QUARTER 2 2016
Clayton v Clayton – A Reinstatement of the Trust Tackle tight margins with value based pricing 5 tips for managing FX risk Social media for business Security in finance: a practical guide
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.
“The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today.” Nolan Bushnell, Atari founder
About
Covisory comprises four specialist businesses providing Financial
Tax Structures have been in the world news lately perhaps for all the wrong reasons. The Panama Papers; is the largest data leak the world has seen dwarfing the Offshore leaks 260GB of 2013 with (2,600GB) 2.6 terabytes of data. The irony is that while Financial Transparency may be the mainstay of most political platforms around the world; the Panama Papers have proved that international tax structures can allow for widespread secrecy by those very people advocating transparency. Despite the rhetoric, New Zealand is a tax haven as we don’t tax certain types of income. Whether this is capital gains on property or other assets given our lack of capital gains tax, or the fact that like most sensible countries we don’t tax foreigners on their foreign sourced income. Where New Zealand differs is that for foreign trusts we do
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Tackle tight margins with value based pricing
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keep certain information on the parties involved in these and are willing and able to make it available to other countries with whom we have either a double tax agreement or information sharing agreement. It comes down to transparency and the use of these vehicles by nonresidents to hide assets from their home country revenue authorities rather than a loss of New Zealand tax revenue.
Time to get a thermometer?
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Get real value from virtual teams
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Automation: Ready for the future
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5 tips for managing FX risk
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The world of foreign trusts has changed significantly within the last 5-10 years. It wasn’t that long ago that foreign trusts were very hard to detect and very popular to use. However, with the work done by the OECD’s working group on harmful tax practices, there has been huge emphasis placed on transparency and improving the disclosure in exchange of information around these trusts. The OECD recently gave New Zealand a clean bill of health on its taxation regime for foreign trusts.
Social media for business – A beginners guide
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Start-up Q&A: making a success of the first year
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What they say, means business
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Security in finance: a practical guide
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Enjoy Connect and we look forward to working with you. On behalf of all the Covisory team may the year continue to be prosperous for you. Nigel Smith Published by Fifo Capital International Ltd. Connect 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.
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Commentary International tax structures can allow for widespread secrecy by those very people advocating transparency.
Welcome to our new Covisory group magazine “Connect”. Connect reflects the growth and diversity in both our clients and within the Covisory group itself.With the four arms to the group, all operating independently but also collectively, Covisory group is here to support the owners of family businesses both in New Zealand and globally.
Clayton v Clayton – A Reinstatement of the Trust
Business world
Clayton v Clayton – A Reinstatement of the Trust?
A trust should be a simple concept. A person, the Settlor, provides property to another person, the Trustee, to manage on behalf of the beneficiaries. However, over the last twenty to thirty years, and in particular post the repeal of estate duty, there has been a definite trend for the Settlor to retain a certain amount of control over the trust property. The recent New Zealand Supreme Court decisions in Clayton v Clayton look at these types of arrangements and it is clear a number of New Zealand trusts will now need to review powers that vest with parties that are not the trustee. The Clayton litigation involved a husband and wife with substantial assets held in two trusts. Although the parties ultimately settled out of court in late 2015 the Supreme Court still issued two separate judgements due the precedents raised in the cases.
Background Mr and Mrs Clayton entered into a relationship in 1986 and were married in 1989. They separated in 2006 and the marriage was formally dissolved in 2009. Before they were married they entered into a section 21 contracting out agreement. Under the terms of the agreement Mrs Clayton was to receive a maximum of $10,000 for each year of marriage up to a maximum of $30,000.
Vaughan Road Property Trust (VRPT) The VRPT was settled in 1989. A summary of the trust was: • Mr Clayton was the settlor and sole trustee. • The discretionary beneficiaries include Mr Clayton, Mrs Clayton and their two daughters. • The daughters were the final beneficiaries.
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• Mr Clayton held other powers under the deed of trust, including the power to add and remove beneficiaries, bring forward the vesting day and resettlement the trust. Mrs Clayton argued that the VRPT was a sham or an illusory trust. The claim of sham failed and the Supreme Court said that the term illusory trust was unhelpful. There is either a trust or not and this will be driven by the actions of the parties involved. Mrs Clayton also argued that the powers held by Mr Clayton should be considered as relationship property under the Property Relationships Act 1976 as they were rights or interests in property. The Property Relationships Act 1976 applies for de-facto relationship and as the VRPT was settled before Mr and Mars Clayton were married it applied here. The Court of Appeal had previously found the power to add and remove beneficiaries held by Mr Clayton was relationship property and attributed fifty percent of the assets of the VRPT to Mrs Clayton. This decision was challenged by Mr Clayton in the Supreme Court. The Supreme Court ruled in favour of Mrs Clayton but did decide that Court of Appeal was incorrect in their approach. Instead the Supreme Court took a holistic view of the trust and the powers held by Mr
Clayton. The court ruled that Mr Clayton’s powers collectively under the VRPT were classified as rights and, therefore, gave Mt Clayton an interest in the VRPT for the purposes of relationship property. As these powers were provided to Mr Clayton after the relationship with Mrs Clayton began the Court valued the powers as equal to the net assets of the VRPT. It was important to note as the Court took an overall view it considered both fiduciary and personal powers held by Mr Clayton and bundled them up together. This is an important point – it was clear the court was looking at the substance on how the trust operated as opposed to the strict legal form which is equity in a nutshell.
Claymark Trust The legal principles that affected the Claymark Trust were different. The Court had to decide whether the Claymark Trust was a nuptial settlement under section 182 of the Family Proceedings Act 1980. This section allows the Court to order varying a trust to be made for the benefit of the children or a spouse or civil union partner. However, for such an order to be given the trust must be considered a nuptial settlement and unlike for the VRPT Mr and Mrs Clayton were married when the Claymark Trust was settled..
Over the last twenty to thirty years, and in particular post the repeal of estate duty, there has been a definite trend for the settlor to retain a certain amount of control over the trust property. The recent New Zealand Supreme Court decisions in Clayton v Clayton look at these types of arrangements and it is clear a number of New Zealand trusts will now need to review powers that vest with parties that are not the trustee.
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The Supreme Court said that a two stage approach to section 182 claims should be taken:
Are you aware Once assets are transferred into a trust, The settlor no longer personally owns or controls them. Ownership passes to the appointed trustees who must act under the terms of the trust deed in the best interests of all beneficiaries.
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• Step 1 – determine whether the settlement is a nuptial settlement. The Supreme Court said that to be considered a nuptial settlement the trust must have a connection with the marriage. It is important to note that the make-up of the assets is not important and a nuptial settlement can be made for business reasons. In this case the Claymark Trust was settled during the marriage with assets acquired during the marriage for the benefit of the Clayton family. • Step 2 – decide whether the courts discretion under section 182 should be exercised, and if so, how the discretion would be exercised. This simply means each case will be considered individually and practically this requires a comparison of how the parties will benefit from the trust post separation compared to what would have hypothetically occurred had they not separated.
trust was a nuptial settlement he or she should be able to obtain a court order that provides them with benefit from the trust.
Practical Implications What does this mean for current New Zealand trusts? There are now a number of specific issues that should be considered by Settlors and Trustees: 1
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Trusts which have a number of powers that vest in a singular Settlor or Principal Family Member should be reviewed and if necessary amended to ensure those powers are not held by the Settlor. This is especially so if that person is also a trustee and beneficiary. Consideration needs to be given that when a relationship starts a section 21 contracting out agreement is entered into that covers all interests in trusts as well, i.e. they remain a person’s separate property. If parties are in a relationship and want to keep property separate, including the formation of a new trust during the relationship; then a section 21 contracting out agreement should be put in place.
For the Claymark Trust the Supreme Court found there was a nuptial settlement and the discretion under section 182 should be exercised. This was because there were clear benefits to Mrs Clayton from the trust if the marriage had of survived. As the parties has settled no formal order was given by the Supreme Court but if no settlement has existed an order would have been given to split the Claymark Trust equally into two separate trusts.
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The result here is that section 182 is potentially a very powerful tool that can be used by the courts to benefit a spouse in the event a relationship breaks down and there are substantial assets tied up in trusts. As long as a spouse can prove the
It is clear the courts are looking at trusts from a perspective of how they have been run and how the parties have acted. The Supreme Court simply confirms that approach and this case simply reinstates general trust principles.
As always in the event of a relationship breakdown it is far easier to negotiate a settlement between the parties as opposed to enter into prolonged and expensive litigation.
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What is value based pricing? Value based pricing is a two stage process. Firstly the product or service offering is designed to fulfil the needs of the customer and deliver a tangible benefit. Secondly the pricing of the offering is set based on the value that the customer places on the fulfilment of these needs. Developing value-based pricing is at it’s heart a research solution: it requires an understanding of the needs of a group of customers and the value that they attribute to having those needs fulfilled. As such it usually requires upfront research investment, causing many businesses to shy away from it and put it in the ‘too hard’ or ‘too expensive’ basket.
Tackle tight margins with value based pricing Value based pricing offers an opportunity to change the conversation that a business has with its customers. By moving from price to benefits, a business can increase the amount it charges for its products or services. This is a customer-centric approach that can significantly change the way that businesses price their offering.
Value-based pricing focuses on the benefit that the business is delivering to the customer. It takes a conversation which could have been about a price or cost and makes it about the importance of investment.
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Pricing problems It’s not uncommon for businesses to underprice themselves in a bid to be competitive, or because they have based their pricing on their costs and underestimated their required margins. This can be a particular struggle in the service industry, especially where a business comprises a single operator charging an hourly rate. It can also be a challenge where a business offers a product with enhanced features but finds itself unable to charge a premium because of the low prices of the competition. Value based pricing offers a potential solution to tight margins and costfocused customers.
It’s important to understand who potential customers are, and remember that any insights generated may still vary by customer and by market. The most effective value based pricing often aligns with segmentation to recognise the value that different types of customers attribute to different needs being fulfilled.
What is the benefit? Without a value-based product or service offering, the purchase or business decision is often focused on price, i.e. the cost to the customer. And because of the transparent nature of most pricing, if a customer is comparing two costs it is all too common that they will choose the lower one. Or perhaps they will challenge the higher price and question where the justification is for it being charged. Value-based pricing focuses on the benefit that the business is delivering to the customer. It takes a conversation which could have been about a price or cost and makes it about the importance of investment. This links the service directly with the end benefit to the customer. It
also makes it possible to charge a much higher price than merely the cost of getting the job done.
Tailored pricing solutions Another important benefit of value-based pricing is that it can be developed in partnership with the customer and directly tailored to their situation. If there is a chance that customers are likely to have different levels of needs then a menu can be developed. This can offer different benefits to the customer, and therefore different tiers of cost: each attributed to the value that they will generate for the customer. In this situation customers can choose to invest more or less, and get more or less of the benefits that the service or product will generate.
Wider benefit Value based pricing requires a strong understanding of the customer’s needs, and the value they would place on having those needs fulfilled. It is not just a pathway to correcting a business’s pricing strategy, it also allows businesses to get more involved with matching their product to their target audience.
This means that products and services are developed to a higher standard to ensure that customer’s needs are being satisfied. The process of researching the customer’s needs can lead to new product and service enhancements or development opportunities. Product and service attributes that do not add value can also be removed. Because value-based pricing requires an understanding of what customers need, it will quickly become apparent if part of a product offering serves no purpose other than being a good idea that customers will not value or pay for. The end result? Value based pricing allows businesses to charge a premium for their ability to deliver tangible benefits to their customer. Their enhanced understanding of the customer’s needs allows them to build stronger relationships, encouraging repeat business and referrals. And because the business deals in benefits and value rather than product and cost, they are competitively more difficult to match.
The end result? Value based pricing allows businesses to charge a premium for their ability to deliver tangible benefits to their customer.
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Planning
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Review your financial goals Whatever the financial targets were that you set for the year, this is your opportunity to review them. Take some time to assess how you performed and note down what worked well and what didn’t. You can use your successes and failures to support an understanding of how to be even better next year.
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Time to get the thermometer? Completing your annual financial review will give you the opportunity to capture valuable insights about the state of your business, your market and the economy in general.
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An annual business health check is a worthwhile investment in time and energy. Analysing your position creates the opportunity to review your performance; celebrate successes or targets achieved; and realign yourself where you may have gone off track. Here are five steps to completing an annual review of your business.
Use any and all information you can get hold of to make some predictions about how your market could evolve over the next five years, and how your business will need to evolve to make the most of it.
Watch the market An important element of an annual business review is taking stock of your position in the market and reviewing any external factors that may change in the months ahead. A good starting point is to consider how your market has changed over the previous 12 months. Has the market undergone growth or is it in decline? Take a look at the factors that have influenced market performance. These will provide valuable insights that you can use to plan for what lies ahead. Take an objective look at your competitive position in the marketplace and consider how it has changed over the last 12 months. Has your position impacted the price you charge for your products and/or services? Should it? You should
Market research is a valuable tool that will allow you to understand consumer trends as they begin to unfold. It’s worthwhile paying particular attention to the advances in areas like technology that have the potential to completely change the nature of society.
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Your exit strategy will dictate the financial targets that you set for your business and the amount of time you have to achieve them. If you’re not on track then you will need to decide whether to revise your exit strategy or ramp up activity now in order to ensure you can still achieve your goals.
Keep an eye on the economy Wider economic influences may have impacted your ability to make money over the past year. Interest rate increases or decreases, strengthening or weakening currency, and government driven factors such as taxation rates can all have a dramatic impact on the net performance of your company. It’s also wise to keep your eyes open for any trade agreements that may impact your industry in the future.
Your short term goals provide a pathway to achieving your long term targets. These will need to tweaked or adjusted as part of your review. If your long term targets remain the same but your goals for the year have not been met, you may have to boost activity in the next 12 months to ensure you achieve your plans.
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the details now and understand what your business will need to achieve to support your financial goals.
also take a look at those who are new to the market and those who have left. Use your understanding of what they have done well to fuel your performance.
Touch base with your exit plan You may not be planning to exit your business within the next 12 months, but if you have thought out your exit strategy then it’s important that your business goals are leading you to this personal target. If you haven’t built a plan around funding your retirement you should also work through
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Consider worst case scenarios An essential output of your annual business review is your increased ability to imagine and plan for what comes next. By understanding the changes of the last 12 months you can map out some trends and predict where your business could go in the next 12. Put some effort into scenario planning and you will be better placed to deal with extreme events that have the potential to blindside your business. Completing your annual financial review will give you the opportunity to capture valuable insights about the state of your business, your market and the economy in general. A thorough review of your targets and goals will allow you to understand whether you are on track to achieve your long term targets or if you need to adjust your business plans in any way. Business changes constantly, just like life, and an annual business review is a valuable opportunity to keep your plans relevant to your long term goals.
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The quest for
big picture thinking Big things are achieved through big thinking; stepping out of the confines of the probable and embracing the possible. Business owners achieve to the limits they set. Market, competition and finance always play a role, but the underlying – and often invisible – perception of what can be achieved, either limits or stretches business potential. Widen the view; challenge existing limits – real and perceived; banish the concept of settling for the status quo. Make big picture thinking a standard business action; put it on the to-do list; make it a priority in routine operations. Give it encouragement until it becomes a natural part of business. And keep pushing. Big picture thinking takes a toll on time and demands more from every aspect of business. But if you’re inclined towards the possible rather than the probable, wouldn’t you rather find out what can really be achieved, and then stretch it, and then stretch it again…
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Perspective
Allowing employees to work away from the office – whether that be from home or from another city or country altogether – can yield large savings in real estate costs. Businesses are able to reduce their office footprint as more staff work remotely.
Diverse skills and personalities Effectively managing a virtual team is about more than just cheap labour. For virtual teams to be functional it’s ideal if they can be recruited as a group, so that a business can carefully manage the personalities and skill sets for optimum performance.
Get real value from virtual teams It’s not uncommon for businesses to believe that building virtual teams will yield cost savings and multiple benefits. In terms of benefits these could be demonstrated to be: high skill levels, cultural diversity, unique perspective and high productivity.
However using virtual resources is not as straightforward as welcoming a new person to the desk next to yours. So when is a virtual team the right tool for business? What’s the cost? If a virtual team is on the menu, then a business is probably already aware of some of the advantages. The cost savings associated with virtual teams come from a number of different factors.
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If a business plans to recruit the best talent to deliver the task that their business needs, then a virtual team takes away the obstacle of location. The impact of currency and geography on rates of pay means that, in some circumstances, a business will pay less for this talent than they would if they were recruiting in the same city. There are also some tangible cost savings on the part of the employee as their actual cost of doing business is reduced. They save time and money by working from home or a remote office location, and avoid a daily commute to and from the office.
According to a Harvard Business Review article titled Getting Virtual Teams Right, effective virtual teams share some consistent character traits. These include high emotional intelligence, good communication skills, and the ability to work independently. Investing in the right team members upfront can yield large benefits in the long run. Virtual teams are notoriously challenging to manage effectively so having the right personalities will give businesses a head-start.
A boost to productivity A well managed virtual team can increase productivity. A study by Aon Consulting called The reality of virtual work: is your organisation ready?, found that productivity in a virtual team could increase by between 10 and 43 percent, depending on the organisation. However, without carefully guidance a virtual team is more likely to fail than one located in the same office. The main tool that virtual teams require is careful process and result mapping. This means that the team is collectively aware of what their purpose is and individually aware of what each person’s contribution to that purpose needs to be. The cycle
of delivery needs to be carefully managed by a team leader to ensure deadlines are achieved and information is shared effectively.
Communication is key Keeping a virtual team on track and delivering the results a business requires is an exercise in excellent communication. Virtual teams require more than just good technology to facilitate communication, but good technology is essential. Businesses need to recognise how their virtual teams work and then support them with the best tools. The team leader needs to manage a structured cycle of meetings to ensure that the virtual team has shared time together on a regular basis. Frequent 1:1 meetings with the team leader will also help to share perspectives and resolve any issues. More complex than functional communication is how a team leader manages social interactions. These are essential to uniting a team and creating the emotional bonds necessary to improve productivity. Teams require trust, respect, and empathy in order to function effectively, and these can be challenging to create if a team is located remotely. Team leaders of virtual teams must become experts in fostering social interactions at a remote level.
Virtual team
Businesses may wrongly perceive that remote teams will be more productive because they will drop down-time taken up with social interactions and ‘daily chit-chat’. In reality this is a key part of the toolkit that connects employees to each other and to the business. Social interactions must be artificially sustained to build and maintain that connection.
Culture is of great importance Recruiting and managing a team of people who are remotely located, and potentially based in different countries, requires great cultural awareness. Large businesses are often up to speed with the importance of cultural awareness, even for interactions with staff who are based in the same city or country. For businesses who have not had experience of dealing with other cultures up-skilling is essential. Ensuring that both team members and team leader are culturally aware is key to being able to build the processes that will resolve any potential cultural friction. It’s easy to believe that building virtual teams is an easy solution. More realistically virtual teams offer businesses the opportunity to access skills by removing the boundaries of geography. There are great benefits in productivity and diversity to be gained by introducing a virtual team to a business, but they come at the cost of increased input and the careful management that is required to ensure that the required output is achieved.
def. a group of individuals who work across time, space and boundaries with communication webs.
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Automation: Ready for the future? Carl Frey, an Oxford Economist, and Michael Osborne, a Machine Learning Expert, reported in 2013 in The Future of Employment that 47 percent of America’s jobs could potentially become automated within two decades. This report has been both questioned and agreed with by the media and the academic world, and remains an important indication of the impact of automation on the job landscape of today and tomorrow.
Technology in history It is expected that large scale automation will impact on employment. This will see jobs move from some sectors and into others, as the market creates new opportunities and demands new skills to match them.
Technological advances always seem to have a direct or indirect impact on employment. The nature of jobs has undergone an evolution since the introduction of machines. The automation of tasks has resulted in reduced manual labour and the transfer of repetitive function away from the employee. A prime example of the transformation that machines bring about is the farmer. Farmers are notoriously hard workers, but before the invention of the tractor they relied on their hands, horse and labourers to manage the land. With the introduction of machinery came the ability to manage larger areas of land, and complete tasks faster and with less effort. This in turn reduced the required size of the workforce.
The continuous growth of automation Automation continues to grow in today’s society. The consumer world bears witness to its increasing penetration in the growth of selfservice kiosks as a tool for fulfilling transactions from airports to
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supermarkets. The future holds the imminent arrival of the driverless car. Once the technology of automation advances, it impacts society, displaces jobs, and requires consideration at a government level. However it is interesting that the UK retail sector, which is a hotbed of self-service automation, has seen a 30 percent growth in jobs since 1978, according to UK government figures. Automation is growing in purpose in the business world. The manufacturing industry has already been transformed, and is about to undergo another evolution with the developments in 3D printing. Amazon continues to demonstrate its position at the forefront of advancement with Kiva Systems’ robotic technology that will “pick, pack and ship any item, anywhere, at any time”. The office environment has undergone dramatic transformation over the past 40 years. Current technology has instigated the disappearance of the secretary or personal assistant as previously complex tasks like managing an executive’s schedule become automated with scheduling and management tools and applications. Increasingly the repetitive tasks in business are capable of being delivered by machines and computers.
Introducing Robotic Process Automation The latest transformation of the job landscape comes courtesy of software that is known as Robotic Process Automation (RPA). The Institute for Robotic Process Automation defines RPA as: “the
application of technology that allows employees in a company to configure computer software or a “robot” to capture and interpret existing applications for processing a transaction, manipulating data, triggering responses and communicating with other digital systems.” If companies use manpower to process information in high volume, transactional functions; then Robotic Process Automation has great ability to transform them. RPA is mainly a back end system, removing people from core process like: IT support, workflow processes, expense management, and data entry. RPA aims to increase the speed and accuracy with which processes are managed. Where previous large scale transformations driven by technology occurred in the manufacturing sector, so now it seems likely that it will be business support services that will experience the effects of RPAs. In analysis based on Frey and Osborne in 2014, Deloitte’s The robots are coming: moving beyond traditional methods of automation reported that 56 percent of financial function roles in the UK had a high probability of being automated.
Of respondents surveyed, 91 percent indicated their plan to apply RPA to accounts payable functions, 55 percent planned to apply RPA to travel and expenses, and 36 percent indicated their intention to apply RPA to fixed assets. 13 percent of those surveyed intended to invest in robotic process automation in the next 12 months. RPA has the potential to allow many businesses to introduce processing services that may previously have been outside what they could afford or their resource availability. If their historical solution to access these services was outsourcing, they could be looking forward to a significant financial gain. Automation offers the potential to achieve more with a lot less: which can only benefit businesses that are lean on resource. Increasing the opportunities to automate in both the business and consumer world will continue to transform society. It’s challenging to guess the impact on jobs, as economists consistently predict that where jobs are lost to technology, new ones are also created. The WEF’s Future of Jobs report released in January 2016 indicated an estimated unemployment increase of 0.3 percent on a global scale.
This number struggles to be significant in the context of the global economy, and reinforces the universal belief that where jobs are lost they will also be gained, and usually of a higher pay level. It is expected that large scale automation will impact on employment. This will see jobs move from some sectors and into others, as the market creates new opportunities and demands new skills to match them. While big changes may be predicted, this will be over a number of years and the expectation is that much of the change will evolve with the normal churn of employees leaving and arriving in the workforce. The real focus for change lies with the leaders of government and corporations who must empower the workers of tomorrow with the skills that are needed to succeed in jobs that have not yet been created.
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Financial health
Top five tips for managing FX risk
FX volatility is one of the biggest risks faced by New Zealand businesses involved in cross border trade. Even in an average year the NZD moves as much as 15 per cent up or down against the USD and in a volatile year it has been as much as 25 per cent. Regardless of the nature of your exposure, FX risk can quickly wipe out your profit margins. So what can you do to protect your business against this volatility and smooth out the impact of unfavourable currency movements? While there are widely used products like FX forward contracts, effective foreign exchange risk management is more than just taking out forward cover.
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Understand how material FX risk is to your business
Regardless of your exposure, if you transact in a foreign currency you should understand the potential impact of currency volatility and plan for the impact during your budgeting process. The moment you realise you have an FX requirement you are exposed to currency risk, which is why budgeting and accounting for FX risk is so important. And the longer the timeframe between realising you have an exposure and the actual cash flow the bigger the risk. Foreign exchange specialists can help you understand the risk by considering recent volatility and modelling against your specific exposure as well as looking at the various options and costs of hedging.
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Have a plan
Even if your approach is to do nothing and simply use the spot rate on the day, you should have a policy. Not all businesses need a detailed FX Policy, but everyone should have a guideline. This can be as simple as a one to two page document that outlines a framework for managing your currency requirements. FX specialists will be able to help you with this and formulate an approach but you should include the following: - Who makes the FX hedging decisions - How far forward to hedge - If no hedging is permitted when is an invoice or receipt converted - What hedging instruments to use- FX forwards, Vanilla Options, Structured Options etc - How much to hedge at any given time - Who to use- banks and /or FX specialists.
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Don’t rely on forecasts
A recent Reuters FX Poll from 40 economists showed a range of 0.520.73 for the NZD/USD over the next 12 months. The bottom line is no one knows where the FX market will be in the future (if you did, you wouldn’t be bothered importing or exporting when you could be making millions of dollars speculating in the FX market!). Hedging foreign exchange risk isn’t about making a profit, it’s about giving you more certainty and smoothing out the impact of unfavourable FX volatility.
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Only dealing with one provider
As businesses strive to grow and remain competitive, managing all costs is imperative. However, very few businesses receive competitive FX rates. While all FX rates are ultimately driven by the underlying wholesale market, the rates given to customers include spreads or margins of between 0.1- 5%. This means the cost to transfer money internationally on a $100k can vary by $100- $5,000. While most people have a fair idea where the spot rate is on any given day (websites like XE.com publish the real time wholesale mid rates), FX forward points are much harder to come by and can include huge spreads. If you have an active hedging programme, you should always have at least two providers to ensure you have sufficient liquidity to cover when required. Banks and FX specialists will have a set amount of credit appetite for any given customer which can restrict your ability to take out additional contracts.
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We’ve always done it this way
Just because an approach to managing foreign exchange worked a few years ago, doesn’t mean it’s relevant today. FX rates and the competitive environment are constantly changing. If you aren’t reviewing your policy on a regular basis, you are at risk of using an outdated approach.
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you would like to have with this audience through social media. This will help you identify which, if any, of the multiple social media platforms available is right for you. You also need to plan for two-way communication: how you will respond to the voice of your customers?
Create a content plan and work out how you will maintain it Clearly understanding your audience will allow you to plan the content you need to create and the frequency with which you are going to share it. Be realistic about the amount of work you could be committing to in order to keep your presence updated.
International Payments & FX Risk Management Highly competitive wholesale FX rates Global payment network Full range of risk management solutions Multi-currency accounts Pro-active currency advice Zero or low transfer fees
Set and track targets
Social media for business
A beginner’s guide
Social media can be a wonderful tool for communicating with customers. But those who consider using it should be clear about who they are communicating with and what the message is that they want to share.
Is your business considering diving into the world of social media? We take a look at social media for business and ask some important questions about how they can work well together.
Your brand and social media For any business considering a new communication tool, it’s incredibly important to take some time to ask yourself what your company stands for and what are the key characteristics of your brand. When you communicate through social media you will need to decide which voice of your company you are using so that you can both share with and react to your audience appropriately.
Identify your target audience and create a strategic plan You need to be clear on your target audience and what you want to achieve. Map the relationship 17
Social media often has a reputation as a free tool but in reality it’s hungry for content and can end up costing you a lot in the time required to maintain and manage your space. Think about how you are going to measure the success of what you invest, and set some clear targets for what you want to achieve.
Consider asking an expert Finally, consider whether it might be worthwhile to call in an expert. A specialist in social media for business will be able to help you create your strategy and execution plans will also be able to create plans for measuring the effectiveness of any investment in time or money that you make. Social media can be a wonderful tool for communicating with customers. But those who consider using it should be clear about who they are communicating with and what the message is that they want to share. Armed with some forward thinking and good planning, your success in the sphere of social media could be just around the corner.
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Real business
Start-up Q&A: Making a success of the first year Planning is essential when starting a new business, but it only gets you so far. A huge ingredient in whether start-ups are successful, is how business owner’s respond to the many new, and often challenging, experiences business ownership brings. Newsletter Ready – a full service eNewsletter offering for small businesses – opened its doors in 2015. We spoke to General Manager, Anthony Sievers about his experience of starting a business – the expected, the unexpected and what he’s learnt in his first year of operation. ooking back, what excited you L most about starting Newsletter Ready? For me it was validating that the idea wasn’t just a pipedream; people wanted the service. I spoke to a sample group of businesses and 90 per cent of them said “yes, I need that”. That’s when I knew I had a business on my hands. lanning only takes you so far P – what didn’t you expect about business ownership? The amount of change you have to handle and adapt to. Of course I expected change, but I didn’t expect the amount of change, or that everything changes – my sales method; how I structure my day and how I work; evolving the product. Nothing is static and you have to get on-board with change fast.
hat would you say is the most W important thing to get right when starting a business? Do the ‘hard yards’ before looking at all the seductive marketing options. Putting in the time to sell directly rather than through marketing, is a hugely valuable discovery process – about your product, your pitch, and your market. By cold calling and talking to prospects, I found out as much from those who said ‘no’ as I did from those who said ‘yes’. hat have you found most W enjoyable about starting your own business? Comradery, definitely. I have joined a number of networking groups and have really enjoyed talking with and learning from other business owners. We all grapple with similar challenges and are striving for the same goal – building and growing our businesses. It’s very real and sharing the experience with those who ‘get-it’ has been both enjoyable and invaluable for my business. hat have you found most W challenging? Adapting to the new structure of ‘just-me’. As an employee, I took for granted the tangible and intangible support structure. When you start-up,
all of a sudden you are in a vacuum and it takes a while to understand the implications of being on your own. Now I have a team, I have to create a team work environment, manage staff working hours, and individual motivations. rom your experience, what F would you say are the key attributes for success? Tenacity, discipline and focus, but perhaps most important, humility. You can’t go into business ownership thinking you know it all – it’s very different when you get out there. Being self-aware, open to constant learning, and able to bounce back from a bad day and turn the negative into a learning, are absolutely crucial attributes. I f you could give budding business owners one piece of advice, what would it be? Make a sale first – before you open your doors. Once you have made a sale and proven the concept, you just have to add zero’s and optimise your service. It’s easy to get trapped in the research phase; isolated from the real customer. Nobody wants to have their concept or idea disproved, but getting real feedback is the only way to prove it has legs. Get someone to buy it, and you’re on your way.
Being self-aware, open to constant learning, and able to bounce back from a bad day and turn the negative into a learning, are absolutely crucial attributes. ANTHONY SIEVERS, GENERAL MANAGER
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customer feedback into a tangible business tool. It can start over the phone or face-to-face, and you can add in other tools like online surveys and feedback cards as your business grows and when you feel it’s appropriate. Gathering customer feedback doesn’t need to be expensive, but it should be consistent.
Be consistent Whatever the method you use to capture your customer’s thoughts, take the time to compose some questions that will yield the information that would be really valuable to your business. Think carefully about what is important to both your customers and your business success, then make sure you use these questions again and again. Changing questions will change responses, so it’s important that they don’t change. If you discover in the future that you’re missing a key piece of information, you can consider adding additional questions at that time.
Track the changes
What they say, means business We all talk about how important our customers are to our businesses. But the most effective businesses integrate this into the way that they work. Being customer focused is not just about listening when customers talk, it’s also about taking a measured approach to customer feedback that allows you to react appropriately to what you hear.
So how do you ensure that your customer is at the heart of your business? Drawing on the insights from clients we’ve seen go from strength to strength, here are a few of our top tips.
Loyalty is key In everything you do with your customers; loyalty is key. It’s important to make sure that they are both happy with you and that they don’t perceive that they might be happier elsewhere. As a first step in generating loyalty, listening to customers is a great way to make them feel valued. Whether your customers are happy or not – listening to them will create an important connection between them and your company.
What do you think? Formalising a feedback process is a great way of turning general
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By using the same questions over and over, you can spot trends and changes in your customer’s feedback. These can allow you to measure the impact of business improvements or challenges, competitor activity, and can also be used to drive change in themselves. Consistently asked questions and related answers can also be built into company metrics and performance measurement to ensure that your team is also measured on making customers happy and achieving business targets.
– this will make it easier to manage their expectations. It’s always important with customer feedback to stay realistic about what you will do with their ideas.
Find out what you do well Almost as important as opportunities to improve, are opportunities to recognise your successes. Positive customer feedback can identify business strengths to use in promotional tools, areas to reward your staff and suppliers, and create opportunities to share feedback online.
If you like it – Like us If customers tell you that they like you and your product or service, ask them to share their thoughts in a public space like LinkedIn. Positive testimonials and feedback are a great way to drive new business
The good, the bad and the ugly When you ask for feedback there will be unhappy customers, but at least by listening to their issues you can reduce the chance of them sharing their negative opinions elsewhere.
Customers are a great source of ideas.
Listening to negative feedback and responding to it positively could help you to retain a customer. There could be other customers who feel the same way but haven’t spoken up, or you may find that you need to develop or enhance a product or service in order to maintain customer satisfaction. As long as you have an open line of communication with your customers you can try to deal with any issues and turn negative feedback into positive experiences.
Goodbye need not be forever If you do lose a customer, getting in touch to find out why they left could help you to bring them back – in the short or longer term. And certainly using their feedback could be what you need to keep your remaining customers with you and happy. Customers give businesses a reason to be, and it is important that business do everything they can to understand the opportunities and the issues that they face in keeping customers happy. There is a reason why people say “feedback is a gift”, so why not make the most of what feedback could do for your business?
Asking them for their thoughts on how you can do things better can yield great opportunities for improvement.
Spot the opportunities Customers are a great source of ideas. Asking them for their thoughts on how you can do things better can yield great opportunities for improvement. If you can, try to stay focused on exploring their needs rather than communicating solutions
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Security in finance: a practical guide Unfortunately, none of us have a crystal ball to see into the future and plan for what it will bring. But even without a crystal ball, it is possible to follow some basic steps to ensure that you maximise the use of your assets and manage your security position with an eye to the future. Security is quite simply the tool that lenders use to protect their money when they give it to your business. This is done by registering a charge in the Personal Property Securities Register (PPSR) against one of your business or personal assets. There are different types of charges based on what the asset is, and charges are prioritised based on the date
Your security position is a business tool that, just like all other business components, needs a health check from time-to-time.
registered. This means that you can have more than one charge against an asset, but the charge registered first gets priority. The details of exactly what assets you are offering as security will be in the security section of any lending or terms of trade agreement that you sign. If you weren’t aware of them, you are not alone. Remember to always get a lawyer to review any documentation before you sign it. The most favoured form of security is property, but security can basically be taken against anything that you or your business owns.
Setting up your finance When you first set up your finance agreement with the bank, they will require security against the money they are giving you to start up and run your business. In an ideal world the bank would like to use property as security, but they will probably try
to take security against every asset that you have. It’s natural that the more security they have, the more comfortable they will be lending you money. Be proactive in reviewing your security options before you sign any agreement: this is essential to protect your future position. We recommend that you try to keep debtors and stock apart from your agreement with the bank. The bank traditionally values these at 0-25 percent of their actual balance on your books. An alternative finance provider like Fifo Capital would value your debtors at up to 90 percent of their actual balance. This means that should you have a future requirement to borrow more money, alternative lenders may value your assets higher than the bank. In this scenario an alternative lender would be able to give you money where a bank might say no.
What lies ahead? When the bank funds your business, it is usually based on your historic performance, which can be quite an outdated picture – for example, business figures from 12 or 18 months ago. The bank also looks at the current status of the industry within which you operate, and the current position of the wider market. All of these things will change as time passes. You will gain and lose customers. The industry may grow and decline, it could experience a boom or it could retract. The economy could be strong, or it could experience decline caused by internal or external factors. And any one of these changes could cause the bank to reassess its position with regard to your lending and your security. When the change is positive the bank will probably increase your ability to borrow because it will be aware of the increased potential of your business. But unfortunately if the change is negative the bank could freeze or reduce your funding.
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Understanding and managing your security position with regards to these factors is essential; proactively managing your security position gives you the flexibility needed to protect your business from changes in lending appetites.
Security essentials for all business owners You may need finance for growth; to manage your costs while you deal with the loss of a customer; to support your business after a drop in prices or an increase in competition; or just to manage day-to-day operations. Whatever the reason, managing your security is key to keeping your finance options open. Here are two essential actions for any business: 1. Outdated security registrations: It is all too common for businesses to secure lending with an asset and pay back the facility, but then forget to check that the lender has lifted their registration against the asset. Run a check on your PPSR – if you find lenders registered against assets where the finance has been repaid, request that they be removed quick smart. Old registrations on assets have the potential to slow down your ability to raise money in the future. 2. Map your security: Review your finance agreements and create a working document of all the securities you have granted for finance that you are currently paying off; and also list the additional security options you have available.
Remember
Review your securities annually. Not all business loans require assets as security. Don’t be afraid to ask for a change or release of securities.
Ask an expert to review your finance for you – get a second opinion.
Your security position is a business tool that, just like all other business components, needs a health check from time-to-time.
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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 with a business finance specialist • Fast response and approval of finance to meet changing business needs • Consultancy in partnership with your financial advisers and with current 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.
As a trustee we look at things differently Covisory Trust Services is a specialist trustee company offering full trustee services and advice to both domestic and foreign trusts. As well as holding key man / shareholder buy out insurance. We pride ourselves on being small, responsive, highly specialist and boutique in our approach.
National Head Office M312 Private Bag 300987, North Shore City 0752 P 0800 86 34 36 E info@fifocapital.co.nz
MARCUS DIPROSE marcus@covisory.com +64 9 307 1777
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