In 19^th century China, Ching Shih (Also known as Zheng Yi) is working aboard a floating brothel off the coast of Canton, now modern-day Guangzhou and British Hong Kong. It is here around circa 1800 she meets Cheng I, a captain of the pirate flotilla, The Red Flag Fleet, operating in the South China Sea. He was a fearsome pirate who pillaged and raided the coasts of China and Canton and took Ching Shih for his wife.

Though Cheng has reputation as a swash buckling pirate, it would be Ching Shih who’s legacy would far exceed that of her husband. Following his untimely early death in 1801, Ching Shih succeeded his Red Flag Fleet. Her crew grew from just 300 ships in her first year as captain to 1,800 ships and an estimated 80,000 pirates by her third year. For comparison, Blackbeard commanded only 4 ships with 300 pirates. Ching Shih amassed the largest navy in the world in just 3 years, and a pirate navy at that!

You may find hard to believe, but one thing pirates need are accountants – which are exactly who Ching Shih introduced to her pirate utopia. A shrewd businesswoman herself, she introduced taxes and laws to her fleets. All loot had to be registered and evaluated before being distributed among the fleet, and if you didn’t agree with her financial policies, you were free to hang up your sword and leave – just so long as you left your head behind.

The fleet grew under her command with expanding reserves of loot, and an organised system of business and trade. Whichever ship captured the loot were entitled to retain 20% of its value, while the remaining 80% was placed into the fleet’s collective fund. Her raids at the height their success expanded from the South China Sea to as far as the Bay of Bengal.

In 1809, the Chinese, British, and Portuguese had all suffered humiliating defeats by Shih. Desperate for an end to the pirates reign, they offered Shih and her pirate fleet with amnesty. Her power was slipping away by this point, so she accepted – but not without first negotiating to maintain the riches and power she earned as a pirate lord; having the collective of treasures distributed fairly among what remained of her (excessive) fleet; the prisoners freed from the gaols using the collective fund as bail money; and receiving her own property in Canton.

Shih eventually settled in Canton and opened her own gambling house, before passing away peacefully in 1844 aged 69. It is estimated that Shih’s estimated pirate loot would be worth $1.7 million dollars in today’s money.

You may have read up until this point and are wondering why an article promising to outline the merits for good accounting in small businesses started with a story about a pirate? Let me rephrase the story into simple, business terms –

• Ching Shih, though inherited her pirate fleet initially upon the death of Cheng I, essentially started out as a small business.
• Her late husband, Cheng I, though a powerful and ruthless CEO (captain), operated his small business with a staff (pirates) of only 300. In contrast, by the end of Ching Shih’s third year as CEO of the Red Flag Fleet, had 1,800 shops (ships), and 80,000 staff.
• While Cheng I was in power, the estimated worth of his wares were paltry in comparison to Ching Shih’s fortune amass of $1.7million.
• Ching Shih’s appointing of accountants for her small business helped it grow into a profitable large business which benefited her staff through taxation and profit registration (loot). Payroll was distributed fairly among her shops and staff, which lead to fewer staff quitting (deserting), and no recorded staff strikes (mutiny).
• Ching Shih’s small business operated originally only along the South China coast and Hong Kong. Her business expanded during her short time as a pirate CEO to international trade and business agreements.
• Ching Shih’s tactical accounting strategies lead to her decision to portion away 80% of the profits made to a collective fund. These saving allowed her to negotiate lucrative trades with foreign investors, gained valued interest in the years it remained in the fund, and eventually was paid to her staff at the end of her career at triple the value when it was originally stolen acquired. This rainy-day fund saved Shih, her staff, and her business on numerous occasions.

In short, Ching Shih was a 19^th century entrepreneur who was beyond her time in understanding the importance of having accountants on board (pun intended). Had she attempted to keep the power and decisions for handling The Red Flag Fleets finances alone, the fleet would have disbanded and mutinied early on, and her legacy would be lost to the ages.

Often when a small business is starting out, financial tasks such as payroll, tax, and business activity statements fall squarely on the owner’s shoulders. It can be tempting to maintain that control once the money starts to flow, and few business owners, like pirates, love giving up control. If you’re anything like Shih, you know that having a professional accountant by your side is a crucial element to your business’s success.

You don’t have to be a swash buckling pirate to get accounting advice for your small business. Auditax Accountants offer a wide range of professional, and affordable, accounting services to businesses across Australia. Speak to one of our business accounts specialists.

They Say That Money Talks – So What Is Yours Saying?

Most of us know that our superfunds invest into many industries and shares – but your superfund investments are likely funding activities that are not sustainable and may be contrary to your ethics.

If investing is something that you are interested in, but you don’t want your money to support industries or practices you don’t agree with, then ethical investing may be what you’re looking for.

What Is Ethical Investing?

Ethical investing refers to using one’s own ethical principles as their primary filter for where they invest their money. This obviously comes down to the individual’s perspective, however, it can generally be summed up as thinking with your moral compass, rather than what gives you the best returns.

Common denominators are shared in ethical investing. For example, some funds align with an investor’s personal beliefs towards the environment, such as those ensuring tree replanting, or clean energy. Others, meanwhile, may align them with religious, or political precepts. For example, some investors may choose to eliminate specific industries, such as sin stocks, which are companies that are involved with traditionally unethical practices, such as gambling, alcohol, or firearms.

So, how can you make money while making the world a better place?

History of Ethical Investing

Ethical investing has its roots originally in religion. In Biblical times, ethical investing was mandated by Judaism. Tzedek (trans: justice and equality) called for justice to correct the harm that humans cause. To have money, or own property, carried responsibility to prevent immediate or potential harm.

Later, in their 1758 Yearly Meeting, The Quakers decreed those members participating in the slave trade – the buying or selling of humans – would be ex-communicated. They further prohibited members of the clergy from spending money on the slave trade or leasing their ships for use in the transatlantic slave trade.

In 1760, John Wesley, one of the original founders of Methodism, preached the importance of refraining from investing in industries that harm human beings, such as chemical plants and mining. He outlined in one of his sermons one the basic tenets of ethical investing that we “ought not to gain money at the expense of life or by losing our souls.”

By the 20^th century, the developments in ethical investing mirrored the political climate and social trends of the time. For example, ethical investors in the late 1960’s and early 1970’s began focusing on organizations that supported unionist movements, and further shunned companies that supported or profited from the Vietnam War. The 1960’s also saw a rise in Islamic banking, which shuns investments in alcohol, gambling, and pork, alongside prohibiting interest.

The 1990’s saw ethical investments narrowing down on environmental issues. Ethical investors moved away from organisations that profit off coal, fossil fuels and deforestation and placed their money into companies that supported clean and sustainable energy. Today, ethical investing continues to primarily focus on impacts on the environment and society, sometimes referred to as green investing.

Benefits of Ethical Investing

Thanks to impact portfolios offered by a plethora of sustainably mutual funds, ethical investing is easier than ever. Not only that, but a study by AMP found that the median ethical investment manager has outperformed the S&P/ASX 200 Index over the span of five years.

There is evidence to suggest that ethical investments may offer lower levels of market risk than traditional investments, even in volatile markets such as the COVID-19 pandemic, or the outbreak of the Ukraine/Russian war. According to Morningstar data, 24 out of 26 ESG index funds outperformed comparable conventional funds during the first quarter of 2020.

If you need more reasons to switch your investments to an ethical fund, then consider this – You can live in alignment with your values. By investing in an ethical way that is aligned with your values and beliefs, you’ll be making money and using your money to improve society. You can sleep better at night knowing this.

How to Build an Ethical Investment Portfolio

Building an ethical portfolio is very simple. Here’s how to start investing ethically:

1. Decide how involved you want to be

When it comes to building an ethical portfolio, you can either choose to handpick specific investments and monitoring them over time, or you can get some help.

If you want to build your own portfolio, you can open a brokerage account, and use screening tools to find the right funds for your portfolio. If you don’t already have a brokerage account, here’s how to open one.

If you want assistance building a portfolio, that’s fine too! Many individuals go through a robo-advisors. Robo-advisors use algorithms to build and manage investment portfolios based on your goals, and your ethical preferences. They are also much cheaper to use compared to traditional advisors. Click here to view some robo-advisors that offer socially responsible portfolios.

2. Figure out what’s ethical to you

Before you start splurging, take some time to outline what ethical investing means to you. Does a construction company still count as ethical to you if it includes reforestation initiatives for every tree it cuts down? Knowing what industries, you want to support and which you want to avoid will make it easier to include or exclude investments.

3. Build your portfolio

Once your brokerage account is set up and you have figured out your goals, you can start building a portfolio. There are two simple ways to add ethical investments to your portfolio:

• Buy ethical stocks that you align with your values. If you’re new to this, you can check out Nerdwallet’s simple how to guide for buying stocks.
• Buy through Exchange Traded Funds (ETFs) – Click here to read more about how to do this here.

As Always, Check The Product Disclosure Statement (PDS) Before You Invest

The PDS that comes with all investing portfolios isn’t just there for show. It contains a lot of valuable information that you’ll need to know about your investments, and about your own portfolio, including:

• what index, sector or asset the ETF or stocks returns aims to replicate
• the fees and costs of investing
• the risks over the short, median and long term
• how to make a dispute or exit from your plan.

Thinking of investing ethically with your SMSF, or as a side hustle? It’s always wise to seek financial advice first. Auditax Accountants can help you make the best choice for your SMSF or goals. Call us on (08) 9358 5599 and ask to speak with one of our specialists.