By David Rose
Welcome to the August edition of VIN-sight –delivering small business advice to our clients on a regular basis that moves beyond the accounting foundations we already provide and focuses on business strategies that help automate, simplify and advance systems, procedures and profits.
In this issue we will:
- Explore some common business concerns clients are experiencing at the moment,
- Share the “10 channels of trust” we believe can drive your business sales forward,
- Flesh out key issues when establishing business relationships through “business partnerships” with larger organisations, and
- Reveal how benchmarking can add value.
As always, please contact your usual Vincents advisor if you would like more information on any of the issues raised in this issue of VIN-sight.
What Business Issues Are Worrying You?
Running a successful business can be very rewarding but at times it can be worrying. Being responsible for not only your own future but those of your staff and customers is a big obligation and knowing you are not alone can make it easier. A trusted adviser can provide clarity and make the difficult decisions less stressful and celebrating the wins more enjoyable. Below we have identified some of the challenges that our clients have raised and that we are well equipped to assist with if needed.
This is a huge issue for business in Australia. In fact, the ATO has recently indicated that 60% of the recoverable debt owing to the ATO ($20.3B) is from small/medium enterprises, an increase of 9.7% from the previous year.
According to Dun & Bradstreet, the average debtors’ days outstanding is 51.6 days. This is considerably longer than the traditional 30-day payment terms.
As an example of how this would impact on your business, if your turnover is $2M per annum and your debtors’ days outstanding is 52 days, this would mean that your business had $284,931 in debtors. For every one day that debtors’ days outstanding can be reduced, this would generate $5,479 to your business.
It is estimated that the vast majority of businesses do not have a formal succession plan in place. Whilst organisations commonly consider who is next in line for the most senior leadership positions, effective succession planning extends beyond this to ensure that employees are recruited and developed to fill each key role within the company.
Check out our HR Manager, Terri Reed’s blog on the North Lakes Community website for 12 key steps to aid in ensuring the continuity of your business.
Business plans are like “maps for tourists”. If you don’t know where you’re going, how are you going to know when you get there?
Business plans shouldn’t be prepared and then left in the bottom drawer,. They need to be utilised as a “living document”, so that actual performance and achievements can be compared to what was stated in the business plan at set periods during the year (e.g. at least quarterly). In this way you and your business can be held accountable on an ongoing basis
Personal Property Securities Act
The Personal Property Securities Act (PPSA) was introduced in 2012, along with the Personal Property Securities Register (PPSR). and the government recently reduced the fee for a registration on the PPSR. However, there has been no major education program offered by the government.
This legislation has caused a lot of confusion for many businesses, both small and large, primarily because owners were not adequately informed on the consequence to their business of not registering on the PPSR and the significant financial effect this could have. For example many business owners are not aware that they can lose an asset for which they have paid or on which they owe money, through no fault of their own, other than not registering on the PPSR.
What Others Say
Over the last few years there have been a number of surveys conducted surrounding the services small/medium enterprise operators want to improve the operations of their businesses.
The results of the CCH survey1 indicated that the 1,343 businesses included in the survey identified that they would like greater service on:
- Management of Costs
- Management Monitoring
- Business Plans
- Assistance in Raising Capital or Loan Funds
MYOB undertook a survey2, which asked the question: “What type of advice would you like to receive from your accountant that you’re not currently receiving?”
According to MYOB, the answers were:
- Future Planning
- Business Analysis and Interpretation
- Raising Finance
- Succession or Exit Planning
If you would like assistance in any of the above or have any other issues that are causing you concern in the operation of your business, please don’t hesitate to contact Vincents for a review of your business.
1 SMEs – the fine line between failure and success, CCH, April 2013 – http://bit.ly/cch0413
2 MYOB Australian Small Business Survey, MYOB, August 2004 – http://bit.ly/myob04report
People Buy From People They Trust
Many people believe that the key to being able to consistently sell is to establish “channels of trust”.
Channels of trust could include:
- Authority – In the sales process, it’s best if you’re considered to be an authority in the product or service that you are offering. You might establish your “authority” by your qualifications, experience, knowledge and relationship with your customers.
- Affinity – A lot of people prefer to do business with people with whom they have a shared affinity. This might be based on membership of a religious organisation, sporting organisation, location or political affiliation. With what types of community groups do you have an affinity? Can you improve these relationships?
- Credibility – In the sales process, the salesperson needs credibility. This basically relates to having “walked the walk before you talk the talk”. You might be able to improve your credibility by ensuring your LinkedIn profile is current and regularly updated. It’s also a good idea to regularly publish articles on what’s being achieved in your business. What’s your profile in your industry? Have you established yourself as a credible person?
- Longevity – Years in business and experience in an industry are great credibility factors in business. Don’t be afraid to refer to the number of years you’ve been involved in the business.
- Celebrity – It’s great if you can be known for something important. This might have come about because of your standing in the community, articles you’ve written, speeches or presentations you’ve made, conference, seminars and workshops in which you’ve participated and books or articles you’ve written.
- Familiarity – Are you consistent in your communications, telephone calls, meetings, relationship with people, showing empathy and becoming a friend?
- Frequency – Do people regularly see or hear from you? This is not always possible in a wide-spread market. You might be able to achieve this by:
- writing regular blog articles
- conducting webinars
- communicating with your target audience on an ongoing basis
- updating your website with interesting information
- Testimonials – Testimonials are powerful tools because they are independent client commentary on you or your business. Testimonials should be placed on your website and on your LinkedIn page because these endorsements are very powerful in communicating a comment relative to your business and your personal attributes.
- Place – Are you well-known in your geographical or target market? Do you attend conferences and seminars, sporting events, or events your customers and prospects go to, so that you can be seen, observed and spoken to?
- Demonstration – It’s very difficult to be a force in a business if people don’t see or hear from you. Businesses need to ensure the key people are involved within the business and they are seen to be involved. Seeing is believing.
Building Business Partnership
Many SME’s aspire to develop business relationships and grow their businesses through partnerships with larger organisations. These partnerships often start with little planning and minimal ground rules – and this can sometimes result in unreached goals, clashes in ethics – and ultimately frustration.
The following are some hints to help avoid these setbacks and sustain a healthy business partnership:
- Search for businesses that are complimentary to yours and will suit a possible partnership.
- Develop clear objectives as to what you wish to obtain from the partnership – for example, building your brand and adding value to your current business.
- Project a “win-win “philosophy when initiating discussions with prospective partners – there’s got to be something in it for both parties.
- Ensure your target markets align.
Ensure that both you and your intended partner foster a sense of trust.
- Understand your partner’s critical success factors and ensure they understand yours.
- Determine the assets in your business (both fixed assets and intellectual property assets) that you will be able to leverage to achieve success from the partnership
If you would like our assistance on the development of a strategy for a business partnership vision, please don’t hesitate to contact your Vincents accountant with whom you normally have dealings.
Using Benchmarks to Add Value
Benchmarking is a comparison of a business operation’s Key Performance Indicators (KPIs) and financial ratios with best practice and average performance data relating to similar businesses.
Some people benchmark without realising they are doing it. Many businesses look, compare and then change the way they do things. Others do it also. For example, sportspeople do it. Our cricketers are a great example. They use baseball players to teach cricketers how to throw and how to speed up their ground fielding. Other sportspeople set and monitor their actual performance against “personal best” or national or world records and change part of their technique. They understand the importance of diet. They use the most efficient equipment possible. They visualise future performances. They then measure progress towards their targets, as these steps involve improving one aspect of their performance or technique, in an effort to improve overall performance.
The ATO also use benchmarks. They introduced benchmarking as a form of verification for approximately 100 different types of businesses. This enables them to identify businesses that may not be reporting all of their income.
There are also commercial benchmarking organisations that have assembled actual data on over 120 different types of businesses, which enables an individual business to compare itself against others operating in the same business category.
A wide range of data can be compared, including:
- Sales per Employee
- Gross Profit Percentage
- Productivity Percentages
- Sales per Square Metre of Premises
- revenue generated per employee;
- gross profit percentage per department;
- labour to turnover percentage for each department;
- net profit percentage to turnover for each department; and
- other performance data as compared to the overall industry performance figures
It can be very difficult for a small business operator to find authentic data against which to compare their performance to – as this information is generally not known or released.
Benchmarking can achieve results for your business. If you would like to have a discussion relative to a benchmarking analysis on your business, please contact Vincents so we can help you.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.