Why Profitable Businesses Still Go Broke with Cameron Tilly

The difference between debt that grows your business and debt that quietly destroys it often comes down to one thing: whether you actually understand the numbers before you sign. 

Cameron Tilley has been our finance broker for almost two decades, which means he’s had a front-row seat to some of the Kennedy family’s more delusional business decisions. He’s also seen businesses across countless industries borrow, expand, refinance, struggle and grow.

We get into the side of business finance most owners only learn once it hurts: why profit doesn’t necessarily mean you have cash, how banks actually assess your business, when debt makes sense, what being overleveraged really looks like and why getting the right advice before you need money can completely change your options.

We get into:

→ Why Cameron believes even a 10% profit margin can be cutting it skinny when things go wrong

→ How a business can report a $400,000 net profit and still end up bankrupt because of cash flow

→ The numbers behind our bowling alley, from almost running out of money during the fit-out to getting finance moving after just nine months of trading

→ Good debt vs bad debt, and why an income-producing asset is very different from buying something because you want it

→ How leverage changes across houses, commercial property, business assets and specialised assets like a bowling alley

→ Why going straight to your bank can limit your options, and Cameron’s explanation of what a finance broker actually does

→ The cash flow system we’re building around weekly breakevens, separate bank accounts, tax, buffers and seasonal revenue

→ Interest rates, refinancing, fixed vs variable debt and why flexibility can matter just as much as getting the lowest rate

If you’re building something ambitious and debt is part of the plan, this conversation will make you think much harder about what you borrow, what you buy and whether your cash flow can actually carry it.

Chapters:

0:00 Meet Cameron Tilley
 3:00 The most “delusional” businesses Cameron has financed
 5:00 Credit card surcharges and hidden business costs
 8:00 How much financial buffer does a business need?
 11:00 Building the right professional team around your business
 15:00 Profit margins across different industries
 20:00 What a finance broker actually does
 23:00 When should a business refinance its debt?
 26:00 Why profit and cash flow are not the same thing
 32:00 Arcade or hospitality venue? Our real expansion dilemma
 34:00 How to know when you’re overleveraged
 36:00 Good debt vs bad debt
 41:00 How banks assess business owners and ABN history
 44:00 Finance broker vs going straight to the bank
 47:00 Building a better cash flow system
 53:00 Using seasonality to plan your marketing and revenue
 56:00 What interest rate rises mean for small businesses
 59:00 Fixed vs variable debt when you’re still growing
 1:01:00 Restructuring, tax changes and protecting your exit
 1:08:00 Submarines, planes and Cameron’s strangest finance requests

Got a question about your own business right now? Drop it in the comments, I read every single one.

If you have any questions about the episode, have a burning question you would like me to answer on the show, connect with me and the rest of our incredible community on Instagram:

→ https://www.instagram.com/delusionalwithsammykennedy/
→ https://www.instagram.com/sammykennedyofficial 

Transcript

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SPEAKER_02 0:00

I mean, there's plenty of businesses who can make may have been a while ago now, but they made a $400,000 net profit. Three months later, bankrupt.

SPEAKER_01 0:07

He's helped facilitate more than $750 million in lending. He sits in the top 5% of finance brokers in Western Australia. And after 13 years behind the scenes of business loans, mortgages, equipment finance, and commercial lending, he knows exactly what makes a bank say yes and what also makes them say no. What's good debt versus bad debt?

SPEAKER_02 0:28

Good debt is financing growth and income-producing assets. Asset finance in particular typically is shorter term debt, higher debt commitment per month, but it should go down in line with that asset.

SPEAKER_01 0:37

Cameron Tilley has spent his career looking at businesses through a lens most founders never get to see.

SPEAKER_02 0:43

Your personal house, you can leverage to 80% typically across all the banks. And that's a safe medium to go, okay, if it all goes per shape, the bank has to sell everything. That 20% margin is enough to clear all the debt.

SPEAKER_01 0:52

Today I'm sitting down with Cameron to understand how money actually works when you're trying to build, fund, and scale a business. What the banks aren't telling you, what financially strong business owners do differently, and how to make sure the decisions you're making today don't completely fuck you tomorrow.

SPEAKER_02 1:07

Do I like debt personally? Hell no. Do not want it in my life, but it is a necessity for a lot of business owners.

SPEAKER_01 1:13

This is Cameron Tilley. Hello and welcome back to Delusional. I'm your host, Sammy Kennedy. Today I am joined by Cameron Tilley, who has been our financial broker for almost two decades now. The reason why I asked him to come in and do an episode is because he has seen the best and the worst of the finance industry. And he's not just a finance broker, he's also an accountant. Welcome to the show, Cameron. How are you feeling?

SPEAKER_02 1:42

Thanks, Amy. Uh, pretty excited, actually. This is cool. I like talking about numbers.

SPEAKER_01 1:46

Tell me about how you first got started in the finance world. Like I know you initially got a job at the company you're at and you've been there for many years. How do you stay loyal and engaged in what you're doing?

SPEAKER_02 1:58

Yeah, so I've got a bit of loyalty to Westminster. So I was part way through an accounting degree. My girlfriend's now wife decided she wanted to go to Europe for a couple of months. Thought, great, let's do it. Gap year. Um, took a shotgun to seek. It was either insurance or finance. Westminster offered me a job. Thought, great, I'll stay here for nine months, take their money and go to Europe. Um, and they let me take two months off in the end, or two and a half months off. So they gave me the chance to travel, try to get it out of my system, failed. We still went away a fair few more times after that. Came back, worked, told them I was going back to uni after that. They kept me on again. So I was able to finish my degree, still work at Westminster, learn a lot in terms of how businesses operate, how Westminster operated, and realized that, yep, this is this is actually what I want to do because you get to work with numbers, businesses, financials, and talk to people instead of getting caught behind a desk with an accountant.

SPEAKER_01 2:51

I feel like business owners think that accountants are going to be their saving grace, but not all accountants are proactive. They're just there for tax compliance. And I guess your lens as a financial broker is you have to know the cash flow. You have to know what's working for a business. Is this a good idea to put more money into? Have there been times where you've just gone, no, I'm I can't give you the money for this?

SPEAKER_02 3:15

Absolutely. Absolutely. So yeah, it definitely caught in the divide between entrepreneurs and banks. And I've got to try to get them to meet in the middle somewhere. But definitely there's been a few that are very delusional.

SPEAKER_01 3:27

Well, speaking of delusional, I know that you're someone who's played it relatively safe. You've been very strategic and calculated with the way you've built yourself up in your career and also making sure that you're helping the businesses actually get in a good financial position, whether that's through loans, paying debt off, or just having a plan, because many of us don't, and we are quite delusional. We're like, we're gonna make all this money, but where's the how? What are some of the most delusional businesses that you've helped?

SPEAKER_02 3:57

There is a certain uh Albany bowling alley that springs to mind. Uh that's come off pretty well. Um, but there's definitely a top five for sure. So while uh the bowling alley is definitely one of them, there's been a handful of, you know, gym owners, um, cafe owners, um, professional services providers, um, a lot that probably the main one is just going from start to a hundred in the first in the first year. Um that that's the more delusional uh view that I've seen businesses do over the years is just wanting to go from here right to the top and day one and not having thought it out or planned it out or or growing uh potentially the right way or the safer way.

SPEAKER_01 4:36

Oh yeah, I think my dad, he is someone who has been a massive visionary, but when it comes to actual strategy, there's like this just oh, it'll be great, but how are we gonna make it great? There's that gap. And I think where you've come in, it has also kind of like humbled him to come up with a business plan, which I'm very grateful for.

SPEAKER_02 4:58

No worries.

SPEAKER_01 4:58

When you look at the state of the economy right now, do you think it's worth having a small business?

SPEAKER_02 5:04

Uh yes, yes, I do. I do. So it's definitely an affluent time in WA. We're a growing small economy based on a on national or international view. And so there's still a lot of opportunity to be made in WA because there is a it is a pretty good state. And probably a bit biased, been in WA my whole life. I love it here, and I think we're doing pretty well. Um, we are very isolated to a lot of other factors that the East Coast has to do deal with. Um and don't get me wrong, it is challenging being a business owner. You're tied to your business, you've got so many different types of taxes coming out. The government's always coming up with something new in the budget releases to make it just make it more difficult. So you're constantly having to battle uphill to have a business. But the goal of it is that you're going to have something worthwhile, valuable, supremely more profitable than working for wages, if it works. And if it doesn't, there's always wages. Someone else will always hide you, I'm sure.

SPEAKER_01 5:58

Yeah. Well, I mean, a lot of founders that are very passionate and do go to create the businesses almost sometimes feel that they're unemployable.

SPEAKER_02 6:07

There is definitely that mindset. So entrepreneurs are definitely hard to employ, I must admit. However, I mean in a growing market as well, businesses that are going all right and do want to take on people who are motivated, ambitious, and driven, businesses do want those people. Sure, there might be some uh some creative differences in terms of where the business is going. Totally. But you do want those people working for you.

SPEAKER_01 6:27

What are your thoughts around the changes to the credit card surcharge that's coming in from the first of October?

SPEAKER_02 6:35

Yep. I do uh do feel for the business owners. There's just one more thing, one more thing to have to deal with, think about budget for, accommodate, deal with how their their consumers are gonna handle it. It's just one more challenge that business owners constantly go through and just add it to the list, really. But business owners are resilient, they believe in their business and product and want to keep going, so they'll adjust. Um but it is just one more thing to have to deal with.

SPEAKER_01 7:02

It's crazy. Like I was doing some basic math on who we're currently with, which is shift four. So we started off with Smart Pay and then they rebranded or got bought out, something happened there, and their rate was 1.54%. And I think I got mum to send you an email and check whereas Combank, unless you can get a better rate, like they would be 0.99%. And so so many business owners aren't actually going out and negotiating or trying to look at a better option or see how much this could cost them. And the difference that I was noticing if we switched between payment providers is we could have been saving another potentially like $6,000 on this one item based on the sales that we would normally have in 12 months.

SPEAKER_02 7:43

Yeah, big time. It's um it's one where the major banks have always had their offerings and there's always all the non-majors and non-major providers that are come up, uh gonna come up with different um different ways and and options and and pricing. Um however, the main thing with major banks and CBA in this case, for example, is if they've got all your major debt, um, they're making returns off the money that they've lent you, then yes, there's other uh whole of wallet returns that they can accommodate when pricing these things. So if you didn't have a lot of debt with CBA, for example, you probably wouldn't get that 0.99% uh merchant fee rate. Um, and then how much the terminal cost to higher. There's a lot of other fees and charges in the background as well. But yeah, there's uh there's definitely a divide. Uh, it's gonna become a lot more prevalent now, given the new surcharges being passed on and where banks can kind of capture more clients.

SPEAKER_01 8:32

I think it's quite scary because the consumers don't necessarily see what's happening behind the scenes for business owners. They just go, oh, they've put their prices up. Oh, they're charging me. And it's actually, no, the government is allowing these other people to put a percentage surcharge. And then there's a few different people who can get away with not having to deal with a surcharge. Like I know gyms, anything that's like a membership style, they are excluded from that. So it'll be really interesting to see how this does impact things long term. Like even what you were saying before about WA and Sydney and Melbourne, there's different things to accommodate for, like transport. We have freeways, they're free. Tolls, how are you meant to with like fuel costs and tolls and all these other things? There's just so many expenses that you can't actually always predict. And as someone who has come from the finance world who has helped businesses get loans out, when you look at an annual budget, is there a percentage buffer that you almost encourage business owners to have for these unexpected costs or things like this coming up?

SPEAKER_02 9:36

Absolutely. Absolutely. So, my personal view, always have a budget, uh, a budget buffer. Um, whether you get sick, injured, can't work, yes, there's insurances for it, but it still takes time out of your business. And if you're budgeting and working 365 days of the year without getting sick, probably delusional. Definitely delusional. Um, so having those buffers, I mean, look, everyone's got to go on holiday. So you've got to have your own built-in holiday leave into your budget somehow. Um, whether that's uh support staff stepping up and paying them more while you're away or taking a hit in sales while you're away. You have to budget for these things. Um, and then you have to budget for all the other things that business owners have to continually worry about. So, yeah, servicing uh a buffer is important. And banks look at it the same way. Um, they're not gonna lend you, you know, one uh all income services all debt by one. Definitely not. They're thinking the same way. A lot of banks would like you to see a 2% servicing buffer on the interest rate or uh what's called debt service cover ratios or one and a half times. So you have to earn one and a half times your debt cover to be able to be profitable or serviceable to a bank because they want to see that too. They don't want to lend you one for one and hopefully nothing goes wrong.

SPEAKER_01 10:43

Yeah. You just never know. Someone might get sick, someone might pass away, there might be a flash flooding or something that happens. Like there's been plenty of stories that business owners don't prepare for. When you look at having a healthy buffer in your business, is it a percentage of your revenue or is it an X amount of months worth of expenses? Like if you were just saying, generally speaking, what would be best for a business owner to accommodate for?

SPEAKER_02 11:11

I was actually going to answer with there's no general rule, to be fair. But uh look, it does it does come down to your planning. So as long as you've forecasted and planned out appropriately to your business, because every business is different. Yeah. Whether the whether the three months' worth of debt cover suits you, uh, whether a percentage of your revenue drop suits you, um, whether your cash flow um needs are more you know intense than others. So, you know, some businesses have cash flow requirements coming out every single week, some have it once a month or every two or three months, depending on what kind of how high frequency their income is. Um so it does depend on the business as well. So I don't really have a general rule to it as long as you planned it out and uh and talked with your accountant, finance provider, anyone like that to make sure that it does suit you in terms of having a backup.

SPEAKER_01 11:58

I love that you said who to go to because for a lot of small business owners, especially, they don't have a good support system around them with financial advisor, financial broker, lawyer, accountant. Usually they've just got maybe a bookkeeper and their accountant that they catch up with once a year. And if you're doing that, you're probably not in the best financial position because you're being reactive rather than proactive.

SPEAKER_02 12:23

Absolutely. And you're exposed to things you don't know. So things you don't know are going to come back and buy you at some point, whether it's in the six first six months of trade, if it's six to ten years down the track, if you haven't structured it properly, or ask the right questions of your accountant, legal provider, those kind of situations. So yeah, you don't know what you don't know. And those people are the network that surrounds you to help you make your decisions.

SPEAKER_01 12:44

When you're talking about making these decisions, who are the people that you believe need to be a part of your professional team if you are growing a business?

SPEAKER_02 12:54

So you mentioned before about accountants sometimes being reactionary. Uh, there is definitely tax providers who will do your taxes and move on. Uh, there's definitely tax advisors. So they're gonna do your taxes as well. But accountant is definitely critical. Your structures, your forecasting, your planning, what you're doing that affects how much tax you pay and how many taxes you pay. So accountants are very critical to have a good one who is forward thinking that works with you. Um, a lawyer is also very important. Being any business owner, there's gonna be parameters that you have to operate in. That's just the Australian economy. So having a lawyer who can actually sign off or give advice saying, you look, this will work or this won't work, or be mindful of this, super important. If you're gonna go down a certain pathway of decision making and it's actually not gonna potentially be legal or cause you consequences in the future, it's super important to know these things up front. It might be naming, naming rights or or patents or anything like that as well. Very important to have a lawyer on board. Uh, your insurance broker, obviously very important. Insurance coverage, when you're going all out there as a business owner and wanting to take a punt and taking risks, insurance is your risk mitigant. Um, if something goes wrong, if you're sick, injured, otherwise, you're gonna need decent cover and you're gonna need a good insurance broker who's gonna build an insurance premium around you to make sure that you are covered and you can operate freely and grow. Um slightly biased, but you do need a finance broker, I think. Uh debt is just unfortunately a necessity of growing quickly. It would be great if you didn't have to have debt. You could grow organically. Those businesses occasionally exist. But if you do want to grow quickly or grow your business to a point where you can sell it, maintain it, those kind of things, debt is sometimes a necessary piece. So planning, seeing what your capacity is, understanding the parameters of the banks are also important. Um and definitely a bookkeeper because you know what, knowing your numbers, knowing your numbers is important and you want to track your numbers, but having someone on hand who's going to report that and keep it up to date all the time throughout the year so you can track it all year is also very, very important. Makes dealing with the accountant a couple of times a year a bit easier too.

SPEAKER_01 14:55

A hundred percent. When I was a kid, my mum would do all the bookkeeping.

SPEAKER_02 15:02

Still killing it.

SPEAKER_01 15:03

She was not someone you would want to be around the three days before Bass is due. She would have like my whole bedroom now, because I've moved out of home, it would just be covered in receipts and it would just be so stressful. And I remember when we came into the new bowling alley, I said, I think we need a bookkeeper. This isn't something that you can do. And it was like that fear of letting go of control. But then realizing, oh, this person's an expert, they're gonna do a better job than I was, anyways. Even like the resistance to my brother and my dad and my mum using HubDoc to take a photo of a receipt, not realizing that they could do things. And I think it's so easy as business owners to get caught up in the mindset that this is the way it's always been, this is how I'm always gonna do it, not wanting to accept help or going, oh, that's another expense. But really, it's an investment in safeguarding your future.

SPEAKER_02 15:53

Absolutely. And you don't know what you don't know. So moving into the unknown is scary for a business owner. When you're fighting against all the challenges of being a business owner, doing something outside the norm, it is scary. Um takes a lot of courage to keep going and keep investing in new, new conveniences and make your life easier so you can focus on your business.

SPEAKER_01 16:10

Absolutely. Because you've spent so many years uh lending to different businesses. Uh have there been uh uh some trends that you've noticed in the profitability or success of certain industries?

SPEAKER_02 16:24

Absolutely. So every industry has their own benchmarking that is based off you know ATO reporting, for example. So there's a lot of information out there to see where your business might sit in your particular industry. Um I guess I'll I'm fairly WA focused, still have a national um reach, but very central to WA. And if you're looking at a few key industries, for example, so professional services um and and potentially most construction, if done the right way, um, do have higher profitability ratios than hospitality and other small SMEs that are might might be more consumer-based or uh product-based. So everyone does have slightly different profitability margins. You'd want to have a minimum, I I would feel, a minimum of 10% profit margin for any business to make it worthwhile. Because that kind of margin is cutting pretty skinny if a few things go wrong.

SPEAKER_01 17:14

Absolutely. I remember asking a couple people and yourself, and I was like, what's the average profit margin for hospitality? And it obviously depends on the size, because if you've got multiple locations, fit out, staff, all of that stuff is going to factor in, but three to five percent, it's such a low amount. And then I was like, no, that can't be true. And I talked to an expert who I've actually got coming on in the next podcast episode, and he said the same thing. And then I remember when I was looking at the beauty industry, skin clinics, hair salons, they said on average, only 6.8% of these businesses make more than 10% profit. And I was like, am I like, is something wrong with the internet? Like, am I reading this wrong? What's going on? And then I was looking at the ATO benchmarks, and that's what really threw me. Some of these businesses, if they're they section it, you know, the up to 200,000 and then 200 to 500 or whatever it is, and then over that, some of their expenses are like 94% on average when you look at expenses divided by revenue. And then the labor side, that's been a huge impact for small business with wages, super payday. How are you meant to figure out, I guess, a good amount of wages when you need the wages there to supply the service or bring the product to life? And instead of it taking like 30% of your revenue, now it's taking up 60%.

SPEAKER_02 18:38

Yep. Uh yeah, super tricky. That's one of those challenges of business owners. Um you can. You can. You can uh as a business owner, I've seen many. And yeah, there was a a really, really cool cafe around the corner from my house for years. And the owner was lived and breathed her business. And she saved up money on wages by just working 80 hours a week. Um could you keep doing that sustainably? Probably not. Um, but I guess that's one option. She uh, but that's the thing, I guess for hospitality in particular, it is a lot of love of the game. You you want to be there, you want to be in your cafe and restaurant. You're doing it because you love it, not because you want to make millions and millions of dollars. Sure, that might be a byproduct if it's done the right way. But to have to manage all the different staffing, especially in hospitality when it's, you know, um penalty rates, changes in staffing conditions, high turnover of staff, casual, those kind of things, they're really challenging to manage. And the profit margin of you know, five, even to 10% if you're really lucky, is tough. And you're constantly reinvesting that back into your business again. So very rarely does it hit your back pocket until potentially right towards the end when you're looking at XC.

SPEAKER_01 19:44

It's pretty scary when you think about it because if these businesses go under, no one's replacing them. The government certainly isn't going, hey, let's hire a team and they're gonna open up a cute little coffee shop to bring the community together. Like it's these small businesses, they might be silly or weird to some people, and others are like, this is such a core part of the community. Once that coffee shop's gone, once that hair salon's gone, once you've got the local Pilates studio that everyone loves going to, these businesses aren't getting replaced.

SPEAKER_02 20:15

Yeah, absolutely. And it is a very capitalist economy we live in. Um, as much as we love it to be, yes, this this cafe is, you know, the fabric of our neighborhood, it is a capitalist economy.

SPEAKER_01 20:26

The capitalists are the government, they're taking everyone's money. Like they don't have to work for it. They just anyways, not getting into politics, but coming into you as a finance broker. If I wanted to engage in a finance broker, like what do you actually do? How can you actually help me?

SPEAKER_02 20:41

Sure. Uh so finance broker, obviously we're gonna talk to a lot of different business owners. Uh, early engagement with any profession is critical, I think. Um, and from my perspective, I'd love that as well, because there's so many different strategies, avenues, credit policies that we can operate within all the bank's confines that if we can get in early and plan, budget, organize things that might be time critical, might be a forecast with your accountant, might be getting more up-to-date financials, it might be getting six months through the financial year instead of three months, just to show a different snapshot of your business. All of those things can come towards putting together a better finance product. Um, and we're trying to build something that's gonna be a sustainable finance product for you rather than just throwing you whatever's out there and just seeing how you go. Um, if you're coming in and you're being reactive with your finance planning, yeah, sure, you might just end up with one of those, we'll just have to deal with this option and see how you go. And you're gonna have to work your way through to get to the next stage. So early engagement's critical, but to uh be a bit more pointed towards what we do, we're gonna engage with your accountant in particular, uh, assess financial capacity, assess what you want to get out of any fun any borrowings or growth, um, forecast what is coming up over the next five to ten years for you. Um, allocate things like um contingencies towards finance products, uh, what finance products you want. What assets you're going to buy, how it affects your cash flow. There's just, yeah, like I said, I do like numbers. Um, so engaging in the numbers early just creates so much opportunity in planning.

SPEAKER_01 22:10

When you say finance products, you mean alone? Okay. I've never heard that before. Um, I can attest to the fact of how resourceful and helpful it's being being proactive when we wanted to purchase the property. When we were doing our fit out, I was almost crying at dad and I said, Oh my gosh, we're almost bankrupt. And we've got to purchase this property. How are we gonna do that? We have no money to even finish our fit out, let alone purchase the property. And that was something that really like and dad's like, solutions will present themselves, just keep going. And that's his saying, and I love him for that. And so we kept working on. And I remember, I think you said it would be maybe about 12 months in. We could assess once we've got all those financials. And nine months in, we were able to go ahead and put things in motion for that. That's pretty cool.

SPEAKER_02 23:02

Absolutely, it was. It really surprised me. Yeah, I was it was it was super exciting to see it because I must admit, based on on normal projections and and how businesses would go, you would need a 12-month period of time when you're growing a brand new uh facility or premises and show the bank that you've got consistency in earnings. Um, sure, we definitely got uh a pretty good loan product in place in the end. Um but that was on the back of the business doing really well over nine months. Yeah. Um typically 12 would be ideal, but nine was in in the uh bowling alley's case, really good numbers to actually show that it can be maintained. Um and then, you know, there was a few different stages to it, but every stage and every time we came back to get updated numbers, the business was still trending in the right direction. So it's a lot of hats off to hard work and and returns, and it worked, um, that we could keep putting in place better and better finance products, loans.

SPEAKER_01 23:55

Yes, finance products, loans. I used to go over to Sydney a fair bit, and I remember one of the ladies that I would stay at, she had this incredible company, they do like $10 million a year. And part of her side things that her husband does, he manages all their assets and they do angel investing. And they were saying one in ten startups that they invest in will just go absolutely bonkers and it will make the money back from the last nine that have just lost money. And I feel like that was our situation with bowling. We'd had, you know, seven businesses that just had not hit the mark in the way we thought it would, and then the bowling alley finally did well. Even now, um, with all the debt that we've had and figuring out a plan for the future, when does refinancing come into play for a business owner? Because that's something that we're working through at the moment.

SPEAKER_02 24:45

Yeah, correct. I was gonna say that exact thing is it does come up typically financial years. So as a business owner, you've got very few times of year where you can evidence different income. Tax time is absolutely one of them and one of the main ones. With things like all of your bookkeeping and software accounting, you can obviously have quarterly, six-monthly updates and show returns and profitability that we can go to the banks with. However, typically it is 12 months. Each year we can do a review based on how your tax performance for the year has been. Um, an equity review to make sure that you've got sufficient equity and we're not over-leveraging uh personal assets or business assets. So every year is a good time to check in because every year presents more opportunity if the business is trending in the right direction. Um but refinancing your debt means you can structure things differently to pay down the the bad debt. Um not that we don't want to preserve debt for too long, but preserving the good debt instead of the bad debt and structuring things to help repay debt at a better rate to get it a bit lower. Because we don't want to be leveraged too high forever. Investments need debt, but we do want to get rid of it. We don't want to have it there for a long amount of time.

SPEAKER_01 25:49

It's crazy. Like refinancing, we've been through it a few times, and I think some people just get complaints and they're like, oh, it's too much paperwork and I can't be bothered, and it's stressful. But when you have the right team in place, that could be the difference between you refinancing and saving or having another $7,000 or $10,000 in your pocket. Um, we looked at our business and our cash flow and the profit and loss statement and the balance sheet. And realistically, sometimes you look at the profit and loss and you think, oh, this is how much money, but then you've got the balance sheet and where the loan repayments are coming out. And that's where I believe a lot of business owners get caught out. They might say, I'm making 100 grand, my expenses are 60 grand, and I've got 40 grand left over. And it's like, no, you've got to think about what's going towards tax. Where is why doesn't the loan show up on the profit and loss statement and the not the balance? Do you know what I'm saying?

SPEAKER_02 26:40

Yeah, absolutely. I was gonna say it's a super interesting reporting um niche, we'll call it, but yes, principal and interest repayments on your loans. Interest is recorded as an expense in your profit and loss, but the amortization or the debt repayment component of your repayment isn't that gets reflected in your balance sheet. So you're dead right, you could be making hundreds of thousands of dollars net profit and your interest component is calculated in your expenses, but you might be paying hundreds of thousands of dollars worth of debt repayments as well. And it might be cash flow neutral. So that's where profitability, sure, it's important and you want to be trending in the right direction from a margin perspective. But cash flow is even more important because I mean there's plenty of businesses who can make maybe been a while ago now, but they made a $400,000 net profit, three months later, bankrupt because their cash flow was well behind and in deficit. And that comes from how far how long your payment terms are. You might get paid in 120 days from when you've done the work, and you might need to outlay the costs of doing that work, wages, materials, whatever the case would be, in 30 days. And you've just got to wear this 90-day difference for all year.

SPEAKER_01 27:46

Construction is the worst for that. They've got all of these materials on a 30-day account. They've got to wait for that person to pay them, and then they've got the labor. I can really see how people get caught out. And the reason why I wanted to talk about this is because I remember the first time I was like, yeah, no, but where's the, you know, 20 or so grand worth of loan repayments? That's not showing up here. And that's money that we have to pay. So I don't think we're making as much profit as we think we are. And when we worked out our, you know, expenses, I think, healthily with all the debt and wages and all our equipment and financing in probably about 10 grand buffer in case there's, I don't know, anything that goes wrong, like a lame breakdown, or dad decides to buy more wood, who knows? Uh 100 grand. And when we looked at the profit and loss statement, you know, on average 40 to 60 grand. So the loans, they need to be factored into your cash flow. Why doesn't Zero have a better cash flow tracking system?

SPEAKER_02 28:46

I don't have a good answer for that one, actually, Sammy.

SPEAKER_01 28:48

Um Zero, you're getting called out. This is terrible. I actually, like my partner's mum, she was saying something about this ages ago to me, where she's like, Zero doesn't have a good cash flow. Like it can't actually project out well and show you how much money is and what you're actually left on with. And I was like, oh yeah. And now that I'm in it, I'm like, oh, I totally get it. Like I need a vibe code my own app to do this because even just for our business, because I want to know how much we actually left over with. Because when it comes to, for example, let's say you have a business and it's doing all right, and you're thinking, oh, should I do a fit out or should I open a second location? What percentage should your debt be at before you go, hey, I'm gonna, you know, add another half million or a million dollars into this and potentially send yourself into a very dark place again?

SPEAKER_02 29:36

Fair, fair. And and look, to probably to talk to the debt component not being in zero, look, again, it probably points back to your accountant because your accountant's gonna help you forecast properly on cash flow forecasts, which do incorporate the debt repayments and cater it to your business, not just a generic business that zero might have to account for when they're out with building their software.

SPEAKER_01 29:55

But there's AI. They should be able to do that.

SPEAKER_02 29:57

I'm sure. Hopefully it's coming. Hopefully it's coming. It needs to come. To make it easier for business owners to know their data, know their forecasting would be really, really good. Yeah. Hopefully, make my job a little bit easier as well. With more data and forecasting available, it'd be great. Um, so when planning for business investment, whether it be fit out, a new truck or vehicle or or anything, you probably have to decide whether it's cash flow positive, if it's income reducing. A forecast might not might be one of those uh wants, not needs. So, yeah, absolutely forecasting and building in your debt repayments, what that's gonna look like when you take it out. Is there going to be a gap in revenue when you do a fit out? Because you have to shut the shut the business down or the premises down for a few months, um, allowing for how much it's gonna cost in terms of labor from the builder. And even financing these things can be tricky because if you're fitting out a business and let's use a cafe, it's it's shelves and tables and things that a bank goes, well, if it all goes pear shape, we actually don't want that. We don't want to come in and pick up tables and chairs that it used. There's very little value by the end of it. So a fit out can be quite pricey when it comes to taking out a loan. You're not getting the best rates where a bank's go, okay, well, if this if we're financing a car, if it all goes pear shape, we can just go get that car and sell it to someone else. There's a huge secondary market for cars. Is there a huge secondary market for tables and chairs and shelving and used fridges? Not really.

SPEAKER_01 31:17

Honestly, my dad's the only person buying in that market.

SPEAKER_02 31:20

He's probably doing well because there's lots of opportunity there, because the bank banks don't want to take it. But um, but that's where making sure that you've forecasted what those repayments are going to be and inflated interest repayments and shorter loan term. So building in if it's a want or a need, um, if it's going to be income-producing or not, if you can actually measure if this vehicle that we're taking out is going to be used for deliveries that we don't have to outsource to someone else. It's a cost offset or an income-producing asset. Not a bad one to finance. Uh, fit out is going to make things look great. There could absolutely be uptake in terms of the presentation of your business, which drives more revenue and more interest. Um, but you have to make sure that you can afford it based on your now numbers and not just forecast out what might happen if we somehow get more clients in the door because of our fit out. Sure, account for it, but um the conservative enemy says make sure you can afford it based on the now. Uh the banks as well would also like to forecast it based on the now, um, what your fallback position is going to be in the event that we don't get a higher revenue piece. So there's definitely those considerations to make, a lot of them to make every time you're looking at something new with your business.

SPEAKER_01 32:25

Okay, case study time. I have a case study for you. So this has been the conversation between dad and I while I was just down in Albany for the second level, right? There's two ways to go about it. You do the smoke meets, you do, you know, your high upper class kind of barred different vibes from the bowling alley, or you do that and you fit it out as an arcade. And naturally, after running the Father's Day event, we did the smoke meet, it takes a lot of time. For the money we made, we could have just sold 20 pizzas and it would have taken a tenth of the effort. And I think it put things into perspective about effort versus reward, you know, and the arcade is a big cost to get all that equipment in, but there's an immediate ROI. If we fitted that out like a upmarket hospitality venue, all of a sudden, more wages, double kitchen, freezers aren't cheap, as you know. Um, having all that stock, does the stock go off? Like there's a lot more liability. Which one would you naturally be thinking is a better idea?

SPEAKER_02 33:30

Tom and I come from very different positions on this one. That being said, Tom's done it very, very well. And I can't argue with him too often.

SPEAKER_01 33:38

It is Is that just to keep him as a client or no?

SPEAKER_02 33:43

I've got to take my hat off to Tom. He's uh the visionary and the ability to think outside the box for sure. Yeah. Unmatched. Um and it's definitely something that I I have to step out of my comfort zone to see as well. So his ideas um and combined with my conservatism, for example.

SPEAKER_01 33:59

You need that to balance out though.

SPEAKER_02 34:00

That's that's the entrepreneurs and the banks and me trying to be somewhere in the middle as a middleman. Um to uh to probably pick a side here. Uh yeah, sure. I in terms of a high growth phase of a business, taking another big, big step up to invest in more high growth is a riskier option based on stats. Um if it's a big jump that the business has already gone through and a progressive growth based on being able to manage cash flow, not overexert. Yeah, absolutely. That is the safer option. But again, entrepreneurs aren't there to be safe typically.

SPEAKER_01 34:34

So do we pay our debt down and then we're in a better position to then lend out and do that?

SPEAKER_02 34:39

Well, uh speaking a little bit more specifically to the Kennedys.

SPEAKER_01 34:44

Yeah, I'm I'm making sure that mum and dad watch this. So it's not just you know.

SPEAKER_02 34:49

So there's so what I mentioned before is um double checking the equity position, making sure that we're not over-leveraged on business assets and personal assets.

SPEAKER_01 34:56

How do you know if you're over-leveraged? Like, is that a percentage? Is that a dollar amount?

SPEAKER_02 35:00

Yep, absolutely. So the value of debt you have against your personal um property in particular, so home, business premises, um, assets in the business, those kind of things. So to isolate them into their own categories, business assets, 100% leverage is is typically fine because you've got a debt that's going to go down at the same rate as the useful life of those assets. So the arcade games might be a three-year useful life. Um, your debt's probably gonna go down over three years to suit that. Your personal house, you can leverage to 80% typically across all the banks. And that's a safe medium to go, okay, if it all goes pear-shaped, the bank has to sell everything. That 20% margin is enough to clear all the debt. And the bank doesn't lose, which also means that you're gonna have all of your debts extinguished as well, and you can start again, start afresh without anything hanging over your head. Commercial properties in particular, and maybe more specialized assets like a bowling alley, you'd be looking between 50 and 70% leverage against that asset. So it's all about the resale component or capacity of that asset. Everyone can buy a house, so you can sell that quite comfortably. Not everyone can just buy a bowling alley or buy a commercial property for a particular need. Um, and in particular, those individual assets, a car, everyone can buy a car, you can sell those on the open market comfortably. Not everyone wants to buy tables and chairs in a cafe. So they're hard to liquidate.

SPEAKER_00 36:18

Aaron Powell What's good debt versus bad debt?

SPEAKER_02 36:20

Good debt is financing growth and income-producing assets in a very generalist term. So uh asset finance in particular typically is shorter term debt, higher debt commitment per month, but it should go down in line with that that asset. And to take out that let that debt, you're buying an income-producing asset or a cost-offsetting asset that should be fairly neutral. Hopefully, you can use that asset longer after the debt's gone. Um but financing debt against your personal property or your business premises, yeah, you're putting more assets at risk for sure. But it's giving you the growth and the capital to grow your business, invest in your business, uh, buy more stock, buy buy stock at cheaper rates and hold it on on premises for a bit longer so you can sell it for higher rates later later down the track. Um again, it all depends on the business that you're dealing with and the opportunities that present. And Tom sees opportunities all the time, which I love.

SPEAKER_01 37:16

With things like cars and all of that, are they probably a bad debt to have? Tom's cars. Oh no, no, no. If I went and bought like a Range Rover or like, you know, an AMG or something just to show that I'm successful.

SPEAKER_02 37:29

So many accountants that I know uh like to drive around in a Honda Civic uh as a good example. So sure, there is an element of okay, I'm doing well. I'm making good profit margins, my business is consistently performing and my cash flow is strong. You know what? As a business owner, absolutely treat yourself. Why wouldn't you? You've got to have the reward out of it at some point, not to the detriment of your business. So if you were to be absolutely flying, sure. Go buy the AMG.

SPEAKER_01 37:55

Go buy the Lambo.

SPEAKER_02 37:57

Whatever you like to not sink your business.

SPEAKER_01 37:59

Is there gonna be some like luxury vehicle tax or FBT that catches up?

SPEAKER_02 38:03

Absolutely, there is. There's taxes everywhere. Business owners have to just keep wearing it.

SPEAKER_01 38:07

How is there not like air tax?

SPEAKER_02 38:09

Let's not get too carried away here. We don't want to give ideas to the government. But um, but look, yeah, your luxury car taxes are a factor. Yeah, your fringe benefit taxes, you're not gonna buy a Lamborghini and be like, plant a big um sign of your business on the side of a Lambo for sure. No good car owner's ever gonna do that, I hope.

SPEAKER_01 38:24

I don't know, my dad might.

SPEAKER_02 38:26

You might need to for tax purposes.

SPEAKER_01 38:27

I said to him, you know, because he was thinking, oh, if we got a car in the future, we would buy it under the business. And then I said, Have you heard of fringe benefits tax? He's like, no. And so I just was like, I've seen a lot of accountants who are, you know, on social media, they're really trying to educate people about the side that they aren't aware of. So they think, oh, I buy this car and I do this. And then they get hit with FBT and they're going, Oh my gosh, what have I done?

SPEAKER_02 38:52

Planning, planning and talking to your accountant. Yeah. So uh, but yeah, look, I'm I'm probably the advocate for buying your cars in your business. As a business owner, you're primarily going to use them on your business somehow. And sure, there may be a fringe benefit tax cost to it if you're not using it the right way. But as long as you've spoken to your accountant and know what your parameters are, absolutely buy your car in your personal name.

SPEAKER_01 39:12

Because I've known some people who have bought very specific here. Um, they had like an Aston Martin vantage and they were able to pay less in the expenses of having it because of what they could claim on it, versus if they were to just have a normal car bought outright and paying for that. And so I was like, oh, that makes sense. But obviously, you have to be in a specific financial situation for it to make sense for you.

SPEAKER_02 39:37

Yep, absolutely. So yeah, business cars, we do lots and lots and lots of business cars because one, it's typically a necessity. Yeah. The make and model of the car might not necessarily be a need, but it's a want. Uh but buying in your business name, yeah, you got your your business benefits. At least there's some benefits as a business owner. You can claim your GST back because it's a capital purchase. That's 10% straight back into your cash flow.

SPEAKER_01 39:58

Can you claim all your fuel?

SPEAKER_02 40:00

Majority of it if it's business use, absolutely. So yes. Um, probably early on cat uh verging on tax advice here, but most of you are an accountant, right? Not a practicing one. I do like the numbers though. And um, but look, yeah, you can claim a lot more in the business name. And you're offsetting your business taxes and profits, which is what every business owner is trying to do. And your accountant has a lot more flexibility to help you save tax by buying assets in your business name rather than personal, if it's right.

SPEAKER_01 40:30

I think coming back to something as simple as like rich dad, poor dad, the concept broken down into like year five language is liabilities are going to lose you money, assets are gonna make you money. And when you're looking at investing in things in your business, sometimes it's so easy to think that, oh, everything's an asset. But it's like, is it a revenue-producing asset? And I think that's where, yeah, the fit-out costs, they can blow out of proportion, like having a really nice mirror or having this beautiful bathroom. And it's just like, is that actually gonna bring money back into the business?

SPEAKER_02 41:02

Absolutely. In a in a starting out business when cash flow is so critical in the first two to three years, those kind of things probably are wants, not needs. Um, you can get away with building your business and taking out the premises fit out at a lower cost. And it's not going to be carried over the next five years of your business cash flow commitments. Um, by all means, after five years, when you've done exceptionally well and you've grown the business and your cash flow is in a strong position, absolutely do those things. You're a business owner, you get to decide those things if you want to and to have the benefits of being a business owner by having a nice premises to live in and uh work out of. Um, but cash flow is, in my opinion, the most critical piece of planning before making those decisions.

SPEAKER_01 41:41

When you're, for example, a sole trader, is it a bit harder to get a loan?

SPEAKER_02 41:45

Uh it is marginally. So not too bad. But why is that? So the banks are looking at ABN longevity as a primary. So um, in a in a very standard typical assessment from a bank, if you've been trading as an ABN holder for two years, regardless of whether it's a sole trader, partnership, company, trust structure, whatever the case is, you're showing that you've at least been in business for multiple years. So time in business matters. You look at all the stats around how many businesses fail in the first year, two years, three years. So banks obviously are looking at data. Um, the way they build their credit frameworks are data-driven based on how fast businesses go under in the first couple of years. So two to three years of having an ABN, regardless of ownership structure, shows that you've been in the game for a while. You've been running a business, you're getting over those initial hurdles of running a business. So there's a lot more opportunity to take on bank debt when you've been trading for longer. Um, structure is more suited to the accounting, planning, and tax payments rather than bank debt.

SPEAKER_01 42:44

I recently had a friend who wanted to do a fit out, but because she had been making more profit, she'd changed from sole trader to company and she'd only had the company for six months, even though she'd had a business for like three years. And so they wouldn't give her a business loan. So then she had to get it out in a personal loan, and that's when it's like the interest is insane, you've just got to kind of suck it up and go, Well, I I can't afford to wait another, you know, two to three years to get in a better position to just get a business loan. By the time you wait for that, the price of everything goes up anyway.

SPEAKER_02 43:19

So hindsight might get her here, but if uh hopefully she she watches this one, because there's definitely ABN continuity policies. So, yes, you've been in business for three years. If it's two years as an ABN, uh a sole trader and one year in a company, it's just about presenting it the right way to a bank. So would she have had to buy it in a personal name? Probably not.

SPEAKER_00 43:39

If she had the right advice.

SPEAKER_02 43:41

If she had the right advice, talk to a finance broker, accounting um provider. All of those people may have been able to team up and get a the debt in the company name. Because that's where you want it to be. If she's trading in a company name, we want the debt and the interest offset a profit from a tax perspective in the company name rather than her personal liability.

SPEAKER_01 43:58

So instead of going Do some business owners just go straight to the bank to go get the loans out?

SPEAKER_02 44:03

All the time.

SPEAKER_01 44:04

And is that kind of not in their best interest all the time? Like is it better? With a broker? Like because you've got those prior relationships and things, like what is the benefit of me going with a financial broker versus going straight to the bank?

SPEAKER_02 44:17

The spread of the market and knowing all the different policies. So a few quick stats there that you know these days, 80% of mortgage holders will use a mortgage broker as opposed to going direct to a bank. And that's grown by 20 to 30% over the last eight to nine years. The business lenders or business lending market, that's only now at about 55% of businesses will use a finance broker. But again, it's growing year on year on year. Because when you come to a finance broker, you get to learn about all the different banks, all the different policies, all the different terms, structures, rates, repayments. If you just go to your bank, sure, most banks are going to be fine and they're going to have an offering for you. But if you need a specific type of fit out, if you want to buy a commercial property with a smaller deposit, different even major banks have different policies around those type of type of deposits and structures. So the I guess the sales pitch of a finance broker is my job is to know all the different banks, all the different policies and how it affects your particular structure and how what you're trying to get out of it. So yeah, exposure to options is the main selling point of a broker.

SPEAKER_01 45:18

That makes sense. Especially, for example, I was looking at the FPOS surcharge fees across different companies. If you were just going, I'll just go with my bank, you might not be getting the best rate.

SPEAKER_02 45:30

Absolutely. And from a business perspective, it's not always just the best rate. Definitely a factor for sure, and one of the major ones. But structure, uh, long-term, um, equity position and solution is definitely a bigger factor for a growing business than interest rates, typically.

SPEAKER_01 45:46

Well, when you look at cash flow, like we were speaking about before, there are some limitations with the software out there. What do you, as a financial broker who's doing this day in, day out, loves the numbers, actually recommend using?

SPEAKER_02 45:59

Um, I don't have a preferred one, to be honest with you. Um, one of my favorite things is just looking at a spreadsheet. This sounds super basic and super boring, but spreadsheets, I just find it more comfortable, easy to edit, easy to kind of drag out and see trends. Um, sure. Um, I'm not the one entering the data in. Yeah. I'm just seeing the end result. So I like to see a spreadsheet because that's just what I've known and it's comfortable. Whereas I've noticed zero MIB, different accounting firms will have their own templates. Um, everyone has their own way of putting the data in. So I'll probably reverse that question and say, hey, if you're gonna build a forecast, I don't actually mind what what template it comes in because the numbers is pretty much what I'm trying to get out of it. It's how you want to enter in that data yourself and plan because you want to put your best data into that template, whatever makes it easier for you to deliver.

SPEAKER_01 46:46

Yeah, I feel like most business owners are gonna listen to that and go, I don't want to look at a spreadsheet. Because I literally had built this incredible profitable pricing spreadsheet and I made it look pretty so that people wanted to actually do it. But then when I even said I've done the same thing in an app, it was like, boom, I want to do it. It's more engaging. I feel like we need a team up. I'll do the app, you tell me what the things are and we get this out there.

SPEAKER_02 47:09

But you make a user-friendly interface and as long as it punches out something in the background that I can look at, happy with that.

SPEAKER_01 47:14

Literally, because that's something that I'm really seeing as a gap in the market right now is we have a profit and loss statement. We have a balance sheet, we have these conversations with our accountant, our financial broker, but there's still not a simple cash flow tool for business owners to actually use and know where their money's going, what they're actually left with. Like even I'm in this position now where I've been saying to mum, she is very against setting up any more bank accounts because she's just over it. You know, I don't want to have to deal, even though we have a bookkeeper. And I was like, but imagine if we had like six bank accounts. We had a GST tax one, we had one for like holding money, just when we know a big expense is gonna come up, for example, insurance. You know, that's 26 grand. You don't want one week of cash flow to just be like, oh, you've got to pay that. And so if we can set up automations and have that money going across like a percentage each week, we know there's always gonna be something for when those expenses come up. I'm literally like becoming this person who's just obsessed with how do we make this work for us? But I think there's no real tools that are easy to track with and it's very overwhelming and people just they shut down.

SPEAKER_02 48:19

Absolutely. So, Sammy, I love it because you're curious and you're planning. That's that's super important to any business. And if you look at the personal lending side with mortgages and offset accounts and uh the old barefoot investor strategy of different buckets, it is out there for individuals to run their personal budgets. But from a business perspective, they've got so many different data feeds like their online bookkeeping, their accountant giving advice, um, money coming in from left, right, and center, that kind of thing. It's really hard to track. But if you're getting on the front foot and planning, the bank account system that you mentioned there, I've got a client who does that exact thing. From my perspective, reading their reports are easy to manage. From their perspective, they know exactly where the money goes to. Percentage of revenue gets hidden into different accounts, their tax is always in an account ready to go. Their tax planning is great because tax will tax is one of those things that will just come up and get you at the wrong time. And they're working with their accountant all year, making sure their tax planning is aside in a certain account, not touched over there. So when tax bills come up, bang, away it goes out of that bank account. Um, I love planning and I love organization. And if you can run your business organized and planned out really well, it just takes one less stressor off your plate. Sure, it takes a lot to set up. But in the long run, it'll be way easier to run your up uh run your business and manage your cash flow.

SPEAKER_01 49:34

I think the biggest thing that really opened my eyes up is, you know, when you talk to someone who is an employee, they don't, like you were saying, they don't understand that, oh, everyone's taking money, it doesn't matter where you're at in your day, like there's some unexpected bill that comes up, or, oh, by the way, we've got this new debt, or, you know, you've, oh, you've got a $500 fine because you're on your phone in the car. Like, who knows? Something will come up. And as a business owner, the best thing that helped me was look at what are all my expenses and then looking at like monthly down to a weekly breakeven cost. Because I think we always look annual or we look at monthly, but we don't even look weekly and then setting KPIs up that way. But then when you look at your expenses, what percentage? Because once you apply the percentage, it makes so much more sense. If you have 5x what you normally make, or you have like half of what you'd normally make, you're still putting money towards something. And I don't like this is my like pet peeve that's really like got to me. I think this is terrible advice from accountants, is when they're working with a, it could be a sole trader, it could be a company, and they say, based on how much you've been making this quarter, I want you to set a thousand dollars a week away or 500 bucks. That doesn't make sense when you've got a massive amount of cash flow because you've had a busier quarter versus a quieter quarter. I just it just doesn't make sense to me. And this is where, yeah, coming back in and doing weekly break-evens or weekly profit and loss analysis, it's just going to help you get ahead rather than sitting there and going, oh, I've paid X amount when I didn't have to, or I could be having more money in my savings. Um, that was a really passionate rant. Sorry.

SPEAKER_02 51:11

I love it. I love it. Because you're right. Like um a set amount of, I mean, look, you you're breaking down your expenses into overheads, fixed costs, variable costs. Um, and variable costs are the toughest ones to budget for because you you're right. Like uh fridge breaks down, electrician comes in, has to tidy things up, just unknown costs always coming up. Um, I don't know how often Tom is on his phone driving around, but sure.

SPEAKER_01 51:35

Oh no, not in Albany. I had one of my podcast guests, and I decided to drive her to the airport, and she wore her seatbelt here, and then I got a $500 fine and four demerits. And then what have I done wrong? And now I'm seeing all these people have contested it, I just paid it and I've lost four demerits. But the frustration is real. And I can like that's the thing. As a business owner, there's always gonna be like things that are coming up. And now more than ever, I've realized it's it's probably better to be aware and conservative because interestingly enough, I notice in my my own patterns and behaviors when I'm doing really well, oh my gosh, checking my investments daily, checking my bank account. I'm like, and then as soon as things start to go bad, I'm like, haven't looked at that in three months. And it's actually like just developing the routine and the habit. It's like a muscle, you know, becoming good at money is just giving it the attention. It's like a relationship. You can't neglect it and expect it to love you back. Like you've got to put time and effort into it for it to bring you the reward back.

SPEAKER_02 52:37

Well, and that's the putting, I mean, put good things out, get good results. So, yes, a business owner gets caught in their habits of being like, I'm really good at my business. I love my business, whatever I do. And I want to put all of my time and energy into that. And the numbers are just, we don't like numbers. That throw them in the backseat.

SPEAKER_01 52:53

But then hire someone who does like them because it will help.

SPEAKER_02 52:56

And but you do have to invest if you're investing in your business. You love what you do, but if you want to invest in your business, invest properly in your numbers and your data. Data helps you track everything ins and outs, seasonal, high months, low months, allows you to budget. As a business owner, you're constantly stressed out, typically, because there's so many things going on. Remove stresses. Sure, it takes a bit of effort and annual maintenance and things like that. But if you want to maintain your business and make sure it's profitable and long-term, a viable business, you have to invest in these things. You have to put time and energy into them. And so, yes, you can't just be like, I love my job because I want to do this. Probably not going to work out. The data matters. And so planning matters, making sure that you've got your account set up, your budgeting set up, the annual check-ins, uh, weekly check-ins, super important because you're tracking it week to week to what you have next week, what you have to budget for tomorrow, but also those annual or six monthly check-ins with your account. You'll be able to measure the trends of seasonal trade. I mean, every business typically has some sort of seasonal trade. You can't produce a cash flow forecast where you earn the exact same amount every single month for 12 months. There's times of year where people are away in tourism and it spikes in December and January. School holidays for bowling.

SPEAKER_01 54:08

February is our worst month by far, every single year. But then July is our best. And it's because it's cold weather, it's school holidays. December, that's a cash flow thing. I put in from 2012 up until now every single month's worth of revenue, and then applied a percentage to figure out, okay, how much is that month worth out of the year? And now we can project out our seasonality. And now we go, okay, when it's going to be a low month two months before, we go ham with an offer of marketing. And that's something that I taught all my consulting clients because I was like, I would see Facebook group posts saying, Hey, is anyone else quiet? Like, and then all the comments are like, no, that's normal for this time of year. But there's still some other businesses that are like fully booked, and it's because they double down on their marketing. Absolutely. And another thing that I've seen businesses do that I've had to really pull my clients up about is just because you're doing well does not mean you put pause on everything. So for example, in December, you might be super busy. If you go, hey, I'm just gonna cut my VA and my marketing, then you will feel it in January and February.

SPEAKER_02 55:14

Yep. Agreed. Agreed. But yeah, the seasonal review. And again, not every business has the luxury of having someone like you to dive into it and do what's that, 14 years worth of seasonal review. But but they should. Yeah. Um, and sure, there's there's people you can pay, there's providers, there's accountants, there's bookkeepers, a lot of people that you can just get the data to. Who's going to produce those reports for you? And we're in a world now. What are your rates, Sammy? Um, but it's it's super important these days where we're becoming more of a data-driven environment. And banks are so heavily data driven that yes, the more data, the better. Or at least we know where we can place the data. But as a business owner, it's not just the numbers, the ins and outs, it's the demographics of the people buying your products or services when they're spending it. And sure, we hate relying on economy, but economic factors like consumer spending, inflation going up means people are spending more. When there's downturns in it, yes, people are gonna reduce their spending. And as a business owner, you're at the mercy of that. So you've got to know it to plan for it.

SPEAKER_01 56:16

In basic terms, what does this whole RBA hike mean for small business owners?

SPEAKER_02 56:24

One more challenge for sure. So if we're talking to consumer, uh consumer-based self-employed businesses, so um B B to C, so business to consumer. Um, yes, their demic target target demographic is deciding how much extra money they have per month. And while we're just talking about how business owners have a billion things they have to worry about in their cash flow every single day and month, individuals, sure, lots of expenses, personal expenses, but there's a lot less and there's a lot easier to manage. So consumers go, all right, well, I've got now $30 to $40 a week more on our mortgage. What does that mean for my personal budget? Um, in WA, we're fairly affluent as a whole, for sure. Um, and we've got this mining industry driving wage growth, which seems to be pushing more money out into our economy, not bypassing everyone who is struggling with higher costs, because yes, inflation is charging up in WA. But that's what the RBA is trying to do, is they're trying to pass on a um a critical expense cost increase so that people stop using their surplus money elsewhere. So if an RBA can go, all right, your house is a primary, you're gonna focus on your house more than anything, and we're gonna increase that cost to have your mortgage, you're gonna spend less in the economy on other things, on consumables, which sure that sucks for business owners because their livelihoods and their ability to pay their mortgage relies upon that. But that's a way to control the economy. That's the lever that the RBA gets to pull, is to drive down consumer spending, which is the inflation rate, which we're trying to manage.

SPEAKER_01 57:56

But then everything ends up having to go up in price and it costs more. So then they have to spend more and they're getting credit cards. Does it really actually solve the long-term problem?

SPEAKER_02 58:04

I agree. I don't think so anymore. So years and years, decades gone by, sure. A big factor was when the RBA went up and down, people would react accordingly. But there's so many other variable factors these days. So um, yeah, in WA in particular, we have a mining versus civil construction spending battle. The miners and the civil contractors have to pay more and more and more to pay staff to maintain staff and keep staff that are going to do the work. So government's spending, and we're verdu on politics here, but government's spending more on civil works. Sure, we all have better roads and bridges and things like that. But in WA in particular, it's creating a wages battle between two big primary employers. That is pushing more uncommitted monthly income or wages into our WA economy. So if the RBA goes up, people in WA who are in these areas still go, well, that's fine. I'm still getting paid more anyway. So I'm going to keep buying my my however many coffees I'd like and go to the pub or buy my consumables or buy my um whatever it's gonna be, because they can. And the RBA is less effective now because there's other variable factors happening in our economies. Rent expenses are you know a byproduct of policy and uh like budget releases as opposed to RBA, more so these days than ever. Whereas before it was very RBA-based. So I am a little bit biased here. I I hate it when rates go up. I obviously love it when rates go down. I'm a mortgage holder. Much prefer it myself. Um, and it makes life easier for the individual and a business owner if rates are stable, because they can have stable cost, at least one more stable cost base to base planning and decision making on.

SPEAKER_01 59:45

So, as an example with us refinancing at the moment, how does that interest rate change? Have we locked that in and that stays? Or is that like, hey, and then boom, it goes up again?

SPEAKER_02 59:56

It can go up. It can go up. So again, that's just catering it to the individual business. So we use use the business as an example. Um, there's business debt and personal debt, and we want to pay that personal debt down as quickly as we can. And for an entrepreneur like Tom, who might want to do some things in the future, having locked-in debt reduces flexibility. So for a business like yours, where we're trying to pull pay down personal debt, which is not good debt, um, keep the debt that we need to maintain and invest in our business, um, we're trying not to lock anything in because we want flexibility for an entrepreneur like Tom who's gonna have lots and lots of ideas. So having fixed debt, sure, fixes your overheads in terms of expenses for interest. That's one win, but it's potentially costing you flexibility or your ability to grow, take out other debt if you want to be an entrepreneur and grow your business. Um, when cash flow is really strong, you might want to pay down a lot more debt a lot quicker. Fixing your interest rate restricts your ability to pay off debt quickly. And never will we fix everyone's entire debt. We're gonna have an element of flexibility and fixed if we can. But we also have to keep an eye on where the markets are going. And that's the other part of the job is you know, are the banks offering a uh viable fix rate for the next two to three years that is typically higher than the variable rate? And is the variable rate going to go above? If it does, how many months out of that three-year fixed term is it gonna be above? And does it make financial sense to do so? So there's a lot of considerations, to be fair, to make. Um I have been very much on the variable side lately, in WO in particular, for the flexibility perspective. Some businesses are doing really well and they want to pay down their debt. Some businesses need the flexibility to move banks, to change policies, to change structures to grow their businesses, and that's what keeping variable rates do.

SPEAKER_01 1:01:45

Are you noticing that a lot with the change to capital gains tax, people wanting to restructure?

SPEAKER_02 1:01:50

Uh absolutely, absolutely. So that one is still unfolding and the accountant industry is right in the thick of it. Um, the latest update on the capital gains, especially for business owners, is that yes, if you are going to sell your business one day, those changes are gonna affect how much you get for your exit or your retirement or whatever it's gonna be. So a lot of accountants are coming in with uh small business restructuring strategies, um, which does mean selling your business typically to a new entity to start again and resetting your base price before you then resell it in the future. Um, and changing entities' costs, other fees and charges, stamp duties, other effects as well. So uh those changes for the businesses in particular, yeah, that was a pretty drastic effect. And the accountants are going to be starting a lot of business restructuring in particular, and that needs to be variable because if we were fixed and we had to do a restructure, you would be paying a lot of break fees, which just adds to another cost of the business restructure. Fortunately, I think the government pulled back on a few and are allowing transition between entities. And again, I'm erring on tax advice here, but transition between entities uh a little bit easier for now, but that's still unfolding.

SPEAKER_01 1:02:58

It's crazy.

SPEAKER_02 1:02:59

Lots of accounting advice to come.

SPEAKER_01 1:03:01

I need to get an accountant on that is like with all of this, it's crazy. Crazy. I just think as a young person, I've really had to try to tune out what you hear in the news all the time because it can be really deflating when you're taking risks, you're investing, you're putting your everything into a business and not sure if it's even going to be worth it in the end. Like it's pretty scary. I remember when all the capital gains tax stuff came out, and not that we're planning to sell our business, but just the thought of almost two decades of suffering and you know, three million dollars worth of debt, you know, to maybe think, oh, even if we sold this business for half a million dollars, that you'd be lucky if you have two and a half. And then when you actually start to break it down, how long does that get you in the future? Not very long.

SPEAKER_02 1:03:52

Yep, absolutely. So uh as a business owner, like I said, it's it's hard enough all the time. And I've probably noticed lately a lot of business owners are trying to ignore the noise and going, well, I'm gonna double down on my business now and just control what I can control. But again, having the right team around you, the legal and accounting advice in particular, is gonna matter in the long run because yes, you can absolutely double down on your business and ignore the outside noise. You know, the budget came in and uh de-incentivise people from investing in other areas, for example. Business owners are like, well, I can control what I can control, and that's my business. But as long as you're talking to your accountant as well about this doubling down in your business and investing the right way, you know, in 10, 15 years' time when you do exit, because the whole point is to exit at some point, it's going to be financially rewarding or not catch you out and be like, oh crust, I've sold my I've worked my ass off, sold my business and lost more than half of it to tax because I didn't plan accordingly.

SPEAKER_01 1:04:46

There's a lot of gurus and information out there. Where do you believe is the best place for business owners to find reputable advice?

SPEAKER_02 1:04:56

Very good question, Sammy. Uh, the internet, not so much. Um, because it is just there's so much noise. There's so much noise, so much differing advice. Um, and look, I I'm probably conservative in the way that I don't like the generalist advice nature of the internet because this particular advice for your business is going to be different to other businesses. And so having an accountant that gets your business, and you have to you will know that when dealing with your accountant as to whether they actually know your business or not. Do they know, you know, if you've got a plan six or twelve months in advance to buy stock? Um, you might have a specific import provider that will just drop an invoice and say, hey, we're ready to go 12 months later, or just without without knowing. So there's a lot of um knowing your client, but as a client, you'll know your accountant understands your business. Your accountant is the main source of uh information, especially around planning, cash flows, everything, because taxes are always at the forefront. Um, how you structure your business is always at the forefront. Um, a lot of business advisors. Firms are coming out as well, which is definitely definitely helpful for growth because they're not just looking at the numbers, they do, but also target demographics, how the demographics of your industry is changing, what the expectations of your industry are changing. So yeah, it's getting individual professional services advice, slightly biased. I sit in that category. Um, but getting it to it so it's dedicated to your business after someone's actually looked at it properly, instead of just getting it from generalist internet, is definitely my my suggestion.

SPEAKER_01 1:06:30

At Westminster, do you have a full financial team? As in, you've got specialists in finance broking, you've got accountants, you've got everyone, or is it more what do you have there?

SPEAKER_02 1:06:40

We are just specialists in debt. Um, so while we've talked about it over the last 45 years, I guess, and in terms of diversifying to different areas. The business has been holding up pretty well over the uh last handful of decades. So um, but yeah, we have we have talked about it going into potentially financial planning or having um bookkeeping or accounting advisory arms and things like that. And there's an element of getting too big and too spread and and how big you might go as a business. So what we've found is we're still a really, really large finance brokerage in in Perth for sure. Um but being debt specialists means that we're just we're just really good at our area. So we can give specialist dedicated advice for many different industries, many different types of finance, because that's what we do, as opposed to having to have every tax um planning policy or every budget change and how that affects you know what accountants have enough to have to enough to worry about. I believe we have enough to find worry about with all the banks and their different policies. Um I like the fact that we are dedicated just to debt. Do I like debt personally? Hell no. Do not want it in my life, but it is a necessity, uh necessity for a lot of business owners. So we just specialize in debt.

SPEAKER_01 1:07:52

I love that perspective. I think I need to take your advice because doing that whole profitable pricing and realizing how many businesses weren't profitable, it kind of weighs on you. And I guess with you, you're dealing with a lot of debt. But the other side is if you can help them be in a better position, give them a strategy, and you know it's working towards their goals, then that's the fulfilling part of why you would do that in the first place, right?

SPEAKER_02 1:08:14

Oh, absolutely. Part of my story is I worked with a lot of small, small startup businesses early in my career. One, it was to cut my teeth, uh, not compete with any of the other senior brokers in the industry for business all the time. But I got to see those businesses from the origins when they first started, what the idea was, and all those stepping stones we've done along the way. Now we're operating 10 to 15 year businesses and dealing with these people and having seen all the way through what they've grown to be, or how they've got there. Um, so I I love that component because I didn't have to get distracted by all the other factors of their business. We could build a strategy, whether it be stepping stone, a short-term or a long-term strategy around what debt they're going to have and see them come out into long, sustainable SMEs.

SPEAKER_01 1:09:00

A bit more of a fun side before we wrap up. What has been the craziest request you've had for someone to take out a loan with?

SPEAKER_02 1:09:08

I'll have to probably do a top three here so I can think of a few on the fly.

SPEAKER_01 1:09:12

Yes, do it.

SPEAKER_02 1:09:13

Uh have had a submersible submarine for sure, which was not designed to go offshore. Uh that was an interesting one. So it was more, it was training. It was actually for a training. So dump a submarine in a in a big pool out in O'Connor and train for it. Didn't even know that existed. Um so that was an interesting one. Definitely a fair few planes.

SPEAKER_01 1:09:32

Um planes are private planes or business ones?

SPEAKER_02 1:09:35

Both.

SPEAKER_01 1:09:36

Okay.

SPEAKER_02 1:09:36

Both. Planes are fun. I think it's super interesting. There's definitely uh restrictions and issues with planes because you can fly them out of Australia, uh, the larger ones anyway, and that presents issues for banks.

SPEAKER_01 1:09:47

Very interesting. And if someone was in a position where either they're not currently happy with their position with debt, or maybe they're looking at getting into debt with building their business up, scaling, where's the best place that they can reach out to you and connect?

SPEAKER_02 1:10:03

Yeah, absolutely. So our website, with while it's rather basic, it has all of our phone numbers and email addresses. And I guess yes, the point of coming and talking to a broker, whether you're starting out or established, is to review your position. My job is to provide education and structuring and rate advice. So even if it's fantastic and you set up extremely well, great. Just a second pair of eyes to say, yep, you're doing the right thing, keep going the way you're going. Or here's a handful of things that we can do differently that might save you money, um, get your debt paid off a little bit sooner, or allow you better cash flow going forward with debt facilities. So absolutely a second pair of eyes is fine. Um, as brokers, we get paid typically on settling loans. Um, we will always review things up front before we commit to going through with any finance proposals with clients. So if it is just a matter of going, hey, we just want to have a chat, this is our position, we'll have a look. Um, if there's things we can do to improve your position, great. That's how we get remunerated by banks. If there's not, that's fine. Carry on. Um, you just may just get a second opinion, that means that you're going the right way.

SPEAKER_01 1:11:08

Thank you so much, Cameron, for coming onto the podcast today and sharing all of your knowledge and wisdom around all things business, what you've seen in the finance world behind the scenes, and also just breaking things down in a way that we can understand. Once we got past the financial products part and we understood loans, we're here for it. But if you are someone who needs someone to talk to about this stuff, Cameron is the best. I haven't dealt with him personally with all the stuff, but behind the scenes, I've watched it a lot growing up. He's been there the whole journey, and I'm excited to see where Wub West goes with the help of you. We'll see what happens with this second story fit out, if it's happening or not. Oh my gosh. Um, but yeah, I'll link Cameron's website and details in the show notes if you want to reach out to him. Otherwise, thank you so much for listening to today's episode, and I will catch you for the next one. Bye.