I started my year with a scary experience. Whilst ocean swimming early one morning with friends beyond the breakers, I lost my form – and then my nerve. With my friends out of sight and shouting range, I decided to make my way back to the safety of the beach. However, to do so meant battling through a churning, dumping swell. I felt totally out of my depth. When, finally, I made it unsteadily to the shore, I was shaking, heaving and questioning my choice of hobby. Fortunately, it was just one bad day at the beach for me. I could chalk it up to experience and I was back in the water two days later. I am one of the lucky ones.
While listening to a recent podcast with Accountants Daily, My Business Editor, Adam Zuchetti about small business tax debt, I had a flashback to that experience for an entirely different reason. Adam reported that a staggering 20 per cent of Australian small businesses are currently on an ATO payment plan. That’s some 800,000 small businesses who are financially overwhelmed, many of whom are drowning in debt.
One of the more shocking revelations from the piece is the comparative level of SME (small to medium enterprise) tax debt when compared to corporate Australia. The former cohort owes a whopping $16.5 billion with $1 billion contested. Meanwhile, their corporate counterparts owe just $1 billion and are locked in disputes for six times that amount. This points to the glaring discrepancy in resources between the two segments and the ability of the big guys to fight back, whilst the little guys are often forced to roll over and get carried out to sea. Moreover, it hints at the ongoing role corporates play in stretching payment terms to SMEs, thereby contributing to SMEs failing to meet their tax commitments.
It also highlights the pervasive fear of retribution small businesses feel towards the ATO. This fear is now exacerbated by harsher penalties for missing tax payments, single touch payroll and new laws allowing the ATO to disclose tax debts to credit bureaus as part of comprehensive credit reporting. You may even have read recent press reports of harsh treatment on calls by outsourced “assistants”.
Daily, we also see a lack of understanding and education about the role the ATO does provide in easing the burden of tax debt – such as payment plans. Often SMEs mistake this for some form of back-door, inexpensive funding which, of course, it is not. The ATO is not a quasi-bank. This cocktail of fear, misunderstanding and concern about being sucked under contributes to murky and scary waters for SMEs who are struggling to meet their tax commitments. It can get in the way of proactively putting in place a plan to better manage debts by matching asset and liabilities and using recurring income to service longer-term, fully amortising debt.
I have started several small businesses myself and empathise with how easy it is to go a little off course and get sucked in out of your depth. Suddenly you are fighting the rip, rather than working your way clear. Progressively exhausting yourself and depleting your resources, unable to find a route to swim clear. We understand that an ATO payment plan is a sign of a struggle and that the struggle is real for small business.
Sometimes small business just needs someone to give them a break; throw them a life ring or give them financial support until they can catch their breath. There’s no shortage of new fintech lenders who have plunged into the market, particularly in the vacuum left by larger lenders. Some offer fast access to cash, but beneath the surface, their interest rates are so high they will inevitably cause an already weakened swimmer to drown under the additional debt burden. Have they helped the problem? Almost certainly some have, certainly in terms of addressing short-term cashflow needs. Are they solving the problem? Not really. The core issue of late payments will have to be addressed by government and regulators in due course.
The ATO will need to do more to educate small business about how they can help. In the meantime, the role of advisory services and prudent lenders in educating their clients about funding their businesses in a sensible way is more critical than ever.
As we swim out and greet 2020, will you be swimming responsibly between the flags or are you already a little out of your depth? As a sign of our commitment to small business, and staying afloat generally this summer we will donate $100 to Surf Lifesaving Australia, from each SME loan made to a financial planner, mortgage broker, accountant or property manager.
TrailBlazer Finance is a boutique lender specialising in providing tailored financial solutions to white-collar professionals using the value of their recurring revenue as security. Find out how we can help at trailblazerfinance.com.au
In our business, we often get enquiries from people who think we deal in second-hand literary books. At TrailBlazer Finance, we actually buy, sell and lend against trail books – which are not even close to story books. But these mistaken phone calls to our office became the catalyst for us to support a charity which is doing life-changing work for people who often can’t even spell B-O-O-K.
A few years ago, our Managing Director Jeff Zulman read John Woods’ remarkable book, Leaving Microsoft to Change the World: An Entrepreneur’s Odyssey to Educate the World’s Children. Jeff was inspired by how one person who recognised the power of words went on to establish Room to Read, a non-profit organisation focused on girls’ education and children’s literacy in Africa and Asia.
We later discovered that one of Room to Read’s annual fundraisers was a long trail walk in Sydney. There are too many coincidences here, Jeff thought to himself. We make money from books – albeit not literary ones – so why don’twe help others to read, write and benefit from books. In that moment, TrailBlazer Finance’s support for Room to Read was born.
According to the UNESCO Institute of Statistics, over 750 million people worldwide are illiterate. Two-thirds of them are women and girls. “World change,” says Room to Read, “starts with educated children.”They’re right: educating girls is much more than a gender equality issue.
As Damon Gameau’s recent documentary ‘2040’ makes clear, educating girls is a vital weapon in the battle against climate change. Why? Because empowering and educating women and girls means they are more likely to marry later and have less children, which leads to a lower population and less pressure on resources. In a recent Sydney Morning Herald article, Elizabeth Farrelly wrote that the film 2040’s “most surprising [moment] is the thought that the sixth most effective weapon (of a hundred) against climate change is educating girls…educating girls is worth 105 gigatons of Co2 due to its effect on fertility, population growth and land management.”
So now, your books – your trail books – are helping those less privileged than us to learn to read and delight in the power of words and literary books.We donated 100% of the proceeds from ourrecent webinar for mortgage brokers to Room to Read. This impressive organisation – which to date, has benefitted 16.8 million children and their communities – means that when you take a loan from TrailBlazer Finance, you’re also giving back: helping to combat the scourge of children’s illiteracy, to educate underprivileged girls and even to fight against climate change. Your trail book is valuable in more ways than you might have imagined.
A pinball machine sits in the reception of our offices. For stress relief, I am rather partial to the occasional game. It struck me that pinball is an ideal metaphor for mortgage broking: brokers are like the ball – constantly being bumped around at the whim of big external players, bounced off the bumpers to help others score points. For some brokers, the potential abolition of trail might spell “Tilt” or even “Game Over”.
But never fear, for what I’ve always liked about pinball is that it has five balls. So even if you suffer a loss, if you understand the game and how to play, you can keep playing. Here are some tips from a “pinball wizard” on how to play on in the current environment, and perhaps even earn bonus points and an extra ball.
1. The UK trail experience
In 2014, trail commission was banned on new products in the UK. Two years later, it was completely abolished. Yet concerns over churn have seen UK lenders pay retention fees to brokers, to encourage consumers not to switch lenders. In effect, these ‘retention fees’ are just another name for trail commissions. So even if trail is abolished in Australia, it seems likely that trail will reappear in another form – another ball.
2. Federal election pressure on the ALP
The Liberal party’s turnaround in their stance on trail clearly shows the power of political pressure. With the ALP still planning to remove trail for new loans from 2020, the Liberals’ win in the recent NSW state election could lead Labour to reconsider its position, as they try to win votes in the upcoming Federal election. Notice that the ALP rhetoric is starting to shift – they recognise that bumping the machine too hard could lose them lots of credits.
3. Our exclusive revenue projection calculator
We have built an indicative revenue projection calculator which is available here. Our modelling indicates that even if trail is abolished on new products, many brokers’ income will actually improve in the medium term due to the combination of larger upfront commissions, coupled with grandfathered trail payments. Think of it as a period of double scores and more points for playing on.
4. The FOFA experience
Even if the ALP wins the election and abolishes trail, they’ll have to enact legislation to this effect, which must then pass through the Senate. In the case of financial advisers, the FOFA legislation was supposed to be passed relatively quickly but ended up taking over 18 months. And even then, it was watered down from the original proposal. In short, even if the current trail regime does change, it is likely to be some time before any changes take effect. So there is time to play until the credits expire.
At TrailBlazer Finance, we’re optimistic about the future of the mortgage broking industry. We’re playing on, writing more loans than ever to help mortgage brokers grow their business. Whatever happens to trail, the game isn’t nearly over. In fact, I can see smart players racking up some pretty big scores.
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