By David Rose
Welcome to VIN-sight – our reignited monthly Vincents newsletter. VIN-sight will be delivering small business advice to our clients on a regular basis that moves beyond the accounting foundations we already provide. Over the coming months we will focus on business strategy in order to help automate, simplify and advance your systems, procedures and profits.
Budget Delivers Small Business a Confidence Boost
The Australian government’s recent Budget announcement has surprised and delighted many commentators and business operators, especially small/medium enterprise operators.
The Budget has already had a significant impact on business confidence, as distinct from the lack of confidence that greeted the 2014 Federal Budget. Delivering a short-term increase in confidence and a significant boost to small businesses, this year’s announcement is particularly useful to those that are able to avail themselves of the immediate deduction on depreciable asset expenditure on assets costing up to $20,000. Hopefully, the improved confidence will reach consumers and they will be encouraged to spend more in retail sales within Australia.
Not Out of the Woods Yet
Businesses are still encountering significant economic difficulties in the marketplace and the improved confidence from the Federal Budget will not last long, if the majority of businesses don’t find that they’re business results are improving.
The monitoring of debtors, stock, work in progress and a detailed analysis of financial accounts are still very important activities for all business operators and a critical key to measuring the success of your business
As we enter the new financial year, it’s an appropriate time to also think about business plans, budgets and cashflow forecasts for 2015/16.
Where to From Here?
In this edition, we have included some articles relating to corporate governance issues within companies. It is important to note that corporate governance issues also apply to the majority of business operators. Also on offer are some handy hints to extrapolate more meaning from your financial statements in order to profit from the past and plan for the future – as well as 10 tips for expanding your business overseas.
Being in business goes beyond ticking off your standard accounting requirements – and at Vincents we aim to provide you with significant insights to save you valuable time. If you would like to have a discussion with us relative to any aspect of your business operations as you plan for the new financial year, please give one of our team a call – and make 2015/16 the year for kicking your financial goals…
BECOMING A SMALL BUSINESS SUPERHERO – NAVIGATING CORPORATE GOVERNANCE
Being in business requires blood, sweat and tears. Corporate governance effectively involves harmonising the concerns of the many stakeholders in a business – including shareholders, management, clients, providers, investors, government and the community.
There are a wide range of corporate government responsibilities that need to be considered in order to successfully govern how your business functions and to act in the best interests of your stakeholders.
Workplace Health and Safety (WHS)
- An appropriate and compliant WHS system should be put in place to ensure the safety of all company team members and visitors. This system is usually overseen by a designated Staff officer. Receiving periodic reports from this officer is essential in order to be satisfied that your company’s system is working.
Directors need to monitor cashflow on an ongoing basis to ensure the company is not trading whilst insolvent.
Cashflow considerations include:
- Debtor and creditor movement
- Stock investment
- Work in progress
- Working capital investments
- Directors should be enquiring as to whether the company is abiding by the environmental laws that are applicable to the company’s operations.
Key Role Appointment
- One of the key functions of the Board of Directors is to appoint a Managing Director or Chief Executive Officer (CEO) and define the role by which the appointed person will be required to abide.
- Management should prepare business plans, budgets and cashflow forecasts so directors are able to set strategic goals for the company and then monitor actual performance against same.
- Risk management should be monitored closely within the business, particularly relating to insurance cover on:
- events such as loss of profits
- people, which would include key people
- buy-sell agreements
PPSR Due Diligence Review
- An adequate system should be put in place to determine whether transactions should be registered on the PPSR.
- Considering and forming a succession planning strategy that has the approval of all directors and management is paramount for any business.
- A competently run human resources department can deliver your company structure and the ability to meet business demands through overseeing the most valuable resource a business has – employees. Directors should ensure HR maintains a high level of performance in the following essential functions:
- Employee relations
- Compensation and benefits
- Training and development
- Board meetings are only effective if held regularly – so identify a particular date each month and ensure all members have a high attendance rate.
- Agendas and follow up reports are essential to keeping meetings productive. These should be submitted to attendees at least 72 hours prior to the meetings to allow the opportunity to familiarise with content. Adequate preparation will aid in maximising meeting outcomes.
By putting these other corporate governance procedures in place you will be able to focus on building your business safe in the knowledge of an improved reputation, decreased fines, penalties or lawsuits, reduced conflicts– and an overall peace of mind.
FINANCIAL ACCOUNTS – INTERPRETING THE NUMBERS, GROWING PROFITS
Understanding how to work with the numbers contained in company financial statements is a critical skill for business owners. The significant analysis of profit and loss statements, balance sheets, funds flow statements and benchmarking documents in order to recognise a company’s position forms the basis for clever financial decisions.
Profit and Loss Account
It’s beneficial to ensure that if your business operates different cost centres that their trading and profit and loss accounts are looked at separately, as well as considering the consolidated business position.
Accounts prepared on an overall consolidated basis are not meaningful to individual business managers and, in fact, major problems can be hidden within a consolidated profit and loss account. In addition to lodging the financial accounts for your company’s income tax return on a consolidated basis, ensure monthly financial accounts are prepared on an individual business basis. This will enable management to be fully aware of the performance of a particular division and contribute towards calculation of meaningful KPI’s.
The business’ balance sheet should be reviewed and analysed and the directors should be able to obtain individual verification of every item in a balance sheet. This ensures individual items in the balance sheet are able to be supported by another record within the overall accounting system.
Source and Application of Funds
A source and application of funds document prepared each month, for the month and for the year-to-date, will help explain what has happened within the business.
The common comment from many company directors is, “If we made a profit of $100,000 in the month, where is it?”
A source and application of funds document will assist in demystifying what has happened with the cash and therefore various financial balances within the company. Just because the company made a profit doesn’t mean it was reflected in cash at bank – that profit may well have been invested into extra stock, amounts owed by debtors, capital expenditure, payment of taxation bill, etc.
Benchmarking is a very helpful tool that enables management and directors to compare key components of the company’s financial performance against similar businesses. This is one of the other reasons for not preparing financial accounts on a consolidated, all-in-one basis, but to dissect financial records of the company into individual businesses, so the performance of an individual business can be measured against other businesses.
This relates to items such as gross profit percentage on sales, wages to turnover percentage, average sale per customer, growth in customers, various expenses incurred, percentages of total expenses, etc.
Vincents has access to benchmarking information for a wide variety of industries which can assist you in understanding.
What Do The Numbers Mean Going Forward?
It has been suggested that directors should be making strategic moves on the basis of the preparation of budgets and cashflow forecasts for the company. Now is the time to be asking these questions as you start to prepare your business budgets for the 2015/16 fiscal year.
Things to keep in mind include:
- Customer and market focus group research and feedback
- Product development budgets
- Promotion requirements
- Realistic nature of targets
- Prior year comparison
- Labour cost considerations
If you’re having any difficulty in understanding the financial accounts for your business or an organisation of which you are a Board or Committee member, please do not hesitate to contact us for a review session on financial accounts for your organisation.
10 TIPS FOR DOING BUSINESS OVERSEAS
Many businesses, especially within the service industry category, have been thinking about commencing operations in other countries. From navigating currency variations to staff recruitment, here are some essential considerations when expanding your business to other countries.
- The first step is to do your market research:
- What are the rules pertaining to operating in the other country?
- Do you need to get a special licence?
- Is it desirable to incorporate a separate company in another location or can your Australian company operate in that location?
- Have you had a discussion with Austrade? Austrade is the Australian government’s export advisory organisation, with offices in approximately 80 different countries around the world. They can give you local intelligence on general business operations and, if you contract them to do so, they will prepare a specific report on a particular industry.
- Is there a double taxation agreement between Australia and the country in which you’re proposing to operate?
- Who are the competitors operating in the marketplace?
- How easy is it to obtain staff?
- What are the costs of employing staff?
- Have you had discussions with your bank relative to the pitfalls of transferring money to that foreign country to start the business? Can you transfer money back out from the business operations?
- Are you likely to run into some exchange control issues from the country’s reserve bank? It’s a good idea to have a discussion with the Export Finance Insurance Corporation as to whether you can insure the sales revenue you’re hoping to receive from your debtors in foreign countries. You can also have discussions with independent insurance companies that may be able to offer you export debtors’ insurance.
- What are the political risks of starting a business in the foreign country you’re considering? Over the last 15 years, there have been a number of instances around the world that have contributed to making it very difficult for Australian companies to trade with businesses in another country, for various reasons. How would this affect your business operations if you were operating in that country and this occurs? These types of decisions require expert input from lawyers and accountants, both in Australia and in the country in which you’re proposing to set up operations, so you’re fully aware of all of the rules and conditions. There are rules and conditions that might not be published and that may apply to running a business in that other country.
- Once you’ve done all this, if you’re still keen to proceed, it’s a good idea to have a look at the Export Market Development Grant and start keeping records to justify a grant application being submitted at the end of financial year.
Additionally a country with a lower tax rate than Australia doesn’t mean that your overall tax rate will reduce. There are many complexities to fully understand before making the decision. If you’re contemplating commencing operations in a foreign country, please give us a call to discuss further.
HAPPY NEW YEAR
As we welcome the new financial year we would like to take this opportunity to thank our clients for trusting us to take care of you. For many of you that relationship has stemmed over 2 decades and is certainly something we do not take for granted here at Vincents.
The 2016 financial year for us will be one in which we raise the bar on the delivery of quality business advisory services to assist you and your business to succeed and we look forward to our continued relationship with you.
Happy New Financial Year.
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.