By David Rose
Happy New Year and welcome to 2016’s first 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:
- Recap the Government’s innovation initiative and reveal how Vincents can help your business take advantage of the incentives on offer;
- Expose the top ten pitfalls encountered when valuing a business;
- Examine the benefits of beginning the year with staff performance reviews whilst looking to the future of performance management; and
- Highlight the importance of identifying and protecting intellectual property within a business.
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.
Government’s investment in start-up initiatives exceeds $1 billion – is now the time to innovate?
Malcolm Turnbull revealed the government’s $1.1 billion investment in innovation and science late last year – an investment that includes a number of enticing tax incentives designed to encourage the development of ideas and drive money towards start-up companies in Australia.
At a Glance
- $1.1 billion reform package for innovation and science;
- $200 million CSIRO innovation fund and $250 million biomedical transition fund on offer;
- 20% non-refundable tax offset (capped at $200k) for investors;
- Capital gains exemption for investments held for three years;
- Access to Silicon Valley, Tel Aviv, three other landing pad locations and a new cyber security growth centre for entrepreneurs;
- Entrepreneur visas up for grabs for rising stars; and
- Changes to insolvency laws to minimise the risk and encourage our innovators and up and coming entrepreneurs to invest in their ideas.
How Vincents Can Help
Businesses that work hand in hand with trusted organisations to innovate are far more likely to prosper and grow.
At Vincents we are well placed to deliver strategic advice to our clients and investing in a start-up could well be a strategy we suggest for you. Contact your Vincents advisor to find out more about a the ways we can assist you with your start-up journey, including:
- Grants Explorer
- New Entity Structuring
- Business Improvement Roadmap
How to find out more
To find out how you can benefit from the government’s innovation program, visit http://www.innovation.gov.au/.
The Top Ten Pitfalls in Business Valuations
There are many reasons why small business owners choose to have their business valued. These reasons can range from seeking finance, planning to sell their business, dissolving a partnership, family court matters or the admission of a new partner or shareholder.
Regardless of the reason, there are a number of common mistakes that are made when valuing a business that SME’s should watch out for. Here are our top ten:
1. Looking backward, not forward
- A business valuation is all about future cash flows, risks and opportunities.
- You cannot value a business by merely looking at historical financial statements and trading performance.
2. Lack of understanding of the drivers of the business
- How did the business get to where it is and what will drive it in the future?
3. Lack of understanding of the industry
- Will the business follow industry trends?
- Does the valuer have an understanding of where the industry is headed?
4. Assuming the Business is a going concern
- This is a fundamental question and in considering it the valuer must distinguish between the business and the entity that operates the business.
- If the business is not a going concern the value of the assets employed in the business may be substantially less than if it was a going concern.
5. Not adopting the most appropriate methodology
- There are many methodologies that may be appropriate and the various alternatives should be considered.
6. Not applying the methodology correctly
7. Not considering the specific business risks
- Each business has its own “personality” and in considering the forecast trading performance or the risks / opportunities the valuer needs to fully understand the business / industry and consider the key drivers.
8. Assuming book value = market value
- This relates to the tangible assets, e.g. plant and equipment.
- Caution needs to be applied where sunk cost, high installation/removal costs, obsolescence, lack of sufficient returns, issues with debtors or stock in non-going concern position, etc.
9. Accepting the information provided at face value
- The valuer should approach the assignment with a questioning mind.
10. The value determined is not reasonable
- Would someone in the marketplace actually pay the price calculated?
The Vincents valuations team are perfectly placed to assist clients to make smart and informed business decisions and to formulate strategies for the future. If you need assistance with valuing your business, please don’t hesitate to contact your Vincents advisor.
A New Year – Reflecting on the Past, Planning for the Future
As businesses kick off the calendar year and staff return from their Christmas break, for many it is the perfect time to consider what was accomplished in 2015 and establish goals for the year ahead.
A Formal Platform
Performance reviews provide employees with the opportunity to discuss and assess their skills, Key Performance Indicators, achievements, goals and career aspirations in a structured environment.
Whilst it is common practice to formally review employee performance two times per year, it does depend on the size and needs of the business. For many the second formal review typically held at this time of year is about ensuring employees are on track with the goals and training set six months earlier.
For most, salary reviews form part of the major review usually held at the end of the Financial Year and are part of the overall financial budgeting process of the business. However, should there be a need to review salaries mid-year, it is a common view amongst HR practitioners to avoid reviewing salaries at the same time as performance – as this may overshadow and limit open and frank discussion. Ideally, salary should be discussed a few weeks after the performance reviews once feedback, market rates on salary and budgets have been determined and considered.
The Review Journey
Typically the employee completes a self-assessment questionnaire that also incorporates measurement of goals and training needs which is then compared to an assessment by their manager or supervisor and discussed in a meeting held specifically for this purpose.
There are a broad variety of performance review systems and rating scales, so it is important to consider the size of the business, culture and organisational structure prior to selecting what is best for you. The last thing any business needs is to implement a meaningless review system, when at the end of the process everyone breathes a sigh of relief, thinking “thank goodness that’s over for another year”.
The advent of web-based human resource information systems and performance review systems is enabling a more efficient performance review process, which includes the use of mobile technology and software created career and training plans.
Best Practice Considerations
In terms of ‘Best Practice’, an ideal performance review system should ensure that:
- All employees of a particular job title have the same review content;
- The process is made fair by every employee participating;
- The review content is comprised of job-specific, objective performance indicators in addition to subjective questions;
- A combination of the formal and informal approach is taken with respect to feedback throughout the year so that no feedback in a formal review should come as a surprise to an employee; and
- Both positive and negative performance issues are discussed in an open and fair way, as poor performance should not go unmanaged and excellent performance should not go unacknowledged.
Reinventing Performance Management
Whilst we have discussed the traditional review model, there are changing perspectives on the value of the formal review process amongst businesses – with many business thought leaders proposing that performance reviews are a redundant, time consuming and an inefficient process.
Many advise that meaningful conversations throughout the year in addition to reviewing project successes and improvements is a more efficient and effective approach. For this style of performance review system to work, managers need to ensure that they aren’t shying away from having meaningful, frank and fair discussions about employee performance. The consequence of managers not providing feedback throughout the year can lead to disengaged employees, who have a lack of interest in the job.
Regardless of which model you prefer, records still need to be maintained to ensure employees are meeting their obligations and training and development is being realised so if a structured questionnaire doesn’t suit, this may take the form of memos and meeting notes or a performance catch up agenda with guide points for discussion.
Protecting Your Intellectual Property
Intellectual Property (IP) is the hidden “asset” in many businesses. IP covers a wide range of activities, including:
- thought processes within the team;
- talents of the team;
- skills and knowledge about the products and services developed by your business; and
- software that has been developed specifically for your business.
Many operators are aware that IP developed by the business is their most valuable asset – however no formal policies or procedures are developed or documented to manage and protect this asset.
Management teams within businesses need to be made aware of the IP that has been developed and carefully document it to ensure valuable IP doesn’t just remain in an employee’s head and leave with them if they move on.
A methodical approach to the recording of IP could also alert businesses to potential Research and Development (R&D) opportunities and available tax rebates (as an example, if the business is operating as a company and invests more than $20,000 on R&D a tax rebate may be available) and also opens discussion on the need for patent applications as further protection.
Whatever strategy you embrace to protect and maximise your IP, it should be incorporated into your overall business plan – with all options explored and professional advice sought.
If you would like assistance with identifying IP, developing strategy, potential research and development grants or maximising taxation incentives for your business, please don’t hesitate to contact your Vincents advisor.
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.