Sunday, December 26, 2010

The inside track on financial projections

For new business owners in Thailand, preparing a business plan and financial projections can be an intimidating process. However, it doesn’t need to be. What you need is a good understanding of your business and the market, not a master’s degree in accountancy. A well presented business plan and realistic financial projections will reinforce a positive impression you want to create of your business. This will benefit you and your investors.

It is tough to predict the future trading performance of your business, particularly if you are just starting out (where assumptions will be based on market research and realistic judgement), Business owners should avoid making the mistake of working out the level of sales they will need to make the business viable and then putting this figure in as their forecast. It’s easy to convince yourself that these figures are achievable but can you realistically see that number of clients / customers buying your service or product?  

Profit statement
A profit statement breaks down, on a monthly basis, the turnover, cost of sales, gross profit, operating costs and net profit of a business. By breaking each section down into manageable parts you will stand a better chance of producing an accurate forecast.

Let’s take the turnover for example. Businesses can generate income from various sources depending on the products sold or services provided. Each product or service will have an individual price, cost or demand which should be taken in account when producing your projections.

Cash vs profit
It is important not to confuse cash with profit. You may be able to forecast a good profit for the year yet still face times when you are strapped for cash. A cashflow statement shows the ability of the business to have cash available to pay bills on time. It is all about timing and the amount of money flowing in and out of the business. This is especially important if your business model involves lengthy credit cycles.

A cashflow forecast can be a valuable tool if used correctly to identify potential cash shortfalls and to take appropriate action.  

Realism vs creativity
When reviewing projections, an investor or bank manager will not take things at face value and will be experienced and cutting through ‘fluff’ or speculative information. He/she will ask about how and when the figures were produced? Have the figures been revised recently to take into account the current economic climate? What assumptions have been used and are they realistic? Being positive is fine but presenting sales and profit forecasts that are unrealistic, under-estimating operating costs or taking an excessive salary will not help your business secure the financial backing you are looking for.

Remember you must take ownership of the plan and be comfortable that the forecasts you produce are achievable. Your forecasts may cover a range of scenarios to demonstrate that the business is still viable, for example if overall sales were down 20% on your original projections or your loan repayment commitment was to increase by 50%.    

Economic or industry changes
Changes to interest rates are often overlooked when calculating financial repayment commitments. Rates are unlikely to remain at the same level, so potential increases should be built into your forecasts. In addition to the economic climate you should also consider the impact of changing social trends, improvements in technology and political decisions with may impact on the future performance of your business. This is especially true in Thailand, where political instability remains and future protests or other problems may occur at any time.

Double checking
The financial projections should be reviewed by a reputable accountant before you present them to the bank or investor. This will significantly increase the likelihood of your loan application or investment request being approved.

Additionally, it is prudent to have a contingency reserve fund to fall back on in case the business takes longer than expected to get off the ground.

Article contributed by:

Richard Holden
Head of Franchising
Lloyds Banking Group
Tel: 07802 324018

Richard Holden heads up the Lloyds Banking Group Franchise Unit and is an expert speaker at franchise exhibitions and seminars. He also regularly features in the national and trade press. The Lloyds Banking Group has franchise managers based throughout the UK to offer support to both franchisors and franchisees. Lloyds TSB and Bank of Scotland are affiliate members of the British Franchise Association. 

Article edited by Stuart Blott, General Manager, Sutlet Group

Thursday, November 11, 2010

Words of wisdom from a think tank

Once a year I have an opportunity to leave the traffic jams and delights of Bangkok to attend a Think Tank where a pool of top fund managers from companies like Schroder, HSBC, Aberdeen and Morgan Stanley, together responsible for billions of dollars under management, come together and share their thoughts on the global markets. This year it took place in Hong Kong and as usual was thought provoking.

One speaker made reference to the financial meltdown in 2008 and specifically September 15, 2008 when Lehman Brothers failed – ‘the day the music died’! He said the banking and financial industry was like a turkey in the run-up to Christmas. It was fed at the same time every day and lived a comfortable existence. It had no reason to believe anything would ever change. But then came Christmas, and suddenly everything changed!

The turkey didn’t make it beyond Christmas but the world has survived. It is a different world though. Developed countries are saddled with massive debts that have to be unwound, resulting in severe austerity measures, whilst developing countries have been enjoying almost unprecedented growth. So what we are seeing is a global rebalancing and this was the main theme of the Think Tank.

While a relatively brief column does not do justice to the many presentations, the following are some of the main points that may be of interest to readers:
·         Growth will be slow for a number of years in developed countries.
·         But it will be strong in emerging markets.
·         GDP growth in China could be as high as 10% pa.
·         Ten years ago the BRIC countries (Brazil, Russia, India and China) accounted for 15% of global growth. Today it is 45%.
·         The West now matters less to Asia, but it still matters!
·         Asia is predicted to have a middle class of 800 million by 2014

Mortgages account for a very small proportion of property markets in Asia. There is a lot less personal debt compared to the West.
·         Australia: a two-tier market with the West and the East driven high by commodities.
·         Singapore and Hong Kong: a strong rebound with 5% yields on property investments possible in both.
·         China: Much talk about the millions of completed but unoccupied apartments. A potential bubble situation.
·         Japan: very little yield here.
·         Overall risks in Asian property: over-supply and corporate governance.
·         Opportunities: population growth, urbanization in China, growth in consumer spending.

Commodities have frequently been the number one performer over the past ten years. Portfolios with commodities have outperformed.
·         Interest in agriculture has started to rise recently.
·         Strong demand from newly industrialized countries.
·         There is a finite supply and extraction costs are rising.

·         We now live in a two-speed world but developed economies are still dominant.
·         On currencies the GBP looks interesting versus other western currencies.
·         Despite bad news on employment and consumer confidence the corporate sector is in excellent shape and is sitting on a mountain of cash.
·         In Europe Greece is likely to default and Ireland may go the same way.
·         Equities are showing good value versus bonds. Dividend yields are now higher than yields on corporate bonds.
·         A lot of money is going into emerging markets.

We should not be making any drastic changes to the way we allocate assets and build up wealth through diversification. But the trends discussed do mean we should be shifting emphasis a bit more towards the regions of the world that are expanding, namely the emerging markets and Asia in particular. We still need to be cautious however if we see a bandwagon that is getting a trifle overloaded (e.g. the SET’s stellar performance this year). At the same time we cannot keep thinking that the West rules the world.

Bonds may look unattractive now but they still have an important part to play in adding security to a portfolio. The meltdown of 2008 has taught us to preserve a healthy level of liquidity and not to get heavily into debt. Also, the commodity story is ongoing. While governments can print money to their hearts’ content, real assets such as gold and oil are running out. Make sure you have some real assets in your portfolio. 

Written by guest contributor -    

Eric Jordan
Managing Director
Professional Portfolio International Ltd.
209/1 K Tower, Tower B, 19th Fl., Unit 4
Sukhumvit 21 Rd.(Asoke), Klongtoey Nua
Wattana, Bangkok 10110, Thailand
Tel   +662 664 0968;  +662 664 0145
Fax  +662 260 7769 

Thursday, November 4, 2010

Ethical Investing - part 2

Each will have his or her opinion here. Religious groups throughout history have periodically condemned alcohol as the drink of the devil. There is no shortage of evidence to support that position. From the drunken brawls of youths in the towns of Britain on a Saturday night to the shattered lives of alcoholics and their families there is no question that drink has an evil side. On the other hand, most will probably argue that responsible drinking can add to the quality of life and indeed the medical industry even states that moderate drinking (equivalent to just one or two glasses of wine a day) is actually beneficial to health. 

Again there is no question that weapons in the wrong hands can cause death and destruction in the world. The American love of guns is the cause of thousands of deaths each year. Yet proponents of the gun lobby will argue that it is the right of every American to own a gun to defend himself and his family. Maybe so, but a colleague of mine spent three years in Houston, Texas, and he says the nightly news was always full of stories of those very guns being used in domestic disputes or being found and used fatally by children.

What about larger weapons that are used to fuel the wars and insurgencies in many parts of the world? Yes, it would be a more peaceful world if the manufacture of arms was abolished. But who is going to be the first to abolish them? What if pacifists had won the day in Britain at the start of World War II? Would Hitler have said let’s be fair lads, let’s not invade because they can’t defend themselves? I think not. A country has to have weapons to defend itself. With luck, they will never be used.

Is it a bad thing to invest in forestry? It is a sad sight flying over West Malaysia where nothing can be seen below for hundreds of miles other than neat rows of palm trees where once there was pristine jungle. No question that thousands of acres of rainforest are being destroyed every year and replaced by relatively sterile plantations.

Yet responsible forestry projects can still meet the needs of expanding populations by proper management and control. Many products such as bamboo are renewable and do not destroy large tracts of jungle. If investment in forestry stopped, the jungles would probably be destroyed at a faster pace. The key is to ensure that money is invested in companies that follow good environmental practices.

This is a very new and lucrative investment opportunity for the smaller investor since demand for funding cannot be currently satisfied by the traditional institutional sources of finance. But already I have heard objections to this relatively new alternative asset class with US citizens in particular concerned. The reason undoubtedly is that litigation in the US is out of control. You probably heard of the case a few years ago when a woman was awarded millions of dollars in damages against McDonalds because her cup of coffee burned her throat. And all expats who take out medical insurance will be aware of the restrictions on claims arising in the US. It’s not because doctors there are overpaid; it has more to do with the cost of insuring against malpractice.

The same situation does not prevail in the UK or other western countries. There, litigation funding is usually helping the small guy with a good cause to take on the big guys who otherwise would overwhelm him with their access to funds to fight him through the courts. So long as this is the case I see nothing unethical about helping to fund the smaller guy. Should the day come when ludicrous damages defy common justice then that is the time to pull the plug.

Clearly there is a good side and a bad side to everything. Sometimes the bad side is so bad that it cannot be defended. Maybe the lady who stood up and ostracized the fund manager for supporting the tobacco industry had the strongest case. As for the others, there is often a good side that would suffer if the bad side is attacked. Oh yes, and there is one other consideration; ethical funds often underperform conventional funds. This factor can often put to the test the level of resolve to support ethical principles!

Written by guest contributor -    

Eric Jordan
Managing Director
Professional Portfolio International Ltd.
209/1 K Tower, Tower B, 19th Fl., Unit 4
Sukhumvit 21 Rd.(Asoke), Klongtoey Nua
Wattana, Bangkok 10110, Thailand
Tel   +662 664 0968;  +662 664 0145
Fax  +662 260 7769 

Ethical Investing - part 1

A few years ago PPI’s former group was holding an investment seminar for clients in Bali. A fund manager from London was proudly illustrating his choice of stocks for one of the funds he managed. When he told the audience he had chosen a major tobacco company as part of his portfolio a lady stood up and said words to the effect that he should be ashamed of himself. As he stood in a state of semi-shock she explained that her husband had died as a direct result of smoking and now she was being told that she should invest in the industry. The fund manager, normally shielded from the end users of his funds, had come face to face with the issue of ethics in investing.

In fact, socially responsible investing or SRI, dates back to 1798 when the Quakers prohibited members from participating in the slave trade. In more recent decades protesters have campaigned against polluting chemical companies, demonstrated against companies operating in South Africa during apartheid and have had a considerable influence on the activities and even financial standing of many enterprises.As a general rule, socially responsible investors support corporate practices that promote environmental awareness, consumer protection and human rights and avoid any company involved in alcohol, tobacco, gambling or weapons. 

In the UK in 1985 Friends Provident launched the first ethically screened investment fund. It excluded tobacco, arms, alcohol and oppressive regimes. Since then scores of ethical funds have emerged around the world to meet the demands of investors who want to have a say in the ethics of assets in which they are investing. It is estimated that in the UK alone some GBP6.7 billion is now invested in ethical and environmental funds.

BP’s recent oil spill in the Gulf of Mexico gave rise to a storm of protest against the oil Industry. To demonstrate his decisiveness in controlling the situation President Obama ordered a six month moratorium on all deep sea drilling. Investing in oil had lost its glamour. But as a result of the moratorium thousands of oil workers were put out of work and oil production in the US will suffer as a result. Do the protesters not think things through and realise how much they depend on oil in their daily lives? Perhaps they just want to see the dependence on oil replaced by newer and cleaner forms of energy. But who are the leaders in these fields? You guessed it – the big oil companies!

And what if tobacco companies shut down overnight in countries like Thailand ? The livelihood of millions of people who are employed in the industry would be destroyed. Of course, a counter-argument would be that they could be redeployed to produce more useful crops and help alleviate the inevitable food shortages that lie ahead. A noble thought, but it would take a massive effort on the part of the government and a huge culture shift to achieve this.

Part 2 will take a look at some of the other items targeted.

Written by guest contributor -    

Eric Jordan
Managing Director
Professional Portfolio International Ltd.
209/1 K Tower, Tower B, 19th Fl., Unit 4
Sukhumvit 21 Rd.(Asoke), Klongtoey Nua
Wattana, Bangkok 10110, Thailand
Tel   +662 664 0968;  +662 664 0145
Fax  +662 260 7769 

Wednesday, November 3, 2010

Should payroll be outsourced? Yes!

As your business grows and expands in Thailand, the HR function becomes more complicated. Whilst the goal may to simplify work practices, hiring new staff often results in more work - responsibility for paying salary on time, along with accurately deducting social security fund and tax payments, and paying necessary fees to Social Security Office and Revenue Department, calculating commissions, unpaid leave, over-time, bonuses and others - the management of all this on a monthly basis is demanding.

Outsourcing payroll makes sense on many fronts:
a) it is cost effective when considering the time taken
b) it allows you to benefit from payroll software used by the payroll service provider

Additionally, the provision of professional payslips for your staff is a unique selling point when recruiting, as not many organisations actually do this in Thailand. Payslips are useful for staff who wish to obtain loans, mortgages or undertake other financial activities.

Outsource payroll - you'll be glad you did!

Written by Stuart Blott, General Manager, Sutlet Group Co., Ltd.
Sutlet Group manage FCA Thailand who, you may have guessed, offer accounting and payroll services to clients in Thailand!

Thursday, October 7, 2010

Thailand moves up 4 positions in Corporate Governance Asian table

Taken from the Bangkok Post:

Thailand has moved up four spots to rank fourth in Asia on this year's list compiled by the Asian Corporate Governance Association and CLSA Asia-Pacific Markets.

The CG Watch report, which assesses the quality of corporate governance in 11 Asian countries, put Thailand in an eighth place in its last 2007 survey.

Thailand scored 5.5, up from 4.7 in 2007, tying with Taiwan, which also ranked fourth in the previous survey. Thailand was recognised as the most improved country due to highest score improvement.

Singapore was the best performer this year with a score of 6.7, followed by Hong Kong at 6.5 and Japan at 5.7. The Philippines was last on the list, scoring 3.7. Others include Malaysia (6th), India and China (7th), South Korea (9th) and Indonesia (10th).

Scores are based on five categories - CG rules and practices, enforcement, political/regulatory environment, adoption of International Generally Accepted Accounting Principles and CG culture.

Chalee Chantanayingyong, a deputy secretary-general of the Securities Exchange Commission (SEC), said the perception of Thailand had improved because of continuous collaboration from all parties in the capital market.

Among supporting factors are having a capital market development plan on the national agenda, adjustments in laws and regulations to lift CG standards, such as setting clear roles and responsibilities of directors and executives, and the establishment of a mechanism to protect whistle-blowers.

The survey also looked at how CG practices are being implemented by listed companies. Average CG scores of Thai listed companies were the highest in Asia.

Mr Chalee said development of corporate governance will help increase investors' interest in the Thai capital market. However, Thailand still needs to improve law enforcement, which is perceived as one of the country's weaknesses. "Our law enforcement process is quite long compared with other countries," he said.

The SEC is now pushing forward an amendment dealing with enforcement under the Securities and Exchange Act. It would promote implementation of civil penalties, allowing for faster enforcement. A draft is before the Finance Ministry. The move is part of the capital development plan.

Pakorn Malakul na Ayudhya, head of the subcommittee of the Corporate Governance Centre, said Thailand's CG improvement was expected to lift the country's competitiveness in the long term with more investments from foreign funds.

"Foreign investors are looking at the level of corporate governance as a criterion for managing fund risk," he said.

Wednesday, October 6, 2010

Strengthening of the Thai Baht & its consequences

With today’s news that the baht has reached a 13 year high, it is relevant to look at the effect of this appreciation on businesses here in Thailand.

Within the last 20 years, Thailand’s economy has become synonymous with the terms growth and expansion. With an ever increasing middle class becoming more important, investors from the west flock in the hope of exploiting the new market to yield promising returns and reap the benefits of the growth. Evidence of such an influx in capital in to Thailand is the recent strengthening of the baht threatening to reach 29 baht to the dollar before the year is out, a record low not seen since before the Asian financial crisis. The effect of this can be far reaching for overseas companies thinking of investing in Thailand.

Firstly, since Thailand relies heavily on exporting its products such as rice, computer parts, and clothing, these products would increase in price. This increase would cause them to be less attractive to financial weary consumers in the west.

Additionally, this may cause a ripple effect that could, in turn, cause various foreign investors to pull out of Thailand due to cheaper sources of labour elsewhere (ie Cambodia, Laos, China and Vietnam). This is, in fact, already happening in certain industries.

Therefore, establishing a company in Thailand may be more expensive than initially thought.

However, this appreciation in the Thai baht also brings with it its fair share of opportunities for foreign investors. The strengthening of the baht gives the average Thai consumer more spending power and therefore, a higher disposable income not seen previously. With more purchasing power, foreign investors can take advantage of untapped markets formerly thought of as ‘too niche’.

An attempt to capture this market by foreign investors has recently been seen in the opening of the first Krispy Kreme store in Thailand. This store, while selling more expensive donuts than its local counterparts, attempts to capture both Thai waists and wallets by offering a foreign taste of donuts never seen before.

All in all, the rising baht may, in the long run, signal the end of Thailand’s dominance in the primary and secondary sector but may bring about an emergence in the tertiary sector bringing with it a new breed of overseas investors.

Written by Ben Henderson, Support, Sutlet Group Co., Ltd.

Sutlet Group is a leading provider of business services in Thailand, including accounting, visa and work permit management, HR, marketing and other expatriate services. See for more information

Thursday, August 26, 2010

Accounting requirements in Thailand

Accounting in Thailand is no different to other countries, although due to the language barrier the government forms and papers can seem confusing. In the end though, accounting is accounting is accounting! There are monthly submissions and taxes to be paid, as well as twice yearly tax returns to be filed.

The key forms and requirements are as follows:
  • Withholding Tax (PND 3, 53)- transactions - submitted to the Revenue Department by the 15th of every month
  • Value Added Tax (PP 30)- submitted to the Revenue Department by the 7th every month
  • Withholding Tax Return (PND 54)
  • Mid-Year Tax Return (PND 51)
  • Annual Tax Return (PND 50) - due within 6 months of your accounting year-end.
  • Withholding tax summary (PND 1)
  • Social Security (SPS 1-10)- submitted by the 20th of every month
  • Withholding Tax Certificate (BIS 50)
  • Provident Fund management
  • Workman's Compensation
Your accounting and auditing should be managed by a professional, whether this is in-house or via a trusted service provider. Part of this process should be the creation of monthly reports that assist you in reviewing and planning your business activities. There are benefits to both of these arrangements, and this will be discussed in the next article.

Written by Stuart Blott, General Manager, FCA (Thailand) - Member of the Sutlet Group.

Monday, August 9, 2010

Thailand income tax exemptions: the importance of proper payroll

The vast majority of organisations in Thailand do not calculate income tax properly for their employees. This is an incredible oversight and one that is potentially costing organisations hundreds of thousands of Baht every year.

Employees in Thailand pay an income tax based on their earnings. This income tax is, however, subject to deductions in accordance with various factors, including whether they are married, have children, are the only working partner in a marriage, whether the children are in education, whether they pay interest on a property, and others related to investments and donations.

Take a look at the following example:
  • Mr. Smith and Mr. Johnson both earn Baht 100,000/month.
  • Mr Smith is married, his wife is a stay at home Mum, he has two children (both in education) and pays Baht 10,000/month interest on his condo.
  • Mr. Johnson is single, has no children, and rents his condo.
Over the course of 12 months, Mr. Johnson will have to pay Baht 17,760 more income tax than Mr Smith. For larger organisations with dozens or hundreds of staff, and who pay income tax on behalf of their employees, this is a substantial difference. For individuals who receive a salary after tax, this equates to a flight home every year.

These figures should all be listed and recorded in your organisations payroll system. An accurate payroll system is crucial in calculating these significant cost savings, and also provides staff with confidential documented evidence regarding their salary that can be used to obtain loans and other financial services.

If you feel that your organisation, or your employer, is not taking full advantage of potential income tax exemptions here in Thailand, or that your payroll system could be improved, ask the question - or contact one of the organisations below.

Written by Stuart Blott, General Manager, Sutlet Group Co., Ltd.
Contribution by Danaya Chinda, HR & Customer Service, PB Legal Services Co., Ltd.

Thursday, August 5, 2010

Welcome to Thailand Accounting & Finance

Thailand Accounting & Finance aims to provide an online resource for all issues related to accounting and finance in Thailand. Over the coming months and years we will explore accounting and finance practices, trends, ideas and problems and then present solutions and views from a range of experts. Importantly, all articles and content posted here will relate specifically to Thailand and, where possible, will take in to account local knowledge, regulations and nuances.

Thailand Accounting and Finance is produced by FCA (Thailand), a leading provider of accounting and financial services in Thailand, and a Member of the Sutlet Group. To learn more about business in Thailand, don't forget to check out these informative blogs:

Thai Biz 101
Thailand Marketing
Thailand HR
Thailand Legal Services