We would like to take this opportunity to wish you all the very best for the festive season and a happy and successful New Year. We would also like to thank you for your continued support throughout the year. Please note that the office will be closed from 4pm on Tuesday 23 December 2014 to 9am on Monday 5 January 2015.
Business Conditions Are Tricky
With Christmas just around the corner, businesses should be more buoyant than what most appear to be at present. Conditions are very tricky for most businesses.
2014 In Review
• No Federal elections – elections normally affect business confidence so we cannot blame elections for the current conditions.
• Uncertainty in the Senate has definitely contributed to a lot of the uncertainty.
• Trouble in Ukraine – whilst intervention by the Federal government was necessary, it diverted the Federal government's attention from the economy.
• The recent mid-term elections in the USA have virtually made President Obama a 'lame duck' president for the remaining two years of his presidency – not good for confidence!
• The building boom in the Australian mining industry is over.
• Commodity prices, particularly for iron ore, have dropped – leading to some uncertainty.
• There has been moderate growth in the economy.
• A lot of 'slippage' in the currency – this is great news for exporters and the tourist industry.
• Inflation remains steady at 2% to 3%.
• The Reserve Bank held interest rates at 2.5% for the entire year.
• The 'cheap money' available contributed to large investments in housing and shares.
• Unemployment rates are higher – significantly higher in some areas.
• The Government needs to find a way to deal with the Senate so the budget can be dealt with.
• Some businesses have lost money and assets through ignorance of the Personal Property Securities Act (PPSA) and the Personal Property Securities Register (PPSR).
There isn't a lot you can do with any of the issues we've already discussed. All businesses need to plan their business operations as best you can. Now is the time for you to be thinking about your plans for your business for 2015. Conditions are tricky for many business operators, however if you write out a strategy and then develop a plan, you'll significantly improve your chances of success.
Good luck for your business operations in 2015!
Leadership - Developing Relationships and Trust
In these difficult times, many business operators have found the need to extend credit to existing and potential customers. The key to offering credit terms is to manage the credit you're offering. The objective to managing credit effectively is to ensure that you've implemented an appropriate system. Have you got a written system?
A written system would include the following key components:
• Application Form – An application form for a prospective new customer to complete. In the application, it's a good idea to indicate that, if the customer is in default, you will elect to transfer the debt to a debt collection agency or legal firm and the customer will be responsible for all of the collection agency and/or legal firm's fees.
If a potential customer is a private company, ensure that a director's guarantee is received and appropriately filed, so the guarantee is available if you require it in the future.
A decision also needs to be made as to whether you're going to register this customer on the Personal Property Securities Register (PPSR). The registration process requires you to submit a 'Terms of Trade' agreement and a 'Retention of Title' agreement (in most cases) to your customer. Your customer must sign these agreements and return the agreements to you. It's a good idea to have these documents signed before any sales are made to the new customer. If you're going to register on the PPSR, you then have to ensure the registration is completed on the PPSR, within the very limited time period allowed.
An internal system is recommended to ensure the credit application form is checked, referees are contacted, a decision is made on what credit limit and terms of payments are going to be offered to the prospective new customer.
• Welcome to New Customer Letter – Issuing a 'welcome to new customer' letter is an appropriate way to summarise your terms of trade and to confirm the credit limit and payment dates set for the new customer. It is recommended to ask them to sign a copy of the letter and return the signed copy to you. If you have implemented the terms relative to expenses of the collection agency and/or legal firm, it's a good idea to incorporate this clause into the 'welcome to new customer' letter.
• Debtors' System – A sound debtors' system would then ensure that tax invoices are promptly prepared and dispatched to the customer and make sure there are no errors on the tax invoices. If you're sending statements, they should be prepared promptly at the end of the month and sent through to customers within 48 hours of the end of the month. This way, you've laid the foundations for an effective debtors' management system.
• Debt Recovery Process – The other key component of the system is the debt recovery process. The system should signify a prompt follow-up by an email or an SMS to a customer, advising them that their payment is overdue. If the customer doesn't pay within seven days, a further follow-up should then be issued. If that request is again ignored by a customer, it's time to transfer the debt to a debt recovery organisation, to collect the money that's owing to your business. If you continue to give credit to that customer, it will probably end up as 'bad debt'.
Debt recovery is an ongoing task if you're going to keep on top of your finances within your business.
Buying A Business
If you are contemplating purchasing a business, you need to assemble information on the business for a business evaluation to be prepared. The information includes:
• Copies of financial accounts, in particular, the trading and profit and loss accounts for the last three to five years.
• The balance sheets for each of those years.
• Details of salaries and other payment for owners and family members, paid out in each of those three to five years.
• Details of rent paid for any real estate that's owned by the business or the family members.
• Copy of the debtors' aged analysis.
• Access to the financial records of the business.
There are a number of personal questions that you should ask yourself:
• Is the acquisition purely a business investment? If so, what rate of return are you seeking?
• Are you planning to work in the business?
• Will owning and operating a small business suit your family and your lifestyle?
• Have you had training in any particular business/industry?
• What type of knowledge do you have in:
- market research; - customer relations; - budgets and cashflow forecasts; and
- preparation of marketing plans; - employee management; - selling?
• Have you had a look at the market in which the business operates?
• What are the trends in the market?
• What share of the market does the business currently have?
• Do you expect to increase the share of the market? If so, have you developed particular strategies to be utilised to increase the market share?
• Have you prepared a list of the competitors?
• Have you determined the competitors' strengths and weaknesses?
• From the process, have you been able to identify opportunities to successfully market against those competitors?
• Have you identified any threats that are likely to emerge from the current competitors or potential new competitors?
• Have you had a good look at the business location?
• Are neighbouring businesses compatible to your business?
• From where do your customers come?
• Can customers obtain easy access to your business?
• Are there any changes planned by main roads, railways or local council that might change the traffic flow in the area in which the business is located?
• Have you assessed your strengths and weaknesses?
If you're contemplating a business and you would like our assistance to evaluate the business, please contact us.
Leadership - Development Relationships and Trust
Trust is fundamental to the development of good relationships and good relationships are essential to the development of trust.
Whilst this may be something of 'a chicken and the egg' argument, however, this sentence illustrates the close relationship between the two. Trust between individuals or within groups of people is not possible, unless the individuals know each other. Without being intrusive, leaders must do their best to get to know their people and encourage their team members to get to know each other. Whist general knowledge such as health, family and other than work interest is basic and encourages people to open up, clearly, mutual knowledge and understanding are fundamental to the development of trust and, therefore, continuous improvement in the personal relationships.
In addition to basic knowledge – birthdays, anniversaries, education achievements, sports and the like – most importantly, leaders need to gain knowledge of individual's values, their attitude and behaviour, as well as their work preferences, competence, confidence and commitment to their work role and responsibilities. Gaining this knowledge will assist leaders to earn the respect of their team members and to develop team spirit and achieve better work outcomes.