The business of hospitality – using data for growth

(First published in Business First Magazine)

Tourism is on the rise in Australia against a backdrop of unease in other key tourism locations, and it’s shaping up to be a boom for the hospitality sector writes Steve Gagel, Director, Prosperity Advisers Group.

Fresh from a European holiday and close to the Nice attacks, I had a good opportunity to discuss holiday destinations with many locals in countries across Europe. The tension is palpable in the major cities. From the moment we stepped off a plane or train, we were met with multiple army personnel carrying machine guns and walking in formations up to six at a time. Understandably, citizens are nervous, and react to anything out of the ordinary in fear of another terrorist attack.

Europeans seem to be in awe of our watery boarders and in-the-main tend to like Australia’s “turn back the boats” policy. The Australian policy of not letting anyone in does disadvantage the many legitimate refugees trying to escape oppression and to make a better life from themselves, with some thinking it might keep out the extremists at the same time.

TOURISM ON THE UP
With the above in mind and the Australian dollar a long way under our previous highs of $1.10 to the US Dollar (currently A$ buying around US$0.76) there is effectively a 31% increase in buying power that international visitors now have in deciding to visit Australia.
Tourism Research Australia tells us there’s a healthy increase in total expenditure on international overnight visitors across all three eastern seaboard states – with the average for Australia up 17%. Perhaps the combined effects of safety and lower cost (due to the dollar dropping) is indeed creating more in-bound hospitality for Australia?

Domestically, it appears that Australians are turning their noses up at overseas destinations with domestic overnight spend increasing by 4.7% and domestic day trips also up by 4.6%. The scene is certainly set for growth among hospitality operators if they can leverage the current climate to their advantage.

HOW TO CAPITALISE ON THE INFLOWS
Further analysis of the data from Tourism Australia confirms the hotspot is with holiday makers who are up 20.7% year on year to June 2016, whilst the convention and conference market seems to have suffered a downturn of 10.7%. For the actual month of June 2016 these two markets seem to be gathering speed in opposite directions with holiday makers up 29.4% and convention and conference visitors down 17.7%.

So what can participants in the hospitality sector do to capitalise on the swinging tide of tourism? Data can be your friend here. Getting to know the local Hotels Association representatives in your area and getting closer to Tourism Australia and the local “destinations” organisations in your district can give you the information you need to anticipate tourism flows and to appeal to the type of visitors expected.

For example, if there are delegations from specific nations expected in your area then getting to know the organisers and promoting a tailored option to attract them to your venue may be appealing – such as a special menu, entertainment or drink. Then capitalising on these visits through social media can help reinforce your venue as a destination for that type of visitor going forward.

Data can also help you in other ways. It could be as simple as asking visitors to your venue what postcode they come from or their home country. After collecting data for a given period you can analyse to see if you could tailor aspects of your offer (food, beverage, gaming, entertainment, special events) to the standout groups.  Again, using social media to promote these changes and how you appeal to specific groups can help you target your advertising at very little cost.

Above all, briefing your staff and engaging them in what you are trying to do and why is going to have a significant impact. Frontline staff can collect valuable data at each shift such as approximate ages and gender of your visitors. They will also have ideas for how you can make the most of tourism flows in your area. If you want to make your area more attractive to local or overseas visitors, getting together with other publicans or venues in your area and jointly approaching delegation organisers or tourism operators could see a step change in the type and quality of visitor you experience.

Competing for the consumer dollar is never easy but with a lower exchange rate on your side and a greater number of visitors to our shores it certainly makes it more interesting and exciting.

Making your business attractive for tax free investing

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In the continued boost to small business and start-ups, new tax concessions came into effect from 1 July 2016 which are set to stimulate investment in innovative companies as part of the federal government’s “Ideas Boom” under the National Innovation and Science Agenda. Just one of the agenda items as part of the “Ideas Boom”, the Early Stage Innovation Company (ESIC) tax concession is to encourage both innovation and investment in Australian companies.

In only two months we’ve seen a growing number of prospectuses aimed at tempting investors under the concessions. Broadly, the tax concession benefits for investors are generous and include:

  • Rebate of 20% of an investment (capped at $200k)
  • Rebate allowed to be carried forward if not all used
  • Rebate can be allocated to beneficiaries if in a trust
  • Modified CGT rules apply to the investment:
    • Hold between 12 months and 10 years – disregard any capital gain
    • Hold longer than 10 years – cost base becomes the market value at the tenth anniversary
  • Tax concessions available to both Australian tax residents and non-residents.

Small business and start-ups that want to leverage the new concessions to attract investment to grow and innovate should keep in mind how they package their offer to investors. To be fully compliant and eligible for the concessions, investors will need to:

  1. Purchase new shares in the ESIC.
  2. The ESIC cannot be associated to the investors.
  3. Cannot own more than 30% of the ESIC.
  4. Investors will need to check the Private Tax Ruling on the ESIC. While it’s not mandatory that an ESIC attain a private ruling, one is likely to be requested so investors can ensure they are able to take advantage of the tax concessions. If your ESIC doesn’t have one, you may want to get one.
  5. For investors who are not deemed to be a “Sophisticated Investor” (gross income over $250k for the past two years or net assets of over $2.5M), their investment will need to be limited to $50k in one or more ESICs in total per annum.
  6. Keep in mind that capital losses are disregarded within the first 10 years of the investment.
  7. Be aware that capital gains within the first 12 months are included as assessable income.

By their very nature an ESIC would be considered a highly speculative investment category – a technology based investment in a rapidly changing world. These are not main stream investments so this style of investing is not for everyone. Often the product being developed by the ESIC is yet to find a market or generate any cash flow, and is unlikely to do so for several years.

The biggest issue for any investor to consider with any investment is the return the investment will make over the long term. Small business and start-ups need to consider how they package the return in order to be compliant and attractive from a tax perspective as well as to deliver a return on investment which is achievable and attractive.

To qualify as an ESIC, a company will need to meet both:

  • the ‘early stage test’ and either the
    • 100-point innovation test or
    • the principles-based innovation test.

According to the ATO, “In practice, if a company undertakes activities that meet the 100-point innovation test, this is likely to be the simplest way to determine its eligibility, when compared to the principles-based innovation test.” Details are available here.

While every business is not Facebook, if you take the Facebook example you can see how powerful these concessions can become. Facebook started in February 2004 and was initially capitalised with US$12,000 from one of the early investors. In 2005, a further US$13.7M was invested into the company. The company floated in a public listing in February 2012 and ten years after being created, the value of the company was US$64.32 Billion. Currently the company is worth US$124.88 Billion. Imagine applying the above concessions to these amazing growth statistics of Facebook!