IS YOUR BUSINESS GETTING THE RETURNS IT SHOULD?

James Law’s - Etesian Group

You can find the Etesian Group at www.etesiangroup.com.au

Contact James Law on 0409 199 547

I can also be found on Twitter and Linkedin

Location – Perth Western Australia

Client base includes Western Australia, South Australia and Northern Territory.

IS THIS YOUR STORY?

I have been going to the same doctor for many years so he is familiar with my financial and consulting background. My doctor asked if I would meet with a friend of his who was experiencing financial difficulties. Naturally I agreed.

The friend’s business had been going for nearly 60 years, and had been owned and operated by his friend for some 25 years. The business has a turnover of about $20 million. There were 3 partners in the business. One of the partners had defrauded the business of about $800,000 and had been removed from the business.

I cannot identify client businesses, but this was a manufacturing business. Like many it was suffering from the economic downturn that affects many non-mining businesses. During examination the following became apparent:

·  They are very good at what they do and know their industry extremely well.

·  They had been successful over an extended period.

·  Business is tight.

·  They had considerable assets, but also had a lot of debt on property

·  Due to the fraud they were unsure whether they solvent or not

·  Due to the fraud they could not rely on their accounts.

We cleaned up the financial records and established a meaningful reporting system. We discovered they were genuinely (excluding the fraud) losing about $800,000 per annum.

I asked the owners to tell me what their latest month’s figures told them. They couldn’t. I asked them what percentage return they expected on turnover. Again they couldn’t tell me. Their actual performance was meaningless to them! They understood their industry and market. They are very good at producing and selling their products. They are honest and extremely nice guys. But they were also accidental managers! Profits happened by accident!

Let me tell you……..this is the norm! Most business people are accidental managers. We worked through the issues facing this business and by the time we left 9 months later it was making $1,200,000 per annum. A $2,000,000 turnaround! We had installed new procedures and reporting strategies. Most important of all the owners now understood their figures, and how to use them to their own benefit.

Most businesses, especially family businesses do not properly understand their results, are unable to analyse their performance, or proactively pursue improved future performance and strategies.

A company’s reports are not just for the tax office or the bank. They are the manager’s greatest tool. Too many managers undervalue and underutilize them at their own peril.

Saul Eslake, a leading Australian Economist recently stated that the next government would have to be very proactive to avoid a recession. The same must be said for business.

Remember, only the most professional businesses survive in the long run!

Business turnarounds and performance optimisation are key specialties at the Etesian Group. Transform your business today using an outsourced or interim CFO from the Etesian Group.

Contact James Law on 0409 199 547 or at james.law@etesiangroup.com.au today to discuss how best a review might be implemented within your business.

Cheers

James Law

0409 199 547

GOD HELPS THOSE WHO HELP THEMSELVES

James Law’s - Etesian Group

You can find the Etesian Group at www.etesiangroup.com.au

Contact James Law on 0409 199 547

I can also be found on Twitter and Linkedin

Location – Perth Western Australia

Client base includes Western Australia, South Australia and Northern Territory.

CORPORATE INSOLVENCIES HIT RECORD HIGH!!!

(Michael Janda - ABC News (www.abc.net.au) Wednesday 20/02/2013)

An analysis of ASIC figures by insolvency firm Taylor Woodings show insolvencies hit a record high last year. In December alone 730 businesses appointed (or were forced to appoint) external administrators.

The total number of insolvencies for 2012 was 10,632, up 1.4% on 2011 and 12.7% higher than the GFC in 2009.

In spite of this many businesses (regardless of size) continue to imitate ostrich’s by burying their heads in the sand in the erroneous belief the problem will be gone when they look up again. It won’t be! As with all things in life problems must be confronted, not ignored.

Are you struggling with cash flow issues? Are you disappointed in your profitability? What are your management accounts telling you? Do you know? Have you expanded too quickly and now the alarm bells are ringing? What has become of your business strategy and budgets? Are you concerned but can’t put your finger on the reason why? Do you know what you should be making at current turnover levels? Is the advice you’re getting long on adjectives and short on technical advice?

NO amount of business coaching can overcome fundamental business issues and weaknesses. If you are losing money (or not making money) at current levels, increasing turnover will only exacerbate the problem. Traditional accountants only ensure historical compliance, they rarely assist businesses look forward helping them achieve future profits.

An ancient Greek phrase more commonly attributed to Benjamin Franklin says it all……”God helps those who help themselves”. If you don’t know, get someone who does. Do it now! Tomorrow may be too late!

Business turnarounds and performance optimisation are key specialties at the Etesian Group. Transform your business today using an outsourced or interim CFO from the Etesian Group.

Contact James Law on 0409 199 547 or at james.law@etesiangroup.com.au today to discuss how best a review might be implemented within your business.

Cheers

James Law

0409 199 547

INVESTMENT PSYCHOLOGY

James Law’s - Etesian Group

You can find the Etesian Group at www.etesiangroup.com.au

Contact James Law on 0409 199 547

I can also be found on Twitter and Linkedin

Location – Perth Western Australia

Client base includes Western Australia, South Australia and Northern Territory.

Why? not… Why not?

Four simple words with such complex depth of meaning and numerous permutations.

For the purposes of this discussion I wish to concentrate on negativity bias which is a natural psychological trait whereby people tend to place more weight on negative thoughts and emotions, rather than positive ones. There is strong neurological evidence favoring negativity bias. In the brain there are two different systems for negative and positive stimuli. But is it any more than a safety valve whereby emotion rules over logic? I think not. Is it really safer to eliminate all perceived risk, and if we do, what can we possibly achieve?

I have often observed that some of the balmiest schemes obtain funding whilst conversely some very sound endeavours get left on the shelf. Why?

I recently made a presentation to a broker. The product which was the subject of that presentation is very strong and has considerable merit. It has the potential to be a game changer in its sphere of influence. In spite of this the brokers reaction was that in the current business climate investors (and their brokers) would be more inclined to find reasons not to do something than they would be to proceed. At the time of writing I believe this product will proceed and be on the market before the end of 2013. What happened here?

I am associated with a property venture which has extremely strong financial fundamentals and produces excellent returns. There are not many opportunities for (passive) investors to earn an IRR in excess of 19% (p.a.), property backed with a 30 month exit strategy. Why then in a market like this is it so hard to obtain investment capital? Especially when Perth has an extreme shortage of residential property for sale and rent.

Why do investors act like lemmings? When the market is overheating people keep investing until inevitably they get burned, however when the market is down people sit on their money and won’t invest. What happened to counter cyclical investment?

One of the richest people I have met epitomizes the concept of counter cyclical investment. After cyclone Tracy (Christmas 1974) destroyed Darwin many people sold out and / or never returned to Darwin. Instead of being negative and joining the vast throng that abandoned Darwin this person borrowed every cent he could and bought property. He kept on borrowing and buying. As Darwin recovered he became one of Australia’s richest men. There was no trick to it. Logically it was inevitable Darwin would recover. Indeed viewed in perspective his business risk was quite low. Servicing the loans was his primary risk.

So what are we really dealing with? Logic versus emotion, pursuit of excessive safety, or some form of ingrained psychological mechanism? You decide! Where do you sit in this spectrum? Are you weighing your investments impartially and effectively? Are you missing real opportunities?

In my view impassionate logic and cold common sense should always prevail.  

Contact James Law on 0409 199 547 or at james.law@etesiangroup.com.au today to discuss how best a review might be implemented within your business.

Cheers

James Law

0409 199 547

Is your business under performing?

James Law’s - Etesian Group

You can find the Etesian Group at www.etesiangroup.com.au

Contact James Law on 0409 199 547

I can also be found on Twitter and Linkedin

Location – Perth Western Australia

Client base includes Western Australia, South Australia and Northern Territory.

Is your business underperforming?

Do you / have you had issues with key staff members?

Most under performing businesses have (at least) three things in common:

·        under performing staff

·        ineffective reporting

·        inadequate management oversight

The net effect can be catastrophic with fallout giving rise to:

·        diminished enterprise value

·        credit impacted

·        staff dissatisfaction

·        poor (or non existent) statutory compliance

·        adverse taxation implications.

Let’s be candid. There is no such thing as a perfectly run business! Without doubt every business could improve in some (various) ways. The distinction however is that many businesses seriously need to improve in a great many ways. This applies to businesses of all sizes and types. Particularly SME’s and middle market enterprises.

Most CEO’s and entrepreneurs rely in their internal advice to run the company. If that advice is lacking or asleep at the wheel, disasters can and do occur. The reality is that if the CEO is doing his job well, it is often hard for him to detect whether another key employee is not. He / she may simply be too busy. Additionally if that CEO has no technical background such as accounting or law, they will often not be aware of what they are missing simply because they do not have a background in those areas. It is also noteworthy that audits are not tailored to detect such things and may only pick up some shortcomings under certain circumstances.

What checks and balances exist within your business?

When was the last time you had a professional consultant perform an in depth review of your business?

Once upon a time auditors reviewed companies internal systems, (not merely IT systems) for weaknesses and shortcomings. These days this does not seem to happen. Management often does not know if it has compliance or tax issues. It is very easy for key people in SME’s to keep such things hidden. Furthermore such questions are often not asked at management or Board meetings. Why not? Most businesses lack the ability to prepare effective reports, let alone identify and report on essential KPI and compliance issues.

The issue becomes one of “Who is overseeing the key staff such as the accountant?”

Many businesses do not have regular reviews by outside consultants to ensure things are as they should be. Far too few employ experienced part time CFO’s to advise and provide oversight and strategic advice. Inevitably this is considered a waste of money, yet the same businesses employ business coaches and or spend large amounts of money on un-quantifiable promotions. Why?    

Most businesses measure growth in terms of sales growth. Unfortunately we often see businesses grow frenetically and go belly up because they were unprofitable. More often we see businesses grow, but profit grows at a much lower rate. This is often uneconomical and the money spent chasing sales has been wasted. If some of that money had been spent ensuring profit maximization and compliance the businesses owners would have been much better off.

The purpose of any business and its associated strategies is to increase shareholder value (equity)! In so doing profit and capital value / return are maximised. Enterprise value is maximised!

How is this achieved? By ensuring all the right checks and balances exist. By formalizing the business and having effective and timely reporting covering all relevant areas including performance, assets, KPI and compliance. Most of all this is achieved by having independent eyes review the business, its performance, processes and compliance thereby significantly increasing managements ability to ensure the business performs in all respects as it should. 

Remember, only the most professional businesses survive in the long run!

Contact James Law on 0409 199 547 or at james.law@etesiangroup.com.au today to discuss how best a review might be implemented within your business.

Cheers

James Law

0409 199 547