Covisory q4 oct16 connect

QUARTER 4 2016

Relationship Property and Trusts Investing in passion How Elon Musk is taking on big oil Is your work challenging enough?

Why should you look at succession?

Dos and Don’ts when selecting consultants

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Accounting and Advisory services. We specialise in International and Domestic Tax Services, Trust Management, Succession Planning, Strategic and Business Planning, Accounting Services and Business Valuations.

Established in 2007, Covisory has grown from one business to four with a diversity of clients. Covisory clients are owners of family businesses, operating both in New Zealand and globally. Our specialists work either one-on-one or alongside our clients’ team of professional advisers to develop appropriate short and long term solutions.

We build strong relationships with our clients based around trust, accessibility, and responsiveness. There is no ‘one size fits all’ about our services. Our solutions are bespoke to each client, drawing on our up-to-date specialist knowledge and our years of experience. providing one-on-one expert advice.

About

Covisory comprises four specialist businesses providing

Commentary There is a theme that we are seeing in our current dealings with clients that is interesting.

This is the search for investment returns. With interest rates now at historic lows, trusts and individuals are searching out higher returns and taking money out of cash and bonds.

So there is not a lot of real difference except that the loss of real purchasing power is more visible now than it was in higher inflation / return times.

The problem is that higher returns equals higher risks. History tells us this yet investors continue to drive up share prices and price earnings (pe) multipliers, let alone driving down commercial property yields.

Finally, the $100 is likely to be repaid with little credit risk or loss. Can you really afford to risk losing any of your capital? Share markets will drop in value, and commercial property yields will go up (resulting in a decrease in values unless rents go up by the same relative percentage to offset it).

While these investments offer higher but uncertain returns they are riskier.

History tells us of bears and bulls; the two being linked. The question is not if markets will go down for shares and property, but when. And when the markets do drop those higher returns can be lost, along with some of the principal.

History will repeat itself, but will people learn from it or will this cycle continue to occur?

Nigel Smith

The following table gives a clear comparison of the past “good” returns with the current “low” ones.

Invested at bank or bonds

Now

Previous

$100

$100

Return

3%

9%

=$

$3

$9

Less Tax (say 33%)

$1

$3

Less Inflation

0%

3%

Real return

$2

$3

Spend

$6

$6

Net Cash after spending

$96

$100

Net real cash after inflation

$96

$97

Relationship Property and Trusts

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Investing in passion

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How Elon Musk is taking on big oil

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Is your work challenging enough?

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Why you should look at succession

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Do’s and Don’ts on selecting consultants

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5 must-have insurance policies

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Life insurance: 5 common mistakes to avoid

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Business is about social relationships

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The top reasons SMEs run out of cash

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Published by Fifo Capital International Ltd. Headway magazine is published four times a year.

Copyright © 2016 by Fifo Capital International Ltd. Email info@fifocapital.com.

Visit www.fifocapital.com. All rights reserved.

Contents

Gaining fresh perspectives:

Relationship Property and Trusts A decent part of our practice is advising clients on how to use trust structures to help with relationship property issues. This is especially true with clients who are entering into a second relationship with blended families. We are also starting to see spouses of children trying to get a share of trust assets even though they are not beneficiaries of the trust.

Courts of all levels in New Zealand are constantly looking at ways to ensure claimants that are disadvantaged are able to share in assets held in trust structures.

The recent Supreme Court decision in Clayton v Clayton was a good example of how the courts are doing this; but that case dealt with a claim by a spouse who was a beneficiary of the trusts involved.

What happens in cases where the claimant is not a beneficiary?

Over the last few years’ lawyers for claimants have been arguing that the trustees of a trust are holding a portion of the assets on a constructive trust for the claimant based on contributions he or she has made to the trust property. The recent case of Hawkes Bay Trustee Company Limited v Judd from the Court of Appeal is an example of this.

The facts of the case were straight forward. A husband and wife were married for 6 years and lived in a property owned by a Trust. The husband and a trustee company were the trustees. During the course of the marriage the wife contributed to the upkeep of the home and gardens although she was not a beneficiary.

When the marriage ended the wife claimed 40% of the house or alternatively that she was entitled to an equitable compensation of her share.

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The High Court found that the wife did have a beneficial interest in the property and awarded her $65,000, being $10,000 for each year of marriage. The trustee company appealed to the Court of Appeal.

The appeal was ultimately dismissed and the Wife’s claim succeeded with the High Court order for compensation being held as reasonable. However, some important legal principles relating to trusts were considered relating to a constructive trust claim on trust assets by a non-beneficiary. The Court of Appeal considered the case of Lankow v Rose which set out what a claimant needs to show to establish a constructive trust:

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There are contributions, either direct or indirect, to the property.

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There is an expectation of an interest in the property.

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The expectation is a reasonable one.

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The defendant should reasonable expect to yield an interest to the claimant.

In this case the wife was contributing between 20-40 hours per week working on the house and gardens during the marriage. The Court of Appeal said considering this the wife has satisfied the principles in Lankow v Rose. The Trustee argued that the contributions were simply those that any tenant

of a property would make but this was rejected as the practical effect of the contributions were to the maintenance of trust property.

The Court also considered whether the Wife have a reasonable expectation in the trust property? The Court of Appeal held that although the Wife was aware the property was owned by the Trust this did not mean that if she contributed to the Trust property that she would receive nothing if the marriage broke up.

The Court of Appeal also considered the fact that trustee company has effectively allowed the husband full control over the trust assets as the trustee company argued it did not know about the contributions as the time. The Court ruled this did not matter. It is clear a trustee cannot abdicate their duties to act as a trustee.

Where does this leave us? Clearly the New Zealand courts are looking at the substance of how the parties to a trust have acted towards each other.

Although this case is a relationship property case between a husband and wife there is no doubt the principles can be applied to other situations with potentially a greater pay out for the claimant. For example, if a farming property is owned by a trust and a son is a beneficiary but the wife is not but the wife is contributing to the business. In these circumstances it is always safer for the trustees to fairly compensate the spouse for work they have contributed to the trust property.

Finally, having the parties enter into a relationship property agreement is important in protecting trust assets in these circumstances also.

“No matter how thin you slice it, there will always be two sides.” ― Baruch Spinoza

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Investing in passion Investment doesn’t have to just be about real estate and stocks.

As the number of superwealthy people increases, the value of passion investments like collector cars, jewellery, and art has become more and more significant.

What’s Passion Investment?

Regular financial investment is all about corporate growth, and economic productivity. This utilitarian approach assigns value to your investment purely on the basis of what kind of economic output it can produce, rather than on the cultural or aesthetic value.

Passion investment, on the other hand, works in a fundamentally different way. Luxury purchases like rare jewellery, art, and cars don’t work the way your investment in a business would. Rather, their value is defined by their rarity, quality, and what they represent culturally to the communities who appreciate them. As this value is increasingly recognised by communities of passionate investors and enthusiasts, and as global wealth grows, more people pursue these luxury purchases. This, in turn, raises the demand and the value of those items more.

A Glimpse into Passion Investing Getting a good overview of global passion investing as a whole requires a broad worldwide overview of the sale and possession of luxury goods and collectibles. The Knight Frank Luxury Investment Index (KFLII) uses a variety of other indexes to track a selected basket of collectible luxury goods, including luxury cars, art, jewellery,

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and other popular passion investments in order to create that broad overview. In 2015, the value of the KFLII rose by 7%, showing that luxury investment is growing worldwide, despite a 5% drop in the value of the Financial Times Stock Exchange (FTSE 100) equities index, and an anemic 1% growth for the top end of London’s residential real estate market.

Despite this healthy general growth, it’s important to keep an eye on exactly which asset classes on the KFLII are are doing exceptionally well, and which aren’t. In 2015 investors have broken numerous price records for all kinds of amazing luxury collector’s items, while some asset classes have stagnated. That’s because different types of assets attract different types of investors in different parts of the world who have a wide variety of different cultural backgrounds and interests.

Passion Investment is Diverse The first obvious example we tend to jump to when we think of high value passion investments is art, and the passionate collectors who spend

years hunting down unique pieces from their favourite artists. While that’s certainly one type of asset that passion investors might pursue, investors actually collect all kinds of high value luxury items, from gems, to wine, to musical instruments, to coins, to cars. The “best” choice is the one you’re most knowledgeable about and most comfortable with; it’s about expressing yourself through your investments.

Further, it’s important to consider that different cultural and geographical factors influence what types of luxury investments are popular in different regions of the world. A sample of popular passion investment choices might include: Luxury Cars The most popular and also fastest growing passion investment today is luxury collector cars. Not only have they worked as symbols of

independence and power for a century, they’re also an accessible genre to investors from all over the world, which makes them extremely promising for the future.

Some high end automakers are even beginning to roll out more off-road models to accommodate tougher roads in emerging countries, and the entertainment goals of younger investors. This is designed to feed the appetite of major luxury car aficionados in countries in the Pacific region and in Africa, where high end automobiles are far more popular than the global average. Only Europe has a higher rate of luxury car investment.

Art Art might be the original passion investment, and it’s still very popular all over the world. Besides its inherent aesthetic value, art

provides a unique perspective into the times, cultures, and particular artists that produced each piece.

The primary global hub for high value art collecting is still Europe, which shouldn’t come as a major surprise considering the continuing dominance of European art in the art collecting world.

Yachts Yachts offer the ultimate private sanctuary for people with plenty of money and not enough time. They’re a great lifestyle investment, and are a great choice for adventurous people who want to be able to make active use of their assets. Globalising wealth is having an enormous effect on yacht ownership, and the SuperYacht Sector (boats over 24 meters) reported over 40% growth in sales ... continued page 21

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How Elon Musk is taking on big oil

In business as well as in the world at large, a few people tend to step up to oversee and catalyse major changes at pivotal moments in time. In the past, those have been government leaders, scientists, businesspeople, and inventors from all over the world. In finally bringing about the world’s conversion to clean energy and the decline of the oil industry, change is coming quickly, and the person bringing it is Elon Musk.

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Even though renewables have been ripe for investment and implementation for years, we’ve largely remained stuck on oil as our primary energy source due to a lack of investment, alogn with interference by oil companies. Musk made a fortune founding PayPal, but instead of retiring on a private island, he quickly moved on to offering the cashflow solutions that renewables innovation needed to gain a foothold.

While many of his ventures might look like exciting passion projects at first glance, a closer look reveals that he isn’t just developing a few isolated futuristic-sounding projects; he’s systematically taking on the oil industry’s global grip on energy.

Making electric vehicles viable

Building electric energy infrastructure for transport

Perhaps Musk’s most famous venture along with SpaceX is the new car manufacturer Tesla Motors.

Unlike previous, relatively anemic electric cars, the vehicles rolling off the assembly line at Tesla easily outperform comparable traditional cars. This didn’t just prove that electric could replace the combustion engine, it also lent electric cars the prestige needed to reform their previously poor image.

The beauty of burning fuel in your vehicle is that when you run out of energy, you can simply add fuel and continue on your way. We already have gas stations dotted along every road all over the world, so travelling great distances without being stranded is no problem. Early electric vehicles had few effective options for refueling.

Of course, to really be taken seriously, electric cars needed to address one more major hurdle that gas-powered cars are incumbent and virtually unbeatable in: re-fueling.

To address this Elon Musk has gone on a nationwide construction spree in the United States. There are now 705 Supercharger stations in

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plants (usually between 8-15%). The big barrier to making this a reality is reliability; the sun isn’t always shining, but Musk, as always, is a few steps ahead.

Addressing energy storage issues In 2015, Musk announced the Powerwall. It’s a new kind of battery meant to affordably store and put out enough power to run your entire home while charging your electric car. Better modular energy storage

is an essential part of a robust solar energy grid. A system where every home is a mini power plant is very difficult to break, especially if they’re also hooked into the grid. The grid can take on excess power to charge batteries in other places that are having a low-power day.

North America, which can charge a vehicle with 170 miles of range in 30 minutes, up to the maximum 300 miles in less than an hour. That makes charging fast enough to do while you grab a bite to eat, and charging stations plentiful enough to see you across the United States without the risk of running out of juice. Tesla is already signing agreements in other countries and soon these “re-fueling” stations will be everywhere.

Unfortunately, to challenge big oil, it’s important to think about where the energy that’s used to charge these new vehicles comes from.

Taking solar to a new level Electric vehicles have been criticised for decades for only making the issue

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of fossil fuels less visible instead of actually solving it. The electricity used to charge an electric car would most likely come from coal, oil, or nuclear power plants, which wouldn’t solve anything. Moreover, just revolutionising transport energy would only address a small portion of our total energy consumption.

Musk is looking to tackle this issue as well. He is SolarCity’s biggest investor, and is working to scale up solar energy worldwide to bring costs ever lower. Additionally, another stated goal is to decentralise the power grid. This isn’t just to support his personal libertarian philosophies, it’s also to eliminate the vast amount of electricity that is wasted in transporting power to every home from distant power

Of course, it’s unrealistic to think that everyone will be willing or able to invest to outfit their homes with this new energy infrastructure right away. However, it’s promising to be cost effective enough to make it a reasonable choice for new construction as well as for forward thinking people who are willing to wait a few years to earn their money back in energy savings. Additionally, this popularisation of solar frees other, less residential-friendly energy sources, such as wind and hydro power, to begin to address industrial energy needs.

Taken to its extreme potential, Musk’s audacious push for progress could all but eliminate the roughly 70% of the world’s oil consumption that is dedicated to gasoline and diesel fuel. How long that will take is anybody’s guess, but it’s clear that it’ll be the end of the road for big oil’s energy oligarchy.

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If we can help, we’ll tell you how along with all applicable terms and charges. If we can not help, we’ll do our best to refer you to someone who can.

We’ll establish an ondemand standby finance facility for you to call on when you need it.

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Is your work challenging enough?

When a lot of people think about their work goals, the first thing that usually comes to mind is making it out of the door as soon as possible on Friday afternoon.

Many workers spend the work week dreaming about what they’ll do when they leave their place of employment. What they don’t consider is that if their career posed a worthwhile challenge, they might actually enjoy showing up.

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Modern work can be a drag The modern working world was created with the industrial revolution and the increased specialisation it brought with it, but it came at a cost.

Modern workers typically have highly specialised jobs that are repetitive, boring, and time-consuming while often also being very difficult. As a result, workers are stressed, unproductive, and unhappy. Only 13% of workers worldwide report that they actually enjoy their work.

Ouch.

These issues have been known for some time, and businesses have tried to address them by providing benefits and leisure activities at work, ranging from free gym memberships, to snacks, to unlimited vacation days and more. While these help to reduce stress marginally, they don’t address the core issue, which is that modern work is often unfulfilling to workers; it’s very difficult to love what you do.

The issue is that our jobs today don’t feel like they really tie into our personal success and well-being, so they feel like a waste of time. The way to address that is to make work challenging again.

Challenge provides motivation and meaning Challenging work is work that requires ingenuity and skill to achieve a goal that’s worth pursuing.

Most of our jobs today require skill and ingenuity, which makes them difficult, but they tend to lack that the sense of achievement that comes with overcoming those difficulties.

That’s not because we generally don’t pursue our own goals at work. We might have performance indicators to hit, raises to earn, employee of the month awards to win, but those goals are defined by employers, not by workers themselves. Because of that, they only work for people who are interested in those things.

Defining and pursuing personal work-oriented challenges helps to make work a means to a meaningful end, and not just a place where we lose all of our precious daylight.

Making work challenging is about you The fundamental problem with our approach to making work meaningful is that our goals are defined by our employers. Employers are focused on profits and on ensuring that their workforce is productive. The incentives they set for workers are oriented around both negative and positive reinforcement, and are focused on how well the worker is producing for their employer.

Because of that, the burden of making a job challenging is on workers themselves. Of course, some employers are more accommodating about this than others. Depending on the type of job you have, and what your personal life-goals are, there are a huge variety of ways to challenge yourself through your work.

For example, structured programs sometimes can offer what employers themselves don’t. Chartered Accountants challenge themselves by keeping up with annual professional development learning requirements to maintain their status. This keeps them on top of their game. It’s not just about accountants, of course.

People in any field can use online hubs like Coursera and Udemy to educate themselves about their industry and to update and develop their skills further to help them advance at work, or to help qualify themselves for another job.

Beyond that, the sky’s the limit.

You might decide to pursue a raise, a promotion, an award, a new job, industry-wide recognition, or anything else. The point isn’t the goal itself, it’s about taking control of your work life to get something that you want out of it.

Briefly...

It’s important to challenge yourself in ways that’ll help you grow and develop your career the way that you personally want it to.

A good challenge provides positive motivation and direction, and helps to reframe and mitigate the stress and boredom of the modern work environment.

Often, professionals can best challenge themselves by developing their skills, educating themselves, or gaining influence in their business and their industry.

At the end of the day, though, these goals could be nearly anything, and have to be defined by the individual.

The payoff The result of challenging yourself at work is more than just the sense of achievement that you get if and when you succeed. Having a goal gives you a reason to show up, and reframes your everyday work stresses as obstacles that you’ll overcome to get somewhere, rather than oppressive nuisances that exist to torment you while you’re trying to reach Friday.

This altered focus will help you reduce the amount of stress you’re feeling, improve your productivity, and help you achieve your work and personal goals. So, what are you waiting for? Figure out how you can make your job work for you.

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Why should you look at Succession?

What would happen if your top sales team are wooed away to another firm or if your CEO is killed in a plane accident? 2degrees faced exactly that scenario of forced succession in 2013. When 2degrees’ CEO, Eric Hertz, was killed in a plane crash off the coast of Kawhai Harbour on a Saturday back in 2013 the senior management team were able to commence the execution of their business continuity plan immediately. By Monday they had the systems in place to keep the company progressing? They did have a plan, do you?

Business Continuity Planning covers the process of reviewing the business as a whole and assessing the operational risks that can cause damage to the business. The plan sets out the steps to mitigate those risks. Succession Planning is an integral part of a company’s Business Continuity Plan. This deals with the operational risks associated with people in the business. By having a Succession Plan in place you can significantly improve the resilience of your business to people related risks.

Now consider how a similar event to 2Degrees would impact your company. Do you have a next generation of leaders to take the place of one or all of your current senior management team? Are they ready to fill the roles? And are they still the best fit for the company’s future goals. In a worst case scenario, you could have under-qualified people moving into leadership roles simply because there is no one else ready to take over.

The best way to mitigate the effect of losing leaders, whether the loss is expected or unexpected, is through a strong succession planning programme. Such a programme should not only identify the future leaders, but also develop them, using a mix of mentoring, training and stretch assignments, so they will be ready to take the helm when the time comes.

Historically in years gone by, a company could expect their staff to remain with them for many years and – in some cases for their whole working life. The issue of Succession Planning was just not a problem.

Nowadays, employees across all generational ages and at every level just do not have the same loyalty or connection to the company they work for. It’s more about what’s in it for me rather than what’s in it for the greater good.

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Companies now have the problem around retention of staff and external factors both in the global and local markets. Today, succession planning and the execution of that plan is more important than ever before. Without a robust succession plan in place, a company’s long term survival can go off course.

Organisations are facing greater demands than before, with the retirement of the baby boomers and the widening gap in the global market. The home-grown and paperbased succession planning that companies relied on in the past are no longer meeting today’s needs. In order to achieve results, companies need to start with the basics, create an effective process, and then invest in the tools and technology to instil a talent development mindset in their organisation.

So what is Succession Planning?

Succession Planning is largely a predictive process of identification and development of potential successors for the key positions in an organisation, through a systematic evaluation process and a programme of training programme that will prepare candidates to take on a key leadership role at some point in the future.

Replacement planning, on the other hand, is based solely on a candidate’s past performance.

At Covisory Partners we often find companies coming to us expressing their concern about the lack of direction around succession planning. They tell us that they have very few candidates, whether ready now or waiting in the wings, to replace planned or unplanned losses of key leaders.

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development with your company’s long term goals and philosophy’s?

For a succession plan to work, you need to work at the execution and be prepared to evaluate and actively refine the process.

For many, succession planning is like a New Year’s resolution: nice to have, but little attention is paid to it once it has been mooted.

Many of them may have drawn up a succession plan in the past.

Fantastic!! But they have struggled to take their succession planning beyond a static list of names noted against job roles, or a weighty document full of to do lists, timelines, forms, charts and checklists. This may look great, but it is essentially like a new year’s resolution. For a succession plan to work, you need to work at the execution and be prepared to evaluate and actively refine the process.

By paying little attention to executing their Succession plan, companies find that when it comes time to respond to a succession event their list isn’t operational. A plan that is out of date or a named successor who lacks the necessary skills to step up to a roll just will not work.

Companies need to shift their focus from the planning of Succession (a short term focus) to succession itself (a Long-term focus).

How do you go about ensuring you have a road map for Succession that aligns your current talent

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A Succession Plan should draw on a strategic plan that lays out the following: • The company’s values and philosophy; • Its long-term goals and objectives; • The internal dynamics; • Its leadership needs; • An analysis of the employees’ development needs.

There is no single right way to go about succession. The size of the company will also affect how formal the process is. In smaller companies the process is likely to be simpler than with a larger one.

Succession in its own nature is a progressive process. By having a robust succession plan in place, helps a company take control of its future using its own design.

Behind every great succession plan are the following: 1. Clear programme goals/objectives; 2. Leadership commitment; 3. Employee commitment to selfdevelopment; 4. The succession plan is linked to the company’s planning and investments in the future; 5. The company monitors and analyses the process using workforce data; 6. Key leadership competencies are identified and used for selection and development; 7. A pool of talent is identified and developed early for long-term needs; 8. Challenging and varied job experiences are provided for development; 9. The company’s succession plan embraces diversity, recruitment, and retention.

In today’s competitive business climate, there is not much margin for error. For any business there is a need for a succession plan that is organic and continually evolving.

It is essential, in our view, that the succession plan is a central part of the on-going management plan of any business. But what we are finding is that few are actually following through and putting a succession plan in place. For many, succession planning is like a New Year’s resolution: nice to have, but little attention is paid to it once it has been mooted.

An evolving succession plan that reflects your company’s unique character will allow your firm to respond effectively to the changing, fast-paced environment we now operate in.

Knowing that transitions are inevitable and choices abound, the essential ingredient for the future well-being of a company is empowering your younger team members to assume new responsibilities. Arming them with the resources, skills, and opportunities to help take the company to the next level of development and success helps everyone, regardless of the options they choose, because a strong business is key for exiting senior management as well as for retaining your new leadership talent.

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We understand, because we’re business owners like you When you talk to us, you’re talking to a business owner like you. We’re a privately held finance company, which means we can be innovative in our approach and work closely with our customers.

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We’re all about keeping things simple – from a single point-of-contact who’s also the decision maker, to a 24-hours turnaround time… all with minimal paperwork.

We don’t require long term contracts or property security – and it’s up to you when you choose to use our services and when to stop.

All with no impact on your existing lending arrangements In fact, banks often recommend us as preferred short-term funding option. And because we work as a complementary service, there’s no need to refinance your current funding facilities.

Gaining fresh perspectives: Dos and Don’ts on From time to time most businesses require the expertise of external consultants.

The varied perspectives that consultants bring to a project together with their expertise and experience can be the difference between successful completion of a project and floundering in the doldrums.

But how do you make a selection when there are so many available?

In this article we look at the dos and don’ts to make that process easier.

Do 1

2

Make sure you do a thorough background search.

This will include the potential consultant’s work history, education and qualifications as well as reviewing testimony from previous clients. Find out as much information as you can so that you are making an informed choice.

Check out their client list. Is there a particular industry or field that they mainly work in? Often businesses select consultants on the basis of their expertise in a particular area and this can take you down the path of simply replicating what everyone else is doing. Sometimes it pays to look at consultants from outside your industry as they may bring different techniques and a new methodology that hasn’t been used before in your field. So try and be flexible depending on what it is you want to achieve with the consultant’s help.

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Review their work. Most consultants will have some published examples of their work available.

These could be articles, blogs, webinars, podcasts or YouTube videos. Check that their style and presentation is a match to your organisation.

4

Have a face-to-face interview. It’s essential that you first meet the consultant face to face before making a final selection. You will be working closely together and you will want to make sure that you are comfortable and can have trust in the relationship. An interview is also a good opportunity to go over some of the finer details such as terms of engagement and payment arrangements.

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Be clear about the project brief. Once you have made your choice of consultant it’s important that you develop a clear project brief that identifies their roles and responsibilities. And make sure you review it on a regular basis.

Don’t 1

Go with the first consultant you come across. Time may be short, but it pays to shop

around in the marketplace so that you can be confident the consultant is a good match for you and that you have secured the best deal possible.

2

Skip any of these steps! It’s likely that the reason you are looking for external help in the first place is because you have an urgent need that cannot be met internally. This may well be driving you to just get on with it, but it will be a false economy if you try to curtail the selection process.

Many businesses have made some very expensive mistakes because they didn’t conduct due diligence when selecting consultants.

Consultants are a necessary part of commerce. They provide a fresh perspective, helping you to achieve projects and grow as a business in ways that wouldn’t otherwise have been possible.

Taking the time to select the right consultant for your business will increase your return on investment.

selecting consultants

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5 must-have

insurance policies

Protecting your most important assets with comprehensive insurance is a no-brainer. Accidents and disasters can and do happen, and if you aren’t adequately insured, it could leave you in financial ruin.

Taking steps to safeguard your earning power and possessions from unexpected and unforeseen events is, therefore, a must. But with the wide variety of insurance policies available on the market, it can be difficult to work out which are the critical ones to have. Here we identify the five most important insurance policies that everyone should have.

Life insurance Making sure that our love ones do not face financial hardship in the event of our deaths has to be a high priority for everyone. Before deciding on a policy, think about how much you earn each year and the number of years you have in the workforce, and go for a policy that will cover that income if you were to die. It’s also a good idea to include funeral costs as often this is an overlooked and expensive financial burden for loved ones at what is a very difficult time.

Long-term disability insurance Sticking your head in the sand and saying ‘it won’t happen to me’ is a foolhardy approach to what admittedly may be a remote possibility, but nevertheless is still a possibility. Instead choose a disability policy that provides enough coverage to enable you to maintain your current lifestyle even if you are no longer able to work.

Health insurance Some people see health insurance as being an optional extra, but the potential cost of not having adequate health insurance can be enormous.

Even a simple visit to the GP can result in a hefty bill so imagine the many thousands that would result from surgery or a lengthy stay in hospital. That’s why it’s a must-have insurance policy.

Homeowners insurance The cost of replacing or rebuilding your home as a result of some catastrophic event could be financially ruinous, and so it’s a good

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Shop around The world of insurance is highly competitive and each policy will have its own benefits, coverage and prices.

It pays to shop around, but before signing up make sure that you read the small print and fully understand what’s covered and what’s not.

idea to have insurance in place that will cover you. When choosing a policy make sure that it covers the replacement of the house and all the contents plus the cost of living elsewhere while your home is being repaired.

Car insurance Car insurance is not compulsory in New Zealand; however, it’s a good idea to at least have third party insurance so that if you do cause an accident, you are covered for any damage to other cars. Sadly, accidents do happen and if you are at fault, you can find yourself facing hefty repair bills not only for your own vehicle, but also for any others involved. So even if your car is an old banger, make sure that you have adequate third party insurance as a minimum.

Life insurance

5 common mistakes to avoid If you have life insurance, then congratulations! As many as 43% of us do not have any form of life insurance. They are taking grave risks with the well-being of their families should the worst happen and they die prematurely. Life insurance should be an essential part of any insurance portfolio.

But how do you choose the right one for you when there are so many options available? Avoiding the five common mistakes we identify below will help you make the right choice for your situation.

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With life insurance it’s not always possible to compare like with like. There are many variations to the different policies so simply making a choice on price alone is not a good idea. Just because the policy from Company A is cheaper than that from Company B does not mean that you are getting better value for money, nor does it mean that you are getting the right cover for you.

Procrastination As we get older our health inevitably deteriorates. You may already be suffering with a medical condition by the time you start looking for life insurance. Not surprisingly in this scenario, your options for good cover at a good price will have also decreased. Therefore, don’t leave it too late before putting life insurance in place.

Making choices based on price

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Not having enough cover Often we make the mistake of under-insuring ourselves.

You will need to factor into your calculations the costs of medical care, any existing debt commitments you have as well as your inability to work. A common rule of thumb is that life insurance should provide seven to 10 times the insured person’s annual salary. Make sure you

have enough cover to protect you in the worst case scenario.

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Not insuring your spouse A debilitating illness or the death of a partner can be just as devastating to the family’s finances as you are forced to take time off work to care for you partner or the children.

Making sure you have adequate cover for both parties will take some of the pressure off at a very difficult time.

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Not reviewing your policy Our circumstances are changing and evolving all the time and so the life insurance you purchased 15 years ago may no longer be the best choice for you. Perhaps your children have now left home or you have a bigger mortgage, whatever it may be it’s important that you regularly review your life insurance to ensure that it is still working for you.

Life insurance is not an expendable expense.

Don’t be like the 43% who have no cover. Make sure you make the sensible choice and get the right life insurance to protect your family.

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Business is about social relationships

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In theory we like to think of business as a series of transactions.

Businesses produce goods by buying labour, equipment, and resources in exchange for money, and earn profit by selling those goods to customers. In reality, however, this is a deeply oversimplified model of how companies really succeed. In the real world, business starts and ends with relationships, and successfully managing those relationships is the secret to success.

Making a business work requires some level of expertise in everything from accounting, to management, to finance, to communications, to marketing. At the end of the day, though, the secret to success boils down to successfully building and managing relationships between your business and the people who make it tick.

We call these kinds of professional relationships “business relationships”, to distance them from our personal lives, but we’d like to challenge that idea and make the case that if these relationships are built properly, they aren’t as impersonal and political as that label makes them sound.

We need more than “just business” from our workers Getting employees, contractors, and vendors to give you their best effort, and to pursue the spirit of their job description rather than just the letter of it, has been the subject of countless books and endless research. Many (maybe most) of these articles, books, and experts come to the goal of building “company loyalty”, or “commitment

to the job”, because they need something more than just a worker’s desire to get paid their salary to motivate that worker.

Employers aren’t really interested in having impersonal transactional relationships with the people they count on. To succeed as a business, they need employees and contractors to care about the end result beyond just their own particular role. Really caring and developing loyalty to a cause or a person is about relationships, not transactions.

Clients need businesses who care Just as businesses need their own workers to work toward the business’ best interests as a personally invested team member, clients also need that business to operate in their best interests. Building the client relationship necessary to understand and meet those needs not only means that this business will be able to provide superior service, it also transforms the business into an indispensable part of the client’s operation. This way, simple business relationships that offer just basic mutual benefits on paper can grow into powerful symbiotic partnerships that offer much more consistent and reliable benefits to both parties.

Businesses need investors and financial institutions Always choosing the financial institution that offers the cheapest credit or the fastest approvals is appealing on paper, but it doesn’t compare to the value of building personal connections with a financial expert you can trust. A business owner will always be able to get the

best service when they work with someone who they know, and who understands them and their business.

A lender, or an investor, who’s personally rather than just financially invested in a business’ success will work to help that business succeed, while someone who’s trying to do business will treat it like any other transaction. Committed Business Finance partners understand the power or relationship to provide the best results for our SME customers.

Natural selection favours social businesses The reason personal relationships make for highly successful business is surprisingly intuitive. It’s a form of natural selection that perpetuates itself by virtue of its own success.

A business, a lender, or an investor that understands their client very well might be able to offer support that can save that business, or just make it more successful in the long run. That client’s survival, in turn, ensures that the business retains the ongoing revenue from that client.

The result is that the business is strengthened by the relationship.

Similarly, employees that become personally invested in their team and their work will go above and beyond to help drive the business’ success, while an environment that discouraged this would be outcompeted by the first.

The next time you make a new business connection, remember: It’s never “just” business. We need social connections with the people we rely on at work to make our businesses successful in the long run.

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The top reasons SMEs run out of cash More than half of all new businesses fail in their first year, and making it that far doesn’t mean you’re safe. Small and medium sized businesses don’t have the deep pockets that large enterprises do, which is why even short-term cash flow problems can sink an otherwise successful business.

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Briefly...

How can a business unexpectedly run out of cash?

There are a lot of different reasons that your business could suddenly run into liquidity issues, but let’s take a look at some of the most common culprits to give you an idea of where trouble is most likely to rear its head.

Unsustainable growth Surprisingly, too much success too quickly can wreak havoc on your finances. High demand for your products can overextend your ability to provide services, which means you need to build up your business’ infrastructure with more employees, more tools, more materials, and maybe more management support.

If, for example, a long-time client suddenly wants to scale up their service by an order of magnitude, you might end up trying to scale your operations up part-way (as your budget allows), only to lose the client entirely because they’re now unhappy with the service you can provide with your lagging infrastructure. You won’t be able to recover the investment you made in the time you had planned, and your revenue is now even lower than before you made that investment.

Clients who pay late An issue every business owner is familiar with is clients who pay late.

It’s so common that entire industries are built collecting those overdue debts. Unfortunately, most SMEs don’t have time to wait for collections agencies to do their work. Businesses need reliable revenue to pay for operational costs. When a small business doesn’t get paid, things go downhill fast. Tools break and don’t get repaired, materials run out, payrolls fail, and employees leave.

Sudden loss of credit Sometimes everything will be going fine, until you get a letter in the mail letting you know that your bank is closing down your line of credit. This essentially pulls the safety net out from under your business. If you were counting on that facility to cover any expenses due to another issue (like a late payment from a client), you’re out of luck.

These issues pose massive risks for SMEs all over the world, and the most important way to fight them is by understanding and making use of the financial tools available to SMEs.

What can an SME do to protect itself?

There are a variety of different financial arrangements that SMEs can make with business finance firms like Fifo Capital to protect themselves from these common cash flow problems: Free standby finance facilities A standby finance facility is essentially a business loan that is ready to go, but won’t be issued until you need it. It doesn’t cost anything to set up, and you don’t have to pay anything until you use it. They’re designed to provide immediate financing exactly when you need it.

They’re perfect for situations where you suddenly need a significant injection of funding for growth, or to cover an unexpected budget shortfall due to seasonal changes or a loss of credit.

Invoice financing Invoice financing allows you to sell outstanding invoices to a financial institution for most of their value.

They collect the payment from the client, and you can get paid within hours of issuing the invoice, instead of when it comes due.

SMEs work on tighter budgets than large companies, and that means even small financial problems can sink an unprepared business.

The most common problems that can sink otherwise good small businesses are: unsustainable growth, clients who pay late, and a sudden loss of credit.

These issues can’t be totally avoided, so SMEs need prearranged facilities that allow them to manage these kinds of cash flow problems when they occur.

There are a few different types of invoice financing depending on the kind of institution you’re working with. Large banks often require you to sell them all of your invoices for a year or more, and come with a variety of other strings attached.

Boutique lenders like Fifo Capital offer much more flexibility and allow you to use invoice financing as a tool to give yourself a quick advance on your income exactly when you need it, and only when you need it. The trade-off is that the cost for every individual invoice tends to be a bit higher. Despite that, unless you plan to have most or all of your invoices financed, it’s still a much more affordable choice.

The threat of running out of cash costs small business owners a lot of sleep all over the world, but they can rest easy knowing that their backs are covered if they just take a few clever preventive steps.

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Investing in passion ... continued from page 2

from 2014 to 2015. They’re especially popular in the Pacific region, where there’s plenty of beautiful coastline and open blue seas to explore.

Less nautically inclined Asia, by comparison, has the lowest rates of yacht ownership in the world.

Jewellery Another classic choice for passion investors is jewellery. More than nearly any other type of investment, gems and precious metals make an excellent hedge against economic volatility. Given recent political turmoil and economic events, assets that retain all of their value for an indefinite period are an excellent insurance policy against unexpected inflation and currency devaluations.

Jewellery, coins, gems, and other collectibles are far more popular in Europe than anywhere else in the world, though the number of collectors worldwide is increasing rapidly. Where the world’s top 200 art collectors came from only 17 countries in 1990, 2015’s list boasts members from 36.

Private Jets A private jet, much like a yacht, isn’t just about holding or growing wealth, it’s an asset that you can put to work. Besides being a clear status symbol, private jets offer easy and convenient travel with a level of comfort and privacy that isn’t available any other way.

Investors in Africa and Latin America, in general, own private jets at a far higher rate than the global average. This is a result of a number of factors, most significantly a combination of poor commercial travel infrastructure and the vast geographical distance between business and travel hubs on those continents.

Wine Wine is a popular passion investment all over the world. Not only is wine relatively accessible to investors of more moderate means, wine culture also introduces a social aspect to the investment that many people find rewarding and engaging.

Luxury Spending is Growing Rapidly As emerging markets all over the globe grow and bolster the global economy, more wealthy investors are joining the ranks of passion investors, effectively growing the demand for a relatively finite supply of luxury items.

While not all passion investors necessarily intend for their investments to appreciate in value over time, the rapid growth of the market in recent years is making passion investment for financial gain increasingly profitable.

The car market is exploding On the KFLII, the classic cars market

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has grown by 17% in the last year, and by 490% over the last decade, making it by far the fastest growing asset class on the KFLII. A Ferrari 250 GTO became the most expensive car in the world in 2014, when one was sold for over $38 million in 2014. Since then, it’s been rumoured that others of the existing 39 have traded hands at or over $40 million in private transactions between individual collectors. Besides this, Jaguar, Porsche, and McLaren all had new all-time-high prices set for their respective makes, all above $10 million.

Jewel collectors are breaking records Jewellery has grown 4% in the last year, and 156% over the last 10 years. This continued upward trajectory was marked by the record 48.4 million dollar bid that The Blue Moon, a fancy vivid blue diamond, received at auction in November.

This makes it the most highly valued gem or piece of jewellery in history.

Art is holding its own While art might not be the fast growing juggernaut that luxury cars clearly is, it’s a timeless classic that isn’t going anywhere soon. With respectable 4% growth in the last year, and an impressive 226% in the last decade, art remains a financially viable investment. Most notably, Paul Gaugin’s When Will You Marry?, a painting of two Tahitian girls, was sold for $300 million in Qatar, making it the most expensive work of art ever sold. Another priceless work of art, Picasso’s Women of Algiers, sold for $179 million in May. Wine is growing rapidly The Knight Frank Fine Wine Icons Index showed that wine is up by 5% this year. According to Nick Martin of Wine Owners, many investment-

grade Bordeaux wines are now recovering well from the blow that was caused by the sudden drop in demand from China. Over the last decade in general wine has also performed very well, growing a total of 241% during that period.

Furniture, on the other hand...

Unlike nearly all other assets on the KFLII, furniture investment actually shrank by 6 percent. For passionate investors, however, that didn’t result in any serious issues. Despite this general setback, furniture secured a new record at auction when a Marc Lockheed Lounge sofa sold for $3.7 million this last April.

What About the Economy?

The global economy in the past 10 years hasn’t been particularly stable with the American housing crisis in 2008, the sudden slowdown in China, and the economic crisis in the EU. Because of this, it might come as a surprise to less experienced passion investors that the luxury investment market has been positively booming during this entire period. Despite ongoing issues in established and emerging markets, wealthy collectors are continuing to thrive.

Contrary to what many might expect, this is not a fluke. These types of investments typically do very well during times of economic uncertainty. This is because tangible and durable investments like jewellery, coins, cars, and paintings will appreciate in value as they get older, or at the very least retain their value without depreciating. Ultrahigh net worth individuals (UNHWIs) in Europe are much more likely to currently own a collectible than their counterparts in Asia and Latin America. Rising demand in those emerging countries as the UNHWIs

there work to stabilise their wealth is a large part of what’s driving the growth of passion investments globally.

It’s a Great Time to Get Involved There are a variety of reasons that growth continues unabated and bids on these types of items break records year after year. As they get older, their history and relevance in their respective collector community grows. Furthermore, the growing number of passion investors with an interest in these items is increasing rapidly, and not just because of growing global wealth.

Beyond simple economics, globalisation is driving a global cultural homogenisation that makes these traditionally western pursuits more accessible and more relevant to potential investors all over the world. Of course yachts are unlikely to become very popular in landlocked countries, and private jets will always be most popular in places where they are most practical.

Other goods, however, like luxury cars, wine, precious gems, and other collectibles aren’t strongly restricted geographically, and are likely to continue rise in popularity all over the world. While this process is still ongoing, we can expect the prices on the world’s most valuable collectibles to continue to rise rapidly.

Passion investing is a great way to marry your personal interests to your investment goals. If you’re not a member of the world’s super wealthy elite, you don’t have to don’t let that stop you. It might take $40 million to get your hands on a Ferrari 250 GTO, but you don’t have to start there. Look into the things you’re passionate about to see what kinds of investment opportunities might await within your means.

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When expertise counts.

Not all business finance needs can be solved with vanilla solutions. When an expert sounding-board is needed, Fifo Capital can help:

• One-on-one consultancy (complimentary) with a business finance specialist • Fast response and approval of finance (24 hours) to meet changing business needs • Consultancy in partnership with your financial advisers and with banking facilities • Solution-solvers for short term needs, and long term sustainability.

When your business finance needs demand expert thinking and purpose-fit solutions, call Fifo Capital.

National Head Office M312 Private Bag 300987, North Shore City 0752 P 0800 86 34 36

Maximising wealth / minimising tax Covisory Partners is a specialist taxation and business advisory company. We offer a range of bespoke and discrete services to families, individuals and businesses to help achieve future aspirations. We are a small expert team offering Commercial and Taxation advice of the very highest calibre, yet we always present our findings back to you in everyday language. Covisory takes great pride in delivering a more individual and approachable service than that offered by the big accounting firms.

NIGEL SMITH nigel@covisory.com +64 9 307 1777

www.covisory.com/partners

Wealth | Tax | Business

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Head Office PO Box 137215 Parnell Auckland 1151 New Zealand P + 64 9 307 1777 enquiries@covisory.com www.covisory.com