There is a lot to look forward to in 2024 and we would like to wish you good health, happiness and prosperity for the year ahead.
– 2023 Year in Review
– Measure it, manage it – business milestones to success
– How will you use your super? Some considerations for the popular options
As always if you would like to discuss any of these matters please don’t hesitate to contact us.
2023 Year in Review
Australia’s economy stubbornly defied predictions during 2023, dashing any hopes that we might begin to return to some kind of normal.
Some had expected an end to the Reserve Bank’s continued cash rate rises during the year. Instead, inflation has been a stubborn foe and we saw five rate rises. On a positive note, superannuation funds bounced back after losses in 2022 with SuperRatings reporting the median balanced option can expect returns of 9.6% in 2023.i
The big picture
Global economic forecasts for 2023 were also beset by a number of wild cards during the year. While many economists were predicting recession in the United States and Europe and a rebound in China, the year ended differently with no recession in the US, Europe struggling but doing better than expected and China still battling some headwinds.
October brought concerns of a wider Middle East conflict, the International Monetary Fund saying that an escalation of the conflict could be far-reaching, affecting tourism, trade, and investment.ii
Inflation and interest rates
In Australia, economic growth slowed a little on 2022’s result but still delivered a better return than forecast. The economy grew by 2.1% although a larger-than-expected increase in the population is putting extra pressure on housing and prices, keeping inflation higher.iii It was the eighth quarter in a row of economic growth.
Inflation remains high but many believe we have seen the end of interest rate rises for 2024. The latest figures show the rate of inflation dropped from 4.9% in October to 4.3% in November.
New dwelling prices rose 5.5% in the 12 months to November while rents rose 7.1%. Electricity prices were up by 10.7% for the year and food and non-alcoholic beverages increased by 4.6%.The Reserve Bank raised the cash rate five times in 2023 to finish the year at 4.35%.iv
Global sharemarkets ended 2023 on a more positive note. In the US, welcome news from the Federal Reserve of an end to rate hikes saw stocks and bonds soar in the final weeks of the year. During the year, the Dow Jones index increased by 13.7% and the Nasdaq by 43.4%. There was mixed news in Asian markets with a jump of 28.2% on the Nikkei 225 but China’s Shanghai Compositive fell 3.7%.v
Australia’s sharemarket may not have experienced the heady double-digit returns of some global markets but it ended the year with a gain of almost 8%, marking its best performance since 2021.vi
Despite big falls from the peaks of 2022, commodity prices remain high across the board.
Iron ore, Australia’s biggest export, rose more than 21% as the Chinese government continues to create strong demand by stimulating property and infrastructure development.
Oil prices saw some spikes during the year but steadied by December. However, the World Bank notes that conflicts in the Middle East and Ukraine, could cause a major oil price shock, pushing global commodity markets into uncharted waters.vii
As the US dollar gathers strength and Australia’s high inflation figures persist, the Australian dollar is under pressure. It ended the year where it began after recovering from a slide in the second half of the year.
While rising interest rates usually dampen property prices, by year’s end we saw a remarkable turnaround for some cities in another result that upended forecasts.
CoreLogic’s national Home Value Index rose 8.1% in 2023, up from the 4.9% drop in 2022 with a patchy performance across the country.viii
House prices rose at more than 1% every month on average in Perth, Adelaide, and Brisbane in the second half of the year. While Melbourne values dropped in November and December, Sydney and Canberra prices barely moved, and Hobart and Darwin prices fell slightly.
As floods and storms ravage the eastern states and bushfires break out in the west, another tumultuous Australian summer might be mirrored by a chaotic year for the economy both in Australia and overseas.
The RBA expects economic growth to remain subdued but resilient in 2024, and is confident that inflation will continue to fall slightly throughout the year.ix
Worldwide, China’s spluttering economy and the outcome of the US presidential election may cause ripple effects across the globe, meanwhile markets will be nervously watching the ongoing conflicts overseas which have the potential to create broader economic challenges.
Whatever the year ahead brings, we are here for you.
iv Monthly CPI indicator rose 4.3% annually to November 2023 | Australian Bureau of Statistics (abs.gov.au)
vii October 2023 Commodity Markets Outlook: Under the Shadow of Geopolitical Risks [EN/AR/RU/ZH] – World | ReliefWeb
Measure it, manage it – business milestones to success
“If you can measure it, you can manage it.” – Robert Kaplan
Running a healthy small business is no mean feat, and business owners have certainly had some challenges thrown at them over the past few years.
However, small businesses are renown for being agile, resilient, and proactive. If you are working hard to achieve the success you aspire to, now might be a good time to have a think about what success means to you and how you can measure it.
After all, how can you achieve your goals if you don’t have a clear idea of what success looks like and a way to measure how your business is performing in relation to achieving your business goals?
How do you define success?
Success can be something that’s very hard to quantify and your definition of what makes a successful business will generally be quite different to someone else’s. Every small business owner will have their own individual idea of what success means to them based on their values and objectives for the business.
Common measures of success
Surprisingly, while financial measures are most commonly used to measure business success, business owners often look to ‘softer’ measures, which often relate back to why they went into business in the first place. Many small business owners are motivated strongly by the desire to provide quality goods and/or services and running a business that is a good place to work – both for the owner and the employees.
This is reflected in a report conducted by National Australia Bank which found that only 11 per cent of participants ranked large turnover as a measure of success.i One in 3 (32%) rated high profits as an important measure but this was well behind other things such as good financial management (58%), positive word of mouth (56%), productive staff (49%) and happy staff (45%).
Crunching the numbers
That’s not to say that tracking the financial health of your business is not important. Clearly, it’s critical, and there are many metrics that can be used to determine what financial shape your company is in.
The most common measure to track how your business is tracking financially is profitability. While it’s possible for companies to survive for a time without being profitable, operating on the goodwill of creditors and investors, to prosper, a company must eventually attain and maintain profitability. It’s a good measure of how successful your company is.
It’s important to acknowledge that no single metric will provide you with the full picture of your company’s financial and health. There are many financial metrics you can use to track your businesses’ health and progress. Metrics you may wish to look at are liquidity which measures a firm’s ability to ride out short-term difficult patches, and solvency which informs how readily longer-term debt can be supported. Companies can have high debt but still perform well if they have used their debt to purchase assets such as equipment or other companies so calculating your debt compared to your assets can be of benefit.
Coming back to your, unique goals
Given that there are so many aspects of business success you can monitor, it comes back to how you define success. That means working out what you want to achieve, what business success means to you and then coming up with the financial and nonfinancial drivers of that objective.
The next step once you have come up with your drivers is to determine how best to assess these. For example, if one of your main objectives is customers who are pleased with your products or services, customer satisfaction surveys will be a good tool to determine how you are tracking and where there is room for improvement. Or if your focus is on improving your turnover, you can look at measures to track your sales volumes, lead conversions and other matrix that support revenue.
You must also regularly re-evaluate your metrics, as well as your business goals as these change over time.
Whatever you want to achieve in your business we wish you a successful 2024.
How will you use your super?
We spend decades watching our super balances grow but for those thinking about retirement in the next few years, it can be confusing to work out how best to use your super.
Here are some of the considerations for the popular options.
Easing into retirement
You can keep working and receive regular payments from your super when you have reached your super preservation age (55 to 60, depending on your date of birth) and are under 65.
Using a transition-to-retirement income stream allows you to reduce your working hours while maintaining your income. To take advantage of this option you must use a minimum 4 per cent and a maximum 10 per cent of your super account balance each financial year.
A transition-to-retirement strategy is not for everyone, and the rules are complex. It is important to get independent financial advice to make sure it works for you.
- Allows you to ease into retirement by working less but receiving the same income, using the transition-to-retirement income stream to top up your salary.
- If there is spare cash each week or month, you can make extra contributions to boost your super, perhaps by salary sacrifice if it suits you.
- There are tax benefits. If you are above 60, the transition-to-retirement pension payments are tax-free (although the earnings in the fund will continue to be taxed).
- For people between 55 to 59, the taxable portion of the transition-to-retirement pension payments is taxed at your marginal tax rate, however you will receive a 15 per cent tax offset.
- Withdrawing money from super reduces the amount you have later for when you retire.
- It may affect Centrelink entitlements
Taking a retirement pension
This is the most common type of retirement income stream. It provides a regular income once you retire and you can take as much as you like as long as you don’t exceed the lifetime limit, known as the transfer balance cap.
- While there is a minimum amount you must withdraw each year, there is no maximum.
- There is flexibility – you can receive pension payments weekly, fortnightly, monthly or even annually.
- You can still choose to return to work and it won’t affect income stream you have already commenced.
- The account-based pension may affect your Centrelink entitlements
- There is a risk that the amount in your super to draw on might not last as long as you do
- The amount you can use for your pension is limited by the transfer balance cap.
Withdrawing a lump sum
You can choose to take your super as a lump sum or a combination of pension and lump sum payments, once you have met the working and age rules.
- Gives you a chance to pay off any debts to help relieve any financial pressures.
- Allows you to make an investment outside super in a property, for example.
- Pay little or no tax if you are 60 and older.
- If you are using the lump sum to invest, you may pay more tax
- Reducing your super balance now, means less for later
- Receiving a lot of money at once may encourage you to spend more than is wise
Access to SMSF funds
There are a number of additional issues to consider for those with self-managed super funds (SMSFs). For example, you will need to carefully check your Trust Deed for any rules or restrictions for accessing your super and consider how your fund can meet pension requirements if it holds large assets that are not cash, such as a property. It essential to consult a financial planner to understand your circumstances.
The process of choosing the best approach for your retirement income can be daunting so let us walk you through the options and advise on the most appropriate strategies.