Challenges Ahead In 2012

Many economists believe that 2012 will bring with it a slow-moving economic environment with the best hopes for business upturn being in 2013.  Obviously, the challenge is surviving through these anticipated sluggish conditions in 2012.  For most business people, this will probably mean the competition will be intense and it highlights the necessity for every business to differentiate their products and services.  Now would be a good time to get rid of products or services which are not performing well. 

Businesses need to look at their marketing and selling strategies to ensure that sales are being made.  Economists are predicting 2012 will see less growth than 2011 but, in the main, most economists are predicting there will not be a recession.  That is the good news.  The dampener is that 2011 was not a good year for too many businesses around Australia.  Overall economic growth is generally expected to be in the range of 1.6% - 2% throughout 2012 and into the beginning of 2013. 
The uncertainty in Europe has affected discretionary spending decisions of many consumers in Australia.  Political instability in Australia, as to whether there is going to be a challenge for the leadership of the government and an early election, also affects consumer thinking.  Economists are forecasting that inflation will be around 3%.  This will be fuelled by wage and price pressures expected to occur during 2012.  Most economists believe that interest rates will reduce further, probably two to three cuts made by the Reserve Bank during 2012, however you need to bear in mind that a number of the banks have already announced that they will not automatically respond to a Reserve Bank of Australia adjustment of the official interest rate in determining their own interest rates for borrowers.

For exporters and importers, 2012 is likely to be a challenging year relative to exchange rates.  The Australian Dollar is the fifth highest turnover currency in the world and this means that it is subject to various speculators from time to time.  Most Australian economists are forecasting that the relationship between the US Dollar and Australian Dollar will have reduced to 0.90c from the current $1.06c by the end of 2012.  There can be very significant swings.  What this highlights are the benefits for exporters and importers in hedging the currency by purchasing forward contracts.  Because of the problems in Europe, the share market is expected to be slow-moving during 2012.

You should be taking these matters into consideration in preparing your strategies for 2012.  If you would like to discuss your strategies, please don't hesitate to contact us.

How Would You Cope If Your Business Partner Died?

One of the great problems of going into business with someone in a partnership, company or trust, is.... "what would happen in the event of the death of a partner or shareholder?"  One of the major issues that arises is..."how will the business buy out the equity owned by the deceased person without financially wrecking the business and what will be the circumstances for the spouse of the deceased person, if they are unable to receive any payout for the business investment within a reasonable period?"  A way of trying to reduce the financial burden in such an event is for the partners or shareholders to enter into a Buy/Sell Agreement when the business first commences and for this agreement to be reviewed every year, based on a valuation of the business.  The agreement sets out the value of the partner's/shareholder's equity in the business at a specific date.  A Buy/Sell Agreement is normally drafted by a solicitor.  You should then arrange for an insurance company to issue life insurance policies on the life of the partner/shareholder, with these policies being owned by the other partners/shareholders. 

The same situation would apply for each partner/shareholder in the business.  In this way if a partner dies or suffers a very serious injury, the insurance policy would provide the funds which, according to the Buy/Sell Agreement, must then be utilised to purchase the deceased person's interest in the partnership or the company.  The benefit of a Buy/Sell Agreement, accompanied by a life insurance policy, is that this gives some certainty to all of the parties as to what would happen in the event of the death or serious disability or illness befalling one of the partners or shareholders.  It is important that the various parties receive independent legal advice particularly relating to the legal effect of the Buy/Sell Agreement and the effectiveness of the insurance policies that have been negotiated. 

Another matter to bear in mind is that, as people age, they can have difficulty in attaining life insurance, therefore regularly reviewing the Buy/Sell Agreement and the amount of insurance cover is a way of insuring that there is an insurance policy to cover a significant amount of the individual person's interest in the partnership or company, even though, at some future date, they might have had difficulty in obtaining a new insurance policy.  If you would like more information on Buy/Sell Agreements please contact us.