Latest / Contributing to Your Life / Where Did My Money Go? Good Accounting Beyond the Tax Return | Ep. 12

Transcript

Where Did My Money Go? Good Accounting Beyond the Tax Return | Ep. 12 · Contributing to Your Life

• 0:00
  SPEAKER_01: I was talking to one gentleman, his net profit for the year was about 500,000.
• 0:04
  SPEAKER_01: The first thing he said to me in the feast, you're telling me I've made 500,000, I only got probably about 10,000 in the bank.
• 0:09
  SPEAKER_01: Where did my money go?
• 0:12
  SPEAKER_02: A medical practice sits on millions in retained profit for over a decade.
• 0:16
  SPEAKER_02: Then the tax office decides to audit because it's flagged as a deliberate breach.
• 0:21
  SPEAKER_02: They don't just look back five years, they go all the way back to 2010.
• 0:25
  SPEAKER_03: The result?
• 0:26
  SPEAKER_03: Millions in unplanned tax, interests, and penalties.
• 0:30
  SPEAKER_03: The client had to sell two investment properties to cover it at age 65 and only months from retirement.
• 0:35
  SPEAKER_02: That's a real client story from today's guests.
• 0:38
  SPEAKER_02: Nafis Huda, partner in tax and accounting at KHI partners.
• 0:42
  SPEAKER_02: 17 years in the industry.
• 0:44
  SPEAKER_01: Growing a business is not just about the profit portion or paying the tax.
• 0:48
  SPEAKER_01: It's about how I can help the business owner with the cash flow.
• 0:52
  SPEAKER_01: So as an accountant, gone are the days of looking backwards and just presenting a set of data.
• 0:57
  SPEAKER_01: It's about how we can use that data to make decisions in order to reach our goals.
• 1:03
  SPEAKER_03: We're talking about the gap between a transactional accountant and a strategic advisor and why that gap can turn what was a good year into a financial disaster.
• 1:11
  SPEAKER_01: Business is not about saving tax because saving tax means that you're earning less.
• 1:17
  SPEAKER_01: It's about how you can grow and build a business.
• 1:20
  SPEAKER_01: Tax will always be there.
• 1:23
  SPEAKER_00: Before we get into the episode, please be aware that the discussions in this podcast are for informational purposes only and should not be considered financial or legal advice.
• 1:32
  SPEAKER_00: It does not take into consideration your personal circumstances.
• 1:35
  SPEAKER_00: Consult a qualified professional first before making any investment decisions.
• 1:39
  SPEAKER_02: All right, welcome back to another episode of Contributing to Your Life by KHI Partners.
• 1:43
  SPEAKER_02: Frank, there's a lot going on in the market at the moment, a lot of uncertainty, budget changes here and there.
• 1:49
  SPEAKER_02: So I think more than ever, people, our clients, uh, whoever's listening need a strategic advisor right now.
• 1:57
  SPEAKER_02: And so definitely.
• 1:58
  SPEAKER_02: We thought we'd bring one of the partners that travels a lot.
• 2:01
  SPEAKER_02: He's away a lot.
• 2:03
  SPEAKER_02: But he still manages to do it all.
• 2:05
  SPEAKER_02: So he does a great job doing it.
• 2:09
  SPEAKER_02: He was here for two hours, so we thought we'd grab because he's off to Debat, off to somewhere.
• 2:13
  SPEAKER_02: And Nafice Huda, accountant, partner, K J.
• 2:17
  SPEAKER_02: Thank you for coming today.
• 2:18
  SPEAKER_01: Pleasure to be here.
• 2:19
  SPEAKER_01: Uh Frank, Aaron, and um looking forward to a chat.
• 2:22
  SPEAKER_01: And as for the travel, a lot of my travels are actually work-related.
• 2:26
  SPEAKER_01: So um disagrees.
• 2:32
  SPEAKER_02: Thank you, thank you, Nafice.
• 2:33
  SPEAKER_02: We're really excited to have you here today because the wealth of knowledge that you bring, not only to the clients but to KHI, and I've learned a lot personally from you from your experience.
• 2:42
  SPEAKER_02: So just give us a you know a one-minute breakdown, a little bit about you, your background in terms of accounting.
• 2:48
  SPEAKER_02: Absolutely, absolutely.
• 2:49
  SPEAKER_01: Uh my name is Nafees.
• 2:51
  SPEAKER_01: I am a partner in the tax and accounting division of KHM Partners.
• 2:57
  SPEAKER_01: Um, in terms of my background, 17 years in industry, chartered accountants, um, the way I differentiate myself from uh any other accountant is that um I see myself as more of a consulting advisory/slash strategic accountant rather than uh simply uh compliance-based accountant where we just prepare a set of financial records or uh tax return.
• 3:24
  SPEAKER_02: Awesome.
• 3:24
  SPEAKER_02: Just on that point, I think that's really important right now because you know, Frank and I, we have, you know, in the mortgage broking side, we see clients and we obviously deal with a lot of accountants as well.
• 3:34
  SPEAKER_02: Uh, you know, and I think we we really see the difference between that transactional account just doing the tax returns every every June 30 compared to that strategic advisor.
• 3:43
  SPEAKER_02: So, what would you say is the biggest difference between that transactional account and what you do every single day?
• 3:48
  SPEAKER_01: Absolutely.
• 3:49
  SPEAKER_01: Um, look, the way I kind of look at it, it's that, you know, when you're driving a car, you know, your compliance is something that's historical, that's actually happened.
• 3:58
  SPEAKER_01: When you do a set of tax return, it's actually happened, you know, 12 months ago, eight months ago, six months ago.
• 4:03
  SPEAKER_01: So it's like looking at the rear view mirror of uh the car when you're driving.
• 4:08
  SPEAKER_01: Where the strategic part of it comes is a consulting and advisory, is that looking forward, right?
• 4:13
  SPEAKER_01: You have, you do have a business, you you know, you make a profit, we pay your tax.
• 4:18
  SPEAKER_01: But growing a business or running a business is not just about, you know, the profit portion or paying the tax.
• 4:25
  SPEAKER_01: It's about how I can help the business owner, you know, with the cash flow, with growing the business, you know, whether they need to hire more employees, whether they need to um, you know, purchase another asset, or whether they're looking to grow or buy other businesses or they want to sell the businesses, you know.
• 4:40
  SPEAKER_01: Um so that's that's very, very important.
• 4:42
  SPEAKER_01: That's where the consulting slash strategic part comes in.
• 4:46
  SPEAKER_01: So as an accountant, uh, I think the gone are the days of you know looking backwards and just presenting a set of data.
• 4:54
  SPEAKER_01: It's about how we can use that data and um use it to make decisions in order to reach our goals.
• 5:02
  SPEAKER_03: All right.
• 5:03
  SPEAKER_03: So, what are some of the conversations you're having?
• 5:04
  SPEAKER_03: Because I know some people um probably only talk to the accountant uh for compliance and getting their tax returns done once a year.
• 5:11
  SPEAKER_03: Some people probably avoid phone calls from the accountant because they don't want to know.
• 5:14
  SPEAKER_03: But when you do speak to your clients, what are some of the things you're working on?
• 5:18
  SPEAKER_01: Look, um I think it's very important to note that um, you know, uh the word consulting and advisory gets thrown around in many ways, right?
• 5:26
  SPEAKER_01: So um in my in my mind uh or in my line of uh work, what I try to do is um I of course work through a client um on a on a you know to prepare the financial statements to the tax returns and all that.
• 5:40
  SPEAKER_01: But it's about sitting down with the client, looking at it, okay, you know, what's your goal?
• 5:44
  SPEAKER_01: What are you looking to achieve in your business for the next five years, 10 years?
• 5:47
  SPEAKER_01: You know, how we can help you to do that.
• 5:50
  SPEAKER_01: Uh it's about uh making sure the cash flow is there to, you know, pay for uh expenses, you know, and the growth and all that as well.
• 5:58
  SPEAKER_01: So that's that's actually pretty important.
• 6:00
  SPEAKER_01: I try and sit with um all my clients, uh especially the business owners, at least, you know, once every three months, quarterly strategic meeting where we sit down.
• 6:09
  SPEAKER_01: Um, you know, as a part of my service, um I do CFO advisory as well, uh, which means that you know, sitting down with the business owner on a regular basis.
• 6:18
  SPEAKER_01: Um Australian economy is built on small businesses, right?
• 6:23
  SPEAKER_01: Uh it's it's a nation.
• 6:24
  SPEAKER_01: I think we've got the highest number of small businesses per person in anywhere in the world, right?
• 6:30
  SPEAKER_01: Uh we love the independence, and that's the way you know Australians are built.
• 6:36
  SPEAKER_01: And so it's it's very, very important.
• 6:39
  SPEAKER_01: It's that um to make sure that we are on top of our numbers, we are on top of what the future is and the direction that we're heading towards.
• 6:48
  SPEAKER_01: So it's very important for me to kind of sit down with my clients on a regular basis and go through those step by step.
• 6:53
  SPEAKER_03: Okay, so just tell me how one of these meetings go with one of your clients, Nafis.
• 6:58
  SPEAKER_03: Like, say, you know, you you say that you're talking to them about their personal goals and and planning for the future, but um, have you got a live example?
• 7:06
  SPEAKER_01: Absolutely.
• 7:06
  SPEAKER_01: You know, and and one of the things I look at that we all get into a business, of course, for the independence, but at the same time to grow our wealth as well.
• 7:16
  SPEAKER_01: Um, you know, a company or uh a structure is a separate legal entity than the individual or the business owners itself.
• 7:24
  SPEAKER_01: So I always sit with the business owners to work out a way how we can extract the profit from a business, bring it into the personal side and assist them or guide them to grow their personal wealth.
• 7:34
  SPEAKER_01: I'll give you an example.
• 7:35
  SPEAKER_01: One of my clients, uh, they are a large uh construction company and um, you know, top line revenue of about uh 20 plus million dollars.
• 7:44
  SPEAKER_01: And um, you know, on top of the compliance and accounting service, um, we also provide CFO advisory service, which means that um, you know, it we have a bookkeeper in place, of course, to uh make sure the banking uh gets done.
• 8:00
  SPEAKER_01: The accounting part comes out to putting the numbers in profit and loss and balance sheet.
• 8:05
  SPEAKER_01: And then the CFO advisory role that comes in where I sit down with the clients on a regular basis.
• 8:10
  SPEAKER_01: We go through, okay, you know what?
• 8:13
  SPEAKER_01: This is the upcoming expenses, or these are the projects that is required.
• 8:17
  SPEAKER_01: Therefore, um, you know, you would need an X amount of cash flow to sustain it, right?
• 8:22
  SPEAKER_01: Do we have that cash flow?
• 8:24
  SPEAKER_01: Um, you know, another example I have one of my clients, um, the same client, um, they their revenue, monthly revenue is around$2 million.
• 8:35
  SPEAKER_01: However, their uh debtor terms is 30-day payment terms, right?
• 8:39
  SPEAKER_01: And all the creditors they have, most of them are in a seven-day, 14-day term.
• 8:44
  SPEAKER_01: So there's a gap between receivable and payable, right?
• 8:47
  SPEAKER_01: Even though from a profit point of view, it is showing that the sales is there, but the cash hasn't been received by the bank or by the by the business owner.
• 8:54
  SPEAKER_01: So then we look at, okay, you know what, how we can bring that gap closer to each other?
• 8:59
  SPEAKER_01: Can we go and negotiate with the uh with the uh creditors for longer payment terms?
• 9:05
  SPEAKER_01: Can we change the way we do business and you know, change our data terms to 14 days to make it in line so there's a good flow between the receivable and payables?
• 9:14
  SPEAKER_01: And then if you look at one step further, is that okay, you've got three million dollars of receivables left, you will collect it in a month's time, but you need you know a million dollars in cash to pay for your expenses for the next two weeks.
• 9:26
  SPEAKER_01: Then we look at other strategies like do we look at data financing, for example, right?
• 9:30
  SPEAKER_01: Do we bring that in?
• 9:31
  SPEAKER_01: Do we help them out in terms of you know getting that cash flow into the business?
• 9:35
  SPEAKER_01: Um that's just a part of it.
• 9:38
  SPEAKER_01: Um, you know, um, other part could be um you're submitting a tender uh you know to a to a department.
• 9:44
  SPEAKER_01: You know, do we have the right level of expertise in hand and are we actually ticking off what's required in the tender process?
• 9:50
  SPEAKER_01: Uh do you need extra employees in the in the in the uh business, right?
• 9:54
  SPEAKER_01: And one of the things that matters is that as the business is growing, cash flow becomes more and more difficult.
• 10:01
  SPEAKER_01: You know, if a business is smaller, cash flow is nice and easy to maintain.
• 10:05
  SPEAKER_01: But as you're growing, it becomes more difficult because then you have added expense, as I said, new employees.
• 10:10
  SPEAKER_01: Do you need new equipments, right?
• 10:13
  SPEAKER_01: They don't sit in the profit and loss, they sit in the balance sheet item, right?
• 10:16
  SPEAKER_01: But these are also what's required for a business to sustain.
• 10:19
  SPEAKER_03: Yeah, and you're often taking on resources, having to pay for them before you actually see the return, right?
• 10:25
  SPEAKER_03: Absolutely.
• 10:25
  SPEAKER_01: Absolutely.
• 10:26
  SPEAKER_02: I think that's key that people were unaware, especially in a growing business and not getting the right advice, is the cash flow side of things.
• 10:33
  SPEAKER_02: The cash flow side of things are so key to make sure that that business, you know, is sustaining exactly what Frank said.
• 10:38
  SPEAKER_02: There's upfront costs.
• 10:39
  SPEAKER_02: They might have a$1.2 million project, but they have to make you know all these upfront costs that they're not aware of.
• 10:45
  SPEAKER_02: So I guess your role becomes so key in that to advise them to say, well, how are we managing this cash flow?
• 10:50
  SPEAKER_02: That's right.
• 10:50
  SPEAKER_01: I'll give you an example, right?
• 10:51
  SPEAKER_01: Um, I was talking to uh one gentleman yesterday, his uh net profit for the year was about 500,000, right?
• 10:58
  SPEAKER_01: And the first thing he said to me in the feast, you know, you're telling me I've made 500,000, I only got, you know, probably about 10,000 in the bank.
• 11:05
  SPEAKER_01: Where did my money go?
• 11:06
  SPEAKER_01: You know, and and that's when I sat down with him and I'm like, okay, let's look at the numbers, right?
• 11:11
  SPEAKER_01: These are your sales minus your expenses, is your net profit.
• 11:15
  SPEAKER_01: However, you know, you've got an$100,000 worth of loan repayment that you need to make for an asset that you've purchased.
• 11:22
  SPEAKER_01: So that comes off your bank and it doesn't, it's not a part of your profit because it's an asset.
• 11:28
  SPEAKER_01: Then you have um, you know, ATO debts, for example, your BAS and other payments to pay, that comes off your balance sheet as well.
• 11:36
  SPEAKER_01: Then um you have decided to uh you bought a new property where you took that money out from the business uh to fund that deposit for the property, there was another$150,000 taken off the bank account.
• 11:49
  SPEAKER_01: That doesn't form as a part of your profit and loss.
• 11:52
  SPEAKER_01: So um sitting down and educating the clients, and that's when he understood that, hey, you know what?
• 11:58
  SPEAKER_01: Maybe it's not just about the profit, it's about managing my cash flow and managing my business.
• 12:03
  SPEAKER_01: You know, I'm like, well, should you have this conversation before you made these decisions?
• 12:07
  SPEAKER_01: I would help you and guide you through how to manage it in the right way.
• 12:11
  SPEAKER_03: Yeah, yeah, and that's a very common thing we see.
• 12:13
  SPEAKER_03: One of those examples, and and you know, let's not throw that client out of the bus here, but you said they took money out of the business, right?
• 12:19
  SPEAKER_03: So you know you can't just because it's your business, you can't just go and do that however you like.
• 12:23
  SPEAKER_03: Um, so how did you have to manage that?
• 12:25
  SPEAKER_03: Did you have to do any sort of tax planning?
• 12:27
  SPEAKER_01: Of course.
• 12:28
  SPEAKER_01: Uh um FII, it's uh it's it's a new client that came on that engaged with us recently, um, probably about nine months ago.
• 12:36
  SPEAKER_01: Um, and uh what happened with him is that um he made a profit of$500,000.
• 12:43
  SPEAKER_01: That's good, right?
• 12:44
  SPEAKER_01: And at that time, those um I was not aware of the fact that he was um going to purchase a property, right?
• 12:51
  SPEAKER_01: So I've also said that um at the beginning of the conversation, how a company is a separate legal entity, right?
• 12:59
  SPEAKER_01: A company is not your personal ATM machine, right?
• 13:03
  SPEAKER_01: To take out money however the way you want.
• 13:05
  SPEAKER_01: So when a company has its own identity, own tax file number, own ABN number, it is seen in the eyes of ATO and the law that it's separate from that individual, though the owners, directors themselves.
• 13:18
  SPEAKER_01: So when you take out money from uh business, there's essentially three ways of uh doing it.
• 13:24
  SPEAKER_01: Number one is that you take it up as a loan, um, and the loan needs to be paid back within seven years.
• 13:30
  SPEAKER_01: It's called Division 7a loan.
• 13:32
  SPEAKER_01: We can go a little bit more step further saying, okay, if the loan is used for an investment property, you can essentially do a 25-year loan term, but at the end of the day, you still need to pay that money back.
• 13:42
  SPEAKER_01: Second way of taking out money from a business is by paying yourself a salary.
• 13:47
  SPEAKER_01: However, you know, if you're already taking a$150,000 salary and then you add in another$150,000, it puts you in the top marginal tax bracket.
• 13:56
  SPEAKER_01: So there's POYG withholding from the company, there's super implication, superannuation payable implications and all that.
• 14:02
  SPEAKER_01: And number three is that you take it up as a dividend, right?
• 14:07
  SPEAKER_01: Um, and which means that essentially you have to pay uh top-up tax on that on, you know, if the income exceeds uh over the marginal uh tax rate of a company as well.
• 14:19
  SPEAKER_02: And that division seven A, can you highlight to people what's the interest rate that people might be unaware of?
• 14:25
  SPEAKER_01: Yeah, the interest rate, absolutely.
• 14:26
  SPEAKER_01: So with Division 7a, um interest rate changes varies every year.
• 14:33
  SPEAKER_01: It is set by the ATO based on what the bank current average bank rates are and the RBA uh cash rate is.
• 14:41
  SPEAKER_01: Um, it varies all the way, you know, from 5% to 7%, 7.5%, depending on what it is.
• 14:47
  SPEAKER_01: So the rate itself, it's a variable rate.
• 14:50
  SPEAKER_01: So it's so as you have borrowed the money from the bank at a variable interest rate and you have to pay it back similarly.
• 14:55
  SPEAKER_01: You know, it's it's the same way you kind of pay that back as well.
• 14:58
  SPEAKER_03: Yeah, can you is there flexibility to choose that rate or is it pretty much said, no, it is said by the ATO.
• 15:04
  SPEAKER_01: So so division seven A is not just about taking the money out that that that gives Division 7A.
• 15:09
  SPEAKER_01: For example, um, if you have a business that makes uh a trust, for example, right?
• 15:15
  SPEAKER_01: A trust makes a profit of$200,000, right?
• 15:18
  SPEAKER_01: And um, so if if if if it's a trust, if it's a trust over here, trust makes$200k profit, right?
• 15:27
  SPEAKER_01: You know the rule for the trust, if it makes a profit, it cannot retain the profit in a trust.
• 15:32
  SPEAKER_01: So you have to distribute that money, uh, the income of the trust out to an individual um or to another related entity as well, as um determined by the trust deed.
• 15:42
  SPEAKER_01: Yeah.
• 15:43
  SPEAKER_01: So you have that option that, okay, you know what, uh the beneficiary one um already on a$300,000 income, beneficiary two could be, you know, the spouse or somebody else could also make about$200K per year.
• 15:58
  SPEAKER_01: So if you give that$200,000 to beneficiary one and two, what happens then?
• 16:04
  SPEAKER_01: They are essentially at a 47.5% top marginal tax bracket.
• 16:08
  SPEAKER_01: So that means that$200,000 will get taxed almost, you know, probably about$95,000 to$97,000, right?
• 16:15
  SPEAKER_01: Approximately.
• 16:16
  SPEAKER_01: Yeah.
• 16:17
  SPEAKER_01: That will be the tax rate.
• 16:19
  SPEAKER_01: You have this other option, is that you have a company, a profit holding company, which we call it.
• 16:24
  SPEAKER_01: So if we call it um company one, you can essentially distribute that income to this company.
• 16:32
  SPEAKER_01: And if this$200,000 is derived from a trading income, essentially the tax rate on the$200,000 will be at uh at 25%.
• 16:42
  SPEAKER_01: Yeah.
• 16:43
  SPEAKER_01: So suddenly your tax becomes about$50K.
• 16:46
  SPEAKER_01: The difference between this$50K and here it's almost half, right?
• 16:51
  SPEAKER_01: Uh however, going back to Division 7a is that if you distribute that income to a company, um, you actually have to pay that money to the company, right?
• 17:03
  SPEAKER_01: So if, for example, the even though you distribute it in paper to the company, but person one and beneficiary one and two takes the money for themselves, that's not right because the company the money should go into the into the company.
• 17:15
  SPEAKER_01: So at year one, if it's not been paid the$200,000 in this company, it stays as a single UPE, unpaid present entitlement.
• 17:24
  SPEAKER_01: Yeah, 200k sets in that UPE.
• 17:27
  SPEAKER_01: In year two, if this amount hasn't been paid off to the company, then it becomes a Division 7A loan between the trust and the company.
• 17:38
  SPEAKER_01: So between these two entities, it becomes a Division 7A loan.
• 17:42
  SPEAKER_01: And then, you know, the the beneficiary one and two that has taken that initial 200,000 would essentially need to pay back the money to the company on behalf of the trust, right?
• 17:53
  SPEAKER_01: So, so you know, it's not about just showing the numbers in the books to save the tags, it's about making sure that the fund goes accordingly as well.
• 18:04
  SPEAKER_01: And that's why that advisory portion of a business is really, really required.
• 18:09
  SPEAKER_02: Yeah, I feel like with the transaction or accountant and to do it once a year to meet with your client is the most negligent, to the sense that if all this stuff is going, especially for businesses, there's a lot of moving parts.
• 18:21
  SPEAKER_02: Uh, exactly what your client said there.
• 18:22
  SPEAKER_02: I've got 500k of net profit, but why do I feel like I've only got$10,000?
• 18:27
  SPEAKER_02: And I think the simple fact of just understanding the basics of how the business works, where what are the three ways that you know income can flow out?
• 18:35
  SPEAKER_02: But what do you see?
• 18:36
  SPEAKER_02: You see a lot of businesses, right?
• 18:38
  SPEAKER_02: And you do a lot of businesses.
• 18:39
  SPEAKER_02: Is the biggest issue that you see is that directors pulling money out, or are you seeing that they're not managing the cash flow?
• 18:45
  SPEAKER_02: What's the biggest thing that you see that stops businesses from moving forward?
• 18:50
  SPEAKER_01: I think the biggest thing I see is not getting the right level of advice or having the right level of team around them to help them make decisions.
• 18:58
  SPEAKER_01: Yeah.
• 18:58
  SPEAKER_02: Um can you give us an example of that of where you've seen a client come in and they've got the wrong advice?
• 19:04
  SPEAKER_02: And then you've changed and you've given the right advice and what that kind of you know assisted with.
• 19:09
  SPEAKER_01: So to answer your question, um, absolutely, um, there was uh one doctor client of mine um who owns a GP practice.
• 19:17
  SPEAKER_01: And um in the GP practice um itself it's a PSA and PSB income issue, which we will come back to it later on.
• 19:24
  SPEAKER_01: But one of the one of the um problems or slash uh one of the things that were done incorrectly is that the trust, uh the GP practice trust or the service trust um service trust.
• 19:39
  SPEAKER_01: I don't know if I can see that one right.
• 19:43
  unknown: Okay.
• 19:44
  SPEAKER_01: The service trust.
• 19:46
  SPEAKER_01: Service trust.
• 19:47
  SPEAKER_01: I'm going similar example here, made 200,000.
• 19:50
  SPEAKER_01: Yeah.
• 19:51
  SPEAKER_01: Over the last five years, it made 200,000 each year, and there was about a million dollars uh that was distributed to uh a profit holding company, right?
• 20:02
  SPEAKER_01: Profit holding company had a zero dollars bank balance, right?
• 20:06
  SPEAKER_01: So all that fund were essentially going into the the the shareholders or the beneficiary's pocket, right?
• 20:13
  SPEAKER_01: So they never physically paid that.
• 20:15
  SPEAKER_01: They never physically paid that, right?
• 20:17
  SPEAKER_01: And uh, you know, when I was looking through the numbers, well, you know, first thing they said, well, my accountant told me um I can take that money out as long as I pay the tax in the in the in the right entity, right?
• 20:28
  SPEAKER_01: I'm like, well, number one, it's you're breaking the law, right?
• 20:32
  SPEAKER_01: You can't essentially um, you know, it falls under this thing called part for A, you know, intentionally doing something to avoid tax, right?
• 20:41
  SPEAKER_01: So essentially what they had about a million dollars of um UPE between or Division 7a between the service trust and the company that was never paid out.
• 20:49
  SPEAKER_01: And then we had to sit back and work out a strategy on how to pay it back.
• 20:53
  SPEAKER_01: Uh we went back and amended um, you know, some of the returns um uh in the right way to make sure the interest is captured.
• 21:01
  SPEAKER_01: Um and um, you know what, we've actually put our hand up to the ATO and we decided to fix it, right?
• 21:09
  SPEAKER_01: Um it was a big problem that was brewing up.
• 21:12
  SPEAKER_01: I'll give you another example of a client of mine.
• 21:15
  SPEAKER_01: Uh they are uh same thing, a medical practice uh based in uh Western Australia.
• 21:21
  SPEAKER_01: And uh for the last 12, 13 years, they've been using this strategy, right?
• 21:26
  SPEAKER_01: There was about three, four million dollars worth of income that was sitting in a in a company where the zero dollars that was paid in the company bank account.
• 21:35
  SPEAKER_01: And um, you know what?
• 21:37
  SPEAKER_01: ATO have decided to do an audit, yeah, of the of the company.
• 21:41
  SPEAKER_01: And as a result of the audit, uh ATO can actually go back.
• 21:45
  SPEAKER_01: If they see it's a part four A breach, it's not going back after five years.
• 21:49
  SPEAKER_01: They can go back as long as they want to.
• 21:52
  SPEAKER_01: They went back all the way to 2010, 11, and there were about four or five million dollars worth of payable plus.
• 22:00
  SPEAKER_01: Interest including interest and penalties and all that.
• 22:02
  SPEAKER_01: And they actually had to sell uh two of the investment property to fund for that uh for that for that expense, right?
• 22:10
  SPEAKER_01: Um, or for the penalty and the tax.
• 22:13
  SPEAKER_01: And you know, he was about 60, 65 at that time, so it's very close to retirement.
• 22:19
  SPEAKER_01: So this whole thing threw their entire retirement plan out of the way.
• 22:24
  SPEAKER_03: All right, so let's talk about consequences there, real life example.
• 22:27
  SPEAKER_03: So we had a service trust distributed on paper to the company, that's correct, but did not actually transfer.
• 22:35
  SPEAKER_03: Okay, so the wrong advice led to um Division 7a being created where they've actually had to pay interest that they weren't planning on.
• 22:43
  SPEAKER_03: That's right.
• 22:43
  SPEAKER_03: And then uh another client resulted in an audit where the ATO went back way further than they normally would.
• 22:48
  SPEAKER_03: That's right.
• 22:49
  SPEAKER_03: Coming up to retirement and uh having to dispose of assets they weren't planning on.
• 22:53
  SPEAKER_03: Absolutely, absolutely.
• 22:55
  SPEAKER_01: And that, you know, and there's also tax on the disposal of assets as well, right?
• 22:58
  SPEAKER_01: So there's tax on tax off on top of tax, right?
• 23:01
  SPEAKER_01: So it's very stressful.
• 23:02
  SPEAKER_01: That's that's one of the examples, right?
• 23:04
  SPEAKER_01: And um things like that happen all the time, right?
• 23:07
  SPEAKER_02: I think what you said there is key, but from a verification standpoint, breaking it down really simple.
• 23:13
  SPEAKER_02: If a client has a net profit of 500k, normally the accountant will say, Send us your business bank account to show us that you have 500k in there.
• 23:22
  SPEAKER_02: And this is where that division 7A can come in.
• 23:24
  SPEAKER_02: Because if they look at the business bank account uh and say, look, there's there's nothing in there, have you distributed that funds out?
• 23:31
  SPEAKER_02: Is that how the ATO can verify?
• 23:34
  SPEAKER_01: And that's when the that's when the compliance comes in, right?
• 23:36
  SPEAKER_01: It is a duty of uh of the accountant that is working on it to actually cite the uh site.
• 23:42
  SPEAKER_01: In this case, they clearly haven't verified it.
• 23:44
  SPEAKER_01: Absolutely, absolutely check the company.
• 23:47
  SPEAKER_01: Even then, I think they were just being ignorant of the fact, right?
• 23:49
  SPEAKER_01: Just like, look, you know, it should be okay, it should be okay.
• 23:52
  SPEAKER_01: And they were building up some um uh return earnings in this company because the company paid 25% tax.
• 23:58
  SPEAKER_01: There's frankly credit in the tax, right?
• 24:00
  SPEAKER_01: And what they said that, you know what, uh after they retire, they can start paying the dividends from from you know this company to the shareholders of the company and credit back the the you know the tax they paid, right, over time.
• 24:15
  SPEAKER_01: So and that itself is the wrong advice.
• 24:18
  SPEAKER_01: And the client said, Well, I did not know, you know.
• 24:20
  SPEAKER_01: I'm like, well, um, number one, it was irresponsibility to kind of know, but at the same time, it was ignorant uh of uh the advisorslash accountant they were looking after.
• 24:31
  SPEAKER_01: So it's very, very important um, you know, not just to kind of look at the numbers and and you know, make your decision.
• 24:38
  SPEAKER_01: It is important to have the right person there as well.
• 24:41
  SPEAKER_01: And that's what I meant to your question, Frank, that having the right team around actually helps our clients in many ways.
• 24:47
  SPEAKER_01: Um I did how does someone know though, right?
• 24:50
  SPEAKER_03: Because I I know a lot of clients that, you know, for instance, like, look, there's a reason they're not an accountant, right?
• 24:55
  SPEAKER_03: Like they could uh work in particular trades or particular fields because they just are not good with numbers.
• 24:59
  SPEAKER_03: But you know, to your point, um, it's they're still their responsibility.
• 25:03
  SPEAKER_03: But that's you know, to them, there's like this is why I engage an accountant, I trusted my accountant to know.
• 25:07
  SPEAKER_03: Absolutely.
• 25:07
  SPEAKER_03: So, how does somebody actually know they're getting the right advice?
• 25:11
  SPEAKER_01: I think I think it's about educating yourself.
• 25:13
  SPEAKER_01: Uh, that's very, very important.
• 25:15
  SPEAKER_01: Um, talking about other business owners in a similar industry, how their structures are done, uh, having the chat.
• 25:21
  SPEAKER_01: Sometimes, you know what, yes, you know, and I I see that a lot, right?
• 25:25
  SPEAKER_01: I've been in my accountant for the last 15 years, you know, I want to be loyal towards him, right?
• 25:29
  SPEAKER_01: But sometimes it's good to get a second opinion saying, hey, you know what, are my things done in the right way?
• 25:36
  SPEAKER_01: Um it's it's it's very much like you know, you go to a GP to, you know, you've got a we've got an issue, we go to a general practitioner to for a treatment.
• 25:46
  SPEAKER_01: And what does the general practitioner do?
• 25:47
  SPEAKER_01: They refer you to either a cardiologist or neurosurgeon or whatever, neurologist, or wherever you go.
• 25:54
  SPEAKER_01: And similarly, like that as well.
• 25:55
  SPEAKER_01: You know, uh the difference where I see myself is we're more of a specialist rather than um, you know, a day-to-day transactional accountant, right?
• 26:05
  SPEAKER_01: And and that's very, very important to have that.
• 26:07
  SPEAKER_01: Unfortunately, the way the industry is at the moment is that uh there is not many of us out there, right?
• 26:14
  SPEAKER_01: Um and um, and I knew it's gonna be a little bit controversial.
• 26:18
  SPEAKER_01: What I'm trying to say is that you know, uh being a tax agent is very different to having uh a chartered accountant with the with that level of wealth of experience to bring in, uh having that industry knowledge and actually passing it on to a client.
• 26:33
  SPEAKER_01: I think that's important.
• 26:34
  SPEAKER_01: And um, it actually comes back to the fact, you know, I've been talking about this transactional versus strategic accountant, but you know, it's actually motto of uh KHF partners contributing to your life.
• 26:48
  SPEAKER_01: Contributing to your life is not just about preparing your set of tax returns.
• 26:52
  SPEAKER_01: It's about you know having that advisory consultancy service.
• 26:55
  SPEAKER_01: It's something that we have been practicing over a long period of time.
• 26:59
  SPEAKER_01: Um, you know, with technology evolving, um, you know, the compliance is getting easier and easier every other day.
• 27:06
  SPEAKER_01: Um, you know, with the emergence of AI, it will get even more easier, right?
• 27:11
  SPEAKER_01: So, so you know, we we we saw the feature, you know, a while back and we started to kind of transition ourselves from you know from that compliance level of work to more the strategic advisory work.
• 27:24
  SPEAKER_02: And I think that's so key what you're saying there is that specialty, that specialty and experience, you know, because if you've got an accountant doing all kinds of different things, same in mortgage broking, you know, well, they're not really a specialist in that one field.
• 27:37
  SPEAKER_02: Now, for yourself, we know that you are a specialist in the medical field as well as the business owner field, right?
• 27:44
  SPEAKER_02: And so for you, that's why you understand all these structures because you see it day in, day out.
• 27:48
  SPEAKER_02: You've got the experience of it, you've been in there.
• 27:50
  SPEAKER_02: Absolutely.
• 27:50
  SPEAKER_02: You're a business owner yourself, so you you understand, you know, the protocols with it.
• 27:55
  SPEAKER_02: Now, just on that, you mentioned PSI, PSB, and people may have no idea what that means.
• 28:01
  SPEAKER_02: But let's touch on the medico side, uh, because you do have a specialty in there.
• 28:07
  SPEAKER_02: What PSI is, what PSB is, if a doctor's listening to this and how that can potentially help them.
• 28:12
  SPEAKER_01: Absolutely.
• 28:13
  SPEAKER_01: Absolutely.
• 28:13
  SPEAKER_01: It's a very good question, um, Aaron.
• 28:15
  SPEAKER_01: And um and um that is something we see a lot of the time, right?
• 28:20
  SPEAKER_01: Uh, the PSI and the PSB and the differentiation of it.
• 28:23
  SPEAKER_01: It's actually a hot topic at the moment.
• 28:24
  SPEAKER_01: Yeah.
• 28:25
  SPEAKER_01: Um, for example, uh PSI and PSB is not just only for the medical industry, it can apply for anyone.
• 28:33
  SPEAKER_01: Yeah.
• 28:34
  SPEAKER_01: Uh you could be uh employed as an IT consultant for a tech company, and then you decide to, you know what, I will uh resign and join as a contractor.
• 28:44
  SPEAKER_01: So I decide to sign up, um, set up a new company.
• 28:47
  SPEAKER_01: And you know what?
• 28:48
  SPEAKER_01: Uh my friend told me that if you set up a company, you can, you know, tax your income, let's just say you earn$400,000 a year, you you cap your income, um, you take that income in a company of$400,000, you give yourself$100,000 worth of wage and leave the$300,000 in the company and cap that at 30-25% tax rate, right?
• 29:09
  SPEAKER_01: Um, that itself is also PSI, right?
• 29:12
  SPEAKER_01: The PSI actually, there are uh four tests for PSI.
• 29:16
  SPEAKER_02: Sorry, Baptiste, can you just explain to people what PSI means and what PSB means?
• 29:20
  SPEAKER_02: And then, yeah, please feel free to illustrate.
• 29:22
  SPEAKER_02: Absolutely.
• 29:23
  SPEAKER_01: I will do that.
• 29:24
  SPEAKER_01: So PSI essentially means personal service income, right?
• 29:28
  SPEAKER_01: There are four tests uh as a PSI in order for you to kind of satisfy whether you fall as a PSI personal service income earner or a PSB personal service business earner as well.
• 29:41
  SPEAKER_01: Uh, PSI essentially means um there are tests like you know, whether you have employees uh working for you in the business, uh, whether the revenue is generated based on purely your sole effort, or is it based on your team's right the effort, whether you use your own equipment or do you use the equipment provided by the service provider, right?
• 30:04
  SPEAKER_01: Uh do you have an office business premises in place, right?
• 30:07
  SPEAKER_01: So there's a whole lot of factors that kind of define what PSI, PSB is.
• 30:12
  SPEAKER_01: So for every client that we speak to, we actually run through the PSI, PSB test to ensure uh whether they fall under the PSI and PSB.
• 30:21
  SPEAKER_01: PSI basically, if you're a PSI income earner, you get taxed at your own marginal tax rate, right?
• 30:28
  SPEAKER_01: So that$400,000 example that I just gave as a PSI income, that full$400,000 from the company structure should be given to that particular consultant, and that particular consultant needs to pay tax on their own individual marginal rate.
• 30:46
  SPEAKER_01: Just a question on that.
• 30:47
  SPEAKER_02: If I'm a personal trainer, for example, and the sole income is derived from me, I'm under this PSI.
• 30:53
  SPEAKER_02: And what happens if I run my income through a trust company or sole trainer?
• 30:59
  SPEAKER_02: Does that matter in terms of that PSI?
• 31:01
  SPEAKER_01: You're still uh, well, depending on the test, but it is likely that you will still be a PSI trainer.
• 31:08
  SPEAKER_01: However, for example, if you're a personal trainer and um, you know what, you have your own PT company where you hire other personal trainer to provide the service to other clients, and then you might be treated as a PSB because you actually have an enterprise running rather than you are essentially earning for your uh sole effort.
• 31:30
  SPEAKER_01: Another example I just want to go into, and it's very, very common because we're talking about the medical space, is that uh a contractor uh specialist or a GP, right?
• 31:40
  SPEAKER_01: Uh, if a medical specialist or uh practitioner is working as a contractor, they are uh classified as though they are um um PSI income earner as well.
• 31:54
  SPEAKER_01: For example, um I get this question a lot, and this is a very common misconception among accountants as well, is that okay, um I am a um medical practitioner.
• 32:05
  SPEAKER_01: However, the PSI rule says that I have to earn you know 80%.
• 32:10
  SPEAKER_01: Um at um you know, there's an 80-20 rule where 80% of the income come of your income comes from one source, then you're a PSI, right?
• 32:19
  SPEAKER_01: So that's for general public, right?
• 32:20
  SPEAKER_01: But for medical practitioners, there's some added rules to it as well.
• 32:24
  SPEAKER_01: Question is that okay, you know what?
• 32:26
  SPEAKER_01: Um uh you might be working at three practices and you're receiving one third of the income from different practices.
• 32:32
  SPEAKER_01: Yes, you passed the 80-20 rule.
• 32:35
  SPEAKER_01: However, your income is being generated because of your sole effort.
• 32:41
  SPEAKER_01: So if you did not go to work on that particular uh practice, you would not receive the money, right?
• 32:48
  SPEAKER_01: Um, but uh switching on to PSB is that the the practice owner receives or collects um service fee from each one of the rooms that the doctors operate out from, right?
• 33:04
  SPEAKER_01: That portion of the service income could essentially be PSB, right?
• 33:09
  SPEAKER_01: Personal service business.
• 33:10
  SPEAKER_01: So the service fees collected by the medical center, um, depending on the on the contract, um, and then the service fees used to pay for the expenses such as rent, you know, administration fees, nurses, and all that.
• 33:24
  SPEAKER_01: And the balance of the profit uh that is left can be uh uh taxed at a at a company tax rate and retained as uh personal service business income.
• 33:35
  SPEAKER_01: However, the other portion of it that goes to the each individual, including the practice owner, is uh PSI uh income, and uh which essentially means that you have to be taxed at your own marginal tax rate.
• 33:49
  SPEAKER_03: Medicos have been through a bit lately uh in terms of tax and even payroll tax, right?
• 33:54
  SPEAKER_03: There was an issue where and the reason is a lot of a lot of GPs they may only actually work through one um practice.
• 34:01
  SPEAKER_03: And um, you know, they're they're like saying that well, this is just what I've heard that the the practice themselves actually um try and be hit with payroll tax.
• 34:11
  SPEAKER_03: That's correct, right?
• 34:11
  SPEAKER_03: That's correct.
• 34:12
  SPEAKER_03: And a lot of GPs are starting to get their own F POS machines in the actual consulting rooms and these sorts of things.
• 34:17
  SPEAKER_03: There's various ways to go around and different sets of modern what are shipments.
• 34:20
  SPEAKER_01: Yeah, I mean, look, you can skin a ship in different ways, but it's still a ship at the end of the day, right?
• 34:24
  SPEAKER_01: So um, you know, going going going back to that, uh it's a very good point you have noted, right?
• 34:29
  SPEAKER_01: And I've seen, you know, because you know, I've looked after many, many, many, many medical professional practices, practice owners, you know, chain of practices in very various ways.
• 34:38
  SPEAKER_01: Um, you know, one of the common things I see is that uh it the peril tax, right?
• 34:44
  SPEAKER_01: A peril tax is a state-based-based tax.
• 34:47
  SPEAKER_01: It's not a tax set by ATO.
• 34:49
  SPEAKER_01: So different state uh has different rules for peril tax.
• 34:53
  SPEAKER_01: Yeah, it's it's basically a tax on the number of employment and number of employees you have, right?
• 34:59
  SPEAKER_01: However, um, you know, if uh a person working for you or your practice is a contractor, and which means they have the same characteristic of an employee, right?
• 35:13
  SPEAKER_01: It's just that the way they're paid is a little bit different.
• 35:16
  SPEAKER_01: Then the payroll tax comes into issue because they become a part of the payroll tax.
• 35:20
  SPEAKER_01: So for example, because um, you know, if you're looking at the GP practices, there's five doctors, each one of them billing$5 million a year, um, then essentially, even though you're paying that out as a contracting fee to each doctor, they are essentially an employee of that of that entity, right?
• 35:38
  SPEAKER_01: So, so uh what um what the the Revenue New South Wales or each other state has done is say that um on that income uh it should be treated as though it's payroll, right?
• 35:51
  SPEAKER_01: It forms as a part of the payroll.
• 35:52
  SPEAKER_01: If the doctors were not working as a contractors, they would be working as a salary, right?
• 35:57
  SPEAKER_01: Um so payroll tax, um that was a bit of a hot topic uh a few years ago.
• 36:03
  SPEAKER_01: Um and another thing is that um superannuation, and a lot of people don't know that you know, if you're a contractor working uh solely uh for a practice, even though if you're paying uh contracting fee, there are super implications to it as well.
• 36:18
  SPEAKER_01: I've got a uh new potenti uh client that came on board as that uh similar thing happened.
• 36:23
  SPEAKER_01: They put all the employees, uh, well, their accountant advised them to put all their employees in um in as a contractor, right?
• 36:31
  SPEAKER_01: And then for the last five years, and then A2 came back and didn't audit and they realized, well, no, even though you're paying, they're being paid as a contractor, they still have the characteristic of an employee.
• 36:42
  SPEAKER_01: Therefore, for the last five years, go back, you know, they have a chain of seven um uh fast food restaurants.
• 36:49
  SPEAKER_01: Um, and um, you know, each each restaurant has about 10 staff, so that's 70 staff for the last five years.
• 36:56
  SPEAKER_01: Imagine the level of debt or the the the um superannuation they have to pay for the last five years, right?
• 37:03
  SPEAKER_01: And the penalties interest on top of that.
• 37:05
  SPEAKER_01: So we have to be proactive, you know, and forward looking all the time and be aware of these changes, educate ourselves and also educate our clients all the time.
• 37:16
  SPEAKER_03: Yeah, so say in that situation where they've gone back and ordered to them, had to pay historical super, is is is there an additional hit there because the super's been paid late?
• 37:25
  SPEAKER_03: They can't even claim that as a deduction.
• 37:27
  SPEAKER_01: Uh that's right.
• 37:27
  SPEAKER_01: They can't, well, if a that the rule is that if a super is even a day late, you cannot claim it as a deduction.
• 37:34
  SPEAKER_01: But on top of that, if a super is late, you're supposed to um uh submit a form to the ATO.
• 37:41
  SPEAKER_01: And I believe that per form there's a$10 uh penalty or processing fee that the ATO charges.
• 37:47
  SPEAKER_01: So per quarter for every quarter, there needs to be one form, right?
• 37:51
  SPEAKER_01: So that's$40 per employee per year.
• 37:54
  SPEAKER_01: Uh on top of that, the interest, right?
• 37:56
  SPEAKER_01: The interest is calculated based on uh uh figure that's given by ATO is that okay, had you paid that super in time, that super would have grown to this amount, right?
• 38:06
  SPEAKER_01: So therefore that that amount you have to still pay it as an interest.
• 38:10
  SPEAKER_01: ATO doesn't take the interest, ATO actually passes that interest on to each uh individual person that uh was supposed to get the uh superannuation in time.
• 38:19
  SPEAKER_02: So, what's the the common pitfalls that you see with PSI, PSB, maybe some medico clients that come to you that have you know got the wrong advice?
• 38:26
  SPEAKER_02: What's the biggest thing that they can that you see that they can get stuck with, or maybe it's a big tax bill, or you know, they've been doing things wrong that you see?
• 38:34
  SPEAKER_01: Um I I think it's a number of various things.
• 38:37
  SPEAKER_01: Uh we we do have a reputation.
• 38:39
  SPEAKER_01: Um and and and as you know, we we have never grown a business on advertising.
• 38:45
  SPEAKER_01: It's always been through word of mouth.
• 38:47
  SPEAKER_01: And and you know, when you when you look after someone and you provide them good service, good advice, they speak about you, right?
• 38:54
  SPEAKER_01: And um, you know, and when they speak about you, people hear about you and they come come to you, right?
• 39:00
  SPEAKER_01: So, you know, the best conversation um um that, you know, some of the conversations that I have with my clients is that last week there was about the um the client went to a barbecue and they're speaking to, they spoke to one of their um fellow doctors at the same barbecue.
• 39:14
  SPEAKER_01: And the doctor said, Look, you know, I've made uh$400,000 income last year, and my accountant only asked me to pay uh$100,000 tax, right?
• 39:23
  SPEAKER_01: Why am I paying, you know,$190,000 tax, right?
• 39:27
  SPEAKER_01: And love those barbecue chats.
• 39:29
  SPEAKER_01: Yeah, and then and then I kind of you know go go into it a bit more details and I explain to them, like, you know, this is the reason and this is the right reason, right?
• 39:37
  SPEAKER_01: Um, you know, as a as a as a contractor sole trader, you can't essentially, even if you're in a structure, you can't pay, you know,$100,000 tax.
• 39:45
  SPEAKER_01: And you know what?
• 39:46
  SPEAKER_01: My clients actually educate their peers about where they're going wrong, right?
• 39:51
  SPEAKER_01: And they're like, oh, I want to have a chat to your accountant.
• 39:54
  SPEAKER_01: And you know, and you know, I'm always open to have a chat to anyone about anything.
• 39:58
  SPEAKER_01: Um, and um, yeah, absolutely.
• 40:01
  SPEAKER_01: No one wants a surprise tax bill.
• 40:02
  SPEAKER_01: Absolutely not.
• 40:03
  SPEAKER_01: It's it's better to be pro, and that's what I meant by proactive, right?
• 40:06
  SPEAKER_01: You got you got to be on top of that.
• 40:08
  SPEAKER_01: And and you know, business is not about saving tax because saving tax means that you're earning less, right?
• 40:18
  SPEAKER_01: It's about how you can grow and build a business.
• 40:23
  SPEAKER_01: Tax will always be there.
• 40:24
  SPEAKER_01: You know, of course, you know, we you know, there's ways, and that's what tax planning is very important, I say, right?
• 40:30
  SPEAKER_01: Um, you know, with every single business client of mine, including sole traders, from April to June, we sit down and we have a tax planning meeting.
• 40:39
  SPEAKER_01: You know, we look at many things, you know.
• 40:42
  SPEAKER_01: Have you paid your superannuation, right?
• 40:44
  SPEAKER_01: I mean, you know, by paying the superannuation, essentially you get the deduction.
• 40:48
  SPEAKER_01: Um, by topping up your superannuation to the maximum amount, you uh get the deduction in your own hand.
• 40:54
  SPEAKER_01: However, the super tax is only 15%, right?
• 40:58
  SPEAKER_01: So that's a bit of a savings, right?
• 41:00
  SPEAKER_01: Um, do we need to buy uh new assets?
• 41:03
  SPEAKER_01: Yeah, one of the questions that always comes in, oh, it's the end of the financial year.
• 41:07
  SPEAKER_01: Should I buy a new car to get a to get a depreciation, right?
• 41:09
  SPEAKER_01: So I get a tax deduction.
• 41:11
  SPEAKER_01: Then I'm like, well, do you really want to spend a dollar to save 25 cents, right?
• 41:14
  SPEAKER_01: That's what the question comes up to, right?
• 41:16
  SPEAKER_01: So so it's it's really important.
• 41:19
  SPEAKER_01: Um, you know, you should not hinder your growth just to save tax.
• 41:23
  SPEAKER_01: Yeah.
• 41:24
  SPEAKER_01: And then if you take it one step further, it affects the servicing, you know, as you know, right?
• 41:28
  SPEAKER_01: So so it's it's really, really important that, you know, with growth comes tax.
• 41:34
  SPEAKER_01: Our role is to manage it, do it the right way, and the more efficient way, yeah, to what is required to be paid up to that legal uh illegal amount without avoiding tax.
• 41:46
  SPEAKER_01: Yeah.
• 41:46
  SPEAKER_03: Now, Nafees, I'm gonna change gears a little bit, right?
• 41:48
  SPEAKER_03: Absolutely.
• 41:49
  SPEAKER_03: So in your time as an accountant, you you would have had clients um in all stages of the life cycle of their business, right?
• 41:56
  SPEAKER_03: From from startup to to exit.
• 41:58
  SPEAKER_03: Yes.
• 41:58
  SPEAKER_03: And one of the things I think you'd be involved with, with a lot of people might be interested in uh to hear about is mergers and acquisitions.
• 42:05
  SPEAKER_01: Absolutely.
• 42:06
  SPEAKER_03: Right.
• 42:06
  SPEAKER_03: So if you've got a client um and you know, if you could talk about some live examples where client was actually looking at acquiring another business.
• 42:14
  SPEAKER_03: Absolutely.
• 42:14
  SPEAKER_03: Um what are some of the things they should be looking, looking at?
• 42:17
  SPEAKER_03: What should they be thinking about?
• 42:19
  SPEAKER_01: Very good.
• 42:19
  SPEAKER_01: It is something that we do on a regular basis.
• 42:22
  SPEAKER_01: Um, there's always um um someone out there looking to you know get out of that nine to five work life and get into uh entrepreneur, uh entrepreneurship, right?
• 42:32
  SPEAKER_01: And um sometimes, you know, uh people don't want to start from the scratch, they want to buy something that is established, right?
• 42:40
  SPEAKER_01: So uh one of the services that I provide to all my clients, it's it's it's a sale of business, purchase of business as well.
• 42:46
  SPEAKER_01: That includes you know, valuing the business, um, you know, making sure that um they have the right level of funding or they can get uh the right level of funding.
• 42:55
  SPEAKER_01: And that's that's the beauty of KHI having a multidisciplinary practice because then I can go up to either yourself, Frank, or to Aaron and say, look, you know, I've got this client, you know, this is the current situation.
• 43:06
  SPEAKER_01: Um, you know, can they purchase this business?
• 43:10
  SPEAKER_01: Yes or no, right?
• 43:11
  SPEAKER_01: And then we've got the legal team.
• 43:13
  SPEAKER_01: I can bring them in to have a look at the heads of agreement for the business or the contract, making sure the sale goes through smoothly as well.
• 43:19
  SPEAKER_01: You know, I come in from a strategic point of view saying, okay, what are the due diligence, right?
• 43:24
  SPEAKER_01: The numbers that the seller is portraying to you, are they really correct?
• 43:28
  SPEAKER_01: Let us dig deeper and look into it, right?
• 43:31
  SPEAKER_01: So from stage one of um of early days negotiation, um, you know, by starting the initial IM to you know, assisting them out with the lending part of the business as well as the legal part of the business, including the due diligence, the um then we move into the structuring of the business.
• 43:51
  SPEAKER_01: What is the right level of structure that is right for you?
• 43:53
  SPEAKER_01: Because of course, not every structure is right for everybody.
• 43:56
  SPEAKER_01: It depends on your own personal circumstances, right?
• 43:59
  SPEAKER_01: Then I sit down and look at okay, you know what?
• 44:01
  SPEAKER_01: What's your five-year goal?
• 44:02
  SPEAKER_01: What's your 10-year goal?
• 44:03
  SPEAKER_01: What's your 15-year goal?
• 44:05
  SPEAKER_01: What's your exit plan?
• 44:06
  SPEAKER_01: You know, it's it's always fun and exciting to grow a business, to build a business, right?
• 44:12
  SPEAKER_01: But to preserve it is also important.
• 44:15
  SPEAKER_01: And to protect it, even more important.
• 44:18
  SPEAKER_01: You know, that's why I always talk about that 15, 20, 30 years goal, so I can have that succession plan in place, right?
• 44:25
  SPEAKER_01: I do that quite often as well.
• 44:27
  SPEAKER_01: And um, you know, the other day I was talking to uh a client of mine who owns, who's a cardiologist, but he owns about four different practices.
• 44:35
  SPEAKER_01: And, you know, we sit down saying, look, you know what, your your your um, you know, over time I would love for your children to come into the to these meetings, right?
• 44:44
  SPEAKER_01: So they don't have to participate, they can just sit and listen because they're the succession plan for yourself, right?
• 44:50
  SPEAKER_01: For your for your wealth, for your businesses.
• 44:53
  SPEAKER_01: You know, you're they need to know what happens if something happens to you, right?
• 44:56
  SPEAKER_01: Do you have a proper estate planning in place, for example, right?
• 45:00
  SPEAKER_01: Do you have the right level of asset protection in place?
• 45:02
  SPEAKER_01: Do you have the right structure in place?
• 45:04
  SPEAKER_01: Um, so we look at all that as well.
• 45:06
  SPEAKER_01: So uh do you have the right level of insurance?
• 45:08
  SPEAKER_01: You know, if not, we can bring our insurance specialist in as well.
• 45:11
  SPEAKER_01: So, so you know, it's looking at a business from a holistic point of view from a very infant stage till the end stage of a business.
• 45:20
  SPEAKER_01: And that's what I feel that makes a good advisor rather than a very average advisor.
• 45:28
  SPEAKER_01: Yeah.
• 45:28
  SPEAKER_02: I think you've summed it up really well today, Nafis, the difference between a transactional accountant and a strategic advisor.
• 45:35
  SPEAKER_02: And I think the main difference there is a transactional accountant looks at the historical figures where strategic advisors look forward and plans.
• 45:42
  SPEAKER_02: And not just specifically for the business, but also personal wealth.
• 45:46
  SPEAKER_02: I think the accountant, the strategic accountant becomes that connector to hey, bring the mortgage broker in, bring the legal in, bring the financial planner in because you see the numbers.
• 45:56
  SPEAKER_02: Uh so I think having those key meetings uh with that strategic advisor, especially in this environment right now where things are so uncertain, people don't know what to do.
• 46:04
  SPEAKER_02: And we've you've done many examples today of where things can go wrong when you get the wrong advice.
• 46:09
  SPEAKER_02: So, Nafis, we're glad that you gave us two hours today before you go to Dubai.
• 46:14
  SPEAKER_02: But uh we appreciate the knowledge and experience that you've given to us and the listeners.
• 46:18
  SPEAKER_02: Thank you.
• 46:18
  SPEAKER_02: Absolutely, thank you, Frank, thank you, Eric.