Not only does it enable effective decision making, it also helps to give the small business owner a hands-on approach to their business by having easy access to all their company information at the touch of a button. This can mean the difference between success and failure for a new start-up business. But it’s not only the start-up businesses that require accounting software packages, many established businesses would run more effi ciently and effectively if they were using a time saving accounts package.

There are numerous features of accounting software that make it an invaluable tool for business owners. The benefi ts of using software, such as Big Red Book or SAP, are: you are able to issue invoices on time to customers in one quick and easy step; you can lodge receipts and keep track of cheques written and track them right through to your bank account; you can keep track of direct debits into your bank accounts; and you can perform regular bank reconciliations to keep on top of money in and out. Not only can you keep track of VAT, you can do your VAT returns at the touch of a button. You can keep track of stock items and prices of stock, which can be broken down into cost prices and varying price levels.

Once you have your basic transactions recorded in the system you have easy access to all your company’s fi nancial data and so can see the profi t and loss fi gures for your business at any stage. There is a wealth of reports that can be interrogated to analyse your businesses’ performance and to help you keep track of debtors and creditors. The reporting capabilities of most accounting software systems are invaluable to business owners as they contain real information on the business performance. Any business owner still operating on a manual system is not giving themselves the upper hand in their business dealings.

It is surprising how many small businesses today still operate off old paper receipts and delivery dockets with a handwritten list of people that haven’t paid an invoice, etc. If a customer rings up and you don’t have easy access to their previous account history it is often too time consuming to fi nd the fi le with their information. This can lead to deals being made purely to avoid the embarrassment of not remembering previous orders or conversations with individual customers.

With a computerised system you simply select your customer details and see all the previous transactions on their account. Some software allows you to go that bit further with a Customer Relationship Management (CRM) module, which allows you to record other information about customers such as a log of all calls made to that customer and all correspondence sent by email or post to that customer. These systems help fi ne-tune the management capabilities within a business.

Todays business owners need to be on top of their accounts and, at a minimum, should be able to see exactly where their business stands fi nancially at any given time throughout the year and not just at their fi nancial year-end. It is far more useful for accountants to receive an organised set of data at the end of the year instead of a shoebox full of receipts! The tools to be effective and make the best decisions for your business are out there for you, you just need to make the decision to utilise them.

In This Issue

- Tax briefs
- Cloud computing
- Business briefs
- Efficient business in 5 steps
- Legal briefs
- Debt enforcement

Investment Review and Outlook

Just over one year on from Lehman Brothers’ collapse, the world economy appears to be regaining its positive momentum and risk assets (i.e. equities, corporate credit, etc.) have performed remarkably strongly. The key equity market drivers have been risk and liquidity friendly economic policies, a robust corporate bond market, and the fact that many investors appear to be in underweight equities.

Yet, the story of the last quarter has not been entirely one of increasing risk. Government bond yields have fallen and gold has broken through the psychological $1000 levels – moves normally associated with increasing risk aversion. This suggests that some investors have not forgotten the events of the last year and are far from unanimous in embracing the ‘risk trade’.

The main problem that many investors face in their portfolios is that the asset class they chose to protect them against the ravages of the financial crisis – cash – does not earn enough of a return anymore, while the main reason for holding cash – uncertainty – is slowly fading away. Hence, the dominant capital ow in markets was the steady movement out of cash and into other better yielding assets.

THE NEAR TERM?

IT’S ALL ABOUT MOMENTUM,

WHICH CAN CHANGE QUICKLY!

All attention has now shifted to the shape of global earnings recovery. Predictions of a lacklustre economic recovery have raised fears that analysts’ consensus forecasts for 20–30% global earnings growth in both 2010 and 2011 are too ambitious.

The immediate macroeconomic backdrop is defined by strenghtening economic growth, very low in ation, ultra-low short-term interest rates, private sector deleveraging and extremely unorthodox monetary policies. Global interest rates remain at historically low levels and monetary authorities have clearly indicated that it is too early to shift towards tighter monetary policies. Investors are becoming less enamoured with cash returns and are being encouraged to move up the risk curve and into government bonds, corporate credit and, increasingly, equities.

Markets should also continue to benefit from a backdrop of earnings recovery determined by the moderation of inventory de-stocking, which will lead to some inventory re-stocking, a better (although subdued) employment environment, and the consumption benefits of some restored wealth via higher financial markets.

THE MEDIUM TERM?

IT’S ALL ABOUT THE HEADWINDS,

WHICH CAN CHANGE QUICKLY!

Despite gathering evidence of a recovering global economy, central bankers are sending a clear message that until they are convinced that further de-leveraging has taken place and unemployment is no longer a threat, the current stimulus will not be withdrawn. Therefore, today’s massive policy stimulus is likely to be maintained for longer than needed as insurance against an economic relapse.

Perhaps the greatest challenge to corporate profitability will be in late 2010/early 2011 when we should have already seen a cyclical recovery in profits, but when monetary and fiscal policy are likely to be tightened.

Of course, no market moves in a straight line (up or down!) and periodic reversals are highly likely, especially with potential confusion from upcoming economic data as upward momentum slows. When things become less supportive on the economic front, risk appetite could moderate and even turn adverse. It is anticipated that investors will become more defensively oriented. In addition, future investment returns may start to re-emphasise dividends/yield, given the substantive differential between cash returns and dividend yields. Private investors who cannot put up with any possible volatility should steer clear of equities no matter what their perception is of current market conditions.

SUMMARY

There is every reason to expect an uneven pattern of economic data releases to emerge because rates of growth clearly accelerated sharply around mid-year and are now expected to level off. It is also highly likely that the challenge from ongoing de-leveraging in the household and financial sectors will make future growth rates lower than we have been used to. A foundation for recovery is intact, although not all the pillars are in place, and the latest economic news (particularly unemployment) provides reason to recognise the downside risk.

While it is tempting to recommend an exclusively relation based strategy, in light of the scale and duration of the rally to date, the rise in asset valuations and the existence of some unique upside and downside risks, a broader, slightly conservative approach is going to be most appropriate for many private investors.

Full Newsletter

Download and read the full newsletter in PDF format here….

You and Your Money – August 2009

In the last of our four-part series, Johnny McNamara looks at the danger of counter party risk and shows you how to minimise the external threat to your own personal economy.

In previous articles I have developed the concept of managing and controlling your own personal economy. The key to achieving this is to identify the areas of your finances that are in your control and to recognise the areas that are outside of your control. Where you identify an area that you have no control over, this becomes a risk to your personal economy and so, it is vital to minimise these risks every way you can.

One of the biggest risks to our wealth today is known as “counter party risk.” This can be defined as the risk to each party of a contract that the other party will not live up to its contractual obligations. In most financial contracts, counter party risk is also known as “default risk.”

Counter party risk is apparent in almost all aspects of our financial lives from our savings and investments right through to our pension arrangements. The effects of counter party default have been particularly evident in the current economic climate, which has seen the collapse of many large financial institutions both here and across the world. This has led to the images we have all seen of people queuing outside banks for fear of losing their money.

So how do you remove counter party risk from your personal economy? Unless you are going to store all your wealth in gold bullion and carry it around with you, it is impossible to remove all elements of counter party risk. However, the key to gaining more control is to remove as much counter party risk as possible.

In my last article I developed the concept of taking ownership of your pension funds. Taking ownership of all of your assets – whether they be in pension or any other form – is the first step in helping to eliminate counter party risk. Once you have been able to establish ownership, the next question must be: what asset classes should you look to invest in to further remove the threat of counter party risk?

A good starting point is to look at the concept of ownership versus loanership assets within your personal economy. To understand this concept fully, we must identify the difference between ownership assets and loanership assets or in other words, real assets versus financial assets.

A real asset is a tangible or physical asset that will only ever appear on one side of the balance sheet, i.e. the asset on one side does not create a liability on another balance sheet. Therefore a real asset does not carry any form of counter party risk as it is direct ownership. Gold is a prime example of a real asset that is tangible and has a value in its own right due to its scarcity and people’s desire to own it.

A financial asset is an asset that is essentially a contract between two or more parties that merely represents an asset. The financial asset itself has no intrinsic value because it is not a tangible or physical asset, but merely a representation of one. A financial asset therefore sits on both sides of a balance sheet. For one party entering in the contract there will be an asset (bonds, share certificates etc.) and on the other hand, the other party will have a liability (repayment of bond, value of share etc.)

This is where counter party risk is generated, as the asset owned is only as good as the other party’s ability or willingness to honour their side of the contract.

When you bring in other financial assets that include debt derivatives, you often find that this increases the amount of counter parties involved and so, increases further the risk of default somewhere along the chain. A great example of this can be seen from what happened with the sub-prime mortgage market, where the debt was repackaged further and further away from the real asset until eventually the chain collapsed. If you are at the end of the chain, you are the one who suffers most financially from the counter party risk and subsequent default.

Many people have been fooled into thinking that financial assets should be considered as savings. However, as we have seen over the last few years, through counter party default these assets can become worthless very quickly. When looking at where to invest, it is important to remember that real investment brings with it real assets and real capital formation, which is the cornerstone on which future wealth is built.

With this in mind, what can you do now to take back ownership of your personal economy? It is my opinion that a significant part of your wealth should be invested in real assets through structures in your ownership and control. The amount to which you hold your wealth in real assets will come down to your faith or lack thereof in the financial system as it currently stands. Recently we have seen a massive amount of mistrust generated in our financial systems – both locally and globally – which has already seen a shift in investment towards real asset classes.

Counter party risk is evident in every part of our financial lives and represents a big risk. One of the biggest counter party risks out there is what’s happening in the global economy. We know that we cannot control factors at play in the global or local economy, but we need to understand how they affect us so we can plan for the future. However, we also know that there are factors that can be controlled through ownership. It is only through ownership that you can gain control and it is only through control that you can gain the ability to manage your personal economy.

To arrange an appointment with McNamara & Associates, call 01 230 9000.

Your personal economy is in your hands, so know how to manage, plan and control it. By Johnny McNamara

From the risk of redundancy to the tightening of credit lines, there is no doubt that times are tough with many of us now facing our own ‘personal recession’. In the backdrop of this global economic downturn where we have all been affected in one way or another, how can you regain some element of control?

Many of the factors that are causing these problems are outside of our control and as such, we have little or no influence on them. However, there are factors in our financial lives that are firmly in our control and it is these factors that we must plan carefully to ensure that we not only survive the economic downturn, but that we are in a position to thrive when the turbulence thaws.

How do we do this? Well we can look to Ireland as an example. Ireland is a small, open economy and therefore, we as a country have no control over decisions taken by the larger economies of the world. Yet they have a very real and dramatic effect on the economy as a whole. We need only look to the recent US sub-prime crisis and the knock-on effects we have experienced as evidence of this. So what should the Government do to protect the country in this environment?

Well, every year the Minister for Finance produces an annual Budget for the Irish economy. This sets out the fi nancial plans, goals and objectives for the year ahead using the tools available, which include everything from altering tax rates to amending capital expenditure. The purpose of this is to ensure that the economy remains in a stable, balanced position while also implementing strategies that can create wealth for the country in the future.

So even though there are many factors at play in the global economy that Government can’t control, there are also many factors that they can control and it their responsibility to co-ordinate these factors in such a way that helps us make it through global downturns and prosper in periods of global stability.

How can this be applied to you and your finances? We know that the decisions made by Government have a massive impact on our lives and even though you can’t control it, you need to understand them and take the necessary steps to manage your way through any economic environment.

It is up to every individual to learn how to plan and control their own personal economy to ensure that they are running as efficiently as possible and to be in a position to plan for future wealth creation in the same way as the Government of a small open economy plans and controls.

How many individuals can say that they prepare their own personal economy budget and implement necessary strategies using the tools available to them? Based on our experience, very few people think of themselves in this way but rather continue to plan their finances in a haphazard manner as a need or problem arises. By doing this, people will never fully maximise their efficiency nor will they be in a position to take advantage of any possible wealth creation opportunities.

It is now vital that people take this holistic approach to personal financial planning and the key to doing this is to understand what the factors are that influence your personal economy and more specifically what factors you can and cannot control.

What are the elements that make up your personal economy? Many elements of the fi nancial world are outside of your control, however the elements that can be controlled must be managed and developed to maximum efficiency through careful planning and advice-driven decision making.

There are a number of key elements that make up any personal economy. Each of these elements are so intrinsically linked, it is vital that you understand the effect of decisions made in one area on the next. We believe that you cannot separate each of these elements when planning your finances, but rather you must plan them as one entity – your personal economy – which includes:

• Cash flow management
• Tax planning
• Financing and mortgaging
• Investment planning
• Wealth creation and planning
• Retirement planning

The management of a personal economy will be different for every individual and will depend on a wide range of factors specific to you. This is where the need for a competent, qualified financial adviser comes into play. Through our holistic approach to tax and financial planning, we can help you to deliver a strategy that can put you back in control of your finances.

We have seen the implications of poor economic strategy and the ripple effect that this has caused throughout the global and local economies, not to mention the knock-on affects that this has caused on your financial lives. This is a lesson that we can all learn from. It is vital that you take back control of your own personal finances and implement strategies that protect you in bad times and maximise opportunities in good times.

You need to start thinking of yourself as a small, open economy and use the tools at your disposal to protect yourself and maximise your efficiency. It’s your personal economy, so plan it, control it and understand it!

For more information or to arrange an appointment, call McNamara & personaleconomy.ie | Commercial profile MAY 2009 | YOU&YOUR MONEY 35 Associates on 01 230 9000.

NEXT MONTH… PersonalEconomy.ie will develop this concept and provide case studies to help you control, plan and manage your personal economy.