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The 3 big challenges facing Australian small to medium businesses

In today's climate, small and medium business owners face a volley of challenges. In this video, Peter Switzer of Switzer TV speaks with Damien Bueno, Vice President of SAP about what they can do to overcome these challenges.

"Smaller business is able to be responsive and agile... and we increasingly see that the younger people, smart millennials are far more attracted to those nimble and agile smaller businesses." Damien Bueno

                                 Click here to access video

 

Why Start From Scratch?

THE BUSINESS BENEFITS OF BUYING AN ESTABLISHED HEALTHCARE PRACTICE

Purchasing an established healthcare practice could help secure a medical practitioner's financial future. It's not uncommon for business-minded practitioners to look at setting up their own practice once they feel they have secured a firm list of clientele. However, few consider the option of buying into an established practice – given the right circumstances, this option can yield the best outcome for the practitioner.

In much the same way that purchasing an established business can help entrepreneurs bypass challenges encountered in the start-up phase, purchasing an established healthcare is advantageous to practitioners. Access to an existing customer-base provides a predictable cash flow from Day One, and everything you need to run the practice will already be in-place including staff who know the business and how to do their job, as well as equipment and premises, which have all been secured for you.

Buying an established practice also eliminates a lot of time and capital that would traditionally be spent on building your business from the ground up and working on an effective business plan, which some practitioners might not want to or can't do. It also eliminates any unforeseen out-of-pocket expenses you might not have calculated for when setting up your own practice.

Below are some tips to keep in mind and consider when looking to purchase an established practice.

Finding the right practice

It's important to make sure you fully understand what kind of practice you are buying into, before making the big purchase. One way to see if a practice is suitable for you is to try working near the area, or even at the same practice if possible, and potentially even have an arrangement in place where you have the option of buying the practice after 12 months.

Have clear intentions before you begin

Make your intentions clear from the start. It's important to have an agreement in place when you join a practice, otherwise you could end up wasting a lot of time going back and forth on costs and transfers. Make sure you have a specific exit strategy in place for the existing owner as well, to avoid any crossovers that can cause problems.

Purchasing cost

Costs for a medical practice vary widely and can change depending on a number of factors. One of those factors is location. Some practitioners may prefer to work in an urban environment, however due to the convenience of the location, the price of a practice might be much higher than one based in the country. Country practices may cost less to purchase, however it's important to keep in mind that they may also offer a smaller clientele.

Ongoing staff

Starting out with experienced staff is a bonus when purchasing an established practice. To ensure a smooth transition into the business, you should keep in mind how existing staff are used to working and what systems are in place. You might have to factor in potential costs for training.

Existing equipment

Purchasing an existing practice often means you won't need to worry about buying new equipment. However, you will need to consider if the practice wholly owns the equipment, or if they are paying it off or leasing it. This is another factor you need to consider before making your decision to avoid unnecessary costs.

Use a specialist adviser or lender

Having a specialist adviser or lender can make the buying process much more simplified for you. A specialist adviser will show you the ins and outs of the business, keeping the process simple and right from the start. They will also remind you to do your due diligence, to ensure you know exactly what you're buying, including the liabilities. "Clarke McEwan's medical specialist division has been established on the Sunshine Coast for over 20 years.  Sunshine Coast and Brisbane clients all benefit from referrals to a huge range of contacts in the areas of lending, advising, banking, and insurance."

Adequate income protection, accident and life insurance is recommended. As a practitioner, you are the business asset, so if you can't work, you have no income. Make sure you take care of your biggest asset!

"Need assistance in your start up?  Clarke McEwan is also very experienced helping doctors establish themselves in private practice, and transitioning from the public system to private practice ."

Our Services for Medical Practitioners  How to Request an Appointment 

 

If you have a goal of practice growth in 2018, the analysis and planning you do now is vital.

Essentially there are five ways to grow your dental business:

1. Convert your existing patients to existing treatments or services

 2. Convert your existing patients to new treatments or services

 3. Increase the number of new patients

 4. Increase your fees

 5. Buy a list of patients / goodwill of a practice

So which areas should you prioritise? If you haven't already considered this, here are FIVE key questions to ask yourself :

1. What marketing is working for your business?

Take a look at where your new patients have come from in 2017 (if you don't measure this I urge you to prioritise creating a system for doing so), then consider:

• Can you improve the amount you are generating via your existing patients?

A simple calculation of your active patients versus the number of patients who recommend you can be revealing. Make the calculation and consider whether you are happy with the percentage of patients who are currently generating new patients for you. If not, take a look at your patient recommendation systems.  Do your patients actually know they can recommend you?

·         Can your patient journey be improved to provide more remarkable moments for patients?

·         Can you stop paying for advertising or other marketing which doesn't generate new patients for you?

·         Can you redirect these funds to create more promotional materials which help you talk about your treatments with existing patients?

2. What price rises should you make in 2018?

Your business costs have undoubtedly risen over the last few years. Your accounts should clearly illustrate this increase for you.

If you don't systematically review your prices each year to identify those fees which should be increased, you fail to redress this balance and your subsequently profit margins reduce.

A mystery shop exercise can be very useful. This involves someone calling your closest competitors as a potential new patient. It gives you an impression of how your patient experience and prices compare with your rival practices.

Formerly the domain of the retail sector, this exercise is now being used frequently in the dental sector. Chances are your practice has already been 'mystery shopped' more than once, so you should have no qualms about using it to your advantage too.

With knowledge comes confidence. Perhaps there are opportunities for you to raise the price of larger treatments if you are worried about increasing your fees for exams and hygiene appointments. Some dentists do both. Just make sure you complete the exercise annually in order to highlight the opportunities you have, rather than simply seeing your costs rise and doing nothing to balance these additional outgoings with extra income.

It makes sense to consider this in advance and make any price rises in line with the start of the financial year for your business.

3. What untapped profit potential do you already have?

Which of these still have potential for you:

·         What potential do you have to convert more patients to other dental services, such as hygiene or cosmetics? 

·         Have you assessed the working structure in your business to match your revenue to profit?

·         Can your exam and hygiene patient recall rates be improved further?

4. What is your 2018 marketing strategy?

When you review the key areas of profit potential you reveal opportunities to improve systems and carry out specific projects to drive the growth of your business. You create your marketing strategy.

It's important to collate these actions into a plan for 2018.  The earlier you do this, the more of the year remains to take the action and generate growth.

A key part of your Practice Manager's role should be managing this plan for you, so you can make the most of your own time. For smaller and sole practitioner businesses, Clarke McEwan can also stand in place of a practice manager for you.

Now is a good time to meet with us to agree a plan at the start of the year and make reviewing the plan progress a standard part of your meetings with us.

Your marketing strategy will dictate some of the Key Performance Indicators you should track throughout the year via your plan. And it should ultimately contribute to achieving your business vision.

5. Are you capturing the stories you create for your patients?

Giving your patients confidence in a healthier, fresher mouth creates a difference to them. So does giving them a brighter, straighter smile.

A key part of the process of promoting the 'magic' in what you do is capturing and sharing these stories with potential new patients.

Make sure you create a system with your team to identify and capture these stories. In marketing terms they are worth their weight in gold.

Need to discuss your 2018 strategy? We are always happy to talk to practitioners and you are welcome to call us on 07 5475 4300 for an obligation free chat.

Read more…

 One of the most important aspects of building a successful medical practice concerns creating a solid staff of qualified medical professionals as well as a team of management and administrative professionals that can help operations run smoothly.

The best medical practice management teams are made of up of a diverse group of professionals that can actively contribute to the success of the organization.

In many larger practices, these teams are made up of representatives from all aspects of the practice – from business managers to nurses and medical specialists. 

For smaller, private organizations and sole practitioners, practice management usually falls into the hands of the head physician or the sole medical manager who may be too busy to devote time to such an important role.  This is where we come in.  

Clarke McEwan provides a range of accounting and tax services and we assist your staff in creating and maintaining procedures that will ensure your interactions with the tax office are accurate and timely. 

 Our professional accounting staff, administrative team and tax bookkeeping staff can advise on procedures such as billing, Business Activity Statement preparation, income tax lodgement, whether the use of a structure for trading is advisable, and other practice related concerns.  

 For growing organizations, an important aspect of practice management is to recognize when there is a need to consult additional professionals, especially when it comes to finance and taxation

When you are investing a significant amount of time and money in staffing and procedures a medical practitioner needs to be sure the processes reflect both the nature of the practice, and any contracts you have entered into.

 

Clarke McEwan recommends a review of your organization to ensure your systems provide accurate reporting.

Has the Government made a start on housing pressures? 

In late November, the Government had a win as the Senate passed two measures to improve housing affordability .

The changes will provide a small incentive for some older Australians to downsize, and assist first home buyers to save a deposit faster and help to overcome one of the barriers for getting into the housing market.

1. Downsizing

Persons aged 65 or over who downsize by selling the family home will be able to make a non-concessional contribution to super of up to $300,000 from the proceeds. These contributions won't be subject to meeting any work test, will be in addition to the current non-concessional cap and won't be subject to the $1.6m balance test for making non-concessional contributions. If a couple, then potentially $600,000 could be contributed to super.

2. First Home Super Saver Scheme

At the other end of the housing market, first home buyers will be able to make voluntary salary sacrifice contributions into super, and withdraw these together with associated earnings for a deposit for their first home.

For more information read the complete article at   http://www.switzer.com.au/the-experts/paul-rickard/paul-rickard---thursday-draft20171214/

 

Can you trust your Deed?

I have lost count of the number of clients who think their self-managed super fund (SMSF) trust deed is like those blue-chip shares they bought two decades ago – you can put it at the bottom of the drawer and forget about it.

Nothing could be further from the truth.

The fact is, your trust, the document that oversees the operation of your fund, is a living, breathing document that you need to keep revisiting to ensure it remains up to date and that it gives the trustee the authority to carry out his/her duties within the framework of the superannuation legislation.

It's worth remembering that the rules governing SMSFs are onerous, and that the regulators expect people who decide to manage their own superannuation to play by the rules of the game. It might be "your money", but it's "their rules".

So how do you know whether your deed needs updating? To begin with, practically every deed drawn up before 2008 needs to be amended to take account of the changes implemented under the Simpler Super reforms. If your adviser hasn't told you about these changes then they have been remiss, and it certainly should be top of mind when you see them next.

Post 2008, and you are still not out of the woods. Over the past seven years there has been any number of changes, whether it be regulatory, legal, taxation or legislative, that could require you to update your trust deed. Again, you need to ask your adviser.

There is no shortage of examples of where legislative change could put the actions of a trustee under a cloud. They can relate to: someone remaining a fund member past 65 years of age where the deed requires their benefits to be paid out; substantial changes in the areas of temporary disability benefits and in-house asset tests; and the payment of reversionary pensions.

This list is far from exhaustive. And, let me assure you, the changes will keep coming, so remain vigilant.

On the flipside, failure to update your trust deed can limit your actions as a trustee in many ways. Let me give you some examples. The fund continues to operate even though the deed quite clearly states it should be wound up because of a certain event has occurred, such as the death of a fund member.

Other examples include: accepting payments from fund members outside the parameters stipulated by the deed; entering into a limited recourse borrowing arrangement when the deed does not provide for this; allowing a fund member to enter into a transition to retirement arrangement when the deed specifically forbids this; and stopping a pension where internal roll-back is not allowed.

As I said at the beginning, there can be dire consequences for acting outside the parameters of your trust deed. You could attract the (unwanted) attention of the Australian Tax Office and that could lead to financial sanctions. They could even decide to wind up your SMSF.

There is the possibility of losing tax benefits as well.

The trust deed is the engine room of your SMSF. It sets the framework for its smooth operation. Like every engine it needs a regular fine-tuning by an SMSF specialist to ensure it's in smooth running order. So the question to ask is: when is my trust deed's next check-up due?

If you think your Deed may need a review, contact us

How to manage the pressures of family finances

A creative's approach to making money work

 

When you're busy running your own business, personal finances and business finances can become inter-related. For creative agency director Shani Langi, successfully managing both is a question of balance.

 

Shani started her business Usual Suspects, a live experience and events agency, in 2016 after working in creative agencies for more than 15 years.

 

"When I was a CEO, I learned all the things to watch out for. Balance is one thing I think about all the time. It's not only the bank balance, it's all the things that make up a good business."

 

She says the best advice she got when starting Usual Suspects was "if it doesn't directly make you money, outsource it."

 

Hiring a bookkeeper and financial adviser helps Shani validate the business plan and implement a strong financial system.

 

"We tried a few systems, and we now use Workamajig for all our financial reconciliation and reporting, and Xero for payroll. We couldn't go back to Excel."

 

She says visibility is very important, so she looks at the reports all the time. "We can look at the big picture and the granular detail. That helps me have more confidence, I've learned to trust my instincts."

 

The key is to get the number-crunching done by somebody else so we can focus on what really drives our business – our relationships and creativity. Money is just the enabler.

 

Usual Suspects' financial system also makes the team more efficient. "We can turn things around really quickly, and we all know what's happening. We're all working mums, so we need to be as productive as possible because we've got other priorities as well as the business."

 

"The key is to get the number-crunching done by somebody else so we can focus on what really drives our business – our relationships and creativity. Money is just the enabler."

 

Shani also puts balance first when it comes to the personal lives of her team.

 

"When we started the business, we wanted to be able to make our own rules. Work/life balance is so hard to achieve. So as a business we're closed on Mondays."

 

Everyone who works with Usual Suspects has to embrace having a four day a week job, Tuesday to Friday.

 

For Shani and her husband, a musician and radio presenter, finding balance with two young children is also about working out priorities.

 

"He has flexible hours, so we can juggle the family. But now we have to be realistic about spending and saving. I'll admit I love spending, but with two mortgages I have to be really strict. So we have two bank accounts: one for fun spending, and one for all the necessities – mortgage, bills, kids and a bit of saving if we can."

 

When her first child was born, Shani didn't think they'd ever be able to buy in Sydney so they bought an investment property on NSW's far south coast.

 

"We'd saved enough to do that, and we kept renting. But then one day our landlord told us he was selling. I was seven months pregnant. So we decided to bite the bullet and buy in the same neighbourhood."

 

She admits it was hard. "It was a huge step in financial accountability. It literally doubled our housing costs, and so we really needed to start planning rather than just 'see how we go at the end of the month'.

 

Travel is important to this family. "We do have an overseas holiday every year – it not only gives us downtime, it bonds us. We want to make the children as worldly as possible."

 

Using two accounts allows her to prioritise the 'fun stuff' with the realities of managing a household budget. Shani also uses Macquarie's banking app to track her spending.

 

"I really like the technology – I think Macquarie is on the front foot here as a nice alternative to the big four. The app is fun – who knew banking could be exciting, but it is!"

 

One of her favourite features is the tax coding for expenses. "You can just tick whether it's tax deductible or not – at the end of the year, you can pull a report. It's really amazing and a huge time saver."

 

"The interest rate is competitive. I think as a bank, Macquarie is quite unexpected. I also love their philosophy about empowering people's lives."

 

With her husband now setting up his own business, these creative professionals are adding another priority to balance.

 

"I think, looking back, I'd probably tell my 25 year old self to value experiences over things. I never regret all the travel we've done, but I've learned now material things don't matter. It would have been good to have saved a bit more, but we'll be more cautious now as we've got other priorities."

 

She says she expects her bank to be an 'enabler' – not just financially, but in saving time too. This support makes it easier to find balance across all the different priorities of her life.

Australian banks still worthy of a place in most portfolios… despite what some commentators say 

 

Barring disasters, the banks should produce returns of the order of 10% per annum over the next decade. With a yield of 8% including franking credits, we need just 2% per annum growth to get us to a 10% per annum total return. Even if we get no growth in earnings, an 8% per annum return means that banks will be worth a place in most portfolios - barring disasters.

Disasters? What could possibly go wrong?

Anyone who follows the mainstream investment media will have no problem making some suggestions here. Ever increasing capital requirements, curbs on lending growth, new taxes, fines, Royal Commissions and other government interventions have been widely discussed. In addition, some outright disasters have been suggested, with a collapse in the residential property market the most common. And, of course, there is the possibility of an old fashioned, severe recession which inevitably would bring more pain for the banks.

Some of these scenarios are likely and should be factored into any forecast. Others may be unlikely but still are risks that we need to consider. Here, we want to put those risks in perspective particularly those that have been widely covered in the mainstream investment media and where we believe the impacts have been vastly overstated.

Increased regulatory and capital requirements

These are real and are happening right now and, accordingly, are in our base forecast. Most banks have around 10% of capital for each dollar of risk weighted assets – that should head towards 11% over time. This makes the banks safer but slightly less profitable. In addition, we have the bank levy which should slice around 2.5% off bank profits. Furthermore, we have threats of Royal Commissions, fines for bad behaviour, and so on. Collectively, we think these will reduce Earnings Per Share by about 10% over time. This slices just 1% per annum off returns over the next ten years. We include this impact in our forecast.

A slowdown in the growth of residential lending

We think this is highly likely and it is why we forecast future earnings growth at around 2% per annum. This is much lower than historical earnings growth and, in fact, this forecast is much lower than most other analysts' forecasts. And still it gets us to a 10% per annum return.

A recession is likely in the next decade and will hurt the banks

Our forecasts assume that Australia will experience a recession in the next decade. We also predict that, when the recession comes, the market will know about it before we do – and so the chances of getting out early will be small. Hence, the key question is how bad a recession might be, both in terms of depth and also in terms of how well prepared the banks are for that recession.

The depth of a recession is often depends upon the health of the banks to that recession. The more extended the banks, the more they cut lending, the more they harass existing borrowers, and the more they drive the economy into the ground. When banks enter a recession in better shape, the recession is generally milder. We saw that during the GFC where the Australian downturn was much milder than in other parts of the world because, at least in part, the Australian banks entered the recession in reasonable shape.

A 2015 RBA study found that the key drivers of bank lending losses during recessions were: rapid credit growth; high levels of building construction activity; falling bank lending standards; and, rising interest rates.

Today, we have modest levels of lending growth, normal levels of commercial building construction, tightening lending standards and no sign of a central bank with any interest in raising interest rates. Of those four loss drivers, the only one flashing a warning light right now is the high level of residential construction activity. Even there, the banks are scaling back their involvement and watching their risks very closely. In short, the banks are in good shape generally and in much better shape than prior to the GFC. This suggests that any recession in the next decade should be relatively mild so long as these indicators remain strong. If they turn south, caution will be required.

Our forecast assumes that a mild recession will occur and will result in a one-off reduction in profits of around a third and take around 0.5% per annum off 10-year returns.

Even mild recessions will cause short-term volatility

But before we get too comfortable, we should not forget that during a recession, bank share prices will probably fall by 50% or more. But the fall is unlikely to be permanent.

While this may seem dramatic, we would say the same thing about every other sector of the share market. All equities are volatile. All can fall dramatically during recessions. The banks are no different. As long-term investors, we should worry predominantly about a permanent loss of capital.

And that is a possibility if the recession is severe. Accordingly, no matter how attractive the prospects of Australian banks, all the normal rules of diversification still apply.

Impact of a collapse in the housing market

Now, this is where things hot up. The market is divided on this issue. There are those who consider that a collapse in housing prices and as a result, the banks, is almost certain; there are those who  aren't sure; and, there are those who are extremely sceptical that we will see a housing induced collapse in the banks at all.

Farrelly's considers a collapse in housing prices as possible but unlikely:

  • We still seem to have a shortage of housing that not even the residential building boom is meeting;
  • Bank lending practices are being tightened but not sufficiently to cause an out-and-out collapse.

 

Nonetheless, it would be foolish to say that a collapse in housing prices couldn't happen. Accordingly, we consider the impact of an extreme example - a 35% fall in the prices of houses nationwide and an accompanying recession that sees soaring unemployment and a 10% default rate amongst mortgagees.

Helpfully, the major banks produce detailed reports showing the Loan to Valuation Ratios (LVRs) of their mortgage lending books. This is all we need to do our own stress test.  Consider two loans, one has a LVR of 50% (in other words, $50 worth of loan for every $100 worth of house), while the other has an LVR of 90% ($90 worth of loan for every $100 worth of house.) Now assume that property prices fell by 35%.

Post the fall, the first loan now has $50 worth of loan for $65 worth of house, while the second has $90 of loan for every $65 worth of house. If the first borrower loses their job and can't repay the loan, the bank has the option of putting the property on the market, recouping their $50 loan and sending whatever is left back to the unfortunate borrower.

The second borrower would be a problem for the bank. Here, a default potentially costs the bank a loss of $25 for every $90 of loan.

Now let's assume that 10% of all mortgages default. The results for the major banks are shown in Figure 1 on the following page.

Figure 1: Bank stress test (35% downturn in property prices & 10% default rate)

 

ANZ

CBA

NAB

WBC

Size of loan book ($ bill)

274

436

285

414

Loss as a % of loan book if 10% default

-0.5%

-0.6%

-0.6%

-0.4%

Loss In $mill

-1,479

-2,660

-1,807

-1,482

Loss as a % of 2017 pre-tax profits

-15%

-19%

-19%

-13%

Pre-tax profits 2017 ($mill)

9,704

14,114

9,306

11,050

Source: Bank reports, farrelly's analysis

 

That's right. A perfect storm of a 35% fall in residential property prices and a 10% default rate would result in the banks' profits falling by about 17% on average. While this is clearly not a great result, it falls a long way short of a disaster.

In a year or two, profits would rebound and normal business would resume. Farrelly's calculations suggest that the whole episode would reduce 10-year average returns by around just 0.5% per annum.

Now, a much more likely scenario is that if residential property prices do fall that it will be more like a fall of around 20% (rather than 35%). This causes a one-off reduction in profits of closer to 4%. It's a blip.

Residential property lending makes the banks safer, not riskier

The bottom line is this: residential property lending is actually an extremely profitable and safe activity for the banks. The fact that the Australian banks' lending books are highly concentrated in home loan lending should be a source of comfort rather than concern. It's the equivalent of having 70% of a portfolio invested in government bonds – the concentration, in this instance, makes the portfolio safer, not riskier.

Disclaimer: This article is not legal advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. Where a particular financial product is mentioned you should consider the Product Disclosure Statement before making any decisions in relation to the product. Whilst every care has been taken in the preparation of this information, Australian Unity Personal Financial Services Ltd does not guarantee the accuracy or completeness of the information. Australian Unity Personal Financial Services Ltd does not guarantee any particular outcome or future performance. Australian Unity Personal Financial Services Ltd is a registered tax (financial) adviser. Any views expressed are those of the author and do not represent the views of Australian Unity Personal Financial Services Ltd. If you intend to rely on any tax advice in this document you should seek advice from a tax professional. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459, 114 Albert Road, South Melbourne, VIC 3205. This document produced in October 2017. © Copyright 2017

Once upon a time, the most asked questions I would get were, firstly, when will interest rates rise and should I fix now? Secondly, do I think there will be a house price collapse? But now all I get is bitcoin questions and it reminds me of that old line: "When the shoeshine boys talk stocks, it's time to get out of the market."

Legend has it that JFK's dad, Joseph Kennedy, exited the stock market in 1929 because he didn't want to invest with shoeshine boys and bellhops!

When it came to bitcoin and whether I wanted to punt on it, I went to the TAB website and checked out the Futures section to see what Winx's price was for next year's Cox Plate. For those who like long-run punts, it's 3/1 and Rekindling is 21/1 for the Cup!

The current bitcoin price is over $US11,000, and was $US10,000 yesterday, and while I suspect cryptocurrencies are like most things modern and seemingly illegal, think Uber, Airbnb, etc. (which seemingly break laws that incumbent rivals have to adhere to) they will be here to stay. But the bigger question is: at what price?

To buy bitcoin now is a punt and you could do OK but I'm more an expert on investment and that's why I won't invest in bitcoin at these prices.

Arguably, the greatest investor of all time is Warren Buffett of Berkshire Hathaway and one of his foundation rules of investing is "Never invest in a business you cannot understand." He has not watered down his stock and it's now worth $285,080 this morning. Buffett made his fortune backing businesses he suspected would resonate with Americans, such as McDonald's, American Express and Gillette.

He also told us "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

Right now, governments and central banks are at sixes and sevens about how to handle bitcoin. The CEO of JPMorgan, Jamie Dimon, says people who buy bitcoin are "stupid" and was criticised by experts on the cryptocurrency for not understanding it. However, to date, a lot of 'stupid' people have made money out of their punt. Be clear on this: at $11,000 bitcoin looks like a punt and not an investment.

Someone who is not stupid is Nobel Prize-winning economist, Joseph Stiglitz, who says it should be "outlawed" as it "doesn't serve any socially useful function."

I was asked to explain bitcoin on my 6:45 am spot on the Talking Lifestyle radio programme today and I understand the basics of bitcoin but there are grey areas that worry me.

A Bloomberg piece out today tells us: "Bitcoin has risen by about 75 per cent since October alone, after developers agreed to cancel a technology update that threatened to split the digital currency."

What? Those 'investing' in bitcoin are in the hands of "developers"! Who in the hell are they? I can handle having my investments in the hands of central banks but I worry about investing in oil because of that rag tag mob called OPEC and the non-OPEC countries spearheaded by the likes of Russia, Sudan, Oman and Azerbaijan.

Sure, I'll invest in oil when the price gets silly and low but as it climbs, I worry about those who control the price.

I know madness could push the price of bitcoin higher and that could make me look like a luddite, scaredy cat, who has no idea but that's the problem, I don't have an idea about "developers", who apparently can split the currency!

I say good on those who have taken a punt on bitcoin and own it big time but, in good faith, I can't say this is a buy here at $11,000 but here's another point made in the Bloomberg story: "There's no agreed authority for the price of bitcoin and quotes can vary significantly across exchanges."

It's the bubble price that sounds off alarms for me and that's my job to look for flashing sirens and red flags.

"This is going to be the biggest bubble of our lifetimes," hedge fund manager Mike Novogratz said at a cryptocurrency conference Tuesday in New York.

Novogratz, who says he began investing in bitcoin when it was at $US90, told Bloomberg he is starting a $US500 million fund because of the potential for the technology to eventually transform financial markets.

Bitcoin looks like it's here to stay but I don't think its current price is.

Extract from Switzer Daily Published Thursday, November 30, 2017

Can your SMSF invest in cryptocurrencies?

 

Arguably, an SMSF can invest in cryptocurrencies but there are several factors to take into account before investing. Cryptocurrencies are a high risk product as they are blockchain driven and unregulated. While there have been numerous stories in the media about massive gains made on the currency by early investors, the price fluctuates, cryptocurrencies face new competitors, and "hard forks" occur - where the blockchain is split and forms a permanent divergence from the original. Bitcoin, for example, has broken into Bitcoin, Bitcoin Cash and now Bitcoin Gold. The danger is that you end up on the wrong fork. There is also the danger of hacker's breaching your fund's digital wallet and stealing your investment.

Trustees of the fund need to ensure that any investment in cryptocurrency is in line with the investment strategy of the fund, the Trust Deed allows for it at the time the investment is made, and it is an appropriate investment. In particular, the sole purpose test in the Superannuation Industry (Supervision) Act 1993 requires that the fund is maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement. Trustees need to ensure that the risk associated to these currencies is in the best interests of the fund. A minute documenting the decision to invest in the cryptocurrency would be beneficial.

For tax purposes, gains and losses in the fund are treated in the same way as other assets in the fund. That is, CGT may apply to any gains made on the sale or exchange of the currency.

If your fund invests in cryptocurrency, there are a few practical issues. Your SMSF auditor needs to confirm the ownership, existence, and value of the cryptocurrency. As a result, the digital wallet for your currency should be in the name of your fund or the corporate trustee. You need to ensure that your personal assets, and the assets of your fund, are kept separate at all times. 

Once money is deposited into your fund, it may not simply be a case of being able to withdraw these amounts, and they may be 'stuck' in the fund until a condition of release is met. 

In most cases this means attaining retirement age. And, you need to be able to trace your transactions to identify trades, the value of the trade, and the time and date they occurred. 


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