Weekly wrap - Thursday 1st April

Make the most of the last quarter of the FY

We're coming into the last quarter of the financial year. We’re about 12 weeks away from a whole new set of figures. And we seem to be having this conversation daily at the moment with a lot of our clients, especially self-employed, because it's quite a unique period. Traditionally, we'd still be looking at tax returns for FY19/20 for the majority of the banks, pretty much all of them are required at this time of year. But we've also got a set of interim financials, which are three quarters of the year, nine out of 12 months, to give you a really good indication of what that's going to look like for the current financial year. So we're spending time now pulling that apart and understanding the FY20/21 year in particular was quite unique for a lot of businesses and maybe had JobKeeper and Cashflow Boosts, some businesses may have stopped operating for a period or faced a huge change of the normal income levels.

And then in 2021, we've also seen the skyrocket of a lot of businesses - a great base for the first two quarters of the calendar year.

We've had some fantastic stories to see the bounce back of previous businesses and even some new businesses starting. And so really exciting to see where that's going. So the conversation at the moment is: let’s look at tax returns for FY19/20, and let's get draft interim documents for 2021. Let's get some base to support that. Let's get a really strong overview to show what's happened in one year. Can we isolate the new year? Are the tax returns for FY20 enough? Do we want to wait until 2021s returns are in play? Anyone that's self-employed probably agrees, and we're reaching out to a lot of the clients as we traditionally do this time of year anyway, to acknowledge that 2020 was a bit of a funny year on paper. And again, a good accountant is going to do what a good accountant does and their role in a lot of cases is to help you minimize tax, which is great. And we deserve that for the hard work we do. But there's also a bit of a line with that, as our taxable income is what we use to borrow, and that sometimes can be a little bit problematic.

So understanding accountants will look to minimize tax, we allocate different sets of income or bits in different boxes. You'd be amazed how much that impacts what your borrowing capacity looks like. So we always like to review your tax returns before they are lodged, understanding every accountant will prepare them differently.

If you want to borrow money in the next 12 to 18 months, your 2021 financials are going to be crucial. And so we're not here to make a judgment on how they're prepared. We're not tax agents. It's not advice. But seeing those figures in a draft format helps our clients set the  pace or a profile from a lending perspective for the next period.  Are your financials or income provided going to be enough? And being able to work through that exercise with each client to educate how those figures will affect your ability to borrow money or how the bank views that.

We'll also jump on the phone and potentially do a Zoom with your Accountant, and get everyone on the same page. Because again, we're not there to give tax advice. They're prepared a certain way for a reason, and we totally agree with that. But our role is to help facilitate the borrowings off those documents. As part of your A-team.

Credit Handcuffs

Another just interesting discussion we've been having with clients is around what we call the credit handcuffs. We've had loan to value ratios where clients couldn't refinance because the value of the property and the loan wasn't going to allow them to, the cost fairly outweighed the benefit, be it paying mortgage insurance again, low valuations, etc. But then also not being able to sell for the same reason. So it's been really interesting in a lot of annual reviews that we've been doing at the moment where there is a bit of a run in the market ... and again, we don't sell houses. So there's no benefit for us to suggest to a client, "Hey, you should sell your house." It's not with us. But it's been really nice to see people that have potentially had properties for a little while longer than they wanted to, or maybe didn't go as planned, now being able to get out of them.

We think that's also driving a little bit of the real estate market, where there are people that go, "You know what? If we've ever considered selling, now is a time where there is definitely some heat in the market. There's a shortage of stock. There's an overflow of buyers." If any of you are thinking about that, reach out to a local real estate agent or reach out to us, we've got a lot of fantastic agents we work with in the regions that we operate in, and get an appraisal. It’s good to get a feel for what your property is worth. If it's something you're considering doing, the ability to get out of a property, so to speak, probably is more available than it's ever been.