From Craig’s desk

Thank you for reading this month’s newsletter, as we continue to expand the newsletter we welcome any feedback. To this end we are running a survey over the next month about how Vault can do more to assist you. The link for the survey is here for individual clients and here for business clients and as a thank you we are offering a voucher on our services and running a draw to win a $2,500 voucher from June’s Jewellery and Gems, a long standing client of the firm.

Next month is the anniversary of the decision to move to the work from home model and apart from some teething issues it has been positive for the firm. This has been a significant learning experience and one that we hope has been positive for our clients, it certainly has been positive for our team. We are happy to share our experiences as to the experience, feel free to reach out.

The merge with Grafton is complete and the team are settling in well. Anne, Barb, Blake, Sam and Wendy are learning the ropes. November is the Jacaranda Festival and the team are looking forward to Grafton being turned into a sea of purple.

We are glad to welcome Cheryl back to the team, Cheryl was one of the first offshore team members that Vault had, for those of your lucky enough to have worked with Cheryl in the past, you’ll understand why we are over the moon the have Cheryl return.

With the borders reopening we are travelling to Manila for the offshore team training during November. After the team survived a typhoon two weeks ago without too much damage and we are glad to say that everyone is safe.

We are glad to say that the first weekend of Oktoberfest Brisbane went off without a hitch and we are looking forward to the second weekend, there is still a chance to buy your tickets click here.

In October we are covering Income protection and why it matters. Looking at cash flow management and the tools that are available. Taking a negative look at negative gearing and why buying an asset for tax reasons may not be a good idea. Martin Turner covers what’s involved in reference checking and what needs to be watched. Tyler gets excited about balance sheets (and hopefully you do to, but no promises). We meet Len our senior bookkeeper from Cavite.

As we continue to develop our newsletter we welcome any feedback email craig@vaultgroup.com.au

Our 2022 Feedback and 2023 Events

Let’s Talk About Income Protection

Income protection is often one of the less understood types of personal insurance and is something that is even less obtained, despite it’s importance. It is a policy that protects your most valuable asset, the ability to make an income. For most people income protection is an afterthought or the less obtained insurance, yet for a lot of people the lack of an income will have a substantial impact on their ability to financially survive. 

Income protection is a policy that covers your income for the period that you are off work, and depending upon the length of the policy may cover you for the entirety of your working life.  

What is income protection? After a period of ill health, or an accident, this insurance will step in and cover a percentage (generally 75% of your income) for a defined period, whether 2 or 5 years or to a specific age, generally 65. Income protection pays a regular amount until the expiry of the period or you are able to return to work.   

What about sick leave? Whilst we accumulate sick leave through our work, this generally runs outs quickly especially where there is a long term illness or injury. It is often the case that the waiting period for the insurance matches the sick leave you are entitled to.   

What about workers compensation? Whilst workers compensation is often available, it generally pays a smaller amount, for a shorter period and if the event or injury was not related to work you may not be covered.   

I am healthy, why don’t I leave it until later? The problem is that most periods of ill health are not planned ahead and it is estimated that the average worker has a minimum period of three months in one in event off work during their career, can you afford three months of no income? The other consideration is meeting the underwriting criteria, this is usually a lot easier when you are younger and healthier.  

I have cover in my insurance, is this okay? The policies owned through your superannuation policy are generally not sufficient or appropriate for income protection purposes. We always recommend understanding what you are covered for and how difficult it is to obtain benefits in the event of a claim. 

Isn’t income protection expensive? Overall the cost of the policy is not prohibitive against the protection it provides, also the premiums are generally tax deductible.  

Do I have to be fully off work? The income protection policies will generally allow for a partial return to work, they insurer also will work with you to establish a return to work plan.  

What if I am interested in finding out my options? Talk to our team today. Income protection is critical for most working people, without it you are placing your biggest asset at risk.

The Negatives of Negative Gearing

With interest rates increasing there is a lot of noise about the benefits of negative gearing, but what are the pitfalls and why is it only a short term fix (if a fix at all)?

What is negative gearing? Negative gearing is where you acquire an asset (usually property) and the income earned from the property is less than the expenses of holding the property. The intention is that the property value will increase over time which means that the losses during the holding period are offset by the gains in the property value. This only works on the basis that the property increases in value over the period of it being held.

Property doubles every seven years! It’s a bit of a fallacy, thinking over 140 years, a property purchased for 100 pounds ($200 adjusted) would be worth $209m. The measure is a throw away line, for every period of rapid growth there is a period of stagnation or low growth, making an assumption the property will double over seven years is a risky move.

I am looking at a property due to the tax benefits! Run away, any property that is sold on the basis of it’s tax benefits should be an indicator that the fundamentals are wrong. All too often the tax benefits are overstated and you are stuck with an inferior property. Look at the surrounds of the negatively geared property, is it going to be easy to rent or are you competing in a tough environment, are the costs of holding the asset high or are the expected returns unrealistic?

What can I claim on my property? Maintenance, insurance, rates, depreciation and interest are some of the basics. Thinking of buying a run down property and claiming the structure works… unfortunately this needs to be apportioned over 25 or 40 years.

What is depreciation? Depreciation is the decline in value of the building and fixtures over the effective life of the building, in early years this can be valuable but as the building ages the property holding costs will increase as things need replacing.

Why are you buying the property? The logic in buying the property should only be on the fundamentals, anything else is a bonus and the tax outcome should only be a later consideration. Yes, tax is important but buying a property with good rental prospects, growth or improvement is the key.

So can negative gearing be positive in an investment structure? Negative gearing has a benefit but this should only be a short term situation, the underlying asset needs to able to pay for itself. We find that assets that have been long term negatively geared are often hard to sell and usually do not return a good outcome when they are sold.

Negative gearing, when done well has a short term benefit, the focus needs to be the value of the underlying asset and the long term intentions and outcomes, a well purchased asset using negative gearing is a lot better than an asset purchased solely for its tax benefits.

Cash Flow and Understanding Cost Control

With business conditions getting tougher, a focus has been cash flow and what costs can be controlled within your business. If covid has taught us anything is that businesses are generally resilient but as things are remaining tough it comes down to critically analysing your business and making sure that it is run to it’s best.

Cash flow is critical for any business, how much is coming in and how much is going out. For a lot of businesses this is a juggling act, for a lot of individuals it is exactly the same and the principles are very similar.

Where cash is coming from is critical for all businesses, whether it from sales, asset sales or finance, each has a role and needs to be carefully considered in the analysis of the health of your business and where the risks are. We often see that businesses are betting on cash coming in which may not be materialising or which may be delayed, it is a process that can demonstrate or increase business stress.

Managing the cash drain is an equal critical analysis in understanding your business health, it is something that we have seen done well during covid as businesses more critically analysed their expenditure and made sure that it was aligned with their needs.

There are a lot of tools available to manage cash flow, we recommend that at the minimum a package such as Spotlight is used to forecast cash requirements and to start to plan the cash position of your business. For individuals a simple cash flow analysis tool within online banking can offer a similar approach and allow you some telemetry to where your cash is going and what you need.

What is Spotlight Reporting? Spotlight is a three way modelling tool which covers your budget, your balance sheet and your cash flow, this allows us to work with you to plan out the next three, six and twelve months with some certainty. The benefit of spotlight is that it gives visual tools which can be customised to a specific business, with measures that are meaningful and easy to understand and develop.

A healthy business is one that has good cash management and can control it’s peaks and troughs so that it is always a few months in advance, we offer a complimentary client review, which generally leads to a cash flow modelling follow meeting, to book a chat click here.

To discuss the business planning process, we first recommend a complimentary review of your business, this will determine some basic issues, some simple strategies and then determine a course forward. To book a Complimentary Client Review click here.

We are running a webinar on the benefits of business planning and what is involved, to register your interest click here.

Contact us today for a no-obligation chat and let us know how we can, and will, help you. Learn more about our new Business Advisory Services here.

What makes a good balance sheet?

Tyler loves a good balance sheet, but making it add up is only half the story, we find that without understanding what is in it, that a lot of people are not using the data available to it’s best advantage.

What is a Balance Sheet?

If you have accounting software or financial statements from us at the end of the year, then you probably have a balance sheet. But what is it? And why do you need it?

Put simply, it’s the spine of your business. It tells the story of how healthy (or not) your business is. It gives a full, holistic picture of your business journey and tells you of future things that you need to pay for.

Let’s start at the beginning. Your balance sheet is made up of 3 things – Assets, Liabilities and Equity.

The assets are the things of value; cash at the bank, cash in your till or on hand, cash in your payment gateway you haven’t yet received (such as Square or Afterpay or Paypal payments on sales). Your Accounts Receivable are also listed as an asset (sales invoices that haven’t yet been paid).

Your assets are also made-up actual items, machines, equipment and vehicles that the business has purchased. If necessary, these are the items you could sell if you needed cash in a hurry.

There are also intangible items on your asset list; if you’ve purchased an existing business then this might things like goodwill, intellectual property (IP) or fixtures and fittings to your shop or workspace. Intangible assets are that add value, but you couldn’t really sell them independently of selling the business.

Next, we have liabilities. If assets add value to your business, then the liabilities reduce this value. Quite simply its debts and payments that you need to make at some point in the future.

These may be bank debts, loans, credit cards, your own buy now, pay later (BNPL) accounts with ZipPay, OpenPay or Humm for example.

Liabilities also include the bills, invoices, and accounts payable that you haven’t yet paid as well as amounts that you owe either to your employees or to the tax office. Items such as GST, PAYG Withholding Tax, Superannuation are all listed here. Knowing how much you owe, and when to pay is really important. Xero’s clever dashboard can help you keep track of these amounts so that there are no surprises, and if you set up a second business bank account and transfer the balances you owe to this account each month, it will mean that you have the cash ready, exactly when you need it.

If you have employees, there are other things that *should* be on your balance sheet, that might not be. These are hidden expenses that will occur at some point, but you don’t know about them. One in particular is the Provision for Leave – that is a dollar value of the leave entitlements that your staff have accrued. If you have employees that are not taking their annual allowances of leave when they should, this figure can quickly build up. If the employee then leaves, either through their choice or yours, then this is an amount that you will need to find – and pay, sometimes very quickly. Having this figure on your balance sheet and understanding what it means can be a huge benefit, the more employees you have; the more you will benefit from having this account available and visible.

So, we’ve talked about Assets, and Liabilities, so what is Equity? Well, if Assets add value, and liabilities reduce this value then equity is the balancing figure that you’re left with. (Which is why it is called a “Balance Sheet”. Therefore, equity is a snapshot of the value and the health & wellbeing of your business.

Your equity accounts are made up of

• current year earnings (this is the nett profit figure carried over from your Profit & Loss statement)
• retained earnings (this is the cumulative figure of all the prior years profits and losses added together).

Your entity might not call it “Retained Earnings” if you are a Partnership, a Sole Trader or a Trust as you cannot retain profits in these entities, it may be called “Distributions” instead, but it has the same meaning – this is the all the year end profits (or losses if the figure is in brackets) from all your prior years of trading.

So how do you know if your business is healthy? Well, start at the top of the page and look at the balance of your assets. Is this figure higher than the sum of all your liabilities? If so, that’s a good start, for your current situation at least.

Next look at your liabilities, are the any loans or debts listed that shouldn’t be there, or don’t need to be there? Is there sufficient cash in the bank, payment gateways or in accounts receivable to pay these things as and when they are due?

Finally look at your Equity account, look at what makes up this final figure and your business as a whole. Is this what you expected? Is it higher than you expected? Or lower? Is it in brackets? And if so, what does that mean?

Do you need to put together a budget to better help you manage your cashflow?

If you want to know more about your balance sheet and need some personalised, confidential advice around what to look for and what to need to do with the information it shows, we’re here to help. We specialise in small business advisory, but more than that, we specialise in you.To understand why you need Xero in your business, reach out to the team here.

Reference Checking

Our guest writer this month is Martin Turner from the Turner Group and TTG Community Engagement.

Martin from the Turner Group continues his insights into why recruitment matters, and after a coffee we decided that it would be useful to discuss a few of the issues that arise in reference checking and why it helps to have a third party undertake this process for you.

Over our recent coffee we discussed an issue that arose where the candidate’s referee was too glowing, and this raised some red flags. Once a background in the referee was undertaken it was worked out that the reference was being given by their mother using their maiden name.

Does this happen often? As we all live on social media, when we undertake a reference check we make sure that the reference is accurate. A simple LinkedIn search can often find that the reference may not be from an immediate supervisor and this is often a concern, especially where the immediate supervisor is not contacted for a reference. It’s better to have an honest reference than a glowing one that may not be accurate.

What are some of the warning signs? We have a range of discretion when reference checking, and usually these will help out identify problems or issues for concern. References that are too perfect are always a worry, logically if someone was as good as the reference says they are why did they leave?

What does a reference check involve? Depending on the role we look at what the role entails and how the candidate will fit into it, it is not an exact science but it is one that requires a lot of experience.

What can go wrong? We find that a lot of businesses undertaking their own reference checks ignore red flags or don’t have a clear reference check process. We see all too often that personal references are relied upon and not enough business references are undertaken.

What’s your role in the reference process? As a recruiter we do the heavy lifting in the reference process and if necessary will ask a candidate for more references were we have concerns or the references are not appropriate.

For individuals what do you recommend? Ask your referees first. Make sure that they are happy to provide a reference. Secondly make sure that they are accurate and going to be transparent, there is nothing worse, as a recruiter having a referee give us useless or incorrect information.

Anything else that you should know? Under the Privacy Act a candidate can request anything said in an interview from a referee. If you are not comfortable in saying something it is often best to merely confirm they were an employee and say nothing else.

What about businesses? We have often discussed the recommendation to undertake referencing checking of staff, but it is critical for business owners and decision makes to undertake comprehensive reference checks of staff, anecdotes and personal references are often fraught with danger. So do it properly.

We can agree that the reference process is critical. We promised last month that we would continue the recruitment process and why it matters, we will cover this in November.

Martin as a plug, what do The Turner Group offer? We offer recruitment service for businesses but also ensure that the candidates are properly screened and tested. To engage with the Turner Group click here. 

The Turner Group is a leading boutique provider of holistic recruitment and staffing solutions, and HR services. Our people, our values, our history and our culture all combine to make us the recruitment consulting team we are proud to be.

Strategic Buying and Buying for Your Needs 

Strategic Buying

Buying For Your Needs

There are many reasons people buy property, some may be for a home to live in, others as an investment. Regardless which of the above suits your situation there are many things to take into consideration when implementing your “Buying Strategy”. In markets like we are seeing right now (Uncertain and unpredictable) it is essential to have a strategy in place that has been developed by yourself and your power team. I cover this topic a lot when coaching and presenting and in any aspect of real estate you must have your power team to win. Your power team can include but not limited to.

– Real Estate Expert

– Accountant

– Financial Strategist/Advisor

– Lending Manager, Bank, Broker

– Solicitor, Conveyancer

– Insurance Broker

– Project Manager

Having your power team involved in the development of your strategies will achieve multiple outcomes and improve your chances of not only a successful venture into property but also a stronger chance of being the successful buyer of a property. Below is a brief overview of three strategies we implement with our clients and personally, are we buying for

– Strong Capital Gains

– Strong Rental Yield

– Forcing Equity

We offer a FREE property investor support service where we can apply over 100 overlays on a property you are looking at buying to help you understand the true potential, values and pitfalls. You can find that service at https://stretenrealestate.com.au/property-investor-support

Strong capital gains

Capital gains are where your property’s value increases over time; the higher and faster the growth, the stronger it is. As an example, if you purchase your property for $450,000 and twelve months later it is worth $490,000, you have an equity growth of $40,000. Really if you think about it, you need to pay for living regardless of the home, so capital gains are a bonus!

Generally, you will find more stronger capital gains in houses over units, with some exceptions. It is common to find that rental yields are relatively small, from 4% to 6% in these properties compared to their counterparts. Each country has their own rules concerning capital gains and how they treat them. Here in Australia, how they tax your capital gains is relevant to the amount of time you have owned the property and if it was your principal place of residence. The rules are complex, but in a nutshell, if you have owned your home less than twelve months and it was not your principal place of residence, you will be taxed the maximum percentage of the capital gains you have made. If you are an individual (Not a company) and have owned the property for more than twelve months, you qualify for a substantial discount nearly 50%. As I stated before, it is much more complex and intricate than this, but it gives you a basic understanding of it. This is an area that having the Vault Group on your power team is advantages and a good move.

High Rental Yield

A good rental yield is generally classed as around 6% return. Higher than this is excellent and is where you can start noticing the passive income that it can provide. When hunting for high rental yields, you are on the hunt for areas with easy access to services, schools, public transport and places of work. These properties are usually apartments or townhouses and have a slower capital gain but a lower initial purchase price. Be careful, though, as body corporate fees can strike that excellent gross yield into a dismal net one. When in a high rental yield, it is possible that you will be positively geared and need to declare that profit along with your income and taxed on it accordingly. As mentioned earlier, having the Vault Group on your team will help you ascertain your tax implications and what is suitable for your income.

Forcing Equity

Forcing equity is an excellent strategy if you have managed to put the right people around you as a team. It can be very lucrative; however, you can lose it all on one project, so always ensure you have the right advice and the quickest way to force the equity is by renovating. Buying, renovating and then selling is a strategy that I utilise and thoroughly enjoy, even for my clients; it is enjoyable as one of our services is managing the design and renovations, so I get to watch our team create something from nothing and achieve more than our clients’ expectations. Once again, you need to be careful if inexperienced as the hidden costs can rapidly get out of control, and you have that capital gains tax lurking as well. Below are just three recent examples of the flips we have done.

Example 1. – Gold Coast, Queensland Australia (Buy and Sell)

– 2 Bed 1 Bath apartment 7th floor

– Purchase price $630,000

– Settling costs $16,300

– Renovations $19,600 (Paint, flooring, furniture and Repairs)

– Total in $665,900

– Sale price $787,000

– Less sales capital gains tax $24,220

– Profit $96,880

Example 2 – Bellmere, Queensland Australia (Buy and hold)

– 3 Bed 1 Bath House on 600m2 Block

– Purchase cost $405,000

– Market value $435,000 (Already made gains in the buy)

– Settlement Costs $14,200

– Renovations $45,000 (Converted to a 4 bed 2 bath, new kitchen, floors, ensuite and laundry)

– New market value $620,000

– Capital gains $170,000

Example 3 – Caboolture, Queensland Australia (Buy and hold)

– 3 Bed 1 Bath Two Story House on 400m2 Block

– Purchase cost $410,000

– Market value $450,000 (Already made gains in the buy)

– Settlement Costs $16,400

– Renovations $55,000 (Converted downstairs to another 3 Bed 1 Bath Unit)

– Total money in $481,400

– New market value $660,000

– Capital Gains $178,600

– Rental Income $800/week

– Rental Yield 8.64%

When Should You Contact Us?

If you are looking at investment property for the first time or adding to your existing portfolio, it is always a good time to contact us. If you utilise our support services before, during or after buying an investment property, we have advice and tools that will assist you in growing and managing your properties.

At Streten Property Group, technology allows us to manage properties all over South East Queensland. Properties located 2 hours away get no more or less attention than one on my street. A “good” manager can do their job effectively no matter where they are and now has the technology to thank and back them up.

Contact Bud at

Phone: 0436 486 444

Email: bud@stretenpropertygroup.com.au

Meet the Team – Len

Where in the Philippines are you based?  Cavite

What is the area best known for?  It’s a tourist spot (Tagaytay City)

Tell us something about your area that you’re proud of? Natural landscapes and beaches, Len this is a bit of an understatement the area is absolutely spectacular.

Away from work what are your interests or hobbies?  Biking

What is a perfect weekend for you? Spending time with my family

Could you also tell us about your family? Married to a very wonderful husband; 8yr old good-looking son 😊; we love to eat Japanese and Chinese food.

How long have you worked with Vault? 18 months

What area do you work in? Bookkeeping.

What’s the most enjoyable part of your job? Being able to work and earn while still fulfilling ‘mommy duties’ and enjoying time with my son at home.

Learn about our team here

Our 2023 Survey 

We hope that you’ve enjoyed reading this monthly round up, and look forward to bringing your more news next month.

To find out what’s happening at Vault click here.

As always we’re here to help. Contact us on (07) 3012 6724 or email us at hello@vaultbusiness.au.