn’t question him about things and just signed the loan papers that were put before her. 

She did feel a little uncomfortable about them borrowing such a large sum of money to buy the 2nd bookshop and she wasn’t that happy at the time at having to put their home up as security but she nevertheless went along with things.  She even gave a personal guarantee for the borrowings herself. 

They went ahead and purchased the 2nd bookshop but despite her husband’s best efforts, the business still wasn’t making money after 7 months of trading.   As luck would have it however, a distant relative died around this time and left Jillian $80,000.  Her husband suggested that Jillian put in the inheritance she had just received to help the business along and Jillian, again not wanting to appear unsupportive, agreed. 

Things just got worse.  Month by month the business lost more money.  The loans were unable to be repaid.  Jillian’s husband took action and did sell the 2nd bookshop but the sale proceeds they got were not enough to pay back the loans.  So he then sold the 1st bookshop they owned.  But still there was a debt left owing to the Bank.  So they then sold their home.  Of course being in a downward market, the house didn’t realise as much as they hoped and there was a debt left over that had to be paid back to the Bank. 

As you can imagine all these events put enormous pressure on their marriage and Jillian and her husband separated.

As if this wasn’t bad enough, letters from the Bank started to arrive demanding repayment of the money that was still owing.  Jillian went to the Bank and explained the situation. The Bank whilst being sympathetic told her that she would have to pay them and that if she didn’t, they would sue her under the personal guarantee that she had given.

Of course Jillian had no money and no assets and so that is exactly what happened.  The Bank sued and then bankrupted her. 

Jillian through not wanting to deal with the issue of money had lost her home, her ½ share in the 1st profitable bookshop and her inheritance.

4.         Responses To Money Troubles

In my previous lifetime I use to head up a team at a Bank.  One of the functions of that team was to deal with customers who were defaulting on their loans.  And this is where it gets really interesting.  When the loan was in a joint name, it was usually the women who picked up the telephone and called to find out what was happening and how the problem could be worked through. 

From the couple of years work that I did in this capacity I had to draw the conclusion that when money troubles were on the horizon, women were more inclined to take the bull by the horns and move into ‘clean up mode’ as I though of it. 

I never really did come to understand why it was the fairer of the sexes that tried to sort things out when they’d gone bad especially given the fact that these very same women weren’t at all involved in the decision of where the money went in the first place.  Perhaps this is just one of the mysteries of life I’m going to have to live with. 

The point that I’m making however is women are good at cleaning up money issues but frequently woeful at dealing with the set up of the monetary situation.  If they were more involved and better at the inception of the money decisions, the money troubles may never come home to roost.

5.         Solution

Millions of books have been written about it and loads of money has been made from the subject over the years.  It’s called “Communication”.  That’s the only solution to dealing with money.  Quite simply, you have to sit down with yourself and explore how and why you feel a particular way about the subject.  Then, assuming your financial future is tied up with a nearest and dearest, you have to get down to the nitty gritty, take a deep breath and talk to your spouse about the subject.  You can do it in a non-threatening way. You don’t have to argue about the subject.  You can even agree to disagree.  But you do have to talk.

Once you’ve explored your reaction to the subject and your spouses reaction, you have in my opinion, a really good base from which to grow.  You see a little acorn of knowledge can lead to the growth of a whole tree.  And whilst you’re busy planting, you will start getting comfortable about the subject.  Which in turn will lead you to asking questions and finding out more about the fruits of the tree, including how to look after what the tree is producing.  Which leads me to my last point.

For all those women either in business themselves, or those who have their financial future tied up with their spouse who is involved in business, ensure you get good advice.  You don’t have to put all your assets at risk.  Nor do you have to lose all your assets, including your inheritances, if the business goes bust.

An ounce of prevention is worth a pound of cure.  Get advice.  Get protection.  Get the right structure.  Look at what amount of money is being borrowed and by what entity.  Think about and decide who should be directors and shareholders.  Review who is going to give personal guarantees.  Seriously consider putting in place general security agreements in favour of yourself.  In all circumstances, understand what is going on and feel comfortable about what you are legally agreeing to.

Your goal in life is to minimize your exposure and to protect what you have built up.  Don’t let your own feelings of being uncomfortable about the subject of money be your downfall.  Get advisors around you who help you feel relaxed about the subject.  And if someone is trying to make you feel inferior or unsupportive or just plain incompetent about the subject of moo-la, then take a step back – that’s their issue not yours.

The only dumb question in life is the question you don’t ask.  So as always, get the right people on the bus, sitting in the right seats to help you. And of course it goes without saying, I’m one of those people who are happy to help you.  I

I’d much sooner be pro-active and help you plan your financial future than be the ambulance at the bottom of the cliff, cleaning up the damage.  So if in doubt, please request an interview or contact me.

Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

P.S. Did you like this article? Go ahead and sign up to our free newsletter and receive tips, updates and useful information to help you protect your assets and grow your net worth.  GRA are accountants who provide expert accountant advice both in NZ and offshore.

P.P.S.  Check out our sister website, www.familytrusts.co.nz for more family trust information.