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Parent Category: Business and Finance

Category: World Economic Updates

Created: 09 December 2011

Last Updated: 05 January 2016

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Linda is the proprietor of a bar in Cork. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into Linda's bar.

Taking advantage of her customers' freedom from immediate payment constraints, Linda increases her prices for wine and beer, the most-consumed beverages.

Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognises these customer debts as valuable future assets and increases Linda's borrowing limit.

He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS.

These securities are then traded on markets worldwide.

No one really understands what these abbreviations mean and how the securities are guaranteed.

Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Linda's bar.

However they cannot pay back the debts.

Linda cannot fulfil her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilising in price after dropping by 80%.

The suppliers of Linda's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation.

Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties (and vested interests).

The funds required for this purpose are obtained by a tax levied on the non-drinkers.

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Written by Administrator

Parent Category: Business and Finance

Category: World Economic Updates

Created: 02 December 2011

Last Updated: 05 January 2016

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Bob Tallent
The Synergy Group
1st Dec 2011

Here’s a scenario for you: You’re the sole owner of a limited company and have no employees. Every once in a while you find yourself a bit short, so you let the company pay for some of your personal expenses, such as dry cleaning, gym membership and house cleaning services. You’re not depriving a business partner or any employees of a salary so, in essence, it’s your money to do with as you like.  Right!

Wrong.

Due to the fact that your business is a separate legal entity, you need to think of it as if it were another person completely. For example, you wouldn’t just walk into the book shop and take money out of its cash register for your lunch, would you? No. And you wouldn’t just stick your hand into your friend’s handbag to take money out of her wallet–you’d ask for permission.  Similarly, for tax and CRO reasons, you need to “ask” your limited company for permission to take funds for your personal use.

How do you do this?

By writing a cheque to yourself from the business account for your salary (or expenses), depositing the check into your personal account, and using the funds from there.  Or maybe by using a petty cash system!

Having the company pay directly for your personal expenses can get you into a whole heap of trouble. If your limited company is sued by creditors for non payment, it could be found that you “stripped” the company of the money needed to meet these obligations by using company money for your personal expenses. As a result, a court might consider your actions to be fraud.  A court then could ignore the limited liability protection your company is supposed to provide and leave you personally liable for all company debts (known in America as “piercing the corporate veil”). Another grave danger is when business owners use one bank account for both business and personal expenses. This becomes known as “commingling funds” – also a no go area, and also grounds for disregarding the personal asset protection that a company can provide.  In a limited company situation I have never heard of this happening, but I have as sole traders (business names).

Even for businesses operating as sole traders, where you take personal liability, it’s a far better practice to open a separate bank account for your business activities. Look at it this way: It really doesn’t take that long to write yourself a cheque to deposit into your personal account. Plus, you’ll receive two important benefits:

1. You’ll start to develop the kind of business mindset your company needs in order to grow, and
2. You’ll save a great deal on accounting fees, because the separation between business and personal (and what’s legitimately tax-deductible) will be that much clearer.

Copyright © 2011, DPNLIVE – All Rights Reserved

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Written by Administrator

Parent Category: Business and Finance

Category: World Economic Updates

Created: 19 November 2011

Last Updated: 05 January 2016

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Paul ApplebyPaul Appleby, the Director of Corporate Enforcement has announced that his office will send a fourth file on Anglo Irish Bank to the Director of Public Prosecutions (DPP) shortly.

A number of files have already been submitted to the DPP by Appleby’s office on Anglo Irish and there is growing pressure on him to make progress on this situation before he has to return to the High Court on the issue next January.

Appleby told a conference of over 200 compliance officers working in the banks which was held in Dublin on Monday 14^th November that, new legal rules in force since August now made it mandatory for people working in banks/financial institutions to report any serious wrong doings to the Gardai if they suspected an offence had been carried out. The rules included protection for whistle-blowers but extremely strong penalties for people making false accusations. He also said that the old banking system of dealing with fraud internally had to change.

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Written by Administrator

Parent Category: Business and Finance

Category: World Economic Updates

Created: 17 November 2011

Last Updated: 05 January 2016

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What will be the effect of an increase in VAT?

Bob Tallent
The Synergy Group
17^th November 2011

As I have said in the article ‘opportunity or threat’, the leaked document 'Ireland: memorandum of economic and financial policies' reveals that the government is to raise the top vat rate when Minister for Finance Michael Noonan presents the budget on 6^th December next.  Michael Noonan has not confirmed this as of yet because he has said that decisions have not been made yet.

However, according to a document presented to the budget committee of the German lower house of parliament yesterday (Wednesday 16^th), Ireland will raise the top rate of value-added tax (VAT) to 23%, generating an additional €670 million.

According to the leaked memorandum "After successive budgets in which income tax burdens were raised significantly, we have decided to focus on indirect tax increases to deliver the bulk of the 1 billion euros additional tax effort required in 2012 ...

"To this end, the VAT rate is being raised by 2 percentage points to 23%, which will generate 0.67 billion euros."

"I don't know how anybody could have a document like that. The government hasn't decided its budget yet," said Labour Party Leader Eamon Gilmore speaking to reporters.

The document lays out a plan for a further 100 million euros to be raised through a reform of capital gains taxation while around 160 million euros will be generated by a previously announced household charge.  The remainder in fresh revenue will be raised through increases in other forms of indirect taxation.

Social welfare is targeted for the further €1.45 billion savings and it said reforming entitlements, reducing unemployment traps and improving the targeting of social supports would account for cuts to social welfare.

Another change to the updated memorandum shows that the government is to fund the struggling credit union sector to the tune of €250 million by the end of the year.

The updated memorandum of understanding between Ireland and its creditors, which presented to Germany's budget committee ahead of publication, said a broadening of the personal income tax base would form part of the 2013 budget.  The memorandum also states that the government may substitute another measure for the proposed change to income taxes in consultation with its EU, European Central Bank (ECB) and International Monetary Fund (IMF) "troika" of lenders.

Since the government has received the €85 billion bailout nearly a year ago under the FF government, it has so far passed all of its bailout reviews.  Even allowing for this, the troika has said that significant risks remain.

"The growth outlook could deteriorate significantly in the months ahead, if Ireland's main trading partners do slide into a recession," the document said.  "This would complicate the authorities' consolidation effort markedly."

Bank losses may also be higher than expected due to continuing weaknesses in the property market and higher-than-expected unemployment, and a risk of consolidation fatigue setting in, especially if private sector involvement in other countries is seen as a "quicker" and less painful way to address the high debt problem.

This all could mean continued tightness by the banks, continued or renewed lack of public confidence therefore less cash flowing in the retail sector.  And less cash flowing in the retail sector bounces down through all sectors.  With one exception!  Those who are supplying the retail sector with POS material stand to gain handsomely, so long as they get their 4P’s correct.  Equipment suppliers may have to find innovative ways of helping their customers to fund the machinery.