One-off Super Guarantee Amnesty

Employers that have fallen behind with their superannuation guarantee (SG) obligations will have 12 months to “self-correct” under a new amnesty announced late last month.

The ATO estimates that $2.85 billion is currently owed in late or missing SG payments. Running from 24 May 2018 for 12 months, the amnesty encourages employers to reduce this SG gap by providing relief from the punitive penalties that normally apply to late payments.

Even if you do not believe that your business has an SG underpayment issue, it is worth undertaking a payroll audit to ensure that your payroll calculations are correct, and employees are being paid at a rate that is consistent with their entitlements under workplace laws and awards.

Qualifying for the amnesty

The amnesty applies to employers that have underpaid or not paid SG for any period from 1 July 1992 up to 31 March 2018.

To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner using the SG Amnesty ATO payment form or the SG Amnesty Fund payment form where the payment has been made directly to the employee’s fund. You either pay the full amount owing, or if the business cannot pay the full amount, enter into a payment plan with the ATO. If you agree to a payment plan and do not meet the payments, the amnesty will no longer apply.

Bear in mind that the amnesty only applies to “voluntary” disclosures. The ATO will continue its compliance activities during the amnesty period so if they discover the underpayment first, full penalties apply. The amnesty also does not apply to amounts that have already been identified as owing or where the employer is subject to an ATO audit.What do employers pay under the amnesty?

What do employers pay under the amnesty?

Normally, if an employer fails to meet their quarterly SG payment on time they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline.

Employers pay:

• The SGC comprised of:
  • The outstanding SG entitlements (although this component might be higher than what it would have been had the entitlements been paid on time)
  • Interest of 10% per annum, and
  • An administration fee of $20 for each employee with a shortfall per quarter
• Penalties of up to 200% of the amount of the underlying SG charge
• A general interest charge if the SGC or penalties are not paid by the due date

On top of this, the SGC amount is not deductible – even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date.

Under the quarterly superannuation guarantee, the interest component is calculated on an employer’s quarterly shortfall amount from the first day of the relevant quarter to the date when the SG charge would be payable (not from the date the SG was overdue).

Under the amnesty, employers pay:

• The SGC:
  • The outstanding SG entitlements
  • Interest of 10% per annum
  • No administration fees
• No penalties
• A general interest charge.

An extra benefit of using the amnesty period to catch up is that the SGC amount is deductible. The ability to deduct SGC and the reduction in penalties could be significant for employers that have fallen behind with their SG obligations.

Special provisions exist within the legislation to automatically protect employees from inadvertently breaching concessional contribution cap limits if the unpaid SG is paid to the Commissioner and then transferred to the employee’s superannuation fund. Where the employer makes the payment directly into the employee’s fund, the individual would need to apply to the Commissioner requesting the exercise of discretion to either disregard the concessional contributions or allocate them to another financial year.

Where to from here?

Legislation enabling the amnesty is currently before Parliament and will not become law until at least June 2018. Despite this, the clock is ticking.

If your business has fallen behind on its SG obligations and is eligible for the amnesty, you need to start working through the issues now or contact us to work through the issues for you. There are several calculations that need to be completed and these may take some time to complete.

If your business has engaged any contractors during the period covered by the amnesty, then the arrangements will need to be reviewed as it is common for workers to be classified as employees under the SG provisions even if the parties have agreed that the worker should be treated as a contractor. You cannot contract out of SG obligations.

If you have not undertaken a payroll audit or an audit of rates paid to employees, you should do this within the next 12 months.

If a problem is revealed, you can correct it without excessive penalties applying. If you are uncertain about what Award and pay rates apply to employees, the FairWork Ombudsman’s website has a pay calculator or you can contact them online or call them on 13 13 94.  Alternatively, we are here to help, simply give us a call.

A recent Parliamentary Inquiry into Tax Deductions created some fairly sensational headlines about what and how deductions are being claimed – $22 billion worth to be exact. 

In Australia, tax deductions are available for expenses incurred in producing assessable income. These are generally work-related deductions or investment related deductions. And, unlike some other countries, these expenses can be offset against taxable income including wages (other countries only allow deductions relating to capital income against capital gains).

In a recent speech, the Tax Commissioner Chris Jordan highlighted that in 2014-15, more than $22 billion was claimed for work-related expenses. “While each of the individual amounts over-claimed is relatively small, the sum and overall revenue impact for the population involved could be significant – in the vicinity of, or even higher than the large market tax gap of $2.5 billion – and that’s just for this category of deductions, work-related expenses.”

He went on to say that in this same period around 6.3 million people made claims for clothing expenses totalling almost $1.8 billion. “That would mean that almost half of the individual taxpayer population was required to wear a uniform or protective clothing or had some special requirements for things like sunglasses and hats.” Clearly, that’s unlikely.

While the ATO is doing random audits of taxpayers making claims for work related expenses, the primary problem for the Commissioner is, as he says, that the individual amounts over-claimed are relatively small. The administrative cost of a crackdown is likely to be more than what would be gained. The likely ‘solution’ then is to change what taxpayers can claim.

If you want to see the likely ‘hit list’ of deductions with a potentially short future, then Treasury’s submission to the Inquiry is a starting point:

Investment expenses

Investment related expenses can include management fees for an investment, account-keeping fees, insurance, land tax, depreciation, maintenance expenses, and interest on borrowings used to purchase an income-producing asset.  While expenses can be claimed for a wide array of income producing assets, property is where most of the activity is centred.

$41.7 billion in rental expenses were claimed in 2012-13 against $36.5 billion of rental income. Two thirds of taxpayers with rental income in this same period made a loss (totalling net rental losses of $12 billion). Negative gearing is popular. As an investment strategy, negative gearing makes sense if the expected capital gain when the property is sold exceeds the rental losses over the life of the investment. However, there is little doubt that the ability to reduce personal income tax using investment property losses is an attractive and viable strategy for high income earners.

The Grattan Institute’s submission to the Inquiry flags two potential scenarios. First is quarantining losses against investment income only. That is, you would lose the ability to offset investment losses against salary and wages and instead could only offset these against capital profits or gains. Or, an alternative strategy is that taxes on gains and losses could be aligned so that if you were entitled to a 50% reduction on a capital gain, you would only be entitled to an equivalent deduction for expenses.

When it comes to convincing voters that cutting back on deductions is a good thing, investment related deductions are generally targeted as they are not as transparent and are generally attributed to more affluent members of the community (although this is not an accurate picture as many self-funded retirees and Mum & Dad property investors will tell you).

With the next election just around the corner, it’s unlikely we will see a major overhaul in the very near future. The path of least resistance is to reduce the discount on capital gains available to individuals, trusts, and superannuation funds. It’s more likely however that the regulators will continue to whittle away deductions rather than making wholesale changes – as we have already seen with the recent changes impacting residential investment property – while relying on the ATO to reign in excessive claims.

Work related expenses

At $19.7 billion, work-related expenses accounted for nearly two thirds of total deductions claimed by individuals in 2012-13. The most common claims were for car expenses ($8 billion or around 40%), followed by $7 billion in ‘other expenses’ comprising home office costs and tools, equipment and other assets. Work related travel expenses counted for $2 billion, uniforms $1.6 billion, and $1.1 billion for work related self-education expenses. Unsurprisingly, if you follow the money you can see that the pattern of expense claims closely follow the ATO’s compliance focus and activities.

By comparison, New Zealand does not allow work related deductions (but they have a top personal tax rate of 33%). In other countries, the range of deductions that can be claimed is much narrower. In the UK for example, only certain occupations can claim work related expenses and then generally this is at a flat rate. Taxpayers have the ability to claim outside of the flat rate but only after passing stringent tests. The tests require that the item must be ‘wholly, exclusively and necessarily in the performance of an employee’s duties’ and be an expense typical for the industry. That is, the item is only deductible if it is likely to be incurred by every holder of that form of employment (it is not enough that one employee, or a subset of employees, happens to incur the expense).

It would be a bold and confident Government that removed the ability for many taxpayers to claim a tax refund. As with investment expenses, it is more likely that deductions will be slowly whittled away.

(generally, the date of settlement) but you can apply to the Tax Commissioner to extend this period. And, the initiative only applies once – you cannot use it again for future properties.

If you have a SMSF contributions made under this scheme need to be reported to the ATO. You should also check the trust deed rules around the acceptance of contributions for members over the age of 65.

The eligibility requirements include:

• The contribution from the sale is made to a complying superannuation fund
• The contribution is equal to or less than the capital proceeds from the disposal of a main residence
• The member or their spouse had an eligible interest in the main residence before the sale
• The member, their spouse, their former spouse, or trustee of the deceased estate held an interest in the house during the prior 10 years
• No prior downsizer contribution has been made

From 1 July 2018, new laws come into effect allowing first home buyers to use their super to help buy a home, and at the other end of the spectrum, downsizers to contribute proceeds from the sale of their home to super without many of the normal restrictions.

The pros and cons of using your super to save for your first home

The First Home Super Saver Scheme (FHSS) enables first-home buyers to save for a deposit inside their superannuation account, attracting the tax incentives and some of the earnings benefits of superannuation.

Home savers can make voluntary concessional contributions (for example by salary sacrificing) or non-concessional contributions (voluntary after-tax contributions) of $15,000 a year within existing caps, up to a total of $30,000. You have been able to make contributions since 1 July 2017 (although the legislation did not pass Parliament until 7 December 2017), but withdrawals cannot be made until 1 July 2018. Note that mandated employer contributions cannot be withdrawn under this scheme, it is only additional voluntary contributions made from 1 July 2017 that can be withdrawn.

If you have a Self-Managed Superannuation Fund (SMSF), you will need to ensure that the trust deed allows for withdrawals under the FHSS to be made. The SMSF must also identify these contributions and report these to the ATO.

When you are ready to buy a house, you can withdraw the contributions along with any deemed earnings (90-day Bank Accepted Bill rate with an uplift factor of 3%), to help fund a deposit on your first home. To extract the money from super, home savers apply to the Commissioner of Taxation for a first home super saver determination. The Commissioner then determines the maximum amount that can be released from the fund. When the amount is released from super, it is taxed at your marginal tax rate less a 30% offset (non-concessional contributions are not taxed).

The upside of the FHSS is the tax benefit. For example, if you earn $70,000 a year and make salary sacrifice contributions of $10,000 per year, after 3 years of saving, approximately $25,892 will be available for a deposit under the scheme – $6,210 more than if the saving had occurred in a standard deposit account (you can estimate the impact of the scheme on you using the estimator).

Another upside is that the scheme applies to individuals.

So, if you are a couple, you both could utilise the scheme for a deposit on the same home – effectively increasing your cap to a maximum of $60,000.

If you don’t end up entering into a contract to purchase or construct a home within 12 months of withdrawing the deposit from superannuation, you can recontribute the amount to super, or pay an additional tax to unwind the concessional tax treatment that applied on the release of the money.

Home savers also need to move into the property as soon as practicable and occupy it for at least 6 of the first 12 months that it is practicable to do so.

The home saver scheme can only be used once by you.

The cons of this scheme are mostly administrative. On the investment side of things, using the above example, $6,210 over three years is an upside but may not be a huge upside compared to other investment returns given the administrative requirements of the scheme. But, for many, it may be the best offer available.

Who can use the first home saver scheme?

You must:

• Be 18 years of age or older (to make a withdrawal under the scheme – you can contribute before the age of 18);
• Never had held taxable Australian real property (this includes residential, investment, and commercial property assets)

The pros and cons of contributing proceeds from the sale of your home to super

From 1 July 2018, if you are over 65, have held your home for 10 years or more and are looking to sell, you might be able to contribute some of the proceeds of the sale of your home to superannuation.

The benefit of this measure is that you can contribute a lump sum of up to $300,000 per person to superannuation without being restricted by the existing work test requirements, non-concessional contribution caps or total superannuation balance rules. It’s a way of building your superannuation quickly and taking advantage of superannuation’s concessional tax rates. The $1.6 million transfer balance cap will continue to apply so your pension interests cannot exceed this amount. And, the Age Pension means test will continue to apply. If you are considering using this initiative, it will be important to get advice to ensure that you are eligible to use this measure and the contribution does not adversely affect your overall financial position.

The downsizer initiative applies to the sale of any dwelling in Australia – other than a caravan, houseboat or mobile home – that you or your spouse have held continuously for at least 10 years. Over those 10 years, the dwelling had to have been your main residence for at least part of the time. As long as you qualify for at least a partial main residence exemption under the CGT rules (or you would qualify for the exemption if a capital gain arose) you may be able to access the downsizer concession. This means that you do not actually need to have lived in the property for the full 10-year period.

The rules also take into account changes of ownership between two spouses over the 10-year period prior to the sale. This could assist in situations where a spouse who owned the property has died and their interest is inherited by their surviving spouse. The surviving spouse can count the ownership period of their deceased spouse in determining whether the 10-year ownership period test is satisfied. This rule could also assist in situations where assets have been transferred as a result of marriage or de facto relationship breakdown.

In general, the maximum downsizer contribution is $300,000 per contributor (so, $600,000 for a couple). The contribution needs to be made within 90 days after your home changes ownership.

Single Touch Payroll (STP) – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – comes into effect from 1 July 2018.

For Employers:

Employers with 20 or more employees at 1 April 2018 must use standard business reporting-enabled software from 1 July 2018. The head count for ‘20 employees’ includes full-time, part-time, casuals (who worked any time during March), employees based overseas, or on paid or unpaid leave. Directors and independent contractors are excluded from the count. For businesses that are part of a wholly owned group, the total number of employees across the group is used (i.e., if the total number of employees employed by all member companies of the wholly-owned group is 20 or more, all group members must use STP).

STP is currently voluntary for businesses with less than 20 employees although proposed reforms seek to extend the reporting system to all employers by 1 July 2019, regardless of the number of employees.

What must be reported

STP requires PAYG withholding and superannuation contribution details to be reported to the ATO as payments are made to employees or superannuation funds.

When it comes to PAYG withholding, employers will report details of salary and wages paid to employees as well as the PAYG withholding amount at the time the payment is made to the employee. Employers have the option of paying the PAYG withholding liability at the same time, although this is not compulsory.

Payments that must be reported include:

• Salary & wages
• Director remuneration
• Return to work payments to individuals
• Employment termination payments (ETPs) – not compulsory if the employee has died
• Unused leave payments
• Parental leave pay
• Payments to office holders
• Payments to religious practitioners
• Superannuation contributions (at the time the payment is made to the fund).

The Government intends to extend STP to salary sacrificed amounts in the near future although these reforms are not legislated.

An end to payment summaries?

While not compulsory, employers can choose to include reportable employer superannuation contributions and reportable fringe benefit amounts. These payments are reported either at the time the payment is made or through an update event. If these payments are included, the employer will not need to provide payment summaries as employees are able to access their live data through myGov.

If your business does not report through STP or does not finalise its reporting, payment summaries are still required.

New employees

If your business utilises STP, when a new employee joins they have the option to electronically complete a pre-filled Tax file number declaration and Superannuation standard choice form online instead of completing the form for you to lodge with the ATO.

Exemptions

Some exemptions exist for STP for rural employers that do not have access to a reliable internet connection, and employers that employed a group of people during the year for a short period of time, such as seasonal workers.

For Employees:

While the Government and ATO are promoting STP as a way to improve the efficiency of payroll processes and meeting reporting obligations (i.e., cutting down on duplication of work etc.,), there is also a clear benefit to the ATO and Government in implementing this system. One advantage is that the ATO will have early warning of businesses that are finding it difficult or simply failing to meet their PAYG withholding and superannuation guarantee obligations. This should have a flow on benefit to employees who might otherwise miss out on benefits to which they are entitled.

If you are registered with myGov and your employer reports using STP, you will be able to see your year-to-date tax and super information online.

There are only 5 key business building strategies™ for any business. Yes we understand that all businesses have some differences but the key that we must really acknowledge and understand is fundamentally every business has very common traits. When we look at growing a business here are the 5 key strategies. 

1.       Get more customers and keep existing customers of the type you want.

This is very important as business grows when we get more customers, guest, clients, patients or whatever else we call our customers. The other very important thing is that we must make sure that we are getting new customers of the type we want. There is no point getting new customers that just consume our time, don’t want to pay and complain all the time. So we must get customers of the type you want. One strategy to do this is to segment your customer list and then ask you’re A grade, gold, or best customers how can they help you get more people like them. They will typically be happy to help you.

2.       Get them to come back more often.

Most of us in business don’t know this but it costs ‘6 times more’ to get a new customer/client or patient to deal with us than it costs for an existing customer to deal with us. This is because we spend time, money and energy to get more people to deal with us. To do that we have to earn their trust and that as we know could take some time. That is why the best people to go to are our existing customers as over the years we have built that trust.

3.       Increase the value of each transaction.

A great way to help your customers is by asking questions and having a process to ensure they get everything they need from dealing with your business. That in turn will lead to customers spending more with you as they get the results they desire. 

4.       Improve the effectiveness of each process on the business.

Most people in business do not put in place systems so they can solve their customers problems. No matter the business we are in we are in the business of solving problems, minimizing risk, getting people to achieve what they want to achieve. If we can do this, people will want to deal with us more frequently and their transaction value will over time increase. Systems ensure consistency and reduction in risk for the customer and in turn an increase in trust.

5.       Build a committed team.

This is very important as if you do not have a team that is focused and committed the business will just sputter along and never really hit into overdrive. You must have people on board with the right attitude and desire to look after the customer and in turn achieve their own objectives as well. You can train people up with the skills that they need but you cant train attitude. They must have that.

A business will grow much faster if you can have 1, 2 and 3 above working consistently and the only way that can happen is if 4 and 5 are in place. 

The next Global Business Camp will be held at the QT Gold Coast on the 30^th July to the 1^st of August. Pencil it in now and visit the GBC website to find out more and register.

Take a minute to read this true story about a troop of young Hungarian soldiers lost in the Alps during training.  There are some key learnings we can take from this story and implement in our day to day business lives.

In abysmal weather, with no food or supplies, this troop of soliders were cut off from their colleagues. After two days of snow and sleet, they were frozen and weak from hunger. They had no idea how to get back to base. They lost the will to live.

Then a miracle happened. Searching for a cigarette in the lining of his tunic, one of the soldiers suddenly found an old map. The soldiers confidently used the map to march through the mountains back to safety.

It was only when they were warm and fed at base camp that they discovered it was a map of the Pyrenees, some 2,000 kilometres away.

Valuable take-outs from this story:

1. It is better to act constructively than to have the right answer and not act at all.
2. Each of us has to find the answer to our own circumstances. The soldiers got home safely because they made sense of the map for themselves and related it to their immediate surroundings.
3. There is a principle known as Pareto’s principle which states that in businesses/customer groups/ products/ relationships, in almost anything, that 20% of the activity produces 80% of the results. In this instance one event completely changed their outcome.
4. When you want something all the universe conspires in helping you to achieve it. But you must know what you want.
5. Focus on what you want and come up with a plan.

We can all make our businesses function better but it does require some action.

What we must do:

1. Allocate some time on a regular basis to plan for the future.
2. Set aside time weekly to compare progress back to your plan.
3. Ideally have a mentor or someone that will hold you accountable and ask you the tough questions. You may or may not know this, we serve this role with a number of our clients and we are keen to help more of our valued clients with this service.

We will leave you with a thought.

Come up with the 3 things you feel you must get right to make the 2018 financial year a better year than the 2017 financial year. Write them down and put them somewhere where you can see them. Make them your resolutions and always take action, compare your results and make changes where necessary. 

Contact us and let’s have a chat about how we can work with you to achieve the results you want.  After all business and life is about getting to achieve the goals we set out for ourselves. As Warren Buffett (one of the greatest investors in businesses) says: “It is not necessary to do extraordinary things to get extraordinary results”. What he means by that is that we need to do things and take action, we don’t need to do completely amazing things – even though that doesn’t hurt. We must take action.

The one thing I’ve learnt over many years in business, both as an employee and employer, is that if a group of people have a sense of belonging focused on a shared passion they can achieve almost anything together.

People like to belong to a cool group or a winning grow up or a fun group. People just like to belong. Having core values, a mission and a vision that people truly understand, believe in and will do anything for to try to achieve can create a sense of belonging. It goes further when people share those values and those beliefs, then you end up with a very powerful force.

At the team level, a sense of belonging is achieved when you have respectful relationships; respect for diversity in how different people think and work; high expectations and equity in the shared mission; and the self-awareness among team members to know how they affect their colleagues.

Developing that sense of belonging among your team is made easier when you get your hiring right. It’s as they call it a boomerang in that if you start out hiring for the types of personalities who can internalise your values then you build the type of culture that fosters a sense of belonging. You are basically starting with the end in mind.

BUILD THE TYPE OF CULTURE THAT FOSTERS A SENSE OF BELONGING

People who feel they belong to something are more likely to reach out and bring others on board to share that passion. When you have employees who feel isolated from their work or from the rest of the team, you start to see a breakdown in that sense of community. People start to focus on themselves and not the collective group. It also gets a lot harder to maintain that sense of belonging as a business grows. There comes a point when you might start passing people in the corridor and you’ll know the face and name, but not much more about them. That can be a tipping point for a business because not only is there a higher risk of isolation but there’s also the danger of competing groups forming within the company. In saying that however, those rivalries can be healthy, as long as the values that underpin the broader group are still strong.

What you have to defend against is the loss of the values that helped create the sense of belonging in the first place. That’s where your policies and daily practice come into play, because as soon as the reality on the ground no longer reflects the values you say you follow, you are in massive trouble.

You must keep your values and your practice aligned, and your employees are more likely to feel that sense of belonging, engage in their mission, and deliver the passion that takes a business from good to great.

“If we get the right people on the bus, (the wrong people off the bus), the right people in the right seats – we’ll figure out how to take it someplace great” Jim Collins, Good to Great.

Talk to us about how we can help implement a plan with you to ensure the above happens.

As a small business owner, you are always on the lookout for new ways to grow and develop your business. But that isn’t always easy to do.

Most people get caught up and consumed by the little details on a day-to-day basis. We call that working in your business and not working ON your business. Doing that is not going to empower your team, and it’s going to rob you of the time and focus that you should be expending on strategic thinking. Strategy is the engineering work for scale.

Businesses cannot work well without strategy no matter the size of any business.

Employing the right people consistently will not happen in a business that has no strategy. You might be lucky and fluke it and hire a few of the right people. But in the long run if you haven’t put the time into thinking about what constitutes ‘right’ for your business or the process by which you arrive at recruiting those people, then you will get it wrong more often than right. Getting the right people in your business and getting them in the right seats is hard work. But without good people your business will not work and your clients, customers or patients will not get what they want and need and in turn neither will you. If you have hired the right people, you shouldn’t have to micro-manage them; in fact, if they are the right people, they won’t stand for your micro-management!

If you focus your day as a leader of an organisation around the strategic things you can be working through – whether it’s people and culture, new growth opportunities, revenue streams or new markets etc, you are giving your business the best opportunity for success.

Your operational people should be implementing your strategy, putting structures and processes in place. Not you.

However, you are still going to get asked about operational matters. You’ll find yourself constantly getting drawn into the organisation by your team, because they want your help. After all you are the guru. You know all about the operational matters in your business and you would be seen as the go to person. The reality is you need to have the consistency and discipline to say, “No, I know you guys can handle this and I’m actually going to focus on the strategic decisions that make a difference.”

This is a great way to think about it. Your operational people are not going to do the strategy work. That is not what they do, they do the operational work. Then if you are not doing the strategy work because you’re bogged down in operations; who’s doing the strategy?

“Most of us go into business with big aspirations and in time we forget what they were.”  Tom O’Toole, Beechworth Baker

When the business is starting out or it is early on this might work ok, as initially it is all hands on deck to get whatever needs doing done. But even in the earliest stages of growth you need to be working on your strategy to take things to the next level.

Strategy doesn’t happen magically. It is crucial work that you need to do.

Talk to us about how we can help implement a plan with you to ensure you have a strategy and it’s a sound one.

Complaints happen. That is part of life and part of business. But deal with them well and you can turn an unhappy customer into a fan even a raving fan.

What is critical for every business is happy customers. The question is how do smart businesses deal with complaints and keep customers happy and satisfied?

First thing you must do is have a way (a system) where people can make their complaint easily and have it resolved promptly. You could call this system “our customer feedback channel” or “giving our valued customers what they want”. Another simple system is to follow people up after they have dealt with you and your business to find out what they thought about how we did. This is something that can also be done at regular intervals. You can ask them “how was your experience in dealing with us”?

The key to remember:

When it comes to problems or defects, the customer will remember the satisfying outcome, not the original error. Studies conducted by the Marriott on guest return rates found the following astonishing results:

1. If there was no problem with their stay, the return rate was 89%.
2. If there was a problem and it was not corrected the return rate dropped to 69%.
3. However, this is where it gets really interesting. If there was a problem and it was solved to the guests satisfaction the return rate jumped to 94%.

So the moral of the story is constantly speak to your customer, patients, clients and find out how you are doing as a business. Find out are you serving their needs, are you adding value to them. Are they having a positive experience when they are coming to deal with you.

As you can see from the Marriott example if there are issues and problems and they are rectified then the relationship actually can get stronger. That does not mean that we should go out of our way to create problems so we can fix them. It means that when they do crop up do not blame the customer, fix them and the relationship will be stronger than before.

This stuff is very important for the relationship. Relationships as we all know are based on trust. The more people know they can trust us to do the right thing the more they will want to work with us. They will also refer friends, relatives and associates. If you ignore the problem it will not go away, it will just get worse. Customers will lose trust and our business will suffer.

I have seen many instances out there were that happens and the owners of the business do not look at themselves and their systems (or lack of them). They just blame the economy or the economic conditions. The funny thing is that the economy is only about 12.4% of the reasons why businesses fail. The other 87.6% of why businesses fail is due to the people in the business. They are not looking after the customer, not managing cash flow, not training and keeping their team focused and motivated.

MasterChef Australia judge, celebrity chef, restauranter  – George Colambaris says: “People come to his restaurants to put joy in their lives, so if they’re not happy he wants to know about it”. We should all operate with this philosophy and then we can reduce or eliminate one of the areas (customer happiness) that can lead to business failure.