What are your business' values ....?

As published in the November edition of the Western Sydney Business Access magazine http://westernsydneyaccess.com.au/

Every business has a set of core values underpinning most, if not all of the actions and decisions that its owners and staff make on a daily basis (even if they don’t know what they are).

Successful businesses know what these core values are and have spent time developing them, modifying them and operating within them to maximize their chance of success.

Businesses that don’t know what their core values are, generally speaking are those businesses that have underperformed because their values are not aligned with the goals and objectives that they may or may not have set.

The ‘values’ and ‘practices’ in a business are what are defined as the culture of the business. Those businesses which have an adaptive culture which is shared and communicated between owners, staff and the public create an opportunity to give themselves a point of difference over their competitors.

So how do you turn a business’ values, practices and overriding culture into business success and more importantly for business owners, long lasting success and profits?

The key is to turn theory into practice. You can have the best set of corporate values written down on paper, but if these values aren’t followed they won’t transpire into a high performing culture.

It all starts with the owners. The owners of any business are the natural leaders of a business. Not all owners are the best ‘leaders’ however they still have to go about their day to day affairs using the values of the business as the framework for their decision making.

The owners will be responsible for defining the values of their business with or without input from their staff. The owners then need to communicate these values to the staff and make it very clear that these are the values of the business that have to be adhered to.

It is here however that many businesses fall down when non-conformity with these values is left unaddressed. Owners have to quickly deal with staff that don’t follow the values because it only takes one or two bad staff to bring the entire culture of the business down.

In comparison to non-conformity, adherence to the values can help to create a culture that encourages and inspires employees to take responsibility for the business and focus their efforts on achieving the shared goals of the organisation.

This is the beginning of the creation of a high performing culture, in part determined by the businesses values and can assist with reducing employee turnover which helps to improve a business’ profitability.

Taking a step back in the process the defining of the businesses values is an integral part of the planning process and is also a valuable marketing and reputation building tool.

I have talked in previous articles about risk management and the importance of business planning to give your business every chance of success. Well, defining the values by which you want to operate is really the first step in the planning process.

These values find their way into a SWOT Analysis….i.e. Strengths and Opportunities and how a strong set of business values can be a competitive advantage.

These values are part of risk management……i.e. What is the risk to the business if we don’t undertake our business dealings in line with our publicly communicated values? Client losses, revenue reductions, employee legal action? Lack of value conformity can result in all of these things occurring thanks to a dysfunctional corporate culture.

As a marketing tool, the communication of a business’ values to its clientele and stakeholders can be invaluable. Some clients or customers will chose to deal with a business which has similar values to them or values which they simply feel are honest and ethical.

The making of a business’ values public also makes a business, its owners and its employees accountable to stakeholders outside of the business for the following of these values. Thus ensuring these are not just mythical values created to follow a trend.

A businesses values and resultant culture will evolve over time. It is not an overnight sensation and in some cases for businesses which are using the creation of values as a change process will take a lot of effort and requires changes in the mindset of the organization to begin to work within these values

But as studies have shown that businesses which operate within a set of clearly defined, adaptive and positive values can outperform their competitors by sometimes 200% the short term and long term benefits both financial and non-financial are there to be had.

Avoid the bunker-down mentality......

"As publised in the Western Sydney Business Access Magazine, October 2011 Edition"

The uncertain and challenging conditions that business owners currently find themselves operating in throws up the question of ‘what is the best way to navigate through these tough times?’

In many cases business owners bunker down, close the hatch and take a month by month approach. But this isn’t the most effective approach.

Obviously there needs to be immediate attention paid to critical areas to ensure short term survival but this needs to be coupled with mid range and long range thinking and planning to ensure that the business is still positioned well for the future.

Drawing on concepts covered in a previous article, the key to surviving the downturns is planning. Those owners that have an effective business plan would have the risk management policies listed to help them manage the tough times.

So the first step is to revisit your business plan. This is the plan covering the short, medium and long term goals and if for nothing else will help business owners to remain focused on achieving their desired goals.

From this detailed plan and its desired outcomes, a strategy for the tough times can easily be developed and put in place. This ensures that this new short term strategy remains in-tune with the larger and long term strategy.

Next, get the customer focus right. The focus on and delivery of goods and services to core customers needs to remain effective to preserve cash inflows. Whilst at the same time the ‘firing’ of unprofitable and difficult customers can also assist with easing cashflow constraints.

As well as the review of existing customers, sometimes a shift in market conditions can throw up new opportunities as other businesses fail. Business owners need to be on lookout for similar or complimentary markets that they could enter to generate new revenue streams.

Staffing levels are an obvious area where cutbacks can occur during tough times. But this needs to be carefully managed. If a business lets go of key staff to save money, is the business effectively limiting its opportunities for growth come the eventual upturn in the market?

Another obvious area to review is suppliers. Are the best prices being obtained? Is the business able to take advantage of early repayment discounts? Is the business holding too much stock and effectively tying up cash?

The final expenditure area for review is general operating costs. Discretionary spending must be controlled and much like suppliers, time should be allocated to ensure that the best prices are being obtained and money isn’t being wasted.

Moving away from focusing on cash flows, another important tool is to begin to or continue to communicate. Communicate to staff about the downturn and the measures being taken to ensure survival.

Communicate with suppliers and other creditors to ensure they are aware that the business is going through tough times and explain the measures being put in place to address any cashflow issues.

Finally, once all of the strategic planning has been done, the business owner needs to ensure that the culture of the business is aligned to the ‘tough times’ strategy to enable it to be realised. This may require a shift in culture either for the short term or maybe even for the long term.

With all changes to a business’ strategy, whether short term or long term, the business owner needs to follow though with the changes. Everyone involved within the organization will look to the owner for leadership in tough times and it is critically important for the owner to be the champion of change.

Risky Business.....

"Article as appeared in the September edition of Western Sydney Business Access....."

SMEs are exposed to risks all the time. Some are risks that are imposed upon them whilst some are risks that they choose take. Such risks can directly affect their day-to-day operations, or their impact may be serious enough for the business to fail.

Do a Google search of the term “risk management for business” and the number and variety of returned results is mind boggling. It is information overload. Maybe this is why it is often overlooked.

Most business owners know that they can take out insurance policies to cover many of their business’ risks. However, there are many other risks that are either ignored or missed due to incomplete and ineffective risk management processes.

Risk management starts by identifying possible threats and events and then implements processes to minimise or negate them.

Effective risk management should reduce the chance that a particular event will take place and, if it does take place, sound risk management should reduce its impact.

As a side note, risk management is also used to assess and exploit opportunities that may present themselves to SMEs, but this is not the focus of this article.

Below are typical risk areas for SMEs. This is not an exhaustive list of all risks a business may face, rather it helps to explain the risk management process with some common examples.

 - Customers. Does the majority of your business’ income come from a single major customer or a group of major customers? If so, a loss of one or more of these customers could result in a large drop in profit and cashflow in the short term.

Here, businesses should look to either lock in major customers to long term contracts, or try to spread the risk by finding new customers or develop existing smaller customers.

 - Suppliers. Is your business dependent on one major supplier or a small number of suppliers? What would happen if one of these suppliers was unable to supply a crucial product or service to you which in turn forms part of your own product or service mix?

Much like customer risk, businesses should look to lock in suppliers to long term contracts, but also businesses should find alternative suppliers that could be used if needed.

 - Staff.  Not only can disruption from staff turnover affect profit and cashflow, for some risks there can be legal or regulatory consequences which can impact on your business.

Does your business rely upon key staff in key areas? If so ensure there is a backup person able to perform the each role. Is your industry plagued by high staff turnover? Make sure that you have quality recruitment procedures.

Do any of your staff hold key relationships with large customers? Ensure staff sign confidentiality agreements as well as reasonable restraint of trade agreements.

Do your staff face OH&S issues as part of their daily work routine? Make sure appropriate OH&S policies are implemented and followed.

 - Information Technology. Have you undertaken an assessment of what would happen if your IT system went down or if your data was lost? Also what threats does the internet, if used, pose security wise to your business?

Businesses must have a back up of their data but also a ‘back up’ plan for when the IT system goes down to ensure trading can continue. Internet security measures must be in place, like firewalls and Private Networks as well as physical security for its servers and hardware.

 - Internal Controls. For many businesses a lack of controls internally can expose businesses and their owners to theft and fraud from within. This risk is one of the most common as well as one of the most damaging.

Controls to protect against employee theft is often as simple as ensuring there is appropriate separation of duties. Unfortunately, employee fraud conducted by two or more individuals is harder to stop, but with effective controls the risk of this occurring can be reduced.

Other obvious risk areas that need attention and prevention/mitigation policies prepared for are; Financial risk, Competitor risk, Economy risk, Location risk, Succession risk, Reputation risk just to name a few.

Risk management is often undertaken on an ad-hoc and reactive basis, but as always, prevention is better than cure. Because business planning centres around the risks faced by businesses it makes sense that risk management forms an integral part of a business’ strategic plan.

Why cash flow controls are so important in busines.......

Picture a scenario where all of your customers decided to delay payment of your invoices by 30 days. How long could your business survive without this cash inflow? How would you pay your staff, meet your overheads and pay your creditors?

If you don’t know the answer to these questions then careful cash flow management is essential to not only your business’ success but to its very existence.

Cash flow management involves carefully planning your business’ cash flow needs via the formulation of cash flow budgets and developing policies and controls around its cash inflows and cash outflows. Here we focus on how to manage a business’ cash inflows.

According to Dun & Bradstreet cash flow troubles account for approximately 80% - 90% of business failures, and more specifically latest research links a 25% increase in business failures with a similar increase in the number of days a business’ customers took to pay their invoices.

On average invoice payment time is 53 days and for many businesses this is almost twice as long as the standard 30 day payment terms that they want to be paid within. And with trading conditions becoming tougher for most SMEs this average is expected to continue to increase.

So how do you keep the cash flowing into your business bank account in this current trading climate? The key is to have both preventative measures in place to ensure customer pay you within your payment terms to begin with as well as effective and efficient measures to reel in those customers who do stretch the friendship.

Below are the solutions we provide to our clients to assist them with developing their invoice collection policies.

Preventative Measures:-

·         Credit & reference check all new customers. This is a simple and cheap process to undertake because you don’t want to provide credit to a new customer who already has a history of slow or non payment

·         Set specific credit limits for all customers. As an internal control this ensures you do not extend credit beyond what a customer has been ascertained as being able to pay

·         Outline and agree upon payment terms up front and on a regular basis. Communication of these terms is the key to ensure customers can’t use the excuse, ‘sorry, I didn’t know they were your payment terms’

·         Make sure these payment terms are clearly displayed on your invoices. This is another way to remind your customers of the agreed upon payment terms.

·         Credit check existing customers. Much like the checking of new customers, this control ensures existing customers have not fallen into trading difficulties with other suppliers

·         Offer as many payment types as practical to your customers. Cash, Cheque, Credit Card, PayPal, EFT or even Direct Debit…...make it as easy as possible for customers to pay you so that they have less reason for delaying payment

·         Send out the invoice as soon as possible. As soon as the service is provided or the goods are delivered ensure the invoice is issued. If you don’t issue the invoices promptly you can’t expect to be paid on time.

·         Consider offering discounts for early payment. Business owners love discounts so if planned carefully, this can encourage faster payment of your invoices

·         Depending on your business, ask for a deposit up front before proceeding and considering progress invoicing for longer type jobs or projects. This can assist your customers with their cash flow needs and reduces the chance of a large invoice remaining unpaid for a significant period of time.

·         Ensure you have received written confirmation (i.e. a purchase order) for every order, especially if a customer requires their own purchase order number to be displayed on your invoice. This can reduce the risk of a customer delaying payment because of their own internal authorisation issues.

·         Develop a strong working relationship with your customers and encourage them to contact you if they need extra time to pay before the due date. This is just good business sense and ensures you aren’t just an anonymous creditor.

·         Ensure you have a complete and concise accounts receivable invoicing and tracking system in place and review your aged debtors regularly. If you can’t track when an invoice was issued and how long it is overdue, how can you expect to identify those invoices that need chasing up

·         Consider the use of debtor factoring or debtor finance. In come instances, the use of debtor finance can free up much needed working capital to allow your business to operate and grow, however the downside with any finance is that it comes at a cost.

Collection Measures:-

·         Follow up initial overdue payments promptly. As soon as an account is overdue, follow it up with either an email or phone call reminding your customer that they have exceeding their payment terms.

·         Continue with regular follow ups for longer overdue accounts. For longer overdue accounts, keep up the pressure with regular phone calls as well as emailing monthly or fortnightly statements

·         Make the customer commit to a payment date. Whenever direct contact is made with the customer, get them to commit to a payment date rather than a ‘sorry, cheque is in the mail’ response.

·         Offer repayment schedules. When you know that a customer is having trading difficulties, offer to assist them by agreeing to a repayment plan to clear the debt. Whether you charge interest on the overdue amount is at your discretion and may be dependent on your initial agreement.

·         Document all attempts to recover the debt. For legal reasons, make sure all the details of attempts to chase long overdue accounts are recorded as you may need these if the matter proceeds to mediation or court.

·         Use the services of a debt collection agency. If the customer is no longer going to be using your business and they refuse to pay your invoice consider passing on the debt to a reputable debt collection service.

·         Use the services of a solicitor. Much like a debt collection agency, the use of a solicitor is a last resort and should be used for larger debts owed by customers. The main reason for this is due to the costs involved in going down this path.

In summary when it comes to managing your customers and their payment of your invoices, prevention is always better than cure. So, the key is to do as much as you can initially to avoid having to waste time and money on chasing up bad debts.

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SMEs need planning for post GFC Recovery

"As featured in the July Edition of the Western Sydney Business Access magazine (WSBA)"

ALMOST two years have passed since the ‘official’ end of the Global Financial Crisis (the GFC) however for many small and medium sized businesses (the SMEs) the effects of this downturn in the economy are only just starting to subside.

Big businesses, having the luxury of greater access to resources across the board have been able to move beyond this downturn and are operating back at relatively normal levels again; but what about the SMEs?

The drastic and often cut throat measures taken by many SME owners to survive the GFC, coupled with the banks reigning in business credit in its aftermath and the high level of economic instability has left many businesses seeing the opportunities starting to present themselves in this new period of economic growth but unable to seize them due to their lack of resources.

SMEs were forced to cut back staff numbers and review their operating expenditure to find areas where spending could be reduced. At the same time plans for capital outlays were quashed as existing assets were kept rather than being upgraded and now many of these assets are well past their use by dates.

But these measures to help ease cash flow constraints were somewhat undermined as many of the SMEs customers started stretching out their payment terms. In addition not only were customers taking longer to pay, some were not paying at all! And to further compound the lack of cash inflows the drop in consumer spending meant that sales figures were simply just down overall.

Cash flow constraints during a general economic downturn are a struggle for any business, but during a downturn of the magnitude of the GFC any business that had not planned properly in the good times for the bad were in for a real struggle.

For many years Australia experienced strong economic growth and it was easy for almost anyone to register an ABN and a business name and make a buck or two. But it was the smart SME owners that reinvested some of these profits into getting advice on how to plan for the future.

And that is the key to moving ahead in this post GFC business environment. Businesses need to plan for the future.

The businesses that diverted resources pre GFC to defining and implementing a strategic business plan and continued to allocate resources (even if on a reduced scale) to the planning and review process during the GFC to carefully monitor their position and make decisions as they were needed, are the SMEs well positioned to take advantage of the post GFC recovery opportunities.

However, for those businesses that either never allocated resources to planning pre GFC or cut out expenditure on this important process when the GFC hit, are the SMEs that face a tough future.

These are the businesses that would have also cut back on valuable resources or asset upgrades because they didn’t have the plan in place to help them ride out the storm and their decisions would have all been reactive in nature. They now find themselves facing a slow and hard recovery.

But fortunately it is never too late to start planning for the future and below is how we have been helping our business clients to grow both pre and post GFC. This centres around four major steps.

The first step is to conduct a business health check. You need to take stock of exactly what position your business is in at this point in time. Without knowing where you are now, you can not effectively plan for where you want to go.

The next step is to plan for the future. You need to either develop your business plan (if you don’t already have one) or revisit and redefine your existing business plan to set your current goals and objectives.

The third step is to assess what gaps exist in the business in terms of the resources required to help you achieve the goals as defined in your current business plan. And then start looking at how to fill these gaps.

From this point forward SME owners will be equipped with a “Business Game Plan” which at the very minimum sets out the steps needed to achieve their desired goals. But the process doesn’t stop here.

Business plans then have to be implemented and monitored to ensure that the business remains on track to achieving its goals. This is the most challenging step as owners have to often follow through on tough decisions to make it happen.

Whilst the fourth step of implementation is the most challenging the most important steps are the second and third steps. The planning steps are where all the assessments are made of where the business is going and determining how it is going to get there.

This planning phase has to cover the following areas, linking what the desired outcome is with the inputs and resources required.

•• Business strategy; have you got clear sales, marketing and growth objectives to take advantage of the opportunities that will arise as consumer confidence increases?

•• Your service mix; do you have the right service mix in place to meet consumer demand or effectively challenge your competitors?

•• Resources and reserves; do you have in place the right people and financial capabilities to implement a growth strategy?

•• Business information systems; are your business systems in place to record, report and effectively use business and market intelligence?

SME owners will be more responsive and efficient when they have information at their fingertips and by feeding that information back into the business it will ensure that they make smarter decisions which are proactive rather than reactive and that is what helps SMEs to grow.

To summarise, it is all about being focused on sales and marketing strategies to lead the charge, but having a clear understanding of how the business is positioned to handle new business, implementing good measurement tools to provide visibility to management and ensuring that the strategy is appropriate for the business’s capabilities.

SME owners are passionate about what they do but the key to succeeding in this post GFC business environment is for them to be objective when making decisions about their plans for the future.

Once the plans are made, then it is time for the passion to takeover and help seize the opportunities as they present themselves.

What exactly is financial planning......

"As featured in the June Edition of the Western Sydney Business Access magazine (WSBA)"

Prior to the Global Financial Crisis (or the GFC as it is affectionately now known), the financial planning industry held a somewhat precarious place in the financial services world. It was often on the receiving end of unfavourable media attention thanks to a small number of unscrupulous and often unregulated advisers who had the sole intention of preying on and ripping off unwitting people of their life savings .

With many Australians not really understanding what a financial planner did or what the financial planning process involved, people steered clear of those offering these much needed advice services, and opted for the typical aussie DIY approach to manage their financial affairs. In many cases, it was (and still remains) a “she’ll be right” attitude. However, does this approach provide someone with ‘peace of mind’?

Post GFC, during the aftermath of its destruction the financial planning industry was dragged into the spotlight as fingers were pointed. But in many cases the blame being laid at the feet of financial planners was misplaced. This was generally as a direct result of the lack of knowledge of what a good financial planner does and what impact financial planners actually had on the losses incurred by so many Australians as well as other investors around the world.

As is often the case in life, the fear of the unknown is what stops people from moving out of their comfort zone and this analogy can be applied to the financial planning process. Sitting down to identify your financial and lifestyle goals, then having a plan prepared which shows you how you can achieve these goals and then challenging yourself to trust this advice and make the changes identified are all factors which can take someone out of their comfort zone. With any ‘plan’, financial or non financial, the outcomes are never guaranteed and for many this fact leads them away from getting the advice they need.

The GFC however, has highlighted the need to obtain financial advice from professionals to reduce the risk of making the wrong choices when it comes to one's financial affairs and since the GFC there have been a wave of reforms to make the financial planning industry more regulated and more transparent so as to give people both financial and legal protection as well as to build faith in the profession.

The Financial Planning Association of Australia (or FPA), the peak body governing and representing financial planners and the financial planning industry within Australia lists the definition of financial planning as; “Financial Planning is the process of developing strategies to help you manage your financial situation so that you can protect and build wealth, enjoy life and achieve financial security” . The FPA website also contains information as to what the financial planning process is as well as when you may need advice along with other invaluable information concerning the industry.

But what really is financial planning? Who are financial planners? And what is a financial plan? Quite simply, financial planning is about identifying what your financial and non financial goals are (B), taking stock of where you are now (A) and working out how you can go from A to B in a comfortable and secure way. Financial planners are the professionals who help you do this and a financial plan is the roadmap you get that outlines how all of this is going to happen. In essence, the financial planning process is all about ‘adding’ value to your financial situation that you otherwise could not have achieved without having received the advice.

That all seems very simple and straightforward, so why are many Australians still scared of the process? For most, it is a question of trust. Who do you trust to give you advice that in most cases is life changing? It’s a tough decision for an individual to make and they would sincerely hope that the person that they put this trust into takes this responsibility seriously and acts in their best interest at all times.

So how do you choose a financial planner? At a minimum, you should always choose a financial planner who is a member of the FPA and if possible is also a CFP. CFP stands for Certified Financial Planner and is a designation which indicates that this planner has undergone extensive formal training and maintains this level of expertise through regular ongoing training. It also means that this person is bound by the FPA’s Code of Conduct which covers many ethical, legal and professional requirements.

From this it is all about building a relationship with the financial planner. Without this relationship there can be no trust and a good financial planner will take the time to get to know you and your entire personal situation. Without doing this, it is virtually impossible for a financial planner to provide advice that is adequately tailored to your personal needs.

Hence why in many cases financial planners who are either your accountant or work within the accounting firm you use are well placed to provide the advice as they have this relationship with you already. But that is not to say that financial planners working on their own or within a financial planning firm are any less competent and it does really come down to the relationship and the level of trust an individual has with their financial planner of choice.

And what about the actual financial plan? What does it actually cover? In reality it covers a whole host of things. A good financial plan takes into account your entire financial and personal situation. It can cover retirement strategies, investment strategies, superannuation strategies, savings plans, budgeting and lending strategies just to name a few areas. It can be for you as an individual or it can be for your business.

And if you have a good financial planner, it will provide advice on the best personal insurance options available to you including income protection insurance, life and disablement insurance and trauma insurance. Because with any plan you have to protect against the unforseen and so insuring the sources of income that will provide the opportunity to achieve these financial and lifestyle goals is a must.

Finally, good financial planners see this financial plan as a ‘work in progress’. A set and forget approach to financial planning doesn’t work and once the process has started and the seeds have been planted it is a life long commitment from both sides. (Hence why the relationship between planner and client is vital to the success of the financial plan).

At a minimum your financial plan should be reviewed on a yearly basis to ensure it remains on track to achieving your goals. Things change and a good financial plan has the ability to be flexible to absorb those changes and allows your financial planner to make adjustments where needed to ensure your short and long terms goals are still achieved.

There are many examples out there of the benefits of engaging the services of a financial planner and going through the financial planning process. The FPA website has published a booklet with easy to read real life case studies which not only highlight the benefits of getting proper financial advice but also to help show the value that a good financial planner can provide to you.