When Sir William Wallace got onto his horse and gathered an army of everyday Scotts willing to bet everything – including their lives – on the vision he had, he did not waste time with a 101-point-plan-of-action. He inspired them with a simple message that caught fire immediately, and finally led to their victory.
Your Vision
When you’re creating a vision for your business, ask yourself…
What does success look like to me?
What do I/we want to become known for?
Why do I believe so much in our solution?
What is the transformation our ideal clients/buyers will go through when working with us/buying our product?
How is our solution different from that of your competitors?
As every great army general (and entrepreneur) knows, a vision alone doesn’t guarantee victory. You have to have a proper strategy to get the right troops in the right positions, train them, make sure everybody has food and equipment, and so on.
Just like our famous red-haired Scot, you need both a great vision and a well-thought-out, actionable strategy to be successful.
Your Strategy
Many businesses don’t plan at all, while others get stuck in over-planning mode for ages. None of these approaches works. Instead, you should keep your plan simple enough for everybody to understand – and remember – but detailed enough to cover all risks and steps necessary to bring the vision to fruition.
Where do you get stuck when planning for your business?
Do you find it challenging to create a vision and put it into words that inspire?
Do you get stuck in planning mode?
Are you planning by the seat of your pants, constantly putting out fires as you go?
Or is it something entirely different?
If you’re feeling stuck, not knowing how to turn your vision into reality, why not get in touch? We’ll help you to put the right pieces together to build a corona-proof business.
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We’re taking you back to school with a fun little multiple choice question:
What is most important to you?
Keeping abreast with fads and trends
Building something of lasting value and impact
For us, we’d choose to create a legacy every time. And we suspect you do too.
How that looks like for each of us may differ, though. For some, legacy may be the difference they make in their community, for others it’s to help their employees reach their goals and dreams. Others want to build a service or product that provides great value to their customers. And others want to change the way people think about things – for the better.
Having a vision of the legacy you want to create is only half the battle. You need a strategy to bring that vision into fruition and keep it alive for decades after you’ve hung up your hat.
Part of building a legacy is to have a succession plan in place. Not only will you keep the vision alive, but you’ll also provide financial security for yourself and your family. If you don’t, all the love, sweat and tears you’ve put into the business over the years may go to waste. It will stop when you stop being around.
3 Elements of Succession Planning
There are three important elements to succession planning. We can help you to plan for and put all of these in place so that your legacy can keep going for years to come:
1. Your Team
Your people are the most important part of the plan. They form the backbone of the business; they’re the ones that keep the wheels turning – even if your business is highly automated.
You want to retain your best employees and prepare them for their future roles, without your input.
Don’t just think about top management, though, think about all seats on the bus. Who are your rockstars the business can’t do without? What about the salesperson who knows all your clients’ life stories and children by name? What about the electrician who fixes problems you don’t even know you have?
What happens if these rock stars aren’t around anymore?
When building your team…
Identify the right people for future roles. The next person in line may not be the obvious choice. Look further. You may have some young employees with the right attributes that you can develop – both technical skills but also the attitude and willingness to grow.
Next, talk to them about their career goals. Do they see themselves in the roles you have in mind for them?
If you have any talent gaps, start hiring the right people.
Lastly, and most importantly, invest in the training and development of your team.
2. Structures and Processes
Who is responsible for what? How do you do x and y?
Put structures in place and document procedures and templates so that everybody knows what they should do and how to do it. We call ours “This is the Way”.
Once you’ve developed that, make sure you test them and train people to follow the processes.
3. The Money
Ah, the money. Often neglected and forgotten.
Every change has a cost to it, and planning for succession is no different. You need a budget.
Here are some of the costs to consider:
Hiring costs: If you don’t have the right talent in-house you need to hire, and rock stars don’t come cheap.
Overlapping salaries: You may need to employ a CEO to work with you for six months or a year before you leave to teach them the ropes. This is true for other key positions as well. Not only will this provide a sense of stability, but when you leave, your team are already comfortable interacting with the new person.
Salary increases: To retain your rock stars and superstars you may need to offer higher salaries. The new CEO may demand more than what you have been willing to take home.
Staff development: One of the most important aspects is developing leadership skills and training your team on technical skills. You may even need to hire a coach to help guide you and your employees through the transition period.
Bonuses and benefits: A change in leadership often causes staff turnover because of fear of the unknown. You may want to offer bonuses and benefits to your rockstars that the business can’t afford to lose.
Replacement costs: Despite putting all the above in place, you may still lose some people. Make sure you budget for replacement costs.
Your accountant and other advisors: You need people by your side – experts who have expertise and experiences that you don’t have. You need an outside perspective. You need a confidant, to listen to your challenges and help you to solve them.
Ready to Build Your Legacy?
Putting a succession plan in place can feel overwhelming. Whether you need help with your budget, putting structures in place, helping you choose the best team, or being your sounding board for your ideas, we’d love to help.
Don’t try to go it alone.
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On 23 March 2021, the government threw us a curveball no one saw coming. They proposed some major tax changes which they believe would fix the housing market and slow down house price increases.
However, these changes will have a major impact on landlords.
The proposed changes came out of the blue – not only did we not expect it, IRD and Treasury were surprised by the proposals as well. Because of this, there are a lot of details that are still unclear and we do not have definitive answers for you yet.
Although the details are still being worked out, here are some of the major changes proposed:
You will no longer be able to deduct interest you pay from residential rental income, however, it will be phased out over time.
The bright-line test will be extended from 5 to 10 years, except for new builds.
The main home exclusion will not apply to properties that weren’t used as the main home for the entire time, with some exceptions.
Below is more information about these changes and how they would affect landlords.
1. Phasing Out the Interest Deduction
Currently, if you pay interest on a loan that relates to a residential investment property, you can deduct the interest from your income to reduce your taxable income.
This will change from 1 October 2021.
For residential properties bought on or after 27 March 2021, no interest will be deductible from 1 October 2021. You will still be able to claim interest in the months leading up to October.
If you bought the property before 27 March 2021, interest will still be deducted, however, the amount you’ll be able to claim will decrease over the next 4 income years, until it’s completely phased out by the 2025-26 year.
Below is a table showing how much interest you’ll be able to claim each year:
There are certain exceptions to the rule:
If you have a business loan that is secured against the residential property, you will still be able to deduct the interest as a business expense.
Property developers will continue to be able to deduct interest from their income.
2. Changes to the Bright-Line Test
If you sell a residential property within a set period after you bought it, you will need to pay income tax on the profit you’ve made. This is called the bright-line test. The current period is 5 years for properties bought after 29 March 2018. The period has now been extended to 10 years for any residential buildings purchased after 27 March 2021.
For instance, if you made a profit of $100,000 on the sale of a property, you bought it after 27 March 2021, and you sold it within 10 years, you will pay income tax on the $100,000.
There are a few exceptions:
The period for new builds will continue to be 5 years.
If you inherited the property, it would still be exempt from the bright-line test.
If you used the property as your main home the entire time, it would be exempt from the bright-line test.
If you didn’t use the property as your main home the entire time (apart from a 12-month grace period), then you will need to do an apportionment calculation. For instance, if you made a profit of $100,000 on the sale of the property, used it only 50% of the time as your main home, and you purchased it after 27 March 2021, you will need to pay tax on $50,000 (100,000 x 50%).
Below is a nifty flow chart that explains when and how the bright-line test will be applied:
Unintended Consequences?
The government believes that these measures will slow house price increases and help first home buyers to enter the market. It may not go as planned, as previous tightening of the rules on landlords has increased the shortage of rentals.
Landlords may decide to pass this burden on to the renter and increase rent prices to make up for the loss in interest deduction.
Landlords may be forced to sell their property, which would reduce the supply of rental properties available which could cause further rental increases.
Both these scenarios would hurt those the most who can’t afford to buy their own homes, which make up roughly 40% of the country’s population.
Impact on Landlords
As you can see, as a landlord your tax bill may increase significantly, depending on how much interest you pay on your mortgage. If you aren’t able to deduct interest from your rental income, which is often the largest portion of the deduction you’re able to make, your profit will be higher. This means the tax you pay on the profit will be higher as well.
For instance, let’s say the interest you pay on your home loan is $20,000 every year.
In the 2023 year, you’d only be able to deduct 75% of that, so your profit would be more with $5,000 (20,000 x 25%). If you’re on the highest tax bracket of 39%, the additional tax you’ll pay is $1,950.
In the 2026 year, you won’t be able to deduct any interest. Your profit would be $20,000 higher, and the tax on that, if you’re on the 39% tax rate, would be $7,800.
Before you make any rash decisions to sell your property or increase rental to the already over-burdened renters, hold on until we have more information. We’ll keep an eye on developments and keep you up to date as we learn more. Once we have a clearer picture of the new rules and regulations, come have a chat with us. Let us have a look at your business and investment structures and see if there are any changes you could make to these to lower your tax burden.
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What do you remember most from your grandparents? Maybe it’s the life lessons they taught you, the tears they wiped after your cousin said something nasty to you, or when they encouraged you to get back up again after you fell. Maybe they taught you to have fun and smell the flowers along the way.
Or maybe, what you remember most, is the inheritance they left you. The money and the stuff.
Hmm… not likely. For most people, what they value most from their grandparents is the impact they made in their lives.
It’s the same in business. Making money is good – you have to put food on the table – but the thing we’re most concerned about is the impact we make in the world and the lives around us.
Impact looks different for everyone because we all have different things we care about. But the best way to make sure you make the impact you want to, is to get clear on what your impact goals are. Then share it, and start living it.
Your impact manifesto is your anchor.
As your business changes and grows over the years, and as you learn more about business and your clients, it’s easy to veer off course – all the ideas you’ve had about the impact you wanted to make long forgotten.
But, if you have a clear Impact Manifesto, it stays in front of mind. You can weigh every business decision against it and choose the option that is most aligned with your impact goals. And if none of those options fit, then you know that you should go back to the drawing board.
Creating Your Impact Manifesto
When choosing your impact goals, there are broadly two categories to consider: Immediate impact and legacy impact.
Immediate impact refers to the lives you change today. Here are a few examples:
Your employees: Creating a working environment where they feel you value their opinion, and they know they can ask questions or raise concerns.
Your customers: Focusing on the difference your product or service makes in the lives of your clients. For instance, an architect or builder may want to create a house for their clients where they can live the lifestyle they desire.
Community and environment: Creating a product or service that is better for the environment. For instance, as a coffee shop, you can encourage customers to bring their own reusable coffee cup.
Legacy impact refers to the long-lasting difference you make. Here are a few examples:
Employees: Creating a culture of learning where you train and mentor your employees. You can help them develop their career so they can become the best they possibly can.
Customers: Being a thought-leader in your industry and championing a different approach. For instance, an architect who designs modular houses from sustainable materials that are cheaper and easier to build. They make it affordable to not only create a quality, dream house, but also do better for the environment.
Community and environment: Creating awareness about an important topic and shifting the way people think about something. For instance, depression used to be a taboo topic. Now people can reach out for help without being afraid of what others would say.
A Few Snippets from BWMD’s Impact Manifesto
We believe that your business is a tool to help you create the lifestyle you dream of. We also believe that success looks different to everyone. For some, they want to grow their business quickly and consistently. For others, they want to make just enough money to lead a comfortable life, with lots of time for other things, like spending time with family, travelling, or pursuing a hobby.
That’s why, the first question we ask you, is “what does success look like for you?” And then we help you craft your business on your terms.
That is the legacy we want to leave. What’s yours?
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When you started your business, how much time did you spend on creating your vision? A month? A day? Or were you just winging it?
And, if you purposefully developed your vision, did that vision only include what you want for your business or did you actually think about the lifestyle you want to lead, and how your business can support that lifestyle?
Did you catch that?
Your business should not rule and overshadow your life; you should not arrange your lifestyle around your business. Your business is just a part of your life – a very large and important part – but not the whole thing.
As owners, we often find ourselves completely consumed with the business and what it needs.
Your friend calls, asking about a ladies night. Sorry, gotta work. It’s your dad’s birthday and he wants you there. Sorry, I have a deadline. Your partner wants to go and watch the latest Avengers movie. Sorry honey, I’m just not that into superheroes (I’m too busy being one!)
It’s so easy to fall into these annoying patterns, giving more and more until you’re nearing burnout. But, there is a better way.
Your business should support your vision. Your life vision.
So, what does that mean?
Think of it like this. One day, when you lay on your deathbed thinking back, how would you want your life to have played out? What would you like people to say about you once you’re gone?
To determine what your life vision is, you need to ask yourself questions like:
What do I value most in life?
How do I want my day-to-day life to look like?
How do I want to spend my time with my family and friends, and how much?
What would I like people to say about me when I’m not around?
Who do I want to be?
How much money do I need to make so that those things can come true?
What does success look like to me?
Once you know the answers to these questions, you actively need to start creating the life you want. Intentionally.
During lockdown, we all reflected on the business and decided that we’d like to make changes too (we sort of liked being at home). Soon after we had a business strategy session where we delved deeper into our vision and how the firm could support that.
Your business is a tool to help you realise your life goals.
When you actively create the life and business you truly want, you may not end up completely where you want to be. You may have to take a U-turn sometimes to correct your path. And you may (most probably would) develop an even better vision along the way.
Knowing what you’re working towards gives you purpose. It gives you energy when things are tough or not going according to plan. It gives you courage when you need to say no. It gives you a measuring stick to gauge your progress.
Designing a business around your lifestyle is not easy, though.
You may find that sometimes you need to take a few steps back to learn a new skill you need to fulfil your vision. Sometimes you need to say no to clients who are draining all of your energy. And sometimes, you may have to walk away from a business you’ve built up from scratch with blood, sweat, and tears. It may not be easy, but it may be necessary.
And sometimes you need to ask for help.
As entrepreneur and motivational speaker, Jim Rohn famously said, “we are the average of the five people we spend the most time with.”
Who do you spend time with? Who do you go to when you need advice?
We’d love to be one of the five ‘people’ you pick to spend your time with in 2021.
Apart from finance and tax-related content, we are focusing more on sharing ideas and steps you could take to design the business and lifestyle you want through these blogs and other channels. Make sure you subscribe to our newsletters and keep an eye out for these tips. And, when you’re ready for one-on-one support, get in touch to set up a coffee-date.
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We love sharing tips to help you understand your finances and run your business more smoothly so you can succeed on your terms. There’s something for everyone in our newsletter and our clients appreciate the nuggets of wisdom in their inbox every few weeks.
