Archive for 'money'

What to consider in an employee share scheme

Employee share schemes (ESS) provide employees with a financial share in the organisation that they work for. They can be offered by organisations as a way to grow their business by attracting, retaining and motivating their employees.

How they work:
ESS gives employees shares in the organisation they work for at a discounted price, and the opportunity to purchase shares in the future. The discount refers to the difference between the market value of the ESS interests, and the amount paid by the employee to acquire them. This discount forms part of an employee’s assessable income, and will need to be included in their tax return.

Employee share purchase plans offer eligible employees the chance to purchase shares from their employer, often through a loan. The shares can be paid through a salary sacrifice plan over a set period, or by using the dividends received on the shares. Employees who are on a higher income may be eligible to receive shares as a performance bonus or as a form of remuneration instead of receiving a higher salary.

Possible limitations:
There may be restrictions on when employees can buy, sell and access their shares through an organisation’s share scheme. For example, employees may have to get permission from the business before buying or selling their shares, or there could be an annual window during which shares can be bought or sold.

What to consider:
Employees should take time to research the organisation they are considering participating in an ESS with. This will help determine how well the scheme is doing, and whether the shares are likely to increase in value. To avoid losing a large part of your investment portfolio, consider purchasing shares that are part of a diversified investment plan.

Before entering into an employee share scheme, consider seeking professional financial advice that is specific to your circumstances.

Posted on 24 June '19 by , under money. No Comments.

Ratio analysis methods for your business

Financial ratios are useful tools for business owners to monitor, analyse and improve their business performance. By using ratio analysis methods, you can gain insight into a company’s liquidity, efficiency and profitability by comparing the information contained in its financial statements.

Solvency:
Solvency ratios measure the company’s capacity to fulfil long-term financial commitments. Debtor days is one of the key measures of this ratio analysis method. It shows the average number of days that a business takes to collect invoices from their customers. The longer it takes to collect, the greater the number of debtor days. When debtor days increase beyond normal trading terms, it indicates that the business is not collecting debts from customers as efficiently as it should be. The formula for working out debtor days is:

(Trade receivables ÷ Annual credit sales) x 365 days

Profitability:
Profitability ratios help measure and evaluate the ability of a company to generate income relative to revenue, balance sheet assets, operating costs and shareholders’ equity during a specific period of time. The net profit margin measures what percentage of each dollar earned by a business ends up as profit at the end of the year, the formula is:

Net income ÷ Total revenue = Net profit margin

Posted on 11 June '19 by , under money. No Comments.

Risk management strategies for investors

When it comes to investing your money, there is the possibility that it may not perform as well as expected, possibly losing you some or all of the original investment amount. While no investment is free of risk, some carry more risk than others. These are a few strategies that can help minimise the risk of investments without sacrificing your returns, and not be left out of pocket in volatile and fluctuating markets.

Diversification:
Investment diversification involves buying asset classes or sectors that are not correlated. Diversified portfolios give you the advantage of being less exposed to particular economic events. It can be an effective way to limit your risk, as the fall in the value of one asset class may be offset by an increase in the value of another.

Keep goals:
When buying growth investment assets, you may expect to see some short-term volatility. It would be helpful to separate your short-term and long-term goals and determine how much will be needed for each. Consider investing for the long term in growth assets, while setting aside funds for the short term in a cash investment or another similar defensive asset, ensuring short term funds are available and longer term growth investments are not affected.

Track your investments:
The balance of your assets may change as they gain or lose value, reducing the diversity of your portfolio. Tracking investments is useful in these circumstances as you may need to rebalance your portfolio. Doing this will make sure your investments still align with your strategy to mitigate risk.

Posted on 27 May '19 by , under money. No Comments.

Consolidating your debt

Debt consolidation loans are a financial solution that may be suitable when you have multiple debts at once and are struggling to manage them all.

Debt consolidation is the process of bringing together all of your current outstanding debts into one single repayment. This is typically done by taking out a new personal loan to repay your existing debts and then paying this new loan back over a set term. While they may seem like an appealing idea, there are a number of potential negatives to consider as well as the benefits.

Pros:

  • Consolidating your debt into one single loan to repay can be easier to track and manage.
  • Those taking out a debt consolidation loan may benefit from a lower interest rate compared to what they are currently paying. This means that over time, you can expect to save money.

Cons:

  • Without being mindful of your finances, the lower regular payments as a result of consolidating your debt may lead to you spending more overall. This creates the potential to accrue more debt and pay more in the long term.
  • Failing to keep up to date with regular loan payments could end up affecting your credit score and put you in further financial hardship.

Before deciding to apply for a personal loan to consolidate your debt, take the time to consider all of the potential advantages and risks that are involved. Factor in your own circumstances and look for a loan that offers an interest rate and terms that will work for you. For more information, you may consider seeking professional financial advice.

Posted on 10 May '19 by , under money. No Comments.

Ensuring your invoices are paid on time

Having a healthy supply of cash is vital for the survival of small businesses, as it is required to operate and enables you to pay workers, rent and other expenses. Unpaid invoices can lead to poor cash flow, a significant reason small businesses fail.

Late invoice payments can add to the strain of being restricted by limited resources. As a business owner, you should take the necessary steps to ensure prompt invoice payments and reduce your stress.

Structure:
A structured collection process when it comes to chasing payments can provide a strong foundation to minimising losses as your business grows and can release thousands of dollars into your cash flow as a result of faster payments. By embedding certain practices into your day-to-day operations, the time dedicated to invoicing and chasing late payments is more efficient and effective.

Prompt invoicing:
Fast and correct invoicing is a great way to encourage faster payment. The earlier that you send your invoice will mean the client can make payments as soon as possible. Contacting clients after sending your bill allows issues to be addressed quickly. Checking if they have received your invoice and are happy with the services that have been provided is a good way to improve customer relationships.

Posted on 28 April '19 by , under money. No Comments.

The pro’s and con’s of using someone else’s money

Borrowing money to invest, also known as ‘gearing’, can be a risky business. While it can increase your returns when markets rise, losses can be extreme when markets fall. It is important to understand the risks involved when deciding whether borrowing to invest is right for you.

Benefits:
The main benefits of borrowing to invest are:

  • It gives you more money to invest.
  • If you are on a high marginal tax rate then there may be tax benefits as you are usually allowed a tax deduction for interest payments on the loan.

Risks:
Some major risks of borrowing to invest are:

  • The income that you receive from the investment may be lower than expected.
  • Interest rates on the loan could rise.
  • Income risk in circumstances where your income may stop, such as illness or redundancy.

It is vital to understand and have a plan in place to manage these risks. As borrowing to invest is a high-risk investment strategy best suited to experienced investors, you should seek further professional financial advice to make sure that this is a viable option for you.

Posted on 1 April '19 by , under money. No Comments.

Income investing: Managed funds vs. ETFs

There are a number of options when it comes to choosing an income investment scheme. Investments that generate regular income can be useful in a number of various situations, for example funding your retirement lifestyle. Options to consider include managed funds or exchange-traded funds (ETFs).

Managed funds are where your money is pooled together with other investors and then bought and sold by an investment manager via shares or other assets on your behalf. ETFs are a type of managed fund that can be bought and sold on a secondary market like a share.

Managed funds:

  • Pricing: When buying and selling managed funds, investors won’t know their exit price until the next day. A sale takes place either at the end-of-the-day price or on the net asset value of the assets. You could have to wait several days to receive your money from the sale.
  • Risk: It is up to the individual fund manager to invest in particular stocks, allowing you to access a diversified portfolio made up of varying asset classes. This can reduce your level of risk by minimising the impact of poor performance by a particular industry or sector.

ETFs:

  • Transparency: ETFs are typically more transparent than actively managed funds. An investment manager’s website can have its underlying investments readily able to be seen, where managed funds provide relatively little information about the holdings of the fund.
  • Buying and selling: Arguably faster and more convenient than the trade of managed funds, ETFs are bought and sold like shares, meaning you will need a sharemarket account and a broker. One option could be online brokers, as there are many of them available and they offer lower rates. On the other hand, a managed fund is bought from the fund manager.

Posted on 18 March '19 by , under money. No Comments.

Invest in your investments

If you are in a position to invest, it can be a great venture to help grow your wealth as well as provide opportunities for others through your contributions.

Before investing though, you need to consider what is the best avenue as there are many aspects of an investment you will need to examine to determine if it is the right fit for you. On a personal level, you will need to make a financial plan, consider risks, establish a timeframe of when you can invest as well as decide how involved in the processes you would like to be. When deciding where to invest, you should consider the following:

Understand the business:
As an investor, you should understand the day to day workings of the business you are contributing to. This will help you when deciding if an investment is the right fit for you. Research not only the particular business or company you are investing in but the industry as a whole so you can properly assess suitability. Make sure there is a market and audience for your type of investment.

Company basics:
Investors are allowed to look at the aspects of businesses that not everyone else can. When your money is involved, you have a right to know many things such as how the company functions, what it earns and how they pay employees. You should also look into whether the company is growing, their tax rates, debts and any other expenses they might have.

Management:
The day to day operations is what will help your investment strive so the management of the company is something to look into. Management history is a good way to gauge consistency, effectiveness and overall satisfaction. There needs to be cohesion between shareholders and management. To ensure this, partner with a management team that you align with which will benefit everyone involved.

Posted on 1 March '19 by , under money. No Comments.

Payday loan apps and websites; the pros and cons

Personal loans have become a fast-growing financing option for consumers, with payday apps and websites gaining popularity. For aid between paychecks, payday loans can be very helpful for the pay cycle lull. Taking out a loan is not something to enter into lightly though, there are many variables that should go into your decision-making process. Here are a few pros and cons you should consider before taking out a payday loan

Pros:
Payday loans are named as such because they are basically instant. Once applied, your loan is usually processed and paid out on the same day. This is very helpful if you are in need of money urgently between pay, like a fine or surprise bill for example. For this reason, the loan amounts can often be quite high. Like any other loan provider, the quicker you pay the amount back, the more likely you are to receive a higher loan the next time around. These services track your repayments and can increase funds based on your credit history. Application for payday loans is extremely easy as they are based online. The process is very quick and many payday loan services have app options so you can apply on the go.

Cons:
Any loan you take out will affect your credit rating so it is important to really think about why you need the loan before applying. Frivolous loans can greatly harm your credit score which could make life difficult down the track. With the loan process on these sites, if you are unable to make a full repayment by the agreed deadline, further fees may be charged to you but will not be revealed until you are required to pay. These payday loans often have a high-interest rate due to their instant nature and repayment period.

Posted on 13 February '19 by , under money. No Comments.

Switching banks for your business

Businesses need to access finance with ease in order to sustain and develop themselves. Is your current bank still cutting it? Here are some indicators and tips to effectively assess your business’ banking needs.

Assessing your needs:
Evaluating and reevaluating your business’ financial needs is the first step towards choosing the right institution for your business. While drawbacks on customer service, high bank fees, or an increase in interest rates are clear red flags, you can also consider if your bank supports the direction of your business as it grows. That is, how will the bank affect your business if you choose to operate online? How will your bank manage a larger line of credit in the future? Does your business benefit more with a personal relationship with a small bank or the efficiencies provided by a larger bank? Consulting a financial advisor and developing a relationship early on can reduce headaches later on.

Choosing the right bank:
After identifying your business’ needs and possible trajectory, identify the key features you are looking for in a bank and be sure to have questions ready before meeting with bankers to compare effectively. Again, consider if the bank is flexible enough to meet your needs, and reevaluate services you have been paying for previously but may no longer need. For example, would an online bank work for your business?

Posted on 30 January '19 by , under money. No Comments.