Protecting Your Legacy

Last Wednesday (23rd September, 2015) saw our Team gather together with an audience of around 40 guests at Quorn Country Hotel to consider how to ‘Protect your Legacy’.

Over the course of the morning Nelissa explained why it’s so important to make a Will, Rebecca told us how Inheritance Tax works, how much you’re likely to pay, and various ideas for how to avoid it.

Richard went on to explain how valuable tax reliefs can help reduce your IHT bill, especially in the area of Business Property Relief. Dave went on to cover a range of planning possibilities using trusts to reduce your tax whilst still keeping control over your cash.

We asked the attendees how useful they found the Seminar, and the praise was high. They told us that the morning had been clear and informative, and had given them a new insight into planning for the future. There was also a wide appreciation that everyone’s circumstances are different, and that there is no single solution that works for everyone. You can view some of their comments in this short video.


The final session of the morning gathered a number of the ideas together in the form of a ‘real-life’ case study, the story of one particular Chesterton House client with a long relationship with the firm. Richard and Rebecca explained how, using a combination of financial planning, investing and legal strategies it had been possible to reduce this couple’s eventual tax bill to a tiny fraction of the amount that would have been payable without taking any action, whilst still ensuring that there were ample funds to pay for the care and support that was required for several years towards the end of their lives.

The case study was a great example of how a long-term professional relationship, focused on a person’s needs, goals and objectives, implemented and adjusted regularly over the years as those needs and circumstances change, can bring not only great peace of mind but also real financial benefit. It also highlighted the advantage of financial, legal and accounting professionals working together to get the best outcome for clients – a hallmark of our service at Chesterton House.

If these are topics in which you have an interest, you can start by having a word with our Team. They would be very pleased to discuss your situation with you.

Here Comes The Sun!

Standing in a large field wearing steel toe-capped boots in a chilly September wind isn’t our usual idea of Chesterton House-style hospitality, but it’s what we and around 30 clients and friends were doing this week. So what was it that had captured our interest?

We were guests of Foresight Investment group, owners of one of the UK’s largest solar energy farms, which happens to be located just a few minutes drive from our offices near the village of Wymeswold.

In fact it wasn’t until towards the end of the visit when the site manager invited our party to climb the small hill that overlooks the former airfield site of the farm that we fully appreciated the scale of this silent power station. Despite being home to an amazing 140,000 solar panels over a 190 acre area, the development is unobtrusive from the adjacent roads and I suspect that few local residents appreciate its scale either.

Looking out over a sea of solar panels

We had earlier been welcomed to the site by Nick Morgan of Foresight, and he had explained the investment merits of this form of energy production, with its stable and highly predictable revenue stream. Richard Urwin, Investment Director at Chesterton House, told the assembled group about the benefits arising from an index-linked income stream and why this farm had been included in our clients’ investment portfolios.

Site manager Arnoud Klaren then went on to share details of the site, how it was constructed, and how it harvests energy from the sun to generate a constant stream of electricity for the National Grid. With a potential output of 34 MW of electricity, the site produces enough energy to power the equivalent of 10,000 homes.

Except, of course, when there is no sun, which remained conspicuous by its absence. The grey skies got greyer, the wind got colder, and the boots got less comfortable as we stood and listened. We were pleased to hear that the panels still generate power even under the very darkest of daylight skies, but we were denied the opportunity to hear the inverter – a large caravan size metal box that turns the solar direct current into the alternating variety required by the grid – really sizzle, as Arnoud assured us it does when the sun shines bright.

It was obvious that the unseasonal chill hadn’t dimmed everyone’s enjoyment of the event, however. Arnoud fielded a wide range of questions with clear and enthusiastic answers, and we all learned a great deal about both the practicalities and problems of modern ‘clean’ energy generation as well as the financial implications involved.

As the world focuses on reducing its carbon emissions this promises to be one area that is ripe for continuing innovation. An obvious problem with solar-generated energy is what happens at night, and Arnoud described some of the ideas that are being developed to be able to create a stable energy stream, from the use of batteries to store surplus power, to using lakes that use surplus power to raise water in daytime allowing it to fall and generate hydroelectric power as required overnight. As the number of alternative energy generators increases, with consequent falls in installation costs, it becomes more economic to investigate these ideas and create workable solutions. Watch this space!

As the cool breeze continued we were pleased to retire to the Windmill Inn in Wymeswold which provided us with an excellent buffet lunch in their welcoming warm surroundings. The comments we received then and since confirmed that everyone had found this an enjoyable and very informative way to spend a morning.

We’re grateful to Foresight for this opportunity, which we may repeat in the spring. If you’re a client of Chesterton House, or you’re interested in the possibilities of using solar power in your portfolio, and you’d like to come along next time please drop Jenny a line at jenny@chestertonhouse.co.uk and she’ll get in touch when we’ve fixed something up.

And let’s hope that next time the sun comes out. I would love to hear that inverter sizzle!

 

Build Recurring Revenue

Andy will be speaking on the subject of ‘Profit’ at three ‘Love Business’ breakfast workshops to be held in Leicester, Nottingham and Derby on the mornings of 23rd, 24th and 25th June 2015 respectively, and he has written a series of blogs to set the scene for the workshops. If you’re in business entry is free. Each one will be packed with dozens of ideas around the theme of doing great business in the new age of the millennial buyer. Click here for more details and a registration form.

Most businesses survive on their next order. If the order doesn’t materialise, their business is dead.

But it doesn’t have to be this way. There is usually scope to focus on building recurring revenue as the route to higher profits, greater predictability of income, and more capital value in your business.

What product, service or benefit will your customer enter into a contract with you to provide? Could you make your life – and, more importantly, your customer’s life – easier by agreeing the details now?

I’m constantly amazed by how many businesses completely fail to capitalise on this future revenue stream. For example, for many years we have used the services of a heating engineer to carry out an annual gas safety check on property we own.

Has the engineer ever suggested a regular contract to guarantee that this important check will never be missed? Perhaps offering priority attention in the event of breakdown or emergency? Maybe even special ‘favoured customer’ terms on other work?

You can guess the answer.

We’ve periodically required our offices to be refurbished and painted. Has the contractor ever offered to schedule future work in advance to an agreed schedule on a regular monthly payment scheme? If so, might there have been other work that could have been included on the schedule – other properties, or maybe our home?

I’ll let you speculate on whether this ever happened.

When we’ve taken a car for service, did the garage recommend a service plan to cover the cost of future work and guarantee a high standard? No – although the very same garage offers a five year service plan on a new car we bought from them.

I could go on and on (and as my wife tells me, I often do!).

But you get the idea.

Some businesses don’t lend themselves to this type of regular-payment arrangement, but in my experience they are the exception, not the rule .

So let’s say you achieved this, and were successful in getting a substantial part of your work onto a recurring, contractual basis. What implications would that have for your work scheduling? For your staffing needs? For your ability to seek efficiencies in delivery as a result of your new focus on consistently repeated processes?

Being able to predict revenues, costs and profitability in advance, what effect would there be on the value of your business to a potential purchaser?

Of course, if you’re going to make promises you need to match them with great performance. Don’t offer what you can’t deliver.

But for many customers seeking great service from a business they can trust, entering into a long term contract is one less thing to worry about. And one more step towards your highly successful business.

Income Less Expenses Equals Profit

Andy will be speaking on the subject of ‘Profit’ at three ‘Love Business’ breakfast workshops to be held in Leicester, Nottingham and Derby on the mornings of 23rd, 24th and 25th June 2015 respectively, and he has written a series of blogs to set the scene for the workshops. If you’re in business entry is free. Each one will be packed with dozens of ideas around the theme of doing great business in the new age of the millennial buyer. Click here for more details and a registration form.

I have a friend and long-standing client who is focused on cost reduction in his business, and has been for years. Over time his business has become more efficient, leaner and better run.

His problem is that, in all of that time, his turnover has remained stationery. He now delivers his service for less money than he did ten years ago. His business is slowly, inexorably, strangling him to death.

He hasn’t learned the lesson that Ken Blanchard expressed in his seminal book, ‘Big Bucks,’ the third of his cardinal rules of business. It’s a simple rule, and it says ‘Income Less Expenses Equals Profit.’

Now you might imagine that is just what my friend is practising. If you do, you’ve missed the most important part of the equation.

There are two variables in play here; Income and Expenses. One has limited application. The other is completely without limits. Which will you spend your time working on?

Let me expand. You cannot cut your expenses by more than 100% of their current level. The more you cut, the harder it will be to grow. A business spending nothing is unlikely to move forward (although if you know of a way to run a business with zero costs, I’m all ears!).

Income, on the other hand, can be expanded exponentially without limit. Yes, this expansion is likely to mean higher costs, but my point is that the fastest way to more profit in your business is more income, not lower costs. That’s why the world’s great companies devote so much of their revenue to marketing and revenue expansion.

My friend lives in the shadow of the stigma of failure. Yet unless he changes his ways, failure is inevitable. In your business, are you prepared to countenance the risk of success by focusing on growth?

Profit is a Way of Being

Andy will be speaking on the subject of ‘Profit’ at three ‘Love Business’ breakfast workshops to be held in Leicester, Nottingham and Derby on the mornings of 23rd, 24th and 25th June 2015 respectively, and he has written a series of blogs to set the scene for the workshops. If you’re in business entry is free. Each one will be packed with dozens of ideas around the theme of doing great business in the new age of the millennial buyer. Click here for more details and a registration form.

In your business and mine, profit is a state of mind and a way of being. It derives from how you see the world, which in turn reflects in the actions you take and the results you achieve.

It sounds obvious to say that making more profit is the first objective of business, but in my experience that most often isn’t true, especially in smaller businesses. Ultimately you are driven by your values, which are the keys to your world. Understanding your own values is essential if you are to leverage your effectiveness.

For example, if you are in business, will you act to put more money in your bank before you focus on producing a great product? Before excellent design? Before building a first class reputation and the respect of your customers?

Is profit more important to you than working with a great team? Enjoying turning up for work each day? More important than doing work that fulfils you and gives your life purpose?

Or do you believe that doing these things will lead to profit? If so, how will you know?

Do you actually believe that making high profits is a ‘good thing?’ Or do you carry a secret belief around with you that suggests that companies that are highly profitable are somehow unethical, devious or self-serving? If you do, you’re not alone.

Who knows, you may be right.

If you’re running a registered charity.

Assuming that you’re not, perhaps it’s time to get your thinking straight about profit.

Here’s my view;

The level of profitability in a business reflects the value that the business delivers to its customers multiplied by the efficiency with which it delivers it.

That efficiency extends into all areas of business activity, encompassing production, finance, sales and marketing, people, etc. It’s what makes for the day to day challenge of running a successful enterprise. It has to be at the heart of everything you do, or eventually your business will fail or, much more likely, it will be completely without teeth in the fight to deliver your best work to the widest audience.

Which is where your profit will come from.

Ken Blanchard expresses this superbly in his excellent book ‘Big Bucks.’ In it, he describes the three cardinal rules of business.

Firstly, your business must be about something much more important than just making money.

Secondly, making money has to be the most important thing.

The resolution of this apparent dichotomy is what makes good businesses great. My advice is to get very clear about what your business brings to the world in words that are meaningful and inspiring to both you and your customers before you try to figure out how to deliver it profitably.

And the third of Blanchard’s cardinal rules? That’s for another blog.

 

 

How much money should I leave behind for my children?

 

This is a question that I was asked by a client recently, and as with many such questions, it’s a complex one to answer as it depends on your own personal views and values, as well as the personality and capabilities of the child.

When I thought about it further, I came to the conclusion that it’s actually the wrong question. You have no idea when you are going to die, what your future circumstances might be, how much wealth you may have, and what sort of person your child may grow into. I would therefore suggest that a much better question is to ask, “How can I prepare my child to make good decisions around money, to use it creatively and for the good of him or herself and society, and to avoid the bear traps and leeches that populate the financial world?”

There is plenty of evidence for the damaging effects that too much money too soon in life can wreak on young lives. Vorayud Yoovidhaya, the grandson of the founder of Red Bull was accused of the hit-and-run death of a police officer whilst driving his million-dollar Ferrari, and reportedly used his wealth to buy off the officer’s family and avoid prosecution. Brandon Davis, 32 year old oil heir and friend of Paris Hilton, is a regular in the tabloids for drug infringements and alleged nightclub brawls. Prince Pierre Casiraghi, son of Princess Caroline of Monaco, was accused of being “completely obnoxious”, insulting models and swigging from a $500 bottle of vodka after a brawl at a New York nightclub that left him in hospital. There are plenty of other examples.

 

For parents trying to deal with these excesses, views also vary. Gene Simmons, bass guitarist with American group KISS and reportedly worth $300 million, reportedly told CNBC “…in terms of an inheritance and stuff, (my kids are) gonna be taken care of, but they will never be rich off my money. Because every year they should be forced to get up out of bed, and go out and work and make their own way.”

 

Bill GatesMicrosoft founder Bill Gates feels similarly. He said “I didn’t think it was a good idea to give the money to my kids. That wouldn’t be good either for my kids or society.” Instead, he and his wife Melinda created the Bill and Melinda Gates Foundation in 1994, which today has assets of over $37 billion.

 

 

Movie star Jackie Chan does not plan to leave his millions to his son, Jaycee. He told a reporter “If he is capable, he can make his own money. If he is not, then he will just be wasting my money.” Contrast that approach with young Suri Cruise, daughter of Tom Cruise and Katie Holmes, who at the age of six reportedly had a three million-dollar wardrobe, and whose mother was apparently planning to surprise her daughter with an eight foot, $24,000 Grand Victorian Playhouse for Christmas, complete with running water, electricity, and extensive landscaping.
These are, of course, examples from the extreme end of the wealth spectrum. Nevertheless, the range of sentiments which are expressed can apply to all of us who have surplus funds that our children may one day inherit. So how do we prepare them for that day?

 

 

Inevitably, the good financial habits of children are likely to be built on the foundation of the practice of their parents. But sometimes, those habits aren’t always recognised.

 

I had a conversation with clients a few years ago when mother expressed a desire to give her three children a significant sum so that they could each buy their own homes. I asked her what was important about making this gift to her. She thought for a moment, and then told me that she didn’t want her children to struggle in the way that she and her husband had done over the years.

 

I reminded her of a previous conversation when we had explored her values in depth. At that time, she told me of her pride in achieving her financial success as a result of having to struggle and make good decisions in the tough times. This, she had said, had been the making of her.

 

I didn’t need to ask whether she wanted to take this away from her children. She saw the point immediately.

 

I quickly told her that I didn’t disagree at all with her giving money to her children – she could easily afford to do so – but she should firstly be clear about whether the children were ready to receive it.

 

George Kinder refers to these issues extensively in his book, ‘The Seven Stages of Money Maturity’. He describes the first two stages, Innocence and Pain, and explains how it is necessary as part of life’s journey to feel the pain before one can move onto the next stage, acquiring Knowledge. If the pain isn’t there, neither is the incentive to do the work necessary for personal growth.

 

Financial knowledge is essential on this journey. It is common for the very wealthy to enrol their children in financial education classes at an early age, enabling them to be equipped to deal with complex decisions around investment, accounting and trusts as well as to understand the role of philanthropy and community service in a well rounded financial life. It is a fact that the financial literacy of many young people leaving school today is extremely poor. Many have little idea about how a mortgage or credit card works, what the stock market does or how companies and governments operate. The child who understands these things early in life has a clear head start when it comes to understanding and dealing with his or her parents wealth.

 

Kids PiggyPerhaps the starting point for your child’s financial education is to revisit your own. Are your financial habits and attitudes appropriate and taking you where you want to go, or do you need some further coaching or education? Have you written down your own attitude to money, wealth creation, borrowing, saving and investing? When your child asks a financial question, are you able to give a rounded response?

 

Is money a problem for you, or is it the solution to a problem? How comfortable are you with your own wealth? If you have some issues in these areas, the chances are your child will grow up reflecting your views.

 

At Chesterton House we seek to work with our clients and their families to address these issues over time. If you don’t have a relationship with a financial planner who can assist you in this area, there are lots of financial information websites that are a good starting point. You need to make sure, though, that they aren’t just a cleverly dressed up sales message and that they are offering genuine education. Take your time to research and find a source of help that chimes with your own personal goals and values.

 

If you need any help on this topic, let me know. I’ll do what I can to point you in the right direction.