Interested in setting up an SMSF
Are you interested in setting up a Self Managed Superannuation Fund (SMSF)? If so, you should speak to us prior to 30 June 2016 before the removal of the accountant's exemption which will preclude accountant's from providing advice in relation to the setup of SMSF's. Post 30 June 2016 costs to setup an SMSF are likely to be higher due to additional requirements that new legislation imposes.
Businesses Need A Broad Succession Strategy
The normal understanding of "succession" is a question something like this: "What would happen if something happened to our owner or CEO?"
Most small/medium enterprises can't afford to have a stand-by CEO sitting in the wings. Alternative strategies need to be developed to ensure that the business has an effective "succession strategy".
The concept of a "succession strategy" will become a high priority for many businesses that are hoping to expand their operations, by raising capital under the Early Stage Innovation Companies (ESIC) process, starting in July. However, many investors will be asking questions relative to the effectiveness of the business' innovation policies.
Does a business have a "succession strategy"?
The key components of a succession strategy include:
- Review of the corporate management chart – are there any obvious "deficiencies" in jobs that have been allocated to the management team?
- Review of job descriptions for members of the management team – do the job descriptions adequately describe what that management person is doing? Is the person undertaking the work that has been allocated to them in their job description?
- Review of the job description of the CEO/owner – is there any obvious areas that could be delegated to other members of the management team now, not at some time in the future?
- A Corporate Governance Think Tank Workshop with the management team is an ideal way to familiarise all members of the management team of the process of management responsibility, to show them how a Board of Advice operates and how a Board of Directors operates, together with a discussion on corporate responsibilities.
Many businesses prepare a "skills matrix" by working through the key items that require attention on a daily, weekly, monthly and annual basis within a business, to ensure that these duties have been allocated across the management team and not just to one or two persons.
The key aspect of the "succession strategy" is to determine which team members could, on a temporary basis, at least perform some of the CEO's ongoing role if the CEO was not available for a period of time. The outcome of this type of exercise would be that the management team members will have a greater appreciation of the way that the Board of Advice and a Board of Directors work in an organisation. Succession within the organisation will be enhanced by all members of the management team having a better appreciation of their role and, in particular, any aspect of their stated role that they haven't been performing.
The organisation will benefit by each team member having a skills development program for the next 12 months that they will be able to implement for the benefit of themselves as well as the business.
It's nearly the 30th June. It's an appropriate time to review the adequacy of your insurance covers.
Some of the items to be considered include:
- Fire and General Insurance – ensure that the sums insured adequately reflect the significant cost increases in the building industry. Have you reviewed the allowances made for removal of buildings, especially if there's asbestos in the building?
- Loss of Profits Insurance – review the key components, especially relative to items such as indemnity period. This is the estimated time that you will be unable to conduct business from your business premises and it must take into account council applications and the rebuilding process (ongoing expenses will be continued to be incurred irrespective of whether the business is actually trading or not).
- Retained staff – salaries for key people you would want to retain for the indemnity period so that you have key people to re-staff the business.
- Public Liability Insurance – is the level of insurance acceptable for the work you're currently undertaking?
- Professional Indemnity Insurance – does your business give professional advice to clients? If so, you probably should apply for a professional indemnity insurance policy.
- Key Person Insurance – has there been a review of the quantum of the key person insurance cover? Have all key persons been included in the insurance cover?
- Tax Audit Insurance – have you considered taking out an insurance cover in the event of a tax audit to cover the extra professional fees you would undoubtedly incur?
- Credit Insurance – if you're selling a large portion of your sales by credit, have you given consideration to taking out a credit insurance policy?
It's recommended that "insurance" should be a permanent item on the agenda for the monthly management meeting. The person responsible should report whether the insurance company broker has been notified of any new acquisitions, changes or commencement of new business operations for the business' insurance policy.
A properly constructed insurance portfolio is vital for stability of any business.
What's In An Information Memorandum
With all the discussions on Early Stage Innovation Company (ESIC) and Crowd Funding Equity Raising, some questions have been raised as to what should be included in an "Information Memorandum". Information Memorandums are also the basis for an investment pitch to raise capital or to sell your business.
Information Memorandums will be a key document for companies wanting to utilise the new capital raising opportunities that are going to be available from July for ESIC and, hopefully later in the year, when the Senate passes the Crowd Funding Equity Raising legislation.
The key components of the Information Memorandum are:
This is also the executive summary of the key components contained in the other sections of the information memorandum. This is the key "sell page" of the document.
Why This Business
This is the WOW factor. Why would investors want to invest in this company? This section could be presented under a number of sub-items including:
- business activities of the company
- the resources utilised within the company
- experience that the business has
What products/services does the business produce? Are there any outstanding milestones on any of these products/services? This section should be supported by some photographs, preferably one page of photographs, to highlight the types of products or services produced by the company.
What differentiates your company from other companies? What are the key points of differentiation from your business and your competitors?
What markets are you servicing? What are the unique features of these markets?
Who are your customers? It's great if you can include some of your customers' logos, especially if they're large businesses. Investors like to see that small businesses have customers who are large businesses.
An Information Memorandum is enhanced with some key customer testimonials (one page).
Who are the key management personnel within the business? Include a short comment on each of the managers. Include a photograph of the management team. This helps to humanise the Information Memorandum.
It's a good idea to summarise the membership of the team. Team photographs, especially incorporating a work activity, can be a great promotion.
Other Key People
Who are the other key people within the business or external for the business? This might include external accountants, auditors, lawyers, advisory board, Board of Director members.
Where are the current locations and the proposed locations of the business?
Intellectual Property (IP)
What IP is being produced by the business? How is it being protected? Has the business applied for any trademarks or patents?
Quality Assurance (QA)
Include some comments on the quality assurance system implemented within the company.
Workplace Health and Safety (WHS)
Investors expect the company to be abiding by the WHS rules. Give them the assurance that you're doing this.
The environment is obviously a very important issue these days. Give a brief overview of the environmental policy that's been implemented in your business.
How much capital are you trying to raise? If the reason for the production of the Information Memorandum is to raise capital, you need to include a summary stating:
- The amount of capital that you're trying to raise.
- The number of shares that relate to that capital target.
- Details of the closing date for the application for shares.
- A summary of the key material in the company's financial forecast (sales, net profit before tax, net profit after tax).
- Expenses of the capital raising.
This is a suggested format for an Information Memorandum. Remember, this is the "sales document" relative to raising capital or gaining support for particular business activities that you wish to undertake. It's not a business plan. The business plan may be required by a potential investor at your next meeting with them. The key purpose of the Information Memorandum is to create interest in your company.