Setting fees is always a difficult proposition for service businesses and pricing an intangible is much harder than pricing a product. Your fee will, however, represent what you and your expertise are worth.
Get paid what you’re worth.  Setting fees that will represent what you are worth and make money for your business, is based on good judgment, knowing your client, having a good sense of self worth and also knowing what your options are.

Service Fee Options
Hourly fee: This option pays you for your time. This is not advisable as it is severely limiting to the growth of your business, and affects your perceived value with your clients. When you bill this way, each professional in the firm and every support person eventually reaches their limit of billable hours and then you need to add a new resource to the firm. As a client, I always wonder if I’m being billed as I chat on the phone to my accountant and he asks me about my holiday…tick, tick, tick…I always get the feeling that the focus is on billing more than service.

Contingency/success fee: This often comes to play when your service is helping a client to win a major piece of business, tender or project. If you charge a fee contingent upon success, you will only get paid when the client wins the business, although you are certainly backing yourself! However, there are many things that can affect the outcome over which you have no control. It is far better to charge for the service, and if the stakes are high, charge a success fee on top of that. It’s like a bonus for exceptional performance.

Project fee:   The best way to charge a set fee for a project is in staggered tranches. For example, you will always be paid faster if you don’t start the project until you receive the commencement fee. If the project is to take five months, for example, and you leave the bulk of the amount to be invoiced at completion, you may not be paid for eight months. A better option is 50 percent up front, 30 percent at completion of a (pre-agreed) major milestone and the remainder on completion of the project. Alternatively, you may decide to invoice 50 percent up front and 50 percent on completion if it is a relatively short project. Never leave the bulk of the fees to be invoiced at the end of the project.

Retainer: A retainer is the ultimate goal of all people in the service profession.  There are many forms for different types of services: monthly fee retainer for the provision of ongoing consulting/advisory services, monthly support fee (for software), monthly licence fee, monthly fee to be available on request for support/training, and so on. You may decide to charge a retainer on a monthly or quarterly basis in advance.  Do not nter into a retainer arrangement where you are paid after the service has been delivered. You could end up delivering three months of service and wondering when you will be paid. If your clients really need your help, they will accept your terms – terms that are agreeable to you!

To be continued…   (Reprint from DynamicBusiness.com.au)

The Australian Taxation Office will launch a special crackdown on eBay sellers as it attempts to find tax dodgers who are under-reporting income or not reporting income from these sources.

The special crackdown, announced by Tax Commissioner Michael D’Ascenzo, will focus on individuals and businesses who have sold more than $20,000 worth of goods through online sales site eBay and Trading Post in any of the past three financial years.

The ATO plans to scan around 30,000 records from these sites as part of a data matching program aimed at catching those under-reporting income earned from online sales, or those who keep their online sales activity “off the books”.

“Records will be matched against different identifiers such as tax file numbers, ABN’s, addresses and date of births, which will improve the integrity of the data matching program,” D’Ascenzo said in a statement.

“When information obtained from data matching is used in an audit or review, the business or individual will be given the opportunity to confirm or contradict the information found from the data matching.”

The ATO has been trying to learn more about the online selling sector for the last few years as use of eBay and Trading Post has increased.

Back in 2008, the Tax Office targeted those who had sold more than $50,000 in either of the two preceding years. This latest crackdown will presumably catch a much larger number of users.

D’Ascenzo says any online sellers who know they have done the wrong thing can come forward voluntarily and access discounts of up to 80% on any penalties handed down by the ATO. (Reprint from SmartCompany.com.au)

Sharp falls in global sharemarkets during the June quarter have resulted in average super fund returns dipping under the magical double figure mark, according to the latest data from SuperRatings.

Despite predictions that super fund returns for 2009-10 could be as high as 15%, weakness on Australian and overseas equities markets saw the average return from balanced super funds (the super fund option used by most Australians) slip to 9.79%.

But it wasn’t just weak sharemarkets that took a toll – super fund feeds also played their part too, according to SuperRatings chief Jeff Bresnahan. He says the median return from balanced funds was actually 11%, but the impact of feeds forces the actual result below 10%.

Still, the 2009-10 returns are a big improvement on the loss of 12.7% seen in 2008-09 and the loss of 6.4% experienced in 2007-08.
“Whilst not looking great on paper, in a relative sense balanced options have achieved what they set out to do, namely to prevent significant losses through diversification,” Bresnahan says.

“Over the last decade…balanced options have gained 4.5% per annum. So, despite not being handsomely rewarded for risk in relation to cash and inflation over the same period, balanced options have at least kept ahead of both of these investments and will continue to do so over the long term.”

However, SuperRatings’ data does demonstrate the impact that the GFC has had on longer-term super fund returns.

Rolling three-year returns have now dipped to 3.52% per annum, and the rolling 10-year return has now fallen to 4.5%.

Over a 20 year period, the rolling return rate increases to a much more respectable 7.2% per annum.

“That’s well ahead of the prevailing inflation and cash rates over the same period,” Bresnahan says.

The common thread is that all the top performers are industry funds, which are operated on an not-for profit basis and were traditionally attached to union bodies.
Bresnahan says the strong performance of the industry funds is down to two factors.

“The fact is they do charge lower fees, year in year out and they have also utilised unlisted assets to a much higher degree than retail funds.”

The common thread is that all the top performers are industry funds, which are operated on an not-for profit basis and were traditionally attached to union bodies.

Bresnahan says the strong performance of the industry funds is down to two factors.

“The fact is they do charge lower fees, year in year out and they have also utilised unlisted assets to a much higher degree than retail funds.”  (Reprint from SmartCompany.com.au

The comments come as new Australian Property Monitors figures show Australian housing growth slowed to 2.4% during the June quarter, with annual house price growth at a higher-than-expected 15%.

APM economist Matthew Bell says while that growth rate definitely shows evidence of a slowdown, the property market is performing better than expected and prices are expected to grow by up to 10% by the end of the year.

He says the 6% growth for the first six months of the year indicates the entire 2010 growth should be “much stronger” than previously expected.

“I was quite comfortable in the first quarter, grew more uncomfortable in the second quarter with some of the results, but now I think we’re going to see about 8-10% growth and I’m very happy with that. It’s certainly surprising, and not at all a bad result.”

“I think everyone now is talking about capacity constraints, with demand and so on, which will continue pushing up prices. And look at unemployment, which is doing very well, especially in Canberra.”

The APM data shows Melbourne is still the country’s hottest property market, with annual growth of 27% to a median of $578,447, representing growth of 4.4% for the quarter. However, that quarterly growth is the lowest since March 2009.

Sydney grew by 2.3% over the quarter, and 13% over the year, to reach $625,488, while Canberra recorded 1.9% growth for the quarter, and 16.5% for the year, to $568,520.

Prices actually dropped during the quarter in Hobart and Darwin by 1.9% and 0.7% respectively, to $308,434 and $581.290.

The growth in this quarter was largely due to activity in the more affordable suburbs, Bell says. With price growth moderating, sellers have been struggling to obtain their target prices and bargain-hunters have been out in force, with the lower-end of the market outperforming the top for the first time in 12 months.   (Reprint from SmartCompany.com.au)

The Coalition has promised it will cut the company tax rate by 1.5 per cent if it wins government.

The Opposition’s pledge, in a pitch to small business, would take the rate to 28.5 per cent, 0.5 per cent lower than what the Government has promised.

Releasing the Coalition’s small business policy today, Opposition Leader Tony Abbott said it was a “win, win” situation for small business.

“We are always going to be the low tax party,” he said.

“As far as the Coalition is concerned companies deserve a tax cut.

“We will give them [companies] a tax cut without a mining tax to pay for it.

“We’ll give them a tax cut without a carbon tax to pay for it. We will ensure that this tax cut is affordable in the longer term.”

Mr Abbott says the cut will cost $2.1 billion a year and will be funded out of Coalition savings already identified.

It will begin in July 2013.

The company tax rate has been an area of debate between the two major parties in recent months after policy decisions taken on both sides.

The Government has promised it would use revenue from its mining tax to fund a 2 per cent cut in the rate, but this was later changed to 1 per cent after the deal was changed.

The Opposition is planning to fund its paid parental leave scheme by imposing a 1.7 per cent levy on the tax rate for some of Australia’s biggest businesses.  (Reprint from Yahoo Finance)

Riversdale Mining Ltd says June quarter coal production was lower than both the previous quarter and the same period last year due to excessive water and gas in the main mine shaft.

Riversdale Mining says that for the June quarter, its ROM (run-of-mine) coal production totaled 177,130 tonnes and 753,600 tonnes on a full year basis.

That was a decrease of 2,570 tonnes compared with the March quarter and 22,200 tonnes on the same quarter last year.

The company says work underway to remedy the disturbances is expected to result in an improvement in the ROM tonnage in the second quarter of the 2010/11 financial year.

Saleable production for the June quarter was 151,614 tonnes, a decrease of 11,720 tonnes compared with the March quarter and 30,697 tonnes on the same quarter last year.

Riversdale said on Wednesday the reduction in high seam ROM from Deep E shaft had affected overall plant yield.

However, according to the Quarterly Activities Report, improving market conditions resulted in year to date product sales of 853,089 tonnes, a rise of 51 per cent on the previous year product sales of 562,796 tonnes.

Riversdale said it had $247 million cash on hand at the end of June 2010.

The Benga Coal Project in Mozambique was officially opened and the mining contract awarded to MCC Contracts Pty Ltd for the provision of open pit mining.

The coal handling and processing plant design contracts were awarded to Sedgman Ltd.

Riversdale upgraded its coal resource estimate for the Zambeze project to nine billion tonnes and says development alternatives will be progressed and infill drilling will commence.

In South Africa, the development of the Ngwabe Project will continue with the mining right application expected to be granted during the 2010/11 financial year.  (Reprint from Yahoo Finance)

The Government is also stepping up its attack on Opposition leader Tony Abbott’s parental leave plan, claiming the levy on large employers used to pay for the scheme will result in an increase in living costs.
Modelling released by Treasurer Wayne Swan this morning claiming consumers will pay an extra 50c on every $100 spent on groceries if Abbott’s plan came into force.

Abbott’s leave scheme would see a 1.7% levy placed on the profits of companies that earn more than $5 million in net annual income to fund up to six months of paid leave for parents.

But the Government claims the Opposition’s 1.7% levy and its promise to abandon the 1% cut in the company tax rate that has been promised under the mining tax would result in an effective 2% rise in the company tax rate.

The Government has released modelling by KMPG which shows that a 2% rise in company tax would lead to a 1% increase in consumer prices.

Swan, Prime Minister Julia Gillard and Small Business Minister Craig Emerson are now describing the leave plan as a “great big new tax” and claim it will force big employers such as Coles and Woolworths to raise their prices as the pass on new costs.

”Mr Abbott is proposing to increase company tax for most companies by 1.7%. The Gillard Labor government is proposing to cut company tax by 1%. So there is almost a 3% difference,” Swan said.
However, Abbott has attempted to counter Labor’s cost-of-living claims by announcing an extra $89 million to increase child care rebates paid to parents.

Gillard has spent the morning by continuing to focus on health and a family policy this morning, announcing $277 million for suicide prevention and the establishment of a 24-hour GP phone help line.
(Reprint from SmartCompany.com.au)

The volume of residential land sales fell 40% during the 12 months to March 31, the latest HIA-RP Data Residential Land Report reveals, representing a second consecutive quarterly decline.
The report also shows the weight median land price for Australia remained steady during the first quarter at -0.1%, representing annual growth of 6.9%.

HIA chief economist Harley Dale says the report indicates the so-called housing recovery is running out of steam, and the industry faces a very real threat of a downtrend in new home building if things don’t recover.

“This report really reinforces the story that’s been running for some time now, where you have a loss of first home buyer stimulus, you have rates continuing to rise, and you have this environment of economic uncertainty,” he says.

“You couple that with problems like lack of adequate land supply, adequate access to finance for home buyers, and you’re seeing a reduction in lending for new home building. It really is making things harder for the industry.”

Sydney has the most expensive residential land with a median price of $305,000, while the Sunshine Coast remains the most expensive area outside the capital cities with a median price of $260,000.
The HIA-RP Data report identifies 12 areas where median land prices are below the $100,000 mark, including the Mallee region of Victoria, which is the cheapest at $72,000, followed by Murray Lands at $77,000 and the South East in Southern Australia at $80,000.

RP Data national research director Tim Lawless said in a statement the second consecutive quarterly decline is due to current price sensitivity prompted by interest rate rises.

“The interest rate rise in March, which followed monthly increases over the December quarter last year certainly dampened market conditions, particularly among the first home buyer and low income segments of the market.”

“The continued weakness in vacant land sales is a bit of a worry considering the ongoing demand for housing remains high. The low volumes of land sales suggest continued price sensitivity from the market and further housing pressures ahead.”

As for moving forward, Dale says the HIA “hopes” the decline begins to stabilise but there are a number of different issues at play.

“There are several issues working here, and that has to do with the response to rising interest rates, and a number of different economic factors like employment. There’s also an enormous amount of weight applying to precisely what decision the RBA takes on August 3.”

Dale says if interest rates rise on August 3 and onward, and finance becomes increasingly more difficult to obtain, then he says we will continue to see negative housing indicators.

“If you get that combination of high interest rates and low access to credit, I think you’ll continue to see weak land figures for some months to come.”

Lawless isn’t optimistic, either. He says the June quarter doesn’t hold much chance for an improvement over the recent figures.

“Considering the rate rises in April and May, lower consumer confidence, and lower housing finance commitments over the June quarter, we don’t expect any real improvements in the vacant land figures soon”.  (Reprint from SmartCompany.com.au)

THE PREVIOUS DEBATES and media frenzy on the Resource Super Profits Tax (RSPT) had obscured analysis on the proposed superannuation changes announced following the release of the Government’s response to the Henry Review in May this year.

There were three (3) proposals presented:
a)    Increase in the Superannuation Guarantee (SG) from 9 to 12 per cent, appears to benefit everyone;
b)    Rebate on contributions tax for those on incomes up to $37,000 – aimed at addressing the lack of tax concessions on superannuation contributions for low income members; and
c)    Extension of the $50,000 concessional contributions limit for those 50 or over with the superannuation balances under $500,000, is aimed  at those with low to moderate balances approaching retirement.

The Increase in SG
The increase in the SG is the Government’s major announcement. Notably, it was not the preferred option for increasing superannuation savings in the Henry Report. The panel favoured a system where contributions would be tax-free in the fund but taxable, with concessions, at the individual level.
If your clients are already salary sacrificing, this change may not mean much. If your clients are already contributing to their concessional limits, it will have no effect other than gradually reducing their salary sacrifice contributions to keep within the concessional contribution limit, keeping in mind that with indexation this will rise over time.

The effect on wages as employer’s total employee costs rise, albeit very gradually, will depend on the wage market at the time. We note that in so much as the increase in the SG is a substitute for wage increases, it reduces the Government’s tax revenues.

Paradoxically, older employees will proportionally have the greatest increase in SG contributions, with the SG being extended from 70 to 75 years of age from 1 July, 2013. However, this will have only a minor effect on balances, as it will represent only five years of SG contributions.
Overall, the effect the increased SG will have on superannuation balances will be greatest for younger accumulators with longer working lives.

The $500 rebate
The rebate of up to $500 on contributions tax for members earning less than $37,000 from 1 July, 2012, offsets the tax on the 9 per cent SG contribution on incomes up to this amount. It’s unclear if the rebate will apply only to SG or all concessional contributions, and it’s uncertain if the rebate will increase along with the announced increase in the SG contribution rate.
Graph 2 shows the effect on a member’s balance over 10 years assuming the member has an opening super balance of $30,000, they earn an income of $37,000 on which they receive the 9 per cent SG and their fund earns 6.8 per cent net of fees and tax.

In the example the rebate increases the balance from just over $99,300 to $106,600 by year 10.
While the move to reduce tax on concessional superannuation contributions for those on the 15 per cent marginal tax rate is welcome, it will have only a marginal effect on superannuation balances.

Extension of the $50,000 contribution limit
The transitional concessional contribution limit of $50,000 for those 50 or over will end on 30 June, 2012. The proposal that it be extended indefinitely from 1 July, 2012, but only to super fund members with balances of less than $500,000, has caused much speculation.

For instance, we do not know if the $500,000 balance will include amounts in pension phase, although unless it does there is an obvious strategy to circumvent the limit. Nor do we know if contributions split with spouses to keep balances below $500,000 will be assessed in the threshold. The Government has said that it will consult with the industry on the implementation details of the measure.

If the member can salary sacrifice more than $25,000 and has a small superannuation balance, the benefit of the proposed change is clear: up to $50,000 can be salary sacrificed and their superannuation benefit will increase to a greater amount than under the existing post 30 June, 2012, concessional limit of $25,000.

However, not everyone can afford to reduce their after-tax income. A popular strategy to maintain after-tax income and increase superannuation savings has been to combine a transition to retirement pension and a salary sacrifice arrangement. Does the extension of the $50,000 concessional limit increase the benefits of this strategy?

Graph 3 looks at the effect of the proposed change on a member aged 55 in 2010/11 with pre-tax income of $80,000 who wishes to maintain his after-tax income of $61,250. He has a moderate opening balance of $250,000, all taxable component, and his fund earns 6.5 per cent.

The graph shows the total balance in his superannuation accounts (pension and accumulation) up to age 65 under three assumptions: relying solely on SG contributions, combining salary sacrifice with transition to retirement under the existing limit ($50,000 until 30 June, 2012, and the $25,000 per annum) and the new proposed limit of $50,000 up to a balance of $500,000. In all three scenarios his after-tax income remains at $61,250 and he receives the proposed increased SG contributions.

Our analysis shows that the implementation of the transition to retirement strategy (TTR) combined with salary sacrifice limited at $25,000, rather than relying on SG contributions, increases the balance at retirement from $515,000 to $568,000 at age 65.

The extension of the $50,000 cap leads to a higher balance than the TTR and salary sacrifice strategy under the existing limits. In our example, the member contributes more than $25,000 in seven of the years after 1 July, 2012, and is only restricted by the $500,000 limit in the last year. Their balance at retirement is nearly $587,000 – an increase of $21,000 over the TTR and salary sacrifice strategy under the existing limits.

What is the effect of the proposed change on members with higher starting balances who wish to maintain their after-tax income? For these members the proposed change has almost no benefit because even though they have the ability to draw a higher maximum TTR pension and fund contributions in excess of $25,000, they will quickly exceed the $500,000 threshold and have to revert to contributing $25,000. Many in this category will, in any case, exceed the $500,000 threshold before 30 June, 2012.

Similarly, the proposed change has little benefit for those members with low balances who wish to maintain their after-tax income. Members in this situation are unable to contribute over $25,000, even when drawing a maximum TTR pension, and maintain their income.

Conclusion
The changes proposed following the release of the Henry Report and in the 2010 Federal Budget provide some benefit to those saving for retirement. The increase in the SG provides significant benefits for those who cannot make extra concessional contributions above the current SG.
The benefits to low-income workers from the $500 rebate are limited, as they only apply to small concessional contributions.

The extension of the $50,000 concessional limit for those 50 or over has benefits for those with low balances who can afford to utilise the limit by reducing their after-tax income. However, it has limited benefit for those who wish to maintain their after-tax income by combining salary sacrifice arrangements and a transition to retirement strategy.  (With reprints from SmartCompany.com.au)

THE war of words between the major banks shows no sign of easing.

NAB group executive for business banking Joseph Healey at the weekend reiterated his bank’s stance that small and medium businesses were being starved of funds, given a systemic bias toward households.
“When you listen to the voice of small business, it has been quite strong and quite consistent over a year or longer . . . that the banking system today is not serving their needs,” Mr Healey told ABC’s Inside Business program.

A decline in lending to the SME segment and the broader business community was, he argued, due in part to the introduction of the Basel II capital rules in the 2008 financial year which reduced the amount of regulatory capital that banks had to maintain against mortgages.

“Banks on average can do three to four times more lending per dollar of capital into households and to mortgages versus businesses, so household lending became much more attractive,” he said.
“We therefore saw a significant shift in the allocation of capital towards the household sector and we’ve seen that in the growth in the level of debt in the household sector which went from about $280 billion 10 years ago to about $1.1 trillion today.”

On Macquarie Research figures, housing credit has increased its share of total credit from 21 per cent in December 1989 to 57 per cent. Particularly after the equity raisings over the past two years, business credit now stands below 40 per cent of total credit, its lowest level on record.

Mr Healey’s comments came only days after rival Commonwealth Bank of Australia chief Ralph Norris took the extraordinary step of labelling the NAB claims as “rubbish”.

“I think the real issue is that we have a bank (NAB) that has performed poorly for many years and missed out on an opportunity when the mortgage market opened up,” Mr Norris said in an exclusive interview with The Australian. “Now they’re blaming everyone but themselves.”

The debate comes as investors reassess the attractiveness of bank stocks. In a recent research note, Macquarie argued that “once the current run-off in bad debts is largely completed” earnings per share growth will tend back towards top-line revenue growth, largely dependent on the level of credit growth.

“In the next few years, we expect to see credit growth closer to mid-single digits than the low to mid-teen growth experience of the last two decades,” analysts led by Neale Goldston-Morris and Tanya Branwhite wrote.

Macquarie noted the ratio of private sector credit growth to economic growth rose from 1.4 times on average during 1978 to 1994 to an average of 1.8 times during 1995 to 2008.

“Critically, we note that during the past two years, this ratio shifted to just 1 times, as credit growth has fallen in lockstep with the fall in GDP growth,” they wrote.   (Reprinted from TheAustralian.com.au)