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QUARTER 1 I 2018

Marc Benioff: building a better ecosystem for business Using flexible financing to drive targeted growth Understanding debt is critical for small business success Reed Hastings: reinventing television What the end of US net neutrality means for business

For accounting that is far more thanFrank a numbers game Wang: the world’s

Covisory C&A LP is a specialist accountancy firm offering a little more in services thandrone most. We don’t believe first billionaire

in the minimum compliance regime. We offer full service, growth orientated advice and options that help you run your business more effectively. We take timely care of background details so you can focus on what matters most. We also pride ourselves on being small, responsive, highly specialist and boutique in our approach.

Amanda Davies +64 9 222 2642

When expertise counts Not all business finance needs can be solved with vanilla solutions. When an expert sounding-board is needed, Fifo Capital can help: • One-on-one consultancy (complimentary) with a business finance specialist • Fast response and approval of finance (24 hours) to meet changing business needs • Consultancy in partnership with your financial advisers and with banking facilities • Solution-solvers for short term needs, and long term sustainability.

When your business finance needs demand expert thinking and purpose-fit solutions, call Fifo Capital on 0800 86 34 36


The Covisory Group solve people’s problems. We are specialists in International and Domestic Tax Services, Trust Management, Succession Planning, Structuring, Strategic and Business Planning, Accounting Services and Business Valuations. Now in its 11th year, Covisory’s services reflect our core values of: Trust, Accessibility, Transparency, Accountability and Responsiveness. We build strong relationships with our clients and we aim to own the cracks. Our solutions are tailored to each client, drawing on the latest cloud-based technology together with our up-to-date specialist knowledge and years of experience providing one-on-one expert advice. Covisory clients are owners of family businesses, operating both in New Zealand and globally. Our specialists work either one-on-one or alongside our clients’ team of professional advisers to develop appropriate short and long-term solutions.

Welcome Changes are constant. Welcome to the first of our 2018 edition of Covisory Connect. We trust you have all had a great Christmas and New Year and enjoyed what was generally very good weather.

2018 is off to a cautious start. Business confidence is down and there is a degree of uncertainty out there with a combination of changes in the economic environment, and a new government in power. Perhaps some of this is not unwelcomed as we see a slowing down in the property market, and perhaps a return to a more measured approach by investors and purchasers than we have seen in past years. While the new government intends to increase the supply of property, there are real issues with the actual ability of the sector to produce the number of houses it may want. Price inflation in building materials is also a real concern. However, the real killer will be whether the banks are prepared to continue to fund property purchases given their recent change in attitude and the withdrawing of significant funding from the residential property markets, let alone to developers to build new stock. It is the banks that will hold the key going forward more than the government. The new government has already announced the extension of the twoyear Brightline test to a five-year test. As expected, this will only apply to contracts entered into after the date of the announcement. With this in place,

the spectre of capital gains tax leaves only residential homes and business assets as the main untaxed gains that can be made in New Zealand. Ultimately whether the government has an appetite to try to tax these will be an interesting discussion going forward. The costs of introducing a capital gains tax, let alone the inefficiencies in its administration, will in our opinion, cause a lot of debate and in all likelihood a conclusion that introducing a capital gains tax won’t add anything significant to the taxpayers. In a similar fashion, the recent fluctuations in the world equity markets are not unexpected or unsurprising. For too long the markets have gone up and up with investors moving out of lower returning bonds and cash to chase the higher yields in equities. What goes up must come down and the recent correction, while not major or significant, certainly caught a lot of investors flat footed. If you want to chase big equity returns, you have got to be prepared to acknowledge that returns can go up and down. At some stage, we will be due another major correction and that is what people need to think about when investing in any equity markets. So may 2018 be a good year for you all and we trust that you will find opportunity in the uncertainty for you to prosper. Best regards, Nigel Smith Covisory Partners Limited


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Marc Benioff: building a better ecosystem for business


 Avoiding issues with Property Transactions – GST issues relating to Partial Use


Startups should think twice before purchasing equipment


Understanding debt is critical for small business success


Reed Hastings: reinventing television


Alternative financing is ideal for new entrepreneurs


Minimise bad debt to stabilise cash flow


What the end of US net neutrality means for business


Frank Wang: the world’s first drone billionaire


What the Equifax hack can teach SMBs about data security


Published by Fifo Capital International Ltd. Headway magazine is published four times a year. Copyright © 2016 by Fifo Capital International Ltd. Email Visit All rights reserved.



Marc Benioff

building a better ecosystem for business

The turn of the 21st century brought a lot of changes to the business world, but the most significant so far has been the integration of advanced information technology into business.

One of the most notable figures in that revolution has been Marc Benioff, the founder and CEO of Salesforce. During his career, he established himself as an early champion of cloud computing, and is credited today as the driving force behind the $17.5 billion dollar business. Benioff is best known, however, for how he runs his business, more than the success of that business itself. His leadership style, passion, and big-picture vision have earned him global recognition as a philanthropist and social activist, as well as a personal net worth of over $4.4 billion USD.

A passion for programming Benioff’s career started earlier than most. At the age of 15, he began coding applications and games,


which he later used to fund his education at USC. Even though he was well-suited to programming work, he took the advice of his mentors and went on to work in a number of customer facing roles at Oracle over a 13 year career there. This proved to be a good decision; the combination of technical and customer-facing experience he had, contributed to him becoming Oracle’s youngest vice president at the age of 26.

Platform as a service Using what he learned at Oracle, Benioff founded Salesforce together with Parker Harris in 1999. There, they worked to develop the customer relationship management (CRM) software of the 21st century. While Salesforce is absolutely an industry leader in CRM software, Benioff decided to take the idea further than just creating software products for his customers. A major proponent of the Software-as-a-Service (SaaS) model, he is credited today as having coined the the term Platform-as-aService (PaaS). Instead of simply offering a finished software product to clients, Salesforce allows customers to build and run their own applications on the Salesforce cloud. As a talented programmer himself, this innovation is an early reflection of Benioff’s own passion for innovation and customisation.

Leadership philosophy Unlike many leaders who maintain a laser focus on their specific business, Benioff believes in a more integrated big-picture approach. He believes that leaders are responsible for spurring innovation and driving growth while promoting equality and building trust within their businesses as well as in their local communities.

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Since businesses, their employees, and their customers all exist in a larger ecosystem, long term success requires the development of that entire system. In Benioff’s mind, doing good and doing good business are both a part of the same larger goal. As a result he’s known today as far more than just a successful entrepreneur, but also as a philanthropist and social activist.

Benioff’s 1-1-1 model for philanthropy As a part of his corporate philosophy, Benioff established the 1-1-1 model of integrated corporate philanthropy. This model systematically contributes one percent each of a business’ products, equity, and employee hours back into the communities in which it operates. Since 2000, when he began applying this idea, has provided more than $100 million in grants, donated over a million employee hours, and provided nearly 30,000 nonprofit agencies with free access to their technology. Not only has this approach provided invaluable support for their beneficiaries, it has also set a trend in the business world. Since 2000, over 700 businesses worldwide


have adopted Benioff’s model and begun proliferating his philanthropic philosophy.

the company cultures and pay practices of a number of newly acquired businesses.

Addressing work discrimination head-on

What we can take away

Unlike many CEOs in the California tech sphere, Benioff has not made any attempt to fade into the background regarding social issues plaguing the industry and society in general. After initially balking at the idea that women weren’t receiving equal pay at his company, he launched an internal salary study, which proved damning. To address this and achieve “100 percent equality between men and women in pay and promotion”, Benioff made sweeping salary adjustments at Salesforce in mid 2015. Since then, he’s continued to emphasise the issue, and pushed through similar changes to address

While Benioff is celebrated as a social activist and philanthropist as well as a CEO, his business efforts have clearly paid off, leaving him with a current personal net worth of $4.4 billion USD. Benioff’s example teaches us that business owners seeking wealth and success can and should focus on more than just the bottom line. Producing and selling a great product is only the beginning. A business is an extension of its leaders, its workers, and the community in which it operates. By expanding your focus to nurture and grow the entire system, you can create a fairer, wealthier, and more robust environment for everyone involved.

Trust Fifo Capital to sort your seasonal cash flows A standby working capital facility ready to access when you need it most.

Simple preapproved facility sitting alongside existing finance arrangements. • Pay only if you use it • Fast and simple to activate • Peace of mind for unexpected cash flow interruptions • Small and large exposures • Treated on a case by case basis, and tailored to your needs

Contact Fifo Capital today for more information. 0800 86 34 36

Avoiding issues with Property Transactions – GST issues relating to Partial Use


We commonly come across errors around accounting for GST on property transactions and their financial impact can be significant for the parties involved. Following on from our discussion around whether there is GST or not on property transactions let us now look at the GST impact around partial use when purchasing property. By law, GST is charged on all land sales and claimed on all land purchases. Exceptions being when that property is used for making nontaxable supplies such as Residential accommodation or the transaction is compulsory zero-rated. From 1st April 2011 new apportionment rules were introduced requiring suppliers of land or supplies that include land to charge GST on the supply at the rate of zero percent where the purchaser intends to use the land to make taxable supplies. However, what happens in the case of transactions where there is both a residential and economic activity component to the property transaction. Inland Revenue allows for the apportionment into two distinct supplies for GST Purposes. Each component must be valued separately and be considered independently to determine what GST is payable or receivable. Let’s consider the following example: Sarah purchases a new building for $5 million on 30th October 2017. Sarah has a balance date of 31st March. There is no GST included in the supply as it is subject to the zerorating rules.

Where both the vendor and purchaser are registered for GST AND the purchaser declares on Schedule 2 of the ADLS/REINZ Sale and Purchase Agreement (S&PA) that they intend to use the building for making taxable supplies AND the purchaser does not intend at the time of settlement to use the property as a principal place of residence. Then under Clause 15 of the S&PA it will become compulsory for the transaction to be zero rated for GST purposes.

Sarah intends the building to be mixed use and to lease the ground and first floor of the building to commercial tenants, and the 2nd floor of the building will be leased to residential tenants. On acquisition Sarah applies the rules in section 20(3I) of the GST Act 1985. 1. Calculate the nominal tax component that would be chargeable on the value of the supply if subject to the standard rate of GST. a. $5m x 15% = $750,000 2. Determine the extent to which the building will be used for making taxable supplies. a. Sarah determines that the building will be used 66.7% for making taxable supplies (rent to commercial tenants) and 33.3% in making exempt supplies (rent to residential tenants). 3. Sarah now needs to account for the proportion of the nominal GST component that relates to the non-taxable use of the goods as output tax on the acquisition of the building. a. $750,000 x 33.3% = $249,750 4. On the acquisition of the building, Sarah will need to account for output tax of $249,750.

The same principals would apply to transactions where there is both a residential and economic activity as in the case of Farms (Rural farms, lifestyle farms, and orchards), Vacant land where residential use is planned, land used for a Dairy, or hotels and motels where the owner or manager lives onsite. The rules require the taxpayers to make a fair and reasonable estimate on the intended taxable and nontaxable components of the initial transaction. In subsequent periods after the initial tax deduction claimed the taxpayer may be required to make further adjustments if the actual taxable use of an asset was different to its intended taxable use. The first adjustment period runs from the date of acquisition (30th October 2017) to the persons first balance date after acquisition or to the person’s first balance date that falls at least 12 months after the date of acquisition. In Sarah’s example this would either be 31st March 2018 or 31st March 19. Subsequent adjustment periods would run annually from this point. In our example Sarah elects to go with option 1 the period 30th October 2017 to 31st March 2018. Her second adjustment period will run from 1st April 2018 to 31st March 2019. There is no limit to the number of adjustment periods in relation to land. Using our example, Sarah would be required to keep records showing the usage for both the taxable and nontaxable portions. These logs form the basis to make an annual adjustment if the percentages differ or there is a change in use. This document has been written as a general guide and should not be used or relied upon as a substitute for specific professional advice.

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Startups should think twice before purchasing equipment Much of running a business revolves around keeping costs under control. For startups, that means being strategic about how initial investments are made, and working to find ways to make future cash flow as predictable as possible. Some costs, however, seem unavoidable. Employees need to be hired and trained, they need space to work, and quality tools and equipment to do their jobs. Not all of these offer a lot of options, but how your business acquires that equipment can have a profound effect on the stability of your cash flow. Businesses often opt to purchase equipment because it seems like a lower cost decision in the long term, but doing so can make it much more difficult to keep a business running long enough to benefit from any potential savings. Additionally, leasing equipment also has longer term benefits that call the value of ownership into question.

Leasing keeps financing needs manageable The first and most obvious benefit of leasing equipment is that it can greatly reduce the amount of startup investment you need to make. This is a very big deal for businesses that would otherwise need to rely on heavy financing just to get their operations running. Depending on your industry, equipment costs can range from a few thousand, to millions of dollars. In many cases, a new business won’t be able to access enough financing to cover those costs in the first place. Those that can are likely to spend years paying those loans off. Alternative finance options, like smaller short term business loans, can easily provide initial rental capital, and can be repaid in relatively short order. This significantly lowers financial barriers to entry for startups in a wide variety of industries.

Free up working capital, so that you can use it Businesses that find themselves flush with investors might initially prefer to purchase tools and equipment outright, thinking that it’s simply less of a hassle. Not


Avoid maintenance cost

worrying about making regular payments certainly does seem simpler. However, it can also be bad for business. Every non-essential penny you spend today is one that you can’t use elsewhere. It may feel like your business has plenty of startup capital, but those funds are critically important. Depending on what might benefit you most you could instead launch your business with more experienced employees, a larger marketing and sales team, or top of the line ERP software, to name just a few ideas. For a startup, the major initial challenge isn’t in acquiring the tools to do business, it’s in developing your operations and getting established in your market so that you can begin to generate profit. Profitable businesses attract new investment, and if outright equipment purchases make more sense at that time, you can always revisit the idea then.

Eliminate unexpected maintenance and upgrade costs The most common argument for purchasing equipment rather than leasing it is minimising long-term cost, but there are long term benefits to leasing that need to be considered as well. By leasing equipment, businesses can much more easily predict future costs.

Lease equipment Temporary usage Manage finance

Free up working capital

Businesses often opt to purchase equipment because it seems like a lower cost decision in the long term, but doing so can make it much more difficult to keep a business running long enough to benefit from any potential savings.


Temporary Usage

Equipment breakdowns don’t just interrupt operations, they mean paying repair and maintenance costs. This, along with any resulting production delays, can add up to a very serious cash flow issue. Leased equipment, on the other hand, could simply be immediately turned in for maintenance and replaced at no additional cost. Those services are ultimately paid for by your rental payments, of course, but those are constant and conveniently predictable.

Depending on your type of business, you might not need many of your tools all year-round. For example, a lot of specialised farming equipment can cost upwards of $100,000 or more, only to spend upwards of 340 days every year in a shed. By renting instead of buying, individual farmers effectively distribute the cost and use of the tool, giving them a significant short and long term cost advantage over competitors who buy outright.


Of course, there are situations where purchasing your tools is prudent, and sometimes it’s unavoidable. For example, you wouldn’t be able to make proprietary modifications to a rented tool, and other equipment may need to be custom built to accommodate your needs. That being said, businesses should carefully weigh the benefits of leasing over buying whenever they can to help free up working capital and to keep short term cash flow controlled and predictable.

A disruptive new invention can render your existing equipment obsolete within an industry at any time. If you’re leasing your equipment, that’s not a major issue. You can simply terminate your lease on your old equipment and go about implementing changes at relatively manageable cost. A business that is still paying off a large investment into older, inferior equipment, however, would be left at a major disadvantage.

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Understanding debt

is critical for small business success


To be successful, Many new business owners have a dysfunctional relationship with debt. Overly cautious entrepreneurs might try to avoid it altogether. This leaves them with anemic and ineffective budgets and unstable cash flow unless they can secure significant investor support. In other cases, an overconfident business owner might misuse borrowed funds or simply overcommit without a proper plan, leaving their organisation with an untenable debt load that ultimately leads to insolvency. To be successful, businesses need to know when and how taking on debt can benefit them, and in what cases it’s better to find other ways to come up with the capital they need. Most importantly, that means having a firm grasp of what every borrowed dollar means for your business, and making deliberate and calculated financing decisions as a result.

Large loans as startup capital Attracting investors and funding their new business with equity isn’t a viable option for a lot of new business owners. Because of this, the majority of entrepreneurs rely on their personal savings and a business loan to provide the startup capital they need. Business loans are an excellent choice for this purpose, because they allow business owners to maintain full control of their operation, and allow them to retain all of the business’ profits. However, they can also make it more difficult for a business to become self sustaining and profitable in the first place, because that loan needs to be paid off regardless how long it takes to begin generating revenue or turning a profit. A startup’s business plan needs to account for these costs, and you may need to attempt to scale up more quickly than a business that’s financed by equity as a result. This

is by no means a deal-breaker. Rather, it underscores the need for businesses to understand and plan for the financial constraints that they’re operating under, and to innovate strategies for overcoming those challenges.

businesses need to

Managing cash flow interruptions

to find other ways

Short term financing is a set of tools that many small business owners don’t understand well, but which can provide invaluable support to a small business’ day to day operations. Supply chain finance allows you to pay suppliers early while deferring your own outgoing payments significantly, invoice financing allows you to collect outstanding client payments sooner, and stock loans allow businesses to get funding that’s secured against the purchased stock itself.

capital they need.

These tools aren’t about borrowing money so much as they are about rearranging the times that revenues arrive and that payments go out to concentrate your own funds over a certain time period. Done properly, it allows a business to shift its own funds around in order to cover unexpected costs, or to make a relatively large investment that would otherwise not be possible without taking on longer term debt.

Financing growth Growing a business quickly is incredibly difficult, even when everything is going great and sales are climbing rapidly. In the past we’ve discussed how short term financing can help businesses finance growth, but that isn’t always enough. Businesses that need to make large investments by, for example, purchasing real estate, hiring and training entire new teams of employees, working with foreign governments, or setting up new international supply lines, may need

know when and how taking on debt can benefit them, and in what cases it’s better to come up with the

a relatively large amount of capital. The question that any business owner needs to ask themselves and their team, and that they’ll certainly need to answer for their lender, is this: Exactly how will this pay for itself and what will this do for your business? Debt is never just a way to cover costs. Instead, it should always be a means to a specific and gainful end. Whether you’re getting financing to scale up your business, to handle a seasonal spike in demand, or to expand into a new market, you need to have a clear roadmap in place for exactly how and when you’ll pay back any borrowed funds, and what profits and general growth you’ll be able to generate as a result of the endeavour. It’s important that businesses understand how debt works, and what it’s for, to help them treat it as the tool that it is. Not affording it the respect and caution that it is due can quickly drive a business into insolvency. On the other hand, being overly cautious can leave a business without the financial tools it needs to survive even normal cash flow fluctuations, or to compete successfully in its markets. By taking the time to understand the role of borrowing in business, entrepreneurs give themselves the necessary tools they need to succeed.

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Reed Hastings

reinventing television Under the guidance of

Hastings’ early career

Reed Hastings, Netflix has

Hastings began his career as a programmer at Adaptive Technology. After a relatively short stint there, he left to launch his own first business, Pure Software, in 1991. As a computer scientist without a formal background in business, Hastings initially struggled to manage the rapidly growing company. After his board of directors refused his resignation, he applied himself to mastering the skills he needed to become an effective CEO.

redefined how the public consumes television shows and movies. By presenting customers with a new way to watch, he changed not only how we watch our favorite shows, but also impacted how the film industry builds narratives and releases its own products. In the process, he has established himself as one of the world’s most significant business owners, applying his own unique entrepreneurial style to build a net worth of over $2.3 billion USD.

After a merger with Atria Software, Pure was eventually acquired by Rational Software, after Hastings left the company and moved on. With the lessons learned from this first entrepreneurial venture, Hastings was far better prepared for his second attempt in 1997, when he launched Netflix.

Changing how we watch TV While Netflix’s early adoption of video streaming in 2007 made it the entertainment behemoth that it is


today, Hastings’ business model was disruptive from the start. By selling subscriptions instead of renting out individual titles, Hastings made it possible, and affordable, to see far more movies and TV shows in a shorter amount of time. This gave customers a far better value, while setting the stage for Netflix as we have it today. In 2007, the advent of streaming changed everything. Netflix transformed a cheaper and more convenient way to rent movies into the binge-watching platform we

Hastings is not a major proponent of product diversification, and has stressed repeatedly that creating one great product is far better than offering many mediocre ones.

enjoy today. According to Hastings, bingeing is a more immersive, and therefore naturally more desirable, way to enjoy television. Within just a few years, Netflix has arguably established itself as the default entertainment provider in the US, while continuing to grow rapidly across the globe. As a result of this disruptive success, even the film industry itself has adapted. Some TV shows now release entire seasons at once to encourage binge-watching, while producers and directors find themselves writing

more continuous narratives to cater to the concept.

Hastings’ management philosophy Like many California entrepreneurs, Hastings takes a non-traditional approach to running his business. Netflix’s “Freedom and Responsibility” culture is designed to attract top level talent, and give them the latitude to think and act independently. This is designed to keep decision-making decentralised, minimising micro-management while encouraging employees to develop

and apply their own expertise instead of relying on other leaders to think for them. To make sure all Netflix employees can actually handle the responsibilities laid on them, Hastings came up with a highly innovative solution: providing generous severance packages. This reduces the psychologically punitive aspect of termination, and helps to ensure that managers don’t retain mediocre employees who are ill suited to the job, but who don’t necessarily do anything terribly wrong.

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How Netflix views competition While Netflix is essentially built on a single great product, it wouldn’t be accurate to describe Hastings as having a narrow view as a business leader. He doesn’t see Netflix as simply a platform for TV and movie streaming that competes against similar businesses such as HBO go. Instead, he describes it as a form of entertainment that’s in direct competition with anything else a customer might otherwise do with their time. He famously jokes that, since users often stayed up late to watch shows, Netflix is technically in competition with sleep (and winning). Hastings is fully cognizant of what he and his business are up against, and aims to offer a product that’s so well developed that it will prevail.

What we can learn from Reed Hastings Hastings isn’t as flashy and high-profile as some of his contemporaries, but that in no way diminishes the value of the lessons we can learn from his example.


It only takes one great idea Hastings is not a major proponent of product diversification, and has stressed repeatedly that creating one great product is far better than offering many mediocre ones. Netflix’s laser focus on streaming TV and movies hasn’t slowed it down in the slightest, and, according to Hastings, can be interpreted as a result of it. Taking the time to fully develop and perfect an idea can pay off far more than trying to spread our time and energy out over a wide variety of different projects.

Great businesses are built by great employees Silicon Valley often celebrates micromanagers like Steve Jobs or Elon Musk for single-handedly

driving their businesses forward. In terms of top-down involvement, Netflix operates on the opposite side of that spectrum. Hastings believes in the collective power of many talented decision makers, and this is a philosophy that can be especially valuable to small business owners who are swamped with an impossible range of responsibilities. By applying Hastings’ ideas, we can create more robust organisations that aren’t reliant on a single centralised leader, while creating higher quality, industry-leading products. While Hastings pushes this strategy with Netflix, it’s also perfectly suited to empowering small enterprises with relatively limited resources, giving them a better shot at establishing themselves and taking on leadership roles in their industries.

For accounting that is far more than a numbers game Covisory C&A LP is a specialist accountancy firm offering a little more in services than most. We don’t believe in the minimum compliance regime. We offer full service, growth orientated advice and options that help you run your business more effectively. We take timely care of background details so you can focus on what matters most. We also pride ourselves on being small, responsive, highly specialist and boutique in our approach.

Amanda Davies +64 9 222 2642

Alternative financing is ideal for new entrepreneurs

Compared to previous generations, new business owners are spoilt for choice when it comes to financing options for their business. Despite this, the vast majority of new businesses still go under in their first year. Stranger yet, most do so due to financial issues. Different types of financing institutions and their products each exist for a reason, and have their pros and cons. For brand new, relatively small-scale startups, alternative finance institutions like Fifo Capital offer uniquely welladapted tools to quickly come up with capital for growth, and to regulate everyday cash flow issues. Unlike other financing options, they help to keep inexperienced borrowers away from risky loans, while quickly providing the funds businesses need to thrive.

High touch relationships The most important benefit of working with a non-traditional finance institution is working with a dedicated representative, with whom an entrepreneur can build a long-term one to one relationship. While many larger institutions can only offer this kind of individual attention to very large clients, those like Fifo Capital that specialise in small businesses are designed to help provide individualised support and guidance. This relationship based approach helps business owners by providing them with someone who can walk them through the various benefits of different financing options. That doesn’t just make it easier to make good financing decisions, it makes it possible for these financial institutions to safely invest in your business. By working closely with you, they can help to ensure your business’ success, and the success of their investment.


Transparent financing In addition to having professional support that can help to determine the best financing options for your situation, alternative financing is also designed to offer a unique level of transparency. That means no surprise costs, and no chance of drowning in interest payments from predatory loans. In fact, some of the most common financing options don’t even work like regular loans. Invoice financing allows a business to trade in an outstanding invoice for much of its value up front. The financial institution accepts the invoice, issues funds to you, and then collects payment from your client themselves. After the client pays, you receive the rest of the funds, less a predetermined fee. There are no repayments to make, and no interest to pay, making invoice financing one of the easiest and foolproof ways to come up with working capital. Stock loans are also a very safe option for novice borrowers, because they’re secured against themselves. That means, if you are unable to make repayments, the lender can simply repossess the stock that the funds were used to purchase, leaving your business no worse for wear. Of course, you can also go through an alternative finance institution to get what sounds like a regular business loan. At Fifo Capital, what makes these different from traditional loans is that they can be much smaller. Compared to a regular million dollar business loan, a $5,000 loan isn’t particularly difficult to manage, especially with the benefit of our expert representatives. Working with such small amounts often isn’t profitable for large banks, but small businesses often only need small injections of capital, and aren’t prepared to manage a large debt burden regardless. Your financial

representative can help you determine the amount you actually need, and ensure that it’s an ultimately beneficial move for your business.

Simple and fast approvals Traditional loans operate on very different timescales than alternative finance. Getting a regular loan can take weeks, or even months. This is understandable considering the size of the loans these large institutions tend to issue, but that won’t help your business in the short term. At Fifo Capital, applications for invoice financing, business loans, and other services are processed in less than a day for returning customers, and within two days for new clients. This allows business owners to respond to cash flow problems nearly instantly, which is especially important for startups that don’t have the benefit of experience to help them anticipate and control surprise costs. Additionally, it enables them to make time-sensitive purchases and take advantage of growth opportunities that wouldn’t otherwise be financially feasible for them.

Briefly... Start-up businesses have an array of alternative financing options to pick and choose from. Tools such as invoice financing or stock loans prove incredibly helpful when dealing with irregular cash flow. Being able to pay the suppliers on time, or to invest in a vital piece of equipment can be a make or break for an SME. Fifo Capital is here to lend a helping hand.

Alternative finance products are designed to help entrepreneurs get the working capital they need to survive and thrive in an unpredictable and changing environment.

Better yet, they provide that financial support in a way that’s specifically tailored to cater to the needs of small business owners, and to minimise the risks traditionally associated with borrowing by providing expert guidance. By understanding and using these tools, small businesses can gain greater financial flexibility in the short term, allowing them to compete, grow, and succeed in the long term.

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Minimise bad debt Businesses rely on stable and predictable cash flow in order to survive, compete, and thrive. Good business owners carefully manage the factors that they can control to keep revenues and expenditures steady, but often that doesn’t include taking steps to avoid and tackle bad debts. More than half of globally surveyed businesses are owed tens of thousands of dollars in unpaid invoices, and suffer because of it.

Clients who pay late, or don’t pay at all, are an enormous threat to small businesses. For smaller businesses, the cost of legally pursuing bad debts is often greater than the debt itself, and even a simple delay in receiving payment can be dangerous for businesses. Even temporary cashflow interruptions can interfere with a business’ ability to serve its customers and provide a stable workplace to employees. Depending on the severity of the situation that could damage a brand’s reputation, slow growth, or even force businesses into bankruptcy. In order to protect themselves, businesses need to find ways to avoid bad debt, and to keep operations running when they run into trouble.

Don’t shy away from credit checks Many small businesses don’t look into their clients’ credit histories, or take any real steps to determine their trustworthiness in terms of payment. To many small business owners, it can feel unfriendly not to give new customers the benefit of the doubt. What’s more, few businesses are


often in a position to turn down business if they want to survive and grow. All of that, however, is no excuse not to be informed. While a credit check is the best and most thorough option, people who don’t want to go that route do have other options as well. Simply go online and look up the public records pertaining to the business activities of the business or individual you’re considering a relationship with. You’ll be able to see if your prospective client has declared bankruptcy, and whether they’ve been involved in court battles related to financial issues with a simple search.

Write contracts carefully Contracts need to be very explicit and exhaustive in regard to the financial aspects of your arrangement. This should go well beyond simply identifying clear payment due dates. Your contract should also clearly lay out what happens when a payment is late, including things like late fees, at what point services will be halted, and how debts will be collected

With over 70% of invoices paid late worldwide, this is not an issue that business owners can ignore if they want to succeed.

to stablise cashflow This isn’t just meant to give debtors a clear picture, it also provides a framework for your business to manage the client relationship. A business relationship that isn’t underpinned by a solid contract might be soured if you’re forced to suspend service to a non-paying client. That’s because the decision to stop serving a client is far more likely to be viewed as a personal judgment and attack when it’s made on a caseby-case basis by a business owner or manager, rather than predetermined by your contract.

Maintain communication Keeping channels of communication open and active is important in any business relationship, regardless of whether there are payment issues. It’s particularly important in the latter case, however, because clients who are in financial trouble aren’t going to prioritise paying someone who they haven’t heard from in weeks. Keep conversations open and honest, and always be proactive about maintaining that contact.

If a payment is late, reach out immediately to find out what’s going on, and take any measures stipulated in your contract. Don’t make exceptions in regard to the latter, and follow up often to ensure that you stay on the debtor’s radar.

Invoice financing While some preventive measures are certainly helpful, they can only protect you to a degree. Even very careful businesses have to deal with late payments and non-paying clients. One important tool that entrepreneurs can use to hedge against this risk is to use invoice financing. By financing (or factoring) invoices, you effectively transfer the risk to your financial institution.

Essentially, invoice factoring means selling an outstanding debt to your financial institution for most of its value. You get paid for the invoice right away, and your client is obligated to pay the holder of the debt. This arrangement works for businesses because they get paid reliably and right away, and works for financial institutions because they’re far better equipped to collect debts than most businesses. With over 70% of invoices paid late worldwide, this is not an issue that business owners can ignore if they want to succeed. Australian small businesses operate under some of the least favourable payment terms in the developed world, and even then are often not paid until nearly a month after payments are due.

By applying some of these strategies and tools, businesses can prevent most cashflow interruptions so they can spend more of their time and energy on growth, and less on trying to survive with an underfunded budget while chasing down late payments. Covisory Connect


What the

end of US net neutrality

The US government’s recent move to end the Federal Communication Commission’s (FCC) net neutrality protections has sparked a massive global debate on the issue and what it means for businesses. While nearly all of Europe does have net neutrality protections, Australia doesn’t, and hasn’t suffered any apparent extreme effects as a result. So why is it such a big issue?

As the country with the third most Internet users in the world after China and India, and by far the most in the anglosphere, US policy has a major impact on the rest of the world in terms of its influence, as well as its direct effect on the flow of web traffic. Net neutrality is so contentious for the US because it weighs the potentially enormous benefits of a deregulated Internet against the real risks of corporate abuse and profiteering that could create a new, potentially very tall barrier of entry for new online businesses.

How businesses can benefit The critical benefit that a loss of net neutrality has is that it gives ISPs and website owners more control. Specifically, it means that the efficacy of a website on any given day isn’t dependent on how crowded traffic is, but rather on how much bandwidth they’ve reserved and paid for.

Ensuring product consistency By allowing businesses to purchase access to prioritised “fast lanes” online, businesses could greatly improve online products that rely on those steady Internet connections. Websites that stream video content, for example, need a lot of consistent bandwidth in order to provide a quality product. Similarly, some regular websites may suffer from slow loading speeds because of large slow-loading content such as high resolution images, built-in applications, or video content. Currently, website owners are forced to minimise the use of this type of content to ensure a positive user experience. Being able to prioritise that traffic can change that, and give online businesses the ability to consistently deliver higher quality content that wouldn’t be feasible otherwise.


means for business

Improving search rankings Besides generally offering a better user experience, a website’s loading speeds are also used as a factor in search rankings on Google, Bing, and other search engines. Having slow loading times can lower a website’s rankings and reduce its web traffic as a result. This, as well as the user experience issue, is another major factor in why web developers generally work hard to keep websites compact. In the future, a US business with a slow loading website may simply be able to address the issue by paying to have their site prioritised.

Potential for better and faster growing communications technology The ability to allocate and sell bandwidth priority is now left to Internet service providers in the US. As a result, those ISPs stand to generate a significant amount of additional revenue. While they’re already reasonably profitable, these additional funds will allow these businesses to invest in far more ambitious and innovative improvements than may have been previously feasible. Depending on the choices made with these resources, it could result in a generally faster and more robust Internet for all.

The risks of a non-neutral Internet The big issue with granting all this power to ISPs is the fact that decision-making is now left in the hands of just a few businesses in the US, all of whom stand to gain significantly by abusing this power. By prioritising

Internet for some, others would naturally (or unnaturally) have their speeds reduced. By some, this is seen as a potential threat to competition, and to smaller, less wealthy businesses.

Throttled service Critics argue that service providers may well choose to throttle Internet speeds for some websites to the point that search rankings and user experience is affected adversely as a form of extortion. Whether it’s as a result of prioritising higher paying customers, or an explicit move to pressure businesses, this move could easily result in much slower Internet speeds for some websites who don’t participate in the new pay-to-play model.

Anti-competitive effects Ultimately, proponents of net neutrality argue that powerful businesses could pay off ISPs not only to keep their websites operating at their peak, but explicitly to keep them ahead of any potential competitors. Worse, some ISPs would be tempted by serious conflicts of interests. For example, Comcast, Hulu, and HBO are all owned by Time Warner, who may simply dictate that Comcast should prioritise its partner businesses over any competitors. As a result, competitors simply wouldn’t stand a chance. As these concerns are being discussed all over the world both in public and private forums, the US government has already begun to look at ways to prevent possible negative outcomes with more limited regulation.

As the situation develops, the example set by the US could heavily influence future policies on the issue all over the world. Regardless of the outcome, businesses that rely on the Internet would do well to keep a close eye on any developments. Covisory Connect


Frank Wang:

the world’s first drone billionaire Frank Wang’s career in drone technology started with a school project in which he impressed his robotics teacher with a helicopter flight control system. Today he’s the world’s first drone billionaire, with a net worth of over $3 billion. Wang’s business, DJI, is worth an estimated $10 billion, and reportedly controls over 70% of the global consumer market for unmanned aerial vehicles (UAVs). Wang is a somewhat unique figure among highly successful tech entrepreneurs, both because of the way he does business, and because of how he achieved his enormous success.

Driving the drone revolution Drones are an incredibly versatile product, with commercial applications ranging from entertainment, to journalism, to disaster relief, to agriculture. While he’s responsible for bringing drones into general commercial and public use, Wang himself admits that he didn’t originally consider the wide-ranging potential of his products. According to him, his initial ambitions didn’t reach beyond supplying what was a small


niche market with a team of 20 or fewer employees. Unlike many other major disruptive entrepreneurs, Wang built his product with relatively little regard for the market, and much more for his own personal interest. His talent and passionate interest in his field ultimately led to his long-term success, while marketing and the proliferation of his invention was driven more by interested partners.

An unconventional CEO Frank Wang doesn’t lead his business the way other major tech entrepreneurs do. He doesn’t talk about developing great company cultures, finding the best people, flat hierarchies, or encouraging teamwork. Instead, his focus is on his products. Being directly involved in their development, Wang has a great sense of personal ownership over his business, of which he is a

He is a part of another class of billionaire entrepreneurs that prioritizes their own personal ideas first and fits their business around those ideas.

opportunities, often because of disagreements with Wang. Losing these team members may have deprived the business of their talents, but it also allowed Wang to uncompromisingly pursue his own vision for his company in the long term. Being entirely uncompromising might not work for all business owners, but knowing when to choose your own vision over an otherwise promising business partner or employee can be critical to creating something great.

Perfectionism does lead to success 45% stakeholder. This led to a break with his American partner, Colin Guinn, who led the American branch of DJI, DJI North America. After a serious falling out, Wang dismantled this branch entirely. While Guinn and other DJI employees always pushed for Wang to pursue highly profitable relationships with other investors and businesses, he tends to balk at the prospect of losing any amount of control, even for great potential gain. His primary focus has always been his work on drones, rather than the business of doing business. As someone who is more interested in his products than his market, he also appears to feel little to no responsibility for how his inventions are used. After his drones were used to deposit radioactive waste on the Japanese Prime Minister’s roof, and another crash landed on the White House lawn, Wang stated that he wasn’t seriously concerned about what his products were used for.

What entrepreneurs can learn While many of the world’s most successful business owners like Marc Benioff, Jeff Bezos, or Jack Ma heavily emphasize leadership and management skills, Frank Wang clearly focuses on his own vision and product first. Despite his less than congenial relationships with many of the people he’s worked with, Wang sits at the top of a disruptive, industry dominating powerhouse. He is a part of another class of billionaire entrepreneurs that prioritizes their own personal ideas first and fits their business around those ideas. Other members of this club are Elon Musk and Steve Jobs, both of whom achieved success by demanding their idea of perfection at any cost. This style of entrepreneurship comes with a few important lessons.

You don’t need to hold on to the same team forever Of DJIs original founding members, nearly all have gone to pursue other

Low budgets, tight deadlines, and high pressure investors often result in inferior products in every industry. Steve Jobs was famous for his unwillingness to accept low quality products, and Frank Wang is from the same school of thought. He is deeply unhappy about China’s dismal reputation for product quality, and is determined to turn this around. With this attitude, both Wang and Jobs managed to take unchallenged leadership of their industries and establish themselves as the only real choice for quality in their field. Not every business owner has an industry redefining concept to build on like Frank Wang did, but understanding CEOs like him still provides a lot of actionable inspiration. With very few resources to start with other than an indomitable attitude and a great mind, he built a global multi-billion dollar industry. By taking the time to understand how he was able to do so despite defying much of conventional entrepreneurial wisdom, we can better understand what it really takes to succeed. Covisory Connect


What the Equifax hack can teach SMBs about

In recent years, major hacking events from the heartbleed vulnerability in 2014, to the WannaCry ransomware attack earlier this year have highlighted the need for better cybersecurity. More than previous events, however, the recent Equifax data breach illustrates the extent of this problem, and the threat it represents to businesses all over the world. Equifax has stressed that its business clients weren’t directly affected in this hack, but that’s completely irrelevant in terms of how vulnerable that business data is to future attacks. The next such attack could just as easily exclusively target businesses. To protect themselves, business owners need to learn the lessons offered by this incident, and how they can apply them for their benefit.


Globalism comes with data security risks

Though the breach was fundamentally an American issue, it also compromised the data of people all over the world. Anyone who had business dealings in the US was at risk, and the private information of over 400,000 UK citizens was, in fact, compromised. That’s not comparable to a scenario where Equifax’s UK databases are breached, which would make up to 44 million people vulnerable, but it illustrates a different and serious problem. Because of how economically interconnected we are today, anyone can do business internationally, which means interacting with foreign institutions and sharing sensitive information with financial institutions, government representatives, and other businesses. As this connectedness continues to grow, sensitive data will be captured and stored in more and more places, increasing the risk that it’ll be stolen.




 ackers know right where to look H for your data

A seemingly obvious solution might be to simply avoid sharing sensitive information as much as possible to limit the number of institutions that have it. Unfortunately this doesn’t work. The Equifax leak exposed 143 million Americans, or nearly half the total population of the country. Obviously, Equifax does not have 143 million customers in the US. They had data on this many individuals because they and other credit bureaus collect information on everyone that they can, not just their customers. After all, they need to be able to respond to credit checks that target non-customers. Because of the nature of credit bureaus, they need to collect a lot of sensitive data. They receive bank records, and glean additional information from other public records, such as court documents, that they can access to build a clear picture of a person’s financial history. This is unavoidable, and makes credit bureaus an ideal hacking target.


Businesses have to accept security risks

History has shown, up to this point, that credit bureaus cannot fully secure their databases against hackers. Further, keeping sensitive information out of those databases isn’t a serious option for businesses. That means that business owners need to accept and work to manage the associated security risks, rather than simply trying to avoid them. That means taking steps to detect identity theft, and setting up contingencies to protect your business’ interests if you become a victim.

security 4

Businesses need financial backup plans

Identity thieves can use your information to open lines of credit and take out loans in your business’ name. Unfortunately, the first line of defense that you’ll typically rely on is a credit monitoring service, which means you likely won’t know that you’re a victim until after you see an unexpected blow to your credit rating. It takes time to identify fraud cases and repair the damage to your credit, so you’ll be forced to spend some time operating your business with a damaged credit score. Getting the financing you need to run your business during that time can be a serious problem. Fortunately, there are a few things you can do to make this easier. Develop a healthy relationship with your financial institution Work with a financial institution that prides itself on hightouch relationships. Fifo Capital and similar institutions work very closely with clients and become very familiar with their clients’ operations and their real financial viability. That insider knowledge allows them to make judgment calls like ignoring a credit score issue on applications that your primary banking institution might flatly reject as a matter of policy. Set up a standby finance facility One ideal tool for managing unexpected credit problems is a standby finance facility. This kind of financing is negotiated ahead of time, and can be drawn on at a later time if the need arises. If you discover that you’re a victim, this gives you something to fall back on while you repair the damage or work out other options. owners need to accept and work to manage the associated security risks, rather than simply trying to avoid them. That means taking steps to detect identity theft, and setting up contingencies to protect your business’ interests if you become a victim.

As things stand today in terms of financial technologies, data security, and the increasingly interconnected global economy, business owners can’t operate on the assumption that their sensitive financial information is secure. By keeping your eyes open and taking mitigatory preemptive steps, you can give your business the flexibility it needs to detect, manage, and survive a data breach both today and in the future.

Covisory Connect


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Covisory Group - Connect Issue 1, 2018  

Covisory Group's eMagazine Connect - sharing insights and inspiration, relevant industry news and information to help you and your business.

Covisory Group - Connect Issue 1, 2018  

Covisory Group's eMagazine Connect - sharing insights and inspiration, relevant industry news and information to help you and your business.

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