Going into business is like a marriage – sunshine, lollipops and roses …. at the start. But as we know, humans are all weird, strange and difficult characters – just ask anyone who’s been married for a while! There is always some level of conflict and business is no different, hence the need for rules – I’m talking about ‘shareholder and partnership agreements’. These agreements need to set out the rules of engagement. They need to cover the rules around set up, effective running and how to blow the business to bits (if things go pear-shaped).
The agreement should cover:
- How the business was funded and how much each shareholder’s capital is at risk
- The number of shares held
- How shares are valued, transferred or sold
- The rules around the board meetings
- How directors are appointed and removed
- What decisions the directors can make and what needs shareholders’ sign off
- How profits are distributed
- How disputes are resolved
- What happens if someone becomes disabled or dies.
Lots of people go into business with only stars in their eyes – life often throws a curve ball and things don’t always go according to plan. Being in love is great, but getting divorce sucks, and business is no different. Having spent the time getting the rules set in stone, is prudent. It will make a bust up so much easier and cheaper – expect the best, and plan for the worst!
A good legal firm will have a standard framework to follow and you can then personalise this document to suit your individual circumstances.
As a side thought, even if you work for your own company, have a job description and employment contract. If you have an income insurance claim, it just makes things so much easier!
My advice is, get advice! Ideally, have a financial round table, with you at the top of the table, and your advisers around the table. Think lawyer, accountant and financial planner (someone who actually runs a real business and who has been around a while); they are handling these situations all the time.
And I know it’s tempting, but don’t write your own agreement – an unfortunate problem we see far too often, which can end in tears.
I’m only a phone call away, and am happy to help – don’t hesitate to reach out.
Remember if it isn’t written down – it doesn’t exist.
John Barber
WealthDesign – a life well planned
If you watch the Big Bang Theory, my favourite programme ever (apart from Dukes of Hazzard – nothing is better than that!), you’ll know about Sheldon’s cable show ‘fun with flags’.
Well recently some people have been having ‘fun with words’. People have been talking about ‘putting clients’ interests first’. That this was even a discussion was a bit of a revelation for the team at WealthDesign, because we never realised it was a new thing.
The basic idea is that where the outcome for the adviser and the client are in conflict, the right thing to do is ensure the outcome favours the client. Do the right thing and so on. Rob Everett from the FMA recently said that ‘clients’ interests first’ “can mean different things to different people, in different situations”.
No, it doesn’t.
I prefer a higher standard – ‘clients’ best interests first’. This one can be much harder to meet if you can only sell one or two product lines, rather than compare and choose from a wide range of providers and products.
For example, if you go into a bank that sells its own KiwiSaver, and the teller suggests you change to that KiwiSaver, they are considered to be putting your interests first, because they don’t receive a commission for making that sale. The bank product is not being chosen by the teller over another product, because they can’t sell any other product, so there is no conflict.
What if that bank’s KiwiSaver has much higher fees than the one it replaced? It might have much poorer returns (we know which KiwiSaver schemes have consistently underperformed) than the one it replaced. The bank teller doesn’t compare the old scheme to their one. They won’t give a written statement of advice outlining the pros and cons of switching. They won’t tell you that their salary-not-commission job is tied to targets, bonuses and KPIs that require them to sell things. They are having ‘fun with words’, at your expense. That sale would not meet the standard of ‘clients’ best interests’.
And this is the problem.
If you go to a doctor or a lawyer, and they said to you “just so we’re clear – my duty is to put your interests first, but I won’t necessarily be acting in your best interests”, would you take their advice?
At WealthDesign when we say we put our clients’ best interests first, we think it means what you think it means.
Regan Thomas
WealthDesign – a life well planned
I read an article about driverless cars and it got me thinking about how the world has changed. You have things like UBER, bookabach and Airbnb; all new concepts that have insurance consequences, especially if you don’t tell your insurer what you are doing with your assets. Commercial car insurance is more expensive than private insurance for a reason, and if you are using your car for commercial use, you need to tell your insurer. The same goes for your home and contents insurance, if you have decided to rent out your house. The rules around the Restricted Driving License, is also one of the areas people leave themselves open on.
The old ‘she’ll be right’ attitude is all well and good – until something goes wrong – then it can be a big deal. If you aren’t sure, it’s always better to check, than to ignore the issue.
So if you’ve got a question, give us a call. No question is a silly one. We’re here to help.
John Barber
WealthDesign – a life well planned
Money makes the world go around! Today, money has never been cheaper – for example BNZ have announced their lowest two year fixed rate ever recently, of 4.39%. Awesome! But before you rush out to go borrow some, there is a trick. You need to understand the difference between good and bad debt.
Bad debt is money borrowed on depreciating assets. It is debt paid out of tax paid dollars. And the very worst bad debt is money borrowed to spend on consumption (I can feel some people’s hearts sink!).
Good debt is tax deductible debt used to buy appreciating assets and with historically low interest rates, you can borrow money to make money.
An example of bad debt we often see is property investors with personal debt on their homes and free hold rental properties. A little smart planning could save these people heaps on their taxes. With a little planning we can transform bad debt into good debt.
We often see people who could increase their monthly mortgage payments by as little as $20 a week and save thousands of dollars in interest over the term of the loan.
If you have debt and you need to discuss how you can save money or plan smarter, give WealthDesign a call.
A little time invested today could save you thousands of dollars in the long run.
John Barber
WealthDesign – a life well planned