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5 Ways to Fund Your Startup

5 Ways to Fund Your Startup

by | May 13, 2016 | In The Media

Wouldn’t it be great if fairytales were true? A fairy godmother would wait in the wings for our big moment and then make all our startup dreams come true.

More often than not, when we finally have that light-bulb moment with a great idea that we just know will work, it becomes apparent that we’re not quite sure how to fund it.

Here are five ways entrepreneurs are able to fund startups:

  1. Self-funding
  2. Pitch to friends and family
  3. Venture capitalists
  4. Grants
  5. Crowdfunding

Self-funding

Self-funding is the most common method. We take a bet on ourselves and go from there. If you have a good credit history, you may be able to use the equity in your home via a bank loan, a line of credit or even a credit card to get the ball rolling.

If you do go down the self-funding path, it only affects you. This also means that if things go brilliantly, the profits are all yours! Remember, however, that you really have to believe in yourself and be willing to risk your assets and future earnings to cover costs.

Pitch to Friends and Family

If the phrase “beg, borrow or steal” is starting to haunt your dreams as you struggle to get your startup off the ground, friends and family may be your next port of call. Before you go to the professionals, it’s a good idea to seek out those who already believe in you.

But be warned: mixing friends, family and money can be a recipe for disaster! Be very clear about expectations on both sides, repayment time frames and any agreed-upon interest to be paid, as well as profit sharing. And get everything in writing.

Venture Capitalists

Soliciting venture capitalists is another way to help get your startup off the ground. These professional investors put up institutional money (or their own.) You will need a proven business model, a great plan and be ready to scale. They often look for big opportunities that need serious money. Ask around for a warm introduction to have this method work and be sure to do your homework before pitching.

Grants

The government has an allocation of funds set aside to support small businesses, often for new technologies and important causes. Check out the Australia Business Financing Centre to see if your idea is eligible. Grant money can be used to buy equipment, pay for training, fund advertising and more. Chances are they’ll offer unbiased advice to help eligible entrepreneurs in their funding pursuits.

Crowdfunding

Crowdfunding is the newest source of funding where anyone can participate. If you’d like to see how it works, visit Kickstarter. Anyone can make an online pledge to fund your startup during your campaign. They can pre-purchase your product, give donations or qualify for free rewards down the track, such as a t-shirt.

Whichever course you take – and it may be a combination of many – it requires hard work, dedication and commitment on your part. There is no fairy godmother or magic bullet in business. Whatever you decide is likely to be a trade-off between your immediate needs, long-term costs and paybacks, while still considering the levels of ownership and control you’d like.

With so many options out there, isn’t it time you started living the dream?

 

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Budget to Save Yourself!

by | May 10, 2016 | Budget, Budgeting, Finances, Savings, Wealth, Women

The average household spends more than $69,000 a year.   Neal Vaughan explores the best ways to manage that.
Wondering why you spend almost everything you earn, living from payday to payday and hardly saving? It could be you’re too busy to keep track of your money.
Or you’re refusing the challenge of taking control: the 2014 ANZ Survey of Adult Financial Literacy in Australia, found women aged 28 to 59 years had lower scores than men on financial control, though they were better than men in keeping track of finances.
Women of this age were more likely to have missed a loan or credit card repayment and also more likely to have been unable to save money in most weeks. Greater discomfort with comparable levels of debt appeared to contribute to women’s lower scores on this index,” stated the survey.
In the same year, a study into women and money conducted by RMIT University’s Roslyn Russell and La Trobe University’s Amalia Di lorio found almost 50 per cent of women say they sometimes run out of money completely during the year.
That’s something that financial adviser Amanda Cassar has often seen in her career.
Cassar says “it is a fact that even very successful women generally end up with lower savings than their male counterparts, and with less than half the super savings” according to the 2013 Australian Bureau of Statistics’ gender indicators report of median super balances for women aged 45 to 55.
A financial health check-up with your adviser,  and creating a monthly budget will help you save more when you’re earning well.

Get budgeting

So what is the best way to go about setting up your own budget? The first thing to do is to put some time aside to write down all your expenses and incomes.
You may find that with a little extra care you can trim back your outgoings and save more than you thought, so you can start putting your money to work for tomorrow, not just today.
Primary school teacher Sofija Egic considers herself reasonably careful with money. However, she was surprised how easily having a simple budget with set spending limits, plus a regular direct debit to a separate savings account, helped her put a sizeable amount aside each month.
She has just purchased her first investment property with her partner Sam.
“To be honest, we used to spend without thinking. When you’re both flat-out working, it all seems essential until you actually list it down. We spent a Sunday morning working out a formal budget – a set amount for groceries, a limit on what we spent going out, getting a bus instead of a cab home – that sort of thing.”
It may seem a bit dull, but if you go to the Australian Securities and Investments Commission’s MoneySmart budget calculator, you can liven things up by downloading the TrackMySpend app.
You can use this app to track your day-to-day spending, which can alert you when you overspend (based on your pre-set budget limits on certain types of purchases).
ANZ’s budget planner is a detailed helpful tool for you to figure out your income and expenses and in the long term what you can achieve with your savings.
ANZ’s MoneyMinded hub can take you through the budgeting process, using the MoneySmart tools, to help you feel less stressed about the future.
 

2016 Federal Budget Analysis

2016 Federal Budget Analysis

by | May 3, 2016 | Australian Economy, Budget, Debt Management, Economy, Retirement, Superannuation, Taxation

Treasurer Scott Morrison has handed down his first Federal Budget – the Coalition Government’s third. The winners are low and middle income earners, unemployed youth and small business, and there are significant changes to superannuation.

Note: These changes are proposals only and may or may not be made law.

Summary

  • A lifetime cap on non-concessional (after-tax) superannuation contributions of $500,000 will apply from 7.30pm on 3 May 2016.
  • The income tax threshold at which the 37% tax applies will increase to $87,000 pa on 1 July 2016, from the current $80,000 pa.
  • The tax rate that applies to small business companies will reduce to 27.5% for businesses with a turnover up to $10 million in 2016/17. Further tax concessions will apply in future financial years.

A range of superannuation measures will also apply from 1 July 2017.

  • The annual cap on concessional (pre-tax) super contributions will reduce to $25,000, regardless of age.
  • Concessional super contributions may exceed the annual cap if certain conditions are met.
  • Those aged between 65 and 74 will be able to make super contributions regardless of whether they work or not.
  • Tax deductions will be able to be claimed for personal contributions regardless of employment status.
  • A lifetime limit of $1.6m will be placed on the amount of superannuation that can be transferred to start pensions.
  • Earnings on investments held in ‘transition to retirement’ pensions will be taxed at 15% (currently 0%).

If you’d like to read more, click here: FPA Budget Wrap 2016

The real costs of owning property

by | May 3, 2016 | Australian Economy, Economy, Finances, Investments

Australians have long been attracted to property as an investment.  But we also tend to have a blind spot when it comes to the costs of owning it.
Property holds a special place in the hearts and minds of Australians. But do we let our love for property cloud  its true value as an investment?
A strong property market, low interest rates and generous tax breaks have all been magnets for property investors  in recent years. The challenge for property investors is making sure you’re weighing up the performance of your investment against what it’s really costing you to own it.

So what are the costs of owning an investment property?

1. Upfront costs

If you’re looking to borrow to fund your property investment, the starting point with many lenders is a 20% deposit.  On a $600,000 property, that’s $120,000. If your deposit is less than 20%, you may need to pay Lenders Mortgage Insurance – which can be a significant one-off cost.
Typically the biggest cost when buying a property is stamp duty, which varies from state to state but is close to $23,000 on a $600,000 property in NSW[1].
Add to this legal fees ($1,500-$3,000), building and pest inspections ($300-$500) – potentially for multiple properties – bank valuations ($300-400) and loan establishment costs ($500-600).
Add them up, and these costs could potentially add around 5% to the cost of your investment.

2. Ongoing costs

Once the property is yours, you can obviously start using it to generate an income from tenants. The downside is the ongoing costs.
Loan repayments are usually the biggest cost. For example, a $480,000 home loan with a 30-year term and a 6% p.a. interest rate will generate loan repayments of $2,878 per month. And remember that only the interest portion of these repayments is tax-deductible.
Other ongoing costs include council and water rates, strata levies (if applicable) and home and landlord insurance.  You may also have to pay land tax for larger or higher-value properties.

3. Exit costs

At some stage you may want to sell your investment to realise the capital growth you have hopefully earned. The major costs here are likely to be real estate agent fees (typically around 2% of the sale price) and capital gains tax (CGT),  which is payable at your marginal tax rate.
You may be eligible for a 50% CGT discount if you hold your property for more than 12 months, but CGT can still be  a significant expense – particularly for higher income earners.
For example, if you bought an investment property for $600,000 and sold it for $750,000 three years later, 50% of the  total capital gain (i.e. $75,000) would generally be subject to capital gains tax. If you’re in the highest marginal tax bracket, that tax bill could be as high as $36,750 (including the Medicare Levy and Temporary Budget Repair Levy).

Property investing for the long term

There’s no doubt astute investors can make good money from investing in property, particularly in favourable market conditions. But it’s essential to weigh up all of the costs associated with buying, owning and selling an investment property.
Generally speaking, property should be looked at as a long-term investment for 5-10 years – giving you time to achieve the capital growth and income you need to average out the costs and make it a successful investment.
 
[1] http://stampduty.calculatorsaustralia.com.au/stamp-duty-nsw

Negative Gearing set to stay

Negative Gearing set to stay

by | Apr 28, 2016 | Australian Economy, Budget, Economy

Despite much talk, the Federal Government announced over the weekend they won’t be making any changes to negative gearing in the upcoming budget.
The news of course, was met with familiar cries that the tax concession distorts property prices and encourages speculative investing.  According to our sources at BlueWealth Property, some of the most vocal criticism came from the Grattan Institute who released a paper titled ‘Hot property: negative gearing and capital gains tax.’
In a break from tradition, the Prime Minister responded to criticism of the announcement in writing, saying that ‘the [Grattan Institute’s] paper is littered with factually incorrect statements, claims that are unsupported by evidence and direct contradictions.  And its economic analysis in many places leaves a lot to be desired.’
Mr Turnbull further builds the case for negative gearing by noting the effect of its removal on the rental market and income equality..
It seems most likely that the Liberal, (or Labor government as the case may be) will maintain negative gearing in its current form.
Read the Prime Ministers full response here
For more on the impact of Labour’s policy, click here.