Creating Future Stories

2nd Edition

Tracy TierneyA Chartered Member of the Institute of Directors New Zealand

What does that mean?The Institute of Directors says the introduction of its Chartered Membership pathway will see higher professional standards for its members.

“Continuing professional development allows our members to demonstrate their commitment to sound governance and offer stakeholders and investors an assurance that they have the knowledge to carry out their duties effectively.”

The move sees a new membership structure that offers a framework against which organisations can benchmark directors’ experience and expertise. Find out more www.iod.org.nz/About-us

What is the difference between being a Member of the Institute or a Chartered Member?To become a Chartered Member you must meet certain criteria. Tracy had to show that she was an experienced Director including an entity of substance.

To meet the substance requirements, the entity should meet the majority of the following criteria:

• It has minimum annual operating revenue or budget in excess of NZ$10 million

• It has total employees in excess of 20• It has total assets in excess of NZ$10 million• It is a party to a listing agreement with the Stock

exchange

Tracy was advised recently that she had been made a Chartered Member and as such is able to use the post-nominal CMInstD after her name. Currently 1109 senior directors have been made Chartered Members or Chartered Fellows of the IoD, this represents approximately 16% of the membership overall.

What Tracy has to say…I congratulate the IoD on an historic change. Moving from a membership organisation to a professional body that not only assesses the skills and experience of members but also requires continual upskilling, currency of knowledge and board room best practice shouldgrowbusinessconfidenceinchoosinganIoDdirector to join their board.

I was thrilled to have been made a Chartered Member as an acknowledgement of the skills and experience I have gained and been able to share with a range of forprofitandnotforprofitorganisationstodate.Ilook forward to continuing to grow my knowledge and am particularly interested in helping the increasing numberofflourishingSmalltoMediumEnterprisesinSouth Canterbury consider if the time is right for them to put an Advisory Board in place to help take their business to the next level.

Damon Tutty Corporate Print (2010) LtdA successful, well established print company where Damon made the transition from employee to director and general manager.Developing and growing the business was going to have its challenges…particularly as the printing industry is very competitive and due to the trend of businesses doing more on in-house copiers. Damon also being relatively young, and now managing the demands of being a business owner and employer while still needing to work ‘on tools’ also had its challenges.

It was really important to Damon that…Pivot would support him to look at and evaluate ways to reinvent and grow his business in order to succeed in a changing environment and to help him grow into his role as a business owner. Damon wanted to ensure that the business continues to provide him and his familywithasecurefinancialfuture;onethatachievesall their goals and ambitions in life.

As part of his on-going journey we have helped by…providing options, solutions and advice ranging from assistance with employment issues and agreements

to sales strategies as well as evaluating a number of strategicgrowthopportunitiesarounddiversificationand acquisition. Including recently assisting Corporate Print evaluate then successfully negotiate the purchase of another print company which added significantsizeandcapacitytohisoperation.Damon was keen to put his mark on the business, take it to the next level and knew he would need good advice along the way

From Damon’s perspective…“These guys offer practical, no jargon advice and are not afraid to tell me if they think I am going off track. They all have different skills, Glenn is good with the numbers and helping me put together achievable budgetsandcashflowforecasts.Tracyismygo-toperson for business planning, general management andstaffingissues.It’sgreathavingtheirexpertiseon-tap. The recent business purchase was a great team effort between us all, they asked the tough questions, challenged me and drove a hard bargain.”

“These guys offer practical, no jargon advice and are not afraid to tell me if

they think I am going off track.”

What is Risk Management?

Risk management is a logical process which seeks to eliminate or at least minimize the level of risk associated with a business operation.

Essentially,theprocessidentifiesanytypeofsituationthatcouldharmbusinessprofitsandthentakestepsto correct the factors that are likely to cause the harm. At the core of effective risk management strategies is thedesiretofindwaystomanagetheuncertaintythatexists within any business enterprise. There are many types of business risk and we specialise in the risk stemming from the loss of key people.

Thefirststepintheprocessistounderstandwhatthebusiness does and how – that is, identify the roles and responsibilities of each member of the team.

Once there is a clear understanding of how the organisationfunctions,itisthenpossibletorefinetheprocess with an eye toward reducing or managing that uncertainty factor.

Risks that cannot be mitigated through better processes may need to be transferred to a third party through insurance (including ACC). Insurance is only recommended where the magnitude of the risk would affect the viability of the business or personal wealth and income.

Risk Management, what is it?

Is risk management mainly focused at business owners?

The main risk that we deal with is owner’s inability to show up to work tomorrow. If a key person is missing from the team in the short term (up to 12 months) this affectsbusinessprofitabilityandtheincomethattheowner can extract from the business. However if the same person had a long term disability or premature death it may also affect the ability to repay debts or maintain the value of the business shares on exit.

As a business owner what risk would I be susceptible to and why would I need protection?

The main risk for a business owner is their ability to show up to work tomorrow. If a key person is unable to show up to work for a day or two this affects business profitabilityandbusinessincomesintheshortandmedium term. However if the same person had a long term disability or premature death it may also affect the ability to repay debts or exit from the business and maintain the value of the business shares.

Isn’t insurance just pouring money into a big hole?

No, we have not heard of someone who suffered from a disability or lost their spouse or partner regretted having insurances in place. If nothing ever goes wrong,thenthebenefitofknowingthatyouhadthecover in place provides the peace of mind that you had your risks covered.

The importance of good risk planning is knowing what your level of risk is and then making a conscious decision of how you are going to manage it if something goes wrong. We can have two clients with exactly the same level and type of risk that will choose to deal with it differently – because they have a different attitude to risk.

How does pivot work with Triplejump?

Our business is Pivot Risk Management Limited – our analysis and risk advice is powered by the Triplejump software and processes.

What is the best way for me to manage my risk and get assessed?

Pick up the phone and come and meet with us or emailus;hello@pivotpeople.co.nz–weloveseeingour advice come to life.

Funeral plan insurance or life insurance?

We have recently had a client contact us regarding an offer from his bank for funeral insurance cover. I am sure you will have received an offer like this at some stage or seen advertising on television for similar products offering peace of mind knowing that your funeral costs are covered.

However, our analysis shows that the average person in the population could get four times the level of cover through a standard Life insurance policy.

Here are the numbers:The monthly premium offered through the bank was $56.46 per month for $11,000 of cover with guaranteed acceptance for those aged between 55 and 85 (that is, no healthchecksrequired).Forthefirst24months,thecoverisonlyforaccidentaldeath(presumably this is to avoid the insurer having to pay out for those people who have already been diagnosed with a serious illness).

The equivalent level of cover under a standard Life insurance policy for a 56 year old non-smoking male would be $14.91. Of course, a standard Life insurance application would require full medical information which is not a big issue if you are healthy.Thus the main message is that if you have no health issues, you would be paying a significantpremiumbytakingupthisoffertoavoidthepaperworkrequiredforanormalinsurance application. However, if you are at the top end of the age band (greater than 75 years of age) and have some pre-existing health issues, this may be good value for money – assuming the bank was kind enough to include you on this mailing list!

The Shade HouseKay & Graeme Halliwell

It had been playing on their mind…that they were headed towards retirement with lots of ideas but no plan. Through their hard work and determination and with the support of business mentoringandgoodfinancialadvicefromTracy,mostof their business goals had been met so they needed to sort out what they wanted to do next with their lives.

It was really important to them …to have choice. They really wanted to have choices around when they retire, where they would live, lifestyle, travelling and spending time with family. They wanted to know what they had to do to make achieving those choices a reality.

Finding the way forward was all about…getting rid of the clutter. Simplicity and clarity. We had the tools to help them understand their situation and to drive their own decision making which we thentranslatedintoastepbystepfinancialplantogetthem to their goals.

Kay and Graeme had hopes and dreams for retirement but didn’t know where to start.

This is what they say now…“Wegetit;wenowunderstandourpositionandall the steps we need to take to make sure we have the retirement that suits us. We no longer feel uncertainaboutourfinancialfutureandknowingthatwe will be meeting regularly with Stephen to check in on progress means we are much more likely to get to where we want to be”

Started from their home office over 16 years ago, now a leading retailer with a showroom in the CBD.

Why is KiwiSaver so important? KiwiSaver has the potential to be a key contributor to anyone’s retirement – for younger members anywhere between 30% and 70% of the retirement funds needed.

That the Government provides a $1,000 kickstart and a further $520 per year for those contributing at least $1,040 of their own money and that employers also contribute makes KiwiSaver a no brainer for all of us.

Can’t I just leave it to do its thing automatically?When we are younger we should be orientated more towards property and shares (growth investments) and as we get nearer to age 65 and retirement less so. The investment mix should move away from growth investments towards more conservative allocations. Getting the mix right for our age and stage are important decisions that can make a material differencetoourfinancialoutcomes.Infactthemixof investments we choose is a much more important decision than which scheme.

Some KiwiSaver schemes make the investment mix change automatically for the investor as time passes, based on their age. Other schemes require the investor to actively make decisions.

What are the benefits of having a KiwiSaver account?We all want freedom of choice for our retirement – the choice as to how long we work and the standard of living we will enjoy once retired. Those outcomes shouldn’t be left to chance. KiwiSaver is the opportunity

to make a major contribution towards retirement with government and employer money to assist.

How can I tell which kiwi saver will be best for me?The key decision is what mix of investments to choose. The choice of manager is secondary.Speaking to an adviser is key way to ensure good decision making. And decision making that has the potentialtomakeasignificantdifferencetooutcomes.A 30 year old in a conservative allocation instead of one more suited to his or her age may be costing themself$50,000to$100,000intermsoftheirfinalretirement outcome. Advice is important and valuable.

What happens if I don’t think I can afford to make higher payments?KiwiSaver, for those who are employees, is set at a minimum contribution of 3% of earnings. Occasionally investors seek contribution holidays (which are allowed) but for most a small amount of their current income being re-directed towards retirement causes no financialdifficultyindaytodaylife.

What are they doing with my money?KiwiSaver managers are investing your money into a range of countries, markets, sectors and individual investments. Generally this is accomplished with a highlevelofdiversificationandanongoingfocuson creating the best outcome possible for investors. Specificallyhowtheyaccomplishthiswilldependon the type of manager they are and the type of fund. Investment Statements are available from each manager to assist understanding, or more valuably an investor should seek advice.

Which KiwiSaver scheme is right for you?

You can of course legitimately claim work clothing, there are some rules around it though. It needs to be either/or:• A uniform• Advertise your business, e.g. include your logo• For health and safety purposes, this can include

high vis vests• It can be protective, which would include steel

capped boots, safety glasses, hard hats, etc.• You can also claim normal clothing given to

employees or a clothing allowance as long as you haveeitherpaidPAYEorFringeBenefittaxonit.

Unfortunately, IRD are not interested in your opinion. So no matter how you try and argue it, no other work clothing is deductible. When IRD tax law is involved, what you are trying to claim has probably already been fought in Court or with IRD and lost.

Evenaplain-clothedPoliceOfficerneedstopaytaxontheir clothing allowance!

Here are some cheeky claims people have tried… unsuccessfully:• Glasses–Eventhoughyouaren’tabletodoyour

job without them, it really doesn’t matter when tax law is involved. Funnily enough, laser eye surgery isn’t claimable either!

• BusinessSuits,etc.–Evenifyourworkrequiresyou to wear business attire, they still can’t be claimed.

• Puffer Jackets – you may work outside and you may need to keep warm, but as the jacket is still clothing that you or employees could still wear for private purposes, these can’t be claimed. Unless of course they are well branded – see point 2 above.

• Haircuts – Yip we know you do need to look good for your business, but the IRD isn’t going to wear this one either. Nice try though!

• Shoes – unless they are protective shoes like steel capped boots, as far as the IRD are concerned, they can be worn anytime, anywhere so out of luck on this one as well. I don’t think a pair of dress shoes will cut it on a building site.

Rest assured, we will always look for opportunities to maximise legitimate claims, we are as keen as you are to minimise your tax obligations. At the same time though we are also keen to make sure you don’t attract any unwanted attention from the IRD including penalties and interest.

Clothing to claim or not to claim... That is the question.New Zealand tax law isn’t as kind as Australian tax law when it comes to claiming uniforms and clothing. Basically in New Zealand, anything you can wear outside of work time just like your average ‘Joe Blogg’ it is considered a personal cost.

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