From Survival to Resilience: Shifting the Focus

Business survival has been a popular topic in recent weeks but businesses are shifting their focus to resilience. What does it take to build businesses that can survive AND thrive in the longer term… while insulating them from a recurrence of recent events? It’s not about picking up where we left off because what worked in the past may not work in the future. Let’s take a look at the attributes of resilient (or sustainable) businesses.

Assessment of the Situation

A professional athlete who has just suffered a humiliating loss will quickly take stock of the situation. What went wrong? Why? What can be improved? Most importantly, where to focus next? A resilient business will also quickly analyse their situation. What’s the damage? What has changed and for how long? What hasn’t changed? How do these changes impact the short and medium-term? The reality may not be apparent at first and it may change over time. Resilient businesses get crystal clear on the damage (and opportunities) arising from changed conditions. 

Prioritisation

Resilient businesses don’t try to optimise all aspects of the business. They focus only on a few ‘key drivers’ which make a real difference. For some, that might mean customer retention or average revenue per customer. For others, it might mean lead generation, sales conversion, or pricing. And certain businesses may need to reduce Expenses or Costs of Goods Sold. Reporting should not be complicated and the entire organisation should be mobilised to focus on what really matters in the business.

Focus on the Customer 

Businesses exist to offer value to customers and get rewarded for that value. A crisis forces a reevaluation of this dynamic… but resilient businesses are always challenging their assumptions on what the customer wants and whether their products are satisfying a need. Then they quickly improve.

Focus on Cash

Businesses are fuelled by cash but the rules of cash flow can change. Reduced sales, changed payment terms, lost customers, modified pricing, reduced access to debt, unexpected expenses or a combination of these will materially impact cash flow. Resilient businesses will:

• Re-calibrate their understanding of ‘cash burn rates’ and get very precise on cash forecasts  

• Distinguish between ‘cost-cutting’ and ‘preserving cash flow’. A saving realised 6 months from now will have little impact on a business which needs cash quickly

• Engage their team to recommend intelligent cost-cutting ideas (while also getting people invested in cost-cutting decisions)

• Take all opportunities to ‘trim the fat’. Rent, overheads and Costs of Goods Sold should be scrutinised. So should salaries and wages which may result in job cuts, pay cuts, leave without pay and reduced hours

• Recognise that deferring costs may lead to tough (or insurmountable) future payment obligations. Taking on debt (including accessing certain government stimulus programs) may solve a short-term problem while creating a longer-term issue.

Focus on Activities they can Control

Resilient organisations are not swayed by the abundant information (and misinformation) available. They are not easily distracted or think the next email or webinar contains the solution to all problems. The fact is that there are relatively few things we can control so we should take action where we can make a difference. Deliberating on political, regulatory, economic, competitive and industry forces can consume our time… without adding much value.

Triggers

Not everything will go to plan, even for resilient organisations. Forecasts should reflect the best, worst and expected cases and when certain thresholds, or triggers, are reached, they know how to respond. A simple example, “if revenues in September are less than $100,000, we will reduce marketing costs by 10%”. This brings clarity and focus.

Opportunity Evaluation

Some of the greatest opportunities arise out of adversity. But taking these opportunities can involve a reinvention of the business. Some examples:

• Offer your customers an entirely new set of products

• Target a different set of customers (with existing or new products)

• Take advantage of changes in the competitive landscape. Can you take a competitor’s customers? Can you acquire a competitor?

• Target the same customers with the same products but a new business model, e.g. different pricing or payment options, increased or decreased servicing, etc.

Part of the DNA of resilient organisations is to accept the business will look fundamentally different in the future. It must evolve. Quickly acting on these opportunities is part of the journey and sets up the next phase of change.

Teamwork 

Resilient businesses are built on teamwork. A crisis presents an opportunity to constitute teams to tackle the challenges at hand. This is good for the organisation and for employees, who see opportunities to advance their careers. Teams need to set and implement plans. Decisive action should be rewarded – this is not ‘business as usual’. Small wins should be celebrated and the plan should be reworked as necessary.

Personal resilience

Resilient organisations comprise resilient individuals. And resilience is not some magical trait conferred upon a chosen few. It can be taught. It requires practice and training. And desire.

Get advice 

Resilient organisations take responsibility for their own success but also surround themselves with talented advisors who have complementary skills-sets, whether strategic or tactical.

Keep things in perspective 

However bad things seem, they could be a lot worse. Crises, recessions, and natural disasters occur periodically with devastating consequences. But many businesses fail even in ‘normal’ times. Individuals deal with challenges much tougher than a business crisis. What’s the worst that can happen? Resilient organisations keep things in perspective because it leads to good decision-making.

We’re working with many clients navigating business uncertainty and planning their futures.

Please get in touch so we can support you through your evolution to resilience!

2020 Tax Checklists

It's that time of year, and tax time is upon us. We are looking forward to seeing you all again.

We have included our tax time checklists to help you get your information together.

If you would like to book an appointment or have any questions, do not hesitate to contact us today.

Adviser fees – What are you actually getting?

As accountants a question we often get asked is “Is this a good investment” or “What do you think of this investment idea”? As an accountant who is also very interested in all aspects of finance, investing and ASX shares more specifically, I don’t mind having a look at people’s portfolios. In fact, in order to complete a tax return, it is often an essential part of my job, and one I happen to really enjoy. Unfortunately for me (and countless more of my accounting brethren) accountants are not allowed to offer any kind of recommendation or financial advice. Regulations, as they currently stand, prohibit accountants from offering specific buy or sell recommendations. Anything beyond a simple “it looks good” can be considered too specific and construed as stepping on the toes of planners/advisers.              

Generally, though the first thing I tend to notice when looking at full year portfolio reports from prestigious brokerage and financial advice firms, are the exorbitant annual “retainer fees” or “ongoing advice fees”. These fees are sometimes in the thousands of dollars and I can’t help but ask myself “what on earth are people getting for all of these fees”? Sure, the reports are nice and detailed, and the offices are probably very well equipped, no doubt inner city or CBD located, and they probably validate your parking when you go in for a meeting. However, none of that adds up to $5,000+ in annual fees. For that I personally would expect market beating performance, and insight leading to investment returns that make that $5,000 look like money well spent.

Don’t get me wrong I am not suggesting this advice be free, far from it. Initial portfolio construction, if correctly tailored to a client’s risk tolerance and expected investment returns, takes time and effort and you should have to pay for it. What I am talking about is charging people thousands of dollars to “manage” a portfolio consisting of one or more big bank shares, a Rio Tinto or BHP, and a Telstra thrown in for a bit of diversification. Not only is there not much in the way of “ongoing” advice, the portfolio I just described did not require any real insight or thought on behalf of the broker/adviser, you should not have to pay large sums of money for an adviser to collect dividends and interest on your behalf or sell shares at a loss at the slightest hint of market volatility. Too often the portfolios that I see are constructed of a few blue-chip shares, an Exchange Traded Fund (ETF – basically a managed parcel of shares that tracks an index) and cash, not much in the way of groundbreaking, market beating insight!

Another point to note is that, in the current ultra-low interest rate environment be wary of any adviser recommending a large percentage of your portfolio be held in cash. Whilst some cash kept in reserve is always good so that you can capitalise on opportunities (the current corona virus induced market selloff being a prime example of this) that arise in the market, at the moment even the best term deposit will only earn you 1.5% and the latest figures on inflation indicate that the rate of CPI (Consumer Price Index) is 1.8%. In simple terms this means that each dollar earnt is actually worth less in real purchasing power (1.5% < 1.8%) this is before tax as well! So be especially aware of advisers promoting a very high cash position and charging you handsomely in the process.      

The reasons we here at Leddy’s & Associates feel so strongly about this are two-fold

• The best portfolios in terms investment returns the we deal with here are from people who manage their own portfolio. I will grant you this takes discipline and time and isn’t for everyone. You need to research stocks and analyse reports, however there are various subscription services e.g.: Barefoot investor, Motley Fool Share advisor that you can avail yourself of for a small fraction of the cost to do this for you.

• The long-term wealth destruction, on a compounding basis, of enormous fees is definitely worth considering. Did you know that $4,000 reinvested every year as opposed to paid in fees, at a rate of return of 5% (The ASX 200 index returns, on average, 10% over the last decade) will eventually become $56,000? Compounding is indeed a powerful tool.

In summary, the point of this article is not to tell you to leave your adviser rather it is to get you thinking about how much you may pay brokers/advisers and ask yourself this important question “can I get the same result for a fraction of the cost? It is important to note that not all advisers charge these crazy amounts of money and the vast majority of them earn their fees. After reading this article ask yourself if you are getting value for money on your “investment”.

Written by Glenn Barea

Sources https://moneysmart.gov.au/budgeting/compound-interest-calculator & https://www.rba.gov.au/inflation/measures-cpi.html     

Your job description as Director

Most business owners know that every member of their team needs a job description, which should include:

• Clearly outlined responsibilities and tasks

• Some specific and measurable KPIs (Key Performance Indicators)

• A set of clear expectations around core competencies and behaviour

When a job description is clearly documented, it’s much easier to monitor and measure performance. However, as logical as this seems, many business owners fail to do this for their own role as Director of the business.

So, as Director, what should be in your job description?

The most important function of a Director is to maximise shareholder value. This means carrying out activities that drive up returns and business value; by working smarter, not harder.

Your key responsibilities include setting the vision and strategy, managing and mitigating risks, growing the business, establishing the right business structure and holding the CEO (who may also be a Director) to account.

How much time are you dedicating to working ON your business?

To give a general indication… as Director, you should spend an hour or two every week working ON the business. In addition to that, every quarter you should dedicate half a day to ongoing strategy planning and take one to two days every year for an annual off-site planning session or retreat. This is to remove yourself from day to day distractions to do some serious ‘blue sky thinking’.

As Director, you still need accountability.

Appoint someone independent to ensure you adopt best practice as a Director. There are several ways to get accountability. You could establish a quarterly advisory board (with an independent chairperson). Or, you could engage an experienced facilitator to coach you regularly to ensure you’re meeting your objectives. Having an independent accountability process in place will ensure better planning, better decision making and faster progress.

Remember, you’re not exempt from meeting the requirements of your Director role. Like every other role in your business, you need a job description for your role as Director, and it should have clear responsibilities and tasks with KPIs so that you can monitor and improve performance.

So, if you don’t already have a job description, set that as an important task, with a due date, and start thinking about who will hold you accountable.

Get in touch for information about our Quarterly Coaching service.

Employee engagement is key to business success

Companies with engaged employees are 21% more profitable, according to research by Gallup.

Managing your employees’ performance, and keeping them engaged with your business vision, is key to the present and future success of your business. Your people are one of the most important assets in the business, and you need them to be motivated, productive and hitting their targets.

But how do you manage employee performance in a way that promotes this kind of productive engagement, while delivering the value you need in the business?

Driving true employee engagement

People are diverse and complex. We don’t all react in the same way to being managed in our work, so there’s no ‘one size fits all’ approach to employee performance.

The key is to get to know and understand your team, so you have a better feel for what motivates them, how they like to be rewarded and their own personal goals.

To improve your employee performance and engagement:

• Hire the right people – this may sound obvious, but good performance starts with having the best people for the job in the team. Make sure any new hires understand your vision and share your core values. If employees already fit your ideal personal profile, there’s less work to do when aiming to manage their performance.

• Set clear expectations and targets – if you set defined targets for employees, there’s a clearer performance framework for them (and you) to work within. Setting targets and goals gives impetus to their work and allows you to put a timeframe around when, and how, these goals will be achieved.

• Carry out performance reviews – formalised performance review meetings can be a good way to track performance and have meaningful conversations with employees. But, be aware that some people can resent these formal reviews and will view them as being ‘put on the spot’. The key is to know what works for your people. Tip: Make it a two way conversation with opportunity for your employee to provide feedback on areas in the business that could be improved or ideas they have. Your staff will feel listened to and valued and you’ll gain valuable insight.

• Give on-the-spot praise - many millennial and younger Gen Z employees prefer on-the-spot praise and feedback to a formal review process. And this approach can work well. If a team member does a great job, tell them and be transparent around your praise. And offer rewards that actually resonate with what employees want.

• Provide opportunities to develop – career development is something people increasingly expect from their employer. Providing the support, education and guidance needed to excel will benefit both parties; your employee gets to develop their career, and your business gets the benefit of their additional talents.

If you want to kickstart your employee performance, start by creating a culture of engagement. Nurture, measure and reward good performance, so your team are aligned with your business vision. Contact us today!

Strong staff engagement results in strong business performance.